Lucapa starting to sparkle as diamond production ramps up and gem prices show tentative signs of recovery

Plus, success for Stavely and Alkane spark renewed interest in Eastern States exploration, talk suggests European Cobalt may be heading for Aussie gold and Meteoric poised to deliver eagerly-awaited assays on its Brazilian gold play.
11th October 2019
Barry FitzGerald

A diamond being the ultimate item of discretsionary expenditure, there should be no surprise that diamond prices have been down in the dumps.

Fears of global economic recession overlain with the threat of trade wars is not exactly conducive to buoyant demand and pricing for the sparklers.

It is why the few listed diamond producers that exist around the world have being doing it tough on the share price front.

Having said that, our only listed (pure) diamond producer, Lucapa (LOM), has just sent out a pretty strong signal that the worst may be over for diamond pricing, or for the high-end quality stones it produces from its African mines, at any rate.

The day after reporting record quarterly production, Lucapa has followed up with a sales report from the Lulo alluvial mine in Angola (40% Lucapa) and the new Mothae kimberlite mine in Lesotho (70% Lucapa).

The latest sales (100% basis) totalled $US10.4 million ($A15.5m), taking sales to date for 2019 to $US45.9m ($A65.7m) on a 100% basis.

Lulo’s average price was $US1,087 a carat, making the year to date average price $US2,155 a carat. That implies price weakness but importantly, the figures did not include a 46 carat pink diamond which is getting some special value-added treatment in Antwerp before being sold.

It was at Mothae where the idea that the diamond market might be turning comes from. Its average price was $US831/ct, which was up nicely from the year-to-date average of $US610/ct, albeit with the help of a single stone that fetched more than $US1m.

If the diamond market is in fact turning, Lucapa is in a particularly sweet spot because it is also ramping up production at both of its mines, targeting combined annualised production of 60,000 carats (100% basis). Keep in mind these are not your garden variety carats, but very high value carats.

So the company is highly leveraged to a pick-up in diamond prices and sentiment in the sector.

There are two other listed high-value diamond producers - London-based Gem Diamonds (former owner of the Ellendale mine in WA) and Canadian-listed Lucara Diamond Corporation (no relation). There has been speculation that Gem and Lucara could merge, which could put Lucapa in play.

But Lucapa doesn’t have the same need-to-merge imperative because unlike Gem and Lucara, it has already invested most of the capital required to expand operations at Mothae and Lulo to achieve its 60,000/ct a year production target.

It is against that backdrop that Euroz has set a 61c price target on the stock. It closed on Thursday at 15.5c.

“With expansion of operations and mining in higher-value zones, together with increased margins from the cutting and polishing strategy, we expect Lucapa will deliver an impressive December half financial result that demonstrates the cash flows that can be generated from these exceptional assets,” Euroz said.

Exploration/Magmatic

The happy co-incidence of a couple of significant copper/gold discoveries within the same month – Alkane (ALK) in NSW and Stavely (SVY) in Victoria - has delivered a much-needed boost to the exploration effort in the Eastern States.

There was no better demonstration of that than the apparent ease with which Stavely has been able to pull in $19 million from a placement of shares at $1 each, which compares with its 24c market price ahead of its high-grade, lode-style, discovery at Thursday’s Gossan.

As mentioned previously, the success by Alkane and Stavely is rubbing off nicely on juniors that have copper/gold projects in their portfolio in NSW (Alice Queen and DeVex) and in Victoria (Navarre).

Today, a tiny thing called Magmatic Resources (MAG) can be added to the list, for a time at least.

Its shares have bounced from 2c to 6c on the Alkane excitement as two of its four project areas are close to Alkane’s Boda discovery.

At Magmatic’s Wellington North, three licences abut Alkane’s discovery licence area, and Magmatic’s Bodangora licence 2km to the south-east.

Being proximal is kind of nice but the real beauty of Magmatic’s NSW project areas is that they come with the benefit of having originally been assembled - and lightly explored - by South Africa’s mighty Gold Fields.

The projects – one of which is funded by Japan’s JOGMEC - were brought to the market by Magmatic in a $4m float in 2017, which was undersized for the task of pursuing the big time porphyry copper/gold potential, as well as near surface gold targets.

The squeeze on funding recently prompted the decision to take the jump into WA gold exploration and to spin out the NSW assets through an in-specie distribution to shareholders in an unlisted vehicle – Australian Gold & Copper.

Shareholders vote on the plan - which was hatched ahead of the Alkane and Stavely successes - next Tuesday.

Given the strong share price responses to the Alkane and Stavely discoveries, there is no certainty that the NSW copper/gold assets will in fact head off in to the world of unlisted public companies,  given the market’s hunger to be on board via equity funding to the “next” Boda or Thursday’s Gossan.

European Cobalt (EUC):

There was a time not long ago when a company only had to be thinking about cobalt and its share price would take off.

But then the price crashed and a bunch of junior companies that had made cobalt their focus soon realised that looking for the battery material was no longer an activity the market cared much about.

European Cobalt (EUC) was one of those to feel the cold change around sentiment towards cobalt and it was bouncing around all of 3c a pop before it went into a trading halt last month, since followed up with a voluntary suspension.

The reason for all that is EUC is working on a “potential transaction.’’ What’s the bet it will be something in gold with an Australian location. The Slovakian cobalt play is still there, but it is for another day.

Substantial shareholder Tolga Kumova will be pleased.

Meteoric (MEI):

Interest in another Kumova stock, Meteoric (MEI) has continued to build in response to the drilling program at its high-grade Brazilian gold plays.

What was a 1.2c stock in early April is now trading at 6.4c, with the first kick for the stock coming from the August hit in the first drill hole at the Juruena project (20.6m at 94.9g/t from 96.8m).

It’s where previous owners outlined a 1.3mt resource grading 6.3g/t for 261,000oz (contained).

All good stuff but it is the program at the Novo Astro project, 28km southeast and along trend from Juruena, that the market has been waiting on.

Despite the area being the subject of small time alluvial and hard rock operations by garimpeiros, Novo Astro has never been tested by the drill bit.

The previous owner, Lago Dourado, pulled out after blowing all its funds on trying to prove up a big porphyry target back at Juruena.

But it did do some sampling work which returned 13 samples grading better than 10g/t gold, with one sample of a shear zone with a quartz vein returning a stunning 263.8g/t.

Meteoric reported back on October 1 that a diamond rig and crew had arrived at Novo Astro and would be getting busy testing four initial targets.

No news since but at least the wait to see if Novo Astro is something special or not is almost over.

In the meantime, more drilling results from Juruena are due mid-month.

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