199 Minopex jobs on the line as Letseng ends contract
. . . lab-grown synthetic diamonds threaten mines
RETHABILE MOHONO
MASERU – Letšeng Diamonds (Pty) Ltd, a leading diamond mining company jointly owned by Gem Diamonds Limited (“Gem”) and the Government of Lesotho (“GoL”), has announced that it will not renew its Services Agreement with Minopex Lesotho (Pty) Ltd (“Minopex”) when the contract expires on November 30. The decision follows a comprehensive review as part of Letšeng’s strategy to reduce operational costs and enhance long-term sustainability in a shifting economic landscape.
Under the current agreement, Minopex is responsible for plant maintenance, operations, and procurement. The company employs 199 staff members whose jobs will be affected by this contract termination. Both Letšeng and Minopex have agreed to a one-month extension of the contract to November 30, 2024, allowing time to manage the exit process thoroughly and ensure a smooth transition.
Letšeng has committed to adhering to Lesotho’s labour laws in managing the transition. The company plans to advertise available positions and offer employment to qualified candidates, aligning with its revised operational framework. This shift to an in-sourced model will commence on 1 December. In a statement, Letšeng expressed gratitude to Minopex for its longstanding partnership. “We appreciate the dedication and support Minopex has provided since 2003,” said a Letšeng spokesperson. “This decision was made after careful consideration and is part of our broader strategy to adapt to the evolving economic conditions and ensure the future sustainability of our operations.”
The transition marks a significant change for both companies, reflecting broader trends in the mining sector as firms adapt to new economic realities. Speaking at a local radio station, Minister of Natural Resources Mohlomi Moleko indicated that Minopex’s contract would not be renewed; however, he said the employees would be absorbed in Letšeng. He noted that the government does not determine who to have or not have contracts but the board and directors of the company; however, the government also has representatives representative in the board. “The government does not interfere with who to give contracts to,” he said. In a letter to employees, dated August 28, 2024, Minopex Lesotho area manager Johan Coetzee said all positions will be affected during this process.
The company is required to consult with affected employees in terms of the Lesotho Labour Code to explore possible alternatives to retrenchment and to mitigate, as reasonably possible, the impact thereof on employees in compliance with Section 139(C) of the Labour Code. Minopex Lesotho cited the non-renewal of its contract with Letšeng as the reason for the retrenchment. “To ensure continuity of its operation, Letšeng has informed Minopex Lesotho of its intention to advertise vacant positions, which employees may apply for,” the letter noted.
“As this will be a complete termination of all Minopex Lesotho services at the mine, all employees will be affected and are subject to possible retrenchment.
“If no suitable alternatives can be found during the consultation process, the proposed retrenchment will be effected after the notice period has been worked, and your last day will be October 31, 2024,” Coetzee informed the employees.
Diamond mines around the world are grappling with a severe crisis as sales plummet, driven by the increasing popularity of synthetic, lab-grown diamonds. According to the Financial Times, the prices of natural rough diamonds have dropped by 26% in recent years. This decline is further aggravated by weak demand for diamond jewellery in the United States and China, two of the industry’s largest markets. However, the primary factor contributing to this market disruption appears to be the growing appeal of more affordable lab-grown diamonds. This fragmentation within the diamond industry is expected to persist.
It is reported that after a brief pandemic-era boom in diamond jewellery, miners are battling to whittle down an oversupply of gems. Anglo-American’s De Beers, along with Russia’s Alrosa, control two-thirds of the rough diamond supply. DeBeers this week said its rough sales dropped 23 percent in the first quarter. It is not enough. While rough stone inventory has stabilised of late, polished diamond stocks remain high. At more than $20bn at the end of 2023, these were near five-year highs, up a third since the end of 2022, according to Bank of America.
Worse, as Laboratory Grown Diamonds have taken market share, their prices have declined too, to about 15 percent or less of their natural counterparts. Diamond miners spent years maintaining that romantic buyers would prefer the allure of rare, natural stones. It increasingly appears they were wrong. The crisis is increasingly impacting Lesotho, a nation renowned for its high-quality diamond production. Diamonds, which rank second in mineral revenue after water, significantly contribute to the country’s economy.
The Liqhobong Mining Development Company is reportedly experiencing declining diamond sales, prompting the mine to convene with its 550 employees last week to address possible layoffs resulting from the poor sales recorded in May and July 2024. Liqhobong is a multinational mining enterprise in Lesotho, jointly owned by Firestone Diamonds, which holds a 75 percent stake, and the Lesotho government, which owns 25 percent.
To finance the construction of the mine, Firestone Diamonds secured $222.4 million, comprising $82.4 million from ABSA and $15 million from a private investor. After a closure exceeding one year due to challenges associated with COVID-19, the mine recommenced operations in both in August 2021.In a letter sent dated August 15, 2024, and signed by Rob De Pretto, the Managing Director of Liqhobong, the Mining Development Company informed its employees about meetings scheduled for August 20 and 21 to address potential layoffs resulting from unfavourable stock market conditions. The letter indicated that consultative sessions with all staff would be conducted on-site during these dates.
“During these meetings, we will discuss: Possible ways and appropriate measures to avoid potential retrenchments; minimise the number of job losses; alleviate or minimise the adverse effects of potential retrenchments; selection criteria for retrenchment; voluntary retrenchment; retrenchment packages (and) any other incidental issues,” the letter stated. It further mentioned that these meetings at Liqhobong Mining were necessary because of the poor diamond sales. In July 2024, the mine sold diamonds for $62.50 (M1, 124.57) per carat, but it needed to sell them for $89 (M1,601.38) per carat to make enough money.
He further explained that in May 2024, the mine sold diamonds for even less, at $61 (M1, 097.58) per carat. Thus, the letter suggests that this reflects the current fragile market conditions, which have worsened quickly over the past few months and are far below the required average value of US$89 per carat that underpinned the business case to restart the mine in 2022.
The statement indicated that, in light of the prevailing market conditions and the extended unfavourable outlook, the Board of Directors of Firestone Diamonds Limited and the Company have determined that Liqhobong cannot sustain its current operations. It further elaborated that the significantly reduced prices for Liqhobong’s diamonds, coupled with their already minimal costs, have resulted in the mine incurring financial losses. “If we continue without adjustment, the company will quickly deplete its cash reserves and be forced to cease operations, with the closure of the mine and loss of all jobs at Liqhobong.
“Operating “as is” under the current conditions—maintaining our present throughput and relying on the current diamond prices—is simply not financially sustainable,” the letter stated. However, it was also mentioned that, in response to these quickly deteriorating market and financial conditions, an urgent plan has been developed to help the company weather this market downturn.
“This plan is focused on a reduced level of production to limit cash losses through the market downturn, avoiding mine closure (or care and maintenance), and maintaining jobs where possible. “The plan preserves diamond resources for a time when diamond prices are higher and extends the life of the mine. Firestone, Absa, ECIC, and Pacific Road Capital are all committed to avoiding placing the mine back on care and maintenance or closing the mine. “The success of this plan is dependent on many factors, including the support of Absa Bank Limited, the company’s senior lender, and the Export Credit Insurance Corporation of South Africa (ECIC),” De Pretto explained. It said they have engaged both Absa and ECIC, and they have expressed their indicative support, subject to conducting their analyses of the plan and their internal approval processes.
