Lucara Diamond Corp, which operates Karowe mine in Botswana, says the diamond industry continued to see softer prices, specifically in the small and medium size classes. The downward pressure is said to be a result of large volumes of polished inventories which have increased due to reduction in consumption in the Asia Pacific region.
In addition to the high level of polished inventory, a significant volume of rough diamonds has not been sold at many of the large producers’ rough diamond auctions. The company stated that this has resulted in an oversupply situation for specific quality and size goods across the diamond supply chain. The company also foresees a prolonged weakness in smaller lower quality goods due to the current high levels of inventories held.
“Over the past twelve months, Lucara has seen similar reductions, when compared to other rough producers. Lucara has however been able to maintain a relatively consistent average diamond price due to changes in its production profile with a greater number of high value stones being recovered from the South lobe,” said Lucara.
President and Chief Executive Officer (CEO) William Lamb stated that Karowe continued to deliver strong cash flows in Q3, underpinned by the sale of large, high value diamonds and the disciplined approach to cost control and allocation of capital. He further said that demand for diamonds remains high and that they anticipate continued, robust free cash flow to help deliver strong shareholder returns going forward.
“We have been pleased with the optimized plant performance through the quarter with production returning to design capacity levels,” Lamb stated.
Meanwhile, the company achieved revenues of $90.9 million (P920 million) or $1,081 per carat in the third quarter of 2015. The Company’s third quarter operating margin was $951 per carat or 88 percent, which is largely due to its first exceptional stone tender in 2015, which achieved proceeds of $68.7 million from the sale of 1,674 carats. Year to date revenue to September 30, 2015 was $158.6 million or $560 per carat achieving a 77 percent operating margin.
“The increase in higher value stones recovered from the south lobe and sold in the company’s regular tenders as well as the continued recovery of its exceptional diamonds has resulted in the development of a strong customer base for the company’s diamonds and differentiates Lucara in terms of its strong operating margin and cash flows,” he stated.