Lucara Diamond Corp, a Canadian mining company, has announced a new ten-year diamond sales agreement with HB Group, a Belgian diamond processor and trader, for its exceptional diamonds from the Karowe mine in Botswana.
The Karowe mine, which started production in 2012, is one of the world’s foremost producers of large, high-quality, Type IIA diamonds, which are the most chemically pure and rare type of diamonds. The mine has yielded some of the largest and most valuable diamonds ever discovered, including the historic 1,758-carat Sewelô, the 1,109-carat Lesedi La Rona, and the 813-carat Constellation.
Under the terms of the new agreement, HB Group will purchase all of Lucara’s diamonds that weigh more than 10.8 carats, based on the estimated polished outcome, determined by state-of-the-art scanning and planning technology, as well as external benchmarks and Lucara’s historical sales data. Lucara will also receive a further sales value uplift, or top-up, based on the actual polished sales, less a fixed margin payable to HB.
This pricing mechanism is expected to deliver regular cash flow for Lucara, as well as significant potential revenue upside, especially for large complex rough diamonds, which have been challenging to sell in the conventional tender market due to the high degree of uncertainty and risk involved in their valuation and manufacturing.
Lucara’s president and CEO, William Lamb, said that the partnership with HB Antwerp reflects the company’s commitment to ensuring stability and sustainability in its operations, as well as its alignment with the Botswana government’s strategy to diversify downstream and participate in the polished diamond revenue.
“Our collaboration with HB Antwerp presents an opportunity to further enhance our position in the market, building on the knowledge of the past and the understanding of the quality of the polished diamonds produced from our Karowe diamonds. We remain steadfast in our dedication to delivering exceptional quality and premium value from our diamonds to all stakeholders, even amidst external pressures,” Lamb said in a statement.
The new agreement is subject to the approval of Lucara’s project lenders and will be effective retroactively from December 1, 2023. Since then, Lucara has continued to supply qualifying rough diamonds to HB to fund its operations and the Karowe underground expansion project, which is expected to double the mine life and increase the production of large and high-value diamonds.
The new agreement comes at a time when the global diamond industry is recovering from the impact of the COVID-19 pandemic, which disrupted the supply and demand of diamonds in 2020. According to a report by Bain & Company, the diamond supply chain will return to pre-pandemic levels between 2022 and 2024, led by economic recoveries in China and the US, the two largest diamond markets.
The report also noted that the long-term demand for diamond jewelry will exceed the rough supply, as the production from existing mines declines and no new major discoveries are expected. This will create favorable conditions for Lucara and other diamond producers, especially those with high-quality assets and innovative sales strategies.
Source: Mining Weekly
