De Beers to sell the Cullinan mine to a Petra-led consortium for $149 million

Diamond major De Beers has agreed to sell its famous Cullinan diamond mine in South Africa to a consortium led by Petra Diamonds for 1 billion rand ($149 million). Located near Pretoria, the 104-year-old mine shot to fame in 1905, when the 3,106 carat Cullinan Diamond - the largest ever mined - was found. The stone was cut to form the 530-carat Great Star of Africa and the 317-carat Lesser Star of Africa, both of which are set in Britain's crown jewels. Petra expects the deal to close by June 2008 and said the mine would contribute to its revenues from 2009-10.

Petra Diamonds owns a 37 per cent stake in the consortium, known as the Petra Diamonds Cullinan Consortium. The company's black empowerment partner Thembinkosi Mining Investments has 26 per cent, and Saudi Arabia-based investment company Al Rajhi Holdings has the remaining 37 per cent.

Petra will operate the mine on behalf of the consortium and will make production changes to enable it to produce in excess of one million carats a year. Production at Cullinan fell 13 per cent to 1.15 million carats in 2006, but Petra believes it can maintain levels above the million-carat per annum mark for at least the next 20 years.

In addition, Cullinan also contains the unexplored 'Centenary-Cut' (C-Cut), which could contain up to 133 million carats of resources, as well as a tailings resource that will further enhance production. However, Petra has said it would initially concentrate on the operating mine, and the C-Cut resources would be explored at a later stage.

The deal is the third asset that Petra has bought from De Beers in the past year, after the Koffiefontein mine in November 2006 and the Kimberley Underground Mines in September 2007. A boost in revenues from Koffiefontein is expected to bring the company its first annual profit in fiscal 2008.

The sale is part of a De Beers restructuring exercise announced in February 2007, which has seen it divest from non-core assets to focus on profitability. The deal will allow De Beers to launch new mines such as the Voorspoed mine, as well as a marine mining operation off the west coast of South Africa. Both are scheduled to be fully operational by 2009.