Lucara’s Karowe mine proves to be a gem

Lucara Diamond (TSX: LUC) had a very good 2013 at its Karowe mine in Botswana, reporting annual financial results in February that exceeded expectations.

The company reported revenues of US$180.5 million for the year on sales of 438,717 carats of diamonds, beating initial and updated revenue forecasts of US$90 million and US$118 million. Sales averaged US$411 per carat with operating expenses coming in at US$100 per carat.

Full-year operating costs came in at US$18 per tonne, lower than the US$23 per tonne forecast.

For the year, the company reported a net income of US$65.2 million (US17¢ per share) compared with a loss of US$7.5 million (loss of US2¢ per share) in 2012.

In the fourth quarter, it reported a profit of US$21.4 million or US5¢ per share compared with a loss of US$4.1 million or US1¢ per share in the year-earlier period.

The company has no debt, and Lucara ended 2013 with an inventory of 67,000 carats and US$49.4 million in cash on hand.

Shortly after it released its financials, Lucara announced it will start paying semi-annual dividends. The first dividend of 2¢ per share was expected to be distributed in June.

Lucara’s board has also approved the issuance of occasional special dividends, which would be based on revenue generated from exceptional stone tenders.

Three exceptional stone tenders during 2013 brought in US$22.9 million or US$20,280 per carat.

The company’s first exceptional stone tender of 2014, comprised of 20 diamonds with a combined weight of 1,191.71 carats, generated US$50.5 million, or US$42,237 per carat.

For 2014, Lucara is forecasting revenue of US$150-160 million and production of 400,000 to 420,000 oz. from 2.2 to 2.4 million tonnes of ore.

Operating costs are expected to run at US$31-33 per tonne, and the company is planning to spend US$45-50 million on upgrades to its plant to improve recovery of large diamonds and to better process hard ore from the south lobe of Karowe.

Lucara anticipates holding eight tenders during the year, as well as two exceptional stone tenders.

Karowe started commercial production in July 2012.

In December, Lucara signed a memorandum of understanding with Paragon Diamonds (AIM: PRG) to sell the bulk-sample plant at its 75%-owned Mothae project for US$1.5 million in cash and shares. Lucara is reviewing development options at the project, located in Lesotho, and says larger processing equipment would be necessary for further development.

At presstime in April, Lucara traded at a new 52-week high of $1.96, compared with 50¢ a year earlier. The company has 376.9 million shares outstanding.