Under-pressure Petra Diamonds in R5m Botswana fire sale
Company mired in debt as it struggles to generate revenue from its three mines in SA and one in Tanzania owing to the Covid-19 pandemic
Cash-strapped Petra Diamonds agreed on the first sale of assets, disposing of its exploration tenements in Botswana, one of the world’s leading sources of diamonds, to reduce its debt.
Petra told the market at the end of June that it had put its entire business, or parts thereof, up for sale as its struggled to generate revenue from its three mines in SA and one in Tanzania because of the global Covid-19 pandemic.
On Monday, London-listed Petra said it agreed on a $300,000 (R5m) cash sale of its entire dormant and loss-making Botswana exploration business to Botswana Diamonds, which is traded on London’s Alternative Investment Market and the Botswana bourse. The payment is split equally over two tranches, due in August 2021 and August 2022, and Botswana Diamonds said it would issue shares to fund the transaction.
Shore Capital mining analyst Yuen Low described the deal as a “fire sale” by “under-pressure Petra”.
In 2010, Petra discovered a kimberlite pipe called KX36, which is an ancient volcanic, carrot-shaped deposit, deep in the Kalahari in northern Botswana. It is 70km away from the Ghaghoo mine that London-listed Gem Diamonds tried unsuccessfully to bring into production and subsequently sold at an enormous loss.
“This disposal forms part of our strategy to focus on driving efficiencies from our high-quality producing mines, but allows us to maintain upside to potential future commercial production from the Botswana assets, particularly from the KX36 deposit,” said Petra CEO Richard Duffy.
The assets were marked for disposal in June 2018 and the cash raised from the sale would go towards general working purposes, he said.
Petra’s shares on the London bourse increased by nearly 5% on Monday to 1.7p, giving it a market capitalisation of £14m, a tiny fraction of its debt.
Included in the terms of the deal is a 5% royalty on future revenues from the assets payable to Petra. Botswana Diamonds can remove this option by paying Petra $2m.
Petra has $650m of debt
Petra has a $650m note repayment due in May 2022. It had to ask holders of the notes for a “forbearance” agreement after it failed to make an interest payment in May, preventing those investors from accelerating the terms of the debt and crippling Petra.
Petra’s turnaround strategy in SA, which was focused on generating maximum cash and cutting costs, was disrupted by the strict economic lockdown in SA at the end of March, which was gradually eased, allowing underground mines to return to full staffing levels in June.
For Botswana Diamonds, the purchase of Petra’s wholly owned Sekaka Diamonds subsidiary adds enormously to its exploration portfolio of assets in SA and Botswana. Sekaka’s assets include KX36 and two adjacent prospecting tenements as well as a diamond processing plant along with all the exploration data accrued over 15 years.
“KX36 is a very significant diamond discovery and potentially offers upside potential — as do the two contiguous prospecting licences. You rarely, if ever, find a kimberlite pipe on its own and further exploration may find more kimberlite pipes,” said Botswana Diamonds chair John Teeling.
“KX36, located deep in the Kalahari, presents challenges, but the greatest challenge of all is overcome — finding a significantly sized high-grade deposit. We have evaluated options on KX36 and believe we can add value to the discovery.”
The kimberlite has an indicated resource of nearly 18m tonnes of material containing 35 carats per 100 tonnes of rock. Botswana Diamonds plans to spend $100,000 annually for three years on further exploration work on KX36. Owning the kimberlite does not mean there is any certainty a mine will be successfully built and operated in northern Botswana.
Bringing another mine into production in the remote area of Botswana would pose stiff challenges as Gem found to its cost when it built that country’s first underground diamond mine. The thick desert sand and consequent difficulties in supplying construction work with heavy equipment and infrastructure needed to build a mine and plant were a feature of the Ghaghoo mine, which was controversially built in the Central Kalahari Game Reserve.
Gem sold Ghaghoo for $5.4m to a local Botswana company, a fraction of the $90m it cost to build the mine and processing plant.
Botswana Diamonds is focused on exploration programmes in the Kalahari and these assets would add to its own prospecting database, said MD James Campbell.
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