Sluggish Letseng piles misery on Treasury



MASERU – It never rains but pours for Lesotho’s revenue-short fiscus. Presenting the government’s budget estimates a few weeks back finance minister Dr Moeketsi Majoro detailed the country’s financial distress. Reports this week that Treasury will not receive any dividends from Letšeng Diamond for the 2019 financial year will aggravate the gloomy picture of a troubled economy.

An unexpected decline in revenue, as well as prolonged weakness in the rough diamond market, have been cited as major challenges for the mining cash cow in the past fiscal year. This, Gem Diamonds Limited revealed while announcing their full year results for the year ending December 31, 2019, comprehensive results of which were released on Wednesday this week.

Generally, government is expecting revenue of M529.5 million for the 2019/20 budget year, well below the 2018/19 collection of M627 million, as Dr Majoro indicated in his recent budget presentation. For the financial year 2019, Gem Diamonds collected revenue of US$182.0 million (about M2.7 billion) against US$267.3 million registered in 2018. Profit for the year stands at US$15 million against the whopping US$52.4 million in the previous year.

The US$182.0 million revenue decline represents a 32 percent decrease which translated into underlying Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of US$41.0 million and earnings per share of 5.1 US cents.

Although the group returned to a cash generative position in the fourth quarter of 2019, cash flow from operations decreased by 60 percent to US$55.5 million during 2019, resulting in net debt at year-end of US$10.2 million, compared to net cash of US$17.5 million at the end of 2018.

In the context of the decline in the overall diamond market, the average price achieved decreased 23 percent to US$1 637 per carat against US$2 131 per carat in 2018 from the sale of 111 292 carats, while 125 111 carats was recorded in 2018. “The board’s policy is to pay a dividend to shareholders when the financial strength of the Group permits, in line with our commitment to delivering sustainable shareholder returns.

“Based on the current financial position of the company and the outlook for the global diamond market, the Board has decided that no dividend will be paid in respect of the 2019 financial year,” Gem Diamond Limited Chairman Harry Kenyon Slaney said. In 2018, Gem Diamonds contributed a total of US$52.5 million to the Lesotho fiscus in the form of taxes, royalties and dividends.

“The challenging operating and market conditions in 2019 required Gem Diamond to demonstrate its resilience. The prolonged weakness in the rough diamond market affected producers across the industry. “Drivers underlying this trend included an oversupply of rough diamond and funding issues affecting buying patterns in the middle market.

“While the prices achieved for Letšeng high-quality goods had held up in 2017 and 2018, during 2019 prices were impacted by the overall weakness in the market,” the chairman added in a statement.

To offset this market weakness, the group focused firmly on controlling operating costs and delivering the commitments made in 2018 under the company’s Business Transformation (BT) programme where the target was mainly on material improvement in production and overhead costs and improved efficiencies.

With persistent economic slowdown in the country, coupled with continuous declines in SACU revenues over the years, mining is seen as another sector that generates more revenue for government. For instance, over the past two years, the current account deficit has declined as a result of improved diamond exports and the primary income account.

However, the declaration by Gem Diamonds Limited means government will have to find alternative measures to offset the challenge.

While SACU receipts are expected to recover by about 44.3 percent relative to the previous year receipts, it remains to be seen if the country’s current account position will weather zero revenue from Gem Diamond Limited.

The group further revealed that while the short term outlook for the diamond market is hazzy, they believe that in the longer term, demand for the unique high value diamonds produced at Letšeng will remain firm. Just like many other sectors, the mine has also expressed concerns over the outbreak of the Covid-19 (corona virus), revealing that it could impact trading and financial markets.

“The outbreak of Covid-19 impacting trading and financial markets could potentially have an impact on upcoming tenders and availability of imported goods. Current focus will include monitoring and mitigating risks associated to this in line with the risk management framework,” the chairman further added. The virus emerged in Wuhan, China in December. The outbreak, which has now been declared a pandemic by the World Health Organisation (WHO), has now killed 4 749 people so far across the world.

There are currently 129 386 confirmed cases in 125 countries and territories. As the world grapples with the pandemic, the economic impact is mounting and businesses are already dealing with lost revenue and disrupted supply chains due to China’s factory shutdown.


Leave a Reply

Your email address will not be published. Required fields are marked *