Cullinan Diamond Mine

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De Beers Consolidated Mines (DBCM) sold its Cullinan mine for R1-billion to a consortium, which included Aim-quoted Petra Diamonds. The consortium, called Petra Diamonds Cullinan Consortium (PDCC), comprised Petra Diamonds, Al Rajhi Holdings, a Saudi-based investment company, and Thembinkosi Mining, an empowered company.

Cullinan is one of the world's most celebrated diamond mines and is renowned for producing many of the most spectacular diamonds ever seen. It earned its place in history with the discovery of the Cullinan diamond in 1905, the largest gem diamond ever found at 3,106 carats rough, and it has produced more than a quarter of all the world's diamonds weighing more than 400 carats. It is also the world's only significant source of truly rare and highly valuable blue diamonds.

The Cullinan kimberlite pipe is the world's second largest indicated diamond resource of 181.4 million carats (total resource base of 203.3 million carats including tailings). In July 2008, Petra (as part of a Petra-led consortium) completed the landmark acquisition of the Cullinan mine from De Beers for a total cash consideration of R1 billion.

Petra is currently implementing an expansion plan at Cullinan which will take production from just over 920,000 carats in the 2010 financial year to 2.4 million carats by FY 2019.

Cullinan vital statistics:

Size of kimberlite pipe: 32 hectares at surface
Commencement of mining: 1903
Acquisition: Petra Diamonds Cullinan Consortium July 2008
Ownership: Petra Diamonds Limited: 74%
Thembinkosi Mining Investments (Pty) Ltd: 14%
Petra Diamonds Employee Share Trust: 12%
Operator: Petra Diamonds
Total resources: 203.3 million carats
Type of mining: Underground block cave
Depth of mining: 747m

Petra is implementing an expansion programme at the mine to take annual production from just over 920,000 carats in FY 2010 to 2.4 million carats by FY 2019. This expansion plan will eventually access the first portions of the major C-Cut resource, which contains some 133 million carats, and will also involve a large tailings operation.

Ownership:
The Petra Diamonds Cullinan Consortium (“PDCC”) acquired Cullinan as a going concern on 16 July 2008 and Petra is the technical operator of the mine on behalf of PDCC. PDCC comprises Petra Diamonds Limited (74% interest) and various BEE partners (26% interest), which include a 12% employee share trust stake.

Geology:
The Cullinan Kimberlite pipe occurs within the stable, three billion year old Kaapvaal Craton and intrudes rocks of the Transvaal Supergroup (Pretoria and Rooiberg Groups), Bushveld Complex and the younger Waterberg Group.

Mining methods:
The large pipe has allowed a variety of mining methods to be utilised in exploiting the orebody. Open pit mining was carried out to a depth of 189 metres. Other mining methods used above the gabbro sill included open benching and block caving. Initially, underground mining used the sub-level open bench mining method but over time methods and systems were adapted according to differing ground conditions. In the early 1970s cave mining using scrapers was implemented and sub-level open stoping was implemented in the early 1980s. Petra is currently mining the B-Cut levels at a depth of 747 metres using mechanised trackless block-cave mining.

Cullinan generated gross revenues of US$127 million in FY 2010. The sale of the 507 carat Cullinan Heritage diamond served to significantly increase the average value per carat to US$141 for the Period. However even without including this exceptional sale, the average value per carat (including tailings) would have been US$101, still up 53% on the previous year.

The main operational challenge for the year was grade control, due to the following reasons:

•an increase of the bottom cut for slimes discard from 0.8mm to 1.3mm (although the effect on total revenue is not significant due to the increased average value per carat achieved);
•higher than average rainfall in South Africa in the months to April 2010 resulting in wet ore having to be pulled from many of the mature drawpoints. This diluted 'muddy' ore affects grade due to the significantly increased moisture content. The increased moisture content accounted for approximately 4% of hoisted tonnes and resulted in an approximate 1.5 carats per hundred tones ("cpht") reduction of grade; and
•the depletion of the higher grade OSP tailings, with the lower grade run of mine ("ROM") tailings now being treated.
Going forward, management expects grade to continue to be a challenge at Cullinan, as the majority of tonnes will be drawn from mature areas of the pipe until the expansion plan has progressed sufficiently to give access to the higher grade, western areas of the kimberlite ore body.

Despite South African cost pressures, unit costs at Cullinan remained flat due to increased volumes. Longer term, once the development plan has significantly progressed in the years to come, costs are expected to go down due to increased efficiencies (such as a simplified ore-handling system underground and further streamlining of the plant).

The expansion plan at Cullinan is progressing as planned and the South decline has already passed the 800 metre level. It is anticipated that rim tunnel development will commence shortly. All other aspects of the development work are on track. Capex of US$20.4 million was spent at Cullinan in FY 2010. The bulk of this spend was used for the underground development work and on the continued upgrading of the plant, with the remainder for new underground fleet equipment. The Large Diamond Recovery Plant was commissioned in December 2009 and is functioning well.

As there is a 165 million tonnes tailings resource at Cullinan (estimated to contain 16.5 million carats), Petra is currently implementing a major tailings treatment programme, ramping up to 4 million tonnes per annum ("Mtpa") by FY 2014. The development of this programme is on track and capacity of 1 Mtpa, producing approximately 100,000 carats, will be delivered for FY 2012.

The remaining Capex for the Cullinan expansion programme is estimated to be R2.6 billion (US$330 million) (2010 money), to be spent over the life of the expansion programme. Approximately US$30 million of Capex funding is required during the period to 2012, which will be funded by the RMB debt facility, whereafter it is expected that the mine will generate sufficient cashflow to fund the remaining expansion programme.

Outlook:
Once the expansion plan has been implemented and the C-Cut is the primary source of production, Cullinan's average grade is expected to increase to around 50 cpht, a realistic target based on long term production records at Cullinan. Historically, and from sampling programmes, there has been a higher incidence of larger white diamonds and blue diamonds in the western blocks of the Cullinan kimberlite pipe, which bodes well for future recoveries of 'specials'.

Once the expansion plan at Cullinan has been implemented by FY 2019, management forecast gross annual revenues of approximately US$235 million (2010 money), based on 2.4 million carats production (from underground and tailings) and an assumed ROM average carat value of US$105.


Reference for information:
www.petradiamonds.com/o/p_sa_cullinan.php

www.miningweekly.com/article/petra-buys-de-beers039-cul...