Lucara Announces Q2 2019 Results
August 8, 2019
PRESS RELEASE
LUCARA ANNOUNCES Q2 2019 RESULTS
VANCOUVER, August 8, 2019 /CNW/ - (LUC – TSX, LUC – BSE, LUC – Nasdaq Stockholm)
Lucara Diamond Corp. (“Lucara” or the “Company”) today reports its results for the quarter
ended June 30, 2019.
HIGHLIGHTS FOR THE QUARTER ENDED JUNE 30, 2019
• A strong operating environment prevailed at the Karowe Mine in Q2 2019, having met or
exceeded guidance with respect to all mining and processing activities including:
o Ore and waste mined of 0.8 million tonnes and 1.8 million tonnes respectively
o 0.71 million tonnes of ore processed
o Carats recovered of 109,312 (including 8,172 carats recovered from re-processing
historic recovery tailings from previous milling) achieving a recovered grade of
14.2 carats per hundred tonnes processed (direct milling carats)
o 225 Specials were recovered from direct milling during the second quarter,
representing 8.1% weight percentage of total recovered carats, in line with mine
plan expectations
o 10 diamonds were recovered greater than 100 carats in weight
• In May 2019, the K arowe Mine achieved a significant milestone, passing two years without
a lost time injury.
• In April 2019, the largest diamond to be mined at Karowe to date was recovered, unbroken,
weighing 1,758 carats. Subsequently named Sewelô following a contest open to citizens of
Botswana, this near gem quality diamond is the largest diamond recovered in Botswana
and one of the largest diamonds recovered in recorded history, superseding the spot held
by the 1,109 carat Lesedi La Rona recovered from Karowe in 2015.
• During Q2 2019, revenue recognized totalled $42.5 million (Q2 2018: $ 64.5 million) or $417
per carat (Q2 2018: $856 per carat), consistent with management expectations and plan.
• Revenue of $91.2 million for the six months ended June 30, 2019 (“H1 2019”) from two
tenders surpassed revenue of $89.9 million for the six months ended June 30, 2018 (“H1
2018”) in which two regular stone tenders and one exceptional stone tender was held.
• The operating cash cost (1) for the six months ended June 30, 2019 was $31.16 per tonne
processed (H1 2018: $36.64 per tonne processed) compared to the full year forecast cash
cost of $32 -$37 per tonne processed. Operating cash cost per tonne processed was
positively impacted by a reduction in waste mined and an increase in tonnes processed
during the first half of the year.
• Continued excellent operational performance at Karowe has driven a strong 63% operating
margin (H1 2018: 65%) and adjusted EBITDA (1) year to date of $38.6 million (H1 2018: $37.5
million). Operating expenses per carat sold have decreased from $225 per carat in H1 2018
to $171 per carat in H1 2019.
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• As at June 30, 2019, the Company had cash and cash equivalents of $7.1 million. Funds
drawn on the credit facility were $5.0 million utilized for working capital, leaving $45 million
available on the facility at June 30, 2019.
• The Company paid a quarterly dividend of CA$0.025 per share on June 20, 2019.
• Rough diamonds with a value of $2.9 million were sold through the Clara platform during
H1 2019 and total revenues of $3.5 million have been achieved since sales began in
December of 2018. Clara’s customer base has also grown from four to twenty during the
first half of the year and sales continue to ramp up according to plan, with the aim of on -
boarding third- party production before year -end and continuing to grow our customer
base concurrently with increasing demand.
• Changes in guidance: as a result of r ecord plant processing performance over consecutive
quarters, annual carat recoveries are expected to increase to 375,000 - 420,000 carats
(previously 300,000 – 330,000 carats) and carats sold to 375,000 - 420,000 carats
(previously 300,000 – 320,000 carat s) in 2019. Greater asset availability and utilization
together with an improved mine call factor are driving the change with most of the
increases attributable to enhanced recoveries of small diamonds. Ore tonnes mined is
increased to between 3.0 to 3.4 m illion tonnes (previously 2.5 to 2.8 million tonnes) as a
result of resource gains that offset planned waste mining in Q1 2019. Cost and revenue
guidance are on track.
(1) Non IFRS measure
Eira Thomas, President & CEO commented: “ The largest diamond to be unearthed in
Botswana’s 50+ year history and the second +1,000 carat diamond to be recovered at Karowe
in just four years, Sewelô, the 1,758 carat near gem that was recovered undamaged in April , is
a testament to Karowe’s remarkable geological endowment and the strong operating
environment that prevails at the mine. During the second quarter, Lucara continued to deliver
safe, reliable, record diamond production. Having focused on operational im provements to
drive performance, carat recoveries have significantly increased and costs have gone
down. Overall average prices achieved for our diamonds during the first half of the year have
settled at $463 per carat and reflect a higher contribution of fine (smaller) diamonds, with
continued strong recoveries of single diamonds larger than 10.8 carats that contribute to more
than 70% of our revenues. Lucara continues to achieve high margins for its diamonds and is
actively pursuing organic growth opportunities, including Clara, its proprietary, cloud based,
digital, rough diamond marketplace that continues to ramp up and has now completed a total
of 7 sales since December 2018.”
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FINANCIAL HIGHLIGHTS
Three months ended
June 30
Six months ended
June 30
In millions of U.S. dollars, except carats or
otherwise noted
2019 2018 2019 2018
Revenues $ 42.5 $ 64.5 $ 91.2 $ 89.9
Net income for the period 0.7 19.7 8.1 12.7
Earnings per share (basic and diluted) 0.00 0.05 0.02 0.03
Cash on hand 7.1 49.6 7.1 49.6
Average price per carat sold ($/carat)* 417 856 463 648
Operating expenses per carat sold
($/carat)*
174 220 171 225
Operating margin per carat sold ($/carat)* 243 636 292 423
(*) Average price per carat sold, operating expenses per carat sold and operating margin per carat sold are Non-IFRS
measures, see Non-IFRS measures.
The Company recognized revenue of $91.2 million or $463 per carat for its sales in the first half
of 2019, yielding an operating margin of $292 per carat (63%). In 2019, the Company held
blended tenders in which diamonds recovered in the period December 2018 – April 2019 were
sold in the same period, with the exception of the particularly rare stone recover ed, Sewelô.
The Company has completed an initial analysis of Sewelô and is considering how best to
maximize value from this unique and rare diamond.
In H1 2019, a total of 196,989 carats were sold (H1 2018: 138,646 carats) achieving a year -to-
date average price of $463/carat (H1 2018: $648/carat). The number of carats sold was 42%
higher than in the comparative period which is being driven by better recoveries in the smaller,
lower value sizes. While still profitable, the smaller goods impact the average price per carat
sold when compared to the prior year. The significant increase in carats is also due to the
continued strong performance in the plant which had record consecutive quarters of
production, processing 1.48 million tonnes during H1 2019 (H1 2018: 1.3 million tonnes milled).
An improved mine call factor also contributed to higher recoveries of diamonds in the smaller
size classes.
Until September 2018, Lucara sold diamonds through both regular stone tenders (“RST”s) and
exceptional stone tenders (“EST”s). In September 2018, the Company modified its sales tender
to a blended sales tender, combining the sale of exceptional stones with the balance of run of
mine production into one sale. This change was made to decrease the inventory time for large,
high value diamonds and to generate a smoother revenue profile that better supports price
guidance on a per sale basis. Q2 2018 represented the last quarter in which an exceptional
stone tender was held, accounting for $32.4 million of the $64.5 mi llion in revenue recognized
during that quarter. Beginning in Q4 2018, certain stones from the Karowe production between
1 and 4 carats and of better qualities were set aside and subsequently offered for sale through
the Clara platform. The first sale on the Clara platform took place in December 2018. A further
five sales through Clara were completed in H1 2019, with $2.9 million in value transacted
through the platform and a total of $3.5 million transacted since sales began. The frequency
of sales is expected to increase during H2 2019, based on increasing demand from our growing
customer base and, according to plan.
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Operating expenses increased from $31.2 million in H1 2018 to $33.7 million in H1 2019 due to a
combination of an increase in the average cost per tonne mined and lower volumes of total
tonnes mined. Waste tonnes mined decreased as compared to the same period in 2018 as the
significant waste stripping campaign (“Cut 2”) undertaken between 2017 and 2018 was
substantially complete by the end of 2018. In addition, ore mining was stronger than expected
in H1 2019 due to resource gains in the North Lobe that offset planned waste mining. Due to
the higher volume of ore mined in H 1 2019, no waste stripping costs were capitalized and the
strip ratio was reduced to below the life of mine average of 2.46. No capitalized stripping is
expected during 2019 (versus a strip ratio of 2.84 in 2019 Guidance). The increase in volumes
processed led to a decrease in the operating expense per carat sold from $225/carat in H1 2018
to $171/carat in H1 2019.
Non-cash depletion and amortization expense increased from $11.3 million in H1 2018 to $23.7
million in H1 2019 due to the 42% higher volume of carats sold during the period. Depletion and
amortization expe nse has increased significantly as compared to prior periods for several
reasons: an increasing number of fine diamonds recovered following improvements to the
processing circuit implemented in late 2017, a larger mineral property balance from the waste
stripping campaign between 2017 and 2018, and a corresponding increase in the rate of unit of
production depletion from an update to the reserve base of the mine plan in Q3 2018. This 110%
increase in the non-cash depletion and amortization expense significa ntly impacts net income
of $8.1 million achieved in H1 2019 (H1 2018: $12.7 million net income). Adjusted Earnings Before
Interest, Tax, Depletion and Amortization (“ Adjusted EBITDA”) for H1 2019 was $38.6 million
(H1 2018: $37.5 million) (see page 10 Non-IFRS measures).
Q2 2019 performance was underpinned by a continued, strong, stable operating environment
at the Karowe Mine. On the back of record production achieved during the first quarter of the
year, operations continued to deliver strong performance, with 0.8 and 1.8 million tonnes of ore
and waste mined respectively, and 0.71 million tonnes of ore processed. As a result, production
yielded higher carat recoveries against plan and contributed to a sale of 101,931 carats during
Q2 2019 which achieved an average price of $417/carat compared to the sale of 75,329 carats
at an average price of $856/carat during Q2 2018. The difference in average price is due to the
exceptional stone tender held in Q2 2018 for which there was no comparable sale in 201 9,
together with higher recoveries of small diamonds owing to plant processing improvements.
Net income and earnings per share performance were as expected for both the second quarter
and year to date results and reflect the continued strength of product ion being realized at
Karowe from the investments made over the past two years, as well as the transition to a
blended sales tender in Q3 2018 creating a smoother revenue profile.
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QUARTERLY RESULTS OF OPERATIONS – KAROWE MINE, BOTSWANA
Market Update : The market for both rough and polished diamonds remains challenging due to
an excess supply of polished diamonds and reduced credit available in the mid- stream of the
supply chain. 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. Weaker demand has been reported across all size classes
and larger producers are withholding goods or allowing their customers to defer rough
diamond allocations. Lucara’s expected production of approximately 375,000 - 420,000
carats in 2019 accounts for a very small percentage of total global production, with a majority
of value from the Karowe diamonds attributable to large, higher -quality diamonds. Lucara’s
rough diamond sales during the first six months of 2019 have been consistent with expectations
and in line with 2019 revenue guidance of $170 million to $200 million. Interest in Clara, our
online sales platform for rough diamonds, continues to increase as manufactur ers look to
purchase only the rough diamonds that they can use in their business, while at the same time
assuring provenance of the rough diamonds purchased. While the current market remains
UNIT Q2-19 Q1-19 Q4-18 Q3-18 Q2-18
Sales
Revenues US$M 42.5 48.7 40.6 45.7 64.54
Proceeds generated from sales tenders
conducted in the quarter are comprised of:
US$M 42.5 48.7 40.6 41.8 68.44
Sales proceeds received during the quarter US$M 42.5 48.7 40.6 45.7 64.5
Q2 2018 tender proceeds received post
Q2 2018
US$M - - - (3.9) 3.9
Carats sold for proceeds generated during
the period
Carats 101,931 95,057 110,553 89,461 87,467
Carats sold for revenues recognized during
the period
Carats 101,931 95,057 110,553 101,600 75,329
Average price per carat for proceeds
generated during the period
US$ 417 512 367 467 7824
Average price per carat for proceeds
received during the period
US$ 417 512 367 450 8564
Production
Tonnes mined (ore) Tonnes 773,861 1,011,048 563,279 1,217,016 702,825
Tonnes mined (waste) Tonnes 1,826,972 2,485,548 2,743,586 3,850,225 4,416,361
Tonnes processed Tonnes 713,037 763,313 602,376 728,962 698,303
Average grade processed cpht (*) 14.21 15.92 13.33 17.4 11.7
Carats recovered Carats 109,3121 132,3362 81,8503 127,031 81,507
Costs
Operating costs per carats sold (see page
12 Non-IRFS measures)
US$ 174 169 233 185 220
Capital expenditures US$M 3.8 2.4 6.5 2.4 2.7
(*) carats per hundred tonnes
(1) Carats recovered during the period included 8,172 carats recovered from re-processing historic recovery
tailings from previous milling and are excluded from the average grade processed.
(2) Carats recovered during the period included 10,899 carats recovered from re-processing historic recovery
tailings from previous milling and are excluded from the average grade processed.
(3) Carats recovered during the period included 1,505 carats recovered from re-processing historic recovery
tailings from previous milling and are excluded from the average grade processed.
(4) Q2 2018 includes one EST sale of $32.4 million in addition to an RST during the quarter
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challenging, longer-term supply-demand fundamentals for rough di amonds are predicted to
strengthen as a number of large, world class diamond mines mature and reach end of life.
SECOND QUARTER OVERVIEW – KAROWE MINE
Safety: Karowe had no lost time injuries during the three months ended June 30, 2019 resulting
in a twelve-month rolling Lost Time Injuries Frequency Rate (“LTIFR”) of 0. In May 2019, Lucara
Botswana and the Karowe Mine achieved a significant milestone, passing two years without a
lost time injury.
Production: Ore and waste mined during the three months e nded June 30, 2019 totaled 0.8
million tonnes and 1.8 million tonnes respectively (H1 2019: 1.8 million tonnes of ore; 4.3 million
tonnes of waste). Tonnage processed was 0.71 million tonnes, with a total of 109,312 carats
recovered (H1 2019: 1.5 million tonnes processed; 241,648 carats recovered). Included in total
carats recovered of 109,312 were 8,172 carats recovered from the re -processing of material
previously milled. During Q2 2019, ore processed was substantially from the South lobe, with
some ore blended from the Central lobe. During Q2 2019, a total of 225 Specials were
recovered including 10 diamonds greater than 100 carats in weight. Recovered Specials
equated to 8.1% weight percentage of total recovered carats from direct milling during Q2 2019,
in line with expectations.
Mine performance during the second quarter is consistent with the record plant performance
achieved in the first quarter and is reflective of significant operational improvements executed
in late 2018. The investments made in the plant during 2017 and 2018 are being realized through
increasing recoveries and higher plant availability. Improvements to maintenance scheduling
and equipment are expected to continue the strong production trend. Ore and waste mining
are meeting or exceeding planned volumes following the mining contractor transition in mid-
2018. Due to the higher volume of ore mined in Q1 2019 (due to ore gains on the waste contact),
no waste stripping costs were capitalized during H1 2019. Ore mining is expected t o be above
guidance for the year due to the resource gains in the North and Centre pipes, previously
categorized as waste. Total waste mining volumes are expected at the lower end of guidance
for the year while total tonnes mined should remain within guidance.
Karowe’s operating cash cost : Karowe’s year to date operating cash cost (see page 10 Non -
IFRS measures) was $31.16 per tonne processed (2018: $36.64 per tonne processed) compared
to the full year forecast of $32 -$37 per tonne processed. The decre ase in cost per tonne
processed compared to the three months ended June 30, 2018 reflects lower volumes of waste
tonnes mined during the quarter as the significant stripping campaign undertaken between
2017 and 2018 was largely completed in 2018, as well as an increase in tonnes processed from
ongoing plant improvements. Forecast costs for the 2019 fiscal year are expected to be within
guidance and are trending to the lower end of that guidance.
Labour relations update : In April 2019, the Botswana Mine Wo rkers Union and Lucara
Botswana entered into a Memorandum of Agreement which governs the working relationship
between the two parties. In May 2019, the parties successfully negotiated and signed a Salaries
and Conditions of Service Agreement which covers t he terms and conditions of employment,
including wages, to March 31, 2021. In Botswana, a majority of currently operating mines are
unionized.
Naming of the 1,758 carat diamond : the winning submission for the naming of the 1,758 carat
diamond recovered in April 2019 was chosen from over 22,000 submissions in a contest open
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to all citizens of Botswana. Meaning “rare find” in Setswana, the name Sewelô was selected for
the unbroken, 1,758 carat stone which was mined from the EM/PK(S) unit of the South Lobe
and was recovered through Lucara’s XRT circuit. Lucara is committed to ensuring that the
Sewelô Diamond has a lasting and positive impact for Botswana and is proud to have once
again invited and engaged with the people of Botswana to choose the name of such an iconic
diamond recovered at the Karowe Mine.
KAROWE UNDERGROUND UPDATE
Karowe Underground Update
In 2018, the Company embarked on a technical program to support a Feasibility Level study for
a potential underground operation at the Karowe Diamond Mine. This program included the
completion of an updated mineral resource, geotechnical drilling of the country rock and AK06
kimberlite, hydrogeological drilling and modelling, and mining trade off studies to address risks
and issues identified during the PEA. A total of $21.0 million was spent in 2018 in support of
this work, which resulted in significant de -risking of the key technical components associated
with the potential underground development.
During H1 2019, $8.4 million was spent to complete the geotechnical drilling program,
geotechnical and geological logging, downhole geophysical survey, hyper spectral analysis of
core, geotechnical modeling, hydrogeological drilling and studies, and mine planning activities
in support of the ongoing feasibility study. Field programs were completed in late April 2019
and the results are being incorporated into the feasibility study with a planned completion date
in Q4 2019.
2019 OUTLOOK
This section of the press release provides management's production and cost estimates for
2019. These are “forward -looking statements” and subject to the cautionary note regarding
the risks associated with forward-looking statements.
Due to an increase in recoveries of smaller -sized diamonds and overall improved mine call
factor, we have increased the number of diamonds that are expected to be recovered and sold
during 2019. While the increase in the number of carats recovered and expected to be sold in
2019 should have a positive economic impact, revenues for the year remained unchanged at
$170 million to $200 million. A majority of the Company’s revenue comes from the sale of large,
single stones in excess of 10.8 carats; the additional recoveries are in the smaller size classes.
Following an increase in ore tonnes mined which had previously been classified as waste during
Q1 2019, we have also increased guidance for total ore tonnes mined. No other changes have
been made to the 2019 outlook previously provided.
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Karowe Diamond Mine Full Year – 2019
In millions of U.S. dollars unless otherwise noted
Diamond revenue (millions) $170 to $200
Diamond sales (thousands of carats) 375 to 420 (revised
from 300 to 320)
Diamonds recovered (thousands of carats) 375 to 420 (revised
from 300 to 330)
Ore tonnes mined (millions) 3.0 to 3.4 (revised from
2.5 to 2.8)
Waste tonnes mined (millions) 6.0 to 9.0
Ore tonnes processed (millions) 2.5 to 2.8
Total operating cash costs(1) including waste mined(2) (per tonne processed) $32.00 to $37.00
Operating cash costs excluding waste mined (per tonne processed) $21.00 to $24.00
Botswana general & administrative expenses including marketing costs (per
tonne processed)
$2.00 to $3.00
Tax rate 22% to 29%
Average exchange rate – USD/Pula 10.5
(1) Operating cash costs are a non-IFRS measure. See “Non-IFRS Measures”.
(2) Includes ore and waste mined cash costs of $4.00 to $4.50; processing cash costs of $12.00 to $13.00 and mine -
site departmental costs (security, technical services, mine planning, health & safety, geology) of $5.00 to $6.00 (all
dollar figures in per tonne mined or processed).
As a result of the increase in ore tonnes mined, the average strip ratio in 2019 is now expected
to be lower than originally anticipated. No waste capitalization is expected in 2019.
The 2019 estimated cash cost per tonne of or e processed is expected to be between $32.00
and $37.00 (2018: $38.00 to $42.00) while estimated operating cash costs, excluding waste
mining, are expected to be between $21.00 and $24.00 per tonne processed. The cost per
tonne mined is expected to be bet ween $4.00 and $4.50 and the estimated processing cost
per tonne processed is expected to be between $12.00 and $13.00, mostly offsetting the
increase in cost per tonne mined which results from higher rates from the mining contractor
appointed in mid-2018.
In 2019, the Company forecasts revenues between $170 million and $200 million, consistent
with the forecast for 2018. With increasing recoveries in the smaller sizes and reprocessing of
previously milled material, diamonds recovered are expected to be between 375,000 carats
and 420,000 carats, an increase from initial guidance of 300,000 and 330,000 carats, and
diamonds sold are expected to be between 375,000 carats and 420,000 carats, an increase
from 300,000 carats and 320,000 carats. While the number of carats recovered and sold is
expected to exceed our original guidance for 2019, this increase is not expected to change the
revenue guidance as the Company’s revenue is weighted to the larger stones, or “Specials”,
which are individual diamonds greater than 10.8 carats. The 2019 revenue projection includes
“Specials” but excludes the sale of any truly unique diamonds such as the 1,109 carat LLR (sold
in 2017 for $53 million) and the 813 carat Constellation (sold in 2016 for $63.1 million). Specials
are consistently recovered from the Karowe Diamond Mine and those Specials which are gem-
quality contribute a significant percentage of the Company’s annual revenue.
Sustaining capital and project expenditures are expected to be up to $14.0 million in 2019,
including expenditures associated with the construction of an additional slimes dam,
improvements related to the XRT recovery circuit, and a provision for the implementation of
body scanning technology to enhance security. This does not include investments being made
on the underground development study noted below.