Tanzania: Mining Firm Closes Down After Magufuli Confiscate Diamonds

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Petra Diamonds Ltd. halted production at its mine in Tanzania after the government seized a parcel of diamonds suspected of being undervalued, as a dispute between the state and foreign-owned mining companies widens. Petra shares fell the most in 16 years.

Employees of the Johannesburg-based company are cooperating with the authorities in the East African nation who are investigating a shipment of 71,654 carats of gems that was blocked from export to Petra’s offices in Antwerp, according to a statementreleased in London on Monday. Finance Minister Philip Mpango on Saturday threatened to nationalize the consignment after the government found the parcel of gems was worth more than the company said it was.

“Certain key personnel from Williamson are currently being questioned by the authorities,” according to the Petra statement. “Operations at Williamson have temporarily been stopped for health and safety and security reasons.”

Tanzanian President John Magufuli is overhauling the mining industry as the government targets doubling its contribution to gross domestic product to 10 percent by 2025. In March, he banned mineral exports and ordered an audit that found London-based Acacia Mining Plc understated the taxes it owes Tanzania, a finding the company refuted. The government in July approved laws that would enable the state to renegotiate contracts with mining and energy companies.

Petra shares fell as much as 28 percent on Monday morning, the biggest intraday plunge since June 2001. The shares were 8.1 percent lower by 1:17 p.m. in London.

‘Popular Resentment’

“Popular resentment towards foreign companies means his bid to crack down on tax evasion is politically popular,” Charlotte King, a Tanzania analyst at the Economist Intelligence Unit, said by email. “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.”

Petra published documents including receipts, a diamond-valuation certificate and a Kimberley Process certificate that it said shows the cargo weighed 71,654 carats valued at $14.8 million. It also said a government agency is responsible for valuing gem parcels that are exported to Antwerp, not the company.

Mpango, the finance minister, said investigators found the true value of the seized cargo was $29.5 million.

“The possibility of making a mistake, as they were right there, is very small,” he said. “This is how Tanzanians are being robbed in broad daylight.”

Two Tanzanian ministers resigned last week after Magufuli told government officials suspected of wrongdoing in an investigation into the nation’s diamond- and Tanzanite-mining industries to step down. Edwin Ngonyani, a deputy minister of works, transport and communication, said he quit on Sept. 7. George Simbachawene, a minister in the office of the president in charge of regional administration and local government, announced his departure the same day.

Tanzanite, a blue gem, is only found in Tanzania. The nation also produces so-called “bubblegum” pink diamonds, including a 23-carat stone extracted from the Williamson mine, according to Petra’s website.

Source: Bloomberg