Petra finalises delayed Kimberley deal

[] — PETRA Diamonds has finally completed a deal to buy the Kimberley Underground mines from De Beers – a transaction which has taken nearly 30 months to complete.

The agreement was struck in September 2007 but, according to a Petra statement, “has taken longer than originally anticipated to complete due to complexities related to the new order mining right (NOMR) which have now been completely resolved’.

Petra CEO Johan Dippenaar told Miningmx the problem lay in the splitting of the old order mining right, which covered a much larger area than Petra required for the two shaft systems it will now operate.

“The legislation said the NOMR had to cover exactly the same area as the old order right, but we only needed a portion of the ground. The rest of it stays with De Beers,’ he said.

Petra paid R78,5m ($10.4m) for the mines. Of this, R15m was in cash and the balance was settled by taking on De Beers rehabilitation obligations regarding the Kimberley Underground mines.

Petra has run Kimberley Underground on a care and maintenance basis since September 2007. It has built up ore stockpiles of about 500,000 tonnes, containing an estimated 90,000 carats of diamonds.

During this period, Petra has ploughed R204.6m of its own funds in new infrastructure at the operation and capitalised this investment.

The capex included construction of a new diamond recovery plant at the Joint Shaft, which will treat production from the Bultfontein and Dutoitspan pipes.

A similar plant costing about R85m will now be built at the Wesselton Shaft and should be commissioned by June 2011.

It is planned to start treating the stockpiled ore immediately, and Dippenaar expected the operation to be cash positive and profitable from month one.

He pointed out that Kimberley Underground is known for high value, gem-quality production. In the past, the mine has produced large diamonds of up to several hundred carats in size as well as fancy yellow diamonds.

Kimberley Underground is expected to produce 100,000 carats in the financial year to June 2011, rising to 180,000 carats annually from financial 2012. The first diamonds will be sold on tender in July.

Kimberley Underground contains a gross resource of 6.9 million carats, but the current 12-year mine life has been based on just one million carats in probable reserves and 0.84 million carats in indicated resources.

Dippenaar said the initial mine life estimate excluded 5.1 million carats in inferred resources.

“Certain areas have been earmarked for re-sampling and possible inclusion in future mining plans, which can potentially extend the life of mine significantly. Petra expects that the mine life will therefore be revisited and revised upwards in due course,’ he said.

In addition to Kimberley Underground, Petra has bought a further three former De Beers mines: Koffiefontein, Cullinan and the Williamson mine in Tanzania.

So far, Petra’s efforts in turning around the Koffiefontein and Cullinan mines have been highly successful.

According to UK investment bank Fairfax, “this is a significant step forward. Kimberley should see significant margins and make a substantial contribution to the group.

“The long-term fundamentals of the diamond market also look good, with few new discoveries and no major finds in recent years against a background of declining assets and growing purchasing activity from developing economies such as China and India.

“We recommend Petra for investors seeking exposure to the diamond market through mid-tier producers.’