[miningmx.com] – PETRA Diamonds said it would “cast its net wide’ in
search of buyers for its non-core South African mines Helam, Sedibeng and Star –
operations that had 10 to 12 years of life left. A sales agreement would be “within
months’, it added.
“It’s true the [fissure] mines have been going for 50 years. But at current rates of
production, there’s quite a bit of life left in them,’ said Johan Dippenaar, CEO of
Petra Diamonds. “There are no specific companies we intend to sell them to, but we
will cast our net wide because we believe these mines have a good future ahead of
them.’
Fairfax, a UK broker, observed: “It will be interesting to see the valuations/potential
buyers for these mines. The disposal of the mines should help with Petra’s capex
plans over the next three years, which is currently projected at $565m.’
Another UK broker, Libertas, said Petra would fetch no more than $20m for the
mines. “With annualised revenues of just under $20m, one would be daft to pay any
more than this for their Fissure Operations,’ it said. It added it remained sceptical of
Petra’s business plan until it converted output growth into earnings and dividends.
Dippenaar was commenting following the publication of the group’s production
update, in which it posted a doubling in output for the year ended-June to 2.2
million carats, and lifted revenue 44% to $317m year-on-year.
The uplift was principally due to 74%-owned Finsch mine, the operation Petra
bought from De Beers, and which was fully incorporated in Petra’s figures. Shares in
Petra were 1% lower at £1.25/share.
Petra said it had no plans to adjust its capital expenditure programme “at current
pricing levels’ following an announcement by peer group rival, Gem Diamonds,
yesterday (30 July) that it would reassess its capital spend. Capital expenditure
came in as per guidance at the beginning of the year under review at $134m.
However, Petra was non-committal on whether it would press ahead with the second
phase expansion of the Williamson mine in Tanzania.
In terms of its proposed expansion programme, the mine could be increased to
600,000 carats/year from its 2012 financial year output of nearly 43,000 carats.
However, the expansion approval turns on guarantees of electricity supply from the
Tanzanian authorities. “We will keep the market updated if we can roll out
production in the coming years,’ said Dippenaar.
Petra confirmed, however, it was seeking to restructure its balance sheet. The
company recently concluded a $25m loan agreement with the IFC, and a parallel
agreement with Rand Merchant Bank to help it finance Finsch.
Petra CFO, David Avery, said the company was well progressed on discussion for a
longer term restructuring package, one that would be larger than current total debt
of $148m and extend across the group.
Commenting on market conditions, Dippenaar said demand had turned down
between 10% and 12% in the last two months of the 2012 financial year. “Our
tenders are still well attended but what we’re seeing is more caution from our
clients,’ he said.
“We expect the market to be under pressure for the next six months owing to
turmoil in the markets. We’re not dependent on European sales but turmoil there
will affect economic activity and confidence,’ he said.
The sale of the South African mines would be based on the ability of buyers to retain
jobs, said Petra. “The Fissure Mines produce high value stones and under the right
ownership they have the potential to deliver strong returns for many years to come,
whilst at the same time providing employment to the communities in the
surrounding areas,’ Petra said in its press announcement.
The mines were Petra’s first producing mines when it completed its founding merger
with Crown Diamonds in 2005. However, they were contributing less and less,
Dippenaar said. Petra is aiming for five million carats/year in production by the 2019
financial year.
