Lucara and Lucapa Diamond Announce Gem Finds

It’s only Tuesday, but already it’s been an exciting week for the diamond space. Both Lucara Diamond (TSX:LUC) and Lucapa Diamond Company (ASX:LOM) have announced the recovery of gems they believe are worth investors’ notice. 
Lucara’s news came Monday, when it said that it’s recovered “a number of exceptional diamonds” from its Botswana-based Karowe mine. More specifically, the company brought in a “spectacular” Type IIa, 336-carat diamond, as well as 184-, 94- and 86-carat stones and a pale pink 12-carat diamond. The pink diamond’s color will be confirmed after cleaning.
William Lamb, president and CEO of Lucara, said those recoveries are important because they “support the resource estimate” for Karowe. He added, “[t]his resource has consistently produced significant value for the Company and its shareholders and the ongoing recovery of high value stones sets Lucara apart from most other diamond producers.”
One need only look at the results of Lucara’s most recent exceptional stone tender to see exactly how much value such stones can bring in. The tender, completed last month, garnered gross revenues of US$68.71 million — at 1,674 carats across 14 stones, that equates to US$41,028 per carat.
Lucapa Diamond’s announcement came the day after Lucara’s, with the company stating that day that during the first four days of mining at the BLK_08 area of its Angola-based Lulo concession it recovered five large, “special” diamonds. They came in at 53.2, 21.7, 21.1, 12 and 10.8 carats.
Like Lamb, Lucara’s chief executive, Stephen Wetherall, is pleased with the finds in large part because they show that the company is working in a good area. He said, “[t]he fact that large special diamonds account for some 45% of the carats … recovered from [BLK_08] to date underlines the exceptional nature of this alluvial diamond field and kimberlite province.”
In its last sale of diamonds from Lulo, completed in May, Lucapa Diamond sold a 1,539-carat parcel, raising gross proceeds of AU$2.9 million, or AU$1,870 per carat. Its next sale is set for September, and it hopes to sell 3,000 carats at that time.

A struggling market

As diamond-focused investors are no doubt well aware, the market isn’t doing as well as it could be. Sentiment has taken a hit in recent months, and prices for the gems are down. And while De Beers anticipates stable demand this year, negative diamond price catalysts keep piling on.
For instance, China’s recent stock market crash may impact diamond demand longer term. CNNMoney quotes a recent report from Barclays (NYSE:BCS) as stating that “[i]f there is one commodity that is likely to feel an impact from recent events in China, it is diamonds. Diamond purchasing decisions depend on consumer confidence, which is correlated with equity market returns in China.”
Since that stock market crash, turmoil in China has escalated, with the country embarking on a three-day devaluation of the yuan last week. The move was positive for precious metals, but negative for commodities like copper and oil, with investors expressing concern about what the devaluation might say about China’s economy. There’s been little commentary on what the situation might mean for diamonds, but if China’s economy is indeed struggling it could spell trouble for the gems — after all, the Asian nation is the world’s second-largest diamond consumer.
All that is to say that though Lucara and Lucapa Diamond are clearly operating on different scales — one need only look at each company’s average sales price per carat — it’s refreshing that they continue to make finds and indeed continue to make sales. As the year continues and the impact of the above events in China continues to play out, it will be interesting to see how they fare.
Lucara’s news was released near the end of the day on Monday, and as of 1:00 p.m. EST Tuesday its share price was up 7.83 percent, at $1.79. Dundee Capital Markets recently set a $2.25 price target for the company, giving it a “buy” rating. Meanwhile, Lucapa Diamond’s share price was up 2.86 percent, at AU$0.18, at the same time on Tuesday.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
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