Lucara Diamond Corporation, a multiple listed mining company which operates the world‘s premier top gem producer Karowe Mine, has registered revenue of $136.5 million or $436 per carat for its sales in the first nine months of 2019, yielding an operating margin of $254 per carat.
This is contained in the company‘s 2019 Q3 performance results released on Monday. Starting in September 2018, Lucara moved to a blended sales tender, combining the sale of exceptional stones with the balance of run of mine production into one tender, held quarterly. According to the Vencouvor headquartered gem diamonds outfit change was made to decrease the inventory time for large, high value diamonds and to generate a smoother revenue profile that better supports price guidance on a per sale basis.
During 2019, diamonds recovered between November 2018 and July 2019 was sold either in blended sales tender or through the Clara digital sales platform. “The one exception to this new practice was the retention of the 1,758 carat diamond named Sewelô. Lucara says due to the unique and complex nature of the Sewelô, additional analysis of the diamond is being undertaken while the Company considers how best to maximize value from this unique and rare diamond.
In the first nine months of 2019, a total of 313,189 carats were sold compared to 240,245 carats sold in the previous year achieving a year-to date average sales price of $436/carat against 2018 figure of $564/carat. The number of carats sold was 30% higher than in the comparative period driven by better recoveries in the smaller, lower value sizes.
Lucara says the significant increase in carats is due to the continued strong performance of the plant which processed 2.16 million tonnes during the nine months ended September 30, 2019 compared to 2.03 million tonnes milled last year. “An improved mine call factor also contributed to higher recoveries of diamonds” Explains Karowe mine management.
While most of Karowe’s diamond production is sold through blended sales tender, beginning in late 2018 certain stones from Karowe’s production sized between 1 and 4 carats and of better quality were offered for sale on Clara, Lucara’s revolutionary, web based, digital sales platform that allows customers to purchase rough diamonds individually, based on specific demand.
The first sale through Clara took place in December 2018. Five sales were completed on the platform during the first six months of 2019 and a further five sales through Clara were completed in Q3 2019, with $2.4 million in value transacted in Q3 2019 and a total of $6.0 million transacted since sales began.
Lucara President and Chief Executive Officer, Eira Thomas observed that the continued growth of Clara is expected in the fourth quarter based on increasing demand from a growing customer base, which expanded from twenty to twenty-seven participants in Q3 2019. “The Company’s objective is to begin adding third-party production to the platform before the end of the year in order to meet anticipated demand,” she said.
On financial performance Lucara posted operating expenses increase from $50.0 million in the nine months ended September 30, 2018 to $57.1 million in the nine months ended September 30, 2019 mainly due to a combination of an increase in the average cost per tonne mined which is related to the new mining contractor and lower volumes of total tonnes mined as well as higher volumes of total tonnes processed.
An increase in carats processed and sold resulted in a decrease in the operating expense per carat sold from $208/carat in the nine months ended September 30, 2018 compared to $182/carat in the nine months ended September 30, 2019. Depletion and amortization, a non-cash expense, increased from $20.1 million in YTD 2018 to $38.1 million in year to date 2019 due to a combination of factors including a 30% higher volume of carats sold with 313,189 carats YTD 2019 vs. 240,245 carats YTD 2018.
The increase in this expense has been driven by several things amongst others a larger number of fine diamonds recovered following improvements to the processing circuit implemented in late 2017, a higher mineral property balance from the waste stripping campaign between 2017 and 2018, and a corresponding increase in the rate of unit of production depletion from a change to the reserve base in Q3 2018.
With depletion and amortization expense almost double what it was in the same period last year Lucara posted that net income decreased to $4.1 million for the nine months ended September 30, 2019 as compared to net income of $17.9 million in the same period in 2018. Earnings per share decreased to $0.01 as compared to earnings per share of $0.05 for YTD 2018.
Lucara President & CEO said her company continues to deliver solid results and strong margins on the back of strong operational performance at Karowe in Q3. “With operating margins at Karowe approaching 60%, and no long-term debt, Lucara is well positioned to continue to weather the difficult diamond pricing environment that has prevailed since the beginning of the year,” she said.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”