Lesotho: small country emerges as diamond giant

Materials World magazine
,
1 Aug 2018

Michael Schwartz looks at mining companies’ role in Lesotho’s economy and their views on the country as a mining-friendly administration. 

Lesotho’s government has made it very clear that diamonds are set to play a major part in the country’s development. Indeed, attempting to become one of Africa’s major diamond producers, Lesotho has attracted several investors, including Firestone and Gem Diamonds. 

The last few years have seen Lesotho gradually build up its mineral sector. In 2015, for example, an inaugural minerals and mining policy was adopted, encouraged by the African Union’s overall ambitions for African mining. 

New legal changes have also been instigated, partly in order to guarantee rights for companies with concessions in Lesotho. Attracting further investment is another target for these legal reforms, as are good environmental standards and health and safety. Ambitions for mining in Lesotho are clear – raise GDP spent on mining to 20% by 2020 from the 7.7% seen in 2016. This is where diamond investors come in as attracting them is a cornerstone of Lesotho’s National Strategic Development Plan. As a consequence, a facility for analysing minerals at domestic level is now possible through a laboratory in the capital, Maseru. In addition, initial identification of minerals has been improved by mapping and remote sensing projects.

Firestone Diamonds CEO Paul Bosma sets the scene. ‘Diamond mining is a significant contributor to the economy of the small mountain kingdom. The government owns minority stakes in the country’s diamond mines, which means it benefits if a mining company does – 25% in the case of Firestone Diamonds.’

 Clifford Elphick, CEO of Gem Diamonds, which he formed in 2005, confirms Lesotho’s sympathy towards mining. ‘Diamond mining is one of the biggest contributors to GDP and employment in Lesotho and, as a result of this, the government is extremely supportive of sustainable mining practices and the resulting opportunities that have arisen for the people of Lesotho. Our Letšeng mine employs about 1,600 people, including contractors, with the Letšeng workforce comprising about 97% Lesotho nationals.’

Gem Diamonds’ Letšeng Mine 

19 April 2018 witnessed the Commonwealth Heads of Government Meeting in London, UK. A mining table devoted to Lesotho formed part of the event, with Lesotho’s Prime Minister and Mining Minister announcing that Gem Diamonds had won a renewed operating lease on the Letšeng mine to 2034 with an option to extend.

Gem Diamonds operates in both Lesotho and Botswana, with headquarters in London. It owns 70% of the Letšeng mine, the other 30% owned by the Lesotho government. In terms of US$/carat, Letšeng is described by Gem Diamonds as the greatest achieving kimberlite mine in the world. A series of 100+ carat white diamonds has been extracted, not least the iconic 603-carat Lesotho Promise.

Letšeng is now one of the largest open-pit diamond mines – it is centred on its Main 17.0ha kimberlite pipe and the Satellite 5.2ha pipe. Last year, there was an updated life-of-mine plan as well as a mining optimisation project aimed at releasing additional value – annual ore treated will rise from 6 Mt/y to 7 Mt/y. Wastage will decrease, the company claims.

Challenges

Elphick outlined the infrastructure issues affecting Gem Diamonds in Lesotho. ‘We are fortunate in Lesotho that despite the terrain and rural location of the mine, we are connected to stable grid power.’ 

We manage our water supply with large reservoirs given the large variation between wet and dry seasons in the country. The mine is situated approximately 300km from Bloemfontein airport and can be reached by road of which all is tarred except for the last 35km.’

Elphick also explained the infrastructure problems Letšeng poses. ‘Located in the Maluti Mountains at an elevation of 3,100m above sea level, Letšeng is the world’s highest diamond mine. 

This brings considerable challenges, particularly during the winter months when temperatures can drop as low as -25ºC. ‘Power for the mine comes from a very reliable power line into the national grid at Mokhotlong, with back-up diesel generators on site, should the extreme weather cause disruptions to supply and operations. While water is not an issue at Letšeng, Gem Diamonds is committed to sustainable development and has invested in managing water supply and quality. Given the topography of the land, the road infrastructure is quite adequate with links into the main towns and South Africa.’

Firestone Diamonds

Still a new diamond producer, Firestone Diamonds has achieved its ambition of building and operating a world-class diamond mine, supplying rare rough diamonds to an expanding global market. In 2016, the Lesotho Highlands – Liqhobong Diamond Mine – Firestone’s flagship, commenced production. The company raised US$222.4m to bring Liqhobong into production.

More specifically, Liqhobong was acquired by Firestone Diamonds from Kopane Diamonds for US$71 million in 2010, construction commenced in July 2014. Full production is intended to generate over one million carats/year, in a life-of-mine of 15 years.

The probable resource comprises an 8.6ha kimberlite pipe containing 9.5 million carats. There is a high incidence of fancy yellow stones and potential for large stones. To access this resource, drilling to 383m is anticipated although diamonds exist down to 520m. There is even the potential for drilling to extend further – one vertical hole has already reached 650m.

Lately, an adverse factor has been excessive rainfall in the vicinity of Liqhobong. Firestone Diamonds confirmed that the ore has started to deliver the anticipated higher grades, despite access to the latter having temporarily been restricted because of high water levels.

 The company’s management continues to aim for lower costs. In fact, the Q2 2018 US$11.60/t treated rose to US$13.03/t for Q3 as a result of currency changes and operational difficulties. In any case, these figures are well under the original target of US$13.80. Over the next 15 months, mining will continue, not least to establish more accurate knowledge of diamond quality and pricing. Revenue generated from diamond sales attracts an 8% royalty.

Lesotho’s mining code

Firestone stressed its obligations under Lesotho’s 2005 mining code. ‘As a mining company, we are required to adhere to the terms of our mining lease agreement concluded with the government, which was signed in 2014 prior to commencement of construction of the new processing plant and associated infrastructure.’

In turn, Gem Diamonds, ‘works closely with the government of Lesotho and adheres strictly to the mining code that has been developed, enabling all stakeholders to benefit from the mining activities that take place at Letšeng,’ says Elphick.

Corporate social responsibility

Both companies stick to their obligations towards corporate social responsibility. Gem Diamonds describes sustainability as a key focus, which encompasses how business is conducted with regard to health, safety, society, the economy, and the environment. Gem Diamonds states its commitment to the highest standards of corporate oversight and believes that strong governance is key to the group’s ability to create sustainable returns for all stakeholders.

Elphick told Materials World that the company aims, ‘to create a lasting positive legacy, contributing constructively to the local communities. The approach involves extensive engagement programmes to ensure the community needs are fully understood, to develop the community initiatives. The organisation’s strength lies in the quality of the people employed and health and safety, as well as opportunities for further training and professional development. 

 ‘Gem Diamonds seeks to minimise the impact of operations on the environment through all stages of development and strives to create an environmentally aware corporate culture, where every individual has a sound understanding of the value of the business’ natural systems and how the collective well-being is inextricably linked to them,’ he says.

Bosma told Materials World, ‘Firestone Diamonds is mindful of its responsibility towards the community in which it operates, and is committed to making a positive difference. The company has carried out a variety of community projects, which benefited the villages around the mine. These projects include the provision of water supply infrastructure, building of a pre-primary school, road maintenance and the donation of equipment to local schools. The company also employs a significant number of citizens from the adjacent villages, which leads to economic upliftment.’

The concentration of Lesotho’s kimberlite intrusions, however, mean that villages are being built on top of large, valuable diamond resources, which means that ordinary people can extract diamonds quite easily and close at hand. This has led to artisanal mining.

Home mining

Illegal mining is serious as Lesotho has one of the highest concentrations of kimberlite intrusions worldwide. 

All too often, the Lesotho mining ministry receives calls from police officials in South Africa informing them that people have been caught trying to sell illegal diamonds from Lesotho. The ministry recognises the necessity to control this issue – it has stated that the only way it can do this is by formalising the artisanal and small-scale sector, thereby ensuring that the diamonds they discover can be sold legally in Lesotho.

The future

For Gem Diamonds, ‘The mining industry in Lesotho is still developing and has considerable potential, with the government being supportive of diamond mining companies with the aim of increasing diamond production,’ says Elphick. ‘As one of the most significant contributors of jobs in a country with high unemployment levels, it is a fair assumption that the government will be committed to developing the mining sector and working with companies and stakeholders to ensure long-term, sustainable value is created.’

Bosma adds, ‘Lesotho has long been known as a source of large, high-quality diamond. The economy can continue to benefit from its diamond wealth under a stable regulatory regime, as well as supportive diamond prices.’

Elphick summarises, ‘Through the ongoing support of the government of Lesotho, Gem Diamonds has been able to continue to extract some of the world’s largest and most valuable diamonds from the world class mine at Letšeng.’