Petra in a Deal to Hive Off Stake in Kimberley Ekapa Mining Joint Venture

Petra in a Deal to Hive Off Stake in Kimberley Ekapa Mining Joint Venture

Petra Diamonds Limited announced yesterday that it has finalised a “binding Heads of Agreement” for the disposal of the Company’s and its black economic empowerment (BEE) partners’ 75.9% interest in the KEM JV to the Company’s joint venture partner Ekapa Mining (Pty) Ltd (Ekapa Mining) for a cash consideration of ~ ZAR 300 million (the Disposal).

A joint venture between Petra and its partner Ekapa Mining, KEM JV is the corporate entity that holds the interest in the Kimberley Underground mine, extensive tailings retreatment programmes and the high volume Central Treatment Plant. All these are located in or around the historic diamond mining centre of Kimberley in South Africa, the Company underlined.

“The Disposal will be on a going concern basis, with Ekapa Mining taking on all of the Company’s financial, employee, environmental, health, safety and social obligations with regards to the KEM JV operation,” Petra elaborated. “The ~ ZAR 300 million purchase consideration will be payable in 24 monthly instalments starting in January 2019.”

Further, explaining the rationale behind the move, Petra said it was in order “to ensure a sustainable future for KEM JV by placing the operation under the sole stewardship of an operator best suited to maximise its value”.

“Ekapa Mining’s extensive experience of operating specifically within Kimberley and its ability to solely focus on these assets is expected to provide the right fit for the operation, thereby ensuring continuation of diamond mining employment and related economic activity in this renowned diamond centre,” the Company stated.

The move is also the outcome of the Company’s strategic priorities spelt out in its Rights Issue announcement dated 24 May 2018. In that announcement, Petra had indicated that its Board would continue to review the asset portfolio of the business “with a view to maximising return on capital” and also to ensure that “all assets are in a position to contribute positive cash flow to the business”.

Petra’s Board, while taking the decision to enter into a binding heads of term agreement with Ekapa, listed out the following points enumerating the benefit of the transaction to Petra.

While KEM JV has the potential to be a sustainable and economic diamond producer, it is better suited to an operator with an owner-manager approach that is able to solely focus on the optimisation of these assets;

it will subsequently free up considerable Petra management time that can be focused on the key assets of the business, in particular Finsch and Cullinan;

it will reduce cash outflow, given that it will take time to ensure KEM JV can make a  positive cash contribution to the business;

it will decrease operational risk in the context of the wider Petra Group; and the purchase consideration will facilitate the Group’s working capital position.

The completion of the Disposal is subject to a number of conditions, including regulatory ones and the consent of Petra’s South African lender group and the release of relevant securities in relation to the KEM JV; and is expected to be completed in Petra’s Q1 FY 2019 (the three months to 30 September 2018).

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