Crown Diamonds, Petra plan merger

Vancouver — A proposed marriage between Australian-listed Crown Diamonds and South African-based Petra Diamonds (PDL-L) would create a diversified producer and explorer of gemstones in Africa.

Under the agreement, Petra would be the surviving entity. One Petra share would be exchanged for every eight Crown shares, resulting in the issuance of 37.2 million new shares.

Crown is one of the larger non-African companies producing diamonds on the continent. An experienced underground miner, it is ramping up production from its kimberlite fissure mining operations in South Africa.

The company’s Messina and Star operations, as well as the recently acquired Helam and Dancarl mines, are expected to produce more than 160,000 carats of diamonds in 2005. Crown has mined some exceptional stones from its operations, including high-quality gemstones of 56.6 carats and 42 carats, which sold for more than A$650,000 and A$400,000 respectively.

In late 2004, Crown entered into a joint venture with Mano River Resources (mno-v) to earn a 51% interest in (and operatorship of) the latter’s subsidiary, Kono Diamond. In return, Crown will pay US$3 million over three years. Kono Diamond holds the Lion Kimberlite Dykes project in eastern Sierra Leone, which is to enter production in 2005 or 2006.

Petra’s principal project is Alto Cuilo, in northeastern Angola, where BHP Billiton (BHP-N) is spending up to US$60 million on exploration and development to earn a 75% interest.

The 2,700-sq.-km concession was worked by De Beers in the past, and additional exploration by Petra has identified 12 kimberlite pipes. In the area known as the Mussunuige-Luangue River interfluve (ML Complex), several drill-tested anomalies coalesce into a single large complex that hosts 115 million tonnes of kimberlitic material.

The kimberlite has not been sampled for macrodiamond content, but the area is known to contain alluvial diamond deposits, and adjacent, separate kimberlites have produced gem-quality stones.

A diamond recovery plant has been processing gravels from the Luangue River area. Between September and November 2004, the plant recovered almost 2,700 macrodiamonds with a total weight of 680 carats, including 10.4- and 9.6-carat stones.

The Alto Cuilo kimberlite cluster occurs at the intersection of the regional-scale Lucapa graben formation and Cassai Shield. Production is expected to begin this year.

Among Petra’s other assets are interests in the Muriege and Medio Kwanza diamond concessions in Angola, and the Syferfontein kimberlite pipe project in South Africa.

Petra acquired the latter from Gold Fields (GFI-N) in 1999. Also, Rio Tinto (RTP-N) is exploring several of Petra leases in northern South Africa.

Angola has been attracting an increasing number of diamond hunters now that decades of civil war have apparently ended. In 2003, the country produced 5.6 million carats worth US$1.1 billion.

The new Petra Diamonds will be listed on both the AIM and the Australian Stock Exchange. The anticipated market capitalization is $250 million.