Q1 2023 HIGHLIGHTS:
- Guidance maintained.
- All key operational metrics were on plan, with 0.5 million tonnes of ore and 0.8 million tonnes of waste mined, 0.7 million tonnes of ore processed, and 89,640 carats recovered.
- The Q1 2023 operating cash cost of $26.65 per tonne of ore processed (1) was well below the expected annual operating cash cost range of $32.50 to $35.50 per tonne of ore processed.
- Revenue for the quarter ended March 31, 2023 totalled $42.8 million , including $5.3 million through Clara.
- Cash flow generated from operating activities was $20.4 million .
- $30.5 million invested in the Karowe underground expansion project ("UGP") in Q1 2023 focused on:
- Main shaft sinking activities in both the ventilation shaft, currently at 213 metres below collar, and the production shaft, currently at 187 metres below collar.
- The successful completion of the first grout programs in each shaft during the first quarter of 2023.
- Completion and energization of the 11kV transmission line from the new Karowe substation to the UGP.
- Stage two of the bulk power supply upgrade to connect all mine power requirements to the new Karowe Substation and 132kV power line. Both the existing operations and the UGP are now fully powered through the upgraded grid-supplied electricity.
(1) See "Non-IFRS Financial Performance Measures" |
Eira Thomas, President & CEO commented: "As anticipated, Q1 delivered lower revenues than in the comparative period, owing to the change in ore mix processed and diamond pricing weakness resulting from continued geopolitical and economic uncertainty. Lucara's outlook for the year remains unchanged as the largest influence on our revenue in Q1, ore mix, returns to higher contributions of south lobe ore in subsequent quarters. Sinking continued in both the production and ventilation shafts with material improvement to planned sinking rates achieved for the production shaft and mitigations underway in the ventilation shaft to achieve the same. Water management remains a key focus area. An update to the schedule and budget for the underground project has been initiated in response to slower than planned ramp up to expected sinking rates, and, to account for time incurred and anticipated for future grouting programs. We remain on-track to complete the results of this analysis before the end of Q2, 2023."
REVIEW FOR THE QUARTER ENDED MARCH 31, 2023
- Operational highlights from the Karowe Mine for Q1 2023 included:
- Ore and waste mined of 0.5 million tonnes (Q1 2022: 0.8) and 0.8 million tonnes (Q1 2022: 0.5), respectively.
- 0.7 million tonnes (Q1 2022: 0.7) of ore processed.
- A total of 89,640 carats recovered (Q1 2022: 83,917) at a recovered grade of 12.8 carats per hundred tonnes of direct milled ore (Q1 2022: 12.6).
- A total of 98 Specials were recovered, with two diamonds greater than 100 carats including one diamond greater than 300 carats in weight.
- Recovered Specials equated to 4% of the weight percentage of total recovered carats from ore processed during Q1 2023 (Q1 2022 – 6.9%).
- The twelve-month Total Recordable Injury Frequency Rate of 0.36 (Q1 2022: 0.23) trended downwards following a three-month period with no recordable injuries.
- The Karowe Mine has operated for over two years without a lost time injury.
- Financial highlights for the three months ended March 31, 2023 included:
- Revenues of $42.8 million (Q1 2022: $68.2 million ) reflected a planned change in product mix beginning in early 2023 combined with the continuation of weaker diamond prices when compared to the strong diamond pricing observed in Q1 2022. During Q1 2023, 64% of the carats processed were recovered from the Centre and North Lobes and 36% were recovered from South Lobe material (Q1 2022: 100% South Lobe ore).
- Karowe's +10.8 production, sold through HB, accounted for 57% (Q1 2022: 66%) of total revenues recognized in Q1 2023.
- Sales of non-Karowe diamonds through Clara were $1.5 million in Q1 2023 (Q1 2022: $1.0 million ).
- Adjusted EBITDA (1) was $15.3 million (Q1 2022: $36.0 million ), with the change directly attributed to a decrease in revenues.
- Cash flow of $20.4 million (Q1 2022: $30.8 million ) from operating activities.
- Cash position and liquidity at March 31, 2023 :
- Cash and cash equivalents of $31.2 million .
- Funded $18.0 million into a Cost Overrun Facility in the first quarter of 2023.
- Drew $25.0 million from the $170.0 million project finance facility for the Karowe UGP resulting in $90.0 million drawn at quarter-end.
- The outstanding balance on the working capital facility increased from $15.0 million to $23.0 million through Q1 2023, resulting in available liquidity of $27.0 million .
(1) See "Non-IFRS Financial Performance Measures" |
DIAMOND MARKET
Despite a positive, longer-term outlook for natural diamonds, anchored on improving fundamentals around supply and demand, softer diamond prices observed in the latter half of 2022 have continued into 2023 as global economic concerns combined with geopolitical uncertainty, including the ongoing conflict in Ukraine continue to play out in the market, particularly in North America . Prices are beginning to show signs of stabilization as China begins to open-up post-Covid, a trend which is anticipated to continue towards the end of the year. Though sales of lab-grown diamonds increased during the period, intense competition combined with improvements in technology continue to drive prices of lab grown diamonds down. This further differentiates this market segment from the natural diamond market and highlights the unique nature and inherent rarity of natural diamonds. The longer-term market fundamentals remain unchanged and positive, pointing to strong price growth over the next few years as demand is expected to outstrip future supply.
2023 OUTLOOK
This section of the press release provides management's production and cost estimates for 2023. These are "forward-looking statements" and subject to the cautionary note regarding the risks associated with forward-looking statements. Diamond revenue guidance does not include revenue related to the sale of exceptional stones (an individual rough diamond which sells for more than $10 million ), or the Sethunya.
No changes were made to the Company's 2023 Guidance (released in December 2022).
Karowe Diamond Mine | Full Year – 2023 |
In millions of U.S. dollars unless otherwise noted |
|
Diamond revenue (millions) | $200 to $230 |
Diamond sales (thousands of carats) | 385 to 415 |
Diamonds recovered (thousands of carats) | 395 to 425 |
Ore tonnes mined (millions) | 1.9 to 2.3 |
Waste tonnes mined (millions) | 2.2 to 2.8 |
Ore tonnes processed (millions) | 2.6 to 2.9 |
Total operating cash costs (1) including waste mined (2) (per tonne processed) | $32.50 to $35.50 |
Botswana general & administrative expenses including marketing costs (per tonne processed) | $3.50 to $4.50 |
Tax rate (3) | 0 % |
Average exchange rate – USD/Pula | 12.0 |
(1) | Operating cash costs are a non-IFRS measure. See "Non-IFRS Financial Performance Measures". |
(2) | Includes ore and waste mined cash costs of $7.00 to $8.00 (per tonne mined) and processing cash costs of $12.00 to $13.00 (per tonne processed). |
(3) | The Company is subject to a variable tax rate in Botswana based on a profit and revenue ratio which increases as profit as a percentage of revenue increases. The lowest variable tax rate is 22% while the highest variable tax rate is 55% (only if taxable income were equal to revenue). Capital expenditures are deductible when incurred. With planned capital expenditures of up to $105 million for the UGP, a tax rate of 0% is forecast for 2023. Should capital expenditures vary from plan, the Company could be subject to current tax. |
DIAMOND SALES
Karowe diamonds are sold through three separate and distinct sales channels: through the HB sales agreement, on the Clara digital sales platform and through quarterly tenders.
HB SALES AGREEMENT FOR +10.8 CARAT DIAMOND PRODUCTION FROM KAROWE
For the three months ended March 31, 2023 , the Company recorded revenue of $24.5 million from the HB agreement (inclusive of top-up payments of $6.6 million ), as compared to revenue of $45.2 million (inclusive of top-up payments of $11.7 million ). The revenue achieved in Q1 2023 is comparable to the $24.1 million earned from the HB agreement (inclusive of top-up payments of $3.6 million ) in Q4 2022.
The decrease in revenue in Q1 2023 versus the comparative quarter can be attributed primarily to the number of high value diamonds delivered to HB in 2022 and the value of diamonds delivered earlier in 2021 for which top-up revenue was received in the period. Top-up values will typically increase as the more valuable stones move through production and become available for sale. Adjusting for the sale of Sewelô, a lower number of carats from production were delivered to HB in Q1 2023 compared to Q1 2022. The lower initial value of the shipments was reflective of the value in the stones delivered consistent with the change in product mix. This result is consistent with the resource model and expected.
At March 31, 2023 , a number of higher value and more technically complex stones that take longer to manufacture had not fully completed the manufacturing and sales process. As these stones finish the manufacturing process, the Company may record additional revenue in the form of "top-up" payments when these diamonds are sold.
Despite the overall decrease in revenue recognized in Q1 2023, diamond market fundamentals continued to support healthy prices as the number of polished stones sold by HB has improved from Q4 2022. Natural variability in the quality profile of the +10.8ct production in any production period or fiscal quarter results in fluctuations in recorded revenue and associated top-ups. During Q1 2023, 4% weight percentage of Specials of total carats recovered was consistent with the Karowe resource model.
CLARA SALES PLATFORM
As Clara grows, to complement goods from the Karowe mine, additional supply is being made available through diamonds purchased by the Company and re-sold through Clara and secondary market suppliers. Total volume transacted on the platform was $5.3 million in Q1 2023, with Karowe goods representing 63% of the total sales volume transacted. Sales of third-party diamonds increased to $1.5 million in Q1 2023 (Q1 2022: $1.0 million ). The Company is focused on growing Clara through building additional supply in 2023, both from third-party producers and the secondary market. The number of buyers on the platform continues to grow with 99 buyers on the platform at March 31, 2023 .
During Q1 2023, the sales volume transacted was $5.3 million (Q1 2022: $7.0 million ), as lower volumes were placed for sale (due to a shift in product mix from the Karowe Mine). A softening in market prices was observed between Q1 2023 and Q1 2022.
QUARTERLY TENDER
The Q1 2023 tender of $12.9 million (Q1 2022: $16.1 million ) reflected a good performance in rough diamond pricing with strength in the small stones. Rough diamond prices had reached a multi-year high point at the time of the Q1 2022 tender. Pricing achieved through the tender remained at or above price levels in 2019. A total of 77,750 carats were sold in the March 2023 tender, generating revenues of $12.9 million (Q1 2023 tender: $16.1 million from the sale of 74,638 carats).
KAROWE UNDERGROUND EXPANSION UPDATE
The Karowe UGP is expected to extend the mine life to at least 2040, with initial underground carat production predominantly from the highest value EM/PK(S) unit and is forecast to contribute approximately $4 billion in additional revenues, using conservative diamond prices.
During 2022, the Company updated the estimated capital cost for the Karowe UGP to $547 million (including contingency). As a result of sinking delays and grouting events beginning in mid-2022 and which are ongoing, the Company is evaluating the impact of the incurred delays against the overall project schedule and budget. Several operational adjustments were implemented beginning in Q4 2022 to address the challenges encountered. An update to the project schedule and budget to take into account these developments is expected to be completed before the end of Q2, 2023.
During the three months ended March 31, 2023 , a total of $30.5 million was spent on the Karowe UGP development, primarily in relation to ongoing construction activities, including:
- Main sinking in the production and ventilation shafts:
- In response to water inflows from the sandstones, one cover grouting event in the ventilation shaft and two events in the production shaft were successfully completed during February and March 2023 . Experiences gained from these first grouting events will inform future anticipated cover grouting events as the shafts progress to depth.
- Planned sinking rates achieved in the production shaft in Q1 following active interventions and mitigations implemented in Q4 2022. Further investments made in Q4 2022 are expected to similarly improve sinking cycle times to planned rates in the ventilation shaft and progress is being closely monitored. Cycle time is the period it takes to complete a series of activities within the sinking process to achieve the next planned vertical advance.
- The ventilation shaft is currently at 213 metres below collar, with a planned final depth of 731 metres. The production shaft is currently at 187 metres below collar, with a planned final depth of 765 metres.
- The 11kV transmission line to the project site was commissioned in mid-January 2023 . This represents a significant milestone for the Karowe UGP as it is now fully powered through grid-supplied electricity.
- Transition of the temporary power supply to a back-up power configuration. Back-up power will continue to be provided by diesel generators.
- Stage two of the bulk power supply upgrade to connect all mine power requirements to the new Karowe Substation and 132kV power line. This upgrade is expected to deliver stable and dedicated power to the Karowe Mine operations.
- The roll out of a behavioural-based safety training program in Q4 2022 has continued in the first quarter of 2023. The UGP achieved a three-month period with no reportable incidents delivering a three-month rolling Total Recordable Injury Frequency Rate of zero.
Activities for the Karowe UGP in Q2 2023 are expected to include the following:
- Sinking and grouting within both the ventilation and production shafts.
- Procurement of underground equipment, including dewatering pumps, underground crush and convey systems and the permanent stage winder.
- Initiation of construction on the bulk air cooler system.
- Development of a request for proposal for the underground lateral development work; and,
- Continuation of detailed design and engineering of the underground mine infrastructure and layout.
The capital cost estimate for the underground expansion in 2023 is $105 million – see "2023 Outlook". The program will focus predominantly on shaft sinking and grouting activities in both shafts, along with construction of the bulk air cooler, tendering of the underground development contract and underground equipment purchases. Ramp-up to planned sinking rates for the ventilation shaft continues and additional cover grouting events are expected for both shafts in 2023 and 2024.
FINANCIAL HIGHLIGHTS – Q1 2023
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| Three months ended
March 31, |
In millions of U.S. dollars, except carats or otherwise noted |
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| 2023 | 2022 |
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Revenues |
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| $ | 42.8 | 68.2 |
Operating expenses |
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| (18.3) | (18.0) |
Net income for the period |
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| 1.0 | 19.0 |
Earnings per share (basic and diluted) |
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| 0.00 | 0.04 |
Operating cash flow per share (1) |
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| 0.03 | 0.08 |
Cash on hand |
|
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| 31.2 | 39.1 |
Amounts drawn on working capital facility (2) |
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| 23.0 | 12.0 |
Amounts drawn on project finance facility |
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| 90.0 | 45.0 |
Karowe Revenue |
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| 41.2 | 67.2 |
Carats sold |
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|
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| 83,374 | 80,295 |
(1) | Operating cash flow per share before working capital adjustments is a non-IFRS measure. See "Use of Non-IFRS Performance Measures" below. |
(2) | Excludes amounts drawn from the Clara revolving credit facility. |
QUARTERLY RESULTS OF OPERATIONS – KAROWE MINE, BOTSWANA
| UNIT | Q1-23 | Q4-22 | Q3-22 | Q2-22 | Q1-22 |
Sales |
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Revenues from the sale of Karowe diamonds | US$M | 41.3 | 40.1 | 46.5 | 50.0 | 67.2 |
Karowe carats sold | Carats | 83,374 | 81,264 | 99,301 | 66,167 | 80,295 |
Production |
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Tonnes mined (ore) | Tonnes | 541,400 | 484,705 | 920,410 | 1,091,192 | 811,947 |
Tonnes mined (waste) | Tonnes | 761,295 | 199,385 | 453,860 | 357,764 | 482,104 |
Tonnes processed | Tonnes | 700,678 | 690,946 | 693,398 | 719,207 | 666,488 |
Average grade processed (1) | cpht (*) | 12.8 | 12.5 | 11.4 | 12.0 | 12.6 |
Carats recovered | Carats | 89,640 | 86,655 | 78,879 | 86,317 | 83,917 |
Costs |
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Operating cost per tonne of ore processed (2) | US$ | 26.65 | 26.20 | 29.33 | 28.78 | 27.80 |
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Capital Expenditures |
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Sustaining capital expenditures | US$M | 0.8 | 9.9 | 4.0 | 4.1 | 0.8 |
Underground expansion project (3) | US$M | 30.5 | 22.3 | 23.9 | 29.1 | 31.1 |
(*) carats per hundred tonnes |
(1) | Average grade processed is from direct milling carats and excludes carats recovered from re-processing historic recovery tailings from previous milling. |
(2) | Operating cost per tonne of ore processed is a non-IFRS measure. See "Use of Non-IFRS Performance Measures" below. |
(3) | Excludes qualifying borrowing cost capitalized in each quarter. |
CONFERENCE CALL
The Company will host a conference call and webcast to discuss the results on Friday, May 12, 2023 at 5:00am Pacific, 8:00am Eastern, 1:00pm UK, 2:00pm CET .
To join the conference call please use the following link https://emportal.ink/3MK80nT or the phone numbers listed below.
Conference ID:
33643944 / Lucara Diamond
Dial-In Numbers:
Toll-Free Participant Dial-In North America (+1) 888 390 0605
UK Toll free 0800 652 2435
Local Vancouver (+1) 416 764 8609
Webcast:
To view the live webcast presentation, please log on using this direct link: https://app.webinar.net/8rMY2nz2Z7p
The presentation slideshow will also be available in PDF format for download from the Lucara website ( Link to presentation ).
Conference Replay:
A replay will be available until May 19, 2023 . The pass code for the replay is: 643944#.
Replay number (Toll Free North America) (+1) 888 390 0541
Replay number (Local) (+1) 416 764 8677
On behalf of the Board,
Eira Thomas
President and Chief Executive Officer
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ABOUT LUCARA
Lucara is a leading independent producer of large exceptional quality Type IIa diamonds from its 100% owned Karowe Diamond Mine in Botswana . The Karowe Mine has been in production since 2012 and is the focus of the Company's operations and development activities. Clara Diamond Solutions Limited Partnership ("Clara"), a wholly-owned subsidiary of Lucara, has developed a secure, digital sales platform that uses proprietary analytics together with cloud and blockchain technologies to modernize the existing diamond supply chain, driving efficiencies, unlocking value and ensuring diamond provenance from mine to finger. Lucara has an experienced board and management team with extensive diamond development and operations expertise. Lucara and its subsidiaries operate transparently and in accordance with international best practices in the areas of sustainability, health and safety, environment, and community relations. Lucara has adopted the IFC Performance Standards and the World Bank Group's Environmental, Health and Safety Guidelines for Mining (2007). Accordingly, the development of the Karowe underground expansion project ("UGP") adheres to the Equator Principles. Lucara is committed to upholding high standards while striving to deliver long-term economic benefits to Botswana and the communities in which the Company operates.
The information is information that Lucara is obliged to make public pursuant to the EU Market Abuse Regulation and the Swedish Securities Markets Act. This information was submitted for publication, through the agency of the contact person set out above, on May 11, 2023 at 5:00pm Pacific Time .
NON-IFRS FINANCIAL PERFORMANCE MEASURES
This news release refers to certain financial measures, such as adjusted EBITDA, adjusted operating earnings, operating cash flow per share, operating margin per carat sold and operating cost per tonne of ore processed, which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. These measures may differ from those made by other corporations and accordingly may not be comparable to such measures as reported by other corporations. These measures have been derived from the Company's financial statements, and applied on a consistent basis, because the Company believes they are of assistance in the understanding of the results of operations and financial position. Please refer to the Company's MD&A for the quarter ended March 31, 2023 for an explanation of non-IFRS measures used.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made and contained herein and elsewhere constitute forward-looking statements as defined in applicable securities laws. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "expects", "anticipates", "believes", "intends", "estimates", "potential", "possible" and similar expressions, or statements that events, conditions or results "will", "may", "could" or "should" occur or be achieved.
Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made, and they are subject to a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward-looking statements. The Company believes that expectations reflected in this forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be accurate and such forward-looking information included herein should not be unduly relied upon.
In particular, forward-looking information and forward-looking statements in this news release may include, but are not limited to, information or statements of projected capital costs associated with the Karowe UGP,, the Company's ability to comply with the terms of the facilities which are required to construct the Karowe UGP, that expected cash flow from operations, combined with external financing will be sufficient to complete construction of the Karowe UGP, the potential impacts of COVID-19, economic and geopolitical risks, including potential impacts from the Russian military invasion of Ukraine , expectations regarding longer-term market fundamentals and price growth, the disclosure under "2023 Outlook", expectations regarding top-up payments, processing expectations, expectations that the Karowe UGP will extend mine life, forecasts of additional revenues, estimated capital costs, production and cost estimates, tax rates, expectations regarding the scheduling of activities for the Karowe UGP in 2023 and in future, that the estimated timelines to achieve mine ramp up and full production from the Karowe UGP can be achieved, the economic potential of a mineralized area, the size and tonnage of a mineralized area, anticipated sample grades or bulk sample diamond content, future production activity, the future price and demand for, and supply of, diamonds, future forecasts of revenue and variable consideration in determining revenue, estimation of mineral resources, exploration and development plans, cost and timing of the development of deposits and estimated future production, currency exchange rates, success of exploration, requirements for and availability of additional capital, capital expenditures, operating costs, the completion of transactions the profitability of Clara and the Clara Platform, and the scaling of the digital platform for the sale of rough diamonds owned by Clara, the Company's intent to continue to seek additional supply, both from third-party producers and the secondary market, the benefits to the Company of diamond supply agreements with HB and the ability to generate better prices from the sale of the Company's +10.8 carat production as a polished stone.
There can be no assurance that such forward looking statements will prove to be accurate, as the Company's results and future events could differ materially from those anticipated in this forward-looking information as a result of those factors discussed in or referred to under the heading "COVID-19 Global Pandemic, Economic and Geopolitical Risks" in the Company's most recent MD&A and under the heading "Risks and Uncertainties" in the Company's most recent Annual Information Form, both available at http://www.sedar.com , as well as changes in general business and economic conditions, the ability to continue as a going concern, changes in interest and foreign currency rates, changes in inflation, the supply and demand for, deliveries of and the level and volatility of prices of rough diamonds, costs of power and diesel, impacts of potential disruptions to supply chains, acts of foreign governments and the outcome of legal proceedings, inaccurate geological and recoverability assumptions (including with respect to the size, grade and recoverability of mineral reserves and resources), and unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalations, unavailability of materials and equipment, government action or delays in the receipt of government approvals, industrial disturbances or other job actions, adverse weather conditions, and unanticipated events relating to health safety and environmental matters).
Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date the statements were made, and the Company does not assume any obligations to update or revise them to reflect new events or circumstances, except as required by law.
SOURCE Lucara Diamond Corp.
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