Petra Diamonds confirms export parcel from Williamson mine has been blocked

Shares in Petra Diamonds tanked on Monday as it confirmed that a parcel of diamonds from its Williamson mine in Tanzania has been blocked from export to its marketing office in Antwerp and some of its key personnel from Williamson are currently being questioned by the authorities.

The statement was made in response to reports last week about the findings of an investigation into the diamond sector by a parliamentary committee in Tanzania. Petra said "the grounds upon which these actions have been taken have not been formally made know to the company" yet, although it was reported that the government has accused Petra of declaring a lower value when trying to export the gems.

The parcel was said to actually contain nearly 30kg worth 65 billion shillings, but was registered as containing 14kg worth 33 billion shillings.

Speaking on government television channel TBC 1, finance minister Philip Mpango said the diamonds extracted from the Williamson Diamonds mine had been nationalised.

Petra confirmed that all operations related to the mine - which is held 75% by Petra and 25% by the government - are conducted "in a transparent manner and in full compliance with legislation in Tanzania and the Kimberley Process".

It said operations at the Williamson mine have now been suspended for "health and safety and security reasons".

Petra insisted that 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.

"Petra is not responsible for the provisional valuation of diamond parcels from Williamson before they are exported to Antwerp; this is carried out by the government's Diamonds and Gemstones valuation agency. This provisional valuation is used to calculate the company's provisional royalty payments to the government, however adjustments 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.

"The competitive open tender process utilised by Petra is also used by several other diamond mining companies and has a proven track record of transparent price discovery."

RBC Capital Markets said: "In any scenario where the diamonds are nationalised or operations are suspended for an extended period of time, we believe that it is possible that force majeure could be declared by the company to its lender group.

"On our current assumptions, if we assume that Williamson exports are stopped for the remainder of H1/FY18E (but the mine operates), we still believe that the company can meet its relaxed net debt to EBITDA covenant of 4x for December 2017. However, given the developments that have taken place with Acacia over the course of this year, we view the announcement as negative for sentiment, and expect a negative reaction from the shares."

Meanwhile, Investec said: "Given Tanzania’s history of improbable accusations against Acacia, we’d be backing Petra’s side of the story, not that it will help them. Our analysts values Williamson at $28m, or about 3% of the total asset value of the company, pre debt, with the asset’s contribution to EBITDA also around 3%."

At 0945 BST, the shares were down 7.8% to 82.92p.