Revised Mining Lease Agreement Signed for Liqhobong Diamond Mine

Firestone Diamonds plc (LSE:FDI) announced that Liqhobong Mining Development Company (Pty) Ltd. and the government of Lesotho have entered into a revised mining lease agreement regarding the development of the Liqhobong diamond mine. It will “govern the terms under which” Liqhobong Mining Development conducts mining at Liqhobong until June 30, 2021.

Liqhobong Mining Development is 75-percent owned by Firestone, while the government of Lesotho owns the other 25 percent.

As quoted in the press release:

After extensive negotiations with the Lesotho Government, it has been agreed that concessions regarding the exemption from paying withholding tax on interest and dividends contained in the previous agreement will no longer be available. In addition to this, LMDC will also incur withholding tax on services rendered, having not been granted the exemption which the Group had, until recently, anticipated receiving. Accordingly, the obligation to pay withholding tax will increase the cash outflow during the two year construction period of the Main Treatment Plant.

In compensation for the requirement to pay withholding tax, the Lesotho Government has agreed that the royalty rate on diamond sales will be reduced from 8.0 per cent. to 4.0 per cent. from first production, until such time as LMDC has obtained benefit to the value of US$20.0 million from the royalty rate reduction. Thereafter, the royalty rate will revert to 8.0 per cent. of diamond sales.

While the Board believes that the overall impact on the Group will be broadly cash neutral, the obligation to pay withholding tax may result in an increase in the Company’s peak funding requirement of approximately US$12.0 million during the construction phase of the Main Treatment Plant in late 2015/early 2106, when the majority of the withholding tax will be payable and before the commencement of full-scale production at the Liqhobong Diamond Mine and the resultant revenue generation. In addition, a further US$8.0 million of withholding tax is expected to be payable over the debt repayment period, following the commencement of full nameplate production.

Click here to read the full Firestone Diamonds plc (LSE:FDI) press release.