Lucara underground Karowe diamond mine cost jumps 25% to US$683M

Lucara Diamond (TSX: LUC) has increased total preproduction costs for its Karowe underground diamond mine expansion to US$683 million, a 25% rise over its earlier estimate of US$547 million in May 2022. 

In a Monday release, the miner also said underground production will be delayed to the first half of 2028, rather than starting in the second half of 2026 when it was originally scheduled.

However, Lucara insists the project remains technically and economically feasible. The revenue profile will be adjusted to reflect the processing of lower-grade stockpiles when the open pit ore is exhausted in 2026 and before the underground mine begins production. Milling will continue at the current rate of approximately 7,200 tonnes per day during that time.

The underground project schedule has been delayed by longer than anticipated grouting activity as a result of high water volumes and the time necessary to transition to the main sinking phase of the project.

“Despite these challenges, the project continues to deliver strong economics paying back capital in under three years and adding approximately $4 billion in revenues from an extended mine life out to at least 2040, using conservative diamond price assumptions,” said Lucara CEO Eira Thomas. “The project also comes at a time when the long‐term outlook for the diamond market is stronger than it has been for many years representing an exciting growth opportunity for our shareholders and stakeholders in Botswana.”

Commenting on the cost news, BMO diamonds analyst Raj Ray said Lucara’s move to process lower-grade stockpiles until underground production starts will decrease revenue and production. But he said BMO doesn’t assume any positive surprises over the recovery of large gem-quality diamonds for which the Karowe orebody is known.  

On funding, Ray said no near-term funding concerns are anticipated for the project, although Lucara will have to restructure its debt facilities. 

Ray noted that the company has access to several funding sources including cash worth US$31.2 million (as of the first quarter) and US$60 million undrawn under its US$170 million project finance facility. It also has US$27 million in available liquidity on the US$50 million working facility. 

“However, we do see potential funding gap to the tune of US$60 million even with the assumed restructuring of current debt facilities and US$25 million funding shortfall contribution from Lucara’s major shareholder,” he said. 

BMO maintains a market perform rating but lowered its target price for Lucara to 60¢ from 70¢. The miner’s shares traded at 40¢ apiece in Toronto on Tuesday afternoon, valuing the company at $181.8 million.