A funding shortfall, falling diamond prices and a tax impasse with the government have pushed the mine to crisis point.
Kao Mine, one of Lesotho’s leading diamond producers, is facing possible closure unless it secures urgent funding. The mine needs around R250-million to continue operations for the next year. Without it, management warns the site will begin shutting down “within weeks”, jeopardising over 750 jobs and severely impacting nearby communities.
Storm Mountain Diamonds (SMD), which operates the mine, says the shutdown would devastate local businesses that rely on the mine’s spending — estimated at more than R1-billion annually, 80% of which goes directly to Basotho workers and suppliers. If the mine is suspended, this contribution could fall to under R100-million.
The mine employs more than 750 people, including about 200 from nearby villages. An internal memo shows the board has already demanded a 20% cut in employment costs, signalling the start of layoffs.
Kao Mine produces between 220,000 and 260,000 carats each year. But with global diamond prices dropping by more than 45% in recent years, the mine is no longer profitable. Diamonds that once sold for US$340–US$400 per carat now fetch only US$190–US$230, far below production costs of US$270–US$300 per carat. Sales volumes are reportedly as low as they were during the height of the pandemic.
The mine has been operating at a loss for nearly two years. In addition to the R250-million required to stay open for the next year, a further R150-million is needed to remove waste and access more kimberlite ore to extend the mine’s lifespan.
The Lesotho government owns 25% of the mine, with Namakwa Diamonds holding the remaining 75%. SMD says a long-running deadlock with the government over tax deductions and royalty structures is turning away potential investors. The company has asked for variable royalty rates that ease during downturns but claims there has been little action from authorities.
Government officials say they are trying to balance their role as both shareholder and tax collector. While acknowledging the mine’s importance, they insist taxes must still be paid, even during market downturns.
Consultations on job losses have already begun, as required by labour law. Without new investment or a breakthrough in talks with the government, the mine could be placed under care and maintenance in the coming weeks — a move that would halt most operations and wipe out the majority of jobs.