Low Prices Trigger A Four-Way Merger Proposal For African Diamond Miners

Gem Diamond Mine

Tough times in some parts of the diamond-mining industry has prompted an innovative solution, a four-way merger to create a new southern African diamond specialist.

The proposal, from the London office of the German bank, Berenberg, could see Gem Diamonds, Petra Diamonds, Lucara Diamond Corporation and Firestone Diamonds emerge as a single business with enhanced financial metrics courtesy of cost savings and a focus on big, high-quality gems.

If the deal happens, and at this stage it is just a proposal from Berenberg and not something the diamond-miners have embraced, the new business would have mines in South Africa, Botswana, Tanzania and Lesotho.

3% By Volume, 8% by Value

Collective diamond production would total five million carats a year, which is equivalent to 3% of global output, but more importantly the proposed business would account for 8% of diamond supply by value.

The difference between volume and value is the key to Berenberg’s plan which has been published at a time when miners of small and low-grade diamonds are battling a flooded market whereas companies able to supply high-quality gems are generating strong profits.

An uncut 25 carat diamond mined in Botswana.

Values At Trough Levels

Berenberg said in a research report titled “Consolidating African diamond mining” that current valuations of diamond mining companies were at trough levels with lacklustre enthusiasm for the sector.

“We think something new is needed to return this sector to its former glory,” Berenberg said.

The bank said the logical way to start the process would be for a transaction between Lucara and Gem, which would create the go-to business for large diamonds, followed by a transaction with Petra and then with Firestone rolled into the structure.

Each company has its own production profile but Lucara is the best known for big diamonds having given the world the monster Lesedi La Rona in 2015, an 1109 carat stone which sold for $53 million and has since been cut into 67 smaller gems by Graf Diamonds.

Strong Cash Flow 

According to Berenberg’s multi-stage merger proposal the new business would emerge with annual revenue of around $1.1 billion and free cash flow of $200 million.

The merged business would overcome problems which hurt investor interest in smaller diamond miners including low stock-market value, high debt levels, project risk, limited growth options and a lack of return to shareholders.

“Our $1.3 billion market capitalization business would have listings in Canada, London and Sweden and, through the ability to pay an attractive dividend (we calculate a possible yield of 7%-to-8%) and the potential to attract investment from a range of global investors,” Berenberg said.

Source: Forbes

Petra Diamonds needs to raise $178 million to urgently cut debt

Petra Diamonds

Mining firm Petra Diamonds said it aims to raise $178 million to help cut its debt burden, and warned it could run low on working capital and breach its debt covenants if shareholders do not back the proposed rights issue.

Petra, which last month finalised an agreement with its lenders for a waiver of its December 2017 debt covenant and a resetting of debt agreements for this year, said it would offer new shares at 40 pence.

That marks a 35.6 percent discount to the theoretical ex-rights price of 62.15 pence calculated in reference to the closing price of its shares on Wednesday.

Shares in the London-listed company tumbled as much as 19 percent after the company’s statement.

“If the resolutions to be proposed at the special general meeting are not passed, the rights issue will not take place and the company will not receive the net proceeds from the rights issue of approximately US$170 million,” Petra said in a statement announcing the new share issue.

“In such circumstances, the company is of the opinion that the working capital available to the group will not be sufficient during the working capital period based on the reasonable worst case scenario.”

Investors will vote on the rights issue in a special general meeting set for June 13.

Petra has been hit by production delays, strikes, a confiscated consignment of diamonds and a strong South African rand and has sought waivers from its lenders three times.

There were also no refunds on value-added-tax (VAT) from the Tanzanian government.

Petra said it would use up to $120 million from the cash call to pay down debt and the balance would buffer its working capital against the strength in the rand.

Petra’s debt had risen to $622 million as of last month, from $500.2 million at the end of March 2017.

The company targets a reduction in the leverage of 2 times or less net debt to core earnings or EBITDA by the end of 2020.

The fund raising is underwritten by RBC Capital Markets, BMO Capital Markets and Barclays.

“We expect the share price to trade down towards the ex-rights price, but our view is that once the refunding is completed price appreciation is likely,” said Canaccord Genuity analyst Des Kilalea.

“This is because the risk from the balance sheet will be reduced and returns from improved operations will flow through to equity.”

Reporting by: Zandi Shabalala

Petra Diamonds record output

Petra Diamond mine

Shares in Petra Diamonds climbed almost 8% on Monday after the miner reported a significant revenue increase in its third quarter driven by record production in the first three months of 2018.

The South African diamond producer, owner of the iconic Cullinan mine, which produced the diamonds for the British crown jewels, said revenue for the quarter ended March 31 climbed 44% to $172 million, from $119 million a year earlier.

Petra Diamonds saw third-quarter revenue grow by 44% after it produced and sold more gems.

The company, known for some major recent findings, attributed part of the revenue growth to the fact it sold 1,373,771 carats of diamonds compared to 1,069,886 sold in the same period a year earlier.

While production jumped 20% to a record quarterly volume of 1,194,947 carats, Petra said illegal mining at its Kimberley Ekapa Mining JV dented output during the quarter by restricted access to high grade dumps at the surface re-treatment operation.

It also said its full year 2018 revenue continued to be impacted by the inability to sell a blocked diamond parcel from it Williamson mine of about 71,000 carats. The shipment was seized by the Tanzanian government in September last year, as part of the country’s ongoing probe into alleged wrongdoing in the diamond and tanzanite sectors.

Chief executive Johan Dippenaar said the company’s focus would move away from volume targets to value optimization.

‘While we are very encouraged by the operational delivery against our long-term expansion plans, risks to performance continue to relate to increased volatility in the ZAR/US$ exchange rate, grade and pricing variability at Cullinan,” Dippenaar said in the statement, adding that the outlook for its Williamson mine as well as the blocked diamond parcel were also weighing on the company’s future.

Diamond Producers Association launches India operations

Diamond Producers Association

The Diamond Producers Association announced the launch of their operations in the country to build confidence among consumers.

India polishes 85 90 percent of the diamonds today accounts for only seven  percent of the global polished diamond consumption. DPA believe this is a huge opportunity to build the India market by promoting the integrity and reputation of diamonds and ensuring the sustainability of the industry.

DPA has reached out to 3,000 retailers and will offer training and education in diamonds.  DPA will expand training across the country.

The DPA is an alliance between ALROSA, De Beers, Dominion Diamond, Gem Diamonds, Lucara Diamond, Petra Diamonds and Rio Tinto. These are the leading diamond miners globally. Which together produce over 75 percent of the world’s rough diamond production.

DPA is also working with the Gem and Jewellery Export Promotion Council to build trade relationships and best trade practices.

 

Rapaport to Auction Historic Sierra Leone 709ct. Peace Diamond

709 carat rough diamond

Rapaport Group has been appointed as the marketing and sales agent of the Peace Diamond by The Government of Sierra Leone.

The 709 carat Rough Diamond was recovered by diamond diggers in the village of Koryardu in Sierra Leone West Africa.

50% of the Peace Diamond sale value will directly go to benefit the community where the diamond was discovered, and the people of Sierra Leone.

 

Petra Diamonds shares drop

Petra Diamond mine

More trouble for diamond miner Petra Diamonds  yesterday after it warned it is heading into financial trouble with its lenders.

Petra has borrowed heavily to expand its operations in the country. The company is now likely to breach its banking covenants at the end of the year, because of the row with the government in Tanzania. As well as strikes at three of its mines in South Africa.

Petra diamonds is known for the size and quality of the diamonds produced at the famous Cullinan mine outside of Pretoria in South Africa.

 

Petra Diamonds suspends operations at its Tanzania mine

Williamson Diamond Mine Tanzania

The Tanzanian governments confrontational approach to miners operating in the country including  Petra Diamonds, has led to Petra suspending operations at its mine.

The Tanzanian government seized a shipment of rough diamonds belonging to Petra. They also question and held a number of staff in the latest assault on the African country’s mining sector.

This includes the concentrate exports ban and the non repayment of value added tax.

Tanzania confiscates diamonds from British mining company

Tanzania confiscates diamonds

The Tanzanian government has announced the seizure of diamonds worth an estimated $29.5 million after accusing British company Petra Diamonds, of undervaluing the worth of the gems.

Minister of Finance Philip Mpango stated on Sunday that he had “nationalized” these diamonds, extracted from the Williamson Diamonds mine, 75% owned by Petra Diamonds and 25% by the Tanzanian government.

The diamonds were seized on 31 August at the Dar es Salaam International Airport while being exported to Belgium.

According to the Tanzanian authorities, Williamson Diamonds’ documents indicated an estimated cargo of $14.7 million, while the actual value of diamonds, deliberately undervalued, was $29.5 million.

“Williamson Diamonds documents give these diamonds a value of $14.7 million (pre-market) while the actual value is $29.5 million,” the Finance Ministry said in a release Saturday.

On Thursday, two former senior mining officials, quoted in parliamentary reports on alleged embezzlement linked to diamond mining and trading, resigned on the orders of President John Magufuli.

Former Minister of Mines, George Simbachawene, who until his resignation was Minister of State for Local Government, and the former head of the National Mining Company (STAMICO), Edwin Ngonyani, Deputy Minister of Public Works and Transport until Thursday.

The two ministers resigned at the orders of President Magufuli, who had just received the findings of two parliamentary reports that put them in question.

President Magufuli demanded that all current government officials be blamed for this case and leave without waiting for them to be dismissed.

Nicknamed “Tingatinga” (bulldozer in Swahili), President Magufuli has marked the spirits since taking office at the end of 2015 by being inflexible in the fight against corruption.

He hired a tug of war with the large foreign mining companies operating in Tanzania, after a parliamentary report accused them of dumping their production, resulting in a tens of billions of dollars in taxes and royalties since 1998.

But Mr. Magufuli’s unconscious and abrupt style also earned him the title of autocrat and populist by his detractors, while freedom of expression is increasingly reduced in the country.

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