The government is engaging in routine exploration of precious minerals in a spirited bid to diversify the country’s increasingly precarious mining sector that is suffocating under tumbling global diamond prices and oversupply.
Lesotho’s diamond sector is also under threat by lab-grown or synthetic diamonds that are finding their way onto the international market.
Faced with an uncertain future and a possible job bloodbath, the government is now looking at ways of diversifying its mining industry.
The minister of natural resources, Mohlomi Moleko, told theReporter in an interview thatone of the objectives of his ministry through the department of mines and geology is to increase the discovery of minerals and promote research for the sustainable development of the country’s natural resources.
He revealed that besides its famous top-quality diamonds, Lesotho has crude oil, gas, base metal, and rare earth elements. It also has significant deposits of dolerite, sandstone and clay.
Such gems are found naturally in a handful of locations around the country, and the fact that no two diamonds are the same, make them rare.
“It is the government’s objective to enhance their value as they form the cornerstone of the country’s economy. To that end, we are looking at working closely with the diamond industry to differentiate Lesotho’s diamonds and create a unique brand within the wider sector.
“That will require enhancing, monitoring through transparency and traceability, creating certification programmes that will pronounce to the end user the provenance of Lesotho’s diamonds,” Moleko revealed.
He also indicated that through the Kimberley Process Certification Scheme (KPCS), Lesotho is working on new technologies that can provide for diamond fingerprinting.
This system ensures authenticity by distinguishing between natural and synthetic diamonds, Moleko pointed out.
He acknowledged that the current diamond market is in distress due to oversupply in the midstream, and weaknesses in the main markets such as China and the USA due to high interest rates.
This market challenge has the potential to significantly affect employment and suppliers to the mining sector.
Moleko added that such an undesirable eventuality could also reduce government revenues if the situation deteriorates further.
“This will thus require the government’s utmost support until the market returns to normalcy, as diamonds, like other minerals, are a cyclical commodity,” he noted.
The minister’s remarks come in the wake of the recent announcements made by two prominent mining companies in the country: Liqhobong Diamonds Mine and Storm Mountain Diamonds (SMD). Both companies have expressed alarm at the state of the industry, citing poor market conditions.
Meanwhile, economic analysts have cautioned that government’s failure to address the diamond industry’s concerns was a travesty that will continue to have devastating consequences on the country’s fragile economy.
The analysts believe Lesotho’s immense diamond potential is being hindered by government’s reluctance to take decisive action in the face of mounting challenges.
They said this inaction was not a matter of incompetence but potentially a result of deeper, more nefarious issues like corruption or wilful ignorance.
In an interview with theReporter last week, a renowned economist, Majakathata Mokoena-Thakhisi, indicated that the road to diversifying and adding value to Lesotho’s diamond industry lies in the long-awaited revision of the Mining and Minerals Act, 2005 which is awaiting royal assent.
Mokoena-Thakhisi contended that the proposed changes, such as more favourable taxation polices for value-adding activities and greater support for local businesses, would create a more conducive environmental for investment and stimulate growth in the diamond processing sector.
He said Lesotho’s diamond industry was making itself increasingly vulnerable to global economic shocks due to its dependent on raw diamond experts.
The failure to add value to the diamonds before they are exported, he argued, was leaving the country exposed to unpredictable market forces and depriving it of the full potential benefits of its diamond wealth.
In order to mitigate these risks, Mokoena-Thakhisi urged, the industry must consider local cutting, polishing and value-addition processes, so that Lesotho can capture more of the value chain and insulate itself from external market fluctuations.
“Until the revised Mining Act is enacted, Lesotho will remain a diamond exporter not a diamond industry,” he said.
It was also unfortunate that there seems to be an interest in the Lesotho’s diamond industry, which is dominated by white people, to take advantage of Lesotho’s loose liberal laws.
“This makes it possible to take our diamonds without weighing, sorting and valuing them before sending them abroad, so whatever prices they have reached, they charge VAT to the country. Now, every month, the country is paying close to M100 million to companies in VAT reclaims.
“If this law can pass, Lesotho has the ability to create a diversified mining industry that would create more jobs for Basotho and improve the country’s economy,” Mokoena-Thakhisi noted.
Another economist, Mahlomola Sekonyela, says Lesotho needs to focus on marketing its minerals as unique, rare and precious.
Sekonyela said the future of natural diamonds is a complex and nuanced issue.
He also believes that despite the growing popularity of lab-grown diamonds and a shifting market, natural diamonds will continue to hold a significant place in the luxury goods and jewellery market.
“Lesotho should focus on promoting its high-quality natural diamonds by promoting their ethical sourcing, rarity, as well as cultural and historical significance,” Sekonyela pointed out.
He further warned that without decisive action, Lesotho risks squandering its immense diamond potential and economic success.
Liqhobong Mining Development Company (LMDC) informed its employees through a memo dated August 15, 2024 that the current state of the global diamond market was “equal or worse than in 2020, immediately after the outbreak of COVID-19.”
The company attributed this to several factors including an overstocked midstream sector, a rise in laboratory-grown diamonds and a weak Chinese market, which is the second-largest diamond market after the United States.
The current downturn in demand for natural diamonds has forced the mine to consider retrenchment measures to address the situation.
“In the light of the current situation, the company is considering retrenchments and we would like to consult with you on the matter. Our objective is to explore all possible alternatives and minimise job loses wherever possible,” the memo read.
The company cited “fragile market conditions” and “rapid worsening” of the market over the past few months as contributing factors to the low-than-expected sales performance.
“Our latest July sale returned worse-than-expected results, with an average value of US$62.50 per carat, well below our forecasts. This was preceded by our May sale which only realised an average value of US$61 per carat.
“This reflects the current fragile market conditions, which have worsened quickly over the past few months and are far below the required average value of US$89 per carat that underpinned the business case to restart the Mine in 2022,” it indicated.
Another local mine, Storm Mountain Diamond is also dabbling in a low market and price quagmire.
In a letter addressed to employees, the SMD board of directors said the company’s sales results have been severely affected by the current global market crisis.
The board also noted that the crisis was deepening and there were no indications of when the situation would improve.
“Our sales results have been severely affected by the market crisis. Our planned revenue for the financial year was US$377 per carat, but we only achieved US$193 per carat at the most recent tender in July.
“These prices are not sustainable, given our current operational costs as we need to achieve approximately US$300 per carat to break even. The poor revenue and ongoing operational costs are causing a liquidity crisis for SMD with operational costs exceeding its revenue,” the company revealed, adding that it was running out of cash.
The announcements made by the two firms have sent shockwaves through the ranks of the employees, who now fear for their jobs.
Liqhobong employees told this publication on Wednesday last week they were informed of the current developments through a sub-contracted company, during a meeting held at the mine the previous day.
“We are still not certain about our future at the mine because the meeting was brief and meant to alert us of possible retrenchments.
“Our company promised that they would talk to the mine to propose that at least there should be only one day shift not three shifts as currently is the case, in order to avoid jobs losses. That would however affect our salaries,” one of the workers said.
