Owner of the famous Cullinan mine, Petra Diamonds has expansion plans in place to produce three million carats this financial year (to 30 June 2014) and to ramp up to five million carats by FY 2019, says CEO Johan Dippenaar.
The company recently sold an exceptional 29.62 carat blue diamond recovered from Cullinan in January for $25.56 million. Dippenaar, who appears in photographs released by the company holding the blue diamond, tells Inside Mining that it was an extraordinary experience, “this incredible concentration of value in your hand.”
He continues: “This is what is nice about our business. It is not another trainload of coal. There is obviously the excitement that these stones bring, and they are truly beautiful to behold. I hesitate to call diamonds a ‘commodity’, as they are so much more.”
Africa produces 60% of the world’s diamonds by value annually, and Petra Diamonds plays a significant role in that. It owns and operates five producing mines in South Africa: Finsch, Cullinan, Koffiefontein, Kimberley Underground and Helam, one in Tanzania (Williamson), and is undertaking exploratory work in Botswana (in a co-operation agreement with Manica Minerals Ltd.).
No Tier 1 discoveries for 20 years
The significance of Cullinan is underscored by the fact that there are less than 30 kimberlite mines in production today. There have been no Tier 1 discoveries akin to Cullinan for 20-years, despite billions of dollars poured into exploration programmes in the 1990s.
However, Petra Diamonds is itself not immune to the general constraints facing the diamond sector, with there being a number of ‘risks and uncertainties’ that have been flagged as having the potential to exert a material impact on its long-term development. Hence managing these risks is integral to the company’s continued success.
From a mining perspective, the biggest challenge in the short term is management of run-of-mine (ROM) grades, especially at Finsch and Cullinan, given that current mining at both operations is taking place in mature caves, where the ore is now diluted with waste rock. This means that volatility can be expected in recovered ROM grades at these two operations until such time as the new mining areas have been accessed, which are expected to deliver undiluted ore to the production profile from FY 2015 onwards.
Undiluted ‘gap filler’ tonnes
“We are managing this issue by developing access to undiluted ‘gap filler’ tonnes which can be drawn while the expansion plans advance,” says Dippenaar. “We are implementing a development plan to open up new mining areas below the current Block 4 operations,” confirms Dippenaar. Production levels from underground will be maintained during the transition to the Block 5 cave by means of developing a sub-level cave (SLC). Dippenaar also confirms that this is “progressing in line with expectations”, with 2 953-m of tunnels being developed to date, out of a total of 10 072-m, of which 6 246-m relate to kimberlite tunnel development.
An interesting change at Finsch has been the decision to implement a tried-and-tested conveyor system to transfer SLC material to the existing loading and hoisting infrastructure on the 650 m level, as opposed to the Rail-Veyor® system envisaged earlier. This plan was revised “following further technical analysis of the capital and implementation costs,” says Dippenaar.
At Cullinan, construction and commissioning of the new tailings treatment facility has been completed, confirms Dippenaar. However, the ramp-up to full production has been slower than expected. The re-crush model, which will boost the liberation efficiency and hence the recovered grade, is currently under construction. Tailings production is now forecast at 2.2-Mtpa this year, with a steady-state level of 2.7-Mtpa in FY 2015, at a grade of 7.5-cpht.
World-class diamond resource
Cullinan boasts a world-class diamond resource of 200.8-Mcts, which Petra Diamonds hopes to capitalise on by means of an ambitious expansion programme up to FY 2019. The so-called C-Cut Phase 1 will establish a new block cave on the western side of the ore body, in the upper portion of the major C-Cut resource, which is estimated to contain about 133-Mcts in total.
Dippenaar explains that volatility of the ROM grade will remain a challenge at Cullinan while production continues to come from the more mature areas of the mine, due to the significant dilution of the ore drawn from the older production zones. However, the grade is expected to increase gradually from FY 2016. It will rise to around 50-cpht by FY 2019 when only undiluted ore will be mined and treated.
“The development of the underground declines and access tunnels, as well as the shaft preparation work, is progressing in line with expectations,” confirms Dippenaar. The South Decline is complete, and tunnel development is progressing apace, with 7 068-m developed to date, out of a total of 24 575-m.
Grown in all measures
Looking at the company’s latest results, Dippenaar notes that it has grown in terms of all important measures, from production to revenue, profitability and cash flow. “We started out on a journey of building up these mines that were deemed non-core, or more end-of-life type assets, and that build-up has been quite successful.
“This year we will generate a cash flow closer to $200-million, which will then more or less pay for the capital expansion programme. It changes the footing that the company is on, as before it had to draw on debt facilities to fund the programme going forward. We have now reached the point where the cash flow is equal to, or maybe a little bit more than, the capital spend.
Despite the current difficult mining conditions, with grades under pressure, Dippenaar says that the company’s plans will start to bear fruit from FY 2016. “When we get to FY 2019, we will still be heavily dependent on the volumes from Finsch and Cullinan, with valuable contributions from mines with smaller volumes, but it will be a nicely balanced portfolio. All this is by means of organic growth from our existing mines.”
Consistent diamond profile
Key to this growth is the fact that Petra’s mines all deliver a consistent profile of diamond production, despite the occasional special stone. “We have a standard assortment every time we go to the market. That consistency of size and quality within the size range delivers a constant average dollar-per-carat value for each operation,” says Dippenaar.
Looking at the diamond market in general, Dippenaar says: “We have seen the market firming up towards the end of last year, and then this January-March period there was a nice uptick. It seems like prices have consolidated around these levels, and it is a healthy situation.”
Indeed, the first six months of 2014 have shown Petra Diamonds firing on all cylinders, with profit from mining activity up 115% to $73.4-million. Operating cash flow is up a staggering 249% to $91.9-million. In addition, the significant slump in the rand versus the dollar has assisted further in reducing costs.
Transition from mature mining blocks
“Looking forward, Petra’s production growth will be driven by the transition from the mature mining blocks, where a high degree of grade dilution is recorded, to new mining areas, which will provide access to undiluted ore,” summarises Dippenaar. The impact will see the company’s margins increase from +30% currently to +50% by FY 2019, due to the increased diamond content in the tonnes drawn from underground.
“These margin improvements will be assisted by ore-handling simplifications and other initiatives to drive efficiencies that have been built into each operation’s expansion programme,” says Dippenaar. “Petra’s strategy is to continue to deliver on its expansion plans into these new mining areas, and to increase its cash-flow generation.”