Kao Mine Seeks $250M Lifeline

Financial Crisis Threatens 1800 Jobs at Storm Mountain Diamonds

The Storm Mountain Diamonds (SMD), one of Lesotho’s four major diamond producers, is facing a critical financial situation that could lead to the loss of approximately 1800 jobs. The company requires at least M250 million to continue operations, according to recent reports.

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 significant capital injection to maintain its operations. However, potential investors have been hesitant to provide funding due to the Revenue Services Lesotho’s (RSL) refusal to implement the 8:1 debt-to-equity ratio as outlined in the company’s Mining Lease Agreement.

For investors, a higher debt-to-equity ratio indicates greater risk, as it may eventually lead to loan defaults 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 stated. “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 claims that investors are hesitant to inject funds because of the ongoing dispute with RSL regarding 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.

Tensions Between RSL and Finance Minister

The financial troubles of the mine come amid sharp differences between the 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 are among their major differences.

In a letter to Dr Matlanyane late last month, Adv Mokoko complained about what she described as the minister’s “unlawful directives.” These 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. Other directives cited in the letter included instructing the Commissioner General to consider the mining sector debt-to-equity ratio at 8:1, despite the law stipulating a 3:1 ratio.

The minister had reportedly suggested that the Commissioner General find “solutions” to help mining companies under severe distress from the international diamond market. Allowing them to implement the 8:1 ratio would help mining companies increase their debt to eight times the size of its equity. However, SMD management argues that it is not mandatory to apply the 3:1 debt-to-equity ratio as stated in Mokoko’s letter.

Cash Flow Woes and VAT Refunds

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.”

The company explained that it has been severely affected by the well-publicized 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.”

Banks Rejection and Job Losses

Obtaining loans from local banks has also been nearly impossible for SMD, 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.”

At the heart of the controversy are thousands of jobs now hanging by a thread. Lephema Executive Transport (Pty) Ltd, one of SMD’s contractors, recently 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… 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.”