Kimberley Underground

Kimberley Underground comprises Bultfontein, Dutoitspan and Wesselton, three historic diamond mines which were at the heart of the diamond rush in the Kimberley region of South Africa in the late 1800's. As with Cullinan and Koffiefontein, these mines have also produced spectacular diamonds in the past, such as The Oppenheimer, a nearly perfectly-formed 253.7 carat yellow diamond crystal. The Oppenheimer is one of the largest uncut diamonds in the world and was discovered in the Dutoitspan mine in 1964.

In September 2007 Petra reached agreement to acquire Kimberley Underground from De Beers and the acquisition completed in May 2010. As Kimberley Underground ceased production in August 2005, Petra operated the mines under care and maintenance, with ore being stockpiled at surface, and full production commenced upon completion of the acquisition in May 2010.

Kimberley underground vital statistics:

Size of kimberlite pipe

Bultfontein: 9.7 hectares

Dutoitspan: 10.8 hectares

Wesselton: 8.7 hectares

Acquisition by Petra Diamonds

May 2010

Commencement of mining

Bultfontein: 1869

Dutoitspan: 1869

Wesselton: 1890

Ownership

Petra Diamonds: 74%

Sedibeng Mining: 26%

Operator

Petra Diamonds

Total resources

7.0 million carats

Type of mining

Bultfontein: rim loading section and block cave

Dutoitspan: slusher drift block caving

Wesselton: slusher drift block caving

Depth of mining
(metres underground)

Bultfontein: 845

Dutoitspan: 870

Wesselton: 995

Status

Kimberley Underground is expected to produce 100,000 carats in the financial year to June 2011 (“FY 2011”), rising to 180,000 carats per year thereafter following commissioning of a second production plant by June 2011

Location

The Kimberley Underground mines are located within the historic city of Kimberley, the provincial capital of the Northern Cape Province in South Africa.

Geology

The kimberlite pipes in the Kimberley area have intruded into the horizontally bedded, black and grey carbonaceous shales of the Karoo Supergroup, with minor interbedded sandstone and siltstone layers. This formation conformably overlies an erratically developed Dwyka tillite, which seldom exceeds three metres in thickness. This sequence has been intruded by a dolerite sill up to 30 metres thick. Locally this sill has acted as a barrier to kimberlite intrusion with the resultant formation of kimberlite sills at or near the base of the dolerite sill. The Karoo rocks unconformably overlie the Ventersdorp Supergroup strata of variable thickness. The Ventersdorp Lavas in turn unconformably overlie the uneven Basement Granite.

Mining methods

Each kimberlite pipe has been mined using various mining methods. Bultfontein was most recently mined by means of a rim loading section and a block cave. The Dutoitspan and Wesselton pipes most recently employed slusher drift block caving prior to cessation of operations.

Kimberley Underground Mines are serviced by two separate shaft infrastructures. Joint Shaft services the Bultfontein and Dutoitspan mines, which are close to each other. Wesselton is approximately five kilometres away from Joint Shaft and is serviced by its own shaft infrastructure.

Operating review

In May 2010, Petra completed the acquisition of Kimberley Underground and thereby introduced a seventh producing diamond operation to the Group portfolio. The Company had anticipated this acquisition to complete sooner, but the process was delayed due to the complexity of the New Order Mining Right conversion. Petra had previously expected some contribution of production from Kimberley Underground in the 2010 financial year, but the delay means that it will instead first add meaningful production in the 2011 financial year.

During the care and maintenance period before completion of the acquisition in May 2010, Petra constructed a new diamond recovery plant (capacity over 600,000 tonnes per annum) at Joint Shaft, which will treat production from the Bultfontein and Dutoitspan pipes. This plant was designed and built by Petra’s in-house engineering and construction teams, delivering substantial savings over using external consultants/contractors.

A similar plant (expected cost approximately R85 million (US$11.2 million)) will now be built for the Wesselton Shaft, which will be commissioned by June 2011.

As part of the care and maintenance activity necessary to maintain a block cave mining operation, Petra was able to extract ore from underground and build-up two substantial surface stockpiles of some 250,000 tonnes each, estimated to contain a total of 90,000 carats, at Joint Shaft and Wesselton Shaft. Petra expects to treat approximately 600,000 tonnes of ore at Joint Shaft in FY 2011, of which approximately 180,000 tonnes will be drawn from the Joint Shaft stockpile. Treatment of the stockpile at Wesselton Shaft will only commence when the new Wesselton plant is constructed. Petra expects to haul ore at the rate of approximately 750,000 tonnes per annum (both shafts combined) for FY 2011, increasing to one million tonnes per annum thereafter.

Petra has invested R204.6 million (US$27.0 million) on capital projects at Kimberley Underground since September 2007, incorporating the construction of the Joint Shaft plant; underground development work; and other on–mine Capex (surface infrastructure). A further R89.5 million (US$11.8 million) has been spent on operating costs since September 2007, including R37.6m (US$5.0 million) that is capitalised into the run-of-mine stockpile and R51.9 million (US$6.8 million) on care and maintenance that was not deemed to be capital in nature and has been expensed in Petra’s operating results as incurred. All of this expenditure has been financed over the last two years from Petra’s own treasury.

The cost of accumulating the stockpiles has been accounted for at a production cost of R75 per tonne and Petra estimates that a further R35 per tonne will be required for plant and diamond recovery.

Outlook

Kimberley Underground is expected to produce 100,000 carats in its first full year of production, rising to 180,000 carats per year thereafter, following commissioning of a second production plant by June 2011. Further to the plant start-up, production did not meaningfully commence until mid June 2010.

Based on examination of historical records, Petra has assumed for planning purposes an average value per carat of at least US$160, although Petra believes there is real potential to exceed US$200 per carat.

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	5.006	19.94	0.998	3.705	19.94	0.739
Sub-total	5.006	19.94	0.998	3.705	19.94	0.739
Diamond resources per asset
Measured	–	–	–	–	–	–
Indicated	4.146	20.22	0.839	3.068	20.22	0.620
Inferred	50.113	10.27	5.147	37.084	10.27	3.809
Sub-total	54.259	11.03	5.986	40.152	11.03	4.429
Total			6.984			5.168

Notes:

1. Resource bottom cut-off (Dutoitspan West Extension): 1mm
2. Resource bottom cut-off (all other underground blocks): 0.5mm
3. Reserve bottom cut-off: 1.2mm