Tuesday, April 20, 2021

Lucara records loss but hopeful about 2021

Lucara Diamond Corp has reported improved performance in the last quarter of 2020, but it was not enough to parry the overall loss in a year that the diamond industry was affected by movement restrictions. 

The Canadian diamond explorer which has secondary listing on the Botswana Stock Exchange this week reported that revenue was slightly up to $42.4 million in the fourth quarter of 2020, picking up the momentum from the previous quarter that delivered $41.2 million revenue. 

The improved diamond trading in the second half of 2020 was damped by subdued performance in the early part of the year when the Covid-19 was declared a pandemic, throwing the world into a tailspin. Lucara’s full year revenue for 2020 dropped to $125 million compared to the $192 million realised in 2019.

The miner known for churning out huge diamonds has reported a $26.3 million loss, a stark contrast to the 2019’s profit of $12.7 million. 

“The measures that Lucara took early in the pandemic, including the decision not to sell rough diamonds in excess of +10.8 carats after Q1, helped protect and support prices for large, high value diamonds that account for more than 70% of our revenues,” said chief executive officer Eira Thomas. “These efforts in conjunction with our transformational supply agreement with HB Antwerp executed in July, resulted in strong price recoveries by Q4, a trend which has continued into 2021.”

Lucara’s wholly owned Karowe mine had another stellar year, churning out 34 diamonds greater than 100 carats. The diamond miner started off 2021 with the recovery of a 341-carat high quality white gem diamond that builds on 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. 

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.

Karowe mine, commissioned in July 2012, has been responsible for a total of 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. 

“The consistent recovery of these large diamonds is a testament to the continued strong resource and plant performance at Karowe and underpins our rationale for moving forward with the underground expansion program that will see mining continue for at least another 13 years after the open pit ceases operations in 2026. We look forward to a productive and busy 2021,” said Thomas. 

The Canadian firm last year spent $18.7 million on the Karowe underground preparation plans set to extend the lifespan of the prolific mine to 2040. Thomas in a conference call sad they are actively exploring opportunities to arrange debt financing for the underground expansion for those amounts which are expected to exceed the company’s cash flow from operations during the construction period. The underground expansion program has an estimated capital cost of $514 million and a five-year period of development.

In July 2020, Lucara unveiled an unusual partnership agreement with HB Antwerp, entering into a definitive supply agreement for the remainder of 2020, for all of the diamonds produced in excess of 10.8 carats from the gem quality churning Karowe mine whose high value diamonds have historically accounted for approximately 60 to 70 percent of Lucara’s annual revenues.

Under the supply agreement with HB Antwerp, Lucara’s diamonds greater than 10.8 carat production are being sold at prices based on the estimated polished outcome of each diamond, determined through state-of-the-art scanning and planning technology, with a  true up amount payable to Lucara on actual achieved polished sales in excess of the initial estimated polished price, less a fee and the cost of manufacturing, the company said in its third quarter financials. The unique pricing mechanism is expected to deliver regular cash flow at superior prices for this important segment of production profile.

In November, Lucara entered again  into a second strategic collaboration with Louis Vuitton, the world’s leading luxury brand, and HB Antwerp for the planning and polishing of the exceptional, 549 carat white gem diamond referred to as “Sethunya” which was recovered from the Karowe Mine in February 2020. The first collaboration was unveiled in January 2020, with Lucara, HB and Louis Vuitton partnering to cut and polish the 1,758 carat Sewelô diamond recovered from Karowe in April 2019.

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