Toronto-listed Lucara Diamond Corporation (Lucara) generated US$120.5m in diamond sales from its Karowe mine in Botswana during the six months to end-June and has started shaft sinking to transition from open pit to underground operations.
Lucara ploughed $29.1m into the Karowe underground project during the three months to end-June which was focussed on the transition to main sink activities and construction of the upgraded transmission line and related substations.
The Karowe mine has been run as an open pit operation for the past 10 years but the shift to underground operations will extend its life through to 2040.
According to Karowe CEO Eira Thomas the estimated capital cost of the underground project has been increased from $534m to $547m “to reflect expected pricing changes following execution of the main sink contract. “
Thomas added, “mine ramp-up is expected in the first quarter of 2026 with full production from the Karowe UGP (underground project) expected in the second half of 2026.
“The company is using a combination of cash flow from operations and project debt for the investment in the Karowe UGP which is fully financed.”
Lucara expects to spend a total of $110m on the underground project during 2022 but does not expect to pay any tax for the year because of Botswana’s progressive tax rate computation. This allows for the immediate deduction of operating costs, including capital expenditures, in the year in which they are incurred.
Thomas commented, “ based on the updated 2022 revenue guidance of $195m to $225m and assuming the underground development expenditures are incurred, the expected tax rate will be 0% for 2022.”
Turning to the diamond market Thomas commented that, “solid market fundamentals supported diamond prices despite growing concerns of a global economic slowdown as high levels of reported inflation persisted and governments respond with increasingly forceful measures in attempts to reduce it to sustainable levels.”
She added the longer-term price outlook remained positive despite “a cautious economic outlook combined with the uncertainty caused by geopolitical events, including the conflict in Ukraine and continuing implications of the COVID-19 pandemic (specifically in China where the demand for diamonds has not yet recovered) “ which remained a risk to diamond pricing trends in the short term.
As of June 30, Lucara held cash and cash equivalents of $40.8m and had drawn down an additional $20m from the $170m project loan facility for a total drawn amount of $65m.
Thomas commented that, “Lucara maintains access to ample liquidity to support its growth plans.”