Tuesday, September 28, 2021

Lucara makes profit in Q1:2021, secures loans

Junior diamond miner Lucara has started the year strongly, posting a profit in the first quarter of the year, riding on the strong rebound in the mining industry that has been in recession in the past four years. 

On Friday, the Canadian company which owns the prolific Karowe mine in Botswana, posted a $3.4 million profit in the three months ended March, thanks to a 56 percent increase in revenue, benefitting from the rise in diamond prices. 

Last year, the diamond miner’s revenue dropped to $125 million from the $192 million realised in 2019, resulting in a $26.3 million loss, a stark contrast to the 2019’s profit of $12.7 million.

Lucara’s profit in the first quarter of the year comes at a time the diamond market is in healthier position than it has at any stage over the past five years, resulting in increasing price performance in virtually all sizes and quality of diamonds in the first three months of 2021. 

The recovery in the industry was fuelled by a strong holiday sales period, particularly in China and the United States, also assisted by careful rough diamond supply management by the producers that helped to re-balance polished diamond inventories and stabilize the market overall. 

“Lucara has bounced back in the first quarter of the year, demonstrating its resiliency at a time of continued uncertainty in respect of the ongoing COVID-19 pandemic. Our solid performance in the first quarter reflects a stronger business environment, Lucara’s continued focus on operational discipline and our innovative approach to sales,” said Eira Thomas, the company’s chief executive officer (CEO), when announcing the strong quarterly performance. 

“Our outlook for the diamond market remains strong, and with close to 20 years of future mining now ahead of us at Karowe, Lucara is highly levered to an improving diamond price environment, particularly in respect of large, high value gem diamonds, the hallmark of Karowe’s production profile.”

The famed Karowe mine had a spectacular start to the year, recovering two, top white gem quality diamonds, 341 carats and 378 carats, from ore sourced from the South Lobe of Karowe that has been responsible for  previous historic recoveries which include the 549 carat Sethunya, 998 carat, 1758 carat Sewelô, the 1109 carat Lesedi La Rona and the 342 carat Queen of the Kalahari. 

Karowe mine, commissioned in July 2012, has been responsible for more than 63 diamonds in excess of 200 carats which have been recovered, including 13 diamonds larger than 300 carats in size. Lucara has hinted that there could be even bigger diamonds hidden under the belly of Botswana, and plans are ongoing to turn Karowe into an underground mine.

During the first quarter of the year, Lucara spent $9.9 million on project execution activities for the underground expansion, including shaft and geotechnical engineering, surface infrastructure, dewatering and power line engineering and procurement. This follows the $18.7 million spent  in 2020  also as part of preparatory plans to go underground. 

Last year the Botswana government approved the proposed powerline route and granted a 25-year extension to the Karowe mine license to 2046, sufficient to cover the remaining open-pit life that ends in 2026. The expected life of the proposed underground expansion is being currently planned to 2040. Total expenditures on the underground project in 2021 are expected to be $105 million.

On Thursday, a day before the quarterly results were released, Lucara announced that it has received credit approved commitments from a syndicate of five mandated lead arrangers (MLAs) for a senior secured project financing debt package of up to $220 million  to fund the underground expansion. The MLAs are ING Bank N.V, Natixis, Societe Generale, Africa Finance Corporation and Afreximbank.

The loans will be made in two tranches, with a facility of $170 million to fund the development of the underground project, and a working capital facility of $50 million to support the on-going operation of the Karowe open pit mine. 

Lucara’s CEO said securing credit commitments of $200 million from the five leading international financial institutions, was an important achievement for the company and a strong endorsement of their underground expansion plans. 

“The Karowe diamond mine remains one of the world’s highest margin diamond mines and in just over eight years of production, has yielded 4 of the 10 largest diamonds in recorded history. This debt package will supplement cash flows from continued operations of the open pit over the next 5 years, extending Karowe’s mine-life out from 2025 until at least 2040,” Thomas said.  

The Karowe mine has been a profitable acquisition for Lucara after it bought 70 percent of the mine in 2009 from De Beers for just $49 million. It later acquired 100 percent ownership of the mine when it bought African Diamonds for $70.3 million in stock. Since then, Karowe mine has been a rare source of exceptional diamonds with its consistent recovery of large high value diamonds. Although it produces less than 1 percent of world’s diamonds, the mine is recovering more than 50 percent of the world’s diamonds larger than 100 carats.

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