COVID-19: Mining sector mulls retrenchment

KANANELO BOLOETSE

MASERU – The 23-day nationwide lockdown to battle the coronavirus pandemic has resulted in pay cuts and potential job losses in the mining sector, thereby threatening to accelerate the rate of unemployment in the country. Public Eye can report that some of the country’s biggest mining companies have already informed their employees that the coronavirus outbreak has impacted their businesses negatively and are therefore considering salary cuts and retrenchments.

“The reality is that the coronavirus pandemic, and the measures put in place by governments to save lives, has impacted our business and indeed the global diamond industry very badly,” Liqhobong Mine Development Company (LMDC) chairman, Paul Bosma, told employees on Tuesday.

In a general brief to employees titled: Potential retrenchment for Operational (Economic) Reasons, Bosma indicated that there was no telling how long it might take for the diamond market to recover to the level where the company could operate sustainably “especially given the possibility that the lockdowns may be extended”.

He said LMDC’s monthly costs were known and largely fixed and the company could only operate responsibly if it was able to forecast with confidence that these costs as well as its debt service commitments would be met from incoming revenues

“However, currently there is considerable uncertainty regarding when we will be able to sell again and the price we can likely expect to sell our diamonds for over the next 12-month period at least and therefore very little visibility on revenue,” he said.

Given these material uncertainties, he explained that the LMDC believed that it was in the best interests of all stakeholders to rather preserve its resource value at the mine and limited cash resources for as long as possible by extending the current care and maintenance phase in order to ensure the mine could start up again when the diamond market recovers.

He said: “The Company is therefore considering retrenchments and would like to consult you. The Company will consider all possible alternatives. We will set up consultative meetings with all staff as soon as the state of emergency is lifted most probably on the 22nd of April 2020.”

Liqhobong mine, located in Botha-Bothe, is partly owned by the United Kingdom-based Firestone Diamonds through a 75 percent shareholding.

The government owns the residual shares. The mining lease that Firestone Diamonds holds is reportedly valid until June 2021, with options to renew it by two additional periods of 10 years. The project primarily involves the development of an open-pit mine to a depth of 393m and construction of a main treatment plant.

The mine is considered to be the world’s third biggest underdeveloped kimberlite resource, based on the contained carats. As of September 2015, it was estimated to contain probable reserves of 36.04 million tonnes of ore. LMDC announcement came on the heels of a similar announcement by the Letšeng Diamond Mine, the highest dollar per carat kimberlite diamond mine in the world, that it had implemented the cancellation of allowances for their staff which will be effective in the April 2020 payroll.

“As you would be aware, the worldwide COVID-19 pandemic is having unprecedented impact both in business and in our personal lives,” Letšeng Diamonds Chief Executive Officer (CEO), Kelebone Leisanyane, noted in a memo to the mine’s staff on April 3. Leisanyane told the workers that on March 18, Belgium authorities announced a nationwide lockdown to contain the spread the novel coronavirus (COVID-19).

South Africa followed suit on March 23, and on March 25, a similar announcement was made by the government of Lesotho. He said these measures, although necessary, affected the sales and marketing operations in Belgium, the South African offices and resulted in the operations at Letšeng mine being placed on care and maintenance. “In these uncertain and challenging times it is prudent for the company to review its cash flow and operational commitments which includes employment conditions across Letšeng,” Leisanyane said.

He mentioned that during this period, employees were expected to work remotely, “though the Company is aware that there is greater portion who will not be able to do so due to some constraints”.

He said it was in this context that from March 29, some allowances were suspended, and would only be paid to employees who had been on the site during the lockdown period and had actually worked their shifts. The suspended allowances, according to Leisanyane, include shift allowance, emergency overtime, car allowance, rescue team allowance, and acting allowance. “All allowances will be signed off by the Head of Department and final authorization will be from the Chief Operating Officer for Mine employees and the Chief Executive Officer for Maseru employees,” he said.

He further indicated that this arrangement would be closely monitored and would be reviewed monthly “until the Mine is in full operation wherein the allowances will be reinstated”. Letšeng Mine’s announcement was followed by an announcement by Minopex – one of the contracting companies at mine.

Minopex has also informed its employees that the lockdown had resulted in a Force Majeure scenario and is therefore going to implemented the cancellation of allowances by up to 75 percent and salary cuts by up to 25 percent will be effective in the April 2020 payroll.

“As you are already aware, Lesotho has entered lockdown for a three-week period, starting 30 March 2020. This lockdown has resulted in a complete shutdown of production at the Letšeng Diamond Mine resulting in the mine being placed on care and maintenance for this period,” noted Minopex Lesotho director, Matt van Wyk, in a memo to employees on Tuesday.

Van Wyk said with no production taking place, Letšeng Diamonds along with all contractors operating at the mine, had to put measures in place to conserve cash flow and cut costs to ensure the survival of the mine and the associated businesses.

“All Contractors have been requested to look at ways to reduce costs which will contribute towards the cost savings and cash flow conservation initiatives, including salaries,” he said.

He indicated that Minopex Lesotho responded by significantly cutting our operating budget including waiving all margins and profit during the lockdown period. “This was however not enough to ensure that the cash flow impact can be mitigated. To avoid any retrenchments or other drastic measures, we had to look at reducing the salary bill in line with what the client is doing,” he added.

COVID-19 started in China, in December last year. On January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization (WHO) declared the outbreak a public health emergency of international concern. On March 11, WHO publicly characterized COVID-19 as a pandemic. It is the first pandemic known to be caused by the emergence of a new coronavirus.

Its impacts have been most pronounced in Italy, United States of America, Spain and China which have reported the vast majority of the infections and deaths stemming from the virus. The disease, which has already taken hold in Europe, the United States and south east Asia, is now beginning to wreak havoc in Africa. Even though Lesotho currently has no confirmed cases of coronavirus, the neighbouring South Africa, within which Lesotho is an enclave, now has over 1 800 confirmed and verified cases of COVID-19, and 15 deaths related to the virus.