Lucara Diamond Corp. Becomes a Producer

Lucara Diamond Corp. (TSX:LUC) is completing the final stages of its transition from development company to diamond producer. On April 23, the company announced production of the first diamonds from its wholly-owned Karowe mine in Botswana. The company said the outstanding quantity and grade of the diamonds have reinforced its high expectations for the mine. Apparently eager to let the market judge, the company has scheduled the first diamond sale for June.

Karowe means precious stone and is a name Lucara chose with the assistance of community members and schools in Botswana. The mine that now bears that name was nothing more than two sample trenches when Lucara acquired it. 18 months after the completion of the feasibility study, the property is now what the company describes as a world-class diamond operation.

With reserves of 38 million tons and throughput of 2.5 million tonnes per annum (mtpa) the Karowe mine has a lifespan of 15 years.

In December, the company announced an updated valuation of the diamonds from Karowe. Based on production at that time, the 24 percent increase boosted the average modeled value to $301 per carat at a 1.5 mm cut-off size.

That valuation was completed by Mercury Diamond, and according to Lucara, Mercury believes there is significant upside potential to the actual valuations. This assumption is based on expectations for the recovery of large stones, the correction of major breakage problems, and also the fact that the diamonds that were valued had not been subjected to a deep acid boiling process, which the company says typically increases values by up to five percent.

Lucara has already reported production of 10,000 carats from 28,000 tonnes of ore in April. The grade of the ore was 34 cpht; the company expects to continue seeing such positive results.

Nine of the diamonds from Karowe have been over 10.8 carats, with the three largest being 26.57 carats, 25.88 carats, and 24.59 carats.

According to Lucara, six to ten percent of the of diamonds from Karowe are type IIa. These diamonds are considered very rare. When a diamond is type II it does not have any detectable traces of nitrogen. The “a” indicates that the diamond also lacks boron impurities. Type IIa diamonds are prized for their extreme clarity and brilliance and have a reputation for commanding high premiums.

Lucara is aiming to produce 400,000 carats per year from Karowe and expects production of about 300,000 carats in 2012.

In addition to having Karowe operating at its full design capacity of 350 tonnes per hour by the end of this quarter, Lucara’s goals include bringing another diamond mine online.

Lucara has a 75 percent interest in the Mothae project in Lesotho, where trial mining is currently underway. The company has also reported production of type IIa diamonds from this site. Included among them are a 56.51 carat diamond that sold for $2.1 million ($37,019 per carat), a 19.2 carat diamond that sold for $490,000 ($25,520 per carat) and a 28.89 carat diamond that sold for $1.65 million ($57,113 per carat).

At a diamond sale in March 2011, 9,379 carats of Mothae diamonds yielded $8.2 million, an average of $871/carat. At another diamond sale in December 2011, 7,190 carats sold for $6.4 million, or $893/carat.

Lucara believes these strong sales indicate the possible positive economics of the project, which is slated for production in Q1 2015.

Diamond sales

The next Mothae diamond sale is expected in August or September of this year.

The inaugural Karowe diamond sale is scheduled for early June of this year and is expected to include an offering of 40,000 carats. The company plans to hold a total of six sales this year.

“I’m proud to say that since the inception of Lucara we have achieved every objective we have set out to accomplish – a track record we intend to maintain,” said Lucara’s President and CEO, William Lamb.

Securities Disclosure: I, Michelle Smith, hold no equity interests in the companies mentioned in this article.