12 January 2018

Lesotho: Mining Bill Falls Short - Lawyer

The government is currently reviewing the country's mining legislation in order to ensure that these laws enable the mining sector to significantly contribute to the country's socio economic development.

One of the laws under review is the Mines and Minerals Act of 2005 and it could be replaced by the Minerals and Mining Bill of 2017 which is currently at the second stakeholder consultation stage. Lesotho Times (LT) reporter, Bereng Mpaki, spoke to Advocate Letuka Molati (LM) on the implications of the proposed changes to the mining laws and below are excerpts of the interview.

LT: What are some of the major changes included in the Bill that were not in the current law?

LM: There are several important changes. The bill has new sections on the establishment of a National Mining Corporation, Mining Authority, Inspectorate of Mines and Lesotho Diamond Centre.

LT: Currently the mining sector contributes just below 10 percent to the country's Gross Domestic Product and government expects the figure increase to 17 percent in the 2017/18 financial year with aspirations for the creation of more jobs. Do the changes proposed by the Bill reflect and support the government's intentions?

LM: In my opinion the answer is no. The bill has important changes and introduction of important institutions which are not provided for in the 2005 but it has a major setback in that it presupposes that investors, especially in diamond mining, will come to Lesotho without a pivotal part being played by the local private sector.

The good changes are those that propose to establish institutions which are not provided for in the 2005 act. They include the following:

Minerals and Mining Bill 2017 Section 64: The Government, through the National Mining Corporation, shall have the right to hold shares at the minimum of 25 percent and to have free carry interests in respect of those shares on any mineral mining venture, except in small scale and artisanal mining ventures.

The actual percentage shall be agreed between the Government and the company.

Section 65: The following shall have the right, on top of grant of mineral rights, to sign a Mineral Development Agreement:

(a) Any company which wants to engage in extraction of Mineral resources and holding minimum capital of one hundred million (100,000,000.00) Maloti or its equivalent in United State Dollars.

Section 202: A foreign company mining company shall be encouraged to issue participating shares to local mining companies, as per the following conditions:

(1) The local mining company shall hold participating shares of at least ten percent (10%).

(2) It shall not be necessary that the percentage of shares indicated be made up of paid up capital, although the paid-up capital shall be the basis for payment of dividends.

(3) The National Mining Corporation established under this Act may provide capital guarantees to local companies that enter into participation arrangements in accordance with the provisions of this Act.

LT: The involvement of local players in the mining sector is one of the issues that the Minerals and Mining Policy aims to improve on. Would you say the Bill clearly supports this?

LM: The bill supports this although the approach is wrong. I think the people who drafted this bill have never been involved in setting up of a diamond mine in Lesotho.

Most investors would request the coordinates of the proposed mine and conduct a geo-magnetic satellite imaging and survey. They physically visit the area and analyse the mineral deposits with focus on the size, colour, shape, purity of ilmenite (its presence is associated with presence of diamonds in Lesotho) rubies and garnets.

They prospect before embarking on full scale mining. All the foregoing can be done by a big number of Basotho. Our politicians think, and wrongly so, that it is only foreigners who are conversant with mining not Basotho. It is not like that. The foreigners only have big muscles in terms of start-up finance or capital.

The bill requires minimum capital of M100 Million Maloti which Basotho business people and aspiring miners do not have. That is its major setback despite other areas where it comes with good provisions.

It also requires M50 million for processing and beneficiation which also is cumbersome. A two-man diamond cutting laboratory can be set up with less than M100 000 which most people in Lesotho can do from their pocket expenses instead of high interest-bearing loans

Lastly the Government has a 25% free carry shareholding in processing but I have not seen a business where a government owns shares in a secondary production stage apart from well-known monopolies such in energy sector and basic consumer goods like mealie and beverages production.

LT: There has been very little if any domestic private investment in the mining sector to date. How can this be addressed by the proposed new legislation?

LM: It is not true that there is no domestic private investment in the mining sector. There is but the world of diamonds is full of masquerade and deceit. It is in this area that African governments, Lesotho included, are not vigilant hence serious losses of revenue from minerals.

There is too much smuggling and money laundering that goes undetected even in Lesotho. I will not name these people who practice these unscrupulous methods and even have high-ranking government officials in their pockets or they pull them by the string like puppets as they made government officials pawns on the dirty chess-boards.

If we are seriously desirous that Basotho individuals should participate in mining, we should be making provisions which leave a free carry minimum of 10 percent for those individuals who make effort to establish a mine until it reaches a bankable stage so that they acquire free carry stake at the mining phase.

The government should contribute capital equal to that of the investor so that the shareholding is equal and majority of the shares remain in Lesotho. If they do this, in five to 10 years when we have acquired the full technological know-how and skills, we can invoke a contractual clause to buy out the foreign investor completely and ensure that the wealth of Basotho remains in Lesotho.

Anything other this is only going to ensure that the rich get richer and the poor Basotho get poorer.

LT: Are you content with the beneficiation plans the Bill proposes to ensure that locally mined mineral resources create more wealth for the locals?

LT: Yes and no. Yes, because at least a tiny hole is opened through which the enthusiasts in the field may go through to participate in the sector.

Again No. I pose the following question, where will Basotho get diamonds to cut and polish when they do not own mines? Will they board planes to go and buy rough diamonds in Antwerp (Belgium), Tel Aviv (Israel) or elsewhere and then take them back to Lesotho to polish and re-export to the same destinations? Will they get value?

I think the law should make provision for the compulsory local polishing of a certain percentage of diamonds produced in Lesotho. I think this way we can have well-established cutters and polishers setting up shop in Lesotho.

It has happened with Botswana and the benefits are enormous. Jobs, infrastructure development, skills transfer, tourisms among other things.

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