Letšeng’s stinking new lease

Letšeng’s stinking new lease

MASERU – LETšENG Diamonds (Letšeng) used aggressive political pressure to push the Lesotho government to renew its mining lease five years before it was due to expire.
And by succumbing to the pressure to prematurely sign the lease, the government could have lost a golden opportunity to negotiate a deal that allows Lesotho to get better value from its diamonds.

The government, on the other hand, cannot claim to be guaranteed dividends because it had no control over their declaration.
A two month investigation by thepost has revealed how Gem Diamonds (Gem) tried to arm-twist the then Minister of Mines Keketso Sello to sign the new lease even though its current lease is still valid until 2024.
Sello eventually signed the new lease last Thursday, the same day he was shuffled to the newly established Ministry of Transport.

Gem’s chief executive, Clifford Elphick, who is said to have been in Maseru last Thursday, announced the new lease to shareholders in a celebratory statement on the same day.
He said the ten-year lease is with “immediate effect” and Letšeng is entitled to additional ten-years, meaning the company will be mining diamonds in Lesotho until 2040.

For months, senior officials of Gem have traversed government corridors as they ratcheted pressure for the lease to be signed. Some Gem officials even went as far as approaching Prime Minister Thomas Thabane to push a reluctant Sello to sign the lease.

Sources say a director of Letšeng also reported Sello to Thabane for allegedly refusing to sign the lease.
So aggressive were Letšeng and Gem that they tried to ambush Thabane to get the lease signed when he was at the Commonwealth meeting in London in April 2018.

Sello refused and told Thabane that it will not be prudent to sign the lease before the assessment was complete. The officials are also said to have accosted Thabane at the State House.
That Gem went as far as asking the prime minister’s intervention reflects how desperate the company was for the lease. Their approach to Prime Minister could also be seen as an attempt to use undue influence on a matter that could have been handled by a minister and his team.

The law is clear that only the Minister of Mines has the authority to sign a mining lease based on the recommendations of the Mining Board.
Last night, Sello confirmed that he came under “immense pressure” to sign the lease after Letšeng reported him to the Prime Minister.
“They reported me to the Prime Minister and said I was refusing to sign the lease,” said Sello, adding that he is “relieved to have been moved from the Ministry of Mines”.

He also confirmed Gem’s attempt to stampede him to sign the lease at the Commonwealth Summit.
“I told the Prime Minister that we should first revisit the current lease and negotiate,” Sello said.
“There was a lot of pressure. I was being attacked from all angles. Yes one man who was a director at Letšeng even reported me to the Prime Minister, saying I was trying to sabotage Letšeng by refusing to sign the lease.”
Sello said he stood his ground and “only signed the lease after being convinced that all processes had been followed”.
He said he signed the lease last Thursday after the Mining Board and a consultant said everything was fine.

Sello said he would have wanted to wring more concessions from Letšeng but he believes that Lesotho got a good deal under the new lease.
“We got the royalties increased from eight percent to ten percent. Now they will have to inform the minister about any project worth more than M10 million instead of the M100 million in the previous arrangement.”
The minister also said Basotho-owned companies will also supply goods and services to the mine.

“People should remember that the real value is not in royalties and dividends but the huge amounts that Letšeng and other mines spend on its operations. It is important that real Basotho companies get a significant portion of that money,” he said.
All indications are that Letšeng was desperate to fast-track the renewal. In its application in 2018 the company said it wanted the lease renewed urgently because it is shifting to underground mining which requires huge capital injection.

It said potential lenders were not willing to provide financial support on a lease that has only six years left.
But a close look at the situation reveals a much more complex picture.
Letšeng is Gem’s only cash cow, without which it is worth nothing. That could explain why the company was desperate to get the lease renewed.

Observers have said there is also a possibility that the company was worried about the precarious state of the coalition government and wanted to secure its most prized asset before it collapses.
Some have opined that Gem wanted to push the lease through the current Mining Board that is said to be ineffective and lacks the expertise to negotiate such complex deals on the government’s behalf.

Others speculate that the fact that the current law gives the Minister of Mines the power to sign the lease without consulting other ministries and parliament could have emboldened Letšeng to push for the premature renewal of the lease.
Questions are also being asked if it is legal for the lease to be signed as a renewal instead of a new application.

Letšeng’s initial lease was signed in May 1999 under the Mining Rights Act of 1967 while the renewal was under the Mines and Minerals Act of 2005.
Under the 1967 law the initial ten-year lease can be renewed for three consecutive five-year terms. This is what happened with the Letšeng lease. The 2005 law has a note that allows any mining agreement under the 1967 law to co-exist under the 2005 Act.
In its statement, Gem Diamonds said the lease was renewed under the 2005 Act.

But some observers say if this was done under the 2005 law then this should have been a new application because the Letšeng lease has already been renewed for the stipulated four times (25 years) under the 1967 law.
Tsikoane Peshoane, the director of Transformation Resource Centre (TRC), has been following the mining sector for several years.
He said he is perturbed by the nature of the new lease and the speed with which it was signed.

“It should be illegal to grant a new mining lease when the old one is still valid. It makes no sense to renew a contract that has five years to go,” he said last night.
“Because this was under the 2005 law, it can be plausibly argued that there should have been a new application and not a renewal as is claimed. It should be a new application open to tender so everyone has a fair chance to bid and the government can get the best deal for Basotho.”

Staff Reporter

 

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