Lucara Diamond Corp. plans to move forward with an underground expansion of Karowe, the Botswana mine that’s made headlines for producing some of the biggest rough diamonds in history.
The Vancouver, Canada-based mining company said Tuesday results of a recent feasibility study were positive, indicating an underground expansion would extend the life of the mine to 2040 and generate “significant” revenue and cash flow. The original design for Karowe from 2010 had the open pit being mined out by 2025, so the underground expansion would double the mine’s life.
In a news release, Lucara President and CEO, Eira Thomas said the feasibility study “has outlined a much larger economic opportunity than first envisaged in the 2017 PEA (preliminary economic assessment).”
She added that the expansion, which has an estimated pre-production cost of $514 million, is expected to pay for itself in less than three years, as the underground will give the mining company access to the highest-value part of the orebody first and generate more than $5.25 billion in gross revenue.
Both Thomas and Zara Boldt, Lucara’s Chief Financial Officer, are bullish on diamond prices going forward as supply continues to dwindle.
“Diamond deposits are rare and getting rarer,” Thomas said in the release. “In this context, we are extending a mine that is in a class of its own, having produced 15 diamonds in excess of 300 carats, including two greater than 1,000 carats in just seven years of production.”
Lucara recovered the 1,109-carat diamond later named “Lesedi La Rona” in November 2015 and found a 1,758-carat diamond at the mine this past July. That stone, called Sewelô or “rare find,” is said to be of “near-gem of variable quality.”
Graff Diamonds paid $53 million for Lesedi La Rona, and another huge diamond from Karowe, the 813-carat “Constellation,” went for $63.1 million, the most ever paid for a rough diamond.
Lucara said in the first half of 2020, it will move forward with detailed engineering and early procurement initiatives for the underground expansion.
It said the money needed to begin the expansion next year represents less than 10 percent of the pre-production capex estimate and can be funded out of its anticipated cash flow. In the meantime, it will be looking for financing options for the bulk of the project.
Lucara announces positive feasibility study for Karowe underground
Lucara Diamond Corp. has announced the results of a positive underground Feasibility Study (“FS”) to expand its 100% owned Karowe diamond mine, one of the world’s most prolific producers of large, high-value type IIA diamonds and the only diamond mine in recorded history to have produced two +1000 carat diamonds. The underground expansion at Karowe is expected to double the mine life, and generate significant revenue and cashflow out to 2040, extending benefits to the Company, its employees, shareholders, communities surrounding the mine, and Botswana.
Combined Open Pit / Underground Economic Highlights (all figures in US dollars)
- LOM production of 7.8 million carats out to 2040; resource remains open to depth
- $5.25 billion in Gross Revenue
- Pre-production capital costs of $514 million for the underground project
- After-tax undiscounted net cash flow of $1,220 million, no real diamond price escalation
- After-tax NPV(5%) of $718 million
- Payback Period of 2.8 years extending the mine life 15 years (including stockpiles)
- Average LOM operation costs of $28.43 per tonne of ore processed
Eira Thomas, President and CEO commented:
“Lucara is highly encouraged by the results of the Karowe Underground feasibility study which has outlined a much larger economic opportunity than first envisaged in the 2017 PEA and represents an exciting, world-class growth project for our Company. Diamond deposits are rare and getting rarer.
In this context, we are extending a mine that is in a class of its own, having produced 15 diamonds in excess of 300 carats, including 2 greater than 1000 carats in just seven years of production. Further, we have sold ten diamonds for in excess of $10 million each, including the record-setting 813-carat Constellation which sold for $63.1 million.
A significant portion of the cost to expand our mine underground can be funded from cash flow, and the investment is expected to be paid back in under 3 years, as the underground allows us to exploit the highest value part of the orebody first and generate more than $5.25 billion in gross revenue.
What’s more, margins remain healthy despite the application of conservative diamond pricing models that reflect the current, difficult market environment. Lucara’s short term view is that the market is now stabilizing.
Longer-term, the fundamentals are expected to strengthen in line with supply shortfalls from mature, depleting mines in Australia and Canada. It is important to note that a return to diamond prices observed in 2015 would nearly double the NPV(5%) of this project to $1.4 billion.”
Key Findings of the Study
- The Karowe Mine has produced 2.5 million carats since 2012 and generated $1.5 billion in revenue. The FS looks to double the mine life from the original mine design of 2010 and add a net cash flow of $1.22 billion and gross revenue of $5.25 billion.
- After-tax NPV(5%) of $718 million for the combined open pit and underground with no real diamond price escalation
- Updated Resource confirms increasing value with depth. The combined open pit and underground Indicated resource now stands at 54.27 million tonnes at 15.3 carats per hundred tonnes (“cpht”) for a contained diamond resource of 8.3 million carats excluding stockpiles.
- Long hole shrinkage (“LHS”) underground bulk mining method selected will provide early access to higher-value ore and allows for a short pay back period of 2.8 years and low operating costs of $28.43 per tonne processed.
- On the basis of a construction start in mid-2020, ore from underground mining will seamlessly integrate into current operations providing mill feed starting in 2023 with a ramp-up to 2.7Mtpa to the processing plant by 2026, and the opportunity to increase throughput. Current production rates will be maintained through the underground ramp-up period.
- The Underground is designed to access the South lobe kimberlite resource below the current planned bottom of the open pit (which is expected to be at approximately 700 meters above sea level (“masl”)), to a depth of 310 masl. Access to the South Lobe underground will be via two vertical shafts (production and ventilation) of approximately 765 and 715 meters deep respectively.
- Identified key focus areas of hydrogeology, geotechnical constraints of the kimberlite and host rocks have been addressed through an intensive set of work programs and data collection that commenced during the Preliminary Economic Assessment completed in November 2017 and were substantially updated and augmented by the FS study.
Zara Boldt, Chief Financial Officer commented:
“Lucara is weathering the current downturn in the diamond market better than most of our peers. Karowe’s high value deposit and unique production profile has allowed us to generate enough cash to operate our business, develop the Clara sales platform and to have been a steady dividend payer.
Based on the strong economics outlined in the feasibility study, we are confident that our external financing requirement will be modest and that attractive financing options are available to supplement the expected contribution of our cash flow from operations to fund the underground project.
We are optimistic about diamond prices recovering in the short to medium term as global supply decreases next year and we have also identified a number of optimization opportunities for the underground that could add additional value to the project in the near term.
With this in mind, Lucara’s Board of Directors has determined that using our available cash flow for detailed engineering and design work, early procurement initiatives and to investigate project debt financing options in the near-term, rather than the payment of a dividend, is the best use of the Company’s capital going forward.”
Source: nationaljeweler.com, lucaradiamond.com