SMD, which operates the mine and is 75% owned by Namakwa Diamonds Limited, has appealed to the Government of Lesotho (GOL) — a 25% shareholder — to suspend tax assessments and waive royalty payments amid steep revenue losses. The company says it needs approximately $13 million in new investment to maintain operations over the next year.

The mine, which employs around 750 people, has seen a sharp decline in both diamond prices and demand. SMD sold about 250,000 carats in 2024, generating $50 million in sales — less than half of its 2022 revenue of $105 million.

In a statement, the company expressed frustration over what it described as the government’s failure to honour its original mining agreement. “Without GOL assistance on these issues, SMD will not be able to source the investment required to fund capital projects essential to extending the life of the mine,” the company said. It added that the Lesotho Revenue Services’ disregard for binding mining terms was deterring potential investors seeking a stable regulatory environment.

The agreements signed when the Kao project was launched outlined fixed terms for taxation, debt-to-equity ratios, and royalty structures. However, SMD claims the revenue authority has since imposed higher tax rates, restricted deductions, and withheld VAT refunds — moves that have deepened the mine’s financial strain.

The government faces a difficult balancing act — providing support to a company in which it holds a direct stake while avoiding perceptions of preferential treatment. Yet, the potential closure of the Kao mine could deliver a major blow to the economy, given that diamond mining contributes around 10% to Lesotho’s GDP and accounts for up to a quarter of the nation’s total exports by value.

Unless an agreement is reached soon, industry analysts warn that the shutdown of Kao could not only cost hundreds of jobs but also undermine investor confidence in Lesotho’s diamond sector, long regarded as one of southern Africa’s most promising mining industries.