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Lucapa narrows kimberlites search

29 march 2021

stephen_wetherall_xx.jpgLucapa Diamond and its Lulo partners have been for close to a decade searching for the kimberlite source or sources of alluvial diamonds being recovered from within the Lulo diamond concession, in Angola.

The company believes that the frequent recovery of large and irregular-shaped alluvial Lulo diamonds point to a nearby primary source.

Lucapa chief executive Stephen Wetherall told Rough & Polished’s Mathew Nyaungwa in an exclusive interview that the work programmes done over the years had been reduced from 350 anomalies and over 100 discovered kimberlites in the Cacuilo Valley to below 20 priority targets.

He said they are planning to bulk sample the priority kimberlites.

Funding for the exploration programme had been coming from Lucapa's internally generated cash flows.

Below are excerpts of the interview.

Lucapa Diamond and its Lulo partners have been searching for the primary kimberlite sources of the high-value alluvial diamonds at the Lulo project in Angola. What is the update on this project?

We have been applying funds and exploration efforts on a consistent and methodical basis given the anomaly endowed concession. The various work programmes conducted over the years have narrowed the over 350 anomalies and over 100 discovered kimberlites in the Cacuilo Valley to just under 20 priority kimberlites or targets that we are now going to bulk sample. The partners had planned the excavation and treatment of the first bulk samples just as the pandemic hit. The teams did manage to excavate and treat two kimberlite samples, successfully recovering diamonds from the one kimberlite. This unequivocally proved that at least some of the Canguige catchment area kimberlites, which are the focus of our current efforts, are diamondiferous. We look forward to returning to excavating and treating the remaining samples from the priority kimberlites as soon as the wet season ends in April – pandemic limitations permitting.

How confident are you of finding the primary kimberlite sources of Lulo alluvial diamonds?

Primary source exploration is not an easy assignment, but as these many large diamonds we are recovering in our alluvial mining campaign should not have travelled very far, we remain very optimistic that our exploration program in Angola will deliver in due course. We are working with our partners to unlock some hurdles to greater investment which if an agreement is reached should see a massively positive impact on the program – with an expanded and expedited programme in play, the chances of putting our hands on a source are materially improved.

How are you funding your exploration project in Angola given the current pandemic, which has seen some exploration companies struggling to raise funds?

We have primarily been funding the programme from Lucapa's internally generated cash flows. We had not asked shareholders to assist in funding this program for a while, however in June last year during the height of the pandemic, our shareholders gave strong financial support to Lucapa to ensure the key exploration programme kept its momentum during the difficult time.

Diamond prices have been on a recovery path for the past few months, how optimistic are you of a continued recovery?

If you had asked me the question before the pandemic, I may have given a different answer. Notwithstanding the rising prices in late 2019 and early 2020, it was not possible to see a sustained strong pricing environment as a result of the growing imbalance in the industry. However, post-pandemic, we are very optimistic about the future of diamond demand and pricing. We are naturally anticipating the usual cyclical plateauing in the second quarter after a strong festive season and start to the year, but because of a now much better balance in the diamond industry thankfully brought about by industry shutdowns during the pandemic, we believe both rough and polished diamond prices will be well supported by returning and growing retail demand, in the emerging economies specifically, for at least the near to medium term.

How are you auctioning your diamonds given the challenges with international travelling?

We do not conduct any auctions/ tenders currently for our rough diamonds. We have chosen a partnership methodology so that our mines benefit from a material share in polished margins made beyond the mine-gate. This relationship methodology worked very well for Lulo under the pandemic when all diamond markets were closed as we were able to continue selling to our preferred buyer.

How many carats have you channelled for diamond polishing from your Lulo and Mothae projects?

Mothae – 100% run-of-mine production is channelled into the partnership; Lulo – the 60% as allowed to be sold to the producer's preferred buyer is channelled into the partnership. To note, any margins made by the partnership beyond the mine-gate is shared with the mines. Lulo has benefitted materially from this partnership structure and we see the same future for Mothae.

How did you manage to complete the Mothae expansion project on-time and within budget, despite the challenges presented by the Covid-19 pandemic?

Strong management, budgeting processes and long trusting relationships with key contractors all helped, however, as noted in the expansion announcements, the expansion is being delivered by relatively uncomplicated upgrades/ refurbishments.

In terms of carats, what is the impact of the Mothae expansion on your output?

[A] 45% increase in carat recoveries post completion of plant expansion. Recoveries are estimated at more than 40,000 carats per annum on average.

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