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Uncertain times

Uncertain times
BLEAK FUTURE: Lucara suspends 2020 production guidance

Lucara maintain production guidance suspension

With Covid-19 disruptions showing no sign of abating any time soon, Lucara, which operates Karowe Mine in Boteti, will continue with the suspension of its 2020 production guidance.

In its second-quarter results published this week, the Canadian-based enterprise stressed that the full impact of the pandemic on its operations and production outlook for the year remains ‘highly uncertain’.

In light of this, the diamond mining company will prolong its guidance suspension – enforced back in March – until further notice.

Despite the suspension, throughout the pandemic, Karowe Mine has continued to operate.

Indeed, Lucara described its production results in quarter two as ‘strong’, consistent with the original 2020 plan and below budget.

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“Adjustments were made to the original 2020 mine plan by reducing waste and ore mined through the second quarter to ensure the health and safety of employees operating in the pit and to reduce operational costs,” Lucara declared in a statement to shareholders.

During the second quarter of the year, Lucara generated revenue of US$7.5 million from the sale of 68, 979 carats – a massive drop from the US$42.5 million generated during the same period in 2019.

During the period, Lucara President and CEO, Eira Thomas say, in response to the destabilized market, the company made a deliberate decision not to sell any diamonds over 10.5 carats.

To put that into perspective, Lucara’s famous Sewelo diamond, unearthed last April, was valued at 1, 758 carats.

In fact, large and high-value diamonds from Karowe Mine have historically accounted for about 70 percent of Lucara’s revenue.

“Subsequently, we are pleased to report that Lucara has now secured a groundbreaking supply agreement with the HB Group, which will deliver regular revenues on superior pricing terms to those being achieved at the tender,” noted Thomas, adding that the agreement also helps position Lucara to move forward with key underground expansion activities for Karowe this year.

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Revenue from this agreement is expected to be realized in the third quarter of the year.

During the period under review, 0.71 million of ore mined at Karowe Mine resulted in 101, 203 carats recovered, with 201 special stones (+10.5 carats) recuperated in addition to nine diamonds that each weighed over 100 carats.

With the diamond industry one of the worst affected, Lucara says in response to the pandemic, it implemented its ‘Crisis Management Strategy’ in March with the hope of protecting the well-being of both the employees and the business.

The company says its planned capital spending program for 2020 was focused on the commencement of an underground expansion project at Karowe and funded entirely from free cash flow generated by operations.

“Although the recently announced supply agreement with HB is expected to provide regular monthly cash flow for the remainder of the year, some uncertainty remains around estimating revenue for that period,” conceded the diamond giants.

As a result, Lucara says the underground expansion program has been re-scoped and reduced from the previous budget of US$53 million and will focus on long term critical-path items through the remainder of the year.

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