…leaves 750 workers jobless
…as mining giant is forced into care and maintenance
…due to escalating fuel costs
Seithati Motsoeneng
A crippling diesel bill that has ballooned from M11 million to as much as M28 million per month has forced Kao Diamond Mine to suspend operations, sending more than 750 workers home and delivering a major blow to Lesotho’s mining sector.
Storm Mountain Diamonds (SMD), the operator of the Butha-Buthe mine, announced this week that the mine will be placed under care and maintenance from 1 July after a combination of soaring fuel costs, depressed global diamond prices, growing competition from laboratory-grown diamonds and mounting capital requirements made continued operations financially impossible.
Namakwa Diamonds Limited owns a 75 percent stake while the government of Lesotho owns the remaining 25 percent share.
The mine, which consumes about 600 000 litres of diesel every month, saw its fuel costs surge by almost M10 million following two successive diesel price increases. Management says future waste-stripping operations essential for accessing diamond-bearing ore would require a further 200 000 litres of diesel monthly, adding another M7 million to the fuel bill and pushing total monthly diesel expenditure to approximately M28 million.
Only about 40 employees will remain on site to maintain infrastructure and ensure environmental compliance, while the remainder of the workforce faces retrenchment as one of Lesotho’s largest private employers falls victim to a deepening global crisis in the natural diamond industry.
SMD Corporate Chief Executive Officer, Neo Hoala, described the decision as one of the most difficult in the company’s history.
“The decision is the result of several converging pressures that, taken together, have made continued operations financially untenable at this time,” Ms Hoala said.
She said the biggest challenge confronting the operation was the prolonged collapse of rough diamond prices.
“The dominant factor is the prolonged and severe decline in global rough diamond prices. The prices we currently realise for our diamonds fall substantially below what is required to simply cover the cost of ongoing SMD mining operations, and this gap has widened significantly over the past four years with no meaningful signs of recovery on the horizon.”
For years, Lesotho’s diamond mines have relied on strong international demand for natural diamonds. However, the emergence of synthetic diamonds has fundamentally altered the market.
“Compounding this is the rapid rise of laboratory-grown diamonds — synthetically produced stones that are chemically identical to natural diamonds but manufactured at a fraction of the cost.
“As the technology has advanced and production volumes have surged globally, consumer demand has increasingly shifted toward these synthetic alternatives, placing sustained downward pressure on natural diamond prices.”
The impact has been particularly devastating for independent operators such as SMD.
“For smaller, independent producers like Storm Mountain Diamonds — Kao Mine, which do not have the scale or diversification of major global mining houses, this shift is felt acutely.”
While depressed diamond prices have weakened revenues, skyrocketing diesel costs have delivered another crippling blow.
According to Ms Hoala, Kao Mine consumes approximately 600 000 litres of diesel every month to power heavy machinery, earth-moving equipment and haulage operations.
She said the mine’s monthly diesel bill previously stood at approximately M11 million.
“Our normal monthly diesel consumption is 600 000 litres which was costing the mine M11 million. With the first price increase, the cost increased by almost M7 million and with the second diesel price increase it added an additional cost of M3 million.”
Ms Hoala said future mining activities would require even greater fuel consumption.
“Going forward, waste mining of a larger quantity a month requires an additional 200 000 litres of diesel. This will add another layer of cost amounting to M7 million.”
She said the mine had also reached a stage where substantial investment was needed to continue extracting diamonds.
“Additionally, the mine has reached a critical stage in its development where substantial capital investment is required for pit expansion, waste stripping to expose accessible ore that actually holds our precious diamonds.”
Ms Hoala said the operation could no longer finance these investments internally after years of losses.
“These are not elective improvements; they are prerequisites for the mine’s sustainable continuation of operations.”
She said the consequences for workers and surrounding communities were expected to be severe.
“Approximately 750 people in total will be directly affected, including both permanent employees and contractors.
“We are acutely aware of the profound impact this will have on individuals, families, and the broader community, and we do not understate the gravity of this reality SMD is faced with.
“These are people who have contributed significantly to building, shaping and sustaining our Kao mine operation, and they deserve our deepest respect and gratitude.”
Despite the retrenchments, she said a skeleton staff would remain to safeguard the mine.
“Not all employees will be retrenched. An essential team of 40 or less employees will be retained on site to carry out the care and maintenance programme — preserving the plant, maintaining infrastructure, and ensuring the site remains secure and environmentally compliant.”
However, she said the company could not provide a timeline for resuming operations.
“The honest answer is that the duration is dependent on factors that are largely outside of our direct control — principally a recovery in global rough diamond prices to levels that make operations economically viable, and the availability of the capital investment required to advance the pit and upgrade the plant. The care and maintenance period is therefore for an indefinite duration.”
Nonetheless, she said the shutdown should not be viewed as a permanent closure.
“This is not an abandonment of the asset — it is a deliberate and responsible strategy to protect it.”
To ensure the mine remains ready for a potential restart, the board has committed to reviewing market conditions every three months, Ms Hoala said.
“Should those reviews determine that conditions have improved sufficiently to make a resumption of operations viable, the Board is committed to acting on that assessment without delay.”
Ms Hoala also acknowledged support received from the government in efforts to keep the mine operating.
“Yes, and we wish to place on record our sincere and heartfelt gratitude to the government of Lesotho for the support extended to Storm Mountain Diamonds during this extraordinarily difficult period.”
She said government assistance included royalty concessions and support in resolving tax matters.
“Concessions were granted in the form of royalty reductions and relief, and meaningful assistance was provided in resolving outstanding tax matters.”
Despite the current crisis, Ms Hoala remained optimistic about the future of the mine.
“Absolutely and unequivocally, yes,” she said when asked whether Kao Mine remains commercially viable in the long term.
“The Storm Mountain ore body is a known, proven kimberlite deposit that has yielded exceptional diamonds and has a meaningful resource life ahead of it.
“Our decision to place the mine on care and maintenance — and to invest in preserving the plant and infrastructure during that period — is itself the clearest possible demonstration of our belief in the long-term commercial viability of this asset.”
The shutdown of Kao Mine adds to growing concerns about the state of Lesotho’s diamond sector, which Ms Hoala said it had increasingly struggled under global market pressures.
“It would be difficult to look at the current state of the sector and not acknowledge that Lesotho’s diamond industry — like the broader global natural diamond market — is going through a deeply challenging period,” Ms Hoala said.
Nevertheless, she remains convinced the country’s diamond story is far from over.
“Lesotho sits on some of the most remarkable kimberlite geology in the world, and that does not change.
“Lesotho’s diamond industry has endured difficult periods before, including the COVID-19 era, and emerged with its reputation for producing world-class stones intact. We believe it can do so again should market conditions allow.”