PETRA Diamonds will exit its investment in its Koffiefontein mine either through a trade sale or by exhausting the mine’s mineral resources which in Petra’s books is expected by 2025.
In the meantime, Petra will cut the mine’s employee numbers following a business re-engineering programme (BRE). A Section 189A process in terms of South Africa’s Labour Relations Act had been started, the UK-listed company said today.
This development is no great surprise as Koffiefontein – situated in South Africa’s Free State province – has long been lossmaking for Petra. Petra said at its interim results presentation it was weighing up its options regarding the mine.
“Petra is considering its options to ensure a responsible exit while continuing to implement the outcomes of the BRE project aiming to curtail the negative cash flow impact on the group,” it said in February.
Petra’s preference was to sell Koffiefontein given it had a gross resource base of 5.25 million carats as of June 30, 2021. These resources included 1.11 million carats in the indicated resource category accessible through underground mining. “It may be feasible for another owner to extend the mine’s life,” Petra said.
“The focus on this disposal process will be to identify a technically and financially suitable buyer that could potentially unlock further value from Koffiefontein,” Petra said today.
“In the event that a suitable buyer is not identified through this process, Petra remains committed to operate the mine responsibly in accordance with its current life of mine before proceeding with a decommissioning, rehabilitation and closure programme,” the company said.
A reduction in jobs in terms of the ‘right-sizing’ of Koffiefontein would proceed regardless of whether a trade sale was achieved or Petra decided to run down the mine to natural closure.
Petra’s decision over Koffiefontein comes despite a vast improvement in the diamond market following the lockdowns of 2020 and 2021 amid the Covid-19 pandemic.
Richard Duffy, CEO of Petra, said earlier this year the company had turned the corner following a revival in rough diamond prices, as well as self-help efforts aimed at reducing net debt. “With the strong recovery in the diamond market and the actions we have taken, Petra is now also well placed for the future,” he said.
Petra said 2022 production was on track to meet guidance of 3.3 million to 3.6 million carats and capital expenditure is expected to be at the lower end of the guidance of $78m to $92m.
Commenting on the diamond market, Duffy said there had been “a structural change – not a bubble or a blip – and it is supported by supply/demand fundamentals. This suggests we will have a robust and supportive market going forward”.