Lucara Diamond has released its third quarter results that are strongly supported by sales of exceptional stones from Karowe mine in Botswana. According to the results, the company achieved revenues of $90.9 million or $1,081 per carat in the third quarter of 2015.
The company’s operating margin in the period was $951 per carat or 88%, which is largely due to its first exceptional stone tender in 2015, which achieved proceeds of $68.7 million from the sale of 1,674 carats.
Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) for the period were $66.8 million and year to date was $95.3 million, Lucara said.
President and Chief Executive Officer, William Lamb said Karowe continued to deliver strong cash flows in Q3, underpinned by the sale of their large, high value diamonds and disciplined approach to cost control and allocation of capital.
“Further, demand for our diamonds remains high and we anticipate continued, robust free cash flow to help deliver strong shareholder returns going forward,” he stated.
Lucara added that tonnes processed post plant optimisation commissioning improved during the quarter while tonnes milled in the third quarter were 11% higher than the previous quarter with 100,651 carats recovered during the period.
Operational performance at Karowe was generally in line with forecast for the third quarter with mining performing well with overall volume mined, ore tonnage mined, and ore grade mined ahead of forecast. Waste stripping to access the ore body at depth is progressing well and is ahead of forecast. However, ore mining remains concentrated in the south and centre lobes.
During the third quarter a total of 160 special stones (+10.8 carats) were recovered at an average size of 33.49 carats, an increase of 34% compared to full year 2014. The specials (+10.8 carats) frequency and size distribution remains in line with ore-body model predictions.
The largest stone recovered during the quarter included a 336 carat stone from the south lobe, which is expected to be sold along with twelve other stones in the second Exceptional Stone Tender of 2015. Tonnes processed in the fourth quarter are forecast to be largely from the south lobe.
“Further, demand for our diamonds remains high and we anticipate continued, robust free cash flow to help deliver strong shareholder returns going forward. We have been pleased with the optimised plant performance through the quarter with production returning to design capacity levels,” Lamb said.
“This is particularly important as production in the fourth quarter will focus on south lobe material. The commissioning of the bulk sample plant has resulted in us advancing on our exploration activities. We look forward to updating the market on these exciting developments”
Lucara’s assets include the Karowe mine, two Precious Stone Exploration Licences in Botswana and the Mothae Project in Lesotho. The 100% owned Karowe Mine is in production. The 75% owned Mothae Project is currently being divested.
In Botswana, the company continues to forecast revenue of between $200-$220 million with the forecast sales remaining at between 350,000 and 400,000 carats of diamond in 2015 from the Karowe mine as in previous guidance. Karowe’s operating cash costs for the year are expected to remain in line with previous guidance of between $33 and $36 per tonne of ore treated and process between 2.2 to 2.3 million tonnes of ore.
Equally, ore mined is in line with forecast at between 2.5-2.8 million tonnes and waste mined is forecast to remain between 12.0-12.5 million tones.
The company is also within its guidance of $55 million for the plant optimisation project and it’s sustaining capital expenditures of between $4.5-$5.5 million for the year. The company is also in line with its guidance of $5.0 million for the purchase and installation of a mill relining machine of which up to $3.0 million is forecast to be spent in 2015.
Lucara on the diamond market
According to Lucara, the diamond industry continued to see softer prices, specifically in the small and medium size classes. It said the downward pressure is a result of large volumes of polished inventories which have increased due to a reduction in consumption in the Asia Pacific region.
In addition to the high level of polished inventory, a significant volume of rough diamonds has not been sold at many of the large producers rough diamond auctions. This has resulted in an oversupply situation for specific quality and size goods across the diamond supply chain.
The company said it foresees a prolonged weakness in smaller lower quality goods due to the current high levels of inventories held.
“Over the past twelve months, Lucara has seen similar reductions, when compared to other rough producers, in “same quality” goods. The Company has however been able to maintain a relatively consistent average diamond price due to the changes in its production profile with a greater number of high value stones being recovered from the South lobe and being sold in the regular tenders.”
Lucara said the increase in higher value stones recovered from the south lobe and sold in the Company’s regular tenders as well as the continued recovery of its exceptional diamonds has resulted in the development of a strong customer base for the company’s diamonds and differentiates Lucara in terms of its strong operating margin and cash flows.