Certain key personnel at the company’s Williamson mine are being questioned by authorities looking into how diamonds are being valued.
Petra Diamonds’ (LSE:PDL) share price fell as much as 28 percent on Monday (September 11) morning after it was blocked from exporting a parcel of diamonds from its Williamson mine.
The parcel is valued at nearly $15 million, and the company said in a press release that it has also shut down the Tanzania-based mine. Certain key personnel are reportedly being questioned by authorities in the country who are conducting an investigation related to diamond valuation.
The Johannesburg-based company owns the mine in partnership with the Tanzanian government, and it notes in the release that it “is not responsible for the provisional valuation of diamond parcels from Williamson.” Petra also states, “this is carried out by the Government’s Diamonds and Gemstones valuation agency.”
The 71,654.45-carat parcel was confiscated by Tanzanian officials on August 31 as it was being exported to Antwerp, Belgium. The officials claimed that the gems had been undervalued.
“While Williamson Diamonds Ltd declared in its documentation that the value of the diamonds was $14.798 million, a fresh valuation done by the government established that the actual value of the diamonds is $29.5 million,” Tanzania’s Finance and Planning Ministry said in a statement.
“Among the legal action to be taken include the nationalization of all the diamonds seized after it was established that there was cheating involved in declaring the actual value of the minerals,” it added.
Petra notes in Monday’s release that it has not been made formally aware of the reason for the investigation. However, the company has posted several documents related to the valuation process and royalty payments to the Tanzanian government on its website. As mentioned, Petra has also said it is not responsible for the valuation of diamond parcels from Williamson.
Last week, Tanzanian President John Magufuli ordered a review of Petra’s contract and asked public officials to resign over the outcome of an investigation into the mining sector. As a result, two ministers resigned, state-run television reported.
The mining industry currently is responsible for about 4 percent of the country’s economy, though its contribution is set to reach 10 percent by 2025. Magufuli is in the midst of overhauling the sector, and in July his government passed three new mining laws that will allow Tanzania to renegotiate or revoke existing mining and energy contracts.
“Popular resentment towards foreign companies means his bid to crack down on tax evasion is politically popular,” Charlotte King, a Tanzania-focused analyst at the Economist Intelligence Unit, told Bloomberg. “Although there is a clear economic rationale to improve the operating environment for mining companies, these political dynamics will leave the government loath to compromise.”
On Monday, Petra Diamonds’ share price closed in London at GBX 84.20, down almost 6 percent after recovering from a 28-percent intraday plunge. The company’s share price has been falling since the beginning of the year, and is down 46.27 percent since January.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.