Cullinan

Cullinan is one of the world's most celebrated diamond mines and is renowned for producing many of the most spectacular diamonds ever seen. It earned its place in history with the discovery of the Cullinan diamond in 1905, the largest gem diamond ever found at 3,106 carats rough, and it has produced more than a quarter of all the world's diamonds weighing more than 400 carats. It is also the world's only significant source of truly rare and highly valuable blue diamonds.

The Cullinan kimberlite pipe is the second largest indicated diamond resource in the world by in-situ value and totals some 204 million carats (including tailings). In July 2008, Petra (as part of a Petra-led consortium) completed the landmark acquisition of the Cullinan mine from De Beers for a total cash consideration of R1 billion.

Petra is currently implementing an expansion plan at Cullinan which will take production from just under 900,000 carats in the 2009 financial year to 2.6 million carats by 2019.

Cullinan vital statistics

Size of kimberlite pipe

32 hectares at surface

Commencement of mining

1903

Acquisition by Petra Diamonds
Cullinan Consortium

July 2008

Ownership

Petra Diamonds Limited: 74%

Thembinkosi Mining Investments (Pty) Ltd: 14%

Petra Diamonds Employee Share Trust: 12%

Operator

Petra Diamonds

Total resources

204.6 million carats

Type of mining

Underground block cave

Depth of mining
(metres underground)

747

Status

The current level of production will be ramped up from an initial 1.99 Mtpa to Petra’s interim target of 2.4 Mtpa (1 million carats) to year 2014. After this, there are plans in place to increase production to 4 Mtpa (2.2 million carats) by 2019.

Ownership

The Petra Diamonds Cullinan Consortium (“PDCC”) acquired Cullinan as a going concern on 16 July 2008 and Petra is the technical operator of the mine on behalf of PDCC. PDCC comprises Petra Diamonds Limited (74% interest) and various BEE partners (26% interest), which include a 12% employee share trust stake.

Location

Cullinan is located some 30 kilometres east of Pretoria, in Gauteng Province, South Africa. The mine is accessed by a tar road, and water and power facilities are readily available and in place.

Geology

The Cullinan Kimberlite pipe occurs within the stable, three billion year old Kaapvaal Craton and intrudes rocks of the Transvaal Supergroup (Pretoria and Rooiberg Groups), Bushveld Complex and the younger Waterberg Group.

Mining methods

The large pipe has allowed a variety of mining methods to be utilised in exploiting the orebody. Open pit mining was carried out to a depth of 189 metres. Other mining methods used above the gabbro sill included open benching and block caving. Initially, underground mining used the sub-level open bench mining method but over time methods and systems were adapted according to differing ground conditions. In the early 1970s cave mining using scrapers was implemented and sub-level open stoping was implemented in the early 1980s. Petra is currently mining the B-Cut levels at a depth of 747 metres using mechanised trackless block-cave mining.

Operating review

In the 2009 financial year, Petra recorded just under a full year's production at the Cullinan mine, which was acquired by PDCC on 16 July 2008. Cullinan has produced many of the world's largest and most famous diamonds, and the mine once again made headlines around the world with the recovery of the two spectacular blue diamonds in the second half of 2008.

The potential of the second of these blue diamonds was immediately evident due to its internal clarity and the intensity of its colour, and Petra saw the opportunity to capture some of the downstream 'value-add' by taking the diamond from the rough to the polished stage. To maximise interest and public recognition for such an exceptional and rare gem, Petra partnered with Sotheby's auction house, which identified the stone, The 'Star of Josephine', as it is now known, as one of the most important blue diamonds ever to be offered for sale.

In September 2009, a white diamond of over 507 carats of exceptional colour and clarity was recovered at Cullinan. Expert analysis is ongoing but the gem is believed to be amongst the top 20 high quality colourless diamonds ever recovered. It was recovered alongside three other special white stones of similar colour and clarity in the same production run: another very large stone of 168.00 carats and two other stones of 58.50 and 53.30 carats. These three stones have since been sold and reached US$9.1 million in total.

Petra produced 888,595 carats in the 2009 financial year (from takeover date of 16 July 2008 to 30 June 2009) at Cullinan, outperforming substantially against our initial target of between 600,000 and 750,000 carats. However revenues suffered due to the fall in rough diamond prices in September 2008, shortly after Petra commenced operations at the mine. The 'special' stones recovered at Cullinan, particularly the two blue diamonds noted above, meant that the average value of production was enhanced and the mine recorded an average price for the 2009 financial year of US$66 per carat. It is nevertheless encouraging to note that the first Cullinan tender in September 2008, before the collapse of prices, achieved US$100 per carat, which was higher than our original expectations.

During the 2009 financial year, the total on-mine unit cost totalled R169 (US$19) per tonne. This cost per tonne was achieved due to increased production, lower overheads, Petra's flat management structures and in-sourcing of activities which were traditionally conducted by contractors. Capital expenditure for the year amounted to R108 million (US$12 million), most of which was spent on the plant refurbishment programme.

In the 2009 financial year, significant capital expenditure has been undertaken in the plant, where Petra has made some major changes. A key change has been to move away from using grease as the sole recovery technique and x-ray diamond recovery machines have been installed and commissioned. With the installation of these machines, Petra is now able to recover most diamonds larger than 4mm by x-ray and the original grease recovery method has become the back-up rather than the primary method. These changes should further augment the recovery grade, which stabilised at 39.5 cpht ROM for the past financial year, as well as the value of diamonds retrieved, including the specials for which Cullinan is famous. Work on the refurbishment of the large diamond recovery plant has progressed well and is on track to be commissioned late 2009. In addition, changes effected in the Optical Sort Plant plant resulted in a full year average grade of 58.6 cpht.

	Unit	Year ended 30 June 2009 *	Year ended 30 June 2008	Change
Production
Diamonds produced	Carats	888,595	n/a	n/a
Grade	Cpht	41.0	n/a	n/a
Sales
Revenue	US$M	51.2	n/a	n/a
Diamonds sold	Carats	780,663	n/a	n/a
Average price per carat	US$	66 **	n/a	n/a

*	The Petra Diamonds Cullinan Consortium (“PDCC”) completed the acquisition of the Cullinan mine on 16 July 2008 and therefore results are from that date.
**	Prior to the fall in rough diamond prices, the first Cullinan post completion tender in September 2008 recorded US$100 per carat.

Outlook

The current level of 1.99 mtpa will now be ramped up to our interim target of 2.4 mtpa (1.0 million carats) from underground mining to year 2014. To achieve this sustainable production over the next five years, new tunnels are being established on the 747 level for the AUC and the BA West blocks. In addition, "gap filler" tonnes are being derived from the BA 5 block on the 630 level, where previously abandoned areas have been rehabilitated.

Significant advances have been made in studies to take advantage of the 204 million carat resource base that exists at Cullinan. It is anticipated that running concurrently with the previously mentioned capital expenditure programmes, an expansion programme to gain access to the first portions of the C-Cut will be put in place. This envisages upgrading (and simplifying) of the total material handling infrastructure which, amongst other things, includes the upgrading of existing winders and deepening of existing shafts for production from the 858 metre level so as to reach full production of 4 mtpa at an anticipated grade of 55 carats per hundred tonnes ("cpht") to recover 2.2 million carats by 2019. The higher grade of 55 cpht is due to the mining of the higher grade western block at the deeper levels.

In order to bring to account the large tailings resource of 165 million tonnes (16.7 million carats), design work for a new tailings treatment facility is being finalised. This will cater for treatment of 1 million tonnes (100,000 carats) per annum by 2012, ramping up to 4 million tonnes (400,000 carats) per annum by 2014. Resources are sufficient to sustain this level of treatment for a period of 40 years.

This roll-out will result in the current level of diamond production of 888,595 carats increasing to 2.6 million carats per annum by 2019.

To achieve the above capital expenditure programmes, Petra's in-house planning shows that an estimated R2,9 billion (US$357 million) (2009 money) will be spent over the 10 year life of the expansion programme until 2019.

Current cash flow estimates indicate that approximately US$30 million of capital expenditure funding will be required during the period to 2012, whereafter it is expected that the mine will generate sufficient cash flow to fund the remaining capital expenditure programme. This leaves Petra with the flexibility to consider various other funding mechanisms to ensure maximum cash flow to Petra's shareholders.

Reserves and Resources (as at September 2009 Resource statement)

Category	Gross			Net attributable
	Tonnes (millions)	Grade (cpht)	Contained Diamonds (millions)	Tonnes (millions)	Grade (cpht)	Contained Diamonds (Mcts)
Diamond reserves per assets
Proven	–	–	–	–	–	–
Probable	14.533	38.27	5.562	10.754	38.27	4.116
Sub-total	14.533	38.27	5.562	10.754	38.27	4.116
Diamond resources per asset
Measured	–	–	–	–	–	–
Indicated	255.144	71.44	182.279	188.806	71.44	134.886
Inferred	166.447	10.04	16.716	123.17	10.04	12.37
Sub-total	421.591	47.20	198.994	311.978	47.20	147.256
Total			204.556			151.372

Notes:

1. Resource tonnes and grade based on block cave depletion modeling, and include external waste.
2. Reserve carats and grades are factorised as per the following plant liberation factors: "Brown" kimberlite 75.8%, "Grey" kimberlite 71.4%, and Hypabbysal kimberlite 71.8%.
3. Resource bottom cut-off: 1mm
4. Reserve bottom cut off: 1.2mm