Petra Diamonds: Post Merger: What's Next?

Found this from latest Mineweb site which give a rather bullish article for PDl IMO.

LONDON (Mineweb.com) --Petra Diamonds, the company that is fast establishing itself as a mid-tier diamond producer, has announced that it has, via its wholly-owned subsidiary Blue Diamond Mines (Pty) Ltd. (BDM), agreed with De Beers to acquire the Koffiefontein mine. BDM has applied to the South African Department on Minerals and Energy for a mining right in respect of Koffiefontein.

De Beers had ceased mining at Koffiefontein at the end of 2005, when its old order mining right expired. BDM expects to commence production from the mine in early 2007, once all the necessary regulatory approvals have been met.

Petra Diamonds is listed on both AIM and the ASX (ticker symbol PDL, market capitalisation approximately £203 million or US$398 million) and the company’s diamond production in the fiscal year to end-June 2006 was 175,000 carats from three mines in South Africa (the Helam, the Hedibeng and the Star) to give a revenue of US$20.8 million (implying an average of US$119 per carat). Each of these three mines has a remaining life of over 15 years, off a resource, on a ten year view, of four million carats. Production from these three mines is expected to grow to 300,000 carats by 2010.

Koffiefontein was established in 1870. The mine exploitation method is both underground and open cast and production in 2005 was 123,505 carats recovered at a grade of 6.8 carats per hundred tonnes. If BDM can re-establish this at a similar level then clearly its South African production profile will be substantially enhanced. The acquisition, the consideration of which is R81.9 million (£5.98 million or US$11.7 million) as the company assumes the De Beers’ rehabilitation obligations at the mine, plus a cash payment to De Beers of R1.9 million (£138,700 or US$271,000) and will be met from Petra’s existing cash resources.

Meanwhile, as well as an active exploration programme, notably at Alto Cuilo in Angola, Petra is moving downstream. In late November 2006 the company announced the acquisition of 100% of the company Calibrated Diamonds, for an initial consideration of US$2.8 million in cash, with a deferred consideration payable dependent on production and results. Calibrated Diamonds is focused on cutting and polishing diamonds and this acquisition makes Petra the first fully-integrated mid-tier diamond mining group on AIM. Petra estimates that approximately 50% of added value is accrued by virtue of the polishing process; on the basis that fiscal 2006 revenue was US$20.8 million, the implication is clear.

Upstream, exploration continues at Alto Cuilo in joint venture with BHP Billiton. Under the programme, BHP Billiton can earn a 75% share of the joint venture via the expenditure of US$60 million and as of 30th September 2006 BHP Billiton had funded US$28.2 million. The budget to June 2007 is for a further US$20 million and Petra notes that this is one of the highest joint venture expenditure programmes in BHP Billiton’s portfolio. Some 70 targets have been drilled on with 62 kimberlites identified. The surface area thereof exceeds 1,400 hectares. This compares with Jwaneng in Botswana at 45.5 hectares and Orapa at 111 hectares.

The company reports that there is a highly encouraging mantle geotherm along with diamond indicator mineral chemistry. Bulk sampling has started and the first results are expected early in 2007. The average value from a 310 carat sample previously recovered was a healthy US$295/carat.

Meanwhile Petra is also in strategic cooperation with Xceldiam Ltd on Project Luangue (also in Angola) and Project Alto Cuilo. At Luangue, which the company believes may host kimberlite geology similar to that of Alto Cuilo (with which it is contiguous), over 70 kimberlitic anomalies have been identified and the first drill hole (in July 2006) intersected kimberlite. It is the area within 20 kilometres either side of the order between the two properties that is the focus of the alliance’s exploration activities. The two companies will share information and cooperate on technical, operational and other related matters, thus resulting in significant reduction in the necessary cost and time for the programme. As part of the agreement, Petra has been granted cooperation warrants to acquire up to 26% of Xceldiam’s wholly-owned subsidiary Frannor Investment and Finance Limited (which holds Xceldiam’s interest in Project Luangue) along with a right of first refusal to participate in any transaction concerning Xceldiam’s interest in Frannor.

In Botswana, which Petra describes as the world’s number one address for diamonds, the Kalahari Diamonds programme (also a joint venture with BHP Billiton) is undergoing a re-evaluation of accumulated geophysical data while in Sierra Leone both Petra and 49% joint venture partner Mano River have carried out sampling that indicates the potential for high grades. Diamond recovery commenced in June 2006 and by the end of November 224 diamonds at 23.91 carats had been recovered. Shaft sinking is underway with full-scale production scheduled for 2007 with a long term potential over 100,000 carats per annum.

If all of these projects come to fruition, therefore, it is conceivable that Petra could be producing over half a million carats per annum in 2010, along with a beneficiation programme that should further enhance earnings.