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Lucara takes guidance hit

Lucara Diamond Corp (CN:LUC) has lowered the full-year production guidance for its Karowe openpit mine in Botswana due to the longer-than-expected ramp up of a new mining contractor and operating inefficiencies.
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Operating inefficiencies impacted diamond recovery at the Karowe mine

The miner has updated its estimate to 260,000-270,000 carats from the initial 290,000-310,000ct, with 185,290ct produced during the January-September period.

During the September quarter, it recovered 62,427ct from 386,906 tonnes of ore mined at an average grade of 10.6 carats per hundred tonnes. This was down from the same 2016 quarter when 81,423ct were recovered from 650,290t at an average grade of 12.5ct/ht.

Analysts from Haywood Securities said production was below its estimate of 72,700ct, and was driven by processing of lower-grade stockpile material.

Lucara noted that the new contractor, Aveng Moolman, had equipment availability issues during the quarter, which led to lower-than-expected south lobe ore being mined.

"To address this issue, the contractor has delivered additional trucks, shovels, excavators and drill rigs to the mine. The contractor has also strengthened its site senior management team and is focused on improving overall mining methods to achieve sustainable, long-term operating efficiencies," the miner said.

It added that it expected the performance to improve during the December quarter. The south lobe ore not mined this year is expected to be extracted and carats recovered in 2018.

The lower volume of carats being processed has led to the miner also reducing its full-year revenue guidance to US$165-175 million, without taking into account the sale of the 1,111ct Lesedi La Rona diamond, which sold for $53 million in September.

On the positive side, lower ore grades were offset by higher average diamond pricing, with revenue for the September quarter, at $77.9 million, more than double the $38.1 million seen in the same 2016 quarter. This was in line with Haywood's expectation of $80 million.

The miner achieved net income of $32.9 million, compared to a net loss of $3.8 million a year ago.

Lucara's year-to-date operating costs were US$32.40 per tonne processed, which was below the guidance of $36-40/t, while mining costs for the same period were at $2.45/t, also below the guidance of $2.70-2.90/t.

Lucara CEO William Lamb remained optimistic about Karowe.

"The continued recovery of specials and an increase in prices compared to the prior year and in difficult market conditions emphasizes the quality of the Karowe stones over the long term," he said.

The diamonds recovered during the September quarter included 108 that were over 10.8ct, although two over-100ct stones were deemed to be poor quality.

Lamb was also pleased with the results of an underground preliminary economic assessment at Karowe, which demonstrated the economic viability for developing an underground mine. This could start production after the openpit is completed around 2026 and extend the project until 2036.

Haywood said the PEA had shown "compelling economics", with the PEA highlights including an after-tax net present value (5% discount) of $451 million, a post-tax internal rate of return of 38.9% and annual production of 272,000ct at all-in on-site sustaining costs of $411.72/t (diamonds recovered) over a 10-year mine life.

Lucara will complete a prefeasibility study for the underground mine during the first half of 2018.