What specific market conditions led to the decision?
The decision to put Kao Mine – Storm Mountain Diamonds on Care & Maintenance, which is a temporary condition, is the result of four converging pressures that have made continued operations financially untenable.
The first is the prolonged and severe decline in global rough diamond prices. The prices SMD currently realises for its diamonds fall substantially below what is required to cover the basic cost of ongoing mining operations. This gap has widened significantly over the past four years and shows no sign of near-term recovery.
A significant contributor to this price collapse has been the rapid rise of laboratory-grown diamonds — also known as synthetic diamonds — in the global market. These are diamonds that are chemically and physically identical to natural diamonds but are manufactured in controlled industrial environments at a fraction of the cost of mining. As production technology has improved and volumes have surged, the retail price of lab-grown diamonds has fallen dramatically, drawing a growing share of consumer demand — particularly in the jewellery segment — away from natural stones. This has placed a significant downward pressure on our natural diamond prices across the board. For smaller producers like mines in Lesotho, which depend heavily on the value of their run-of-mine production to remain viable, this shift in the global market has been deeply damaging. Unlike large mining houses with diversified portfolios and significant financial reserves, junior and mid-tier diamond producers have little buffer against prolonged price weakness of this nature.
The second is a significant factor is the capital requirement. SMD has reached a stage in its development where substantial investment is needed — for pit expansion, waste stripping to expose accessible ore, plant upgrades, and essential stay-in-business expenditure. These are not optional improvements; they are necessary for any continued operation. SMD does not currently have access to the capital required. Critically, the sustained losses resulting from the market downturn mean that SMD is no longer able to self-fund this investment. The operation has been absorbing losses over an extended period, and the financial capacity to generate the required capital internally simply does not exist under current market conditions. External investment or a meaningful recovery in diamond prices is therefore essential before any resumption of full operations can be considered.
The third factor is the deteriorating condition of the pit itself. This increasingly challenging condition of the mining pit itself has reached a critical stage in its natural geological progression. It requires the continuous and systematic removal of overlying waste rock — a process known as waste stripping — in order to expose the kimberlite ore body that hold the diamonds. This is not an elective activity; it is a fundamental requirement of open-pit mining and must keep pace with the depth and advancement of the pit to ensure a sustainable supply of ore.
The mine has reached a point where the volume of waste that needs to be stripped has become substantial, and without the capital to undertake this work, the exposed ore available for processing is diminishing. As a result, monthly production volumes decline, revenues fall, and the mine’s ability to cover even its fixed operating costs — which do not reduce proportionally with production — becomes increasingly compromised. Without the necessary waste stripping, the volume of accessible ore will continue to decline while fixed operating costs remain, resulting in mounting losses with no prospect of recovery under current conditions.
Left unaddressed, this trajectory leads to a point of no return where the pit becomes operationally unviable not because the ore body is exhausted — it is not — but because the infrastructure required to access it has been allowed to deteriorate beyond practical recovery. Our Board was therefore faced with a clear choice: another capital investment required to strip the waste and advance the pit, or suspend operations in a controlled and responsible manner before irreversible damage is done to the asset. Given the inability to self-fund under current market conditions, the latter was the only prudent course of action. Placing the mine on care and maintenance at this juncture preserves the integrity of the pit and the plant, and keeps the option of a future restart firmly on the table.
A further significant contributor to the financial pressure on Kao operations has been the sustained increase in fuel costs, particularly diesel. As one of the single largest operational commodities consumed on the mine, diesel is the lifeblood of the mining operation — powering the heavy earthmoving and haulage fleet, and the supporting activities that keeps the mine functioning. The cost of diesel feeds directly into every aspect of production, from waste stripping to ore processing, and unlike many other cost lines, it cannot be deferred or substituted. As global fuel prices have risen materially in recent months, the impact on our cost base has been immediate and significant. When considered alongside the simultaneous collapse in rough diamond prices, the result has been a severe compression of operating margins that has proven increasingly impossible to absorb.
Taken together, the Board concluded that continuing to operate under these circumstances would be financially reckless for SMD and not in the best interests of the company, its employees, or its stakeholders.
Is this a temporary care and maintenance shutdown or a permanent closure?
This is a temporary care and maintenance suspension — it is not a permanent closure of SMD. The plant and all infrastructure will be carefully preserved during this period so that the mine can be restarted as quickly as possible once market economics and capital conditions improve. The suspension is provided for under our Mining Lease Agreement with the Government of Lesotho, and we have formally sought the Honourable Minister’s approval as required.
Will there be any further production, or is Friday’s shift the absolute last?
No further diamond production will take place during the care and maintenance period. A small, essential team of our employees will remain on site solely to maintain and preserve the plant and infrastructure. All operational and legal processes are being followed in good order.
2. WORKERS AND RETRENCHMENT
We appreciate the concern for our workforce, which we share deeply. The care and maintenance decision means that the majority; 750 people including contractors of our workforce will unfortunately be affected by this decision, with only those employees strictly required for the care and maintenance programme being retained.
Regarding specific employee retrenchment packages — these processes are currently being managed in accordance with applicable Lesotho labour law. The relevant engagements and consultations with our employees have taken place and are at the final stage. The company is committed to meeting all its statutory obligations to all its employees. Many of our employees affected have given years of dedicated service to this mine, and they deserve far better than the circumstances we find ourselves in today. Behind every affected employee is a family, a household, and a community that depends on them, and that weight is not lost on us for a single moment. There is no right way to dress this up — good people are losing their jobs, and that is something we carry with us every day as we work to find a way back when market and other conditions improve.
Regarding skills transfer and alternative employment support, we acknowledge the hardship this transition places on our employees and their families and are exploring what further support may be possible within our means. We will do everything in our power to support each and every employee.
3. COMMUNITY AND SUPPLIERS
SMD acknowledges its responsibilities to the communities and suppliers who have supported our operations. The nearbouring communies have been formally notified through the existing respective Community Council and public gathering platforms. Engagements with relevant stakeholders, including suppliers, are part of the process we are working through. Formal communication has been submitted to their respective offices. SMD is committed to honouring our outstanding obligations to its contractors and suppliers.
With respect to the mine site, the approved care and maintenance plan will address the ongoing preservation, security, and management of the site. The infrastructure will be maintained, not abandoned, and all rehabilitation obligations under the mining lease remain firmly in force.
4. SECURITY AND ASSET MANAGEMENT
We take any theft of company assets with the utmost seriousness. However, as this is a matter that touches on legal process, it would be inappropriate to make detailed public comment at this stage. The company has internal governance processes for dealing with such matters, andwhere evidence of criminal conduct exists, the appropriate authorities are engaged. We will not be commenting further on this specific allegation until such processes have run their course.
5. BROADER CONTEXT
How does this reflect the state of Lesotho’s diamond sector and global rough diamond prices?
SMD’s situation is unfortunately not unique. The rough diamond market has been under severe and sustained global pressure for several years now, driven by broader structural shifts in the industry. Lesotho has built a proud reputation for producing world-class diamonds, and we believe the country’s diamond resources remain genuinely valuable. The current crisis is a market and capital cycle challenge, not a reflection of the quality of Lesotho’s kimberlite deposits.
Have you been in contact with the Ministry of Mining or other government departments?
Yes. SMD has formally notified the Honourable Minister of Natural Resources, Minister Lejone Mpotjoane and his PS, advising of the Board’s decision and formally requesting approval for the suspension of operations as required by both the Mines and Minerals Act 2005 and our Mining Lease Agreement. A separate notification has also been sent to the Department of Mines and our Mining Board. We are grateful for the support the Government of Lesotho has shown SMD over the years, especially during this challneging period whethey as the government stepped in to provide a helping hand that was aimed to support the mine.
Would you consider reopening if market conditions improve?
Absolutely — and that is precisely why this is a care and maintenance suspension rather than a permanent closure. The entire purpose of preserving the plant and infrastructure is to position the mine for the fastest possible restart when diamond prices recover to economically viable levels and when the capital required for the next phase of development has been secured. SMD remains committed to its investment in Lesotho and to the long-term value of the Storm Mountain Diamonds ore body.
