VANCOUVER — Lucara Diamond (TSX: LUC; TSXV: LUC; US-OTC: LUCRF) has made headlines over the past year with the size and quality of stones it has unearthed at its Karowe mine in Botswana’s Orapa–Letlhakane kimberlite field, and on Dec. 20 the company finally quantified the impact these sizable diamond tenders are having on its project valuation. According to president and CEO William Lamb, the value of Karowe’s in-situ diamond resources has risen by US$1.2 billion since mining began in April 2012.
Lucara’s updated resource is highlighted by recoverable indicated mineral resources — assuming a 1.25 mm bottom cut-off size — of 46.2 million tonnes, at an average grade of 16 carats per hundred tonne, with an average modelled diamond value of US$394 per carat. Inferred resources add 21 million tonnes at an average grade of 14 carats per hundred tonne, with an average modelled diamond value of US$412 per carat.
Lamb noted that the increase is mostly driven by the large, high-quality stones that Lucara recovered from Karowe’s south and centre lobes. In 2013 the company sold 23 diamonds worth over US$1 million, including nine diamonds valued at more than US$3 million each. Since operations began, Lucara has mined over 5.5 million tonnes of kimberlite, with 3.46 million tonnes processed through its plant. The company has recovered and sold just over 690,000 carats, which equates to US$254 million in diamonds.
“People start to ask the question: ‘Do we expect these trends to continue?’” Lamb commented during a conference call. “As we mine more material from the centre and south lobes, we’re getting confirmation on a weekly basis of the recovery of these large and exceptional stones. The diamond distribution is significantly coarser.”
The company notes that the updated resource estimate is supported by special diamonds, with more than 70 stones larger than 10.8 carats recovered to date in December. Since mining started in the centre and south lobes in March, more than 600 diamonds larger than 10.8 carats have been recovered.
Lucara announced 2013 diamond sales and revenue of 438,000 carats and US$180 million.
The company also announced the sale of a bulk-sample plant at its 75%-owned Mothae project to a subsidiary of Paragon Diamonds (LSE: PRG). Lucara owns 75% of the diamond project, which is located in the Maluti Mountains of Lesotho.
Paragon would pay US$1.2 million for the equipment, including US$250,000 in cash and US$900,000 in shares. By removing the plant, Lucara could expand Mothae’s pit and make room for larger processing equipment for future development.
BMO Capital Markets analyst Edward Sterck — who maintains a “market perform” rating on Lucara, along with a $1.70-per-share price target — notes that the diamond value of US$399 per carat is broadly in line with BMO research’s life-of-mine forecast of US$390 per carat.
“The resource update provides increased confidence in Lucara’s outlook, and suggests that the life-of-mine could be extended with a deeper open pit, capturing more of the resource,” Sterck writes in a Dec. 20 research update, citing that Karowe’s updated global resource contains 10.5 million carats, which is much larger than its production forecast of 5.8 million carats.
“We have a sandstone layer between 240 and 280 metres down — it means there is a significant weakness towards the bottom of the pit,” Lamb commented when asked about pit expansion. “So we would have to have much higher diamond values to proceed. I think in a couple years’ time we may look at the opportunity for underground development, but we don’t foresee an expansion in the current plan.”
Lucara shares have traded within a 52-week window of 50¢ to $1.69. The company saw 1.4 million shares traded after its resource update, fuelling a gain of 11%, or 16¢, en route to a $1.58-per-share close at press time. Lucara has 379 million shares outstanding for a $578-million market capitalization.
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