26th Apr 2005 09:15
Petra Diamonds Ld26 April 2005 Petra Diamonds Limited Proposed Merger with Crown Diamonds NL Publication of AIM Admission document and recommencement of trading Placing and Notice of Extraordinary General Meeting Summary Petra Diamonds Limited ('Petra' or 'the Company') (LSE: PDL), the AIM-quoteddiamond mining group, announces the publication of the AIM Admission documentrelating to the proposed merger ('Merger') with ASX-listed Crown Diamonds NL('Crown') (ASX: CRD) and, accordingly, the recommencement of trading in Petra'sshares on AIM. Furthermore, the Company is pleased to announce an institutional placing of£17.1 million, before expenses, at a placing price of 85p per share. As noted in the announcement of 8 February the Merger with Crown constitutes areverse takeover in accordance with the AIM Rules and therefore Petra's shareswere suspended from trading on AIM until such time as the AIM Admission documentwas published. Highlights • The Merger is an all share transaction whereby each Crown shareholder will receive one Petra share for every eight Crown shares • The Merger is subject to Petra Shareholder, Crown shareholder and Crown Loan Note holder approval • The Placing is for a total of £17.1 million at a placing price of 85p per share to primarily UK institutional investors • Based on the placing price of 85p per share, the Merger values Crown at £32.1 million • The Company, as enlarged by the Merger and Placing, will have a market capitalisation at the placing price of 85p per share of £111.2 million • Two members of the current Crown board, Johan Dippenaar and Jim Davidson, will join the Petra board. Johan Dippenaar will be appointed CEO, Jim Davidson will be appointed Technical Director and Kevin Dabinett, currently Petra's CEO, will become COO of the Enlarged Group The Merger will be effected in Australia by way of a Scheme of Arrangement andScheme Booklets will be dispatched on or around 26 April 2005 by Crown to itsshareholders and Loan Note holders. The directors of Crown will unanimouslyrecommend to Crown shareholders that they vote in favour of the Merger. Adonis Pouroulis, Chairman of Petra, commented, "The merger is a major deal forPetra and we are delighted that the process is moving forward well. We arealready enjoying working closely with Crown's management team and together weare excited by the future prospects ahead of us, both in terms of developingexisting projects and also in the assessment of exciting opportunities withinthe diamond sector." Crown's CEO, Johan Dippenaar, said, "The directors of Crown believe that thatthis merger will deliver real value to the shareholders of both companies. Theenlarged group will have the critical mass as a pure diamond company to offershareholders exposure to a complete diamond portfolio from greenfieldexploration to mature producing mines. The bringing together of the twomanagement teams, with complimentary sets of skills, and the capital structureof the merged entity will ensure exciting growth prospects for the company inthe future. " The AIM Admission document is being posted to Petra shareholders today conveningan EGM of Petra to take place on 25 May 2005 at 10.00 a.m. to approve theMerger. The AIM Admission document is also available at the offices of Williamsde Broe Plc, 6 Broadgate, London EC2M 2RP during normal business hours on anyweekday for a month from today. The Appendix to this announcement contains definitions of the terms used in thisannouncement. For further information, please contact:David Abery Cathy MalinsPetra Diamonds, South African office Parkgreen Communications, LondonTel: +27 11 467 6710 Tel: +44 20 7493 3713Frank H. Moxon Karl Paganin / Michael SoucikWilliams de Broe Plc, London Euroz Securities, PerthTel: +44 20 7588 7511 Tel: +61 8 9488 1430 Duncan Gordon Baker Young Stockbrokers, Adelaide Tel: +61 882 368 888 In South Africa: In Australia:Johan Dippenaar Charles MostertCEO and Director DirectorCrown Diamonds NL Crown Diamonds NLTel: +27 14544 6116 Tel: +61 8 9381 8888 Kevin Skinner Field Public Relations Tel: +61 8 8234 9555 Mobile: +61 414 822 631 Petra Diamonds Limited Proposed Merger with Crown Diamonds NL Publication of AIM Admission document and recommencement of trading Placing and Notice of Extraordinary General Meeting Introduction The Company announced on 8 February 2005 that it had entered into a conditionalagreement to merge with Crown Diamonds NL by acquiring the entire issued sharecapital of Crown under a scheme of arrangement. The Merger will constitute a reverse takeover under the AIM Rules and isconditional, inter alia, upon the approval of Shareholders at the EGM and theapproval of Crown shareholders and Crown Loan Note holders. If the Resolutions are duly passed at the EGM and the other necessary approvalsare received, the Merger and the Placing will be implemented, the Company'sexisting share quotation on AIM will be cancelled and the Company will apply forthe Enlarged Share Capital to be admitted to trading on AIM and the ASX. Principal terms of the Merger The Merger, which is subject to both Petra and Crown shareholder and Loan Noteholder approval, as well as various regulatory approvals in the relevantjurisdictions, will be an all share transaction. Under the terms of the Merger,each Crown shareholder will receive one Ordinary Share for every eight Crownshares held. Petra will issue, in total, approximately 37.8 million new sharesto Crown shareholders, representing 51.9% of Petra's Existing Share Capital.Based on the closing price of Petra and Crown shares on 7 February 2005 (beingthe last trading day prior to the announcement of the Merger and the suspensionfrom trading on AIM of Petra's Ordinary Shares) of 95 pence and 22 centsrespectively, the Merger values Crown at £35.3 million or 28.66 cents per Crownshare, representing a 30.27% premium to the Crown share price at that time.Based on the closing price of Crown shares on 22 April 2005 (being the lasttrading day prior to publication of this announcement) of 25 cents and thePlacing Price, the Merger values Crown at £32.1 million or 26 cents per share,representing a 4.7% premium to the Crown share price. The Merger will be effected in Australia by way of the Scheme of Arrangementrequiring the approval of 75% of Crown shareholders voting and 50% present atthe meetings. A Scheme Booklet will be despatched by Crown to its shareholderson or around the date of publication of this announcement. The directors ofCrown have confirmed to Petra that they will unanimously recommend to Crownshareholders that they vote in favour of the Merger, as they themselves will do. Petra has also reached agreement with the trustee of Crown's Loan Notes.Approval from the Loan Note holders will also be effected by way of a separatescheme of arrangement. A further scheme booklet will be despatched by Crown toits Loan Note holders. If this scheme is approved, the trust deed in respect ofthe Loan Notes will be amended so that Petra will assume all the rights andobligations of Crown in respect of the Loan Notes. On conversion of the LoanNotes, Petra shares will be issued in substitution for Crown shares, the amendedLoan Notes will be listed on the ASX and will be secured by Petra depositing inan agreed Petra bank account an amount equalling the outstanding principal andinterest as security to the trustee of the Loan Note holders. Completion of the Merger is conditional, inter alia, upon the followingprincipal conditions: • there having been, immediately prior to completion of the Merger, no material adverse change in the financial position of Petra or Crown; • obtaining all necessary regulatory approvals and other such approvals and consents, including: (i) approval by the shareholders of both Petra and Crown and the approval of Crown Loan Note holders (ii) approval by the Australian Foreign Investment Review Board (FIRB) (iii) approval by the South African Competition Board (iv) approval of the Scheme of Arrangement and the Loan Note scheme by the Supreme Court of Western Australia (v) readmission of the Enlarged Share Capital of Petra to AIM (vi) approval by the ASX of the admission of Petra to the ASX; • Crown's directors recommending the Merger to Crown shareholders. Subject to satisfaction of the conditions, two members of the current Crownboard, Johan Dippenaar and James Davidson, will join the Petra board. JohanDippenaar will be appointed Chief Executive Officer and James Davidson will beappointed Technical Director of the Enlarged Group. Kevin Dabinett, currentlyPetra's Chief Executive Officer, will become Chief Operating Officer of theEnlarged Group. Background to and reasons for the Merger The Merger represents a further step in Petra's long-term growth strategy ofbecoming a significant player in the diamond industry. The Enlarged Group will: • create an impressive exploration base coupled with successful income-producing and cash flow positive diamond mines. The Enlarged Group will have a well balanced portfolio of diamond assets in various phases of development, ranging from green field exploration to production; • create a geographically diversified diamond group with an enhanced geographical spread of diamond assets on the African continent (Angola, South Africa and Sierra Leone); • create a diamond group with a substantial asset base and pro-forma market capitalisation (prior to the Placing, the conversion of any Loan Notes and based on Petra's closing price of 95p per share on 7 February 2005) of approximately £105 million which will become a niche mid-tier producer of rough diamonds; • be dual listed on AIM and the ASX, enhancing liquidity and aiming to increase the interest of institutional investors due to the asset base and market capitalisation; • combine the substantial skills and experience of the two management teams and workforces; and • give rise to cost savings from the rationalisation of the two quoted company structures. Crown brings with it an experienced management team that is highly skilled indiamond mining production in Southern Africa. The two management teams togetherwill have the depth and knowledge to develop diamond mining opportunitiesanywhere on the African continent. Crown also brings with it in-houseengineering expertise where it is expected considerable savings can be made inany future diamond mining projects. The directors of both Petra and Crown believe that Crown's existing business hasa solid base and is capable of further expansion. Details of the Placing and use of proceeds The Company is issuing the Placing Shares at the Placing Price pursuant to thePlacing, to raise approximately £17.1 million, before expenses. The PlacingShares will represent approximately 15.4% of the Enlarged Share Capital. ThePlacing is conditional upon, inter alia, Admission becoming effective. The Placing Shares will when issued rank pari passu with the Existing OrdinaryShares in all respects including the right to receive all dividends declared orpaid (after the date of allotment of the Placing Shares) on the ordinary sharecapital of the Company. Admission is expected to take place and dealings in the Enlarged Share Capitalare expected to commence on AIM at 8.00 a.m. on 17 June 2005. It is intendedthat, where applicable, definitive share certificates in respect of the Placingwill be posted by first class post on 24 June 2005, or as soon thereafter as ispracticable. No temporary documents of title will be issued in connection withthe Placing. The proceeds of the Placing receivable by Petra of £17.1 million will be used asfollows: • £2 million on deferred acquisition costs in respect of the Helam mine;• £2.7 million on developing the Sierra Leone joint venture properties;• £3.7 million on new business opportunities in Southern Africa and Sierra Leone;• £1.2 million on Angolan business opportunities, further to Alto Cuilo;• £3.2 million on settlement of term loans;• £1.4 million on securing the outstanding Crown Loan Notes;• £1.8 million on costs and placing fees related to the Merger and Admission; and• £1 million on group working capital. The minimum funds required to be raised from the placing is £14.0 million. Information on Petra and its assets Petra is an AIM-quoted mining group focused on the exploration and mining ofdiamonds in Africa. Petra's strategy is to build a portfolio of revenueproducing and exploration assets, achieving the objective of becoming asuccessful mid-tier diamond producer and explorer. Petra has operations inAngola and South Africa with its primary activities in Angola. Angola In Angola the primary focus of the company is the Alto Cuilo project area in thenorth-east of the country, about 700 km north-east of the capital Luanda. In1998 Petra began exploration on Alto Cuilo and discovered a major kimberlitebefore being forced to withdraw due to the renewal of the civil war which hadstarted in 1975 and which finally ended in February 2002. Since that time optimism for Angola's future has increased and it is predictedby many observers that Angola is gearing up for a post war economic boom.Angola's rich reserves of oil and diamonds have put the country in theinternational spotlight and there is currently significant foreign investmentcoming into Angola. Foreign mining companies are now actively pursuing investments in Angola andmany believe that Angola is currently one of the most exciting diamondexploration areas in the world. It is widely accepted that Angola may hold someof the world's best potential kimberlite and alluvial diamond deposits. The north-east area of the country is rich in kimberlites, with one of theworld's largest, Camafuca, situated north-east of the Alto Cuilo project area.The Catoca Mine in Angola is the world's fourth largest kimberlite and produced2.6 million carats in 2004 with a sales revenue of approximately US$215 million.The kimberlite yields quality diamonds, of which 35% are gem quality, fetchingprices of around US$75 - US$100 per carat. Trans Hex Group Limited ("Trans Hex")has two alluvial mines in Angola, Luarica and Fucauma, with delineated resourcesof 1.7 million carats. Trans Hex concluded the first sales from Laurica in April2004. 20,000 carats were sold at an average price in excess of US$300 per carat.The parcel included 25 stones larger than 10 carats, the largest of which was a76 carat white stone. Pilot production at Fucauma is currently under way andfull-scale mining is expected to commence during 2005. Analysts predict that Angola's annual diamond production could eventually exceedsix million carats in the coming years as more diamond mines are placed intocommercial production. Alto Cuilo By air, Alto Cuilo is 700 kilometres north-east of the capital of Luanda, or 850kilometres by road. It is 120 kilometres by road from Saurimo, the nearest mainairport. The entire Alto Cuilo concession area covers 2,670 square kilometres. Of this,the ML Complex (the current area of focus) covers approximately 200 squarekilometres. In the ML Complex area, twelve kimberlites have been located thusfar, following over 6,400 metres of drilling on 43 sites with depths of up to280 metres. The kimberlites which are close to surface under sand cover of 20 to150 metres are not eroded as in South Africa or at the Catoca kimberlite mine tothe north-east of Alto Cuilo. Petra's interest in the Alto Cuilo project is held through its wholly ownedsubsidiary, Petra Diamonds Alto Cuilo Limited ("PDAC"). PDAC has two Angolanpartners in the Alto Cuilo project, Empresa Nacional De Diamantes De Angola,Endiama, EP ("Endiama"), which represents the Angolan government, andOrganizacoes Moyoweno Limitada ("Moyoweno"), an Angolan commercial company. PDAChas a 36% interest in the Alto Cuilo kimberlite concession agreement and a 38%interest in the Alto Cuilo alluvial concession agreement. On 14 September 2004 Petra announced that it had agreed the terms for a jointventure ("Joint Venture") with BHP Billiton World Exploration Inc ("BHPBilliton") regarding the Alto Cuilo diamond project in northeastern Angola.Under the terms of the Joint Venture, BHP Billiton can, by investing up to US$60million in PDAC acquire shares of up to 75% of PDAC. Petra had at that datefocused its work on the area around the ML Complex in which Petra, along withits Angolan partners Endiama and Moyoweno, has already established the presenceof a substantial diamondiferous kimberlite and alluvial complex. Under the termsof the Joint Venture, BHP Billiton will undertake regional exploration on thebalance of the concession and may work with Petra to develop the ML Complexfurther, if they so wish. On 30 November 2004 BHP Billiton subscribed for 901,060 shares in Petra at aprice of 88.2 pence per share for a total subscription of US$1.5 million. Theprice was based on the average of the closing mid-market prices of Petra'sShares for the ten dealing days to 26 November 2004. On 1 December 2004 Petra announced the implementation of the formal JointVenture Agreement with BHP Billiton regarding the Alto Cuilo diamond project. BHP Billiton will acquire its first interest in PDAC once it has invested US$7.5million in PDAC and from that point will acquire further shares in PDAC as itsinvestment increases. Should BHP Billiton acquire 75% of PDAC, it may elect to buy a further 5% ofPDAC from Petra. The value of that 5% would be determined based on acceptedmining valuation principles applied by independent mining consultants appointedby agreement between Petra and BHP Billiton. Once Petra's total project expenditure on the ML Complex reached US$20 millionand certain conditions precedent are met, BHP Billiton had the right to take upthe sole funding, as part of the US$60 million investment, of kimberliteexploration and development on the ML Complex. With effect from 1 January 2005BHP Billiton have exercised their right and are now sole funding as per theJoint Venture Agreement. This is in addition to their sole funding of regionalkimberlite and alluvial exploration on the rest of the concession. Once BHP Billiton has invested US$60 million in PDAC, the parties will fund anyfurther development and mine construction in proportion to their shareholdingsin PDAC. If requested by Petra, BHP Billiton will arrange debt financing forPetra's share of the funding requirements of PDAC. Ultimately development of a mine on the project will depend on the results of afeasibility study and approval of a mining licence by the Angolan authorities. Petra has also undertaken some bulk sampling on the exposed deposits within thecurrent work area. A small sample (forty tonnes) taken from anomaly (AC2/3)revealed 23 macro diamonds greater than 1mm, weighing a total of 18.7 carats.This included a white gem quality octahedron weighing 9.61 carats. The grade,including this large stone, was 47 cpht with an average stone size of 0.81carats. Excluding this stone, the grade was 23 cpht with an average stone sizeof 0.40 carats. The diamonds, are mainly white in colour and of high quality.The average carat value of this sample was estimated at around US$1,600 percarat including the big stone (US$200 excluding the large diamond). Further to the alluvial material being processed through the plant, an activealluvial work programme has been formulated. This work programme uses diversionsin active river systems to establish the presence of diamonds. The first suchoperation has as its focus the centre channel of the Cuilo River on the westernside of the concession. The diving and associated equipment is currently onsite, and divers are currently being recruited. Should results from thisendeavour prove to be successful, the targets identified will be followed upwith pit and drill sampling of the river flats and terraces adjacent to thesediving activities. This work is aimed at identifying the size and grade of anyalluvial deposit. A similar programme will be considered for other suitablealluvial targets elsewhere in the concession area. By the end of February 2005, 4,927 macro diamonds with a total caratage of1,241.48 had been recovered, at an average stone size of 0.25 carats. Petra also has interest in two further projects in Angola; Medio Kwanza, west ofAlto Cuilo and Muriege, east of Alto Cuilo. Petra has a 70% interest in thePower Corporation Angola Limited, which has a 50% interest in the Medio Kwanzaproject. Petra therefore effectively has a 35% interest in the Medio Kwanzaproject. Petra currently has a 5% free carry interest in Muriege and is apassive shareholder. Petra considers the Muriege project to currently representa 'greenfields' exploration project. South Africa In South Africa, Petra has two current diamond exploration projects: the Limpopofarms and Syferfontein. The Limpopo farms project covers seven of the diamondportfolio properties acquired by Petra in 1999 from Gold Fields Mining &Development Ltd of RSA ("Goldfields"), on three of which indicator minerals havebeen discovered since exploration began in early 2003. Petra has conducted abulk sampling programme on Syferfontein for which final results are awaited. Petra is a 29.5% shareholder in Nabera Mining (Pty) Ltd ("Nabera"), whichmanaged the Alexkor diamond mine between 1999 and 2001. Under the terms of themanagement agreement by which Nabera managed the mine, it is entitled toone-third of the "value added" to the mine during its management period. Theindependent opening and closing valuation reports completed by Snowden MiningIndustry Consultants("Snowden") in accordance with the principles containedwithin the management agreement were submitted to Alexkor, Nabera and the SouthAfrican Government. The "value added", as calculated from the Snowden valuationshas been disputed by the other parties to the management agreement; it isPetra's objective that the Nabera value-added settlement be finalised with theSouth African Government and Alexkor in the near future. Petra is, along withNabera, taking the appropriate steps to bring this matter to a conclusion. Information on Crown and its assets Crown is a diamond mining and exploration company listed on ASX with a marketcapitalisation of approximately AS$75.6 million. Crown's current diamondproducing assets are all situated in South Africa. They encompass the Helam andStar mines which are 100% owned by Crown and the Messina/Dancarl joint venturein which Crown has a 74.5% interest. All three of these diamond operations arekimberlite fissure mines with life of mine in excess of 15 years each and eachproduce high quality diamond gem stones. It is estimated that the Crownoperations will produce in excess of 167,000 carats of predominantly gem qualitystones in 2005. In addition Crown has a joint venture interest in a diamondexploration project in Sierra Leone. Messina and Dancarl Diamond Mines Located in the Warrenton District, Northern Cape Province in South Africa, theMessina Diamond Mine is operated by Messina Diamonds (Pty) Ltd, a subsidiary ofCrown. The Messina Mine property is composed of mining leases, diamond rights, surfacerights and free holdings on various farms in the Northern Cape Province andcovers 1,700 metres of a 2,400-metre kimberlite fissure (known as the BobbejaanFissure). The fissure system consists of three distinct vertical units whichrange in width between 20 and 110 centimetres and average 55 centimetres. InFebruary 2005, Snowden Mining Industry Consultants published an updated OreReserve Statement for the Messina Mine. The ore reserve, after applying the JORCguidelines, has been estimated to be 436,000 hoisted run of mine (ROM) tonnesgrading 28 cpht. Messina produced around 25,000 carats in the 2004 calendar year at an averageprice of US$259 per carat running at an average grade of 25 cpht. On 27 October 2004, Crown Resources (Pty) Ltd, a subsidiary of Crown, acquired a40% interest in Autumn Star Trading 192 (Pty) Ltd, the parent entity of DancarlDiamonds (Pty) Ltd ("Dancarl"), the owner of the Dancarl Diamond Mine forA$2,723,608. The acquisition was funded by way of a bank loan for the fullconsideration. Subsequent to 31 December 2004, Messina Diamonds (Pty) Ltd,another subsidiary of Crown, has consummated a joint venture with Dancarlwhereby, effective from 1 January 2005, the two mines will be operated jointlyand share costs of mining and revenue derived from diamonds produced. The finalwritten terms are being finalised and are expected to be executed shortly. TheCompany's effective interest in the revenue and costs of the joint venture willbe 74.5%. The majority owners of Dancarl (Sedibeng Mining (Pty) Ltd (42%) andBokone Properties (Pty) Ltd (18%)) are persons who meet the empowerment charterprovisions of the Broad Based Socio Economic Empowerment Charter of the SouthAfrican Mining Industry in respect of ownership. Messina and Dancarl are expected to produce at least 35,000 carats in the 2005calendar year as underground mining gets underway at Dancarl and the ground ismined from Messina infrastructure. The life of mine is in excess of 15 years. InFebruary 2005, Snowden Mining Industry Consultants published an updated MineralResource Statement for the Dancarl Mine. Snowden elected to classify the fissureresource at Dancarl as inferred. The inferred resource, after applying the JORCguidelines, has been estimated to be 483,000 fissure tonnes grading 70 cpht. Star Diamond Mine Located in the Theunissen District, Free State Province in South Africa the StarDiamond Mine is owned by Star Diamonds (Pty) Ltd, a 100% owned subsidiary ofCrown. The Star Mine property covers approximately 1,034 hectares and is composed of acombination of mining leases, mining licences, diamond rights and free holdingson various segments and portions of farms in the Free State. The mine exploits aseries of kimberlite fissures segments over an east-west trending strike lengthof 4.5 kilometres which is part of a more extensive 15 kilometre long series offissures. The individual fissures range in width between 5 and 80 centimetresand average 47 centimetres. In February 2005, Snowden Mining IndustryConsultants published an updated Ore Reserve Statement for the Star Mine. Theore reserve, after applying the JORC guidelines has been estimated to be 718,700ROM tonnes grading 44 cpht. Star produced 16,000 carats in the 2004 calendar year at an average price ofUS$179 per carat at an average grade of 47 cpht. Production in the 2005 calendaryear is expected to increase to approximately 36,000 carats. The life of mine isin excess of 15 years. Helam Diamond Mine Located in the Swartruggens District, North West Province in South Africa theHelam Diamond Mine is operated by Helam Mining (Pty) Ltd, a 100% ownedsubsidiary of Crown. Continuous mining of the fissure array at Helam has taken place since 1933. Thefissure array consists of three main kimberlite types which occur in four miningunits being the John, Edward, Second Lease and Third Lease units. The fissures have been exploited over a strike length of 7,000 metres and to adepth of 700 metres below surface at the deepest point. In February 2005,Snowden Mining Industry Consultants published an updated Ore Reserve Statementfor the Helam Mine. The ore reserve, after applying the JORC guidelines has beenestimated to be 1,672,000 ROM tonnes grading 81 cpht. The mine has consistently produced more that 80,000 carats annually over thepast 3 years and is now targeting 144,000 carats per annum after completion of acapital upgrade programme, which commenced in 2004. Production for the 2005 calendar year is expected to be around 96,000 carats,running at an average grade of 81 cpht. The mechanisation program in place atHelam will enhance the ability of this mine to meet future production targets.In addition, Helam has some encouraging and as yet unexplored targets thatshould be investigated. Without these, the life of mine is in excess of 15years. Sierra Leone In December 2004 Crown announced that it had entered into a joint venture withMano River Resources Inc. ("Mano") for the production of diamonds fromunderground mining of diamond-bearing kimberlite dykes (the "Lion" dykes)defined within Mano's three contiguous licence areas that cover 260km2 acrossthe world famous Kono diamond district ("Kono Licences") of Sierra Leone. The heads of agreement state that the basis of the joint venture will allowCrown to earn a 51% profit or earned interest by spending US$1.5 million on theproject, providing a further US$1 million in a Trust Fund for drawing of furtherexpenditure on the project and providing a guarantee for a further US$0.5million. A full expenditure of US$3 million will also earn a 51% equityinterest. A full written agreement is to be entered into shortly. The Konoproject is a kimberlite project with several identified fissures already knownfrom which small scale production is envisaged during the next twelve months.Prospecting for kimberlite pipes and blows, which are known to exist in thearea, will commence during 2005. Initial indications show good geochemicalresults with a fissure strike length greater than that of Crown's currentproducing mines. Enlarged Group strategy The strategy of the Enlarged Group is to build a mid-tier diamond group bycreating a solid exploration base combined with successful income producingmines and a geographically diversified spread of quality diamond assets on theAfrican continent. The Merger will balance Petra's current exploration portfoliowith Crown's producing diamond operations, allowing the Company to benefit froma diamond market in which analysts predict demand will exceed supply in theshort to medium term. Following the Merger, the Enlarged Group will continue toexplore opportunities to enhance further its portfolio of diamond assets. Current trading and prospects of the Enlarged Group Petra At Alto Cuilo, core drilling has continued in the ML Complex on anomaly 4/13 andas at the end of February 2005 diamond core drilling had been completed at 43sites, with a total 6,436 metres having now been drilled. Since commissioning ofthe diamond recovery plant (MB100 and DMS) in September 2004, alluvial gravelsfrom the Luangue river and kimberlitic material from the AC2 complex continuedto be treated by the plant and as of 26 February 2005, 4,927 macro diamonds havebeen recovered with a total mass of 1,241 carats. With BHP Billiton taking upsole funding of the kimberlite exploration and becoming involved in the projectthere has been a technical shift in the priority listing of drilling. Startingin March the emphasis is on completing one hole on each magnetic anomaly to tryand identify other kimberlites rather than to continue on proving up anomaly 4/13. Once the micro diamond work from Canada is complete a decision will be madeon future work for anomaly 4/13. Applications to fly approximately 13,400 linekilometers of helimag survey have been submitted. Assuming the approvals areforthcoming, this work will take place in May to July. The results from thiswill be further used to site drill holes. Mobilisation of BHP Billiton personnelto site is underway and over the next month a full technical crew will beestablished at Alto Cuilo. Cape Diving from South Africa have also visited thesite to survey the Cuilo River and their formal proposal on a diving programmefor the centre channel is awaited. Crown Production build up at all the Crown mines has progressed well this year, withcombined production for the first quarter to 31 March 2005 of 38,095 carats,6.7% greater than forecast. In addition average prices achieved for goods soldat all the mines has been above budget as well as being above the average saleprices achieved for 2004. Preparation for the commencement of the Mano joint venture is progressing wellwith the vanguard party scheduled to visit the Kono site in April. At the individual mines, progress was as follows: • Messina/Dancarl - at the Messina section, 23 level has been fully established with the return ventilation airway to 22 level completed and stope preparation now underway. Full production should be achieved by the end of the second quarter. On 20 level, development into the Dancarl section has progressed well with 3 crosscuts already having been driven onto fissure. At the Dancarl section, progress has been good with 13 and 14 levels having been lifted to full mining status with production of 200 tonnes per day having been achieved. The Dancarl tailings plant has been fully commissioned and is now going through its start up phase. In addition the plant has been fully refurbished and commissioned so as to treat any surplus ore that may arise from the Messina plant. • Star - 15 level at both Wynandsfontein and Burns has been established. These levels are both in good ground conditions. Burns zero crosscut is now only 10 metres from fissure and the intersection of the good fissure previously drilled is imminent. The Burns 13E return ventilation airway holing to 10 level has been established through the bad ground conditions and has greatly improved the ventilation of the Burns section. The second holing from 10 to 9 level has not yet been effected due to poor ground conditions. • Helam - the mechanisation programme is progressing well with John main shaft now equipped to 18 level. All aspects of this programme are on track to meet their projected deadlines. The re-establishment of Second Lease as a separate mining entity is also progressing well and on schedule. At the Edward shaft the mechanization process is progressing well with all previously planned ore passes having been completed and commissioned. The plant and other upgrades are all on schedule. The Directors and Proposed Directors remain confident of the outlook for theEnlarged Group for the coming year and, while ensuring that work and productioncontinues as planned at current operations, will continue to exploreopportunities within the stated strategy of creating a diversified diamondgroup. Directors, Proposed Directors and employees The Directors believe that the present Board, once enlarged by the ProposedDirectors, and operational management structure is appropriate for, andreflects, the current scale of the Company's operations. Information on theDirectors, Proposed Directors and employees is set out below: Directors • Adonis Pouroulis, (Executive Chairman) aged 35, is a mining engineer with a mining degree from the University of Witwatersand in Johannesburg. On leaving University he was involved for one year working in South African gold mines thereafter for a further year investigating mining propositions in the former Soviet Union. In 1997 he created and founded Petra Diamonds Limited and floated the company on the AIM of London Stock Exchange in April of the same year. Mr Pouroulis was instrumental in the creation of the Nabera mining consortium which led the successful bid for the management contract on Alexkor, the State owned diamond mine. • Kevin John Dabinett, (Chief Executive Officer) aged 50, was born in Zambia and educated in England, graduating with an Honours Degree in Mining Engineering in 1976 from the Royal School of Mines, London. He has since gained extensive operational and management experience within the mining industry across Southern Africa. Throughout his career, he has successfully managed various mining operations in Southern Africa, often in difficult conditions. Most recently, Mr Dabinett was with Impala Platinum Ltd as General Manager of the Marula platinum project. Whilst at Auridiam Zimbabwe (Pvt) Ltd as General Manager, he oversaw the feasibility study and commissioning of a pilot plant at the River Ranch diamond project in Zimbabwe, managing the expansion of the project into a 2 million tonne per annum operating mine. • David Abery (ACA), (Finance Director) aged 42, is a Chartered Accountant (ICAEW), who brings to Petra extensive experience as a finance Director in both the South African and UK business environments, as well as an in-depth knowledge of AIM. Prior to Petra, Mr Abery was Finance Director of Mission Testing plc, the Gatwick based software testing consultancy successfully floated on AIM in December 2000. Before that, he was Head of Finance for Tradepoint Financial Networks plc (consequently renamed Virt-x plc), the high-tech electronic stock exchange which was also quoted on AIM. • Volker Ruffer, (Non-executive Director) aged 65, consults for KPMG Frankfurt where he specialises in international tax planning, mergers, acquisitions and company re-organisations. He was previously managing partner from 1972 to 1994. He holds a Masters degree in business administration from the University of Munster, Germany. Mr Ruffer was appointed to the Board in 1997. On completion of the Merger, Mr Ruffer intends to step down from the Board. • Charles Michael Segall, (Deputy Chairman and Non-executive Director) aged 63, is a director of the Atlantic Trust Company Limited of South Africa where he specialises in providing trustee services. He is admitted as an attorney of the High Court of South Africa. • Charles Finkelstein, (Non-executive Director) aged 44, is a member of the Antwerp Diamond Bourse and a director of SC Diamantaire CH Finkelstein and Co NV, one of the world's leading diamond traders. CH Finkelstein's head office is in Antwerp and the business has been in existence for more than 100 years. Proposed Directors • Christoffel Johannes Dippenaar (CA), (Proposed Chief Executive Officer) aged 47, is the Managing Director of Messina Investments Limited (a wholly owned subsidiary of Crown), Managing Director of Helam Mining (Pty) Ltd and Chief Executive Officer of Crown having held that role in Messina Investments Limited since 1990. He is a chartered accountant by profession and a member of the Chartered Accountants of South Africa with over 17 years' experience in the management of companies of which 15 years has been in the management of mining companies. • James Murry Davidson, (Proposed Technical Director) aged 59, is a Director of Messina Investments Limited (a wholly owned subsidiary of Crown), Technical Director of Helam Mining (Pty) Ltd, Technical Director Crown and is responsible for all operational and geological matters of Messina Investments Limited having held that role since 1991. He is a qualified geologist and a member of the Geological Society of South Africa with over 20 years experience in mine management. Employees As at 31 December 2004, Petra had 18 employees (excluding the Angolan staffcomplement employed at Alto Cuilo) and Crown had 1,700 employees. Corporate governance The Directors support high standards of corporate governance and confirm that,following Admission, they intend to comply with the Combined Code in so far aspracticable given the Company's size and nature and propose to follow, wherepracticable, the recommendations on corporate governance of the Quoted CompaniesAlliance. The Company intends to recruit a non-executive director to replaceVolker Ruffer, who intends to step down from the Board following completion ofthe Merger. It is intended that his replacement will join the Audit andRemuneration Committees. Board Committees The Board has established three committees: the Audit Committee, theRemuneration Committee and the Corporate Governance Committee. Audit Committee The Audit Committee comprises Charles Segall and Volker Ruffer, both beingnon-executive Directors and is chaired by Volker Ruffer. The Committee may takeindependent advice, at the expense of the Company, if considered necessary. TheCommittee makes recommendations to the Board on the appointment of the externalauditors, their independence and the level of their fees; it reviews thefindings of the external auditors and ensures appropriate action is taken bymanagement; it reviews the Group's interim and annual financial statements priorto submission to the Board; it reviews the Group's statement on internal controlsystems, considers the effectiveness of internal financial controls and anyinternal audit resource, making recommendations for changes if appropriate, andinstitutes and reviews special projects and investigations on any matter as itsees fit. Remuneration Committee The Remuneration Committee comprises Charles Segall and Volker Ruffer, bothbeing non-executive Directors, and is chaired by Charles Segall. The Committeemay take independent advice, at the expense of the Company, if considerednecessary. The main responsibilities of the Remuneration Committee are todetermine, on behalf of the Board and Shareholders, the overall policy forexecutive remuneration; to determine the base salary, benefits, performancerelated bonus and any equity participation schemes (including share options) foreach of the executive Directors and other senior management of the Group; and toapprove all Director's service contracts. The Committee ensures that asignificant proportion of the executive Directors' remuneration is directlyrelated to the performance of the Group. Corporate Governance Committee The Corporate Governance Committee is composed of David Abery and CharlesSegall. This committee is mandated to review and ensure the Company's ongoingcompliance with the various securities and regulatory authorities that govern itas well as ensuring that the Company continues to conduct itself in a mannerappropriate for that of a public company given current Shareholder expectationsin respect of various matters including, but not limited to, transactionsinvolving insiders. The Corporate Governance Committee is responsible foroverseeing the Company's policy for communications with shareholders, theinvestment community, the media, governments and the general public. TheCorporate Governance Committee will meet annually with additional meetings asrequired during the year. Share option schemes On 8 March 2005 the Company adopted the Share Option Plan, whereby the directorsof the Company can grant options to any eligible employee within the Group. TheShare Option Plan was adopted due to the fact that the Petra share option schemethat was adopted on 27 March 1997 ("the 1997 Scheme") was no longer best suitedfor the Company's requirements. No further options will be granted under the1997 Scheme. Additionally, the Company has undertaken to recognise the outstanding shareoptions in Crown by way of a deed of acknowledgement. Under this deed, Crownoption holders will be able to exercise their options and receive shares in theCompany on the 8 to 1 conversion basis set out in the Scheme. On Admission,these options will represent 0.3% of the Enlarged Share Capital of the Company. Dividend policy The Company has not paid any dividends in any of its previous financial years.The Company intends to retain future earnings to finance continued developmentof its business and, accordingly, does not expect to pay dividends on itsOrdinary Shares in the immediate future. The declaration and payment by theCompany of any dividends and the amount thereof will depend on the results ofthe Group's operations, its financial position, cash requirements, prospects,profits available for distribution and other factors deemed by the Directors tobe relevant at the time. Lock-in arrangements The Directors and Proposed Directors have undertaken, save in limitedcircumstances, not to dispose of any of their respective interests in shares ofthe Enlarged Group at any time prior to the date falling six months afterAdmission. In total 17,377,828 Ordinary Shares representing 13.3% of theEnlarged Share Capital of the Company will be subject to the lock-inarrangements referred to above. The Extraordinary General Meeting The Resolutions are as follows: • to approve the Merger; • to increase the authorised share capital of the Company from £12,000,000 to £20,000,000 for the purposes of effecting the Merger, issuing Ordinary Shares under the Placing and creating additional headroom for the issue of new Ordinary Shares; and • to approve and adopt revised Bye-laws for the purposes of ASX listing rule compliance. Recommendation The Board consider that the Merger is in the best interests of the Company andits Shareholders as a whole. Accordingly, the Directors have unanimouslyrecommended to Shareholders that they should vote in favour of the Resolutions,as the Directors intend to do in respect of their beneficial shareholdings thattogether comprise 22.1% of the issued share capital of the Company. Appendix Definitions The following definitions apply throughout this announcement, unless the contextotherwise requires: "Admission" the admission of the Enlarged Share Capital to trading on AIM becoming effective in accordance with the AIM Rules "AIM Rules" the rules governing the operation of AIM as established by the London Stock Exchange "AIM" the market of that name operated by London Stock Exchange "ASX" Australian Stock Exchange Limited "Board" or the directors of the Company"Directors" "Bye-laws" the Bye-laws of the Company "Combined Code" the Combined Code on Corporate Governance, dated July 2003 and as appended to the Listing Rules of the UK Listing Authority "Consideration the 37,820,113 new Ordinary Shares proposed to be issuedShares" pursuant to the Merger credited as fully paid, and which, when issued, will rank pari passu in all respects with Existing Ordinary Shares and the Placing Shares "Crown" Crown Diamonds NL (ACN 050 541 332) "Enlarged Group" the Company and its subsidiary undertakings as enlarged by the Merger "Enlarged Share the ordinary share capital of the Company in issueCapital" immediately following the issue of the Consideration Shares and the Placing Shares "EGM" or the Extraordinary General Meeting of the Company to be"Extraordinary held at the offices of Memery Crystal, 44 SouthamptonGeneral Meeting" Buildings, London WC2A 1AP on 25 May 2005 at 10.00 a.m., or any adjournment thereof "Existing Share the 72,889,964 Ordinary Shares in issue at 25 April 2005Capital" and"Existing OrdinaryShares" "Group" the Company, its subsidiaries and subsidiary undertakings at the date of this announcement (excluding Crown) "Loan Notes" the 17,169,746 Crown convertible loan notes outstanding at the date of this document, maturing on 30 November 2005 "London Stock London Stock Exchange plcExchange" "Merger" the proposed conditional acquisition by the Company of the entire issued share capital of Crown pursuant to the Merger Implementation Agreement "Merger the agreement dated 8 February 2005 (as amended, with theImplementation final composite agreement being dated 24 March 2005)Agreement" between Petra and Crown "ML Complex" the Mussunuige-Luangue kimberlite complex "Notice of EGM" the notice convening the EGM "Ordinary Shares" ordinary shares of 10 pence each in the capital of the Company "Petra" or "the Petra Diamonds Limited, incorporated and registered inCompany" Bermuda with registered number EC23123 "Placing" the conditional placing by Williams de Broe of the Placing Shares at the Placing Price pursuant to the Placing Agreement "Placing Price" 85p per Ordinary Share "Placing Shares" the 20,084,352 new Ordinary Shares proposed to be issued pursuant to the Placing which, when issued, will rank pari passu in all respects with the Existing Ordinary Shares and Consideration Shares "Proposed Christoffel Johannes Dippenaar and James Murry DavidsonDirectors" "Resolutions" the resolutions, as set out in the Notice of EGM, to be proposed at the EGM "RSA" or "South the Republic of South AfricaAfrica" "Scheme of the scheme of arrangement to be entered into between CrownArrangement" or and Crown shareholders"Scheme" "Scheme Booklet" the information memorandum in respect of the Scheme to be approved by the Supreme Court of Western Australia "Share Option Plan" the Petra Diamonds Share Option Plan approved by the Shareholders on March 2005 "Shareholder(s)" holder(s) of Ordinary Shares "UK Listing the Financial Services Authority, acting in its capacityAuthority" as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000 of the United Kingdom "UK" or "United the United Kingdom of Great Britain and Northern IrelandKingdom" "US" or "United The United States of America, its territories andStates" possessions, and any state of the United States of America and the District of Columbia "Williams de Broe" Williams de Broe Plc This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Petra Diamonds