Diamond Kingdom

The history of diamond mining in Lesotho is very recent. Unlike South Africa, which long ago passed the century mark in its diamond mining history, or even Botswana, which has enjoyed a continuous bounty of diamonds from its mines over a 40-year period, Lesotho had a little spurt of mining in the late 1970s and early 1980s, and then absolutely nothing until 2004. The reason for this nonproductive gap can be traced to the unique makeup of Lesotho’s kimberlite body. It doesn’t produce a lot of diamonds — but when it coughs one up, it’s a beaut.

When De Beers decided to make the investment needed to create an infrastructure at the mine then known as Letseng-la-Terai, it was with the expectation that the mine would produce a major diamond every so often, justifying the expense of running it. Keith Whitelock, the manager of the mine, had an attitude and personality that seemed to suit the unique operation. He relished the notion of occasionally finding the 100-carat diamond that would pay to run the mine for a year, but he had a formidable task, given the geography and history of the area. The mine is the highest diamond mine in the world, located at 10,170 feet above sea level.

Lesotho is a mountainous enclave of South Africa, hemmed into the center east of that much larger nation. Historically, this home of the Sotho people had a vigorous ribal leader, Paramount Chief Moshoeshoe I, who led it in warfare against the formidable Shaka Zulu. Moshoeshoe I struggled against both the British and the Boer settlers, emerging victorious in1867, when the region became the British protectorate of Basutoland. It became the independent Kingdom of Lesotho in 1966. The little kingdom struggled with internal coups and insurrections until 1998, when it staged elections that were widely seen as fair, and the country began a sustained period of stability.

Lesotho appeared to offer very little, economically, to its small population of fewer than two million people. Other than water — a tremendous benefit, and one that is scarce throughout the rest of the region — it revealed no natural resources. Even economic descriptions of the country to this day overlook its diamond riches. Its people farm in the western lowlands and tend their flocks of goats and sheep. Mohair and wool are spun into yarn and then woven into blankets, tapestries and rugs. Lesotho blankets are the main protection against the bitter cold, worn in place of coats.

In the Beginning

Diamonds were first discovered in Lesotho in 1957, even before the region was known by that name. Mining began in the 1960s, with several large gems unearthed. By 1967, some 6,000 local diggers were working on the site. It was estimated that 63,000 carats were mined during that time, including the 601-carat Lesotho Brown, a hint at the treasures buried there.

International mining giant Rio Tinto was awarded a license to explore the kimberlite pipes in 1968. Extensive test drilling of boreholes and sampling through trenches followed for five years. In spite of the recovery of many large, high-quality stones, Rio Tinto walked away from the deposit in 1972.

At this point, the Lesotho government invited De Beers in to re-evaluate the kimberlites, and the mine was officially reopened in November 1977. Expectations were not great. The life of the mine was determined to be just eight years, hardly long enough to justify the expense of building the necessary infrastructure. This time, the operation lasted only five years, done in by economic conditions that depressed global diamond prices in the 1980s. Perhaps the mine was just too quirky for De Beers, which was more accustomed to hauling up a predictable number of tons that would yield an equally predictable quantity of diamonds. At Letseng, it could be a long wait between finds. After De Beers closed the mine, Lesotho once again faded from sight, like a diamond world Brigadoon.

And there it sat until the 1990s, when a new partnership was formed between Letseng Diamonds and the Lesotho government, the latter taking a 24 percent share of the company. The mine infrastructure was reconstructed starting in 2003, with production starting in 2004. In 2006, Gem Diamonds Ltd. purchased the 76 percent share of the company not owned by the government, ceding an additional 6 percent back to the Lesotho government. It paid $118.5 million for its share of the property and the mine has already begun to pay back that investment, handsomely.

A New Chapter

From that moment, it appears the mine was just waiting to show what it could do. True to predictions, the diamonds it produces are enormous and of very high color and clarity. The life of the mine, estimated at 17 years when it was purchased by Gem Diamonds, has been doubled to 34 years, thanks to additional testing and increased tonnage and recovery.

Shortly after taking over the property, Gem Diamonds Chief Executive Officer (CEO) Clifford Elphick praised former mine manager Whitelock. “We came in at the right time at Letseng. Keith Whitelock and his team had done all the hard work. The plant was up, it was chucking out beautiful diamonds and it was a case of fine-tuning operations. We gave them the capital and the technical support and confidence to do it.”

And do it, they have. In 2010, more than 500 rough diamonds greater than 10.8 carats were recovered at Letseng, nearly one-quarter of the mine’s total revenue. But it is the remarkably large diamonds that have made the headlines. In the fourth quarter of 2010, three astonishing stones were recovered, weighing in at 196 carats, 184 carats and 116 carats, and they sold for a total of $28.5 million. Each year, from 2005 through 2010, the mine produced at least five diamonds weighing more than 100 carats. It routinely produces diamonds of 20 carats to 30 carats — in 2009, 98 stones in this size range were found, with another 89 mined in 2010.

When Gem Diamonds says, “Letseng is renowned for its production of historic diamonds,” it is actually understating the case. In 2006 and 2007, it produced the 603-carat Lesotho Promise, the 15th-largest diamond ever found, and the 493-carat Letseng Legacy, the 18th largest. Laurence Graff purchased the Lesotho Promise for $12.4 million. Then in 2008, out popped the 478-carat type II, D color diamond, known as the Light of Letseng. In a vigorous auction, the stone also was acquired by Graff for $18.4 million.

The remarkable mine then produced a 4.68-carat blue diamond that fetched $155,000 per carat. The stone was sold at the mine’s regular tender in November 2010. Letseng holds ten tenders a year.

For the future, Gem Diamonds hopes to begin to manufacture some diamonds from its regular run of mine production, but its greatest revenues will likely come from increased production at Letseng. A unique problem for this mine is sorting the diamonds from the ore itself. Letseng intends to improve its technology in order to reduce damage to the diamonds it unearths. This new technology should be in place by 2014. Who knows what riches lie beneath the lofty mine in the sky?

Article from the Rapaport Magazine - September 2011. To subscribe click here.