Petra Diamonds group to buy De Beers’ Cullinan mine

Vancouver — Petra Diamonds (PDMDF-O, PDL-L) is leading a group planning to buy the Cullinan diamond mine in South Africa from De Beers for 1 billion rand (US$149 million).

The Petra Diamonds Cullinan Consortium (PDCC) — comprising Petra Diamonds with 37%, Al Rajhi Holdings with 37% and its Black Economic Empowerment (BEE) partners with 26% ownership — expects to close the cash transaction in mid-2008, subject to South African regulatory approvals.

To finance the acquisition and initial operating capital for the mine, Petra will kick in US$50 million to PDCC with Al Rajhi Holdings contributing US$150 million. The BEE partners will pay for their interest from their share of future cash flow from the mine.

After making loan repayments to Al Rajhi Holdings, Petra can boost its effective interest to 60% through buyback options.

Established in 1902 as the Premier mine, the operation was renamed Cullinan in 2003, in celebration of its centenary. Initially an open-pit mine, Cullinan transitioned to an underground block-caving operation beneath the floor of the old pit.

De Beers reports 2006 output of 1.15 million carats with a total market value of US$75.2 million. The operation processed just over 2.9 million tonnes of kimberlite with an average diamond grade of 39.1 carats per 100 tonnes.

Projections indicate current reserves will be depleted in 2012, however a significant resource (the Centenary-Cut or C-Cut) has been outlined between the 763-metre and 1,153-metre levels. De Beers estimates C-Cut could add up to 25 years of operating life to Cullinan with proposed block-caving in two stages at a mining rate of about 8 million tonnes per year.

According to De Beers’ information, the Cullinan kimberlite pipe holds the world’s second-largest indicated diamond resource based on in-situ value, estimated to host about 193 million carats.

The pipe has yielded some of the world’s largest and most valuable diamonds, including the 3,106-carat Cullinan stone — the largest gem diamond ever found — that was cut into several large stones. Two of the diamonds were set in the Crown Jewels of England. The mine has produced over 300 stones weighing more than 100 carats and is also the world’s only significant source of blue diamonds, which fetch a premium in the jewelry market.

“A major producing diamond asset such as Cullinan very rarely becomes available and Petra is, with its consortium partners, very proud to be acquiring such a prestigious asset,” said Petra chairman Adonis Pouroulis in a statement. “It brings a major resource to the group with expectation of adding significantly to annual production, elevating Petra into the league of the world’s major diamond producers.”

One of a dozen pipes in the area cluster, Cullinan originally measured 32 hectares at surface, making it South Africa’s largest diamondiferous kimberlite.

Earlier this year, De Beers sold its Koffiefontein diamond mine to Petra for 81.9 million rand (about US$12 million) because the operation, which had been in its portfolio for more than 100 years, no longer fit the gem giant’s business model.

Petra produced just over 180,000 carats of diamonds in 2007 from four mines in South Africa. It also holds advanced-stage exploration projects in Angola and other diamond properties in Botswana and Sierra Leone.