Completion of Finsch Diamond Mine Acquisition

RNS Number : 2239O

Petra Diamonds Ld

14 September 2011

 



14 September 2011

AIM: PDL

Petra Diamonds Limited

("Petra", the "Company" or the "Group")

Completion of Finsch Diamond Mine Acquisition

Petra Diamonds Limited announces the completion of the acquisition of the Finsch diamond mine ("Finsch") in South Africa from De Beers Consolidated Mines Limited ("De Beers"), initially announced on 21 January 2011.

Highlights:

·    Petra will assume management (including production, revenues and cashflow) at the mine with immediate effect.

·    Finsch is one of the world's major diamond mines and is expected to more than double Petra's annual production (steady state), contributing ca. 1.5 million carats per annum ("Mctpa") to Group production, rising to nearly 2 Mctpa by FY 2018. The addition of Finsch to Petra's portfolio accelerates the Group's exceptional growth profile - it is expected that Group production (including Finsch) will increase to ca. 4 Mctpa by the 2014 financial year ("FY") and to over 5 Mctpa by FY 2019.

·     The addition of Finsch's major reserves and resources base of 43.3 million carats ("Mcts"), including 25.8 Mcts in the reserve category, has increased the gross Group reserves and resources to over 300 Mcts, with a gross attributable in-situ value of ca. US$56 billion¹.

·     Petra has expanded its diamond marketing team to manage the increased carat production and tender activity - in FY 2012 Finsch is expected to add ca. 125,000 carats per month to Petra's output after an initial three month bedding down period, adding at least 1 Mcts for the financial year.

·     Finsch is expected to be immediately accretive to NAV and operating cashflow per share in FY 2012. Petra has a proven track record of extracting value from similar acquisitions, with a plan to mirror the successful strategy (including its block caving expertise) applied at Cullinan.

·     The purchase consideration of R1.425 billion has been funded from Petra's US$ treasury account following the successful equity placing in January 2011 which raised ca. US$325 million. As at 21 January 2011, when the transaction was announced, an exchange rate of R6.8:US$1 was applied. The final US$ acquisition consideration of US$192 million equates to an exchange rate of R7.4:US$1.

·     Finsch adds an eighth producing mine to the Group, consolidating Petra's position as London's largest quoted diamond mining group and providing a strong platform for the Company's proposed move to the Main Market of the London Stock Exchange.

Note:

¹ Internal estimate calculated by reference to the average tender prices achieved during the second half of the 2011 financial year and management's forecast per carat value for Finsch

Johan Dippenaar, CEO of Petra, commented:

"This acquisition is a further progression of our strategy to build one of the world's leading diamond mining groups. Finsch is an ideal addition to our portfolio, contributing a world-class mining operation with exceptional infrastructure, a major carat base and a sustainable, long-life outlook for the duration of our initial 18 year mine plan."

Media website

Photos of the Finsch Diamond mine can be viewed at the following dedicated media website: http://media.buchanan.uk.com/petra2.htm

Finsch Mine Plan

Petra's mine plan at Finsch remains as stated in the announcement of 21 January 2011.  

Underground block cave mining is currently taking place in Block 4 of the Finsch orebody at a depth of 630 metres. 

Petra will implement a development plan to lift production from 1.5 Mctpa to a steady state production of nearly 2 Mctpa by FY 2018, by gradually opening up Block 5 below the current Block 4 operations, supported by a surface tailings treatment programme. Production levels from underground will be maintained during the transition from the Block 4 block cave to the Block 5 block cave by developing smaller sub-level caves within the Precursor orebody (adjacent to the main orebody) at Block 4 level and within Block 5 itself. 

Petra foresees a long life for the operation and has a current mine plan of 18 years, though the orebody remains open-ended at depth.

For planning purposes, Petra had originally assumed an average of US$135 per carat for run-of-mine ("ROM") production and US$80 per carat for tailings.  Management has subsequently upgraded its price expectations to US$180 per carat for ROM and US$95 per carat for tailings.

Financing

The purchase consideration for Finsch of R1.425 billion (US$192 million) has been settled out of Petra's internal cash resources, further to the equity placing in January 2011 which raised £205 million (ca. US$325 million). 

The capital expenditure over the next six years for the underground and infrastructure development programme is estimated to be approximately US$330 million (in 2011 money terms, assuming a constant exchange rate of R7.0/US$) and is expected to be financed entirely from the Group's operational cashflows. 

Black Economic Empowerment ("BEE")

Petra holds a 74% interest in Finsch via its subsidiary Afropean Diamonds (Pty) Limited. Petra's BEE partners at Finsch hold a 26% interest through Lexshell 846 Investments (Pty) Limited (21% interest) and the Petra Diamonds Employee Share Trust (5% interest), a broad-based trust established for all Petra's South African employees, the majority of which are historically disadvantaged South Africans.

Petra has fully funded the BEE partners' 26% share of the acquisition consideration via loans, which will be repaid by the BEE partners from their share of future Finsch cashflows.

Summary of Finsch Reserves and Resources

Details of the Finsch acquisition required to be disclosed in accordance with Rule 12 of and Schedule 4 to the AIM Rules for Companies as a substantial transaction are set out in the Company's 21 January 2011 announcement.  In addition, a resource statement for Finsch, in compliance with the AIM Guidance for Mining companies, is shown below:

SUMMARY OF RESERVES AND RESOURCES BY STATUS¹
Minerals & Ore
Category		Gross²			Net attributable²
		Tonnes (millions)	Grade        (cpht)	Contained Diamonds (millions)	Tonnes (millions)	Grade        (cpht)	Contained Diamonds (Mcts)
Ore/Diamond reserves
Proven
Probable		58.598	43.99	25.779	43.362	43.99	19.076
Sub-total		58.598	43.99	25.779	43.362	43.99	19.076
Diamond resources
Measured
Indicated		0.000	0.00	0.000	0.000	0.00	0.000
Inferred		43.132	40.71	17.558	31.917	40.71	12.993
Sub-total		43.132	40.71	17.558	31.917	40.71	12.993
Total				43.337			32.069

Notes:

1.      Diamond Reserves and Resources are reported in compliance with the SAMREC Code and are stated as at 30 June 2011

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.      Reserve and Resource bottom cut-off: 1.47mm

4.      Resources are reported exclusive of reserves

5.      Reserve tonnages and grades are reported inclusive of external waste, mining and geological losses and plant modifying factors. Reserve carats will be less than resource carats on conversion

6.      Resource tonnages and grades are reported exclusive of external waste

7.      The information in this update that relates to Mineral Resources or Ore Reserves or other technical mining information is based on information compiled internally within the Group under the guidance and supervisionof 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. The summary or reserves and resources has been independently verified by Patrick Bartlett, Pr. Sci. Nat. (reg. No. 400060/87), a competent person with over 30 years' relevant experience in the diamond mining industry who was appointed as an independent consultant of the Company for this purpose.

For further information, please contact:

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

Buchanan (PR Adviser)	Telephone: [phone]
Bobby Morse James Strong	[e-mail] [e-mail]

Canaccord Genuity Limited (NOMAD and Joint Broker)	Telephone: [phone]
Robert Finlay	[e-mail]
Andrew Chubb	[e-mail]

RBC Capital Markets (Joint Broker)	Telephone: [phone]
Joshua Critchley	[e-mail]
Martin Eales	[e-mail]

~ Ends ~

About Petra Diamonds Limited

Petra Diamonds is a leading independent diamond mining group and an increasingly important supplier of rough diamonds to the international market. The Company has a well-diversified portfolio, with interests in eight producing mines: seven in South Africa (Finsch, Cullinan, Koffiefontein, Kimberley Underground, Helam, Sedibeng and Star) and one in Tanzania (Williamson).

Petra offers an exceptional growth profile, with a core objective to steadily increase annual production to around 4 million carats by FY 2014 and over 5 million carats by FY 2019. The Group has a major resource base in excess of 300 million carats, worth approximately US$56 billion (value based upon average tender prices achieved during the second half of FY 2011 and management's forecast per carat value for Finsch).

Petra conducts all its operations according to the highest ethical standards and will only operate in countries which are members of the Kimberley Process. The Company is quoted on the AIM market of the London Stock Exchange (AIM: PDL), and has announced its plans to step up to the Main Market.  For more information, visit www.petradiamonds.com.

About Finsch:

Finsch is a world-class underground block cave diamond mine with state-of-the-art mining infrastructure, including a modern processing plant which was recently upgraded at a total cost of ca. US$100 million. The mine has a shaft capacity of 4.6 Mtpa and the plant a capacity of 7.2 Mtpa.  Finsch produced an average of approximately 2 Mctpa over the five years to 2010, from a combination of underground mining and tailings retreatment and has produced 126 Mcts in its 40 plus year life to date. The mine has a new order mining right valid until 2038.

Finsch is acquired as a fully-staffed, going concern and the associated assets include over 800 housing units in a well-established town. The mine has a first-rate safety record and a well-managed environmental programme.

Finsch has produced a number of large, special diamonds in its history and mine records reflect the recovery of an average of 27 stones of more than 50 carats per annum over the last four years.  Recovery of such large, high-value stones can substantially increase the total value of production in any one year.  In addition, the mine has produced a range of coloureddiamonds, including pinks and yellows. The recovery of significant large or coloured, high-value stones would substantially increase the average value per carat of the mine in any given year and, in common with its other operations, this will be a focus for Petra management.

 

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