Hundreds of jobs at stake at Lesotho diamond mine

Kao Mine in the Botha Bothe district of Lesotho currently employs about 750 people. Photo from Storm Mountain Diamonds’ website gallery.

• One of Lesotho’s largest diamond producers could shut down within weeks, threatening over 750 jobs and R1-billion spent annually in the local economy.
• Kao Mine needs R250-million to continue operating for the next 12 months.
• Global diamond prices have dropped significantly in recent years.
• The company says a deadlock with government over tax deductions is deterring investment.
• The government says it must balance its roles as a 25% shareholder in the mine and as the tax collector.

One of Lesotho’s largest diamond producers, Kao Mine, is on the verge of shutting down, threatening hundreds of jobs and more than R1-billion in local economic activity. Storm Mountain Diamonds (SMD), the mine’s operator, says closure would be “devastating” for surrounding communities in the country’s highlands.

The company is now scrambling to secure rescue funding.

“We have literally run out of time,” SMD CEO Neo Hoala told GroundUp. “If we cannot secure critical funding within weeks, the mine will have to shut down.”

The government, which owns a 25% stake, says it is constrained by its roles as both shareholder and tax collector. Namakwa Diamonds Limited holds 75%.

Kao, situated in the mountains of Botha Bothe district, is one of the world’s top producers of large and coloured diamonds. It injects about R1-billion a year into the local economy, 80% of which goes directly to Basotho businesses and workers, says Hoala. If the mine is mothballed, that figure would plummet to below R100-million, according to him.

The mine employs over 750 workers and contractors, about 200 from nearby villages. If the mine goes into “care and maintenance”, nearly all those jobs will be lost.

In an internal memo, board chairperson Robert Cowley warned that employment costs must fall by 20% immediately, prompting a first wave of dismissals.

Global prices fall

Kao mine produces between 220,000 and 260,000 carats annually. But prices on the global diamond market have dropped by over 45% in the past few years. Hoala said Kao’s diamonds, which used to fetch between US$340 and US$400 per carat, now fetch US$190 to US$230. Meanwhile, production costs are between US$270 and US$300 per carat.

The company said in a press release on 13 October that sales are as low as during the Covid pandemic.

“The diamond market is not recovering, and prices have levelled out, making us believe that the current low prices are here to stay,” said Cowley.

The mine has operated at a loss for nearly two years, and to continue operating the mine requires R250-million for the next 12 months, said Hoala. A further R150-million is required for waste mining to access kimberlite ore within the pit to extend the life of the mine.

But the company has “no cash resources left” and “needs to secure financial backing for at least the first couple of years from now”, said Hoala.

A board memo dated 8 September instructed management to “plan for closure” and confirmed that “no more capital will be spent on waste mining or otherwise”.

Without fresh capital, the mine’s lifespan will be limited to just 12 months.

Uncertainty over US trade tariffs has not helped investment.

Tax and royalty deadlock

The mine blames its financial crisis in part on a deadlock with the government over tax and royalty issues, disputes it claims are deterring investors.

Hoala said SMD and other mines have been advocating for variable-rate royalties that adjust when prices fall, a model they claim would offer struggling mines temporary relief.

The company says the issue has been repeatedly raised with the Prime Minister, Minister of Finance, and Minister of Natural Resources since early 2024 but with little response.

A press statement issued last week warned that without swift government action, “closure of the mine and loss of all jobs and local procurement are imminent”.

Hoala said “the government does not contribute any funding towards capital projects or operations”, and Namakwa has sustained the mine. It has advanced R50-million in the past six months for expenses and invested R430-million last year for expansion.

Government’s tough choices

Government spokesperson Thabo Sekonyela told GroundUp that Lesotho must balance its roles as shareholder and as tax collector.

“The government is wearing two hats on these issues, as a shareholder and as a regulator,” Sekonyela said.

On the complaint about variable rate royalties, Sekonyela said, “Taxes are already structured to take the weight when business is good and when it is bad.”

“The government, as shareholder, would not be interested in seeing the mine closing. But tax has to be paid, even during a downturn”.

He acknowledged that both shareholders have a responsibility to find investments and that “the government, as a stable entity that will exist beyond the current agreement, has a better advantage to secure loans”.

The mine says consultations over job losses are already underway, as required by Lesotho’s Labour Act. Unless the government and investors reach a breakthrough, the mine’s future will be decided “within weeks”.

Support independent journalism
Donate using Payfast