Mining sector reeling from COVID-19 impact

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Bereng Mpaki

LOCAL diamond mines are reeling from the negative effects of the Coronavirus (COVID-19) epidemic that has brought world economies to a standstill.

Letšeng Diamonds told the Lesotho Times this week that it is considering temporary closure and retrenching some of its workers as the mining sector reels from the negative effects of the coronavirus (COVID 19).

Since the government announced a nationwide lockdown last month, mining companies have failed to operate. They have also failed to dispose of their diamonds since their markets are also closed while travel bans have made it almost impossible to travel internationally.

Letšeng chief executive officer Kelebone Leisanyane this week said the mine might be forced to take drastic measures to manage its costs.

He said they have suspended all allowances to staff and effected tiered salary cuts across all levels.

“Letšeng has up to now implemented mild cost reduction measures to manage the costs during this period when the operations are on hold,” Mr Leisanyane said.

“If the lockdown continues and Letšeng is not able to sell any diamonds, its only source of revenue, it will become necessary to consider more drastic actions such as temporary closure, downsizing and retrenchments which may affect employees and contractors in a similar manner to what has been observed in other Industries.

“The lockdown has strained the company’s cash position as the main revenue stream is the sale of diamonds. The company has thus been forced to review its cash flow and operational commitments, which include employment conditions across Letšeng. This has resulted in the company having to suspend all allowances to staff and effect tiered salary cuts across all employee levels.”

He said they are now hoping to convince the government to allow them to operate as an essential service provider to avoid possible job losses. The company currently employs over 2 100 workers.

“Letšeng is of the view that if the mines undertake all precautionary measures (screening, testing, social distancing, quarantining employees where applicable, social distancing, washing of hands, use masks, etc.), they should then be regarded as essential services and be allowed to operate.

“As an open pit operation, Letšeng Diamond Mine plans to put a strong case to the Cabinet’s COVID-19 sub-committee in favour of classifying diamond mining as an essential service in order to rescue the economy of Lesotho.”

Firestone Diamonds, which owns 70 percent shares at Liqhobong Diamond Mining Company, last week said the mine’s operations had not been spared by the global meltdown caused by COVID-19.

Last week the company said it may have to close for the next 12 months to wait for the global diamond market to recover from the COVID-19 recession.

“The directors of the company, having deliberated on the matter extensively, have concluded that the prudent course of action is not to resume operations at the mine immediately after the aforementioned lockdowns are lifted and that it is in the best interest of all stakeholders to rather preserve the limited mine life at Liqhobong Mine and the limited cash resources of the group for as long as possible to ensure the mine can start up again when the market recovers, which they believe will take at least 12 months,” reads the statement.

The mine employs over 600 workers.

“On 25 March 2020 the company announced its decision to suspend operations at the mine and to place it on care and maintenance for a three-week period to safeguard its workforce and surrounding community from the coronavirus pandemic.

“This decision was aligned to the 23 March 2020 directive issued by the South African government requiring a 21-day national lockdown, effective midnight Thursday 26 March 2020 to midnight Thursday 16 April 2020, in order to contain the spread of the coronavirus.”

The company said the COVID-19 epidemic has had a severe impact on the global diamond industry as most countries with both mines and markets were on lockdown while travel bans have also been imposed. Therefore, most producers, Liqhobong included, are unable to sell their diamonds.

“Considerable uncertainty abounds at this stage regarding three fundamental aspects of LMDC’s business, namely:

  • it is uncertain when LMDC will next be able to sell its diamonds;
  • the price LMDC can likely expect to achieve for its diamonds is unknown; and
  • the length of time it might take for the diamond market to recover from the coronavirus pandemic, and specifically to the level where LMDC can operate sustainably is unknown.

“The Company has the full support of its two major shareholders and bondholders, Resource Capital Fund VI L.P and Pacific Road Resources Fund (comprising Pacific Road Resources Fund II L.P. and Pacific Road Resources Fund II).”

The company said discussions were ongoing with its lender, ABSA Bank to restructure its US$63.9 million debt.

 

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