LESOTHO’S fledgling diamond mining sector is facing huge viability challenges. Already reeling from the low prices for diamonds on the global market and the disruption of local production due to various factors in 2019, the sector has now been hit hard by the coronavirus (COVID-19) induced global economic slowdown.
The Lesotho Chamber of Mines (LCM) says the sector has declined by up to 40 percent and will experience a further 25 percent decline due to the “adverse influence of the global COVID-19 pandemic”.
The mines have also suffered huge losses after being forced to shut down during Lesotho’s lockdown which began on 30 March and ended on 5 May 2020. The lockdown was declared by the government as part of measures to fight COVID-19. People stayed at home and only ventured out to buy necessities like groceries and access medical services. Most companies including mines were forced to shut down during the lockdown.
Although there are several smaller operations, Lesotho’s leading four mines are Letšeng, Liqhobong, Kao and Mothae.
According to Lesotho Chamber of Mines (LCM) chairperson Mohale Ralikariki, the big four contributed a combined total of R891 million to the government through taxes and levies in 2019. This is not far from the R1, 2 billion the Lesotho’s Ministry of Finance says it expects to generate in 2020 from its share of the Southern African Customs Union (SACU) receipts. Other SACU members are South Africa, Botswana, Namibia and eSwatini.
This was excluding the contributions made to the economy by the contractors, service providers and suppliers contracted by the mining companies. This figure is not likely to be repeated or surpassed in 2020 due to the COVID-19 induced halt in production. They may even be nothing at all for treasury if the mines do not resume production without further delay.
In his recent letter to the National Emergency Command Centre (NECC) set up by the government to spearhead the fight against COVID-19, Mr Ralikariki shows that the mining sector was already experiencing viability challenges even before the lockdown due to various factors including operational costs and poor diamond prices on the global market.
He said the already perilous situation has been aggravated by the COVID-19 induced shutdown of operations and pleads with the government to allow the mines to resume production. He warned that the mines were likely to retrench if they were not allowed to reopen immediately.
“The (Lesotho) diamond market which had already declined by 20 to 40 percent before lockdown, suffered a further substantial drop of at least 25 percent under adverse influence of the global COVID-19 pandemic. This situation has forced some companies into a broad cash flow and liquidity crisis and Liqhobong is already a victim,” Mr Ralikariki said in his recent letter to the NECC.
“To survive these debilitating national and international events, the already embattled diamond mines of Lesotho request that consideration be given to allow production to resume at those mines that can still afford to do so.
“If the suspension of the operations is prolonged, then mines will be forced to retrench and maintain skeletal staff until 2021 or beyond…This will have a detrimental impact on the gross domestic product (GDP) and employment situation,” Mr Ralikariki stated.
For Letšeng Mine, the cost of care and maintenance of the plant during the lockdown is estimated at R12million weekly. Mr Ralikariki said the mine was also losing M75million weekly due to suspension of operations.
Mr Ralikariki said Kao Mine was also spending R12million weekly care and maintenance of the plant.
The government subsequently allowed the mines to re-open and each of them is working towards resuming full-scale production.
But as the case of Mothae Mine shows, the relaxation of the regulations to allow the mines to resume production does not necessarily mean the end of the challenges. The mine’s major shareholder is Australian company, Lucapa.
Mothae is the newest of the mines and it has several teething challenges to deal with. It only began commercial production in January 2019 and to date, it has produced about 30 000 carats including three diamonds of 100 carat-size or more.
Lucapa’s Managing Director Stephen Wetherall has suggested in a statement early this month that Mothae, which only began commercial production in January 2019, has some unnamed hurdles to overcome before production can resume.
“Lucapa and Mothae management continue to work with the Government of the Kingdom of Lesotho…to review recommencement scenarios for the Mothae Diamond Mine,” Mr Wetherall said in the email.
In another email, Mr Wetherall revealed that the lockdown severely affected the fledgling mine to the extent that it has to re-negotiate with its creditors for the re-scheduling of its debt repayments.
Its creditors include the Industrial Development Corporation of South Africa Limited and private Singaporean entity, Equigold Ltd.
While the relaxation of the lockdown regulations comes as a huge relief to the mining sector, the effects of the COVID-19 induced slowdown in business activity will continue to be felt for some time by Lesotho’s businesses especially the mining sector.