“CDIH is a very small business that has developed a good idea and we are
now going to put in money and develop it,” Petra CEO Johan Dippenaar told
Miningmx.
a lot more flexibility to
beneficiate diamonds
“It’s not like it’s a cutting factory that is doing thousands of
carats. It’s just a concept that was developed and that we are now going to
put capital into to expand,” he said.
As CDIH reaches certain consistent production targets, Petra will issue warrants
over 750,000 Petra shares at an exercise price of 114.5 pence each or an
equivalent amount in cash by way of further payment.
Dippenaar was reluctant to discuss throughput, production targets and costs,
saying he was wary of raising expectations too high and it is still early in
setting the process up to reach commercial production.
Dippenaar was very clear on the strategy behind the purchase, saying the
technology would be rolled out in the other African countries – Angola,
Botswana and Sierra Leone -- where Petra is looking to establish diamond
mines.
Enormous value is added to rough diamonds by cutting them and polishing them
ahead of putting them into jewellery.
South Africa has been leading the charge of African countries demanding that
producers of raw minerals add value to those products in the country they were
mined so as to create extra revenue by exporting higher value products, and to
create jobs in the downstream processes.
South Africa unveiled a proposed Diamond Export Levy Bill in October designed
to keep diamonds in the country and encourage a beneficiation industry.
The Bill proposes a 5% levy on all the value of all rough diamond exports.
Importing diamonds will bring credits to a producer that can be offset against
the export duty.
Petra is not alone in adopting the strategy to beneficiate diamonds.
Namakwa Diamonds, which will be listed soon, possibly in London, is also
wanting to be a more vertically integrated diamond producer than just a
traditional diamond mining company, said Nico Kruger.
The global rough diamond market is worth roughly $13bn, but his value
increases by some 50% to $19bn in the wholesale polished market. Other estimates
put the rough wholesale market at $14bn, the polished sales market at $17bn,
rising dramatically to $63bn at the polished dealers level.
Kruger won't reveal Namakwa Diamonds' annual production ahead of the IPO,
which is being banked by CitiGroup. But he says the company also has Angolan
concessions it hopes to build into a mine.
Petra produced 175,000 carats in the financial year to end-June 2006 in South
Africa and will grow this to 300,000 carats by the start of financial year 2009.
Part of this growth will come from an empowerment transaction that will give
Petra the majority stake in processing De Beers’ Koffiefontein tailings.
The steady production of rough diamonds of a certain quality means Petra will
more easily be able enter into supply agreements, Dippenaar said.
Petra would be amenable to cutting other companies’ rough diamonds if there
is spare capacity, he said.
The “technology assisted” process that CDIH has developed ensures a
steady, high-quality finish. “I can’t make claims about where it will fit in
the cost profile, but I know it is not out of the park. It will be comparable to
other conventional cost profiles.”
Petra will have “flexibility” when it comes to the size of diamonds that
it can cut, he said.
One of the arguments raised in discussions of the difficulty to grow the
South African diamond and cutting industry is that it is cheaper to cut and
polish smaller rough diamonds in centres like India.
“I don’t want to say it will for sure solve this argument about small
diamonds, but it will suffice to say at the moment we will have a lot more
flexibility to beneficiate diamonds in the smaller size ranges,” Dippenaar
said.
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