Lucara recovers 549 carat white diamond

Lucara Diamond (TSX: LUC) has recovered a 549 carat diamond from its Karowe mine in Botswana.

The mine — one of the world’s most prolific producers of large and high-value type IIA diamonds — is the only diamond mine in recorded history to have produced two stones greater than 1,000 carats.

Lucara said the unbroken 549 carat white diamond is the fourth-largest diamond found at Karowe and the first large gem it has recovered from its Mega Diamond Recovery XRT circuit. The MDR circuit allows for diamond recovery after primary crushing and prior to milling and was commissioned in 2017.

The diamond was recovered from direct milling of ore sourced from the EM/PK(S) unit of the mine’s South Lobe and follows the recent recovery of another gem quality 176 carat stone from the same ore block.

Lucara’s 1,758 carat Sewelo diamond, which was recovered in April 2019 and is the largest ever recorded in Botswana, was also recovered from Karowe’s EM/PK(S) unit, as were Lucara’s 1,109 carat Lesedi La Rona diamond and its 813 carat Constellation diamond, both recovered in 2015.

A 374 carat stone from Karowe sold for US$17.5 million, while the 1,109 carat Lesedi La Rona sold for US$53 million and the 813 carat Constellation diamond for US$63.10 million.

Edward Sterck, a mining analyst with BMO Capital Markets in London, estimated the 549 carat diamond could fetch more than US$15 million.

The Mega Diamond Recovery XRT circuit at Lucara Diamond’s Karowe diamond mine in Botswana. Credit: Lucara Diamond.

“This appears to be a special stone that will garner attention and is likely to positively impact 2020 cash flows,” he wrote in a research note.

He also pointed out that the EM/PK(S) section of the South Lobe where it was discovered “contributes the bulk of the underground resource” and as a result “will be the main contributing facies to the production profile for the underground extension, highlighting the potential of this development opportunity.”

The open-pit mine, commissioned in the second quarter of 2012, has a mine plan to a depth of 324 metres and is expected to operate until about 2025, with further underground potential.

Lucara has approved capital expenditure of up to US$53 million for early works related to a proposed underground mine and expects to make an investment decision in the first half of 2020.

An underground component at Karowe would double the mine life and generate cash flow out to 2040, according to a feasibility study in November 2019. The underground operation would access the South Lobe kimberlite resource below the current planned bottom of the open pit (which is expected to be at about 700 metres above sea level), to a depth of 310 meters above sea level. Access to the South Lobe underground would be via two vertical shafts (production and ventilation) of about 765 and 715 metres deep, respectively.

The study was based on an updated combined open-pit and underground resource of 54.3 million indicated tonnes at 15.3 carats per hundred tonnes (cpht) for a contained diamond resource of 8.3 million carats, excluding stockpiles. It also envisioned that ore from underground mining would provide feed to the mill starting in 2023 with a ramp up to 2.7 million tonnes per year to the processing plant by 2026. All of the underground mined kimberlite would be processed over a 13-15 year mine life.

Geordie Mark, an analyst at Haywood Securities, noted that Karowe has been a very high margin operation and posted an operating margin of 48% in the third quarter of 2019.

“The Karowe diamond mine has had a strong history of being a high-margin operation due to its notable delivery of a significant proportion of the world’s exceptional stones,” Mark wrote in a research note to clients. “We forecast that Karowe will continue to be a high-margin operation given the preponderance of these large diamonds in the AK6 kimberlite, particularly within the South Lobe. Consequently, given that the life-of-mine plan for Karowe outlines that >75% of process material will originate from the South Lobe we believe that this balance will support the delivery of high margins over the operating life, which will continue to differentiate Lucara from its peers given the unique character of the deposit.”

For 2020, Lucara forecasts diamond recoveries of between 370,000 carats and 410,000 carats and revenues of US$180 million to US$210 million.

It expects ore mined this year will be between 3.5 million and 3.9 million tonnes at operating cash costs of between US$32 and US$36 per tonne processed.

In mid-January, Lucara announced it is partnering with luxury house Louis Vuitton to transform its 1,758 carat Sewelo diamond from Karowe into a collection of jewellery.

Karowe, which means “precious stone” in the local language, is 100%-owned by Lucara.

At presstime in Toronto Lucara was trading at 87¢ within a 52-week trading range of 78¢ and $1.87 per share.

BMO’s Sterck has a target price of $1.25 per share and Haywood’s Mark a $2.10 share price target.

The company has 397 million common shares for a market cap of $345 million.