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Petra agrees $78m debt facility to fund mine expansions

2 June 2010

Source: Miningweekly

Author: Loni Prinsloo

JOHANNESBURG (miningweekly.com) - London-listed Petra Diamonds said on Wednesday that it had negotiated a new debt facility of $78-million, which it would use to fund expansions at its Williamson mine, in Tanzania, and its Cullinan mine, in South Africa.

Petra Diamonds CEO Johan Dippenaar said that the financing would position the group well to deliver on its core objective to treble its yearly production to over three-million carats.

The company arranged the debt facility with World Bank member, the International Finance Corporation (IFC), and Rand Merchant Bank (RMB).

Petra Diamonds financial director David Abery said in a conference call that the debt package would be used to finance expansions at the Williamson and Cullinan mines, and that it would provide the flexibility within Petra's own treasury to repay the balance of its previous Al Rajhi loan of $31-million, plus the R1-million interest accurred.

Dippenaar noted that even though the company was taking on net debt, it was essentially restructuring its balance sheet to provide the company with increased flexibility and headroom.

Abery added that the new debt facility would provide Petra with some leeway of from around R10-million to R20-million that could be used to potentially fund other organic production growth opportunities currently under consideration.

"These debt facilities may even allow the company to further fast-track production, also looking at our tailings operations. The group will consider carefully whether it needs to take full advantage of the drawdown of the facilities, but to secure the financing at this time provides Petra with the scope and flexibility to bring the stated production and revenue growth opportunities to account," said Abery.

In terms of the agreement, Petra would receive $40-million from the IFC and $38,7-million from RMB over a five-and-a-half year debt facility.

Abery explained that the IFC loan would be fully allocated towards the development of the the Williamson mine, in accordance with the corporation's mandate.

Petra will be putting in place an expansion programme to increase throughput at Williamson from an average of two-million tons a year to ten-million tons a year, which at an average grade of 6ct for every hundred tons would yield an estimated yearly production of some 600 000ct. The expansion plan is estimated to take up to three years to complete.

The RMB loan would mainly be used to expand the Cullinan mine, but could also be applied towards other operational expenses, said Abery.

The Cullinan kimberlite pipe hosts the world's second-largest diamond resource by on-site value. Petra is currently operating the mine at about two-million tons a year, but targeting an underground mining throughput target of four-million tons a year by 2019, ramping production up from one-million carats to 2,2-million carats between 2014 to 2019.

In addition, a large tailings operation is expected to process an additional four-million tons a year, yielding 400 000 ct/y from the 2014 financial year, ramping up Cullinan's total yearly production to 2,6-million carats by the 2019 financial year.

Dippenaar pointed out that funding at this scale in the diamond industry was not common, owing to the fact that banks still perceived the industry as a high-risk investment, especially after the economic recession.However, he said that the involvement of the IFC and RMB endorsed the qualiy of Petra's asset base and Petra's solid fundamentals for revenue and earnings growth.

Dippenaar noted that current trading in the industry remained strong, and that the company was cautiously optimistic for the next financial year. He added that some sideways movement in diamond pricing would not necessarily be a bad thing.

The full legal agreement between Petra and the lenders will be signed in July.