Lucara’s Karowe a veritable cash machine

Cash — the one thing investors trust these days — continues to flow into Lucara Diamond’s (TSX: LUC) coffers from the sale of its world class diamonds and the market continues to applaud its efforts.

The Vancouver-based company’s stock has been one of the rare bright spots in an otherwise morose mining sector as it has gained 140% since January. Its shares finished trading in Toronto on November 26th for $1.54 per share.

Driving that surge in valuation has been its Karowe mine in Botswana’s Orapa-Letlhakane kimberlite field, which reached commercial production in July 2012 and has been producing some eye-catching and extremely valuable diamonds since then.

The latest news is that the company managed to sell 14 single stone lots totaling 1,028 carats for US$22.9 million, or US$20,280 per carat. The sale represents its third ‘Exceptional Stone’ tender, and it still expects to make one more lucrative sale before the year is done.

The highest value stones sold in the latest round were a 256.6 carat and a 137.9 carat diamond which sold for US$4.4 million and US$4.28 million respectively. Lucara says another seven diamonds sold for more than US$1 million each.

Once the fourth quarter sale is completed the company’s total volume of diamonds sold for the year will likely rise over the 420,000 carat mark that it had previously forecasted.

That 420,000 carat guidance was already revised upwards in May of this year and led the company to expect revenues of roughly US$118 million for the year end total. Before the latest tender the company had already sold 328,500 carats for US$132.7 million.

Lucara further tantalized investors by saying that the fourth quarter sale will include a recently recovered 167 carat diamond and a 122 carat diamond.

It was only back in September that the company announced a tender of 16 exceptional stones weighing a total of 1,028 carats, which brought in US$24.7 million, or US$24,026 per carat.

At that point it had produced 47 diamonds larger than 50 carats for the year, and 16 diamonds greater than 100 carats including a 257-carat clear diamond. Any diamond above 100 carats is considered rare so despite the challenges facing the rough diamond market, the demand for the type of high-quality diamonds being turned out at Karowe has remained strong.

BMO Capital Markets analyst Edward Sterck labeled the news of the tender as ‘Positive’ and said the revenue of US$22.9 million was roughly 40% higher than BMO Research’s estimate of US$16.2 million.

Those stronger-than-expected results pushed Sterck to up his earnings estimate to US$0.19 per share from the previous US$0.18 per share.

Sterck has Lucara rated as ‘Market Perform’ with a target price of $1.70 per share.

“Although the company continues to demonstrate excellent operational performance, the stock appears fully priced, trading at 0.9 times net present value (NPV) versus a peer group average of 0.6 times NPV,” Sterck wrote in his research note. “The results of the resource and mine plan update could prove to be a future positive catalyst for the stock.”

Beyond its wholly owned Karowe Mine in Botswana, Lucara also has a 75% stake in the Mothae Project in Lesotho, where it has completed a trial mining program.

The company is currently in the midst of updating the mineral resource estimate for the Centre and South Lobe areas of Karowe, where it has already mined exceptional stones. It expects to have a NI 43-101 compliant resource out in the first quarter of next year.