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Lucara lowers full-year cost guidance, but also warns of lower revenue, production

The Karowe underground mine

Photo by Bloomberg

13th November 2023

By: Marleny Arnoldi

Deputy Editor Online

     

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Dual-listed Lucara Diamond Corporation achieved an operating cash cost of $28.62/t of ore processed for the quarter ended September 30, which is well below the expected yearly range of between $32.50/t and $35.50/t.

As a result, it has lowered its full-year guidance for operating cash costs to between $28/t and $30.50/t.

Lucara did, however, also revise downward its expected revenue for the full-year from between $200-million and $230-million to between $160-million and $190-million, owing to the timing of sales of diamonds greater than 10.8 ct in size.

The company achieved all operational metrics for the September quarter according to plan, with 98 311 ct recovered from direct milled ore at the Karowe mine, in Botswana.

Lucara expects to produce fewer diamonds for the full-year than initially projected, with guidance lowered to between 395 000 ct and 405 000 ct, from the 395 000 ct and 425 000 ct initially guided.

The company says its tonnes mined will be lower, which reflects the acceleration of mining in the openpit to access high-value ore from the south lobe earlier than the mine plan states.

Following the expected completion of processing of ex-pit material by the first quarter of 2026, the plant will transition to processing stockpiled material until the delivery of ore from the underground expansion project begins early in 2028.

Meanwhile, the group posted a 14% increase in revenue to just under $57-million for the quarter under review, compared with the same quarter of last year.

Lucara generated cash flow from operating activities of $15.9-million.

Notably, the company recovered a 1 080 ct Type IIA white gem-quality diamond, as well as a 692 ct Type IIA diamond.

A total of 189 special diamonds (weighing more than 10.8 ct) were recovered, with six diamonds being greater than 100 ct, including three diamonds greater than 300 ct in weight.

Lucara invested $20.3-million in the Karowe underground project in the reporting quarter, which is focused on sinking and grouting programmes in the ventilation and production shafts of the mine.

The company reported that grouting progressed well in the period under review, with sinking rates being significantly higher than in previous quarters.

The production shaft reached 227 m below collar and included completion of two grouting campaigns and remedial grouting of previously dry sections of the shaft. By the end of September, the shaft was sinking through the bottom portion of the water-bearing sandstones.

Lucara achieved an advance of 32.5 m in the quarter under review.

Adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) was $21.9-million, compared with adjusted Ebitda of $13.8-million in the prior comparable quarter, with the change attributed to an increase in revenue, but partially offset by higher administrative expenses in the reporting quarter.

Net income was $10.5-million, compared with $1.8-million of net income in the prior corresponding quarter, resulting in earnings a share of $0.02.

CEO and president William Lamb said the third-quarter results for the company were very good considering current market dynamics and the state of the diamond sector.

During this period of market weakness, the company is focusing on operational efficiency and key management positions. To this end, Lucara appointed Jennifer Harmer as finance VP. Lucara believes her knowledge will be invaluable moving forward. The company also reappointed Lamb as president and CEO, succeeding Eira Thomas.

Further, CFO Zara Boldt and technical services VP Dr John Armstrong will step down from their positions in the fourth quarter.

MARKET VIEW

Lamb said the longer-term outlook for natural diamond prices remains positive, anchored on improving fundamentals around supply and demand as many of the world's largest mines reach their natural end of life over the next decade. 

A slow recovery of economic growth in China and a voluntary import ban on rough diamonds into India has muted the recovery of rough diamond prices following a soft market in the first six months of this year.

Global economic concerns, combined with increasing geopolitical uncertainty, have resulted in a challenging market in the third quarter of the year, with demand reduced and downward pressure on pricing, especially in the smaller size classes.

With supply restricted by the largest producers, it is possible that a floor in pricing will be established that will benefit the broader market, including smaller producers, in late 2023.

Sales of lab-grown diamonds increased from late 2022. Intense competition combined with improvements in technology continue to drive prices of lab-grown diamonds down.

Signs are emerging of financial instability of producers of lab-grown diamonds, Lamb states.

This further differentiates this market segment from the natural diamond market and highlights the unique nature and inherent rarity of natural diamonds.

The longer term market fundamentals for natural diamonds remain unchanged and positive, pointing to strong price growth over the next few years as demand is expected to outstrip future supply, which is now declining globally.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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