Lucapa might just be a diamond in the rough

8th March 2019
Resources Rising Stars

Its share price may not be showing it, but Lucapa Diamond Company is taking big steps in its plans to become a serious global player in the niche market for the precious gems (reports The West Australian).

Earlier this year, the company brought its second diamond mine into commercial production.

Lucapa’s new Mothae kimberlite mine in Lesotho joins its Lulo alluvial mine in Angola as one of the highest dollar per carat sources in the world for their respective stones.

Mothae sits just 5km from the world’s highest $US per carat kimberlite diamond mine in the world, Letseng, owned by UKbased Gem Diamonds. Lucapa brought the 1.1Mtpa operation into production for just $US25 million, with commissioning taking just two months from first ore.

And Mothae’s early recovery and production rates are already exceeding expectations.

The company plans to update its volume, grade and price guidance for Mothae in the second quarter, with hopes for a re-rating on the back of it.

Once nameplate capacity is achieved, Lucapa will turn its attention to expanding output at Mothae, which it believes it can achieve via a series of low-cost tweaks to the processing plant.

This week the company sold the first 5411-carat parcel of stones from Mothae for $US3.8 million ($5.3 million) in a tender in the European diamond hub of Antwerp.

The sale represented an average per carat price of $US707, but Lucapa expects this figure to increase to $US900 per carat as mining continues at depth past the weathered material near surface which comprised mainly smaller stones.

This compares to the world average of $US150 per carat.

At Lulo, the company plans to expand production by 25 per cent and continue drilling in an exhaustive search for the kimberlite source of the alluvial diamonds it is finding there.

Lulo’s alluvial stones achieve an average per carat price of a heady $US2000.

So why has Lucapa’s share price been tracking lower?

The global diamond market faces tightening credit, an oversupply of some lower value stones and slowing demand from China.

Lucapa believes its higher value stones provide a hedge to the downturn but also says it will be well placed to benefit when the cycle turns, potentially with the closure of the Argyle mine which represents about 10 per cent of world production.

Rio Tinto is planning to close the Kimberley mine in 2020.

The Miles Kennedy-chaired company is headed by former Deloitte accountant and De Beers and Gem Diamonds executive Stephen Wetherall.

Euroz analyst Michael Emery has a speculative buy recommendation on the stock with a price target of 61¢ while London based analyst Kieron Hodgson, of Panmure Gordon, has a buy recommendation with a target of 50¢.

At 18¢, Lucapa has a market capitalisation of about $86 million.

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