Tuesday, October 19, 2021

Lesedi la rona ramped up Lucara to register higher revenue

Lucara, which is basking in the glory of the special stone called ‘Lesedi la rona ÔÇô LLR-‘ reported a ramp up in its revenue at US$ 77.9 million owing to the stone in the third quarter of 2017. 

The diamond producer sold the stone for US$53 million which if its sale is excluded from the total third quarter revenue results in a much less earning compared to the corresponding period in 2016. In the third quarter of 2016 Lucara had recorded revenue of US$ 38.1 million, which is US$ 13.2 million more than the revenue without the Lesedi la rona sale.     

What is worth noting though is that 2016 and early 2017 resulted in better sales than the previous year when market weaknesses significantly dampened the diamond market. The local think tank Econsult noted in its third quarter economic review that stockpile had been largely cleared and production could be increased modestly in line with improved market conditions. “However, the global diamond market is still quite volatile, and sales have faded somewhat in Q3,” noted Econsult.  Lucara on the other hand asserts that its sales remain strong against the diamond sector which it observed that is currently characterised by an influx of new production, weakness in the smaller and poorer quality stones.  The diamond producer expressed confidence in its sales at the backdrop of vulnerability that still lingers in the diamond market. According to Lucara average diamond prices, as reported by other diamond producers, are estimated to have decreased by up to 8 percent compared to the prior year in certain sizes and quality fractions.  “The high quality south lobe and rarity of some of the Karowe diamonds has created strong demand for its diamonds leading to price increases. These strong prices and a continued focus on costs have resulted in a year to date
operating margin of 80% (year to date operating margin of 67% excluding the sale of the LLR). 

The optimism reflected by Lucara is not without challenges though. The diamond producer admitted that its new mining contractor, Aveng Moolman, experienced equipment availability issues during the quarter, which resulted in lower than planned ore being mined. It would appear that the task of improving its mining methods to achieve operating efficiencies weighs heavily on Lucara. Though it pointed out that improved performance is being realised and expected to steadily improve into the next quarter. Its operating cash cost increased from US$ 25.00 per tonne processed in 2016 to US$ 32 per tonne processed in 2017. It is expected to reach the higher end of US$ 40 to the year end. This reflects the operating inefficiencies that the diamond producer had to contend with. 

Perhaps the silver lining to the costly performance that Lucara experienced is that it plans to develop an underground mine scheduled to commence production after the completion of the current open pit mine, at its Karowe Mine in Botswana. “We have seen on-going improvement in the value of diamonds from the south lobe and the development of an underground mine has the potential to add significantly to the Life of Mine at Karowe,” commented William Lamb, President and CEO of Lucara. This is based on results from the Preliminary Economic Assessment (“PEA”) which demonstrate potential economic viability for the development of an underground mine. 

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