Lesotho: Mining Industry in Trouble

…as massive job losses loom

…govt, mining companies consider options to keep the businesses afloat

Mathatisi Sebusi

THE future of Lesotho’s mining industry looks bleak amid a sharp decline in global diamond sales. The situation is so dire that it could lead to significant job losses as mining companies face potential closures or are forced to lay off large numbers of their employees.

The government and mine management teams are currently grappling with how to keep these operations afloat while struggling to secure a market for Lesotho’s diamonds. They are even considering suspending royalty payments from investors to the government, which holds a 30 percent stake in all diamond mines.

This was confirmed by Minister of Natural Resources, Mohlomi Moleko, in an interview with the Lesotho Times yesterday. Mr Moleko stated that all mining companies operating in Lesotho were struggling to sell their diamonds due to a decline in global demand, particularly in Belgium. As a result, these mines – including major players like Letšeng Diamonds, Storm Mountain Diamond, Mothae Diamond Mine, and Liqhobong Mine – may be forced to place their operations under care and maintenance, potentially sending employees home.

In fact, one mine has already decided to transition to care and maintenance to avoid further financial losses, Mr Moleko said. He did not immediately disclose the name of the mine.

He added that, with the downturn in the diamond market, many mining companies overseas were closing their doors, and Lesotho may face a similar fate.

“Because of this (drop in sales), some companies overseas are already being closed and this could happen here as well,” Mr Moleko said.

“This is a big problem. We have had to sit down with the mining companies operating in Lesotho to come up with a strategy to keep their operations alive. They have requested that they be excused from paying government royalties this financial year, suggesting they would pay next year. We are still negotiating their request with the mining board.”

After extracting diamonds in their raw state, the local mines sell them via an auction at Antwerp in Belgium where buyers from across the globe bid for the precious stones.

However, Storm Mountain Diamonds Chief Executive Officer, Neo Hoala, told the Lesotho Times that the demand for diamonds had significantly dropped leaving local mining companies, including his, in distress and forcing them to review options to keep them afloat.

“The decline in sales has been happening for a while until now that we are struggling to keep businesses alive. It should be clear that production is still satisfactory, but the demand has dropped drastically.

“The biggest buyers of Lesotho diamonds at Antwerp were from China, but their demand has been dropping, resulting in the low sales.”

She said the crisis was not only affecting Storm Mountains Diamonds, which operates Kao Mine, but the entire mining sector.

“We are fighting to keep the mine operating and hope it will not get to where we have to retrench employees and place the mine under care and maintenance,” she said

She said while workers have been made aware of the financial situation of the mine, Storm Mountains Diamond has not made a final decision on how better to address the matter.

“No decision has been made yet by board members, shareholders and the mine’s management.

“We are hoping that we will continue with operations, but it is no secret that the mining industry countrywide has been experiencing market challenges wherein diamond prices are very low and that has put a lot of pressure on the mines in the country.

“As management, shareholders including the government, we are exploring all possible ways to avoid the mine going into care and maintenance and continue operating. Unfortunately, I cannot divulge the finer details as these issues are still being deliberated by the shareholders and would revert once we have reached a solution, but placing the mine under care and maintenance will be our last option,” she said.

Ms Hoala said the mine being put into care and maintenance, meant that the mine’s normal operations would be put on hold and only few people will be left at the mine to maintain the plant.

Despite recovering a massive 129.71ct type II white diamond this week, Letšeng is also suffering from the same debacle.

Letšeng’s Chief Executive Officer, Motooane Thinyane, told this publication yesterday that they were banking on the government to assist them in these trying times.

“The general slump in the diamond market is affecting all the diamond mining companies, and in particular the marginal mines are the most impacted. Letšeng is also affected because our diamonds sell in the same international market where we continue to see significant, double-digit decline in the price of the diamonds compared to prior periods.

“There has been a significant (20+ %) decline in the prices that our top quality stones are able to fetch at the auctions as compared to similar periods over the past two years or more.

“This is a significant impact, and coupled with the declining diamond prices, there are other external uncontrollable factors such as the exchange rate and the cost of consumables, goods and services in general. Eventually if this is not abated, the impact will be significant for the general industry, and more specifically for us in the Lesotho context where our diamond deposits are generally poorer than in other jurisdictions,” Mr Thinyane said.

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Mr Thinyane also said they continually reviewed and rationalised operations to remain afloat, and this has been ongoing for over a year now.

“This has involved reviewing our mining plans, reviewing our contract models, reviewing the corresponding labour and manning plans, and reviewing other key cost drivers to ensure continual improvements and efficiencies.

“The mines have formally engaged the government, individually and collectively through the mechanism of the Chamber of Mines. It is to be understood that the market may have its highs and lows, and we do believe that we have a government that understands this very well. “Therefore, it is our expectation that during tough times such as these, the government, as a shareholder in the mining operations, will do their part to offer some relief to enable the mines to alleviate the potentially adverse impacts that this trend will have on the mines, on the industry, and on its ability to deliver on such important aspects as employment and contribution to the economy in general.”

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