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Sky-high rand diamond prices as Ekapa acquires De Beers' Kimberley Mines

Ekapa Minerals MD Jahn Hohne

Photo by Elaine Bannister

DBCM CEO Phillip Barton

1st December 2015

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – The established Kimberley-based surface diamond mining company Ekapa is acquiring control of the Kimberley Mines from De Beers at a time of sky-high diamond prices in local currency terms.

Already enjoying a healthy margin of profit in mining Kimberley tailings for the past 25 years, Ekapa’s greatest "blessing in disguise" on the day of the announcement is the towering R1 372/ct that the assumed transaction price of $95/ct becomes in rands.

“We’re achieving highest rand prices per carat imaginable,” Ekapa’s upbeat Jahn Hohne told Creamer Media’s Mining Weekly Online in a telephone interview.

The empowered company has had no trouble at all in paying its share of the R102-million purchase price in cash and Hohne told Mining Weekly Online that he received a standing ovation from the employees of Kimberley Mines when he addressed them on the transaction on Tuesday.

In a consortium with Petra Diamonds, Ekapa beat off more than 70 other bidders in a competitive process.

Three-million carats have been recovered from Kimberley Mines tailings in the last four years and another 2.4-million carats are expected to the end of 2018.

Production at a rate of 700 000 ct a year is now expected in the first three years, generating revenue of R920-million a year at the assumed price of $95/ct.

The acquired assets, for which the new-order mining right expires in 2040, will be cashflow positive from the first year, with initial working capital of R200-million to be financed 100% by Ekapa on a standalone basis.

In effect, Kimberley Mines has been acquired by a local consortium with proven track record and black economic empowerment credentials and the acquisition has taken place from the 26% black economically empowered De Beers Consolidated Mines (DBCM), which has signed an agreement to sell the tailings mineral resources, as a going concern to investor consortium Ekapa Minerals.

Ekapa’s Super Stone Mining subsidiary has been mining tailings in Kimberley for the last quarter century and Ekapa Minerals will control 50.1% of the shares of the consortium, and the London-listed Petra Diamonds the remaining 49.9%.

The preservation for more than 650 direct and contractor jobs and ensuring sustainability of the operations for the benefit of the Kimberley area has been top of the mind of DBCM in disposing of the asset.

DBCM CEO Phillip Barton conceded to Mining Weekly Online that some viewed the selling price as being on the low side.

"I believe that it's a fair price but you must realise that we did not put price in as one of the criteria. That we strongly ticked the other boxes does mean that we have lived up to ensuring a long-term future for Kimberley Mines," Barton added.

DBCM chairperson Barend Petersen said the objective of the disposal was to sustain operations, protect jobs and grow empowered participation in South Africa’s diamond industry.

Over the last years, DBCM explored a variety of options to extend the life of its Kimberley Mines beyond 2018.

Following the review, it concluded, however, that the best way to secure a future for the mines was to find an operator better suited to process the remaining resources in a sustainable way, ensuring continuation of employment and ongoing economic activity in the Northern Cape.

The decision to sell to Ekapa was predicated on it being an experienced local tailings operator with sound technical, financial and economic capability and a strong corporate social responsibility protagonist with real commitment to the Kimberley region.

A rigorous, independently-advised process enabled De Beers to select a consortium with mining and financial credentials, which was committed to meeting future social and labour plans, and environmental obligations as a new broad-based, historically disadvantaged South African owner.

The new owner’s black economic empowerment structures would include a broad-based share scheme for the employees of Kimberley Mines and De Beers would retain a presence in Kimberley through Sightholder Sales South Africa and the Big Hole Museum.

Although the decision to sell had not been easy for the company, it was the right thing to do, said Barton, himself a former Kimberley Mines employee and diamond city resident.

The transaction is subject to competition authority approval, which is expected in the first quarter of next year, and transfer of ownership under Section 11 of the minerals legislation.

DBCM operates the rich Venetia mine in Limpopo, the Voorspoed Mine in the Free State and is spending R30-million a year on exploration in the hope of making a new diamond discovery.

Venetia is going underground operation at a capital investment of R20-billion, which will extend its life to beyond 2040.

Petra is the owner and operator of the underground workings of the Kimberley Underground Mines, acquired from DBCM, and the consortium is looking into the merits of pooling and sharing the assets and resources of Kimberley Mines, Ekapa Mining’s wholly-owned subsidiary Super Stone and Petra’s Kimberley Underground Mines to extend mine life optimally.

"The most compelling aspect of this transaction is the combined extension of the mining and processing of Kimberley’s tailings material resources far into the future,” Hohne said in a media release.

Ekapa would, the company said, be operated and managed in Kimberley by the people of Kimberley and for the benefit of the Kimberley area.

The company expressed its indebted to De Beers for maintaining and stabilising the diamond industry into a $70-billion a year combined diamond mining and jewellery retail mega industry and gave DBCM and Anglo American a bow for entrusting the Kimberley Mines to it.

Petra Diamonds CEO Johan Dippenaar said he was looking forward to working with Ekapa to build on their proven capabilities in tailings retreatment.

The consortium will acquire the tailings and a treatment plant, which DBCM commissioned in 2003 at a capital cost of R780-million.

Diamonds were first discovered in South Africa in 1866 along the banks of the Orange river between Hopetown and Douglas.

The search continued into the hinterland and dry diggings began at what became known as New Rush in 1870 and 1871, with the mining camp being renamed Kimberley.

Diamond mining initiated further exploration and great interest in South Africa’s mineral potential was ignited to the point that in 1886, gold was discovered on the Witwatersrand and minerals-based economic development ensued followed by what became, in 1910, the Union of South Africa and later the Republic of South Africa.

Edited by Creamer Media Reporter

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