Lucara Diamond adopts flexible stance on Karowe underground project start-up in 2020

Karowe diamond mine

LUCARA Diamond Corporation suspended guidance for its 2020 financial year, and said it had the flexibility to delay the proposed development of the underground section of its Karowe mine in Botswana.

The company was commenting in an operating update and response to the COVID-19 pandemic that has been particularly disruptive in the diamond sector as sales are largely conducted in person by buyers travelling to sales locations. De Beers recently suspended its third sight which was to have taken place last month in Gaborone owing to travel restrictions implemented by the Botswana and the governments of buyers.

Lucara, which continued to operate, said the extent of how COVID-19 might change the business landscape was impossible to judge.

Lucara Diamond had last year guided to total diamond recovery of between 370,000 to 420,000 carats for 2020. Sales were estimated at between 350,000 to 390,000 carats, generating $180m to $210m in revenue.

Those numbers may now be blown askance by the COVID-19 pandemic especially as retail demand for diamonds during the first quarter (and possibly beyond) is expected to evaporate.

“The global diamond industry is experiencing the widespread impacts of COVID-19 throughout the value chain, manifested as fewer sales, weaker pricing and production curtailments at several mines,” said Eira Thomas, CEO of Lucara.

“Though the Karowe diamond mine continues to operate according to plan, and the first quarter 2020 sale achieved results within expectations, the full impact of COVID-19 on our business remains uncertain,” she said.

Lucara said it was well capitalised to withstand the impact of a lockdown but prolonged interruptions could affect the timing of its $514m underground expansion which was due to kick off in the third quarter. However, it had the “flexibility and optionality” in its capital budget for 2020 allowing it to “… adjust the timing of these expenditures as they are not currently committed”. About $53m had been budgeted for the project this year.

Botswana had given Lucara permission to sell diamonds via tender in Antwerp but the company is uniquely positioned in that it has developed Clara – blockchain technology that allow diamond sales to occur without the need to travel.

“Never, we feel, has this innovation been more relevant or more important,” said Thomas. A total of six sales had been completed on Clara in 2020 in which 25 out of 32 total on- boarded manufacturers had participated – the highest participation rate to date. A total of just over 1,800 carats and 821 diamonds had been transacted.

“We expect this interest to continue and potentially grow as travel restrictions persist, respective of the possibility that the transportation of our diamonds may be subjected to delays or other constraints in relation to the COVID-19 crisis,” said Thomas.

In respect of traditional tender sales, Lucara had sold 83,610 carats in its first quarter, within 1% of expectations. These sales included 37 single stones greater than 10.8 carats in size. A total of four stones were sold for in excess of $1m including two that sold for more than $2m. All goods prepared for sale were sold, the company said.