Cullinan

Cullinan is one of the world's most celebrated diamond mines and is a source of large, high-quality Type II gem diamonds. It earned its place in history with the discovery of the Cullinan diamond in 1905, the largest rough gem diamond ever found at 3,106 carats, and it has produced over 700 stones of greater than 100 carats and more than a quarter of all the world's diamonds of greater than 400 carats. It is also the world's only significant source of truly rare and highly valuable blue diamonds.

Since taking over the mine in July 2008, Petra has recovered several world-class diamonds, including a 39 carat blue diamond which sold for US$8.8 million, a 26 carat blue diamond which Petra cut into a 7 carat polished stone and sold for US$9.4 million, and a 507 carat white diamond which Petra named the Cullinan Heritage and sold for US$35.3 million, being the highest price on record for a rough diamond.

Cullinan contains a world-class resource of 203.7 Mcts (including 16.9 Mcts in tailings). Petra is currently implementing an expansion plan at Cullinan which will take production from just under 900,000 carats in FY 2011 to 2.4 million carats by FY 2019.

Location	Gauteng Province, South Africa
Size of kimberlite pipe at surface	32ha
Mine start date	1902
Acquisition by Petra Diamonds	July 2008
Ownership	Petra Diamonds Limited: 74% Thembinkosi Mining Investments (Pty) Ltd: 14% Petra Diamonds Employee Share Trust: 12%
Operator	Petra Diamonds
Total Resources (Resources inclusive of Reserves)	203.7 Mcts
Current depth of Resources	1,073m
Mining Method	Block cave
Depth of current mining	747m
Mine Plan	16 years
Potential Mine Life	+50 years

The Cullinan kimberlite pipe was discovered in 1902 and open pit mining commenced at the ‘Premier’ mine (as it was then known) in 1903. Since this time it has produced in excess of 350 Mt of ore yielding approximately 120 Mcts of diamonds. More than 75 Mt of coarse tailings material has been reprocessed and yielded 20 Mcts of diamonds. Ore extraction has been by underground mining methods since 1946. Ore extraction has varied between 2 and 5 Mt per annum and ore treatment between 2 and 7 Mt per annum.

The mine was renamed ‘Cullinan’ as part of its centenary celebrations and to link the mine to the illustrious heritage of the Cullinan diamond, which provided the two main polished diamonds within the British Crown Jewels (the 530 carat Great Star of Africa and the 317 carat Lesser Star of Africa).

Petra initially acquired a 37% interest in the Cullinan mine from De Beers in 2008, but increased its direct interest in the mine to 74% in late 2009 when it acquired Al Rajhi’s holding in the mine. Petra continues to exploit the underground resource using block cave mining methods.

Category	Gross			Net attributable
	Tonnes (millions)	Grade (cpht)	Contained Diamonds (Mcts)	Tonnes (millions)	Grade (cpht)	Contained Diamonds (Mcts)
Reserves
Proved	—	—	—	—	—	—
Probable	41.082	48.58	19.958	30.400	48.58	14.769
Sub-total	41.082	48.58	19.958	30.400	48.58	14.769
Resources
Measured	—	—	—	—	—	—
Indicated	265.339	70.39	186.780	196.351	70.39	138.217
Inferred	168.502	10.04	16.918	124.692	10.04	12.519
Total Resources inclusive of Reserves	433.842	46.95	203.698	321.043	46.95	150.736

• Resource bottom cut-off: 1mm
• Reserve bottom cut off: 1mm
• Resource tonnes and grade in current mining blocks are based on block cave depletion modelling, and include external waste
• Reserve carats and grades are factorised as per the following resource to reserve liberation factors: "Brown" kimberlite 75.8%, "Grey" kimberlite 71.4%, and Hypabyssal kimberlite 71.8%
• Probable Reserves have increased in accordance with the mine planning for the C-Cut Phase 1 and the addition of 18 new drawpoints in the current mining blocks

All figures stated gross	Unit	FY 2011	FY 2010	Variance
Sales
Revenue	US$M	140.2	127.0	+10%
Diamonds sold	Carats	944,405	903,861	+4%
Average price per carat	US$	148	141	+5%
ROM Production
Tonnes treated	Tonnes	2,323,403	2,160,907	+8%
Grade	Cpht3	36.6	38.9	-6%
Diamonds recovered	Carats	851,193	841,293	+1%
Tailings Production
Tonnes treated	Tonnes	575,605	248,380	+132%
Grade	Cpht	7.7	34.9	-78%
Diamonds recovered	Carats	44,246	86,638	-49%
Total Production
Tonnes treated	Tonnes	2,899,008	2,409,287	+20%
Diamonds recovered	Carats	895,439	927,931	-4%
Costs
On-mine cost per tonne	ZAR	164	167	-2%
Total Capex	US$M	33.9	20.4	n/a

During FY 2011 Cullinan was the major contributor to the Group, accounting for 64% of overall turnover and 80% of carat production. Going forward, the Finsch mine will balance the importance of the Cullinan mine, which was previously the dominant asset in the Group’s portfolio.

The average value per carat (ROM and tailings combined) at Cullinan was US$148 for FY 2011, up 47% in comparison to the US$101 achieved in FY 2010 (being the average for FY 2010 of US$141 after adjusting for the sale of the 507 carat Cullinan Heritage for US$35 million).

In FY 2011, 11 stones from Cullinan each sold for in excess of US$1 million; such stones are regarded as a regular feature of Cullinan’s production profile.

Cullinan performed well in terms of throughput, with total tonnages treated (ROM and tailings) exceeding expectations. ROM grade of 36.6 cpht was approximately 6% lower than the prior year of 38.9 cpht, due to:

• an increase of the bottom cut for slimes discard from 0.8mm to 1.3mm (partially contributing to the increased average value per carat achieved); and
• the far higher than average rainfall experienced in many parts of South Africa, including Cullinan, which results in ore-handling difficulties relating to the clay, mud and moisture content of the ore.

ROM grade at Cullinan is expected to remain under pressure whilst production continues to be from the mature areas of the mine, due to the significant dilution of the ore drawn in these older production zones. However, the grade is forecast to rise to 50 cpht once the new cave is established from FY 2015 onwards as part of the C-Cut development programme on the 830 metre level and undiluted ore is mined and treated.

Although tailings throughput increased significantly to 575,605 tonnes during FY 2011, carats produced from tailings dropped by 49% to 44,246 carats as the high-grade OSP tailings dump was depleted as planned in the preceding year. The Company is now processing the ROM tailings material. The tailings grade of 7.7 cpht achieved for FY 2011 is expected to rise to approximately 10 cpht from FY 2012, once a re-crush system of material larger than 6 mm has been incorporated into the operation.

Despite South African cost pressures, unit costs per tonne at Cullinan decreased by 2% due to increased volumes and other initiatives to mitigate cost pressures. Longer term, once the development plan has significantly progressed in the years to come, further unit cost efficiencies are expected to be driven by initiatives such as a simplified ore-handling system underground and further streamlining of the plant.

Capex at Cullinan increased to US$ 33.9 million for FY 2011, predominantly applied to the underground development work, the continued upgrading of the plant and the new underground fleet equipment.

The C-Cut expansion programme at Cullinan is on track to develop a new block cave on the western side of the orebody which will access the higher grade BAW and AUC south areas of the orebody and produce at a rate of 2 Mctpa for approximately 20 years, supplemented by 0.4 Mcts of tailings production. This will be carried out in a phased approach. Phase one will establish new tunnels on 747, 732 and in the BA5 at 630 levels to ensure that underground production is maintained at current levels.

Phase two will see ROM production rising to 4 Mtpa (2.0 Mctspa) by FY 2019. The expansion programme will gain access to upper portions of the C-Cut resource and will require the upgrading of the material handling infrastructure, including:

• upgrading the existing winders;
• establishing a decline from existing production levels to shaft bottom at 930 metres; and
• extending the existing shaft system down to 950 metres.

The current material handling will be improved and simplified, with the existing cumbersome conveyor belt system being replaced by FY 2016 yielding significant savings to the operating costs at Cullinan.

The new production level will be at an optimal depth of between 810 and 850 metres. The decline to access the new production level has now passed the 839 metre level below surface with the breakaway for the 830 metre undercut level having been established. Tenders have been received for shaft deepening (and related infrastructure) to 930 metres below surface and the award of this contract is imminent.

Petra is currently investigating the addition of a decline on the northern side of the orebody which has the potential to fast-track the kimberlite development of the new block cave and subsequent production build-up.

Whilst the C-Cut development programme is underway, Petra has established new drawpoints in both the BB1E and AUC south sections of the Cullinan pipe. This will allow the Company to draw from these production areas to maintain volumes and grade whilst the new block cave is established in the C-Cut.

50 cpht is a realistic target based on resource estimates and long term production records at Cullinan. In addition, historically and from sampling programmes, there has been a higher incidence of larger white diamonds and blue diamonds in the western blocks of the Cullinan kimberlite pipe, which bodes well for future recoveries of ‘specials’.

Petra foresees a long life for the operation and has a current mine plan of 16 years, though this will only have exploited 21% of the C-Cut resource to 1,073 metres, leaving extensive Resources for future development.