Petra Diamonds (LSE: PDL) has reached a preliminary deal to sell 50% — less one share — of its stake in the Williamson diamond mine in Tanzania to local technical services contractor Caspian for US$15 million.
The company said the sale also includes a pro rata share of the company’s debt in the venture.
Petra currently owns 75% of Williamson Diamonds, which operates the namesake mine. Tanzania’s government has the remaining 25%.
A framework agreement with the Tanzanian government, announced earlier this week, will see Petra’s shareholding dropping to 63% and the government’s share increasing to 37%.
Upon completion of today’s deal Petra and Caspian will each own 31.5% of Williamson Diamonds.
Caspian will fund the acquisition through the settlement of US$11.1 million of past technical services payments Williamson owes it. The Tanzanian firm will pay the remaining amount through US$3.9 million worth of technical services aimed at ramp-up operations at the diamond mine.
Petra recently resumed operations and sales at Williamson, the country’s only major diamond mine, with estimated production for fiscal 2022 expected to be between 220,000 and 270,000 carats.
The asset had been on care and maintenance since April 2020 due to a collapse in diamond prices following the global Covid-19 outbreak.
The company has faced allegations of human rights abuses at the mine, resulting from the actions of its security guards.
In February the miner formed an internal committee to oversee the investigation, which concluded that “regrettable” incidents did take place at the mine in the past. Shortly after, it reached a £4.3 million (about $6m) settlement with claimants, even though it did not admit liability at the time.
The framework agreement announced on December 13 also settles other long-standing disputes around the Williamson mine, with WDL assuming liability and agreeing to pay the government US$20 million in installments.
Commenting on the deal in a research note to clients, mining analyst Raj Ray of BMO Capital Markets noted that “the consideration is slightly below our valuation [US$17 million], but the transaction will result in reduced exposure to a historically challenged asset.”