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Shares of Lucapa Diamond Company spiked on Wednesday. The company announced that it has signed agreements for a 35-year license to mine alluvial diamonds at its Angola-based Lulo concession.
“Flag of Angola” by User:SKopp – Drawn by User:SKopp. Licensed under Public domain via Wikimedia Commons.
Shares of Lucapa Diamond Company (ASX:LOM) spiked on Wednesday after the company announced that it has signed agreements for a 35-year license to mine alluvial diamonds at its Angola-based Lulo concession.
The news, which the company has described as its “most critical milestone yet towards … building a premium diamond mining house,” pushed its share price up to a high of $0.47 on Wednesday. That’s a 32-percent increase from its closing price on November 21, when a trading halt was called.
License details
As mentioned, the license, which covers a 218-square-kilometer area within the 3,000-square-kilometer Lulo concession, is for an initial term of 35 years. It includes rolling 10-year extension options.
Other key elements of the license are that it allows for 24-hour mining operations, enables Lucapa to repatriate its share of dividends and sets up a favorable tax and royalty regime that includes a 25-percent corporate tax rate and 5-percent royalty rate.
Meanwhile, the company’s kimberlite and alluvial exploration licenses at Lulo will be valid until May 2016.
Valuable diamonds
Lucapa clearly expects great things from Lulo, and that’s largely because the concession has already proven its worth. As Stephen Wetherall, the company’s commercial and development executive director, states in Wednesday’s press release, “[t]he A$6 million of Lulo diamonds recovered from our bulk sampling at Lulo and sold have achieved average selling prices of close to A$7,000 per carat, which is extraordinary when compared to the average global sale price of just US$120 per carat.”
It’s the quality of diamonds at Lulo that is responsible for that high price average. According to Wetherall, Lulo has yielded not only Type IIa diamonds, but also fancy pink and fancy yellow diamonds, which are rarer and generally more valuable than white diamonds.
Next steps
That said, Lucapa isn’t content to simply mine alluvial diamonds. Its plan is to use the revenue it generates from doing so to pursue its main goal of locating the “primary kimberlite source, or sources, of [the alluvial] gems.”
However, with the next phase of its kimberlite exploration program currently under review, Lucapa’s next step will be to use existing on-site infrastructure to start building up to a throughput rate of about 14,000 bulk cubic meters of diamond-bearing alluvial gravels per month. It plans to reach that target by early Q2 2015 and then ramp up to 40,000 bulk cubic meters a month within about 12 months.
Lucapa closed Wednesday at $0.41.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.