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Lucara jumps back to positive figures as revenue surges by 56%

Lucara Diamond Corporation, 100% owners of Karowe Diamond mine, has released its results for the first quarter of 2021 ending March 31, 2021.

Figures contained in the report depict strong financial and operational performance for the quarter. Revenue for the three months period jumped by 56% to $53.1 million (approximately P540 million) or $579 per carat sold in Q1 2021.

This includes diamonds sold through a combination of regular tenders, Clara, and through HB Antwerp (HB) under the supply agreement announced in July 2020.

This 56% increase in revenue comes after a slow Q1 2020 which was characterized by intensifying COVID pandemic. Lucara then announced it would hold on and suspend sale of its large stones until the market normalizes.

During the quarter total operating cash costs of $29.24 per tonne processed was incurred, this was 7% lower than Q1 2020. Adjusted EBITDA closed the quarter at $22.2 million, marking a return to higher levels of operating margin.

The company recorded net income of $3.4 million during Q1 2021 (earnings per share of $0.01), as compared to a net loss of $3.2 million for Q1 2020 (loss per share of $0.01).

The value of the rough diamonds transacted through the Clara platform in Q1 2021 was $6.0 million over six sales, double the $3.0 million transacted on the platform in Q1 2020.

Strong price increases have been observed in each of the sales conducted since the beginning of the year.

As at March 31st 2021, the company had cash and cash equivalents of $27.9 million, an increase of $23.0 million from December 31st 2020 and a net debt of $22.2 million.

Following the quarter-end on May 5th 2021, the Company’s $50 million working capital facility was extended with Rand Merchant Bank, a division of FirstRand Bank Limited, London Branch.

In January 2021, Lucara announced the recoveries of two, top white gem quality diamonds (341 carats and 378 carats) from ore sourced from the M/PK(s) unit within the South Lobe. Both stones were recovered unbroken.

In April 2021, Lucara announced the 24-month extension of its novel supply agreement with HB in respect of all diamonds produced in excess of 10.8 carats in size from the Karowe mine to be sold as polished.

In May 2021, Lucara received credit approved commitments from a syndicate of five international lenders for a senior secured project financing debt package of up to $220 million (over P2.3 billion) to fund an underground expansion at the Karowe Mine in Botswana.

Eira Thomas, President & CEO commented: “Lucara has bounced back in the first quarter of the year, demonstrating its resiliency at a time of continued uncertainty in respect of the ongoing COVID-19 pandemic. Our solid performance in the first quarter reflects a stronger business environment, Lucara’s continued focus on operational discipline and our innovative approach to sales.

We also made significant progress towards the completion of a supplemental debt financing package with credit approved commitments received from five international lenders, in support of our plans for underground expansion.

Our outlook for the diamond market remains strong, and with close to 20 years of future mining now ahead of us at Karowe, Lucara is highly levered to an improving diamond price environment, particularly in respect of large, high value gem diamonds, the hallmark of Karowe’s production profile.”

KAROWEPERFORMANCE

Ore and waste mined of 1.1 million tonnes and 0.8 million tonnes, respectively.0.67 million tonnes of ore processed resulting in 80,014 carats recovered, achieving a recovered grade of 11.9 carats per hundred tonnes.

188 Specials (+10.8 carats) were recovered from direct milling during the first quarter, representing 6.8% weight percentage of total direct milling recovered carats, in line with resource expectations.

2 diamonds were recovered greater than 300 carats in weight and 2 diamonds were recovered greater than 200 carats in weight.

DIAMOND SALES

Diamond sales in Q1 2021 were held through a combination of regular tenders, and the Clara platform, for diamonds less than 10.8 carats, and through HB under the supply agreement for those diamonds greater than 10.8 carats.

The Company recognized revenue of $53.1 million or $579 per carat from the sale of 91,760 carats. Price recovery was observed in most size and quality classes.

Included in this amount is variable consideration of $9.1 million which relates to “top-up” payments which arise from polished diamond sales in excess of the initial planned value paid to Lucara.

Beginning in Q2 2020, all +10.8 carat diamonds mined from Karowe were sold to HB pursuant to the terms of the diamond supply agreement described below.

Karowe’s large, high value diamonds have historically accounted for approximately 60% to 70% of Lucara’s annual revenues.

Though the mine remained fully operational following the declaration of COVID-19 as a global pandemic, Lucara made a decision not to tender any of its +10.8 carat production after early March 2020 amidst the uncertainty caused by the global crisis and the significant weakness observed in the rough diamond market.

LUCARA- HB SALES AGREEMENT

The polished diamond market performed better through this period and subsequently, in July 2020, Lucara announced a ground breaking partnership agreement with HB, entering into a definitive supply agreement for the remainder of 2020, for all diamonds produced in excess of +10.8 carats from their 100% owned Karowe Diamond mine in Botswana.

This agreement was subsequently extended for a 24 month period, from January 1, 2021 to December 31, 2022.

Under the supply agreement with HB, Lucara’s +10.8 carat production is being sold at prices based on the estimated polished outcome of each diamond, determined through state of the art scanning and planning technology, with a true up amount payable to Lucara on actual achieved polished sales in excess of the initial estimated polished price, less a fee and the cost of manufacturing.

This unique pricing mechanism delivers regular cash flow for this important segment of our production profile.

Revenue from stones delivered to HB in 2020 will continue to be recognised in 2021 as polished diamonds are sold and “top-up” payments are realised.

CLARA SALES PLATFORM

With global restrictions impeding travel for many diamond manufacturers, interest in Clara- Lucara’s proprietary, secure, web-based digital sales platform- grew significantly in 2020 and that positive momentum continued through Q1 2021.

Six sales were held in the first quarter with total sales volume transacted of $6.0 million, more than double the volume from the comparable period in 2020.

Encouragingly, Clara also observed consistent price increase at each subsequent sale throughout the period.

The number of buyers on the platform increased to 80 and the company is maintaining a waiting list to manage supply and demand. Discussions continue with third party sellers to build supply.

KAROWE MINE UNDERGROUND PROJECT

During Q1 2021, Lucara spent $9.9 million (over P100 million) on project execution activities for the Karowe underground expansion, including shaft and geotechnical engineering, surface infrastructure, dewatering and power line engineering and procurement.

Site construction work commenced early in the quarter and in March the production and ventilation shaft box cuts were drilled and blasted to bulk excavation elevations.

A significant amount of time and effort was also spent on due diligence related to technical, environment and social matters as part of ongoing project financing efforts.

Business

Stargems Group establishes Training Center in BW

20th March 2023

Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.

The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.

“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.

In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices.  Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.

“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.

Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy,  Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.

“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.

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Business

Food import bill slightly declines

20th March 2023

The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.

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Moody’s Reaffirms African Trade Insurance’s A3 Rating & Revises Outlook to Positive

13th March 2023

Moody’s Investors Service (“Moody’s”) has affirmed the A3 insurance financial strength rating (IFSR) of the African Trade Insurance Agency (ATI) for the fifth consecutive year and changed the outlook from stable to positive.

Moody’s noted that the change in outlook to positive reflects the strong growth in ATI’s membership base – that has resulted in improved portfolio diversification, strengthened capital adequacy, and the good profitability despite the challenging operating environment. In addition, ATI benefits from its preferred creditor status (PCS) amongst sovereign member states which protects it from the risk of default by member sovereigns through securing recoveries against claims paid on guarantees.

The strong membership and equity growth are some of the key considerations for the consistent reinstatement of ATI’s A/Stable rating by Standard & Poor’s and Moody’s rating, over the years. Also supporting the rating affirmation are; consistent improvement in financial performance, commitment of its shareholders who continue to uphold the preferred creditor status, its high quality and conservative investment portfolio as well as strong relationships with a number of global reinsurers that provide significant risk-bearing capacity.

With the change in outlook to “positive”, ATI is now better placed to provide enhanced support to its member countries, attract additional shareholding and grow its portfolio. The positive outlook is an indication that if ATI continues to demonstrate its strong underwriting performance and ability to recover claims under the preferred creditor arrangements, among other factors, an upward pressure towards an upgrade may be generated. The Moody’s press release can be accessed from here

Commenting on the rating, Africa Trade Insurance Chief Executive Officer Manuel Moses said: “This positive revision is in line with our 2023 – 2027 strategic objectives in which we set to improve our rating outlook to positive in the first year, and achieve an upgrade of at least “AA”/Stable rating by both Moody’s and S&P within this Strategic Plan period. We aim to achieve this by doubling our exposures and increasing our capital to more than USD1 billion.”

ATI’s mandate is to provide trade-credit and political risk insurance, as well as other risk mitigation products to its member countries and related public and private sector actors. These insurance products not only directly encourage and facilitate foreign direct investment as well as local private sector investment in our member countries, but also contribute to intra- and extra-African trade.

About The African Trade Insurance Agency 

ATI was founded in 2001 by African States to cover trade and investment risks of companies doing business in Africa. ATI predominantly provides Political Risk, Credit Insurance and, Surety Insurance. Since inception, ATI has supported US$78 billion worth of investments and trade into Africa. For over a decade, ATI has maintained an ‘A/Stable’ rating for Financial Strength and Counterparty Credit by Standard & Poor’s, and in 2019, ATI obtained an A3/Stable rating from Moody’s, which has now been revised to A3/Positive.

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