Lucara Profit Drops Amid Lower-Value Output

RAPAPORT… Lucara Diamond Corp.’s profit fell in the second quarter
amid an increase in the production of smaller stones from its Karowe mine,
which yielded a lower average price.



Profit declined to $700,000 in the three months ending June
30, compared with $19.7 million during the same period the year before. Revenue
from the Botswana deposit dropped 34% year on year to $42.5 million, even as
sales volume rose 17% to 101,931 carats, the company reported last week. The
average selling price slid 47% to $417 per carat.


“The market for both rough and polished diamonds remains
challenging due to an excess supply of polished diamonds and reduced credit
available in the midstream of the supply chain,” the miner explained.
“Liquidity issues and concerns over manufacturers’ profitability have resulted
in weaker demand, while global trade disputes and unrest are also contributing
factors, resulting in lower prices for rough diamonds.”


While production increased 34% to 109,312 carats, most of
the rough recovered was from the reprocessing of tailings — ore that
has already been processed once — which yielded much smaller stones. In
comparison, during the second quarter of 2018, the miner sold more larger
stones, garnering a higher average price.

Lucara recovered 225 special-size diamonds — over 10.8 carats —
during the recent quarter, including 10 weighing more than 100 carats. Seven stones
sold for more than $1 million each, while two fetched over $3 million each,
Lucara CEO Eira Thomas said in a call with analysts, transcribed by Seeking
Alpha.


In the first half, the miner sold $2.9 million in rough diamonds
through seven sales on its Clara platform, bringing total revenue to $3.5
million since the channel’s launch in December 2018. Lucara has also increased
its customer base for the program to 20, compared with four users during its first sale, it noted.



“Clara’s business model is working well, particularly during this
period of market weakness, as manufacturers are able to purchase only the
diamonds they require for the business,” observed Zara Boldt, Lucara’s chief
financial officer.


The company is also making progress with a feasibility study of
Karowe it launched in 2016, with the aim of extending the mine life from 2026
to 2036. Further work completed during the second quarter confirmed the deeper parts of the ore
body were richer than the areas above, Thomas added.



Lucara has raised its production outlook for the year. It predicts
output will increase to between 375,000 and 420,000 carats, compared with
300,000 to 330,000 in its previous guidance. It also expects to sell between
375,000 and 420,000 carats, versus its original forecast of 300,000 to 320,000.
However, the miner still expects revenue for the year to remain unchanged at
$170 million to $200 million, as the increase in production will be driven by
smaller stones.


Image: An aerial view of the Karowe mine. (Lucara Diamond Corp.)