Sorting rough from Karowe, Botswana. Photo: Lucara Diamond Corp.

Sorting rough from Karowe, Botswana. Photo: Lucara Diamond Corp.

Lucara Calls for Diamond Market Consolidation

Issue 73, February 2014

Lucara Diamond Corp. is positioning itself to profit from any downturn in diamond prices, chief executive William Lamb told Global Mining Observer this week.

Lucara, which Lamb describes as a team of “briefcase engineers”, obliterated guidance and market expectations in 2013, its first year of production, generating $180m in sales from 438,000 carats after repeatedly churning out large stones from its Karowe mine, Botswana.

The company is now investing $45 to $50m in a plant upgrade that will X-ray kimberlite at over 100 tonnes per hour, isolating large stones before they enter the crusher and allowing a finer crushing size to recover small stones.

Karowe has positioned Lucara to lead a roll-up of diamond juniors, with Firestone, DiamondCorp and Gem Diamonds all single mine companies focused on southern Africa. “Everybody’s sitting with one asset,” Lamb observes, “so the risk profile is significant. If you want to play in the same playground as Rio, De Beers and Alrosa, you cannot remain a single asset company.”

Lamb warns that diamond prices may be overheated, forcing a wave of consolidation across the junior diamond market on any pullback. “The market at the moment,” he says, referring to rough diamond prices, “you need a pair of fire tongs to touch it. It is exceptionally hot.”

Increasingly tight lending to buyers he says has flushed forward demand, elevating short-term prices but threatening a liquidity shortfall. Lucara plans to permanently hold $50m in cash to weather any downturn, equal to roughly 9-months of operating costs, and expects to pay a dividend if appropriate deal terms fail to emerge.

“There has to sooner or later be consolidation across the market,” Lamb says. “There has to be a massive shift, in terms of people getting to the point where they have run out of money and the market’s saying, we’re not giving you any more. That’s where opportunities will arise.”

Having produced 4 stones over 200 carats in the last 9 months and one 397-carat diamond of non-gem quality, Lamb sees it is a matter of time before Karowe encounters something bigger. “The propensity for the resource to deliver stones that are larger than 300 or 400 carats is definitely there,” he says.

“You need a pair of fire tongs to touch the market at the moment.”
“There has to sooner or later be consolidation across the market.”

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