Lucara Stumbles in 2018 on Inconsistent Recoveries & Lower Prices

Mining and Exploration
22/02/2019 18:15

Despite a record year for the recovery of 'specials' (diamonds larger than 10.8 carats), including 33 diamonds in excess of 100 carats, Lucara Diamond earned its lowest revenue in six years due to the lowest average price per carat achieved in five years. Judging by their share prices, however, investors hardly seemed too concerned, as Lucara's stock price took an 8% dip following the announcement, only to regain half its loss back the next day. With so much going right for the miner, and with the ever-present potential for truly magnificent diamond recoveries, the modest annual results from 2018 do not appear to have soured anyone on the Canadian miner, and the company continues to pay out regular quarterly dividends, announcing the first quarterly dividend of 2019 of CDN 2.5 cents.

Lucara's total revenue for 2018 was $176.2 million, down from $221 million last year, achieving an average price of $502 per carat compared to $847 last year. The company explains that the declines compared to the prior year are skewed by the 2017 sale of the historic 1,109-carat Lesedi La Rona ("LLR") in 2017 which sold for $53.0 million at $47,777 per carat, pushing 2017 performance higher. Lucara points out that excluding the LLR, revenue in 2017 was $167.8 million with an average sales price of $647 per carat, compared to which 2018 does not seem so disappointing. But in 2016, revenues were $295.5 million at an average price of $824 per carat, so it is clear that Lucara relies on truly exceptional discoveries to maintain its gaudy average prices, and admit as much.

The company says the average sales price per carat in 2018 was impacted by a higher recovery of finer diamonds. And while Lucara achieved a record level of recovery of Specials, they explain that the overall average price for Specials sold in 2018 was lower than in prior years due to the lower quality of some of the stones. Sales of individual diamonds at prices between $2 million and $5 million were consistent with previous years. However, in 2018 no individual stones were sold at prices between $5 million and $10 million (as compared to 1 to 3 stones each year between 2015 and 2017) and only one stone sold for more than $10 million. "This variability is not unprecedented, given the nature of the Karowe orebody where, on average, single stone sales account for between 60% and 70% of total annual revenue." 

Lucara says they remain very confident that high quality, large stone recoveries will continue throughout the mine life, and already in 2019, the miner has recovered two top white gem diamonds (240 and 127 carats) and one high white gem diamond (223 carats), indicating a strong start to the year. President & CEO Eira Thomas is also confident moving forward. "The investments we made in our business in 2018 resolved the waste stripping bottleneck, advanced and significantly de-risked our plans for underground expansion at Karowe and bought us a complimentary new technology business that has the potential to contribute significant future cash-flows," she said. The second half of 2018 saw a smooth transition between mining contractors and a return to strong production, recovering the ground lost in mining waste in the first half of 2018.

"Operations at Karowe are stable," she adds, "plant reliability has never been better, and with the waste stripping campaign largely complete, we are focused on driving efficiencies, reducing costs and maximizing revenues.  Further, 2019 is off to a strong start with the recovery of several, +100 carat, high-quality gem diamonds which will be offered for sale at our first tender of the year, scheduled to close on March 7, 2019. For [recently launched online sales platform] Clara, we are excited to be steadily ramping up on sales and we are expecting to add third-party rough production to the platform before year-end." The inaugural trial on Clara was completed in mid-December 2018, generating sales proceeds of $660,865, achieving +8% over Lucara's market price and +15% over Lucara's reserve price for these goods. Proceeds from the first sale were recorded to development costs as pre-production revenue. A second sale on the platform was completed in early February and a third sale is planned for March.

Lucara's Q4 revenues were $40.6 million, achieving an average price per carat of $367 from the sale of 110,553 carats (Q4 2017: $535 from the sale of 69,358 carats), a 59% increase in the number of carats sold as compared to the same quarter last year, albeit at a lower average price per carat sold. "Lower revenues per carat reflect natural variability in the number and quality of exceptional diamonds sold in any quarter," they commented. Lucara has set its guidance for the fiscal year 2019 at $170 to $200 million in revenue, consistent with the forecast for 2018, and 300,000 to 330,000 carats recovered. A budget of $14.8 million has been approved to complete a feasibility study that was initiated in 2018, evaluating the potential for an underground mining operation at Karowe.