Lucara issues C$38m in shares with diamond market, trademark Karowe recoveries for tailwind

LUCARA Diamonds is to raise C$38m through a combination of public and private share offerings just as a recovery in the diamond market begins to take hold.

The placement also comes fresh off the news that Lucara’s Karowe mine in Botswana has yielded up another of its trademark, 1,000 plus high-quality diamonds.

These two factors will boost Lucara’s revenue outlook and is partly behind the 46% improvement in the firm’s share price on the Toronto Stock Exchange.

Lucara announced on June 23 it had recovered a 1.174 carat stone, large enough to rival two previous discoveries including the 1,109 carat La Rona Lesedi gem. The new diamond is complex but possessed enough “top quality white gem” which was prized in the market, said CEO, Eira Thomas.

Diamond prices have improved this year. According to a report by Goldman Sachs, De Beers increased its prices by more than 5% while its rival, the Russian diamond producer Alrosa has raised its prices by 9% on a like-for-like basis.

The bank estimates a 6% price increase in diamonds this year. This is still 10% below the pre-Covid-19 three-year average of $156/ carat.

Commenting on the diamond market, De Beers CEO, Bruce Cleaver on Wednesday said the strong demand in the fifth cycle was owing to an improvement in diamond jewellery purchases in the US and China. Midstream capacity was also returning in India, he added.

De Beers recorded provisional fifth cycle sales of $470m compared to $385m in the fourth cycle. There is limited supply-side growth from the rest of the world’s diamond sector. Rio Tinto also closed its Argyle diamond mine earlier this year.

Lucara is developing Karowe for the underground extraction of diamonds which is estimated to cost $514m in pre-production capital. In March, Lucara tied up project finance totalling $220m.

“The net proceeds of the public offering and private placement will be used for working capital to support the development and ongoing operation of the Karowe diamond mine,” Lucara said in its statement.

It will offer 29.4 million shares at 75 Canadian cents per share raising C$22m. The offer, which is an 8.5% discount to its Thursday close in Toronto, which close or about July 15. Lucara has forecast revenue for the current year of $180m to $210m which compares to revenue of $125.3m last year.

The private bookbuild will be offered on the same terms as the public offering to Nemesia, a trust in the Lundin Group which is an associate of Lucara Diamond Corp, and other private shareholders. The private placement will also close around July 15.