Lucara sells diamonds for $25M

Lucara Diamond (LUC-T) has raked in more revenue than expected from its first special diamond sale for its Karowe diamond mine in Botswana.

In the tender, completed on May 22, Lucara sold all of the 15 large stones it had on sale for US$24.85 million, or US$30,468 per carat.

The best gem — a 239-carat diamond — brought in US$5.8 million, while another four stones fetched more than US$2.5 million apiece.

“We are ecstatic with the results of this special tender, and it confirms the quality of diamonds currently being produced from Karowe,” says William Lamb, the company’s president and CEO.

Edward Sterck, a London-based analyst for BMO Capital Markets, writes that the auction pulled in 78% more revenue than his US$14-million prediction. This led Sterck to increase his 2013 earnings per share forecast to US11¢, from US9¢. However, his 2014 earnings estimate remains at US13¢ per share.

Further highlighting the mine’s potential, Lamb says Karowe has produced more large diamonds in the past few weeks, which the company is considering selling in another special tender later this year.

The latest auction occurred on top of the two regular tenders Lucara intends to hold each quarter. The producer closed its third routine sale on May 14, but has yet to release the results.

Lamb adds that while producing large diamonds is hard to predict, the blue diamonds and exceptional stones recovered from Karowe is making it a “remarkable deposit.”

To ensure the ongoing recovery of “larger-than-expected” gems, the producer has already increased the top size of material that its process plant can handle and treat.  

To date, the Africa-focused miner has unearthed four blue stones, noting two were exceptional in size. Lucara sold its first large blue stone — a 9.46-carat diamond — late last year for US$4.5 million, followed by a 4.77-carat blue gem in the first quarter of 2013 for US$1.6 million.

For the full year, Karowe is expected to mine and process 2.5 million tonnes of ore to produce 420,000 carats.

Along with Karowe, which started production in July 2012, Lucara owns the Mothae diamond project in Lesotho. Mothae is on care and maintenance until the Vancouver-based firm decides how to proceed with the project.

Lucara released the tender news on May 22 after markets closed. The following day the stock lost 4% to end at 70¢.

BMO’s Sterck has a $1 target price and an “outperform” rating on the stock.