Now Petra nabs Finsch diamond mine for R1,4bn, De Beers' Namaqua still in play

he London Aim-listed Petra Diamonds is buying Finsch diamond mine from De Beers for R1,4-billion ($210-million) in cash.

De Beers' less attractive suspended Namaqualand alluvial operation, which was put on the market at the same time as Finsch, remains in play.

Finsch becomes Petra’s eighth diamond mine and the most spectacular since its acquisition, also from De Beers, of the historic Cullinan diamond mine, where Finsch-like block-cave mining method is also in use.

"This is likely to be positively received," Collins Stewart analyst Sarah Taylor comments.

A serial De Beers acquirer, Petra has just raised an additional £205-million ($325-million) by placing of 136 698 212 new ordinary 10 pence a share Petra shares with institutional and other investors at 150 pence a share.

The acquisition and capital raising consolidates Petra’s position as London’s largest quoted diamond company and provides a platform for the Petra’s intended move to the main board of the London Stock Exchange.

South Africa’s second largest diamond mine by production, Finsch is expected to produce over 1,5-million carats a year in its first full year of production, more than doubling Petra’ current production of 1,3-million carats a year.

It is expected that group production, including Finsch, will increase to four-million carats a year by 2014 and to more than five-million carats by 2019.

Other well-known former-De Beers mines now in the Petra stable include Koffiefontein and Kimberley Underground in South Africa and Williamson in Tanzania.

The Petra team, led by executive chairperson Adonis Pouroulis and CEO Johan Dippenaar, has the Middle Eastern Al Rajhi (18%) and Saad (17%) as its main shareholders.

Likely to be accretive immediately, Finsch brings a major diamond resource of 48-million carats including 26-million carats of reserves, increasing Petra’s gross resource base to 309-million carats, worth $38-billion.

Like its other De Beers acquisitions, Finsch is acquired on a ”going concern” basis including the full employee complement and state-of-the-art mining infrastructure, some of which it fully automated.

The £205-million raised will be used primarily to buy Finsch, with some of the balance going towards the funding the South African Department of Mineral Resources environmental guarantee and working capital at Finsch.

It will also be used to settle Al Rajhi debt, to accelerate capital expenditure and provide working capital at core operations.

De Beers says that Petra, which has formed an empowerment consortium to acquire the mine, acquired Finsch as part of “an open and rigorous selection process” based on criteria that ensure Finsch’s long-term sustainability.

In addition to Petra’s access to funding, criteria included a detailed evaluation of the company’s technical capacity, a proven track record in South Africa, broad-based BEE credentials, and a strong socio-economic focus.

De Beers Consolidated Mining (DBCM) chairperson Barend Petersen and DBCM CEO Phillip Barton report that DBCM will continue to manage Finsch until the necessary Competition Tribunal and mining right approvals have been obtained Petersen says that Petra will be able to realise Finsch’s longer term potential and thereby contribute to sustaining economic activity in the Lime Acres region of the Northern Cape.

DBCM announced in mid-2010 that it was putting both the underground Finsch and alluvial Namaqualand operation on the market.

It is understood also to have received approaches from potential investors interested in buying the company's troubled Namaqualand.

Last year, DBCM shed 350 Finsch mine jobs out of 903 to prevent Finsch losing R200-million a year, and suspended production at Namaqualand.

Interest in Namaqualand has risen on the back of the recovery in the diamond market.

Factors that Petra will have to deal with at Finsch include high costs, declining Block 4 grades and rand strength.

DBCM's four remaining South African operations are the flagship Venetia diamond mine in Limpopo province, Voorspoed in Free State province, Kimberley Mines’ surface operations in Northern Cape and the suspended South African Sea Areas marine mining offshore venture.

This article was originally posted on South Africa Business Communities

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