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    Petra Takeover of Crown Creates Compelling Diamond Proposition
    By Stephen Clayson
    12 Feb 2005 at 06:09 AM EST

    The impending takeover of ASX listed Crown Diamonds by London AIM listed Petra Diamonds will create an enhanced firm with substantial interests in both exploration and production, indeed becoming ‘the biggest pure diamond play in London or Australia’ according to Petra’s CFO David Abery.

    The deal should create a stable platform from which to develop Petra's highly promising BHP Billiton joint ventured Alto Cuilo project in previously troubled Angola, which has been relatively peaceful since its 25 year civil war lulled to a hopefully permanent hiatus in 2002. According to the joint venture agreement BHP is required to spend $60m in order to acquire 75% of the Petra subsidiary that holds the Alto Cuilo project, after which funding by the two companies would continue in a quantity proportionate to their shareholdings in the aforementioned subsidiary.

    The Alto Cuilo project is thought to hold quite significant alluvial diamond deposits, but even greater potential lies with the kimberlitic resource, which is currently estimated at 115mt and is described by Mr Abery as having the potential to be ‘one of the world’s largest kimberlitic deposits’.
    Encouraging exploratory alluvial production has already been attained from Alto Cuilo with drilling to be undertaken this year and next that is intended to further define and upgrade the kimberlitic deposit, which is partially obscured beneath large amounts of sand.

    Alto Cuilo is currently undergoing a pre feasibility study and preliminary economic evaluation. A full feasibility study on a project of this magnitude is likely to take around three years, with full commercial production realistically a minimum of five years away.
    An early estimate of the construction cost of a mine at Alto Cuilo is $250m, while costs per tonne have been plausibly projected at $25. What the Crown takeover primarily brings to the enlarged group is ready cash flow from its three producing mines in South Africa that might enable Petra to see Alto Cuilo to fruition without inordinate financial hardship. The takeover also bolsters the management expertise available to the new entity in the advancement of its goals.

    Petra's share of the Alto Cuilo project now stands at 36% of kimberlitic deposit and 38% of the alluvial, but according to Mr Abery ‘negotiations are ongoing’ with local joint venture partners regarding the increase of this stake, and the company is ‘very confident’ that something will be achieved on this front.
    Petra’s CFO imparts that output from the Crown assets is hoped to be ultimately increasable to around 200,000 carats per annum with a level of 167,000 carats forecast for 2005, and that each of Crown's currently producing assets have projected mine lives in excess of 15 years.

    Crown also brings to the group an interesting prospective joint venture of its own, held with Mano River Resources in Sierra Leone. Here $1.5m is being spent to secure the company’s 51% equity and profit interests, with small scale exploratory production likely to take place in 2005 and the first commercial output expected in 2006.

    After the conclusion of the takeover deal, which is expected in 6-8 weeks, the enlarged Petra will undertake an institutional placing on both the ASX and the AIM in accordance with its new dual listed status.
    Whilst the thrust of Petra is firmly on the progression of Alto Cuilo the company also has some other assets in its portfolio, though these are very much subordinated to the flagship project.
    The company has retained the rights to a cluster of seven properties in South Africa called Limpopo Farms that had previously been under joint venture consideration by Rio Tinto, but in the event they were not deemed likely to prove sizable enough. Despite this Mr Abery says that ‘an awful lot of kimberlitic indicators remain’, and that Petra may look at joint venturing these properties, probably with another junior given the rejection by Rio Tinto. The company is also conducting bulk sampling at it Syerfontein concession in South Africa.
    In addition to the Alto Cuilo project Petra holds in Angola a 5% carried interest in the Muriege green field diamond prospect, as well as the Medio Kwanza concession where kimberlitic deposits are know historically to exist and may one day be further explored by the company.
    Petra is also looking at other projects outside its portfolio, which according to Mr Abery are most likely to take the form of joint ventures or interests in prospective land parcels, and not stakes in public companies. Petra's immediate priority is of course overseeing the mechanics of the Crown acquisition transaction and associated restructuring, and this is proceeding on track.



 
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