Ferret's Stock to Watch: PETRA DIAMONDS LIMITED 09:33, Thursday, 21 September 2006
Sydney - Thursday - September 21: (RWE Aust Business News) **********************************************************
A DIAMOND EXPLORER AND MINER SPEEDING UP OPERATIONS
OVERVIEW ********
Forever casting around for a daily Stock to Watch, Ferret's beady eyes alighted on a report detailing Petra Diamonds Ltd (ASX:PDL) announcing a $US20 million unsecured, interest-free convertible bond as well as the granting of accompanying warrants over two million Petra shares.
The convertible and warrant agreements were concluded at the beginning of the week and have been issued to Al Rajhi Holdings WLL, a member of the Al Rajhi group which is a major Saudi Arabian-based investment group.
Highlights of the deal have generated interest by speeding up operations to discover more encouraging kimberlitic pipes.
One important factor is that Petra will now have the flexibility to act quickly on potential growth opportunities, such as acquisitions or investments in other diamond mines or related businesses.
The financing will strengthen Petra's treasury without burdening the company with further interest-bearing debt and without diluting existing shareholders at the current market price.
In April Petra made the diamond industry sit up and take notice when it sold a 67.1 carat diamond, recovered from its South Africa operations in March, for $US704,265, equivalent to $US10,496 per carat.
"The price realised was in the upper end of our expectations and bears testimony to the stones that can be produced from our South African operations," Johan Dippenaar, Petra's CEO, said.
The convertible bond agreement is unsecured and interest free, repayable by Petra 36 months from the date of issue if not converted.
The bond is convertible by Al Rajhi into Petra shares at a price of 130 pence per share - representing a 24.2 per cent premium to the 30-day average Petra share price.
Petra has granted Al Rajhi warrants over two million Petra shares, exercisable at a price of 130p per share.
Adonis Pouroulis, Petra's chairman, comments: "This convertible bond financing gives Petra the ability to actively consider revenue and production growth opportunities that have the potential to fast-track Petra's development and further entrench the Company as a true mid-tier diamond producer.
"The financing will also serve to underpin our treasury should we decide to expand our exploration interests and exercise our warrants as part of the Xceldiam cooperation agreement.
"We are confident that the growing relationship with Al Rajhi will only assist in Petra achieving its long-term objectives," the chairman said.
Petra's stated objective is to become a true mid-tier diamond group, and with that objective in mind the company continues to scrutinise acquisitions and business opportunities in the diamond sector.
The company has decided not to issue new Petra shares at this time as consideration for any such acquisitions, or as a method of raising equity finance by the placing of new shares at the current market price.
Although Petra has reported solid production growth in the year to June and is aiming to increase production still further in the 2007 financial year, Petra does not wish to take on significant interest-bearing debt burden into the group.
The structure of the convertible means that Petra will have funds on hand for opportunities that pass the company's stringent criteria, and that the company will be able to enter into negotiations knowing that it has the treasury in place to have active discussions.
The company is currently evaluating opportunities that the board believes may have the potential to grow revenue and cash flow.
In the meantime, the proceeds of the convertible will be held by Petra and accrue bank deposit interest and any acquisitions or other business development will be subject to the company's demanding review criteria.
SHARE PRICE MOVEMENTS *********************
Shares of Petra Diamonds yesterday traded steady at $2.62. Rolling high for the year has been $2.74 and low $1.27. The company has 148.3 million shares on issue with a market cap of $388.6 million.
At the beginning of August Petra Diamonds released its report for the June quarter.
The South African mines generate an operating cash inflow of 732,000 pounds for the quarter (March quarter outflow: 210,000 pounds).
Production was 175,000 carats from the South African mines for the year to June (June 2005: 144,000 carats).
Exploration progress at Alto Cuilo continues to make solid progress, with further increases in the number of kimberlites identified and analysis of drill core revealing exceptional indicator mineral chemistry.
Petra has entered into strategic cooperation agreement with AIM-quoted Xceldiam Ltd with regards to Project Luangue.
The Kono project in Sierra Leone delivered its first production in June.
Petra's operations in Botswana made solid exploration progress.
Post quarter end highlights includes identification of the 50th kimberlite at Alto Cuilo.
The bulk sample drill and DMS plant arrived in Luanda with bulk sampling set to commence shortly.
Alto Cuilo's major project in Angolo as a major diamond producer is further substantiated, with 50 kimberlitic occurrences now confirmed by drilling (March Quarterly 38 kimberlitic occurrences) out of 60 targets drilled, a success rate of 83 per cent.
Laboratory analysis of drill core revealed a favourable mantle geotherm conducive for diamond formation in conjunction with some highly encouraging diamond stability field mineral grain counts and compositions, consistent with some of the world's economic kimberlite deposits.
Approximately 26,000 metres of core drilling has now been completed, illustrating the effectiveness of the three drills now working on site.
A total of 190 holes have been drilled to date.
Budget of circa $US20 million for the year to June 2007, to be funded by BHP Billiton, has been approved.
Other operations in the June quarter included:
* Botswana - Kalahari Diamonds - 655 line kilometres of ground geophysical follow up carried out on Xcalibur (gradient magnetics) and Falcon targets in the Gope area (five known kimberlites on Petra's licence areas);
* Sierra Leone - Kono project - Diamond recovery from the first bulk samples achieved in June.
* Sound bulk sampling infrastructure in place alongside the commissioning of the production plant.
* Kono licence area South Africa - Helam, Sedibeng and Star mines.
* Revenue recorded of 3.3 million pounds for the quarter (March quarter: 2.9 million pounds); revenue for the year to June of 11.7 million pounds (year to June 2005 (Crown operations): 10 million pounds).
Production from the South African mines were 43,378 carats for the quarter and 175,012 carats for the twelve months to June (twelve months to June 2005: 143,673).
BACKGROUND **********
Petra Diamonds joined the Australian Stock Exchange on June 20, 2005.
The company is also listed on AIM in London.
Peta is a diamonds explorer and miner, operating mainly in Angola and South Africa, where its main activities centre on Alto Cuilo project in Angola.
The company merged with Crown Diamonds NL in June 2005.
Its Alto Cuilo project (38pc owned) is located 700km northeast of the Angolan capital of Luanda and 120km from Saurimo.
The project is operated through a wholly owned subsidiary, Petra Diamonds Alto Cuilo Ltd (PDAC).
By the end of February 2005, 4,927 macro diamonds with a total caratage of 1,241.48 had been recovered, at an average stone size of 0.25 carats.
Petra Diamonds signed a joint venture agreement with BHP Billiton in December 2004.
BHP Billiton can, by investing up to $US60 million in PDAC, acquire up to 75 per cent of PDAC.
The Messina and Dancarl Diamond minesare situated 80kms northwest of Kimberly in South Africa.
In the 2004 calendar year Messina produced around 25,000 carats at an average price of $US259 per carat @ 25 cpht.
Reserves as at February 2005 were 436,000 ROM tonnes @ 28 cpht.
The Star Diamond mine project is located in the Theunissen District, Free State Province in South Africa.
In the 2004 calendar year Star produced 16,000 carats at an average price of $US179 per carat @ 47 cpht.
As at February 2005, the ore reserve was 718,700 ROM tonnes @ 44 cpht.
On September 11 Petra was notified that following recent purchases, Saad Investments Company Ltd now hold 22,651,387 ordinary shares in the company representing about 15.05 per cent of the company's ordinary issued share capital.
ENDS
PDL Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
