Acquires majority stake in Wi

RNS Number : 9951C

Petra Diamonds Ld

09 September 2008

 



9 September 2008

AIM: PDL

Petra Diamonds Limited

Petra acquires majority stake in Williamson Diamond Mine

Petra Diamonds Limited ('Petra' or 'the Company' or 'the Group'), the leading international diamond mining group, today announces that it has entered into an agreement to acquire a 75% interest in Tanzania's renowned Williamson diamond mine ('Williamson') for a cash consideration of US$10 million.

At 146 hectares, Williamson is the largest kimberlite pipe ever to be mined, having been operated continuously as an open pit mine for almost 70 years. During this time it has produced over 20 million carats, and there remains a substantial resource of some 40 million carats. The mine regularly produces large, high quality stones and is a source of rare and extremely valuable fancy pink diamonds. 

Highlights

• Petra will acquire the entire issued share capital of Willcroft Company Limited ('Willcroft') from Cheviot Holdings Limited ('Cheviot'), a wholly owned subsidiary of De Beers Société Anonyme ('De Beers'), for US$10 million

• Willcroft owns 75% of Williamson Diamonds Limited ('WDL'), the sole owner and operator of the Williamson mine, while the Government of the United Republic of Tanzania ('the Government of Tanzania') owns the remaining 25% 

• The total cash consideration of US$10 million will be funded entirely from Petra's internal cash resources. The acquisition is scheduled for completion in mid October 2008

• The acquisition marks Petra's entry into Tanzania, further diversifying the Group's geographical spread

• The acquisition is in line with the Group's aim of creating a diamond production portfolio of global significance, complemented by a substantial and valuable resource base

Johan Dippenaar, Petra's Chief Executive Officer, commented: 'Petra already owns three major diamond mines, Cullinan, Koffiefontein and on completion, Kimberley Underground. Williamson will add a further major mine to our portfolio, with the potential to deliver considerable value to our shareholders. 

'This acquisition also marks Petra's entry into Tanzania, further diversifying the Group's geographical spread across Africa. We thank the Government of the United Republic of Tanzania for their support in completing this transaction and we look forward to working with the Government as our partner in taking the mine forward.' 

Gareth Penny, Managing Director of the De Beers Group, explained: 'The sale of our shareholding in Williamson Diamonds is part of our ongoing drive to position De Beers for long term growth by reviewing our portfolio of mining assets and focusing on those with the best strategic fit. As we build the De Beers of the future we are also creating new opportunities for other players in an increasingly diversified and competitive global diamond industry.'

The Honourable Minister of Energy and Minerals, William Ngeleja, said: 'The Government of the United Republic of Tanzania is pleased to welcome Petra to Tanzania as its new partner in Williamson Diamonds Limited. This is an exciting opportunity to breathe new life into Williamson Mine and Tanzania's diamond mining sector.'

Conference Call

Petra Diamonds' management will be discussing today's announcement on a conference call at 10:00am (UK time) today. The numbers required to dial in are listed in the table below: 

LIVE CALL
UK & International	[phone]
South Africa	0800 9914 68

The conference call will be made available shortly afterwards on the Company's website: www.petradiamonds.com 

About Williamson

At 146 hectares, the Mwadui kimberlite pipe (located at Mwadui in the Shinyanga Region of northern Tanzania) on which the Williamson mine is established is the largest kimberlite ever to be economically mined.  The Williamson mine commenced operations in 1940 and has been mined continuously since then as an open pit operation, and has produced more than 20 million carats over that period. 

Williamson currently has a resource of some 40 million carats (995 million tonnes of kimberlite), further enhancing Petra's profile as one of the world's largest independent diamond groups on a gross resource basis.

Williamson is renowned for the production of large, high value diamonds, with special stones (classified as larger than 10.8 carats) produced on a regular basis. Records also show that gem-quality diamonds in excess of 200 carats have been recovered. Given the strong market for high end diamonds, with prices rising by up to 50% for top end goods in the last year alone, stones of such size and quality can be expected to achieve substantial sale values.  

Williamson is also renowned as a source of extremely rare, fancy pink diamonds.  The most famous example is the Williamson Pink, a 54.5 carat rough diamond which was recovered in 1947. It was polished to form a round 'brilliant' cut and was presented to the then Princess Elizabeth as the centre piece of a floral brooch for her forthcoming wedding to Prince Phillip. At 23.6 carats, it is one of the largest polished diamonds of this colour ever produced. The scarcity of pink diamonds makes them very exclusive and highly coveted in the jewellery market. 

  The mining operation

The Williamson mine is a large open-pit operation (maximum present mining depth of 90 metres) with a very low stripping ratio. The current operation comprises the open-pit mine feeding the main plant (3.7 million tonnes per annum capacity). There is also a dense media separation multi-purpose plant and a pan plant on site. A highly skilled and experienced core management team is in place at Williamson, which will be complemented by Petra personnel.

In 2007, the mine treated approximately 3.2 million tonnes ('Mt') of ore, recovering 220,000 carats at a grade of 6.9 carats per hundred tonnes ('cpht'). Total waste mined during 2007 was approximately 0.8 Mt, yielding a stripping ratio of approximately 0.24 tonnes of waste per tonne of ore.

It is Petra's strategy to initially maintain mining operations at the current volumes and during the first year of operation the Company will focus on establishing the new economics of the mine, including grade, value per carat, cost per tonne and overall production capacity of the infrastructure. Once these new operating parameters have been established, Petra will consider an appropriate expansion programme to capitalise on the economies of scale offered by the large size of the Mwadui deposit. Indications are that the introduction of new technology could increase throughput to around, or even above, 7.5 Mt per annum, reducing unit operating costs and resulting in an estimated annual production of some 500,000 carats and a mine life of around 20 years.  

Williamson is an example of a major diamond mine where operations are focused on the higher grade resedimented volcaniclastic kimberlite ('RVK') material along the rim of the kimberlite crater. Petra's exploration model at its Alto Cuilo and Luangue projects in Angola is similarly based upon delineating one or more RVK deposits of significant size.

Rationale for the acquisition

This transaction adds a further world class mine to Petra's portfolio. In the last two years, Petra has acquired the Cullinan and Koffiefontein mines from De Beers, and has also reached agreement to acquire the Kimberley Underground mines. Given that there are only approximately 30 major diamond mines in operation worldwide, Petra has achieved its aim of creating a production portfolio of global significance, in a market of ever shrinking supply set against rising demand.

Petra's rapidly rising production has been as a result of carefully identifying acquisitions that can be turned to account and deliver value to both shareholders and other stakeholders. 

Williamson is renowned as a source of large, 'exceptional' diamonds, and also as a source of highly sought after pinks. Such finds would further enhance the Company's production profile and could complement the potential recovery of blue diamonds at Petra's Cullinan mine and possible yellows from Kimberley Underground. 

With this transaction, Petra will enter the Tanzanian diamond industry, further diversifying the Group's geographical spread across Africa.  Tanzania is a stable political democracy and ranks highly in Africa in terms of its attractiveness for foreign investment. The acquisition offers Petra the opportunity to invest in the continued sustainable development of mining operations at the Williamson diamond mine and the communities the mine supports.  

Funding 

The total cash consideration of US$10 million is to be funded from Petra's internal cash resources. 

Terms of the Agreement

Key terms of the agreement are:

(i)    De Beers will sell its 75% indirect equity shareholding in WDL to Petra (and all of its indirect claims against WDL) through the sale by Cheviot of its entire equity shareholding in Willcroft and all of its claims against Willcroft;

(ii)    the consideration of US$10 million (the purchase price) is to be settled in cash and has been paid into escrow pending completion of the transaction;

(iii)    Petra will, through the acquisition of the shares in Willcroft, assume Willcroft's, Cheviot's and/or any other member of the De Beers Group's obligations regarding environmental, social and rehabilitation liabilities relating to WDL, including a life of mine closure cost which is estimated to be in the order of a total of US$19 million;

(iv)    all diamond sale arrangements between WDL and the Diamond Trading Company (or any other De Beers company) will be terminated with effect from the effective date of the Transaction; and

(v)  the transaction is expected to complete in mid October 2008. 

In addition to the main transaction agreements, De Beers and Petra have signed (a) a Memorandum of Understanding agreeing to discuss the development of the multi-stakeholder Mwadui Community Diamond Partnership and (b) an agreement in terms of which Petra agrees to assume De Beers' rights and obligations under a procurement contract for an autogenous mill - a long lead item ordered by De Beers required for the expansion of throughput at Williamson.

AIM Disclosures

Given the nature of the proposed transaction, the Company has provided such disclosure as is required in accordance with Schedule 4 of the AIM Rules as a Substantial Transaction and a resource statement is published below in accordance with the AIM Guidance for Mining Companies. Although Petra does not consider this disclosure to be a reasonable basis for results going forward, for the year to 31 December 2007, WDL's loss before tax was US$29.46 million and as at 31 December 2007 it had net assets (excluding the diamond resources set out below and intergroup balances) of US$8.14 million. 

SUMMARY OF RESOURCES BY STATUS ¹
Category		Gross (100%) ²			Net attributable (75%) ²			Operator ⁴
		Tonnes (millions)	Grade (cpht) ³	Contained Diamonds (millions)	Tonnes (millions)	Grade (cpht)	Contained Diamonds (millions)
Mineral resources per asset
Indicated		92.6	4.98	4.6	69.45	4.98	3.45	Petra
Inferred		902.4	3.94	35.5	676.8	3.94	26.6	Petra
Total resources⁵		995.0	4.04	40.2	746.2	4.04	30.1	Petra
Source:	J M Davidson, regarded as a Qualified Person for the purposes of the AIM Guidance Note on Mining, Oil and Gas Companies
Notes:	¹ Williamson resources have been taken from the De Beers December 2007 internal scorecard classification. Resources have been classified in compliance with the SAMREC code ² 'Gross' are 100% of the reserves and/or resources attributable to the licence whilst 'Net attributable' are those attributable to the AIM company  ³ 'cpht' is carats per one hundred tonnes ⁴ 'Operator' is name of the company that operates the asset  ⁵ Reserves are included in the total resource disclosure given above

Notes

1. The information in this update that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Jim Davidson, Pr. Sci Nat (reg No 400031/06), who is a Member of the Geological Society of South Africa, a 'Recognised Overseas Professional Organisation' ('ROPO'). Jim Davidson is the Qualified Person for the purposes of the AIM Guidance Note on Mining, Oil and Gas Companies dated March 2006. Jim Davidson is a full-time employee of the Company and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify. Jim Davidson has given his written consent to the inclusion in this announcement of the matters based on his information in the form and context in which it appears. 

~ Ends ~

For further information, please contact:

Cathy Malins	Telephone: [phone]
Petra Diamonds, London	[e-mail]

Adrian Hadden	Telephone: [phone]
Collins Stewart, London	[e-mail]

Media relations:

Julian Walker / Sarah Richardson	Telephone: [phone]
Hogarth Partnership, London	[e-mail]
Charmane Russell	Telephone: [phone]
Russell and Associates, Johannesburg	[e-mail]

About Williamson

The Williamson mine is an open pit diamond mine at Mwadui in the Shinyanga Province of northern Tanzania. 

Dr John Williamson, a Canadian geologist, discovered the Mwadui kimberlite in 1940 and began mining activities soon after. On the death of Dr Williamson in 1958, De Beers purchased a 50% shareholding in Williamson and the then colonial Government of Tanganyika took the remaining 50% in lieu of death duties. De Beers managed the mine between 1958 and 1973 when the Government of Tanzania took over the day-to-day management of the mine. In 1994, De Beers was invited back to manage operations and following recapitalisation by De Beers the shareholding was adjusted to the ratio of 75% De Beers and 25% Government of Tanzania.

The geology of the Mwadui deposit consists of a shale basin, Turbidite (Bouma) facies, granite breccia, reworked volcanistic kimberlite deposits, and primary pyroclastic kimberlite (Stiefenhofer 2000). The country rock consists of granite and gneiss. The Mwadui Pipe was emplaced in Archaean granitic basement and meta-sediments. The meta-sediments include schists, phyllites, occasional quartzites and rare banded iron stones. Many of the kimberlite occurrences in and around Shinyanga are characterised by the presence of crater deposits, suggesting that minimal erosion has taken place in this region since the Tertiary period when the kimberlite were emplaced. The country rock geology in the immediate vicinity of the pipe is dominated by granites which can be divided into two distinct types; a younger porphyritic variety which intruded an older gneissic suite.  

WDL currently employs 800 people, with a further 400 employed by the company's mining and security contractors. Over 95% of employees are Tanzanian citizens. The mine is supported by excellent infrastructure, including a light duty airport 20km from the mine, heavy duty air access from Mwanza (140km from Mwadui), a tar road from Mwanza, and a rail network close by.

About Tanzania

The United Republic of Tanzania has a total land area of 947,300 square kilometres and a population of approximately 40 million people. The legislative capital is Dodoma with the largest city and commercial capital being Dar es Salaam. 

Tanzania's economy reflects its stable political situation. Annual growth rate between 2000 and 2006 averaged 5.8%, one of best performers in sub-Sahara Africa. In 2007 the country's GDP amounted to US$16.18 billion with a growth rate of 7.3%. In 2007 the GDP per capita amounted to US$1,300. 

According to the 2007/2008 Mineral Investment Attractiveness Survey conducted by the Fraser Institute, which measures a country's potential for future investment in mineral projects, Tanzania ranks higher than many African countries. In terms of Tanzania's ability to attract foreign capital, according to the World Bank, Tanzania ranked as the seventh most popular destination for foreign capital out the 47 Sub-Saharan African countries listed having attracted over US$2.8 billion of foreign direct investment between 2000 and 2006. 

Tanzania has been a major focus of Africa's gold exploration and development over the past five years. The 2005 CIA World Factbook states that up to 15% of Africa's exploration expenditure has been spent in Tanzania, which is thought to have Africa's largest gold reserves (after South Africa). Diamonds, gold, nickel and gemstones play key roles in Tanzania's growing minerals industry.

About Petra Diamonds

Petra Diamonds is an international diamond mining group with a balanced portfolio combining major producing mines, world class exploration assets and a cutting and polishing business.

With operations in South Africa, Angola, Botswana and Sierra Leone, Petra's objective is to continue to grow production, developing its stature as a leading diamond producer in all of the countries in which it operates. 

In South Africa, Petra has five producing mines - Cullinan, Koffiefontein, Helam, Sedibeng and Star - and recently reached agreement to acquire two further assets from De Beers - the Kimberley Underground mines, also in South Africa, and the Williamson mine in Tanzania.  The group is on track to increase its annual production from 180,000 carats in the year to June 2007 to over 1 million carats in the year to June 2009.

Complementing the Group's production is an exploration and development portfolio spread across some of the world's most prospective diamond fields. In Angola, Petra is developing the world class Alto Cuilo and neighbouring Luangue projects. In Botswana, Petra has established the largest diamond exploration landholding in the country, where it believes that modern exploration techniques will hold the key to the discovery of new, major kimberlites. In Sierra Leone, Petra is developing a fissure operation with its JV partner Stellar Diamonds and test work to date indicates the potential for economic operations.

The Petra group now employs some 4,000 people and over the last 10 years the Company has developed a range of social initiatives which continue to make a meaningful impact upon the lives of employees and surrounding communities.  Petra's focus remains upon sustainable development, via educational programmes and skills transfer, to ensure a broad based approach with a lasting legacy, and all operations are carried out with the highest regard for the environment according to best practice.

Petra will only commit to working in countries which are members of the Kimberley Process and shareholders can remain assured that Petra's diamonds will only ever be 100% conflict free.

For further information, please visit www.petradiamonds.com. 

About De Beers

De Beers, established in 1888, is the world's leading diamond company with unrivalled expertise in the exploration, mining and marketing of diamonds. De Beers, and its joint venture partners, operate in 25 countries across five continents employing around 20,000 people.  From its mining operations across Botswana, Namibia, South Africa, Tanzania and Canada, De Beers produces and markets approximately 40 percent of the world's supply of rough diamonds.  

As part of the company's operating philosophy, the people of De Beers are committed to Living up to Diamonds by making a lasting contribution to the communities in which they live and work. De Beers encourages sustainable working to ensure long-term positive development for Africa, and returns approximately US$4.7 billion to the continent every year.  

For further information about De Beers visit www.debeersgroup.com 

 

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