Large diamonds are Lucara’s best friends

Lucara Diamond is a diamond mining company in southern Africa, notable for its delivery of a significant proportion of the world’s exceptional stones.


Karowe is known for its large, high-quality white diamonds and significant coloured (blue and pink) stones too.

Following the recent discovery of a 123-carat top-white stone and a 375-carat gem quality stone, Vancouver-headquartered mining stock Lucara Diamond Corp. (TSX—LUC) has once again demonstrated to analysts “the endowment of high-value stones within the world-class Karowe diamond mine in Botswana,” say Haywood Securities analysts Geordie Mark and Alvin Islam who maintain a ‘buy’ recommendation and $2.10 per-share target price.

Recent coloured-stone discoveries include a 9.74-carat gem-quality blue stone, and a 4.3-carat gem quality pink stone. Despite Karowe being recognized for its production of large, high-quality white stones, the recovery of significant coloured stones has been witnessed in the past too. This includes the 9.46-carat Aven Blue stone, which sold for US$4.5 million in 2012, and more recently a 2.24-carat blue stone for US$777,000.

Valuable large stones make for high margins

The analysts comment: “Our belief is Karowe is a world-class asset that facilitates the delivery of high-operating margins (due to the value of the precious stones it discovers) that foster the dissemination of a high yield. It is well positioned to leverage off any positive movements in diamond prices.

“We note that the Karowe diamond mine commonly has been a very high-margin (58 per cent operating margin in second-quarter 2019) operation due to its notable delivery of a significant proportion of the world’s exceptional stones.

“We have modified our third-quarter revenue per carat pricing assumption from US$500 per carat to US$450 per carat (with second-quarter realized pricing of US$417 per carat), to better align with prevailing market conditions. Our revised third-quarter forecasts outline for revenues of US$44.7 million, and earnings per share of US$0.02.”

Lucara holds a 100 per cent interest in the Karowe mine located in Botswana and a 75 per cent interest in the Mothae diamond project located in the Kingdom of Lesotho.

This is an edited version of an article that was originally published for subscribers in the November 1, 2019, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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