Is BHP Billiton Changing Its Angola Strategy?

London-listed Petra Diamonds Ltd.[PDL.L], which operates in Africa, has seen its shares fall roughly 23% so far in 2008. This weakness is partly a reflection of market turbulence, but may also be a result of a possible pullout by BHP Billiton (BHP) from its Alto Cuilo and Luangwe joint ventures in Angola with Petra, according to Des Kilalea at RBC Capital Markets in London.

The diamond analyst laid out some of the factors that may be behind a potential change in strategy for BHP in terms of both Angola and diamonds.

BHP lost five of its top diamond people in Angola in a helicopter crash late in 2007, and has done little there since.

If its bid for Rio Tinto (RTP) succeeds, diamonds may be considered non-core.

Alto Cuilo’s body is different than what BHP was looking for.

However, if BHP does decide to exit Angola, another partner could be waiting in the wings for Petra. De Beers is expanding in Angola and Trans Hex is already there, Mr. Kilalea noted. Petra could also decide to go it alone, but this option is the least desirable since Angola is a tough environment for a junior, the analyst said.

So while a BHP exit would be a negative for Petra shares, Mr. Kilalea insists there is plenty of value in the mining assets. In fact, it could even present a buying opportunity.