Lucara ends second quarter with $14 million loss

Karowe is one of the world’s most prolific sources of large, high value type IIA diamonds, becoming the only mine in recorded history to have produced two 1,000+ carat diamonds. (Image courtesy of Lucara Diamonds.)

Canada’s Lucara Diamond (TSX:LUC) saw revenues fall 82% in the three months to June 30 from the same period last year after it decided to hold back the sale of larger stones amid pandemic-fuelled uncertainty in an already weak global diamond market.

The Vancouver-based diamond producer posted a loss of almost $14 million in the second quarter, compared to a $700,000 net income in 2019.

Revenue from its prolific Karowe mine in Botswana totalled only $7.5 million, as sales volume dropped by 32% to 68,979 carats.

Karowe is the same operation that last year yielded the 1,758-carat Sewelô (“rare find”) diamond, the second-largest ever mined.

Lucara expects revenue to climb back up in the third quarter thanks to a recently signed supply deal with Antwerp-based manufacturer HB Group  

The average price per carat also decreased — by 74% to $109 — as the company only sold smaller stones in the one tender it held. It offloaded the remainder of supply through its Clara platform, which matches buyers with the specific diamonds they need.

Lucara said it expected revenue to climb back up, thanks to a recently signed supply deal with Antwerp-based manufacturer HB Group.  

The diamond manufacturer agreed in July to buy all of the miner’s rough stones above 10.8 carats for the rest of the year. Lucara received a $13.5 million cash advance from the group as part of the sales agreement.

“Estimating the revenue and earnings impact of the HB agreement remains challenging,” BMO analyst Edward Sterck said in a note to investors. “The company has at least secured a route to market, supporting the current balance sheet and discussions around financing options for the underground extension.”

Production during the period dropped 7% to 101,203 carats, with the company recovering 201 special-size diamonds, including nine weighing more than 100 carats. Two of them weighed over 200 carats each.

Expansion reviewed

Lucara has revised its plans for a $514 million underground expansion of Karowe, cutting its previous 2020 budget of $53 million for the project.  

The company spent $5.6 million on the expansion in the first half of the year, which covered project execution activities, including detailed engineering, design work and early procurement.  The five-year project is expected to extend Karowe’s life for 20 years — until 2040.

Lucara has been able to maintain full production during the pandemic, but suspended its 2020 guidance of 350,000 to 390,000 carats of production and $180-210 million in revenue in March.

The miner said it will withhold its guidance for the full year indefinitely given the uncertainty caused by the covid-19 pandemic, which has restricted travel required to buy and sell diamonds, depressed prices, and impeded cash flow to miners.