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Our portfolio incorporates major underground pipe mines and a large high-volume open cast mine

 
  • Kimberley Ekapa Mining JV

    Kimberley Ekapa Mining is located in Kimberley, the heart of South Africa’s early diamond rush

  • Kimberley Ekapa Mining JV

    Kimberley Ekapa Mining is located in Kimberley, the heart of South Africa’s early diamond rush

  • Kimberley Ekapa Mining JV

    Kimberley Ekapa Mining is located in Kimberley, the heart of South Africa’s early diamond rush

Kimberley Ekapa Mining Joint Venture

The town of Kimberley is perhaps the world’s most famous diamond producing area. It is where the first hard rock diamond deposits were discovered, hence the name ‘kimberlite,’ and was at the heart of South Africa’s early diamond rush. The Kimberley mines were subsequently integral to the economic development of South Africa as their output effectively financed development of the nascent gold industry.

KEM JV is a joint venture between Petra and its partner Ekapa Mining and incorporates the Kimberley Underground mine, extensive tailings retreatment programmes and the high volume Central Treatment Plant – all located in or around the historic diamond mining centre of Kimberley in South Africa.

On 5 July 2018 Petra announced that it has entered into a binding Heads of Agreement with regards to the disposal of the Company’s and its black economic empowerment (“BEE”) partners’ 75.9% interest in the KEM JV to the Company’s joint venture partner Ekapa Mining (Pty) Ltd (“Ekapa Mining”) for a cash consideration of ca. ZAR300 million (the “Disposal”). Read more about the Disposal in the tab below.

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The Disposal

On 5 July 2018, Petra announced that it has entered into a binding Heads of Agreement with regards to the disposal of the Company’s and its black economic empowerment (“BEE”) partners’ 75.9% interest in the KEM JV to the Company’s joint venture partner Ekapa Mining (Pty) Ltd (“Ekapa Mining”) for a cash consideration of ca. ZAR300 million (the “Disposal”).

The Disposal will be on a going concern basis, with Ekapa Mining taking on all of the Company’s financial, employee, environmental, health, safety and social obligations with regards to the KEM JV operation. The ca. ZAR300 million purchase consideration will be payable in 24 monthly instalments starting in January 2019.

The rationale for the Disposal is to ensure a sustainable future for KEM JV by placing the operation under the sole stewardship of an operator best suited to maximise its value. Ekapa Mining’s extensive experience of operating specifically within Kimberley and its ability to solely focus on these assets is expected to provide the right fit for the operation, thereby ensuring continuation of diamond mining employment and related economic activity in this renowned diamond centre.

Petra set out the Company’s strategic priorities in its Rights Issue announcement dated 24 May 2018, including that the Board would continue on an ongoing basis to review the asset portfolio of the business with a view to maximising return on capital and to ensure that all assets are in a position to contribute positive cash flow to the business.

Following an initial approach by Ekapa Mining in mid-June 2018 with regards to agreeing a potential transaction, the Board has as of today determined to enter into a binding heads of terms based on the following benefits to Petra:

  • while KEM JV has the potential to be a sustainable and economic diamond producer, it is better suited to an operator with an owner-manager approach that is able to solely focus on the optimisation of these assets;
  • it will subsequently free up considerable Petra management time that can be focused on the key assets of the business, in particular Finsch and Cullinan;
  • it will reduce cash outflow, given that it will take time to ensure KEM JV can make a positive cash contribution to the business;
  • it will decrease operational risk in the context of the wider Petra Group; and
  • the purchase consideration will facilitate the Group’s working capital position.

Completion of the Disposal will be subject to a number of conditions, including:

  • approval by the South African Competition Commission;
  • Section 11 Ministerial consent in terms of the South African Mineral and Petroleum Resources Development Act, 2002 in respect of the underground mining operations;
  • the consent of Petra’s South African lender group and the release of relevant securities in relation to the KEM JV; and
  • the passing of resolutions approving the Disposal by the relevant boards.

The Disposal is expected to effectively complete in Petra’s Q1 FY 2019 (the three months to 30 September 2018).

It is expected that a non-cash impairment charge will be recorded in the Company’s preliminary results for the year to 30 June 2018 (the “Prelim Results”), calculated to be in the region of US$35 – 45 million; however, this figure will be assessed by the Company and will be subject to finalisation of the Prelim Results.

This Disposal constitutes a Class 2 transaction for the purposes of the UK Listing Rules and further required disclosures are below:

 

US$ million

As at 30 June 2017

(audited year end figure)

As at 31 December 2017

(unaudited half year figure)

Gross assets¹ 161.8 124.9
Net loss before tax¹ (7.6) (78.8²)

Notes:
1. All numbers stated above are on a 100% basis and therefore do not only represent Petra’s existing 75.9% effective interest in the KEM JV.
2. Including the US$68.5 million gross impairment charge.

Key Facts

Unit FY 2018 FY 2017 Variance
Sales
Revenue US$M 81.6 82.3 -1%
Diamonds sold Carats 756,493 821,963 -8%
Average price per carat US$ 108 100 +8%
KUM Production1
Tonnes treated Tonnes 768,776 597,025 +29%
Diamonds produced Carats 82,246 87,783 -6%
Grade Cpht 10.7 14.7 -27%
KEM Production – attributable to Petra1
Tonnes treated Tonnes 6,050,991 6,153,657 -2%
Diamonds produced Carats 693,399 712,651 -3%
Grade Cpht 11.5 11.6 -1%
Total Production
Tonnes treated Tonnes 6,819,767 6,750,682 +1%
Diamonds produced Carats 755,645 800,434 -3%
Costs
On-mine cash cost per tonne treated ZAR 153 133 +15%
Capex
Expansion Capex US$M 10.1 23.9 -58%
Sustaining Capex US$M 3.7 4.5 -18%
Total Capex US$M 13.8 28.4 -51%

 1. Refer to Petra’s ‘Effective Interest in Mines’ in the following document: Analyst Guidance Explanatory Notes.

Heritage

These mines were at the heart of South Africa’s early diamond rush in Kimberley in the late 1800s, where the world’s first hard rock diamond deposits were discovered, hence the name ‘kimberlite’. The Kimberley mines were integral to the economic development of South Africa as their output effectively financed development of the nascent gold industry.

The Kimberley mines were amalgamated into De Beers by 1890. The Dutoitspan pipe was mined as an open pit to a depth of 122 metres and Wesselton and Bultfontein were mined as open pits to a depth of 76 metres. The mines were then converted to chambering (a combination of shrinkage stoping and sub-level caving) as an underground mining method during the period 1890 to 1950. In the 1950s underground mining converted to the more efficient and safer block caving methods, the mining method currently still being used to exploit reserves on all three of the mines.

The mines were closed by De Beers in August 2005 and subsequently Petra operated Kimberley Underground under care and maintenance from September 2007. Petra was given approval to operate the mines under De Beers’ licence, demonstrating the level of confidence the industry leader has in Petra’s overall ability to rehabilitate and operate deep underground diamond mines. This care and maintenance period enabled Petra to complete all the rehabilitation work required in order to ready the operation to recommence production. The acquisition of Kimberley Underground completed in May 2010.

In December 2015, Petra announced the acquisition of an interest in the remaining Kimberley Mine assets in South Africa from De Beers Consolidated Mines Proprietary Limited, in consortium with Ekapa Mining (Pty) Limited, an established Kimberley-based diamond tailings producer. The Kimberley Mines acquisition comprised of a number of tailings dumps in Kimberley and the high volume Central Treatment Plant, at a cost of ZAR102 million (ca. US$7.2 million).

Petra and Ekapa Mining then entered into a joint venture agreement in July 2016, in order to combine their respective operations under one business unit.

The Kimberley Underground mines have a history of producing large diamonds and fancy yellows, such as the Oppenheimer (253 carats rough). The largest diamond ever recovered at Kimberley Underground was +800 carats and the mine is also the source of the Kimberley Octahedral, at 616 carats, one of the largest uncut diamonds in the world.

Reserves & Resources

Gross
Category Tonnes (millions) Grade (cpht) Contained Diamonds (Mcts)
Reserves
Proved
Probable 2.9 14.6 0.42
Sub-total 2.9 14.6 0.42
Resources
Measured
Indicated 6.7 18.4 1.22
Inferred 144.3 5.8 8.43
Sub-total 150.9 6.4 9.65

1. Resource bottom cut-off (Dutoitspan West Extension): 1.0mm.
2. Resource bottom cut-off (all other underground blocks): 0.5mm.
3. Resource bottom cut-off (surface tailings mineral resources): 1.15mm.
4. Reserve bottom cut-off: 1.15mm
5. Changes in Reserve and Resource figures due to mining depletionsadjustment to Bultfontein 865/885 and Dutoitspan NW Corner Mining Plans, re-estimation of Wesselton rim loading, and Bultfontein 760L removed from Reserve.
6. All KEM JV Reserves and Resources changed to 75.9% attributable to Petra from 1 July 2016 due to the formation of the KEM JV on that date.
7.US$/ct values of 260-275 for ROM and 85-90 for tailings guided for FY 2018, based on sales values and production size frequency distributions.

FY 2018 Results

Unit FY 2018 FY 2017 Variance
Sales
Revenue US$M 81.6 82.3 -1%
Diamonds sold Carats 756,493 821,963 -8%
Average price per carat US$ 108 100 +8%
KUM Production1
Tonnes treated Tonnes 768,776 597,025 +29%
Diamonds produced Carats 82,246 87,783 -6%
Grade Cpht 10.7 14.7 -27%
KEM Production – attributable to Petra1
Tonnes treated Tonnes 6,050,991 6,153,657 -2%
Diamonds produced Carats 693,399 712,651 -3%
Grade Cpht 11.5 11.6 -1%
Total Production
Tonnes treated Tonnes 6,819,767 6,750,682 +1%
Diamonds produced Carats 755,645 800,434 -3%
Costs
On-mine cash cost per tonne treated ZAR 133
Capex
Expansion Capex US$M 10.1 23.9 -58%
Sustaining Capex US$M 3.7 4.5 -18%
Total Capex US$M 13.8 28.4 -51%

  1. Data represent Petra’s 75.9% attributable share in the KEM JV

 

FY 2018 Results (stated in 75.9% attributable terms):

Petra’s attributable production decreased 3% to 775,645 carats for the Year (FY 2017: 800,434 carats), with ROM production decreasing 6% to 82,246 carats (FY 2017: 87,783 carats). This was below guidance due to a combination of factors including the labour disruption experienced in Q1 FY 2018, project delays and the mudrush incident at Bultfontein which has led to the early closure of this underground mining area.

Tailings production decreased 3% to 693,399 carats (FY 2017: 712,651 carats) further to the severe rain storms during Q3 restricting access to higher grade dumps.

Binding Heads of Agreement reached post Year end with regards to the disposal of the Company’s interest in the KEM JV to the Company’s joint venture partner Ekapa Mining (Pty) Ltd for ca. ZAR300 million.

Mine Plan

The combining of the operations at Kimberley of Ekapa Minerals and the Company is expected to result in synergies leading to cost savings in, amongst other areas, processing and hauling costs, and is expected to allow for a mine plan to 2035 (previously the Company’s Kimberley Underground operation had a mine plan to 2026).

The Company’s current mine plan has a life to 2035.

Kimberley schematic July 2015

 Click on schematic to enlarge.

Mining Right

Crown Resources (Pty) Limited (‘‘Crown Resources’’) holds a valid and unencumbered new order mining right (the ‘‘Kimberley Underground Mining Right’’) dated 7 May 2010. The Kimberley Underground Mining Right was initially granted to De Beers pursuant to item 7 of Schedule II of the MPRDA and was ceded to Crown Resources by notarial deed of cession registered in the Mineral and Petroleum Titles Registration Office.

The Kimberley Underground Mining Right confers on Crown Resources the exclusive right for the period covered thereby to mine for diamonds in relation to the areas it refers to until 6 May 2040. Pursuant to the MPRDA, the Kimberley Underground Mining Right is renewable (for periods of up to 30 years for each renewal) on the basis more fully set out in section 24 of the MPRDA.

Section 2 of the Royalty Act requires Crown Resources to pay the South African Government a royalty for minerals recovered under the Kimberley Underground Mining Right. Pursuant to section 4 of the Royalty Act, the royalty is to be paid on gross sales in accordance with a defined formula set out in the Royalty Act. The formula applicable to rough diamonds is as follows: 0.5% + (earnings before interest and taxes as defined in Section 5 of the Royalty Act /(gross sales x 9) x 100) but not exceeding 7%.

In addition, South Africa has a rough diamond export levy requirement of 5% as set out in section of the Diamond Export Levy Act 15 of 2007 (“Export Levy Act”). Producers are however exempt from this levy in respect of production that is exported provided that a certain percentage of their production is sold to local diamond beneficiation licence holders, on the basis more fully set out in sections 7, 8 and 9 of the Export Levy Act.

Crown Resources is also subject to corporate tax in South Africa at the rate of 28% in terms of section 5 and other provisions of the Income Tax Act 58 of 1962.

There are no fiscal stabilisation provisions in place in relation to Kimberley Underground Mines.

Highlights

  • May 2010 Acquisition by Petra
  • 755,645 carats FY 2018 Production

Map

Kimberley Underground Diamonds

DSC_8217