De Beers has sold the Cullinan diamond mine, where the world’s largest diamond was discovered a century ago, as part of its strategy to divest marginal assets.

The South African mine has been bought by Petra Diamonds, a London-listed group, for one billion rand (£72 million).

The famous mine, which is the world’s only significant producer of rare blue diamonds, has struggled to break even in recent years despite a restructuring of its operations.

De Beers has sold a number of its older and poorly performing mines as part of moves to reinvest capital in ventures in countries such as Namibia and Botswana.

Cullinan is the third unprofitable mine it has sold to Petra, which is listed on the Alternative Investment Market and has a market capitalisation of £262 million.

Production at the Cullinan kimberlite pipe began in 1903 and the world’s largest diamond, the 3,106 carat Cullinan Diamond, was discovered there two years later.

More than one million carats of diamonds were mined from Cullinan last year and it is estimated to have a lifespan of a further 20 to 40 years, making it the world’s second-largest deposit.

Despite this, De Beers has struggled to make the mine profitable and it has decided that another company will be more successful running the facility.

Petra, which has already bought the Koffiefontein and Kimberley mines from De Beers, specialises in low-cost production and plans to continue overhauling operations at the Cullinan mine.

Adonis Pouroulis, chairman of Petra, said: “The mine can produce at least 1 million carats a year for the next 20 years. A major producing diamond asset such as Cullinan very rarely becomes available and Petra is, with its consortium partners, proud to be acquiring such a prestigious asset.”

Petra’s partners include Al Rajhi Holdings and a black economic empowerment group called Thembinkosi Mining Investments.

De Beers, which is 45 per cent owned by Anglo American, has traditionally sought to dominate diamond production in order, effectively, to control the market price of the gems.

This led to a strategy of maximising production and holding on to mines even if they were no longer profitable.

The company is now moving to a more market-focused approach and wants to invest resources in new operations, including vacuuming gems off the seabed around the coast of Africa.

David Noko, managing director of De Beers, said: “We believe that Petra’s track record as a hardrock underground miner bodes well for the long-term sustainability of Cullinan going forward.”

As a result of the Cullinan acquisition, Petra is forecast to increase its sales from £17 million this year to more than £75 million by 2010. The company is expected to invest about £25 million in Cullinan to modernise the mine.

Cullinan is the source of some of the world’s most famous diamonds and has produced a quarter of all the large stones ever found. This includes the two largest polished stones, the 545 carat Golden Jubilee and the 530 carat Great Star of Africa, which sits in the Crown Jewels.

A cut above the rest

— The Cullinan diamond was found by Frederick Wells near Pretoria on January 26, 1905. Analysis showed the uncut stone was a clear and colourless diamond weighing over 3,000 carats

— It was named after Thomas Cullinan, a Johannesburg building contractor who owned the mine. It was sold to Transvaal’s government for £150,000

— The diamond was given to King Edward VII in 1907 for his birthday. A year later IJ Asscher and Co of Amsterdam cut the world’s biggest diamonds from it

— The two largest cuts, the Star of Africa and the Lesser Star of Africa, form part of the Crown Jewels, now in the Tower of London

— The Star of Africa weighs 530.2 carats and sits in the royal sceptre (pictured) and the Lesser, which weighs 317.4 carats, sits in the middle of the Imperial State Crown

— In 1985 the Star of Africa lost the record of the world’s biggest diamond to the Golden Jubilee, which was found in the same mine and weighed 545.67 carats.

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