TIDM0QUI
RNS Number : 7158V
Lucara Diamond Corp
11 August 2020
PRESS RELEASE
LUCARA ANNOUNCES Q2 2020 RESULTS DELIVERING STRONG OPERATING
PERFORMANCE AND A GROUNDBREAKING SUPPLY AGREEMENT FOR 2020
VANCOUVER, August 10, 2020 /CNW/ - (LUC - TSX, LUC - BSE, LUC -
Nasdaq Stockholm)
Lucara Diamond Corp. ("Lucara" or the "Company") today reports
its results for the quarter ended June 30, 2020.
KEY HIGHLIGHTS:
-- Karowe has continued to operate throughout the COVID-19
pandemic, and delivered strong production and cost results in Q2,
consistent with the original 2020 plan and below budget.
-- Lucara made a deliberate decision not to tender any of its
+10.8 carat production after early March 2020 amidst the
uncertainty caused by the global crisis, and instead entered into a
ground breaking supply agreement with HB Group, for the remainder
of 2020. This large , high value production from Karowe has
historically accounted for approximately 70% of Lucara's annual
revenues. Revenue from this agreement will be realised starting in
Q3 2020 based on a polished price mechanism.
-- Cash inflows of $21.0 million during Q2, consisting of a
partial payment of $13.5 million under the HB agreement and
proceeds of $7.5 million from continuous sales on Clara, Lucara's
digital sales platform and a tender in Antwerp on June 18 for
stones smaller than 10.8 carats.
-- 5 sales were completed on Clara during Q2, providing
liquidity for the Company in this unexpected period of travel
restrictions. Clara's customer base increased from 32 to 35 during
the second quarter and now stands at 46. Third-party trial sales
are expected to commence in Q3.
-- Lucara continues to have a strong availability of working
capital, including $13.7 million in cash at the end of Q2 and $31
million available from its revolving term working capital
facility.
Eira Thomas, President & CEO commented: "Though our 100%
owned Karowe mine continues to operate at full capacity, Lucara
made the deliberate decision not to sell any of its +10.8 carat
diamond production during the period, in response to a weakened
market demand. Subsequently, we are pleased to report that Lucara
has now secured a ground breaking supply agreement with the HB
Group, which will deliver regular revenues on superior pricing
terms to those currently being achieved at tender, and helps
position Lucara to move forward with key underground expansion
activities for Karowe in 2020."
REVIEW FOR THE QUARTER AND FIRST HALFED JUNE 30, 2020
-- Karowe has continued to operate throughout the COVID-19
pandemic, and delivered strong production results in Q2, consistent
with the original 2020 plan and below budget. Adjustments were made
to the original 2020 mine plan by reducing waste and ore mined
through the second quarter to ensure the health and safety of
employees operating in the pit and to reduce variable costs. The
process plant continued at full capacity, with additional safety
measures in place, processing ore almost entirely from the South
Lobe. Overall performance during the second quarter remains
consistent with the strong operational results achieved over the
past two years.
-- Operational highlights from Q2 2020 were as follows:
o Ore and waste mined of 0.7 million tonnes and 0.6 million
tonnes, respectively
o 0.71 million tonnes of ore processed resulting in 101,203
carats recovered, achieving a recovered grade of 14.3 carats per
hundred tonnes
o 201 Specials (+10.8 carats) recovered from direct milling
during the second quarter, representing 6.4% weight percentage of
total direct milling recovered carats, in line with mine plan
expectations
o 9 diamonds were recovered greater than 100 carats in weight,
including 2 > 200 carats in weight
o Karowe had no lost time injuries resulting in a twelve-month
rolling Lost Time Injury Frequency Rate of 0
-- Sales of $7.5 million were generated through the second
quarter tender of stones smaller than 10.8 carats held on June 18th
in Antwerp and through Clara. Sales on Clara continued throughout
Q2 with 5 sales completed, providing liquidity for the Company in
this unexpected period of travel restrictions. Clara's customer
base increased from 32 to 35 during the second quarter and now
stands at 46.
-- No diamonds in excess of +10.8 carats were sold in the second
quarter. Instead, these diamonds, which represent about 70% of
Lucara's revenue, will be sold under the recently announced 2020
supply agreement with HB. The purchase price paid for Lucara's
+10.8 carat rough diamonds will be based on the estimated polished
outcome, with a true up paid on actual achieved polished sales
thereafter, less a fee and the cost of manufacturing. Starting in
Q3 2020, this pricing mechanism is expected to deliver regular cash
flow for this important segment of our production profile at
superior prices.
-- A deposit of $13.5 million was received by the Company as
partial payment for +10.8 carat goods delivered to HB under the new
sales agreement. This deposit has been recognized as deferred
revenue as of June 30, 2020. As polished goods are sold by HB under
the new sales agreement, the Company will recognize the revenue
associated with the sale of those goods and their corresponding
inventory cost.
-- Total revenue of $7.5 million was recognized in Q2 2020 (Q2
2019: $42.5 million) or $109 per carat (Q2 2019: $417 per carat)
from the sale of 68,979 carats (Q2 2019: 101,931 carats). Only
stones in size classes below 10.8 carats were sold during the
second quarter of 2020. The achieved price in Q2 2020 for the
stones in size classes below 10.8 carats reflects the overall rough
market price erosion.
-- Lucara recognized revenue of $41.6 million for the six months
ended June 30, 2020 ("H1 2020") from the sale of 155,158 carats or
$268 per carat. This represents a decrease from revenue of $91.2
million recognized for the six months ended June 30, 2019 ("H1
2019") from the sale of 196,989 carats or $463 per carat. The
decrease in revenue is largely attributed to the sales of Q2
production of the +10.8 carat diamonds being deferred to Q3 2020
under the new supply agreement with HB.
-- The Company recorded a net loss of $13.9 million for Q2 2020
resulting in a $0.04 loss per share for the quarter. This compares
to net income of $0.7 million for Q2 2019 and earnings per share of
$Nil. A decrease in total revenue, predominantly from deferral of
sales of +10.8 carat stones, had the most significant impact on the
current quarter's results.
-- Cash flow used in operations in Q2 2020 totaled $4.9 million
compared to cash flow earned from operations of $6.5 million in Q2
2019, largely due to the $35.1 million decrease in comparable
revenue between the periods and an increased outflow for taxes
payable relating to 2019 tax payments required in 2020.
-- Operating cash cost(1) per tonne of ore processed for the six
months ended June 30, 2020 was $27.14 per tonne (H1 2019: $31.16
per tonne), which is below the initial full year forecast cash cost
of $32-$36 per tonne processed and 13% lower than the comparative
period last year. The operating cash cost per tonne processed in Q2
2020 was positively impacted by foreign exchange depreciation of
the Botswana Pula of 7% against the U.S. dollar and the benefits of
cost optimization efforts undertaken in the second half of 2019,
offset by a 9% decrease in tonnes processed as compared to H1
2019.
-- Adjusted EBITDA(1) year to date was negative $1.8 million (H1
2019: $38.6 million). Adjusted EBITDA was affected by the decrease
in total revenue mainly from the decision to withhold the +10.8
carat diamonds from the Q2 tender but also in part due to market
conditions for the smaller goods sold, particularly in the second
quarter tender held in June.
-- O perating expenses per carat(1) sold totalled $189 per carat
in the six months ended June 30, 2020, up from $171 per carat sold
in the comparable period last year. Total carats sold were
approximately 21% less by volume than the same period last year (H1
2020: 155,158 carats sold; H1 2019: 196,989 carats sold).
-- Adjusted EBITDA and the average price per carat sold were
significantly affected by the absence of large stone sales in the
second quarter. Each carat holds the same cost to produce, however,
the revenue and resulting margin is driven by the value of the
large stones which were not sold in Q2 2020.
-- As at June 30, 2020, the Company had cash and cash
equivalents of $13.7 million, an increase of $2.5 million from
December 31, 2019. The Company maintained draws totaling $19.0
million on the working capital facility from Q1 2020, however up to
$31.0 million is available to be drawn for working capital, if
required. The Company ended the second quarter with a strong cash
position and available liquidity.
-- The full impact of COVID-19 on Lucara's operations and
production outlook for 2020 remains highly uncertain, and as a
result, the Company is maintaining the suspension of its 2020
guidance until further notice.
(1) See Non-IFRS measures
DIAMOND SALES
Karowe's large, high value diamonds have historically accounted
for approximately 70% of Lucara's annual revenues. Though the mine
has remained fully operational throughout the COVID-19 pandemic,
Lucara made a deliberate decision not to tender any of its +10.8
carat production after early March 2020 amidst the uncertainty
caused by the global crisis. Subsequently, in July 2020, Lucara
announced a ground breaking partnership agreement with the HB Group
headquartered in Antwerp, Belgium ("HB"), entering into a
definitive supply agreement for the remainder of 2020, for all of
the diamonds produced in excess of +10.8 carats from our 100% owned
Karowe Diamond mine in Botswana. Under the supply agreement with
HB, Lucara's +10.8 carat production will be sold at prices based on
the estimated polished outcome of each diamond, determined through
state of the art scanning and planning technology, with a true up
paid on actual achieved polished sales thereafter, less a fee and
the cost of manufacturing. This unique pricing mechanism is
expected to deliver regular cash flow for this important segment of
our production profile at superior prices. The Company will start
recognizing revenue from this sales agreement inclusive of the
production from the +10.8 carat stones that would have ordinarily
been part of the Q2 tender in the third quarter this year. As of
June 30, 2020, the Company received a deposit of $13.5 million for
a portion of +10.8 carat goods delivered under the new sales
agreement. This deposit has been recognized as deferred revenue and
will be brought into income as the polished diamonds are sold.
Quarterly revenue of $7.5 million for the three months ended June
30, 2020 includes only proceeds from the sale of diamonds smaller
than 10.8 carats that were sold on Clara or through the re-scoped
Q2 tender. As a result, revenue recognized in Q2 2020 is materially
lower than previous quarters.
Travel restrictions in response to COVID-19 continue, impacting
the Company's ability to complete tenders in Botswana. As a
temporary measure, the Government of Botswana has granted Lucara
permission to hold diamond sales in Antwerp. Lucara completed its
rescheduled Q2 tender on June 18th in Antwerp, Belgium, selling
diamonds in size classes below 10.8 carats and achieving sales
prices within 5% of forecast. Diamonds that are suitable continue
to be re-directed from the tender offering for sale through Clara,
the digital sales platform that allows buyers to place orders
without physically viewing the goods and to purchase only the
diamonds they need on a stone by stone basis.
Sales of stones between 1 and 10 carats have continued on Clara,
with five sales taking place on Clara during the second quarter of
2020. Since the beginning of 2020 Clara's customer base has
increased from 27 to 46 buyers. Discussions continue with third
parties to grow supply on Clara to match demand from the larger
customer base. We anticipate starting trials of third party
diamonds during the third quarter.
COVID-19 RESPONSE
In response to the COVID-19 pandemic, the Company implemented
its crisis management strategy in March of this year, designed to
protect the health and well-being of our employees in Botswana and
Canada as well as the financial well-being of the business. The
Karowe Mine remains fully operational under new measures and
guidelines implemented by the Government of Botswana in late March
2020. These measures designated mining as an essential service in
Botswana and included increased travel restrictions, reduced
overall staffing levels and increased and appropriate social
distancing. A strong operating environment continued at the Karowe
Mine with Q2 delivering operating results consistent with the
original 2020 plan and costs achieved below budget. The full impact
of COVID-19 on Lucara's operations and production outlook for 2020
remains highly uncertain, and as a result, the Company is
maintaining the suspension of its 2020 guidance until further
notice.
Lucara's planned capital spending program for 2020 was to be
largely focused on the initiation of an underground expansion
project at Karowe and funded entirely from free cash flow generated
by operations. Although the recently announced supply agreement
with HB is expected to provide regular monthly cash flow for the
remainder of the year, some uncertainty remains around estimating
revenue for that period. As a result, the underground expansion
program has been re-scoped and reduced from the previous budget of
$53 million and will focus on long lead time critical-path items
through the remainder of the year. During H1 2020, $5.6 million was
spent on project execution activities including detailed
engineering and design work and early procurement initiatives.
The underground expansion program, as previously announced, has
an estimated capital cost of $514 million and a five year period of
development, with flexibility to adjust capital spending depending
on market conditions. The Company expects to finance part of the
capital cost with debt and the balance from cash flow generated
from operations. Financing options continue to be assessed.
The Company continues to have a strong availability of working
capital, including $13.7 million in cash at the end of Q2 and $31
million available from its revolving term working capital facility
with the Bank of Nova Scotia. The $50 million credit facility was
extended to May 5, 2021 during the second quarter of 2020. As part
of the extension, and until Lucara obtains greater clarity on its
cash flow projections in the short-term, Lucara has agreed to limit
capital expenditures related to the underground expansion project.
The extension of this facility provides an important source of
liquidity to Lucara during a period of significant uncertainty in
global markets.
FINANCIAL HIGHLIGHTS
Three months ended Six months ended
June 30 June 30
In millions of U.S. dollars, except carats or otherwise noted 2020 2019 2020 2019
--------------------------------------------------------------- --------- ---------- --------- --------
Revenues $ 7.5 $ 42.5 $ 41.6 $ 91.2
Net income (loss) for the period (13.9) 0.7 (17.1) 8.1
Earnings (loss) per share (basic and diluted) (0.04) 0.00 (0.04) 0.02
Operating cash flow per share* (0.02) 0.03 0.00 0.08
Cash on hand 13.7 7.1 13.7 7.1
Amounts drawn on the working capital facility 19.0 5.0 19.0 5.0
Average price per carat sold ($/carat)* 109 417 268 463
Operating expenses per carat sold ($/carat)* 174 174 189 171
Operating margin per carat sold ($/carat)* (65) 243 76 292
Carats sold 68,979 101,931 155,158 196,989
---------------------------------------------------------------- --------- ---------- --------- --------
(*) Operating cash flow per share, average price per carat sold,
operating expenses per carat sold and operating margin per carat
sold are Non-IFRS measures.
QUARTERLY RESULTS OF OPERATIONS - KAROWE MINE, BOTSWANA
UNIT Q2-20 Q1-20 Q4-19 Q3-19 Q2-19
Sales
Revenues generated
from sales tenders
conducted in the
quarter US$M 7.3 33.8 56.0 45.3 42.5
Carats sold for revenues
recognized during
the period Carats 68,861 86,010 98,547 116,200 101,931
Average price per
carat for proceeds
received during the
period US$ 107 393 568 390 417
Production
Tonnes mined (ore) Tonnes 683,282 878,087 694,591 823,875 773,861
Tonnes mined (waste) Tonnes 591,804 1,199,660 740,593 1,489,668 1,826,972
Tonnes processed Tonnes 705,421 639,430 647,502 680,665 713,037
cpht
Average grade processed (*) 14.3 14.3 13.3(1) 13.9(2) 14.2(3)
Carats recovered Carats 101,203 91,536 86,422(1) 104,990(2) 109,312(3)
Costs
Operating costs per
carats sold (see
Non-IFRS measures) US$ 174 201 209 201 174
Sustaining capital
expenditures US$M 3.7 2.4 13.0 0.7 1.4
Underground expansion
project US$M 3.9 1.7 - - -
-------------------------- -------- -------- ---------- ---------- ----------- -----------
(*) carats per hundred tonnes (1) Carats recovered during the period
included 273 carats recovered from re-processing historic recovery
tailings from previous milling and are excluded from the average
grade processed. (2) Carats recovered during the period included
10,646 carats recovered from re-processing historic recovery tailings
from previous milling and are excluded from the average grade processed.
(3) Carats recovered during the period included 8,172 carats recovered
from re-processing historic recovery tailings from previous milling
and are excluded from the average grade processed.
CONFERENCE CALL
The Company will host a conference call and webcast to discuss
the results on Tuesday, August 11, 2020 at 7:00 a.m. Pacific, 10:00
a.m. Eastern, 3:00 p.m. UK, 4:00 p.m. CET.
CONFERENCE CALL:
Please call in 10 minutes before the conference call starts and
stay on the line (an operator will be available to assist you).
Conference ID:
80135892 / Lucara Diamond
Dial-In Numbers:
Toll-Free Participant Dial-In North
America (+1) 888 390 0546
All International Participant Dial-In (+1) 778 383 7413
Webcast:
To view the live webcast presentation, please log on using this
direct link:
https://produceredition.webcasts.com/starthere.jsp?ei=1346455&tp_key=ac4554d235
The presentation slideshow will also be available in PDF format
for download from the Lucara website www.lucaradiamond.com shortly
before the conference call.
Conference Replay:
A replay of the telephone conference will be available two hours
after the completion of the call until August 19, 2020.
Replay number (Toll Free North America) (+1) 888 390 0541
Replay number (International) (+1) 416 764 8677
The pass code for the replay is: 135892#.
On behalf of the Board,
Eira Thomas
President and Chief Executive Officer
Follow Lucara Diamond on Facebook, Twitter, Instagram, and
LinkedIn
For further information, please contact:
North America Investor Relations & Communications
+1 604 678 5834 | info@lucaradiamond.com
Sweden Robert Eriksson, Investor Relations & Public
Relations
+46 701 112615 | reriksson@rive6.ch
UK Public Relations Emily Moss / Jos Simson, Tavistock
+44 778 855 4035 | lucara@tavistock.co.uk
ABOUT LUCARA
Lucara is a leading independent producer of large exceptional
quality Type IIa diamonds from its 100% owned Karowe Mine in
Botswana and owns a 100% interest in Clara Diamond Solutions, a
secure, digital sales platform positioned to modernize the existing
diamond supply chain and ensure diamond provenance from mine to
finger. The Company has an experienced board and management team
with extensive diamond development and operations expertise. The
Company operates transparently and in accordance with international
best practices in the areas of sustainability, health and safety,
environment, and community relations.
ABOUT CLARA
Clara Diamond Solutions Limited Partnership (Clara), wholly
owned by Lucara Diamond Corp, is 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.
The information in this release is accurate at the time of
distribution but may be superseded or qualified by subsequent news
releases.
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 August 10, 2020 at 2:30pm Pacific Time.
NON-IFRS MEASURES
This news release refers to certain financial measures, such as
operating cash flow per share, adjusted EBITDA, average price per
carat sold, operating cost per carat sold, 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 second quarter, 2020 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, this release may contain forward looking
information pertaining to the following: the impact of COVID-19 on
the Company's cash flows and operations and its plans with respect
to the Karowe underground expansion project; the estimates of the
Company's mineral reserves and resources; estimates of the
Company's production and sales volumes for the Karowe Diamond Mine;
estimated costs for capital expenditures related to the Karowe
Diamond Mine; production costs; exploration and development
expenditures and reclamation costs; expectation of diamond prices
and the potential for the supply agreement with HB to achieve both
higher prices from the sale of polished diamonds and to provide
more regular cash flow than in previous periods; changes to foreign
currency exchange rates; assumptions and expectations related to
the possible development of an underground mining operation at
Karowe including associated capital costs, financing strategies and
timing; expectations in respect of the development and
functionality of the technology related to the Clara platform, the
intended benefits and performance of the Clara platform, including
ability to complete sales without viewing diamonds, the growth of
the Clara platform, the timing and frequency of sales on the Clara
Platform, and the quantum and timing of participation of third
parties on the Clara platform; expectations regarding the need to
raise capital and its availability; possible impacts of disputes or
litigation and other forward looking information.
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" 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,
the supply and demand for, deliveries of and the level and
volatility of prices of rough diamonds, costs of power and diesel,
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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