Lucara Diamond (TSX: LUC) saw revenues fall 82% in the three months to June 30 from the same period last year after it decided to hold back the sale of larger stones amid pandemic-fuelled uncertainty in an already weak global diamond market.
The Vancouver-based diamond producer posted a loss of almost US$14 million in the second quarter, compared to net income of US$700,000 in the second quarter of 2019.
Revenue from its prolific Karowe mine in Botswana totalled only US$7.5 million, as sales volume dropped by 32% to 68,979 carats.
Karowe is the same operation that last year yielded the 1,758-carat Sewelô (“rare find”) diamond, the second-largest ever mined.
The average price per carat also decreased by 74% to US$109 in the second quarter, as the company only sold smaller stones in the one tender that it held. It sold the remainder of supply through its Clara platform, which matches buyers with the specific diamonds they need.
Lucara said it expected revenue to climb back up thanks to a recently signed supply deal with Antwerp-based manufacturer HB Group.
The diamond manufacturer agreed in July to buy all of the miner’s rough stones above 10.8 carats for the rest of the year. Lucara received a US$13.5 million cash advance from the group as part of the sales agreement.
“Estimating the revenue and earnings impact of the HB agreement remains challenging,” BMO analyst Edward Sterck said in a note to investors. “The company has at least secured a route to market, supporting the current balance sheet and discussions around financing options for the underground extension.”
Production during the period dropped 7% to 101,203 carats, with the company recovering 201 special-size diamonds, including nine weighing more than 100 carats. Two of them weighed over 200 carats each.
Lucara has revised its plans for a US$514 million underground expansion of Karowe, cutting its previous 2020 budget of US$53 million for the project.
The company spent US$5.6 million on the expansion in the first half of the year, which covered project execution activities including detailed engineering, design work and early procurement. The five-year project is expected to extend Karowe’s mine life 20 years to 2040.
Lucara has been able to maintain full production during the pandemic, but suspended its 2020 guidance of 350,000-390,000 carats of production and US$180-210 million in revenue in March.
The miner said it will withhold its full-year guidance indefinitely, given the uncertainty caused by Covid-19, which has restricted travel required to buy and sell diamonds, depressed prices, and impeded cash flow to miners.
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