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Annual Report and Accounts 2011

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Finsch

 

At a Glance About About
Finsch:

Finsch is one of the world's major diamond mines and is expected to more than double Petra's annual production (steady state), contributing ca. 1.5 Mctpa initially to Group production, rising to nearly 2 Mctpa by FY 2018.

Purchase consideration

US$192m

Major reserves and resources contribution

43.7 Mcts

Initial annual production contribution

1.5 Mctpa

 

+45 carat stones
Average of 27 stones of +45 carats recovered per annum over the last four years

A further flagship mine for Petra

In January 2011, Petra announced that it (together with its empowerment partners) had entered into an agreement to acquire the Finsch diamond mine in South Africa from De Beers Consolidated Mines ("DBCM") for R1.425 billion. The acquisition completed on 14 September 2011 and as the mine was acquired as a going concern, Petra assumed management (including production, revenues and cashflow) immediately.

Rationale for the acquisition

Finsch offers a seamless fit with Petra's current operations in South Africa. As the asset is situated approximately 165km north-west of Kimberley, the location affords regional operational management synergies with Petra's Koffiefontein, Kimberley Underground and Sedibeng (fissure) operations. The addition of another major mine to Petra's portfolio also serves to increase the Group's critical mass, with numerous benefits across areas such as the sharing of technical expertise, personnel and economies of scale in procurement. Petra will leverage off its experience of extracting optimal value from previous acquisitions.

Finsch mine plan

The Finsch orebody is mined using the high volume, low cost block-cave mining technique, also used at Petra's Cullinan and Kimberley Underground operations. Mining at Finsch is currently taking place in Block 4 of the orebody at a depth of 630m. Finsch currently mines approximately 3.2 Mtpa from Block 4 at a current grade of over 35 cpht. The Block 4 cave is towards the end of its life and is expected to be depleted by FY 2015.

Subsequent to the depletion of Block 4, underground production will be derived principally from Block 5, a new block cave beneath the current operations. Petra intends to maintain production levels from underground during the transition from the Block 4 cave to the Block 5 cave by developing smaller sub-level caves within the Precursor orebody (adjacent to the main orebody) at Block 4 level and within Block 5 itself. By so doing, Petra expects to maintain underground production levels at approximately 3.2 Mtpa, ramping up to around 3.5 Mtpa by FY 2018 once the Block 5 cave is fully operational.

Underground production is supported by tailings retreatment. Finsch is currently treating the Pre-1979 tailings, which have a recovered grade of approximately 19 cpht. The Pre-1979 tailings are expected to be treated at a rate of approximately 3.5 Mtpa until depleted in FY 2015. Thereafter, tailings from later mining operations, which carry a lower grade of approximately 10 cpht, remain available for treatment. It is expected that tailings production will cease in FY 2020.

Petra's current mine plan forecasts initial diamond production of approximately 1.5 Mctpa (comprising approximately 900,000 carats from underground and 600,000 carats from tailings) in its first full financial year of ownership, increasing with the commencement of the Block 5 cave to a steady state production of nearly 2 Mctpa. Given the major resource of 43.7 Mcts at Finsch (including 25.8 Mcts in the reserve category and 2.5 Mcts in tailings), Petra foresees a long life for the operation and has a current mine plan of 18 years, though the orebody remains open-ended at depth.

For planning purposes, Petra had originally assumed an average of US$135 per carat for ROM production and US$80 per carat for tailings. Management subsequently upgraded its medium term price expectations to US$180 per carat for ROM and US$95 per carat for tailings.

Whilst diamond prices have fallen from the highs of June 2011, when management upgraded its medium term price expectations, management remains confident that when the rough diamond market recovers, its medium term price expectations for Finsch will be comfortably achieved.

Financing

The purchase consideration for Finsch of R1.425 billion (US$192 million) was settled out of Petra's internal cash resources, further to the equity placing in January 2011 which raised £205 million (ca. US$325 million).

Petra has fully funded the BEE partners' 26% share of the acquisition consideration via loans, which will be repaid by the BEE partners from their share of future Finsch cashflows.

The capex over the next six years for the underground and infrastructure development programme is estimated to be approximately US$348 million (in 2011 money terms, assuming a constant exchange rate of R6.75:US$1) and is expected to be financed from a combination of the Group's debt facilities and operational cashflow.

image of fisch base