REG-Petra Diamonds: Framework Agreement in principle with GoT

Petra DiamondsAnnouncement

13/12/2021 10:05

FOR IMMEDIATE RELEASE

 13 December 2021   LSE: PDL 

Petra Diamonds Limited

("Petra", the "Company", the "Group")

Framework Agreement in principle with the Government of Tanzania

Petra Diamonds Limited announces that it has reached an agreement in principle
with the Government of Tanzania relating to the operations of the Williamson
open pit diamond mine in Tanzania (the “Williamson Mine”), which recently
resumed operations and sales, having been on care and maintenance since April
2020. The agreement with the Government of Tanzania has been reached with the
view to establishing a sustainable future for the joint-venture between Petra
and the Government of Tanzania, held through Tanzanian company Williamson
Diamonds Limited ("WDL").

The agreement in principle has been documented in a "Framework Agreement",
which would bind each of Petra, WDL and the Petra Group entity that currently
directly holds shares in the capital of WDL, Willcroft Company Limited
(“WCL”) (together, the "Petra Parties"), as well as the Government of
Tanzania.

The Framework Agreement provides for a capital restructuring of the WDL
entity, including to reflect the 16% free carried interest that the Government
of Tanzania is entitled to receive in WDL and its shareholder loans under
Section 10 of the Tanzanian Mining Act, 2017 and Regulation 10 of the
Tanzanian Mining (State Participation) Regulations, 2020. The capital
restructuring will include:
1. a WDL share issue with the effect of reducing Petra's indirect shareholding
from 75% to 63% and consequently increasing the Government of Tanzania's
shareholding from 25% to 37%;
2. a contribution to the Government of Tanzania of 16% of the principal
outstanding value of WCL's shareholder loans payable by WDL, with the
remaining 84% of such principal outstanding loans continuing to be owed to
WCL; and
3. the transfer of the WDL shares held by WCL to another member of the Petra
Group (either Petra itself or a special purpose subsidiary).
In connection with the reorganisation of the parties' legal interests in WDL,
the Framework Agreement also provides for an overall economic benefit sharing
ratio between the Government of Tanzania and Petra in relation to their future
economic benefits from the activities of the Williamson Mine. The agreed
economic benefit sharing ratio is 55:45 as between Government:Petra and is
intended to capture the parties' entitlements as shareholders as well as, with
respect to the Government of Tanzania, the revenue it collects from WDL
arising from taxes, royalties, duties, fees and other fiscal levies
(“Government Imposed Charges”). The Framework Agreement records that the
parties have also agreed that WDL shall be entitled to off-set its unpaid and
overdue VAT receivables against future Government Imposed Charges payable by
it to the Government of Tanzania, with such off-set Government Imposed Charges
treated as paid for the purposes of the economic benefit sharing ratio.

The Framework Agreement sets out the terms on which the shareholder parties of
WDL intend to operate the Williamson Mine, including recording that, as is
currently the case and is consistent with the effective management of the
Williamson Mine, the management of WDL's Tanzanian operations will be carried
out in Tanzania with a continued focus on engaging local talent to maximise
the employment of Tanzanians. Currently, the mine’s workforce (both
employees and contractors) comprises 98.3% Tanzanian nationals and 1.7%
expatriates.

The Framework Agreement provides that Petra and the Government of Tanzania
will provide financial assistance for the restart of operations at the
Williamson Mine, with Petra having already provided funding and the Government
of Tanzania agreeing to allocate the proceeds of the sale of the 71,654.45
carat parcel of diamonds from the Williamson Mine that was previously
confiscated and blocked for export. The original value of this parcel was
assessed in September 2017 at approximately US$15 million, as previously
disclosed, although Petra has not had the parcel independently valued.

The Framework Agreement records an important settlement between the parties of
long-standing, historic disputes arising in respect of WDL and the Williamson
Mine. As part of the settlement, WDL shall be liable to the Government of
Tanzania for an amount totalling US$20 million. This settlement payment shall
be made in instalments, with the first instalment of US$5 million to be paid
once PDL and the Government of Tanzania have fully met their respective
financial contributions to restore operations at the Williamson Mine. The
subsequent instalments of the settlement amount are to be made annually at
amounts between US$3 million and US$5 million depending on WDL's ability to
pay, as determined by WDL’s board of directors.

The Framework Agreement contemplates the amendment to the constituent
documents of WDL in order to implement effectively the newly-agreed
arrangements.

Petra’s Directors consider the Framework Agreement to be of material
importance to the strength and success of WDL and the sustainability of its
business operations, which in turn shall have positive benefits for the other
Petra Parties as shareholders of WDL.

The Framework Agreement is subject to a number of conditions, including
Tanzanian regulatory approvals and the consent of Petra’s South African
lender group. Petra is entering into the Framework Agreement with the
Government of Tanzania in the latter's capacity principally as a regulator and
collector of taxes in Tanzania. However, the Government of Tanzania is also a
related party to Petra for the purposes of the UK Listing Rules, due to the
Government of Tanzania's shareholding in WDL. Accordingly, the Framework
Agreement cannot become legally binding on the parties until approval is
obtained from Petra’s shareholders. Notwithstanding the foregoing, the
Government of Tanzania's right under the Tanzanian Mining Act, 2017 to a 16%
free carried interest is an entitlement as a matter of Tanzanian law, which is
not of itself ultimately subject to any approval or condition in any respect.
Accordingly, Petra acknowledges that arrangements to reflect this will need to
be implemented regardless of the Framework Agreement becoming effective. The
Directors consider that the Framework Agreement reflects effective
implementation of the Tanzanian legal requirements, while securing important
benefits for Petra and its stakeholders through the improvement of economic
arrangements and operations in respect of the Williamson Mine.

Petra will be publishing a Circular, once it has received approval from the
UK’s Financial Conduct Authority, seeking Petra shareholder approval of the
Framework Agreement. The Circular will be posted to shareholders and will
contain a notice convening a General Meeting of the Company at which such
approval shall be sought. The Circular will be published on the Company’s
website at: https://www.petradiamonds.com/investors/shareholders/meetings/

WDL holds a valid and unencumbered special mining licence number 216/2005
dated 25 May 2005 in respect of the Williamson Mine, which is located in the
Mwadui area in the Shinyanga region of Tanzania. The special mining licence
confers on WDL the exclusive right to mine for diamonds in relation to the
licence areas until 2030. Petra released its financial results for the year
ended 30 June 2021 on 12 October 2021. During this period, WDL produced a net
loss of US$11.2 million and at the end of the period had gross assets of
US$59.6 million.

Richard Duffy, CEO, commented:

"This Framework Agreement is the culmination of many months of negotiations,
which were at times impacted and restricted by the COVID-19 pandemic. We are
therefore delighted to have put this agreement in place, which marks a new era
of the joint venture parties' relationship and sets the foundation for
sustainable operations at the Williamson Mine. I would like to thank the
Government of Tanzania for their ongoing partnership and support."

This announcement includes inside information as defined in Article 7 of the
Market Abuse Regulation No. 596/2014 and is being released on behalf of Petra
by the Company Secretary.

~ Ends ~

For further information, please contact:

Petra Diamonds,
London                                        
Telephone: +44 20 7494 8203

Cathy
Malins                                                  
            investorrelations@petradiamonds.com

Des Kilalea     

Julia Stone

About Petra Diamonds Limited

Petra Diamonds is a leading independent diamond mining group and a supplier of
gem quality rough diamonds to the international market. The Company’s
portfolio incorporates interests in three underground producing mines in South
Africa (Finsch, Cullinan and Koffiefontein) and one open pit mine in Tanzania
(Williamson).

Petra's strategy is to focus on value rather than volume production by
optimising recoveries from its high-quality asset base in order to maximise
their efficiency and profitability. The Group has a significant resource base
of ca. 230 million carats, which supports the potential for long-life
operations.

Petra strives to conduct all operations according to the highest ethical
standards and only operates in countries which are members of the Kimberley
Process. The Company aims to generate tangible value for each of its
stakeholders, thereby contributing to the socio-economic development of its
host countries and supporting long-term sustainable operations to the benefit
of its employees, partners and communities.

Petra is quoted with a premium listing on the Main Market of the London Stock
Exchange under the ticker 'PDL'. The Company’s US$336.7 million notes due in
2026 are listed on the Irish Stock Exchange and admitted to trading on the
Global Exchange Market. For more information, visit www.petradiamonds.com.



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