Lesotho Times
Paragon Executive Chairman, Philip Falzon Sant Manduca

Ultimatum for diamond mine


Paragon Executive Chairman, Philip Falzon Sant Manduca
Paragon Executive Chairman, Philip Falzon Sant Manduca

Transfer US$12 million to Lesotho in two weeks or lose licence, says govt  

Lekhetho Ntsukunyane

Government has given Paragon Diamonds Limited a two-week ultimatum to either deposit US$12 million (about M180 million) into its Lesotho bank account or lose its Lemphane mining licence.

The United Kingdom-based company was awarded the licence in March 2014, but is yet to start mining operations due to lack of funds.

The company needed to raise at least US$100 million before commencing operations, according to its licence agreement.

Paragon even announced on its website on 16 November 2015 that it had requested temporary suspension in the trading of its shares pending clarification of its financial position.

The announcement read: “Paragon currently has limited working capital and until a funding package has been secured, there is material uncertainty over the financial position of the company. The Directors of Paragon remain in negotiations with possible funding providers to secure finance in order to complete the acquisition of Mothae (mine in Mokhotlong), provide development funding for Lemphane (in Butha-Buthe) and repay short-term debts including the £500,000 loan facility which is due on 18 November 2015.”

But according to Mining Minister Lebohang Thotanyana, Paragon was given 24 months ending March 2016, to develop Lemphane but appeared to lack the capacity hence the ultimatum.

“Paragon has actually breached its contract with the Government of Lesotho by failing to develop Lemphane Mine since the awarding of the tender 22 months ago. I can tell you they have done zero; absolutely nothing in line with the contract of developing the mine,” Mr Thotanyana told the Lesotho Times this week.

The minister said by now, Paragon was supposed to have mined three million tonnes of ore from Lemphane, provided “sizeable” employment to Basotho and developed the area to improve the livelihoods of local communities, as per the contract.

In fact, Mr Thotanyana said the Government should have long revoked the mining rights when the company failed to fulfill its contractual obligations within six months of being awarded the contract.

“The mining law allows for the government to revoke the rights to any company which fails to comply with the contract within the first six months. For some reason, we have not done that to Paragon.

“On several occasions in the past, Paragon has claimed to have secured funds, but failed to transfer the money into Lesotho to start operations. We have since issued them with a notification letter to say if they cannot provide proof of funds by transferring at least US$12 million in 10 working days beginning today (Monday), we will be left with no choice but issue a notice to revoke the rights,” Mr Thotanyana said.

The Lesotho Times saw a letter the minister wrote to Paragon Executive Chairman, Philip Falzon Sant Manduca, dated 5 January 2016, informing him about the ultimatum.

Mr Thotanyana said it had further come to the attention of Government that Paragon had even started selling some of its assets at Lemphane.

“We have realised Paragon is even selling some of the machinery at the mining site. This further called our attention to do something about the company. We expected them to use the machinery to develop the mine,” he said.

Meanwhile, the Lesotho Times has further established that the government last week turned down Paragon’s proposal for the acquisition of Mothae Mine. The offer came after Lucara Diamond Corporation ceded the rights to the mine back to Government last month.

Paragon’s idea, the Lesotho Times learnt, was to use Mothae to raise capital.

However, Mr Thotanyana said the government turned down Paragon’s proposal due to the previous fallout over Lemphane.

“We are talking about the same company which has let us down at Lemphane. How do you expect us to give the rights of Mothae to a company which has already failed us on the other mine it already has exclusive rights to?

“Paragon has not only failed us as government, but it also failed communities around Lemphane as well as the entire Basotho nation. Paragon should have employed a sizeable number of Basotho had it complied with its contract for Lemphane. By now, Paragon should have mined three million tons of ore from that mine. It should have developed that area and improved livelihoods of many families.

“Like I said, Paragon has on many occasions claimed to have secured funds to operate both mines. Actually, we had approved Paragon to operate Mothae after the company was identified by Lucara as the next investor when the latter decided to leave the mine for better operations they had secured in Botswana and elsewhere.

“We approved Paragon’s takeover from Lucara in August 2015, but it seemed we had opened a can of worms when we requested the company to provide proof of its finances within 30 days. This was after Paragon claimed to have secured US$70 million to operate Mothae. They brought documents here which suggested that they had secured the funding from Trade 4 Business Finances. We then asked the Central Bank of Lesotho to verify this, but the bank could not approve this.”

The minister said he had been receiving “many text messages” from Paragon claiming to have secured more funding, but the company had not been able to transfer the funds to Lesotho.

“It has always proved difficult for Paragon to transfer the money into Lesotho and prove to us it has the financial capacity to operate. We have since decided to put Mothae mine to tender, and Paragon can still bid for it. If Paragon outcompetes other companies in the process, we will not hesitate to award it the contract for Mothae. But it should be via transparent tendering processes which we are already working on.”

Contacted for comment yesterday, Paragon Finance Director, Simon Retter said: “It is true what the minister is saying, that we were not able to raise the money in 2015 to operate Lemphane. It has been a difficult year for us, and of course, for everyone in the mining and commodities industry, to raise capital.  We have apologised and respect that the minister has been patient. But we finally secured US$30 million from our investors after a long wait. We showed proof of such funds to the minister via banking documents, evidencing that the funds were now available to invest in both mines and commence production within four months and employ over 300 people forthwith.

“All our mining strategies have been completed, equipment ordered and we are ready to go. Sadly, the minister disregarded the proof of funds because they were not in Lesotho, rejected our proposal to commence operations forthwith without further delay at Mothae in conjunction with the commencement at Lemphane, and told us to focus on Lemphane only.

“As the minister knows full well, Lemphane is an exploratory status mine, which requires tens of millions of dollars for further research work before generating any net revenues, and is thus a less optimal commercial proposition than Mothae, both in isolation and amalgamation.

“Lemphane makes more sense if amalgamated with Mothae as a simultaneous grand scheme of works. Our view is that the government has the chance with Paragon, regardless of our enforced delays in 2015 when financial markets were deteriorating worldwide, to get two mines into production right now and get over 300 people employed within four months.”

Mr Retter emphasized how hard it had been to source funding for the Lesotho operations.

“There is no one anywhere willing to finance in the exploration stage status at Lemphane because the diamond mining industry is facing serious market challenges in terms of the depreciating value of diamonds and overall shortage of capital. As the oil price continues to fall, so has interest in investing in commodities generally and mining in particular. The minister appears to be penalizing us for delaying developments for Lemphane. He is right, we did delay, but only because we escalated our financial investment ambitions for Lesotho to bring two mines into production rather than just one. It took time to assemble the additional capital, which we have now done and evidenced to the minister,” Mr Retter added.

Mr Retter said if the government could allow Paragon to operate both Mothae and Lemphane, the company was ready to commence production within four months.

“That way, it would save the government the time and costs of going to tender and having to wait a long time before they identify the right company that would then have to do the mine planning which will take further time. What has the government got to lose? If we don’t come up with the money before month end, the government can serve us notice on Mothae and withdraw its agreement for Mothae. But there is no company, we believe, that can put these two mines into production and employ so many people as quickly as us,” Mr Retter said, adding the company was yet to decide whether it should invest in Lemphane only, after it was refused the concession for Mothae.

Mr Retter further said Paragon only sold “one small piece of old machinery, which was of no relevance to future operations of the mine. We sold that small plant because it was redundant to our future larger scale mining plans, and in the interim, helped to pay the salaries of our employees that are based in Maseru and Lemphane. The money we received never left Lesotho, and the equipment would never have formed any part of the larger plant on order to develop Lemphane into full production. We made this perfectly clear to the minister. Indeed, we had received permission to proceed with the sale by the former government.”

Lesotho Times

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1 comment

  • This article has today just been noticed by a massive chunk of Paragon Diamonds private investors and has brought to light a lot of unanswered questions regarding to what has been going on with the Mothae acquisition.

    When Paragons PM took charge he came with a vision of creating a new kind of Diamond company, one which would turn Paragon into a major player and protect companies value. He had 4 immediate goals…. 1) Protecting company value 2) Aquiring Mothae 3) Funding and 4) To commence mining ASAP. The way this has unfolded has left myself and many other private investors very upset but after reading this article I can understand what has happened.

    Funding for Lemphane was never going to be easy, but by acquiring Mothae that would have required more funding but easier to aquire due to the scope of the mining. What we as private investors were told was that new mining machinery was required to yield better quality diamonds without breaking the bigger stones so I understand why older redundant machinery was sold. The PM stated that acquiring machinery for two mines at once would be cheaper than acquiring machinery for two mines separately so we understood why he hadn’t started on Lemphane straight away. What we weren’t aware of was that Paragon was contractually obligated to start mining Lemphane earlier. If the Minister and Paragon had not come to an arrangement I can then understand the bad faith the Minister views Paragon with. The Minister’s priority is to ensure that the countries interests are looked after and that the Basotho people are given jobs and security that this brings…. especially now that it looks like the real recession is about to hit the world.

    The Global markets are about to crash and anybody with a bit of sense would have known that a massive recession was on its way. Hence the reason why funding has been hard to come by. Now Paragon has had her trading suspended to protect her against hostile take overs and been delist ed due to this which the shareholders are not happy about but understand why. But what we are not happy about is how negotiations have taken place…. There seems to be some miscommunication between Paragon and the Lesotho Government.

    Paragon has according to the above article failed to contractually start mining Lemphane. This has meant a failure to create immediate jobs for the local Basotho people and Text messages are very unprofessional. I can understand why the Minister is upset because Paragon so far has failed to show the Minister that it is going to look after the interests of the Basotho people.

    I can also understand most (minus one or two things) why Paragon has done what it has. Gaining finance right now is an absolute nightmare in Europe especially for a sector that will be hard hit by a massive global recession ie: diamonds. But if the Paragon can mine Mothae and Lemphane at the same time then the PM will be able to build the company he seeks to build which will thrive even in times of recession unlike other diamond miners.

    At the end of the day we all want the same thing. We all want mining to commence immediately at both mines generating income for Lesotho and Paragon and as a native of South Africa, jobs and infistructure for southern Africa especially in this volatile recession climate. If Paragon is allowed to mine both mines this will create another strong mining company in Lesotho creating strong competition with the likes of Gem diamonds which would be favourable to the government rather than a small manopoly. Also should a recession kick in soon other miners will need to cut costs firstly with job cuts, Paragon on the other hand will immediately be creating and maintaining jobs ensuring incomes for the local populations. And then obviously investors like myself from South Africa will maintain our interests in a company that will benefit southern africa.

    I personally believe, that if Paragon has finally got the money and can transfer it, Paragons PM and the Minister need to meet face to face in the tradional Man to Man format, put away any gripes, apologise for all misunderstandings, offer new assurances (even be it bonuses to the local communities for loss of income, because surely a Minister who can organise his people jobs and a starting bonus would become a LEGEND) and just get this Deal signed so we can get to busines, create jobs and start mining. Prolonging this any further will only cost everyone involved an income.

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