. . . as stalemate with RSL puts 1 800 jobs on the line
Mohloai Mpesi
THE Storm Mountain Diamonds (SMD), one of Lesotho’s four major diamond producers, urgently needs at least M250 million to stay afloat, the Lesotho Times has learnt.
SMD (Pty) Ltd operates the Kao Diamond Mine in the Butha-Buthe district, which is jointly owned by Namakwa Diamonds Limited (75%) and the government of Lesotho (25%).
According to SMD’s management, the company is in dire financial straits and needs a huge capital injection to continue operations.
However, a potential investor has reportedly withheld funding due to the Revenue Services Lesotho’s (RSL) refusal to implement the 8:1 debt-to-equity ratio allegedly provided for in the company’s Mining Lease Agreement, insisting instead on a 3:1 ratio.
For investors, the higher the debt-to-equity ratio means the greater the risk as very high ratios may eventually result in a loan default or bankruptcy.
“Right now, we need M250 million for the mine to survive — M150 million will go toward waste removal and M100 million toward moving the front-end,” the company told the Lesotho Times yesterday.
“The only way for this mine to survive is through new investment. That would help save over 1000 Basotho jobs. When the mine closes, everyone goes home.”
The company says investors are hesitant to inject the funds “because there is this case in hand,” referring to RSL’s stance on the debt-to-equity ratio.
“There is money at the door, but it can’t come in because of this issue. We are already highly taxed and we don’t complain — but this situation is as good as taxing the interest of someone lending us money,” SMD management said.
RSL–Finance Minister tensions
The mine’s financial troubles come amidst sharp differences between Minister of Finance and Development Planning, Dr Retšelisitsoe Matlanyane and Commissioner General of the Revenue Services Lesotho (RSL), ‘Mathabo Mokoko.
Disagreements over the debt-to-equity ratio for the mining sector is among their major differences.
In a letter to Dr Matlanyane late last month, through her legal representatives Mei & Mei Attorneys Inc, Adv Mokoko complained about what she described as the minister’s “unlawful directives.”
According to the letter, these directives include orders for the Commissioner General to “disclose the names of taxpayers who submitted applications for value added tax (VAT) refunds”, and to “issue tax clearances to delinquent taxpayers — that is, taxpayers who have failed to comply, despite reasonable efforts by the RSL to ensure compliance with their tax obligations”.
Other directives cited as per the letter included one instructing the Commissioner General to “consider the mining sector debt-to-equity ratio at 8:1”, even though “the law stipulates in clear terms that such debt-to-equity ratio should stand at 3:1”.
The minister had reportedly suggested to the Commissioner General that she finds “solutions” to help mining companies currently under severe distress from the distressed international diamond market. Allowing them to implement the 8:1 ratio in light of the sector’s ongoing financial challenges would help mining companies increase their debt to eight times the size of its equity.
The 3:1 ration means companies debt should not be more than three times its equity.
SMD management nonetheless argues that it is not mandatory to apply the 3:1 debt-to-equity ratio as stated in Commissioner General Mokoko’s letter. The Income Tax Act of 1993 gives the Commissioner discretion on the matter, the company suggests.
“There is, in fact, no mandatory 3:1 debt-to-equity rule in the Income Tax Act of 1993 (‘the Act’) with which Lesotho companies need to comply,” SMD said.
“Rather, the Act gives the Commissioner General discretion to disallow interest deductions where a company’s debt-to-equity ratio exceeds 3:1. The Lesotho legislative framework therefore currently allows the application of a debt-to-equity ratio above 3:1, and there are no legislative amendments required.”
The company further explained that the legislation also requires the Commissioner General to consider the Mining Lease Agreement (MLA) between the government and SMD, in which it claims the 8:1 ratio was specifically agreed upon.
SMD management says failure to apply the 8:1 ratio scares away investors.
“When exercising this discretion, the law requires that the Commissioner General must consider all relevant matters — one being the binding mining lease agreement that SMD entered into with the Government of Lesotho (‘GOL’) as required by the relevant provisions of the Mines and Minerals Act 2005, wherein the 8:1 debt-to-equity ratio was agreed.
“A failure to consider and respect the relevant provisions of the binding mining lease agreement breaches this agreement, which not only exposes the GOL to potential claims for damages that could be very substantial, but also, and currently more importantly, jeopardises investment needed for the company to embark on the ongoing capital projects required to stay in business and optimally develop the mineral resource.
“Funding shareholders are reluctant to invest where the investment environment is unstable and cannot be trusted.”
Cash flow woes
SMD also accused the RSL of delaying VAT refunds, worsening the company’s financial difficulties.
“As regards VAT, the RSL is delaying SMD’s VAT refunds, and refusing VAT refunds on unlawful grounds, to the severe prejudice of SMD.
“SMD has to date not received its full VAT refunds for April 2025, or any month since then. Despite various letters addressed to the RSL, SMD has not received transparent communication from them regarding this jeopardising situation.”
The company explained that it has been severely affected by the well-publicised financial crisis facing the diamond mining sector and has sought assistance from the Government, its business partner.
“There is a misconception that SMD is requesting relief that is outside the legislative framework for tax. This is not true. SMD is only requesting that the government and its agencies, including the RSL, respect the binding agreements entered into with mining companies and investors — all of which is within the ambit of the existing law.”
SMD management further stressed that the company urgently needs capital funding to begin uncovering new diamond-bearing ore. Without this, the mine faces closure, which could result in massive job losses.
“Approximately 1800 people are projected to lose their jobs at the mine if there is no intervention. SMD is currently at a crossroads: it requires capital funding to undertake projects to expose further diamond-bearing ore.
“Without further funding, it can only mine the ore that it can currently access, which will result in imminent closure with the loss of jobs, loss of local procurement, and loss of the significant contribution that SMD makes to the fiscus.”
The company said it cannot self-fund these projects due to reduced revenue resulting from poor market conditions.
“As mentioned, SMD’s investors are reluctant to fund the mine at present due to the disregard of the mining agreement entered into between the Government, SMD and its investors.
“Due to the importance of the mining industry to the Lesotho economy, and for the preservation of employment and millions of Maloti in local procurement expenditure, SMD believes that it is in the national interest that the Economic Cluster be provided with the correct information pertaining to these matters that have been raised by the Commissioner General, as reported in the press. SMD has not yet received a response to its letter to the Economic Cluster.”
Banks rejection
SMD also said obtaining loans from local banks has been nearly impossible, as the mining sector is deemed too risky.
“When we approach the local banks, they don’t fund the mining industry because they say we are too risky. Which is true, because Liqhobong has been closed. It was funded by Absa South Africa, and because of the problems we are going through, it has been shut down. What happened to the loan? The bank has lost.
“A mining company is not like a spaza shop. You put money into exploration, building the plant, and everything. It takes years to recover that money and needs a lot of capital.”
Jobs on the line
At the heart of the controversy are thousands of jobs now hanging by a thread.
The company added that it has been trying to engage with the RSL for over a year, but its efforts have been fruitless.
“It’s been more than a year since we have been trying to speak with RSL, but nothing comes through, to a point where people’s jobs are at peril,” SMD said.
Lephema Executive Transport (Pty) Ltd, one of SMD’s contractors, this week released an internal memo alerting employees that its contract with Kao Diamond Mine will expire in two weeks, which could trigger widespread job losses.
“This memo serves as a formal reminder that the existing contracts for all employees at Kao Diamond Mine are set to conclude in two months, in line with the Mining Service Contract Lephema Executive Transport (Pty) Ltd currently holds, which is running down within the same time,” the memo reads.
“We would like to extend our deepest gratitude for the dedication, resilience, and professionalism you demonstrated during your time with us. Your efforts have been integral to our operations, and we appreciate everything good you have done.
“Working in mining operations, especially in remote places such as Kao, presents unique challenges — and your efforts have not gone unnoticed.
“As we approach the contract end date, the relevant departments will begin transition planning and final evaluations. If there are any contract extensions, or alternative roles available within the company, those eligible will be contacted directly.”
SMD management confirmed that Lephema Executive Transport’s contract with Kao Diamond Mine will end in November and will not be extended, given the mine’s financial difficulties.
“This is going to affect the employees hired by the companies that we work with. If we don’t get any type of help to resolve this matter, it means it is going to affect the contractors that we have,” SMD said
