Lucara Diamond Corporation reports its results for the year and quarter ended December 31, 2023 and here focus is on Karowe diamonds Sales as of 31 Dec 2023. Karowe diamonds are sold through three separate and distinct sales channels, namely through,
1: the HB sales agreement,
2: on the Clara digital sales platform and through,
3: quarterly tenders.
1: the HB sales agreement: Karowe’s large, high value diamonds have historically accounted for approximately 60% to 70% of Lucara’s annual revenues. In September 2023, Lucara terminated the definitive sales agreement executed with HB in November 2022 (for all +10.8 carat diamonds recovered from Karowe) due to HB’s material breach of its financial commitments.
The rough diamonds delivered to HB prior to the termination of the agreement continued to be manufactured and sold as polished diamonds. The Company retains a contractual right to receive top-up payments from polished diamond sales for goods delivered prior to the termination of the agreement.
The Company continued to sell its +10.8 carat production through this established sales channels while it continued to work with the management of HB on options for a new Diamond Sales Agreement which is subject to pre-approval from the Government of the Republic of Botswana.
For the three months ended December 31, 2023, the Company recorded revenue of $17.4 million from the HB arrangements (inclusive of top-up payments of $6.8 million), as compared to revenue of $24.1 million (inclusive of top-up payments of $3.6 million) for the three months ended December 31, 2022. The fourth quarter saw a reduction in the goods delivered to HB as a result of the termination of the agreement at the end of the third quarter.
Revenue was affected by a 92% recovery factor achieved in 2023, 8% below plan. Revenue in the fourth quarter was also affected by the natural variability in the value of large stones recovered in any given period. As a result of these factors, revenue from HB decreased to 48% of total revenue recognized in the fourth quarter of 2023 (Q4 2022 – 60%).
The product mix in Q4 2023 was predominantly from the South Lobe ore body, with some contribution from the Centre Lobe (Q4 2022 – 100% South Lobe ore).
2: Clara digital sales platform: During Q4 2023, the sales volume transacted was $2.3 million (Q4 2022: $6.6 million), as lower volumes and lower valued goods were placed for sale. Some sales are recognized on a net revenue basis. A softer market was observed with the voluntary import ban on rough diamonds into India during the fourth quarter.
Prices increased 5% overall in December with a resumption of purchasing across most size categories; however, prices remain lower than Q4 2022. Price stability continues to be observed in the stones between 5 to 10.8 carats in size.
3: quarterly tenders: A total of 108,137 carats were sold in the December 2023 tender, generating revenues of $16.9 million or $156 per carat (Q4 2022 tender: $12.2 million from the sale of 76,264 carats or $133 per carat). Rough diamond prices saw a strong rebound in the fourth quarter of 2023 following the significant decrease observed earlier in 2023 as market fundamentals strengthened.
A 19% increase from the third quarter tender was observed owing to price increases and product mix offered in the fourth quarter tender.
3a: Subsequent Event: On February 18, 2024, the Company announced the signing of a NDSA with HB in respect of all qualifying diamonds produced in excess of 10.8 carats in size from the Karowe Mine. The NDSA is subject to the approval of the Company’s project lenders. Upon such approval the agreement terms will be effective retroactively from December 1, 2023.
Since that time, Lucara has continued to supply qualifying rough diamonds to HB in order to fund its operations and the Karowe UGP.
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