Canadian conceived Lucara Diamond Corporation has gathered $91.2 million, equivalent to just over P1 billion in revenue during the first half of 2019. This solely from their wholly owned Karowe Mine located in the Boteti sub district of Botswana.
The Botswana Stock Exchange listed high value, top carat diamond producer shared this in their June end Quarter 2 results issued from Vencuvour in the wee hours of Friday morning CAT. These revenue figures mirrors a $463 per carat for Karowe sales in the first half of 2019, yielding an operating margin of $292 per carat. In 2019, the Company held blended tenders in which diamonds recovered in the period December 2018 to April 2019 were sold in the same period, with the exception of the particularly rare stone recovered, Sewelô.
Lucara says it has completed an initial analysis of Sewelô and is considering how best to maximize value from this unique and rare diamond. During the six months under review a total of 196,989 carats were sold compared to 138,646 carats sold in the 2019 half year ,achieving a year to date average price of $463 per carat against 2018 H1 figure of $648 per carat.
The number of carats sold was 42% higher than in the comparative period, driven by better recoveries in the smaller, lower value sizes. “While still profitable, the smaller goods impact the average price per carat sold when compared to the prior year” commented Lucara Executives.Karowe Mine top brass says the significant increase in carats is also due to the continued strong performance in the plant which had record consecutive quarters of production, processing 1.48 million tonnes during H1 2019 against 1.3 million tonnes processed in 2018 H1.
“An improved mine call factor also contributed to higher recoveries of diamonds in the smaller size classes” highlighted Lucara management in the results analysis commentary. During the 2019 first 2 quarters under review, operating expenses increased from $31.2 million in H1 2018 to $33.7 million in H1 2019, a hike Lucara says was due to a combination of an increase in the average cost per tonne mined and lower volumes of total tonnes mined. Waste tonnes mined decreased as compared to the same period in 2018 as the significant waste stripping campaign undertaken between 2017 and 2018 was substantially complete by the end of 2018.
In addition, ore mining was stronger than expected in H1 2019 due to resource gains in the North Lobe offsetting planned waste mining. Due to the higher volume of ore mined in H1 2019, no waste stripping costs were capitalized and the strip ratio was reduced to below the life of mine average of 2.46. Lucara says no capitalized stripping is expected during the remaining half of 2019, this is against a strip ratio of 2.84 in 2019 Guidance. On the other hand the increase in volumes processed led to a decrease in the operating expense per carat sold from $225/carat in H1 2018 to $171/carat in H1 2019.
Further commentary from Lucara Headquarters in Canada’s commercial capital, Vencuvour says Karowe’s Q2 2019 performance was underpinned by a continued, strong, stable operating environment at the 7 years old mine. On the back of record production achieved during the first quarter of the year, operations continued to deliver strong performance, with 0.8 and 1.8 million tonnes of ore and waste mined respectively, and 0.71 million tonnes of ore processed.
“As a result, production yielded higher carat recoveries against plan and contributed to a sale of 101,931 carats during Q2 2019 which achieved an average price of $417/carat compared to the sale of 75,329 carats at an average price of $856/carat during Q2 2018,” said Eira Thomas, President and Chief Executive Officer of the triple listed top carats producer. Beside BSE Lucara is also trading on the Toronto Stock Exchange (TSX) and the Stockholm Stock Exchange known as Nasdaq Stockholm
Thomas explained that the difference in average price is due to the exceptional stone tender held in Q2 2018 for which there was no comparable sale in 2019, together with higher recoveries of small diamonds owing to plant processing improvements. The market for both rough and polished diamonds remains challenging due to an excess supply of polished diamonds and reduced credit available in the mid-stream of the supply chain. However Thomas says Lucara’s rough diamond sales during the first six months of 2019 have been consistent with expectations and in line with 2019 revenue guidance of $170 million to $200 million.
Lucara President says the largest diamond to be unearthed in Botswana’s 50+ year history and the second +1,000 carat diamond to be recovered at Karowe in just four years, Sewelô, the 1,758 carat near gem that was recovered undamaged in April, is a testament to Karowe’s remarkable geological endowment and the strong operating environment that prevails at the mine.
“During the second quarter, we continued to deliver safe, reliable, record diamond production. Having focused on operational improvements to drive performance, carat recoveries have significantly increased and costs have gone down” she said. Eira Thomas further added that impressively interest in Clara, Lucara’s online sales platform for rough diamonds, continues to increase as manufacturers look to purchase only the rough diamonds that they can use in their business, while at the same time assuring provenance of the rough diamonds purchased.
“Overall average prices achieved for our diamonds during the first half of the year have settled at $463 per carat and reflect a higher contribution of fine (smaller) diamonds, with continued strong recoveries of single diamonds larger than 10.8 carats that contribute to more than 70% of our revenues” she said. Thomas boasts that her company continues to achieve high margins for its diamonds and is actively pursuing organic growth opportunities, including Clara, its proprietary, cloud based, digital, rough diamond marketplace that continues to ramp up and has now completed a total of 7 sales since December 2018.
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”