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09 october 2017

william_lamb_xx.jpgLucara Diamond recently announced that Graff Diamonds had bought its 1,109 carat diamond Lesedi La Rona for $53 million.

The stone, which is the world’s second largest diamond found since the discovery of the 3,106-carat Cullinan diamond in 1905, failed to find a buyer at a public auction in London on 29 June, 2016 and the company vowed not to auction the diamond again.

Reports suggested that the stone had a reserve price of $70 million, but bidding stalled at $61 million.

Lucara had, however, partnered with Nemesis International DMCC a month prior to the London auction and sold its 813 carat diamond – named “The Constellation” – for $63,1 million.

Company chief executive William Lamb told Rough & Polished’s Mathew Nyaungwa that one shouldn’t fall into the trap of comparing the revenue accrued from the sale of both stones.

He said what was significant was the fact that the stones were collectively sold for almost the same amount as the cost of building Karowe Mine, in Botswana.

The diamonds originated from the south lobe of Karowe Mine.

Lamb admitted that they had had some learning to do on the best way to market large diamonds.

Below are excerpts from the interview.

You have finally sold your 1,109 ct rough diamond for $53 million to Graff Diamonds. However, Lucara sold its 813-carat Constellation diamond for $63 million in May 2016. Is it, therefore, safe to conclude that big stones are difficult to sell?

Both fortunately and unfortunately, all diamonds are not created equal. It would not be correct to compare the 813-carat Constellation diamond with the 1,109-carat Lesedi La Rona. They were two very different stones, both in terms of the complexity (difficulty in assessing the polished outcome) and their historical significance. It should be noted that these two stones, together, sold for almost the same amount as it cost the Company to build the mine.

What is your take on reports that Botswana wants priority to buy big stones recovered in the country?

As stated in this proposed legislation, the Government would purchase the “unusual” diamond at market prices. As the purchase of a stone would be at market price then the Company would not be worse off, this being contingent on defining the process to determine the market price. This bill allows the government to monetize ‘unusual’ stones which mining companies may choose to display in museums for a long period of time.   Lucara seeks to monetize the value of its diamonds and does not expect that this bill will impact on the overall value it achieves from the sale of its stones.   

Did Botswana’s plans to buy big stones produced in the country, had an influence in the sale of Lesedi?

No, the negotiations with Graff and others had been ongoing for many months prior to the sale being concluded.

Given the challenges you had selling Lesedi, would you look forward to recovering stones of that size in future?

Most definitely. The value that the recovery of the Constellation and Lesedi had for the country of Botswana and the shareholders of Lucara was significant. The Company has also developed a thorough understanding of the best routes to market for these stones.

How far have you gone with the resource evaluation work on the AK6 kimberlite at Karowe Mine as well as a pre-feasibility level underground study?

As per our second quarter results, we have determined that we will complete a preliminary economic assessment on the underground potential first. This is progressing well and we expect to have information available to the market in Q4, 2017. This PEA will lead into a pre-feasibility study which we expect to be completed in H1, 2018.

Lucara initiated a large diameter drilling sampling programme at AK11 during the second quarter of 2017. Can you provide an update on this exercise?

Exploration work on the AK11 kimberlite is progressing according to plan. The first three LLD holes have been completed and the bulk sample plant has been prepared and is ready to receive these samples.

Can you also provide an update on the microdiamond work conducted at AK13, which your company said may lead to a further drilling programme?

These samples are still at the SRC lab awaiting processing. We moved the AK6 deep drilling samples ahead of these as the priority is to get the updated resource statement out for AK6 which will support the pre-feasibility study for the underground.

Your company recently said that it was setting the groundwork for a paradigm shift in the way diamonds are recovered by replacing the dense medium separation (DMS) plant and entire recovery process with a single machine. How effective is the Mega Diamond Recovery (MDR) and new Sub-Middles XRT circuit?

The XRT technology utilizes a different discrimination technology which targets the primary component of a diamond – Carbon. At this stage, it is too early to determine the overall impact the new machines will have on the circuit. They have only been operating for 4 weeks and we have not yet had time to analyze costs, availability, etc. We are also in the process of collecting and auditing the machines to ensure optimal efficiency.

Lucara is also said to be investing “heavily” in exploration and material testing at depth to secure Karowe’s future beyond the projected 2026 end of open-pit extraction, and below the 320m pit plan. Can you shed more light on this?

The Company, in 2016 commenced with a deep drilling campaign to extend the indicated resource at depth. Currently we have an Indicated resource to 400m below surface (the open pit will extend down to a depth of approximately 320m below surface). The deep drilling is planned to extend the Indicated resource to a depth of approximately 600m below surface. By doing this, we will have sufficient indicated resource to complete a NI43-101 compliant pre-feasibility study for a potential underground operation.

In order to understand the potential for the underground early, the Company is in the process of finalizing a Preliminary Economic Assessment (“PEA”) for the Underground which we expect to provide information Q4.

In addition to the work being done at the Karowe mine, we have advanced our exploration program on the AK11 kimberlite. Delineation and pilot holes for a Large Diameter Drill (“LDD”) programme have been completed and we have commenced with the LDD holes. It is expected that the samples will be processed through the bulk sample plant commencing in Q4, 2017. Micro diamond work is also ongoing on holes drilled into kimberlites AK13 and AK14 which also lie within our exploration license areas.

What is your diagnosis of the diamond industry this year?

Since the beginning of the year, rough diamond prices have remained strong with small changes in certain size and quality categories as polished inventories from these sizes have increased. From a Lucara perspective, we continue to see very strong bidding and subsequently, strong pricing in the larger single stones, which contribute more than 70% of our revenues. We have seen some weakness in the polished diamond space, specifically in the smaller, lower quality categories. This has started to make its way into the rough prices achieved and we expect this to affect those diamond miners who produce a majority of smaller and lower quality diamonds.

What is also your projection of the state of the diamond industry in 2018?

Looking to 2018, the new production from the three new mines which came on stream at the end of 2016 should now be well known in the market and the effect that this additional production has on the supply of rough into the market would have stabilized. With no new production coming on line in the new future, the supply of rough will be constrained for some time. The two factors which will affect rough diamond prices into 2018 and 2019 will be the availability of finance to the middle market and the polished prices. If polished prices do not see a sustainable increase, margins will continue to be squeezed which will increase the pressure from debt providers. The market remains stable for now but vigilance will be required.

Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished


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