The R300 million purchase consideration will be payable in 24 monthly instalments starting in January 2019
PETRA Diamonds has announced that it is to sell its stake in the Kimberley Ekapa Mining Joint Venture (KEM-JV) to its partner Ekapa Mining for R300 million.
The company said yesterday that it would sell its 75.9% stake in the company, which focuses on mining in Kimberley, to its joint venture partner Ekapa Mining.
The sale will allow Petra to focus on its Finsch and Cullinan diamond mines, reduce operational risk for the group and shore up its finances.
KEM-JV is a joint venture between Petra and Ekapa Mining and incorporates Kimberley Underground mine, extensive tailings retreatment programmes and the high-volume Central Treatment Plant, all located in or around Kimberley.
The sale will be on a going concern basis, with Ekapa Mining taking on all the company’s financial, employees, environmental, health, safety and social obligations with regards to the KEM-JV operation.
The R300 million purchase consideration will be payable in 24 monthly instalments starting in January 2019.
In a statement issued by Petra Diamonds yesterday, the company stated that the rationale for the disposal was 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,” it stated.
“Petra set out the company’s strategic priorities in its Rights Issue announcement dated May 24, 2018, including that the board would continue on an ongoing basis to review the asset portfolio of the business with a view to maximising return on capital and to ensure that all assets are in a position to contribute positive cash flow to the business,” the statement said.
“Following an initial approach by Ekapa Mining in mid-June 2018 with regards to agreeing a potential transaction, the board has as of today determined to enter into a binding heads of terms based on the following benefits 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.”
Completion of the Disposal will be subject to a number of conditions, including approval by the South African Competition Commission; Section 11 Ministerial consent in terms of the South African Mineral and Petroleum Resources Development Act, 2002 in respect of the underground mining operations; the consent of Petra’s South African lender group and the release of relevant securities in relation to the KEM-JV; and the passing of resolutions approving the Disposal by the relevant boards.
The Disposal is expected to effectively complete in Petra’s Q1 FY 2019 (the three months to September 30, 2018).
It is expected that a non-cash impairment charge will be recorded in the company’s preliminary results for the year to June 30, 2018 (the “Prelim Results”), calculated to be in the region of US$35 –
45 million; however, this figure will be assessed by the company and will be subject to finalisation of the Prelim Results.
KEM-JV meanwhile announced about a month ago that around 150 employees might be facing retrenchment after the company’s Bultfontein Mine had been closed following a recent “mud push”.
According to the company, the reopening of the mine would be a “costly, long and slow process”.
Gert Klopper, the company’s spokesperson, confirmed at the time that KEM-JV “was regrettably in a position that it could no longer avoid issuing employees with a Section 189 Notification in terms of the Labour Relations Act (dismissals based on operational requirements)”.
“Although the mud push was not the only reason for these retrenchments becoming necessary, it certainly contributed by nullifying all attempts up until then, such as reducing numbers through natural attrition, to avoid having to retrench employees.”
Klopper added that it was projected that around 150 employees might be affected. “The aim of the Section 189 process is to mitigate the impacts of retrenchment, and this number is therefore not final.”