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Lucara Profit Drops Amid Lower-Value Output

Average price slumps due to focus on tailings production.
Aug 11, 2019 8:25 AM   By Rapaport News
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RAPAPORT... Lucara Diamond Corp.’s profit fell in the second quarter amid an increase in the production of smaller stones from its Karowe mine, which yielded a lower average price.

Profit declined to $700,000 in the three months ending June 30, compared with $19.7 million during the same period the year before. Revenue from the Botswana deposit dropped 34% year on year to $42.5 million, even as sales volume rose 17% to 101,931 carats, the company reported last week. The average selling price slid 47% to $417 per carat.

“The market for both rough and polished diamonds remains challenging due to an excess supply of polished diamonds and reduced credit available in the midstream of the supply chain,” the miner explained. “Liquidity issues and concerns over manufacturers’ profitability have resulted in weaker demand, while global trade disputes and unrest are also contributing factors, resulting in lower prices for rough diamonds.”

While production increased 34% to 109,312 carats, most of the rough recovered was from the reprocessing of tailings — ore that has already been processed once — which yielded much smaller stones. In comparison, during the second quarter of 2018, the miner sold more larger stones, garnering a higher average price.

Lucara recovered 225 special-size diamonds — over 10.8 carats — during the recent quarter, including 10 weighing more than 100 carats. Seven stones sold for more than $1 million each, while two fetched over $3 million each, Lucara CEO Eira Thomas said in a call with analysts, transcribed by Seeking Alpha.

In the first half, the miner sold $2.9 million in rough diamonds through seven sales on its Clara platform, bringing total revenue to $3.5 million since the channel’s launch in December 2018. Lucara has also increased its customer base for the program to 20, compared with four users during its first sale, it noted.

“Clara’s business model is working well, particularly during this period of market weakness, as manufacturers are able to purchase only the diamonds they require for the business,” observed Zara Boldt, Lucara’s chief financial officer.

The company is also making progress with a feasibility study of Karowe it launched in 2016, with the aim of extending the mine life from 2026 to 2036. Further work completed during the second quarter confirmed the deeper parts of the ore body were richer than the areas above, Thomas added.

Lucara has raised its production outlook for the year. It predicts output will increase to between 375,000 and 420,000 carats, compared with 300,000 to 330,000 in its previous guidance. It also expects to sell between 375,000 and 420,000 carats, versus its original forecast of 300,000 to 320,000. However, the miner still expects revenue for the year to remain unchanged at $170 million to $200 million, as the increase in production will be driven by smaller stones.

Image: An aerial view of the Karowe mine. (Lucara Diamond Corp.)
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Tags: Clara, Eira Thomas, Karowe mine, lucara, Lucara Diamond Corp, Rapaport News, Zara Boldt
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