Petra Diamonds - Kimberley process plant

LSE-listed Petra Diamonds has announced it has entered into a binding agreement with regards to the disposal of the its and its black economic empowerment partners’ 75.9% interest in the KEM JV to its JV partner, Ekapa Mining for a ZAR300 million.

Kimberley Ekapa Mining JV (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.

The disposal will be on a going concern basis, with Ekapa Mining taking on all of Petra Diamonds' 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 installments 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 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