Mine ‘buries profits in loans’ to shareholders

MATHATISI SEBUSI

MASERU – Public Accounts Committee (PAC) chairman Selibe Mochoboroane this week delivered a broadside at diamond miner Liqhobong, accusing the mine of not remitting dividends due to government by declaring massive losses.

The stinging rebuke was however immediately rebutted by the mine which trotted out its financial statements for the last 18 months, showing although it has been progressively increasing output, it has also been sinking a lot more into its nascent venture.

Also, the mining ministry backed Liqhobong insisting the mine has not realised any profit since it commenced operations in the second half of 2016.

Speaking during a PAC sitting, Mochoboroane was unrelenting in his attack, and challenged the mine to shut down if it was in the red.

Since it was granted a mining lease in December 2014, Liqhobong has neither paid any dividend to Government nor corporate tax, Mochoboroane charged.

The mine, he said, was only paying four percent in royalties which is against the Mine and Minerals Act of 2005, which stipulates mines must pay 10 percent in royalties.

Mochoboroane also alleged that the mine was selling Lesotho diamonds to one of its shareholders which buys them at basement prices – which are declared to government – and then resells them at a premium.

He revealed government was unaware of the final destination of local diamonds and was not represented during the polishing and auctioning of diamonds.

According to him, Liqhobong mine also “buries profits in loans” it takes from its shareholders.

He further alleged that there was no sense in the mine staying open if it was struggling to pay dividends, corporate tax and 10 percent royalties “unless there is something fishy going on with the mine that benefits them alone”.

He therefore advised the mine to sit down with the ministry of mining and re-visit the mining lease and pay full royalties, dividends and corporate tax as expected.

Chief Financial Officer at Liqobong Grant Ferriman, said they have not been able to pay either dividends or corporate tax because the mine has been running losses since it started operating in December 2016.

He said during the 2017 financial year, the mine operated for only six months and extracted 310 000 carats worth M365 million, while operating costs amounted to M377 million resulting in M12 million losses.

According to him, the mine had borrowed M140 million to keep its operations running.

Again he revealed that in 2018, they extracted 831 000 carats worth M805 million for the whole year, with operating costs of M830 million, resulting in M25 million worth of losses and the mine had to borrow again from their holding company to sustain operations.

Ferriman added that because of the losses incurred during these two financial years, no money was made hence the non-payment of dividends.

He, however, noted this financial year, the mine was doing well and could declare a profit even though it won’t be able to pay any dividend due to loans and operational costs the mine has to cover.

According to him, if the company continued on this upward trajectory, it may pay government a dividend in 2027, and eight percent in royalties by 2023.

He added that the mine at the moment was paying four percent in royalties as agreed in its mining lease contract.

“The 10 percent royalties as per the Mine and Mineral Act is not economically viable and might force the mine to close its doors.

“After all, Lesotho is not being cheated out of its resources but rather getting enough as we pay M100 million per year as royalties,” he said.

He, however, denied any relationship with the company that markets their diamonds but confirmed that government was not represented during polishing and auctioning phases.

He said the diamond sales process was quite transparent as the gems are sold by auction by a Beijing based company.

Ministry of Mining Public Relations Officer, Rorisang Mahlo, echoed Ferriman and noted that as per the mine’s lease contract, the mine would start paying dividends when there was money left over after it had subtracted operational costs.

He added that the mine approached the ministry in 2017 about its operational challenges and was allowed by the then minister to continue extracting diamonds so it could service its debts, cover operational costs and pay dividends when feasible.

Principal Secretary in the Ministry of Mining Ntahli Matete noted that all mines were aware they have to pay 10 percent royalties but were currently paying four percent royalties.

The Mines and Minerals Act of 2005 states that the holder of a mineral concession shall be liable to pay royalties to Government through the Ministry of Natural Resources on any “mineral obtained by him in the course of exercise of his rights thereunder at the rates and in the manner prescribed under mining Act which is 10 pecent of the gross market”.

The Ministry of mining charges Lets’eng Mine eight percent royalties, Kao Mine 6% and Liqhobong Mine four percent as opposed to 10 percent that Mines and Minerals Act of 2005 instructs, citing that they followed section 60 (1) of Mines and Minerals act, which notes that “the Minister may, in the public interest, remit all or part of any royalty payable on any mineral or mineral product for such a period as he may determine and may exempt a mineral required for purposes of assay, analysis or other examination and also may, on application being made by the holder of a mineral concession, defer payment of any royalty due from such holder for such period and subject to such conditions as he may determine”.

Ministry of Mining Commissioner Pheello Tjatja Tjatja recently told PAC they charged royalties depending on the quality of diamonds each mine produced. He revealed that one carat diamond from Lets’eng Mine is worth over US$2000, while one carat from Kao Mine is worth US$300 and one from Liqhobong Mine is worth US$78.

According to him, Kao Mine and Liqhobong Mine are marginal mines and can shut down immediately there is a problem, adding that Kao Mine survives on pink diamonds and if it goes a year without getting any, the mine can close down or ask for the royalties to be reduced or deferred.

Lesotho Revenue Authority (LRA) communication and marketing Officer Pheello Mphana said that even though he cannot reveal a company’s tax status, every registered company is expected to pay corporate tax annually as long as it is making profits.