- Renews sales agreement
- Government to buy a stake in HB
Canadian mining junior Lucara Diamond reported a decline in revenue for the last quarter of 2023, attributed to a decrease in supply to HB Antwerp following the termination of the parties’ sales agreement in the preceding quarter.
The financial results for the year ending in 2023 reveal that Lucara reported earnings of $24.2 million during the third quarter of 2023, a decrease from $27.7 million in the same period last year. A breakdown of these earnings indicates that Lucara generated $17.4 million in revenue from the HB arrangements, inclusive of top-up payments totaling $6.8 million. This is in contrast to the $24.1 million in revenue generated in the three months ending December 31, 2022, which included top-up payments amounting to $3.6 million.
Lucara noted that revenue was impacted by a 92 percent recovery factor achieved in 2023, which fell 8 percent below expectations. Additionally, revenue in the fourth quarter was influenced by the natural variability in the value of large stones recovered during the period.
As a result of these factors, revenue from HB decreased to 48 percent of total revenue recognised in the fourth quarter of 2023 (Q4 2022 – 60 percent). The product mix in Q4 2023 was predominantly from the South Lobe ore body, with some contribution from the Centre Lobe (Q4 2022 – 100 percent South Lobe ore).
Lucara had terminated the definitive sales agreement executed with HB in November 2022 due to HB’s material breach of its financial commitments. The diamond miner said the rough diamonds delivered to HB prior to the termination of the agreement continued to be manufactured and sold as polished diamonds. The Company retains a contractual right to receive “top-up” payments from polished diamond sales for goods delivered prior to the termination of the agreement. The Company continued to sell its +10.8 carat production through these established sales channels while it continued to work with the management of HB on options for a new Diamond Sales Agreement which is subject to pre-approval from the Government of the Republic of Botswana.
Lucara announced that it had entered into a new diamond sales agreement with HB Group out of Antwerp, Belgium, in respect of all qualifying diamonds produced in excess of 10.8 carats in size from its 100 percent owned Karowe Diamond Mine in Botswana. Karowe’s large, high-value diamonds have historically accounted for approximately 60 percent to 70 percent of Lucara’s annual revenues.
Under the terms of the 10-year agreement with HB, the purchase price paid for Lucara’s +10.8 carat rough diamonds shall be based on the mutual agreement of the estimated polished outcome, determined through state-of-the-art scanning and planning technology, together with external benchmarks and more than a decade of Lucara’s special stone sales data. A further sales value uplift (top-up) will be paid to Lucara based on actual achieved polished sales thereafter, less a fixed margin payable to HB. This pricing mechanism is expected to deliver regular cash flow for this important segment of the Company’s production profile at better than conventional diamond industry tender prices.
Lucara expects significant potential revenue upside, especially for large complex rough diamonds, based on historical performance, providing a premium on diamond sales benefiting all Karowe Mine stakeholders. Lucara’s revenue for 2023 was $177.4 million (2022: $212.9 million) despite a weaker rough diamond market. “Fourth quarter pricing stabilised in smaller goods and increases of 5 percent were observed compared to the third quarter of 2023, albeit approximately 19 percent below prices observed in the fourth quarter of 2022,” the group said adding that revenue reflects the weighting of Lucara’s revenue towards larger goods where pricing was observed to be more stable.
From its agreements with HB, Lucara also expects ongoing alignment with the Government of Botswana’s strategy to diversify downstream and participate in the upside of polished diamond revenue. The government has set aside P890 million to buy shares in Belgian diamond trader, according to estimates of the budget expenditure.
This came after President Mokgweetsi Masisi said last year during that SONA that his government is yet to finalize a deal with HB in which Botswana will acquire 24 percent of the company.
Without going into details, Minister of Finance Peggy Serame said during the budget speech that a significant provision for the acquisition of strategic assets which include a stake in Tati land for more than a billion and a medical partnership.
HB Antwerp set up in Botswana as HB Botswana In March 2023, the company’s first branch outside Antwerp. The company’s spokesperson told this publication that HB is creating an entirely new industry in Botswana. “There are no benchmarks in terms of what the company is doing and how it is creating value. We are committed to engaging with the local workforce by creating employment opportunities and fostering skills development.”
William Lamb, the President and CEO of Lucara said the collaboration with HB Antwerp presents an opportunity to further enhance its position in the market, building on the knowledge of the past and the understanding of the quality of the polished diamonds produced from Karowe diamonds. One of the benefits, Lucara anticipates from the agreement is the creation of an efficient and restructured, large and high-quality diamond supply chain which has the potential of meeting the demands of high-value brands.
“We remain steadfast in our dedication to delivering exceptional quality and premium value from our diamonds to all stakeholders, even amidst external pressures. Together, we will continue to uphold the legacy of excellence that defines Lucara’s journey in the world of diamonds,” Lamb said.