Christmas came early for Lucara CEO William Lamb, and it took the shape of a near-tennis-ball-sized diamond that captured the world’s imagination and the market’s attention.
Lucara shares surged 49 cents, or 30.43%, to a close of $2.10 on heavy trading Thursday on the Toronto Stock Exchange, adding about $200 million to the company’s market capitalization.
Lamb sounded a bit like a proud father on a Thursday morning conference call, albeit one who is still trying to get his head around the “historical significance” of the new arrival, uncertain what the future holds.
“I saw some of the facial expressions … it’s a bit of a shock and awe” effect, Lamb said of the reaction of colleagues who had yet to hear the news when he told them about the gem.
The “baby” – which doesn’t have a name yet but let’s call it “The Lucara” for now – is the second largest gem-quality diamond ever discovered. Only the 3,106-carat Cullinan diamond – which was cut into several polished gems that form part of the British Crown jewels – was larger. That diamond, dubbed the “Star of Africa,” was discovered in South Africa 100 years ago.
“I’m already getting emails saying, ‘Is the stone for sale?’ ” Lamb said, noting the company will explore all avenues to maximize value for shareholders. “We’re not desperate to sell it. At this point it’s still early days.”
Lamb would not put a dollar-figure on the diamond, recovered from Lucara’s 100% owned Karowe mine in Botswana, but estimates have ranged from $40 million to $60 million and even north of $100 million. At July’s exceptional stone tender, two high-quality diamonds – a 342-carat and 270-carat – each fetched more than US$60,000 per carat.
“Being able to put a value on the stone is actually not possible,” Lamb said on the conference call. It’s twice the size of any gem-quality stone recovered and sold by a public company for which sale details are released, he said, so there are no relevant comparables.
Lucara also announced the recovery of 374-carat and 813-carat diamonds on Thursday morning. Those stones are being cleaned now and photos should be available early next week, Lamb said. The 813-carat stone is the sixth-largest gem-quality diamond ever recovered – a find remarkably overshadowed by the 1,111-carat diamond.
“It’s a very significant week for Lucara.”
The three diamonds were all recovered from the south lobe of Lucara’s Karowe diamond mine in Botswana and processed through a large diamond recovery circuit that had just been commissioned. The purpose of the new machine is to maximize the recovery of large stones that would otherwise be broken or destroyed.
“If (the 1,111-carat diamond) didn’t go through, it would have gone to the pebble crusher and been destroyed,” Lamb said.
The stone measures 65 mm by 40 mm by 56 mm, and Lamb said the current equipment can handle diamonds up to 90 mm.
There is lots of material from the south lobe stockpiled, and Lamb said he expects about 60% of material going through the plant going forward would come from the south lobe. That bodes well for the likelihood of further large diamonds being recovered at Karowe, which opened in 2012 and has a mine life of 13 years.
The discoveries – which attracted worldwide media attention – offer vindication for Lucara after recent criticism from some quarters about the company decision to not pay out a special dividend as it did last year (4 cents a share in December).
Lucara currently pays out two 2-cent dividends (in June and December), and Lamb said the board will discuss moving to a more regular dividend policy at a board meeting next month.
“A lot of people made a lot of money on the special dividend and dropped the shares the next day,” Lamb said in response to an analyst’s question.
Lucara is insulated from rough prices due to the robust carat values of its large stones, even though the market discounts all diamond producers when rough diamond prices trend down, Lamb said.
“A large stone like this is not affected by what everybody perceives as the weakness of the diamond market,” he said.
Lucara generated revenues of US$29.7 million at its latest exceptional stone tender of large diamonds, which works out to $20,625 per carat. The highest-value-per-carat stone that sold was an 83.5-carat diamond that sold for $4.13 million, or more than $49,000 a carat.
Lucara has cash on hand of about $122.7 million and 379 million shares outstanding, for a market capitalization of about $796 million.
Disclosure: Author owns shares of Lucara Diamond. This is presented for information purposes and should not be considered investment advice. All investors should consult a licensed financial advisor and do their own due diligence.