All strategic decisions regarding the running of Lerala Mine were taken in Australia, a situation that made it difficult for the local management to execute their duties effectively, provisional liquidator of the collapsed mine says in a report.
The mine was put under provisional liquidation by the High Court in June this year, with final liquidation confirmed in September.
Provisional Liquidator, Kopanang Thekiso said discussions with the local directors of Lerala Diamond Mine together with some of the officers of the company reveal a story of a company that seemed to lack a cohesive strategy and direction of how and what it actually wanted to achieve.
In his report that was presented to the creditors on Wednesday, he said the executive directors of the mine were all based in Australia.
“All major decisions regarding the running of the company were done at the Kimberly Diamonds Limited (KDL) level. On site, there was an operational management which was responsible for the day-to-day operations of the mine,” said Thekiso. Kimberly Diamonds, which owns 100% of Mantle Diamond Limited, is the ultimate shareholder of Lerala Diamond Mine.
According to the liquidator, the dual structure did not only make decision making difficult, but it also meant the operational management were completely excluded from strategic and investment decisions relating to the operation on the ground.
He said the cost of running the mine was high, adding that this was probably unexpected based on the forecasts provided by the company.
On the problem areas that put a lot of strain on the mine’s cashflow, Thekiso said power generation using diesel generators was very expensive, noting that there were nine 400KVA generators, which powered the whole operation including the camp.
He said connecting to the Botswana Power Corporation (BPC) grid, which is only 15 kilometres from the mine, could have been explored as an alternative.
He further indicated that mining production from the pit was not matching the plant throughput and that at one stage the mining contractor had accumulated more than six months of stockpile.
“As a result in-pit mining was stopped in November 2016 and stock piles processed until the mine closed,” Thekiso said.
He said this was a heavy cash flow burden to carry as the diamond output and sales could not support the mining operations. He also noted that by the time the mine collapsed they were now processing very poor ore as they had run out of fresh ore to process. Thekiso also said the ore from one of the pits which was being mined contained a lot of abrasive material that resulted in very high maintenance costs as a result of plant wear.
“This problem was so pervasive that the mine could not keep up with the requirement for spare parts to keep the plant running at optimal levels as they were consumed quicker than they could be sourced,” he said.
In addition, he said the cost of spare parts was also high and there was no budget or funds on site to cope with the high turnaround time required to get the spares to keep the plant running. “It was clear that the plant was not designed for the hard ore that was being processed. The plant required modifications and upgrades to cope,” he said.
However, the liquidator noted that the cash resources were not readily available to get the modifications completed.
He said the plans were completed to upgrade the plant but required about P15 million to implement the designs, adding that another P8 million was required to improve the waste sorting machines to improve throughput in the recovery plant. “It is questionable whether all the agreements between the mine and some of the service providers were appropriate,” he said.
He also pointed out that the mining contract was clearly a problem and that it was partially suspended because of the misalignment with plant production. Thekiso said he is currently dealing with the most pressing issues, noting that care and maintenance programme has to be started soon as the plant has been idle for the last five months.
He also indicated that cash conservation continues to be a pressing issue and that creditors will be requested permission to sell non-core assets to raise funds.
“This will enable care and maintenance programme to continue. We will start negotiating with potential buyers who have shown interest and given formal expressions of interest to either buy the asset or the company as a whole,” he said.