THE government only realised US$3, 2 million for the sale of the 910 carat diamond that was recovered at Letšeng Diamond Mine in Mokhotlong in January this year.
This was revealed by the Minister of Finance, Moeketsi Majoro, in a recent exclusive interview with the Lesotho Times in Maseru.
The diamond which has been dubbed ‘The Lesotho Legend’ is the fifth largest ever recovered in the world and it went on to fetch a whooping US$40 million (about half a billion maloti) at a recent auction in Antwerp in Belgium.
Dr Majoro said although Lesotho would occasionally make massive diamond finds including the ‘Lesotho Legend’, unfavourable contracts that the successive governments negotiated with the mining companies negatively impacted on the earnings that accrued to the state.
He said although the government had negotiated for 10 percent royalties from the sale of diamonds, the state was often forced to settle for as low as eight percent as was the case with the ‘Lesotho Legend’. He said this was because mining companies often pleaded with government to accept a lower percentage in royalties, citing operational costs which reduced their profit margins.
The United Kingdom-based Gem Diamonds is the majority shareholder at Letseng Diamonds with 70 percent shareholding. The government owns the remaining 30 percent.
Dr Majoro said of all the diamond mining companies in Lesotho, only Letseng Diamonds was making profits. He however, described the government’s share of the royalties as “tiny”.
“Liqhobong (Mine) hasn’t got to the profit stage, Kao (Mine) is mired in labour disputes and hasn’t got to the profit stage yet so there’s only one mining company (Letseng Diamonds) that is paying dividends,” Dr Majoro said.
“But the thing is that we have agreements that out of every diamond we get a royalty of 10 percent. That is one out of 10 and you just know right away that this is tiny.
“Our laws are such that even that 10 percent can be lowered by the minister and all these mines and the previous ministers lowered that so right now Letšeng pays only eight percent. So, on this US$40 million diamond you can calculate what eight percent is and that is what we got.”
Dr Majoro attributed the poor returns for government on the fact that ministers and their officials negotiated from a point of weakness where they did not know the true value of the mines and their operations. He said this lack of expertise and knowledge ultimately forced them to rely on the information that was provided by the mining companies.
He added that in some instances the information provided by the mining companies was not a true reflection of a mine’s value or its potential.
“This is a matter of negotiation and the company says, ‘minister things are difficult’. The company says, ‘trading is difficult and we are depressed because of that’. As a minister, you then believe their story and sign the (royalties) deal with them.
“But after you have signed off, you discover that the real figures are different from what you have signed. But that is the contract that you have already signed for a fixed period of time.
“So it is clear that the government knows nothing about mining; does not have the capacity for mining and is therefore in a very difficult position to negotiate for these things. The private sector will always know a bit more than we know,” Dr Majoro said.
He however, said government was working to change that by ensuring it will have its own experts who will assess the mines to fully appreciate their potential before entering into agreements with private companies for the exploitation of the mineral resources.