SHARES in Petra Diamonds were under pressure following an announcement it had suspended production at its Williamson mine in Tanzania after government authorities seized a parcel of diamonds marked for export.
The mine has been open for more than 75 years but it still has potential for a further 50 years of operation, according to Petra. The mine produced about 213,000 carats in Petra’s 2016 financial year and there are plans to take production up to 350,000 carats annually following an expansion.
According to Investec Securities, the mine is valued at $28m equal to about 3% of the total asset value of the company, pre-debt “… with the asset’s contribution to EBITDA also around 3%”. Shares in Petra were 6% lower in early trade on the London Stock Exchange.
The UK-listed firm said the mine had been “temporarily shut” for “… health and safety and security reasons” whilst some of its key personnel responded to questions by “authorities”. It said no reason had been provided for the questioning.
This follows a report by Reuters over the weekend citing a statement from Tanzania’s Finance and Planning Ministry which said Petra had under-reported the value of certain diamonds and that it subsequently planned to nationalise the mine. “A fresh valuation done by the government established that the actual value of the diamonds is $29.5m,” the ministry said in respect of diamonds due for export Petra valued at $14.8m.
“Among the legal action to be taken include the nationalisation of all the diamonds seized after it was established that there was cheating involved in declaring the actual value of the minerals,” the ministry said.
Petra confirmed in a statement today that the diamonds had been blocked from export. It added, however, that it was not responsible for the provisional valuation of diamonds at Williamson as this function was fulfilled by the Government’s Diamonds and Gemstones valuation agency. “[A]djustments to final royalty payments based on the actual sales proceeds for the diamonds, once sold in Antwerp, are then made at the end of the tender process,” it said.
“The Government has complete oversight of the diamonds produced at the mine, which are physically controlled by a number of different Government representatives in conjunction with Petra from the point of recovery until the point of sale,” it said.
“Petra is committed to engagement with the Government in order to resolve this matter and ensure that the correct information is available to all parties. The company will be in a position to address any other concerns raised by the findings of the parliamentary investigation once it has received a copy of the report,” it said.
“As a result of the aforementioned key personnel cooperating with the authorities on this matter, operations at Williamson have temporarily been stopped for health and safety and security reasons.” The Tanzanian government has a 25% stake in Williamson with Petra owning the balance of the shares.
The Tanzanian government has already crippled operations at Acacia Mining’s Bulyanhulu gold mine where a dispute also over the value of declared concentrate exports erupted in April. This is the last time Acacia was able to export concentrate from Bulyanhulu and Buzwagi. Bulyanhulu has subsequently been placed on care and maintenance in order to curb losses at the operation whilst Buzwagi continues to operate.
Said Goldman Sachs: “While the number is not sizable it is likely to introduce significant uncertainty, especially given Tanzanian govt. hardline stance against some miners recently”.