Lucara confident in Karowe expansion after cost overrun raises going concern risk

LUCARA Diamond Corp. said the expansion of its Karowe mine in Botswana was economically robust after raising a flag earlier today over the company’s ability to continue as a going concern amid a funding shortfall.

Zara Boldt, CFO of Lucara said in a second quarter conference call the Karowe underground expansion “remains technically feasible and economically robust”.

In July, Lucara said project delays would see the underground expansion project capital increase about 25% to $683m. It would also be delivered 18 months late which would lead to a decline in the project’s initial revenue profile as low grade diamond ore stockpiles would be used to supply the market.

Shares in Lucara plummeted to a five-year low of 38 Canadian cents a share following the news. It is currently trading at 40 cents/share, a 52 week decline of around 38%.

The project was partly financed with debt of $220m consisting of a syndicated $170m bank loan and a separate working capital facility totalling $50m. Perilously for Lucara, the working capital facility, as well as a commitment to fund the project shortfall, falls due on September 1.

Said Lucara: “Due to these near-term commitments, there is a concern regarding the company’s ability to meet its commitments and discharge its obligations in the normal course of business.

“While management believes the company will be able to resolve the noted items through its ongoing engagement with its lenders, there can be no assurance that those efforts will be successful.”

The outcome is that Lucara has drawn down on $90m of the $170m project loan as well as all but $15m on the working capital facility. It had cash on hand of $26.7m. Boldt said the company had requested an extension on the working capital facility.

Lucara can also fall back on a $25m standby facility provided by Nemesia S.A.R.L., a 19% shareholder which represents the Lundin Group via a trust. Including other trust holdings, the Lundin Group efffectively owns 24.52% of Lucara. If utilised, Lucara would issue up to 600,000 shares to Lundin Group.

Boldt said it was recognised there was “quite a lot of value” in the project and that “the shareholder sees this too”. Nemesia was “working through it” as well as the lender syndicate which consists of African Export-Import Bank (Afreximbank), Africa Finance Corp., ING, Natixis, and Societe Generale, London Branch.

The syndicate had only been formally told of Lucara’s going concern risk today with the release of the results, said Boldt.

Lucara reported second quarter adjusted Ebitda of $15.7m compared to $24.4m for the second quarter of the previous financial year. Net income of $5m was down on $12.5m posted last year.

One spot of good news is that a recently discovered 1,080 carat diamond recovered from Karowe’s famed south lobe bore resemblances to the 1,111 carat Lesedi La Rona, a stone mined from Karowe and eventually sold to British jeweller Graff Diamonds for $53m.


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