- Revenue fell 27% to $42.8 million due to weaker diamond prices
- Delays and initial grouting issues emerging in underground expansion
- Lucara maintaining positive long-term outlook but challenges remain
Luxury diamond miner Lucara Diamond Corp. reported mixed quarterly results for Q1 2023, with some operational metrics on target but softer diamond prices and delays impacting the underground expansion of its flagship Karowe mine in Botswana.
The underground expansion aims to more than double Karowe's mine life beyond 2040, but sinking and grouting issues starting in mid-2022 have led to delays and could impact costs. Lucara said it is evaluating the impact on the project schedule and budget and will update timelines and estimates by the end of Q2 2023.
Despite the challenges, Lucara maintained its production and cost guidance for 2023. All key operational metrics for Q1 were in line with targets, with 0.5 million tonnes of ore and 0.8 million tonnes of waste mined and 0.89 carats recovered. However, revenue fell 27% year-over-year to $42.8 million due to weaker diamond pricing and a new product mix resulting in fewer high-value stones sold.
According to GlobalData, Botswana is the world's second-largest producer of diamonds, with output of 24,810kct in 2022, up by 8% on 2021. Over the five years to 2021, production from Botswana decreased by a CAGR of 0.07% and is expected to drop by a CAGR of 1.17% between 2022 and 2026.
Revenues from Lucara's HB sales deal for Karowe's +10.8 carat diamonds were down 46% to $24.5 million. The company said prices have softened but remain healthy, with natural variability in quarterly production impacting results. Only 4% of recovered carats for the quarter were categorized as "Specials," or high-value stones, consistent with mine models though down from Q1 2022.
Overall, diamond market fundamentals remain mixed in 2023. While demand is expected to outpace supply over the longer term, Russia's invasion of Ukraine and broader economic concerns have weighed on prices so far this year. Lab-grown diamonds also continue to take market share due to lower prices. However, China reopening from COVID shutdowns could help stabilize prices later in the year.
A total of 327,028 carats were sold through the Company's three sales channels, generating revenue of $165.4 million before top-up payments of $38.4 million for the year ended December 31, 2022.
The operational environment and diamond market present challenges for Lucara's expansion plans. In response to sinking delays, the company has implemented operational adjustments and a successful first grouting event in each shaft in February and March. Lucara will now evaluate impacts to its schedule and $547 million projected cost.
Delays and cost overruns would add pressure to Lucara's balance sheet. At quarter-end, the company had $31 million in cash and had drawn $90 million of a $170 million project finance facility for the underground expansion. Higher input costs for labor, equipment and materials could also weigh on project economics.
For now, Lucara maintains a positive long-term view, citing improving fundamentals around supply and demand. The underground expansion is expected to produce high-value diamonds and generate $4 billion in additional revenue at conservative price assumptions. However, both short-term challenges and execution risks remain considerable for Lucara's ambition to transform Karowe into a major underground mine. The upcoming budget and schedule update in Q2 2023 will be closely watched as an indicator of Lucara's ability to overcome initial setbacks and deliver on its expansion vision.
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