Lucara brings Karowe expansion back from brink with new debt deal

William Lamb, CEO, Lucara Diamonds

LUCARA Diamond said on Wednesday it had secured finance for the completion of the $683m underground expansion of its Karowe diamond mine in Botswana.

This was after announcing last year that technical difficulties would result in a significant delay in the project and send its capital costs ballooning. As diamond production from underground was intended to replace declining open pit output, the scheduling raised doubts about Lucara as a going concern.

While the company’s lenders and its 19% shareholder Lundin Group (through Nemesia S.A.R.L.) scurried to refinance the company, Lucara CEO Eira Thomas resigned. William Lamb, a former Lucara CEO and chairperson, replaced her.

Today’s announcement sees Lucara’s total debt package of $220m unchanged but it is structured differently. It has been rebased (different start date) and therefore has a different repayments schedule, and now consists of $190m in project finance ($170m previously) and a $30m working capital facility ($50m).

In addition, the debt package will attract an interest rate of Libor plus a 6.5% margin annually from rebase date to completion with the margin reducing to 6% from project completion and 7% thereafter. Lucara Botswana will pay 35% of the margin annually as it relates to the project loan facility.

As previously reported Nemesia S.A.R.L. has provided a guarantee which will consist of up to $63m to lenders in return for which it will receive 1.9 million Lucara shares and a further 7,500 shares for each $500,000 withdrawn under the guarantee.

As part of the new agreement with lenders, Lucara will also have to find $61.7m for a cost overrun facility by June 2025. The lending pool is unchanged and consists of Afreximbank, Africa Finance, ING, Natixis, and Societe Generale.

Lamb said the adjusted repayment schedule “aligns with the expected cash flow from the underground production profile where we are set to process the most valuable more from the underground expansion in the first three years of operations”.

“With the solid financial backing from our largest shareholder, who has provided interim funding and guarantees, we can confirm that the underground expansion project is fully funded,” he added.

Approximately, $125m from the project loan facility had been drawn down while $15m had been drawn down from the working capital facility.

Karowe is renowned for producing high value diamonds. In 2019 Lucara announced the discovery of a 1,758-carat diamond – the largest uncut rough in recent history – beating its 2015 discovery, the 1,109 Lesedi La Rona. The 2019 discovery was second in size only to the 3,106-carat Cullinan Diamond, recovered in South Africa in 1905.