Lucara set for 2012 startup at AK6

Construction activities at Lucara Diamond’s (LUC-T) AK6 diamond mine in Botswana continue largely on track and on budget despite a two-month delay this summer. South African steelworkers striking in July set off a chain reaction in which steel fabricators and several mechanical and electrical contractors delayed shipments of key supplies to the project.

Lucara, run by president and CEO William Lamb under the direction of Vancouver-based mining magnate Lukas Lundin, son of the late Adolph Lundin, now expects to reach full production at the 100%-owned AK6 mine during the first half of 2012. Construction was about 84% complete at the end of the third quarter, and power has been brought to the site. Trial mining at the company’s 75%-owned Mothae diamond project in nearby Lesotho also continues, with the company currently about midway through a 720,000-tonne bulk-sampling program started in 2010. The company started a prefeasibility study for Mothae, which is 25% owned by the government of Lesotho, in October.

Lucara hopes to produce about 400,000 carats a year of high-quality stones from the AK6 kimberlite, which consists of three lobes, South, Centre and North, of which the South Lobe is by far the largest comprising approximately 75% of the resource potential. The open-pit mine currently has an indicated resource of 51 million tonnes containing 8.2 million carats of diamonds, which a cost-effective mine plan envisions processing at a throughput rate of 2.5 million tonnes per year for the first four years and at 4 million tonnes per year after that. The staged approach has lowered initial capital costs to a reasonable US$120-130 million, including the mill and all mine site and off-site infrastructure.

Lucara got a welcome boost this summer from chairman Lundin and his family’s trusts in the form of a US$50-million interest-free loan, leaving AK6 fully financed to production. A minor snag came in the way of a 9-million-share payout to Lundin’s Lorito Holdings SARL and Zebra Holdings & Investments SARL, though considering the difficulties of financing diamond plays these days it was a small price to pay. Lundin now indirectly controls 60 million common shares of Lucara through the trusts as well as 3.7 million shares directly. Of the directly held shares, 47,000 were added on Oct. 11 through the Toronto Stock Exchange at 87¢ apiece, 373,000 were bought in August at similar prices, and 1.2 million were bought over the first few months of the year at an average of about $1.10. The Lorito and Zebra trusts in turn purchased 11 million shares at $1 each in a February private placement.

As first reported by Stockwatch diamond reporter Will Purcell, Lucara has been acquiring prospective diamond projects in Africa with the help of director Eira Thomas since its inception in 2006. That year, Thomas, who shares credit for the discovery of Rio Tinto (RIO-N, RIO-L) and Harry Winston Diamond’s (HW-T, HWD-N) rich Diavik diamond mine in the Northwest Territories, and Catherine McLeod-Seltzer, a well-known mining executive in her own right, helped Lucara acquire an option for 70% of the Mothae project from Motapa Diamonds. In return, a grateful Lundin allowed both women to buy 2 million Lucara shares at 10¢ each, which soon turned into 10 million shares each at an average of 2¢ after a 5:1 stock split. The name Lucara uses two letters from each of their names: Lukas, Catherine and Eira. (Lucara later acquired Motapa outright.)

In March, the first tender of rough diamonds from trial mining at Mothae brought in US$8.17 million for 9,381 carats, resulting in an average of US$871 per carat. The company plans to sell the next parcel of diamonds by tender in December, with some of the stones coming from the recent bulk sampling of the higher-grade F and G kimberlite domains. Sample F2A yielded an average grade of 3.93 carats per hundred tones (cpht) while sample G2B returned an average grade of 5.64 cpht and some of the highest-value stones to date. G2B yielded 2,997 stones for 1,280 carats contained in 22,689 dry tonnes, with an average stone size of 0.43 carat.

Bulk sampling has so far returned 26,121 stones weighing a collective 11,741 carats, from a total of 302,883 tonnes of material averaging 3.88 cpht from all phases of Mothae.

The company has also announced plans to list its shares on Sweden’s Nasdaq OMX First North Exchange soon, adding to its current listings on the Toronto Stock Exchange and the Botswana Stock Exchange. It has an interest in one other diamond project, Kavango, in Namibia, but plans to relinquish its holdings there later this year.