CANADA’S Governor General, David Johnston, on a state visit to Botswana in May, where he received a 21-gun salute before visiting Toronto-listed Lucara Diamond’s Karowe mine and the sales and sorting offices of De Beers. Photograph: Governor General's Office

Lucara's Lamb Downplays Imminent Paper Deal

Issue 56, September 2013

Lucara Diamond Corp is braced for a waiting game in its hunt for a second mine, chief executive William Lamb tells Global Mining Observer. The company told shareholders in July that it aims to takeover or merge with another producer, to “derisk” production from its Karowe mine, Botswana.

“What we’ve got at the moment at Karowe is very high value,” Lamb says. “Where we’re trending in the third quarter, we could be sitting with $400 to $450 per carat diamonds on average.” The mine has thumped forecasts since entering production last year, discovering blue stones in November, followed by a 239-carat diamond in March, the largest stone on record from Botswana’s Orapa field. Full year guidance has been upgraded to 420,000 carats, at operating costs of $102 per carat.

Karowe’s oversized stones have allowed Lucara to add two tenders to its auction schedule, generating revenue of $25m each, on top of ordinary sales of $57m in the last two quarters. The windfall leaves Lucara with cash of c.$50m, quashing $33m outstanding on a debenture owed to the family trusts of chairman, Lukas Lundin.

Shares have risen 80 per cent since March to C$0.96, valuing the company at C$364m ($353m), or 6 times annualised earnings. Lamb says Lucara will pursue a paper-based deal, rather than using cash or debt, converting Lucara’s paper gains into a wider asset base.

South Africa’s Petra Diamonds has been touted as a merger partner, but Lamb rules out the country, based on recent strike action. “We would prefer to stay in the jurisdictions where we already have assets,” he says.

Lucara also has a mothballed project in the Kingdom of Lesotho, close to Gem Diamonds’ Letseng mine. The two companies held merger talks in 2011. Discovered but dropped by Rio Tinto, Letseng was once the lowest grade deposit in De Beers’ portfolio.

Firestone Diamonds is meanwhile developing the Liqhobong mine in Lesotho and has licenses in Botswana, but Lamb is positioned for the long game. “We may have different solutions to what the Firestone management currently see,” he says, “but in the diamond industry everybody knows exactly what everybody else is doing. It’s just making sure that there’s value accretion to both parties before a transaction gets done.”

“In the diamond industry everybody knows exactly what everybody else is doing.”

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