MAC: Mines and Communities

Tanzania government's new action against London-listed miners

Published by MAC on 2017-09-20
Source: Deutsche Welle, Daily Citizen, Reuters

At the heart of recent Tanzanian government moves against allegedly delinquent - or
at least evasive mining companies - are London-listed Petra Diamonds, based in Jersey's tax "haven".

As well as its fellow UK outfit, Acacia (see also: Barrick/Acacia blasted in Canada 

Meanwhile, the government has also instructed that a wall be built around its tanzanite mines, after rampant smuggling of these unique gem stones was revealed earlier this month.

Africa Is Rich in Diamonds but Still Poor

Deutsche Welle

18 September 2017

For months now, Africa's rough diamonds have been increasing in value but the sale proceeds do not reach the people. Instead, they benefit metropolitan elites and the mine companies, which are usually foreign-owned.

Last week Tanzanian police struck a blow against international diamond smuggling. A consignment of diamonds worth around 28 million euros ($33.4 million) was seized at the country's main airport. Petra Diamonds, the biggest listed diamond company in the world, based in the tax haven of Jersey, had registered a consignment of 14 kilos (30 pounds.) However, according to the Tanzanian authorities, it actually weighed 30 kilos. The rough diamonds from the Williamson mine were intended for export to Belgium for processing.

The Williamson mine in the north of Tanzania is a joint venture. 75 percent belongs to Petra Diamonds, 25 percent to the Tanzanian government. Tanzania's president, John Magufuli, has declared that combating corruption in the mining sector is a priority for his government. His anti-corruption platform played a large part in helping him to power in 2015.

Benedict Mahona, an economics expert from the University of Dar-es-Salam, told DW that the seizure of the diamonds from the Williamson mine was lawful. He explained that the customs laws of the East African Community are unambiguous: Every product that is imported or exported from the area must be correctly registered and declared. "Globally operating companies are systematically plundering Africa's diamond resources, and only a fraction of the stones are properly declared and have duty paid on them," Mahona said. He also commented that the theft of diamonds almost always happens with the help of corrupt locals.

At the same time, with its tough approach the Tanzanian government runs the risk of international companies withdrawing their business and jobs being lost as a result, according to Rebekka Rumpel, an expert in natural resources at the London think-tank Chatham House. "Tanzania's tough approach is bound to impact negatively on the country's image," she says. Rumpel reports that a large-scale investor from Russia who wanted to mine Tanzanian uranium has already put his project on hold, in part because he was worried about the investment climate in Tanzania.

 Tanzania: New Probe Into Petra Diamonds Scam As Plot Thickens

Daily Citizen

18 September 2017

Dar es Salaam — The government has ordered a new investigation into the Petra Diamonds saga that first surfaced on August 31, this year, when some gemstones were impounded at the Julius Nyerere International Airport, allegedly, for being undervalued.

Eng. Benjamin Mchwampaka, Commissioner for Minerals, told The Citizen on Sunday in an exclusive interview this week that further investigations had been launched, amid consultations with Petra Diamonds Tanzania Limited, to determine the circumstances surrounding the alleged undervaluation, before taking the next step forward.

"The government is still investigating the diamonds issue to establish all those who were involved in the export chain. We want to determine where exactly and how the undervaluation happened," Mr Mchwampaka said on Thursday.

Two government officials, the director of the Diamonds Valuation Unit, Archard Kalugendo and Diamonds Valuer Edward Rweyemamu, were charged in court on Friday for causing a Sh2.4 billion loss to the government after undervaluing a consignment that was being transported by Petra Diamonds to Antiwerp Belgium through the Julius Nyerere International Airport (JNIA).

 Petra Diamonds may breach debt covenants on troubles in Tanzania

Cecilia Jamasmie

18 September 2017

Shares in Petra Diamonds (LON:PDL) dropped 7% Monday after the company reported weak results for the 2017 fiscal year ended in June and warned that restrictions on exports from Tanzania, following the seizure of over $15m worth of diamonds in that country, could hit its lending facilities.

The stock dropped to 77.50p in early morning and while it recovered a bit in the following hours it was still trading 6.3% lower to 78.75p at 1:34PM London time. This despite the Africa-focus diamond miner said it had resumed operations at its Williamson mine in Tanzania after a forced four-day stoppage and noted its full-year production target remains unchanged.

Petra halted operations at the mine last week after the government of the East African country confiscated a parcel of gems worth due for export and questioned several of its staff. The move was part of an ongoing probe into alleged wrongdoing in the diamond and tanzanite sectors led by the President John Magufuli.

Sales from Williamson, however, remain frozen and if Petra is not allowed to resume them before the end of the year, the company may breach covenants on its loans, it warned.

The miner had already warned in June that it was in talks with its lenders after suffering a six-month delay at one of its major projects, building of a new plant at its Cullinan mine in South Africa, which caused it to miss production guidance for the year.

“Petra will monitor the situation very closely and take decisive action if required to preserve shareholder value,” the miner said in the statement.

It added that the authorities had still not released the parcel of 71,654.45 carats of diamonds they seized.

“The grounds upon which these actions were taken have still not been formally made known to the company,” the company said. “Petra is committed to engagement with the government of Tanzania to resolve this matter.”

Petra also said it was anticipating delays in receiving VAT refunds from a total of $15.8 million because of the current operating environment.
Disappointing results

The company, known for some major and recent diamond findings, saw its net profit fall 54% to $29 million for the fiscal year ending June 30 due to the strengthening of South Africa’s rand and lower than expected production at its Cullinan mine. Petra had a $63.6-million profit in 2016.
"The majority of Petra’s operations are in South Africa, where it has spent millions buying up and expanding diamond mines formerly owned by De Beers. "

Total production reached 4 million carats (Mcts) of diamonds, which was below its guidance of 4.4m to 4.6m carats. But guidance was maintained at between 4.8 Mcts and 5 Mcts for the current year — ending June 2018 — and 5.0-5.3 Mcts for the following year.

“It has been a tough year for Petra and the situation at Williamson we hope will be resolved and less troubling than the challenges faced by Acacia,” Investec said in a note to investors.

The troubles Petra has faced in Tanzania mirror those encountered by Barrick Gold-owned Acacia Mining (LON:ACA), which has been the centre of a gold export probe launched by Magufuli earlier this year.

The investigation has taken such heavy toll on Acacia — one of Africa’s largest gold producers — that the company decided earlier this month to reduce operations in the country.

Mining contributes 3.5% to the gross domestic product of Tanzania, which is Africa’s fourth-largest gold producer. The government, however, wants to increase that piece of the pie by requesting more taxes from the sector. It has been on a drive to add value to its exports rather than send raw materials abroad.
Net profit was impacted by lower than expected production at the company’s iconic Cullinan mine in South Africa, because of delays in the building of a new plant.


Tanzania orders wall built around tanzanite mines, purchases of stones


20 September 2017

Tanzania's president has ordered the military to build walls around its tanzanite mines and directed the central bank to buy the precious stone to boost reserves — the latest twist in a spat with mining firms over alleged tax evasion.

"All tanzanite gemstones will be controlled and will pass through one gate and he (Magufuli) ordered the (central) Bank of Tanzania to take part in the tanzanite buying trade," a statement from the presidency said.

President John Magufuli's government accuses mining firms of cheating Tanzania out of its fair share of mineral wealth through tax dodging and smuggling, allegations they hotly deny.

A parliamentary inquiry team said on Sept. 7 that it had uncovered massive smuggling of the blue-violet tanzanite gemstone, found only in the East African nation.

Magufuli ordered the military to build walls with security cameras and checkpoints around all tanzanite mining concessions in northern Tanzania "to control illegal mining and trading activities," the presidency statement said.

"Even if someone swallows some tanzanite gemstones, they will be detected at the proposed checkpoint," Magufuli said.

"Tanzania gets just 5 percent of revenues from the global tanzanite trade – all the rest of this precious gemstone benefits other people abroad. This is unacceptable."

Tanzania overhauled the legal, regulatory and fiscal framework governing the mining sector with three new laws in July, sending stock in foreign-owned mining companies plunging.

The new laws established a National Gold and Gemstone Reserve under the control of the central bank.

On Sept. 7, the government confiscated a consignment of diamonds from a mine majority-owned by Petra Diamonds after accusing the London-listed firm of under-declaring the value of the stones by around half. Petra denies the charge. (reporting by Fumbuka Ng'wanakilala; writing by Katharine Houreld; editing by Mark Heinrich)

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