JOHANNESBURG (Business Day) -- De Beers, the world's biggest diamond producer, said yesterday it had sold its historic Cullinan mine to the Petra Diamonds Cullinan Consortium (PDCC) for R1 billion ($1.46 million) in cash.
The PDCC consortium consists of Petra [AIM:PDL] and Saudi investment firm Al Rajhi Holdings, each buying 37% stakes, with black-owned Thembinkosi Mining Investments getting 26%.
De Beers MD Gareth Penny said PDCC emerged as best bidder in a long selection process. He would not say how many consortiums or companies put in bids or how much they put on the table.
"It was a healthy process with a lot of interest from a number of consortiums. But I don't think it is fair to disclose names and the amount put on the table because of confidentiality," he said.
Asked how the transaction would be funded, Penny said the money had been raised through a special purpose vehicle.
The deal is expected to be concluded in April or June, depending on Competition Commission approval and the successful conversion of De Beers's mining right from old order to new order, and the transfer of that mining right to Petra and Thembinkosi.
De Beers, 45%-owned by Anglo American [Nasdaq:AAUK; LSE:AAL], said in February it planned to dispose of the unprofitable mine but Petra chairman Adonis Pouroulis insisted the mine was near break even.
"We have plans to tighten costs and look at ways of turning it around by tweaking things a little. This will not in any way result in the retrenchment of workers," Pouroulis said.
The deal brought a "major resource to the group."
Stephen Meintjes, an analyst with Imara SP Reid, said the turnaround for the new owners would be easier to achieve as they would not be locked into minimum wage agreements, as De Beers was.
"What I did notice from the De Beers spokesperson was that other miners could mine Cullinan cheaply because the minimum wage will not apply to them," Meintjes said.
The sale was in the economy's interests as Cullinan mining would continue. "I think the new players have studied Cullinan's cost structure and they have a plan in place to turn it around."
The 3,106-carat Cullinan Diamond was found at the mine. This is the third mine De Beers has sold to Petra, regarding them as unprofitable; the others were the Koffiefontein and Kimberley underground mines. In the year to December, De Beers produced 1.15 million carats at Cullinan, with a market value of R505 million ($73.45 million).
Commentary
De Beers has concluded its process of selling off nonprofitable mines, with three of them having been bought by junior gem miner Petra Diamonds. The latest mine, Cullinan, was bought by a consortium and joins other former De Beers mines, Koffiefontein and Kimberley underground mines.
De Beers' only gem operations in South Africa are Venetia, Namaqualand, Finsch and The Oaks, which may lead some to speculate that the miner - 45% owned by Anglo American - may pack up and leave, with any buyer it sells to left holding the environmental bag.
But Petra is not known for foolishly spending huge amounts on mines that don't return profits, and its management has a reputation for being able to sniff out diamonds from the most unlikely places.
It also does not have the head office costs that De Beers does, and has a reputation for being lean and mean. Watch, the first thing to go might be the nine-hole golf course. Could be gems under those greens.
Commentary taken from The Bottom Line, Business Day.
