August 23rd, 2005
BHP Billiton's best bet to become a more sizable diamond player could be through Petra Diamonds in Angola.
Earlier this month, the AIM-listed company, which has a joint venture agreement with BHP Billiton in Angola, announced a new kimberlite find on its potentially promising Alto Cuilo property for which Petra has a five-year exploration licence.
"Alto Cuilo could be a significant diamond mine in 2 - 5 years," said Des Kilalea, analyst at Nedcor Securities in Johannesburg.
Several moves highlight BHP Billiton has raised its stakes in the junior miner since the signing of an agreement in September last year that would position BHP Billiton as the operator and marketing agent of any future production from Petra.
Alto Cuilo could start alluvial production in the next year, with kimberlite exploration production in the next 1 - 2 years. Full scale mining is estimated in two to five years.
Given BHP Billiton's stated view that it will only look at projects the size of its Ekati mine in Canada, which produces about $500 million worth of diamonds a year, Alto Cuilo in northern Angola is estimated to have the same potential.
Recently, BHP Billiton decided to take on all kimberlite and alluvial exploration costs at the Alto Cuilo concession, allowing it to start earning a direct interest in the Petra joint venture in Angola.
The move highlights BHP Billiton's growing confidence in the junior company, which is expected to produce 200,000 carats in South Africa in the year to June 2006. It expects to go into production in Sierra Leone by March next year.
"They probably don’t need to take it (Petra) over, and are probably quite happy with the arrangement they have got. It gives them a major part in Angola, but I don't think they would like to get involved in fissures diamonds or even alluvial as part of their strategy," said a mining analyst who asked not to be named.
BHP Billiton said it did not comment on its relationships with junior mining companies as a matter of policy.
Petra Diamonds' chairman Adonis Pouroulis, said: "We are an independent company and hope to be among the five top players."
BHP Billiton is also understood to be seeking a deal with Petra Diamonds involving Kalahari Diamonds which was formed by BHP in 2002 with a consortium of financial institutions, private investors and diamantaires to prospect for diamonds in Botswana using special aerial technology.
Petra said negotiations have taken place with Kalahari, but a deal has not been signed.
By Emma Muller.