London, Aug 1, 2007 AEST (ABN Newswire) - Petra Diamonds Limited (ASX: PDL) announces that it has entered into a joint venture agreement ('Luangue JVA') with BHP Billiton to develop the Luangue diamond project ('Project Luangue') in north eastern Angola.

Highlights

- On 28 February 2007 Petra acquired the entire issued share capital of Frannor Investments and Finance Limited ('Frannor') from Xceldiam Limited ('Xceldiam')

- Frannor holds interests in Project Luangue, the diamond project that borders the northern boundary of Project Alto Cuilo (which is subject to a separate joint venture agreement between Petra and BHP Billiton) in the diamond belt of north eastern Angola

- Under the terms of the Luangue JVA:


(i) BHP Billiton has acquired 25% of the issued share capital of Frannor from Petra for a cash consideration of US$22.35 million; and

(ii) BHP Billiton's shareholding in Frannor will remain at 25% until BHP Billiton's earn-in date ('BHP Billiton Earn-in Date'), defined as the earlier of (i) the formation of a kimberlite mining company or (ii) 180 days following the submission of a Technical and Economic Viability Study ('EVTE') in accordance with the Luangue kimberlite concession contract, provided that in either case a BHP Billiton pre-feasibility study is completed beforehand. Submission of an EVTE to the relevant authorities in Angola provides a basis for the formation of a mining company. At the BHP Billiton Earn-in Date, BHP Billiton's shareholding in Frannor will increase to 75%, with Petra holding the remaining 25% of Frannor; and

(iii) BHP Billiton will sole fund the development of Project Luangue up to the BHP Billiton Earn-in Date. Should a minimum expenditure commitment, defined as three times Petra's net investment cost, not have been reached at the BHP Billiton Earn-in Date, BHP Billiton will continue to sole fund until it is achieved. When this BHP Billiton sole funding threshold has been reached, BHP Billiton and Petra will fund the development of the Project Luangue pro rata to their 75% / 25% respective shareholdings in Frannor (with commensurate dilution if either defaults in funding). BHP Billiton will provide debt financing for Petra's share of the funding requirements, if so requested by Petra; and

(iv) Petra has been funding the development of Project Luangue since 1 March 2007. This expenditure, of circa US$3.5 million, will effectively be refunded to Petra by BHP Billiton by way of BHP Billiton making contributions to Frannor in respect thereof, as part of BHP Billiton's sole funding commitment, enabling Frannor to make repayment of such expenditure to Petra in accordance with the terms of the Luangue JVA; and

(v) BHP Billiton and Petra will work together to further Frannor's objective of fast-tracking the technical development at Project Luangue.

Adonis Pouroulis, Chairman of Petra, said 'The Luangue joint venture agreement with BHP Billiton exemplifies the relationship that both Petra and BHP Billiton have with ENDIAMA and Luangue's local Angolan partners. The Luangue joint venture will provide increased investment and accelerated development for Project Luangue towards proving a sustainable diamond resource, achieving our goal with BHP Billiton and our Angolan partners of developing world class exploration projects in Angola.'

Background

On 28 February 2007 Petra acquired the entire issued share capital of Frannor from Xceldiam for an all share consideration of US$65.14 million (£31.79 million).

Frannor's only business is its interest (via its wholly owned subsidiary) in Project Luangue, a highly prospective diamond exploration project in north-eastern Angola, bordering Petra's more advanced Project Alto Cuilo to the south. Petra considers there to be potential for the geology of the northern part of Alto Cuilo, the area which has so far led to exceptional exploration developments, to continue into the Project Luangue area.

Frannor (via its wholly owned subsidiary) holds a 39% interest in the Project Luangue exploration licence for kimberlite diamond deposits and a 40% interest in the Project Luangue exploration licence for alluvial diamond deposits.

Petra's other main focus in Angola is Project Alto Cuilo, where Petra and BHP Billiton are working together within a separate joint venture agreement. The details of that joint venture agreement were announced on 14 September 2004.

Rationale for the Transaction

Petra originally acquired Frannor due to its interest in Project Luangue and Petra's objective of increasing its geographical spread of assets across the African continent, focusing on areas that are known to hold major diamond deposits, such as the diamond belt of north east Angola.

The Luangue JVA brings significant advantages to Petra:

- Petra does not fund development of Project Luangue before the BHP Billiton Earn-in Date when a significant milestone has been achieved, being the preparation of a BHP Billiton pre-feasibility study together with either the formation of a kimberlite mining company or the submission of an EVTE;

- BHP Billiton will sole fund the development of Project Luangue until the later of the BHP Billiton Earn-in Date and BHP Billiton achieving the minimum expenditure commitment described in (iii) above;

- it further consolidates Petra's project base in Angola, offering geographical synergies and giving Petra access to the technical skills, experience and project management capability of BHP Billiton;

- it will enable BHP Billiton and Petra to combine their extensive experience in this area of Angola together with their skills in diamond exploration and experience in working together to develop the full potential of Project Luangue; and

- it will broaden and strengthen further the solid working relationship that Petra and BHP Billiton have built at Alto Cuilo, benefiting exploration at Luangue and opening up the possibility for similar joint venture arrangements elsewhere in Angola.

Exploration work carried out to date at Project Luangue supports the presence of kimberlitic clusters in the area immediately north of the common boundary between the Alto Cuilo and Luangue project areas. At Luangue, over 70 prospective magnetic anomalies have been identified to date. As detailed information on diamond content emerges on the Project Alto Cuilo kimberlitic occurrences from the bulk sampling campaign underway there, the selection and prioritisation of bulk sample targets at Project Luangue will be enhanced. This is expected to fast-track exploration developments at Project Luangue and is also expected to reduce costs in many areas, accelerating progress towards a pre-feasibility study.

The Luangue JVA is distinct from the joint venture agreement in place between Petra and BHP Billiton at Alto Cuilo ('Alto Cuilo JV'). The Alto Cuilo JV has different terms, and requires BHP Billiton to spend US$60 million to acquire a 75% holding in Project Alto Cuilo, at which stage the parties will fund on a 75% / 25% basis.

Ends

Note: For the purposes of Schedule 4 of the AIM Rules, the cash consideration of US$22.35 million as well as the development expenditure to be refunded to Petra of circa US$3.5 million will be added to Petra's treasury. Petra has no specific plans for the use of these funds at this time.

About Project Luangue

Petra's activities at Project Luangue are focused on the exploration for economic diamondiferous kimberlite and alluvial deposits. The Luangue concession area, which is approximately 3,000 km(2) in size, is in the diamond bearing kimberlite belt known as the Lucapa Graben. The valuable Catoca mine (production of circa 7 million carats expected 2007) is situated some 70 km north east of the Luangue concession area.

Previous exploration in the concession area by Condiama (the previous De Beers representative company in Angola) in the early 1970's identified eight kimberlites in the Luangue concession area, at least four of which are diamondiferous.

Petra's subsidiary Frannor has two Angolan partners at Project Luangue; Empresa Nacional De Diamantes De Angola, Endiama, EP ('ENDIAMA'), which represents the Angolan government, and Bapsil Service Limitada ('Bapsil'), an Angolan commercial company. Frannor (via its wholly owned subsidiary) has a 39% interest in the Project Luangue kimberlite exploration agreement and a 40% interest in the Project Luangue alluvial exploration agreement.

Kimberlite programme

As at Project Alto Cuilo, aerial surveys to date have indicated the presence of a significant number of anomalies, with over 70 magnetic anomalies identified in initial ground and aerial surveys undertaken. A core drilling programme has resulted in the identification of HS-1, beneath 23 metres of overburden, with diatreme facies kimberlite outcroping at surface in parts of the pipe.

Diatreme facies kimberlite was also intersected at a shallow depth (20 metres) in target area HS-16, situated in the Nacavuri valley north of the base camp. The dimensions and character of this pipe are currently being determined by further drilling.

Alluvials

To date, two areas, the Canguvo area in the central north, and the Sampoio-Ngombo corridor along the Luangue River in the central area, have been the focus of exploration for diamond bearing alluvial gravels. Over 200,000 cubic metres of alluvial gravels has been delineated, with initial sampling results indicating encouraging recoveries of gem quality diamonds, including an 18.21 carat gem quality diamond from the Canguvo area.

Diamond recoveries from these gravels are yet to be confirmed as being statistically representative to define an economic resource, however it is particularly encouraging at this early stage to see the quality of the diamonds in the Canguvo area and the concentrations of diamonds in the Ngombo area. Bulk sampling of the deposits will continue to be processed through the alluvial bulk sampling plant in place at the Ngombo tributary of the Luangue River.

Contact

Louise Goodeve / Justine Howarth
Telephone: +44 (0) 20 7851 7480
Parkgreen Communications, London

Adrian Hadden / Chris Rollason
Telephone: +44 (0) 20 7523 8000
Collins Stewart, London


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