Johan Dippenaar.

Petra CEO Johan
Dippenaar
.

Despite all factors pointing to an extremely difficult time in trying to maintain diamond production levels throughout the world, Petra Diamonds, now one of the world’s largest independent diamond groups in terms of resources, intends not only achieving a fivefold increase in its South African production by the end of its current financial year on 30 June 2009, but re-doubling that diamond output by 2013.

This was the prediction by CEO Johan Dippenaar in an interview with Mining Review Africa. “We have built up a very proud record of delivering on our promises,” he says. “For example, we had said we intended to produce 500,000 carats by 2010, and now we are on track to produce one million carats by next year.”

Petra’s newly-acquired Cullinan mine

Petra’s newly-acquired Cullinan mine
– the largest of all its operations, and
capable of producing over one
million ct/y
.

This compares with total production of just over 200,000 carats in the 2008 financial year. “As far as our anticipated doubling from one to two million carats a year (ct/y) in three to four years is concerned, we feel that most of that could be delivered from existing operations,” Dippenaar says. “Our growth plans have not included the possibility of any new discoveries.”

“First of all, one cannot be sure that exploration will be successful, and even if it is it will take more than the three or four years we are talking about to reach full production and sales. What could come into the picture would be any new acquisitions. Our aim is to keep growing, and obviously if something with the right profile comes along, we will certainly have a look. I must emphasise, however, that we do not have anything specific on the horizon at this time.”

Petra today has a total resource base of 265 million carats, worth US$27.3 billion, whereas the resource base a year ago stood at a mere 11 million carats.

The group has five producing mines in South Africa – Cullinan, Koffiefontein, Helam, Sedibeng and Star. It has also reached agreement to acquire another South African asset from De Beers – Kimberley Underground Mines, which includes the Wesselton, Du Toitspan and Bultfontein mines, three historic mines that were at the heart of South Africa’s diamond rush in the late 1800s.

The Cullinan diamond mine does not feature in Petra’s results for the financial year to 30 June 2008.

In that period total production at the newly acquired and re-opened Koffiefontein mine and the three fissure mines – Helam, Sedibeng and Star – amounted to 200,287 carats, of which Koffiefontein produced 89,622 carats.

Revenue for the year topped US$77 million with 230,172 carats sold at an average price of US$336 per carat. This is a huge improvement on the previous year, with revenue almost five times the US$16.7 million achieved in fiscal 2007, and a 250% rise in the average price per carat.

The company took over management of its latest acquisition, the Cullinan diamond mine, which it agreed to acquire from De Beers for R1 billion, in July this year. Cullinan, one of the world’s most celebrated diamond mines, 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. Cullinan remains, after Kimberley, probably the most famous diamond mine in the world. A quarter of all stones over 400 carats have come from this mine, and it is the only significant, reliable and consistent source of the extremely rare blue diamonds in the world.

A worker at Kimberley

A worker at Kimberley Underground
Mines – Petra’s acquisition of these
operations is due to be complete
by the end of 2008.

“We intend producing between 700,000 and 800,000 carats at Cullinan in the current year, and we plan a steady increase in production,” Dippenaar says. “We have sufficient reserves to conduct an underground mining operation in excess of one million ct/y for 20 years from 2010, which has the potential to deliver annual revenues of some US$100 million.”

He also reveals that Cullinan had a 165 million tonne tailings resource, containing around 16 to 18 million carats of diamonds. “We plan to start bringing that operation into production as well, and we would be aiming at fairly steady production about two years from now. We will employ our usual strategy of running some of the dumps, consolidating our information, and then deciding on the scale of the operation.”

“Looking at future production at Cullinan, although we are aiming at up to 800,000 carats in the current financial year, and one million carats from 2010, one must bear in mind that in years gone by Cullinan has on occasion produced 2.5 to three million ct/y for years at a time,” Dippenaar points out. “We are not making any promises that this will happen again, but what we are saying is that we will come to grips with the operation, bed it down, do our calculations, and then slowly deliver more growth.”

Petra acquired the closed-down Koffiefontein mine from De Beers in July 2007 for R81.9 million and, having conducted care and maintenance activities at the mine in the 12 months prior to completion, was able to bring the mine back on stream immediately.

In its first year to 30 June 2008, the mine produced 89,622 carats and sold 105,479 carats at an average price of US$484 per carat at grades of about nine carats per hundred tonnes (cpht), a significant improvement on the grade modelled in Petra’s original business plan of 7.4 cpht. Koffiefontein revenue for the year was US$51 million.

The Koffiefontein Mine

The Koffiefontein Mine – one of
the world’s top kimberlite mines
in terms of average value per
carat.

“Life of mine for Koffiefontein is currently calculated at 14 years, but we are doing some work on the reserves and resources, and we hope, in the not too distant future, to come up with a mix of increased production and longer life,” Dippenaar says.

Petra acquired its three fissure mines in mid 2005 through the merger with Crown Diamonds, and now tends to run them as a single business unit. The nature of mining narrow vein fissure orebodies only allows for low tonnage operations, and specialist underground hard rock mining expertise has been developed – a high quality internal skill set, covering areas including exploration, manufacturing, engineering, plant design and underground mining.

“We achieved a turnover of about US$26 million for the three fissure mines in the 2008 financial year, an increase of more than 50% on the previous year on the back of lower production, which fell from 136,051 to 110,665 carats,” he says. “The average value per carat for Petra’s three fissure mines is running at US$211 per carat, which is high compared to the world average of US$90 a carat for a hard rock mine.”

The fissure mines also regularly produce exceptional diamonds, including a number of stones which have sold for over US$1 million each in the last few years.

“When we only had those assets we obviously squeezed out every carat we could, but with our new acquisitions it became less important to chase the carats, and we were able to focus more on the primary mining operation, making higher recoveries. It gave us the opportunity to concentrate more on delivering higher value production,” Dippenaar observes.

“In the light of our recent acquisitions, the fissure mines have become a much smaller part of our business, but they should maintain steady performance this year, and we will keep on evaluating them. They remain a very nice contributor, and they have a life of at least 15 years. There’s no doubt that they will continue – it’s just a case of how will they fit into our overall portfolio of assets.”

Star mine

Star mine – one of Petra’s
three fissure mines which were
acquired when the company
merged with Crown Diamonds in
2005.

“Meanwhile, Petra has already started doing care and maintenance at Kimberly Underground Mines, under the De Beers licence, so we are preparing the underground areas, erecting the plants for ore treatment, and as part of the whole exercise we are already pulling some ore from underground which we are stockpiling,” Dippenaar says. “We expect to re-open the operation and start actual mining in January/February 2009, and we will be up to desired level within a month or so.”

Based on historical production and sales information, Petra expects annual sales from Kimberley Underground in excess of 100,000 carats at an average of US$160 per carat once full production is recommenced, giving gross annual revenues in excess of US$16 million and a life of mine of at least 10 years.

“Our level of production could be substantially higher once we complete our work on updating and establishing resources and grades.”