Lucara agrees rough diamond supply deal with HB Group in bid to beat tender pricing

Rough diamonds

LUCARA Diamond Corporation has agreed to sell about 70% of its rough diamonds from its Karowe mine in Botswana to Antwerp-based manufacturer, HB Group, in an effort to cushion the impact of poor rough diamond prices.

The deal is for exclusive supply of Karowe’s high value goods in excess of 10.8 carats which comprise the majority of recoveries from the mine.

HB Group, co-founded by diamantaire, Oded Mansori, was Lucara’s partner, along with Louis Vuitton, in a co-ownership of the Sewelo diamond, a significant discovery from Karowe akin in size to the mine’s totemic Lesedi la Rona diamond – one of the largest rough diamonds to have been recovered in the last 100 years.

Under the terms of the agreement with HB Group, the purchase price for Lucara’s 10.8 plus carat rough diamonds will be based on the estimated polished sales price. The partners will estimate this by using scanning and planning technology. A true, paid-up price, less a fee and manufacturing cost will be paid to Lucara which the company hopes will provide it with “…  regular cash flow” and diamonds sold at “… superior prices”.

Eira Thomas, CEO of Lucara, said the agreement with HB Group will achieve “superior pricing terms to those currently being achieved at tender”. Importantly, selling the firm’s best diamonds in this way would underpin Lucara’s balance sheet ahead of a $514m underground expansion of Karowe.

Spending on the expansion this year, which is intended to double Karowe’s life of mine, was put at $53m for 2020 before the COVID-19 pandemic. “The good thing is either way we can accommodate a minimum spend and accommodate a larger spend,” said Thomas of the new capital plans in an interview with Miningmx in June.

Preparatory construction for the expansion has been interrupted by COVID-19. Production guidance from Karowe’s open pit section was also withdrawn. It had been put at 370,000 to 420,000 carats. Sales were estimated to fall between 350,000 and 390,000 carats.

Anglo American, which owns 85% of De Beers, said today in an update that average realised rough diamond prices fell 21% to $119 per carat. The decline was driven by a higher proportion of lower value rough diamonds sold and an 8% reduction in the average rough price index.