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Peter Gray, CEO of JCI and Randgold & Exploration
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» Elphick defends Letseng deal
» JCI, Matodzi battle for Letseng sale cash
» JCI lifts stake in Letseng to 52.7%

Govt takes Letseng stake to 30%
David McKay
Posted: Mon, 24 Jul 2006

[miningmx.com] -- THE Lesotho government will increase its stake in the Letseng diamond mine to 30% from 24% in terms of an agreement signed when the asset was first bought by Letseng Investment Holdings, a firm in which JCI has a stake.

In terms of an agreement, the Lesotho government had the right to renegotiate its interest in the diamond mine after five years of operation. The mine was taken out of mothballs in 2001 by JCI.

"The original agreement was signed with previous JCI management," said Peter Gray CEO of JCI who confirmed the increased government participation. "The deal will be heavily subsidised," he said.

A circular detailing the sale of the mine is to be distributed to shareholders in the next two days, he said.

Clifford Elphick, CEO of GEM Diamond Mining, which owns the other 70% stake in Letseng, confirmed the deal. "All conditions precedent have been fulfilled except shareholder approval which we expect to get," he said. Crucially, the cost of buying control of the mine is unaltered by the Lesotho government's higher stake. GEM Diamond Mining said last month it would buy control of the mine for R879m, said Elphick.

In terms of the deal structure, GEM Diamond Mining bought 76% of Letseng and sold 6% back to the Lesotho government. GEM Diamond Mining has advanced a loan to the government for 3% of the mine.

JCI will come to private arrangements with the Lesotho government for the remaining 3% of the mine the government wants to buy.

Elphick also confirmed that the Lesotho government will improve its royalty on Letseng's turnover to 8% from the current 7%/year.

Elphick said in an earlier interview that he expected to pump a further R250m to R300m into doubling Letseng's output from its current 50,000 carats/year output. There was also potential to develop a satellite pit near Letseng as well as establish a second treatment plant at the mine.

GEM Diamond Mining is thought to have offered R300m for Letseng than other bidders interested in the mine. In an interview with Miningmx earlier this month, Elphick defended the acquisition claiming it was a flagship operation.
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“It’s true that we’ve been quite aggressive but we’re trying to build a company,” says Elphick. “Letseng is the flagship, so we’ve had to be aggressive acquiring it. But we’ve also picked up other projects inexpensively, so we needed to balance the portfolio,” he said.

The sale of Letseng by JCI is believed to herald the end of the former mining house because it will have no other significant cash generating assets. The other major asset in JCI is its stake in Western Areas.