Lucara Announces Declaration of Quarterly Dividend
VANCOUVER, BRITISH COLUMBIA–(Marketwired – Aug. 3, 2017) – Lucara Diamond Corp. (“Lucara” or the “Company”) (TSX:LUC)(BOTSWANA:LUC)(NASDAQ OMX Stockholm:LUC) is pleased to announce that the Board of Directors has declared its third 2017 quarterly dividend of CDN 2.5 cents per share to be payable on September 14, 2017.
The dividend of CDN 2.5 cents is payable on September 14, 2017 to the shareholders of record at the close of business on September 1, 2017. The declaration, timing amount and payment of future dividends remains in the discretion of the Board at Directors and is subject to the requirements of the Company’s dividend policy.
President and CEO
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Lucara Announces Second Quarter Results
VANCOUVER, BRITISH COLUMBIA–(Marketwired – Aug. 3, 2017) – Lucara Diamond Corp. (“Lucara” or the “Company”) (TSX:LUC)(BOTSWANA:LUC)(NASDAQ OMX Stockholm:LUC) is pleased to announce second quarter revenues of $79.6 million or $1,336 per carat (all dollar amounts are in US dollars unless otherwise stated).
- Revenue was $79.6 million or $1,336 per carat (Q2 2016: $77.7 million excluding the sale of the Constellation diamond for $63.1 million and $1,017 per carat).
- EBITDA was $51.8 million (Q2 2016: $46.6 million excluding the sale of the Constellation diamond).
- Operating margin was 82% (Q2 2016: 85% excluding the sale of the Constellation diamond)
- Q2 cash position of $62.7 million (Q1 2017: $43.5 million).
- Operating costs were $30.1 per tonne processed (Q2: 2016: $25.9 per tonne processed).
- Earnings per share for H1 2017 was $0.08 (H1 2016: $0.08 earnings per share excluding the sale of the Constellation diamond).
Operational: Karowe Mine:
- During Q2 the Company recovered 113 specials (+10.8 carats) which equated to 5.9% weight percentage of recovered carats which was in line with expectations (Q2 2016: 4.6%).
- The Company’s mining contractor, Aveng Moolmans experienced equipment availability issues during the beginning of the quarter that resulted in lower than planned ore and waste mined. As the Company is focused on mining waste to ensure access to larger volumes of high value south lobe ore in the future, mining focused on waste and remains in line with current mine plan as efficiencies improved in the latter part of Q2 and into Q3 through the addition of more loading equipment.
- Processing volumes were largely on forecast as the lower volume of ore mined was replaced with stockpile ore, largely from the south lobe.
- The Company’s two capital projects to improve diamond recovery and maintain design throughput remain on schedule and within forecast costs.
- As a result of the reduced mined ore volumes, management has reduced forecast carats recovered to between 265,000-285,000 carats and carats sold to between 260,000-275,000 carats. Revenue guidance is maintained at $200 to $220 million based on the processing of south lobe material. The Company is maintaining its revenue guidance due to the more than planned high value south lobe ore being processed. While revenue guidance is maintained, lower recovered carats results in increased risk to the revenue forecast based on the overall timing of the recovery of large and higher value stones.
- The Company’s drilling program at the Karowe Mine testing the AK06 kimberlite at depths below 400m metres was completed in February 2017. Mineral Services Canada has been contracted to assist in the development of the sampling program and internal geology updates that will be utilized for an updated resource estimate for the current inferred portion of the Karowe Mine to a depth of approximately 600m. The resource update is expected to be complete in Q4, 2017.
- During Q2 2017, the Company initiated a large diameter drilling sampling program at the AK11 kimberlite and microdiamond work is being conducted on kimberlite recovered from AK13 which may lead to a further drilling program based on the overall results.
- Extension applications were submitted for each of the prospecting licenses (“PL”) (PL367/2014 and PL371/2014), responses from the Ministry of Mines are expected in Q3 2017.
William Lamb, President and Chief Executive Officer commented ‘Sales in the First Half achieved extremely strong prices and with our focus on cost control, the Karowe mine continues to deliver strong operating margins. We have worked with our new mine contractor to improve performance during Q2 and Q3, and our mining department is now achieving our productivity targets. Our focus on the process plant is to complete the capital projects, further enhancing diamond recovery by the end of Q3 this year. This will place the Karowe mine in an even stronger position to maximize value from the recovery and sale of diamonds from the high value south lobe’.
Revenues and operating margins: The Company achieved revenues of $79.6 million during the quarter (Q2 2016: $140.8 million or $77.7 million excluding the sale of Constellation – 813 carat stone for $63.1 million) or revenue per carat of $1,336 per carat (Q2 2016: $1,017 per carat excluding the sale of the Constellation diamond). This revenue excludes $0.3 million of proceeds received post Q2 for the Company’s June tender. The Company’s Q2 2017 operating margins were $1,089 per carat or 82%, which is largely due to the Company’s first exceptional stone tender in 2017, which achieved proceeds of $54.8 million or $31,010 per carat. Year to date revenue was $105.7 million or $852 per carat achieving a 73% operating margin.
Net cash position: The Company’s ending Q2 cash balance was $62.7 million (FY 2016 $53.3 million). The increase in cash is due to the Company’s exceptional stone tender and regular tender during the quarter and was partially offset by operating costs, royalty payments and capital expenditures of $17.0 million. The Company’s $50 million credit facility remains undrawn.
Earnings per share: Earnings per share were $0.08 for H1 2017 (H1 2016: $0.17 earnings per share). The Company’s prior year earnings per share were largely impacted by the sale of the Constellation diamond. Excluding the sale of the Constellation diamond 2016 earnings per share was $0.08.
Dividend Paid: In Q2 2017, the Company paid its quarterly dividend of CDN 2.5 cents per share or $7.1 million on June 15, 2017 bringing the total dividend paid in 2017 to $14.2 million.
|Three months ended
|Six months ended
|In millions of U.S. dollars unless otherwise noted||2017||2016||2017||2016|
|Average price per carat sold(**) ($/carat)||1,336||1,824||852||1,233|
|Operating expenses per carat sold(**) ($/carat)||247||141||232||139|
|Operating margin per carat sold(**) ($/carat)||1,089||1,683||620||1,094|
|Net income for the period||32.2||46.1||30.6||63.3|
|Earnings per share (basic and diluted)||0.08||0.12||0.08||0.17|
|Cash on hand||62.7||210.8||62.7||210.8|
|(*)||Revenue is presented based on cash receipts received during the period and excludes tender proceeds received after each quarter end.|
RESULTS OF OPERATIONS
Karowe Mine, Botswana
|Proceeds generated from sales tenders conducted in the quarter are comprised of:||US$M||79.9||26.1||66.0||29.8||149.1|
|Sales proceeds received during the quarter||US$M||79.6||26.1||66.0||38.1||140.8|
|Q2 2017 tender proceeds received post Q2 2017||US$M||0.3||–||–||–||–|
|Q2 2016 tender proceeds received post Q2 2016||US$M||–||–||–||(8.3)||8.3|
|Carats sold for proceeds generated during the period||Carats||62,434||64,444||88,957||84,059||107,801|
|Carats sold for revenues recognized during the period||Carats||59,598||64,444||88,957||114,659||77,200|
|Average price per carat for proceeds generated during the period**||US$||1,280||405||743||355||1,383|
|Average price per carat for proceeds received during the period***||US$||1,336||405||743||332||1,824|
|Tonnes mined (ore)(****)||Tonnes||432,017||131,380||582,169||650,290||884,212|
|Tonnes mined (waste)(****)||Tonnes||4,992,196||587,177||2,728,915||3,092,110||2,868,798|
|Average grade processed||cpht (*)||11.2||10.9||13.0||12.5||14.6|
|Operating costs per carats sold||US$||247||217||197||149||141|
|-8+4mm sub-middles XRT project||US$M||1.8||2.8||7.2||–||–|
|LDR and MDR circuit||US$M||4.9||1.6||0.8||2.3||2.9|
|(*)||Carats per hundred tonnes|
|(**)||Average price per carat for proceeds generated during the period includes all sales tendered during the period including proceeds received post the quarter end|
|(***)||Average price per carat for proceeds received during the period includes all sales proceeds collected during the period including proceeds received during the quarter|
|(****)||Restated following Q3 2016 survey|
OPERATIONS: KAROWE MINE
Karowe had one lost time injury during Q2 resulting in a twelve month rolling Lost Time Injuries Frequency Rate (“LTIFR”) of 0.13. The incident resulting in the loss time injury involved a hand injury during equipment repair. Actions have been taken on site to improve safety awareness.
The Company’s mining contractor, Aveng Moolman, experienced equipment availability issues during the beginning of the quarter that resulted in lower than planned ore mined. Mining activity therefore focused on waste material movement that is on schedule to ensure increased flexibility for mining south lobe ore in the future.
While ore mined was lower than forecast, processed volumes were largely on forecast as ex-pit ore feed was replaced with south lobe stockpile material. Due to the south lobe being of lower grade when compared to the centre and north lobes, but of higher value, carats recovered to date were lower than forecast, however the Company continues to maintain its revenue forecast due to the processing of higher value south lobe ore.
Costs remain well controlled at $30 per tonne processed and are forecast to be between $36-$40 per tonne processed for the year.
The two capital projects to enhance diamond recovery and maintain design throughput continued to advance on schedule and within approved budget. The Mega Diamond Recovery (“MDR”) project is forecast to be complete during Q3 2017, with commissioning and ramp up in the same period. Construction is essentially complete and first stage commissioning has commenced.
The -8+4mm sub-middles XRT project’s construction progressed on plan during the quarter. The project is on schedule for completion in Q3 2017. This project will further enhance the processing facilities ability to treat the high yielding, high value south lobe ore at depth and is anticipated to result in an efficient and cost effective methodology for processing this ore.
An underground study at Karowe has commenced with the firm, Royal HaskoningDHV being appointed to lead the work. A Preliminary Economic Assessment is expected in Q4 2017 and, following hydro geotechnical work, a Pre-Feasibility Study is expected to be completed in H1 2018.
EXPLORATION AND RESOURCE UPGRADE
Karowe Resource Upgrade
During Q2 2017, specific sampling of drill core was initiated for density, petrography, and microdiamond analysis. Drilling was completed in Q1 2017 on a planned 10,000 metre drill program at the Karowe Mine to test the AK06 kimberlite at depth. A total of 12 drill holes (9,750 metres) were completed with approximately 2,770 linear metres within the south lobe of the AK6 kimberlite being drilled. The program is designed to increase confidence in the geological model for the south lobe of the AK06 kimberlite and provide sufficient data and material for an updated resource to be utilized in an underground option study for the Karowe mine. Core logging is complete and a program of core sampling for density, petrography, and microdiamond analysis is underway. Mineral Services Canada has been contracted to assist in the development of the sampling program and internal geology updates that will be utilized for an updated resource estimate for the current inferred portion of the Karowe Mine and is expected to be completed in Q4 2017.
Botswana Prospecting Licenses:
In 2014, the Company was awarded two precious stone prospecting licenses (PL367/2014 and PL371/2014) that are known to host kimberlites, BK02, AK11 and AK12, AK13 and AK14. The prospecting licenses are located within a distance of 15 km and 30 km from the Karowe mine. Extension applications were submitted for each of the PL’s (PL367/2014 and PL371/2014), responses from the Ministry of Mines are expected in Q3 2017.
During Q2 2017, the Company initiated large diameter drilling (“LDD”) sampling program at AK11. Drilling has commenced on the pilot drill-hole aspect of the program. Material recovered from the LDD samples will be processed at the Company’s Bulk Sample Plant located at the Karowe Mine.
During Q2 2017, logging and sampling of AK13 was completed and microdiamond samples shipped for analysis. Results are expected during H2 2017.
These are “forward-looking statements” and are subject to the cautionary note regarding the risks associated with forward-looking statements.
Karowe Mine, Botswana
The Company continues to forecast revenue between $200 million and $220 million for the year ending December 31, 2017. This excludes the sale of Lesedi La Rona currently held in inventory.
The Company has ensured waste mining remains on schedule, opening up the pit to allow increased flexibility for mining south lobe ore in the future and has also continued to process volumes at forecast levels with a blend of pit ore and stockpile material. As a result, waste mining remains on schedule with a forecast of between 17-18 million tonnes mined for the full year. A reduction in ore mined has led to a revised forecast from 2.4-2.7 million tonnes to 1.8-2.0 million tonnes.
The Company continues to forecast tonnes processed at between 2.4-2.7 million tonnes. Reduced mined ore volumes offset by increased volumes from the lower grade south lobe stockpile has reduced forecast of carats recovered to between 265,000-285,0000 carats (previous guidance 290,000-310,000) and carats sold to 260,000-275,000 carats (previous guidance 290,000-310,000). Revenue guidance is maintained at between $200 to $220 million, however, as south lobe ore generally returns larger, higher value diamonds contributing to higher overall rock value. Revenue guidance forecast does carry increased risk based on the challenge in predicting the overall timing of the recovery of these large, high value stones.
The two capital projects comprising of the MDR and -8+4mm sub-middles XRT are expected to enhance diamond recovery and maintain design throughput. Both projects remain on schedule and on forecast for a spend of between $33-$35 million during 2017 for a total project spend of between $15-$18 million and up to $30 million respectively. The projects are forecast to be fully commissioned in Q3 2017.
Sustaining capital is unchanged and forecast to be between $7-$9 million in 2017.
Karowe’s operating cash costs remain unchanged and are expected to be between $36.00 and $40.00 per tonne processed following a planned increase in waste mining as the Company advances toward early completion of a major Cut 2 push back that will open up the south lobe by the end of 2018.
A budget of up to $10.0 million is unchanged to advance resource evaluation work on the AK6 kimberlite at Karowe Mine and the completion of a pre-feasibility level underground study and to advance its exploration program. A 10,000 metre deep drilling program on the Karowe Mine to test the AK06 kimberlite south lobe was completed in Q1 2017 with the aim of converting inferred resources below 400 metres depth to an indicated resource and to determine the economic viability of the Karowe mine resource extension. Detailed logging and sampling was initiated in Q2 2017 and continues into Q3 2017. Mineral Services Canada has been contracted to assist in the development of the sampling program and internal geology updates that will be utilized for an updated resource estimate for the current inferred portion of the Karowe Mine to a depth of approximately 600m. The resource update is expected to be completed in Q4 2017.
The USD/Pula outlook foreign exchange rate is 10.3.
On behalf of the Board,
William Lamb, President and CEO
Lucara is a leading independent producer of large exceptional quality Type IIa diamonds from its 100% owned Karowe Mine in Botswana. The Company has an experienced board and management team with extensive diamond development and operations expertise. The Company operates transparently and in accordance with international best practices in the areas of sustainability, health and safety, environment and community relations.
The information in this release is accurate at the time of distribution but may be superseded or qualified by subsequent news releases.
The information in this release is subject to the disclosure requirements of Lucara Diamond Corp. under the EU Market Abuse Regulation and the Swedish Securities Markets Act. This information was publicly communicated on August 3, 2017 at 2:30 p.m. Pacific Time.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made and contained herein in the press release and elsewhere constitute forward-looking statements as defined in applicable securities laws. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “expects”, “anticipates”, “believes”, “intends”, “estimates”, “potential”, “possible” and similar expressions, or statements that events, conditions or results “will”, “may”, “could” or “should” occur or be achieved.
In particular, this press release may contain forward looking information pertaining to the following: the estimates of the Company’s mineral reserves and resources; estimates of the Company’s production and sales volumes for the Karowe Mine; estimated costs for capital expenditures related to the Karowe Mine; start-up, exploration and development plans and objectives; production costs; exploration and development expenditures and reclamation costs; expectation of diamond price and changes to foreign currency exchange rates; expectations regarding the need to raise capital; possible impacts of disputes or litigation; and other risks and uncertainties described under the heading “Risks and Uncertainties” in the Company’s most recent Annual Information Form available at http://www.sedar.com (the “AIF”).
Forward-looking statements are based on the opinions, assumptions and estimates of management as of the date such statements are made, and they are subject to a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward-looking statements. Such assumptions include: the Company’s ability to obtain necessary financing; the Company’s expectations regarding the economy generally, results of operations and the extent of future growth and performance; and assumptions that the Company’s activities will not be adversely disrupted or impeded by development, operating or regulatory risk. The Company believes that expectations reflected in this forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking information included in this press release should not be unduly relied upon.
There can be no assurance that such statements will prove to be accurate, as the Company’s results and future events could differ materially from those anticipated in this forward-looking information as a result of those factors discussed in or referred to under the heading “Risks and Uncertainties” in the Company’s AIF, as well as changes in general business and economic conditions, changes in interest and foreign currency rates, the supply and demand for, deliveries of and the level and volatility of prices of rough diamonds, costs and availability of power and diesel, acts of foreign governments and the outcome of legal proceedings, inaccurate geological and recoverability assumptions (including with respect to the size, grade and recoverability of mineral reserves and resources) and unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalations, unavailability of materials and equipment, government action or delays in the receipt of government approvals, industrial disturbances or other job actions, adverse weather conditions, regulatory or environmental changes resulting from global climate change and unanticipated events relating to health safety and environmental matters).
Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date the statements were made, and the Company does not assume any obligations to update or revise them to reflect new events or circumstances, except as required by law.
Lucara Diamond Corporation Q2 2017 Earnings Conference Call August 4, 2017 9:00 AM ET
View Transcript @SeekingAlpha.com
William Lamb – President and Chief Executive Officer
John Armstrong – Chief Financial Officer
Kevin Kerdoudi – Bank of America
Geordie Mark – Haywood Securities
Richard Hatch – RBC
Geordie Mark – Haywood Securities
Good day, ladies and gentlemen, and welcome to the Lucara Q2 2017 Results Conference Call and Webcast. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference is being recorded.
I would like to introduce your host for today’s conference Mr. William Lamb, President and CEO, sir.
Thanks, Wills. Thank everybody for dialing in, especially on a long weekend here in Canada. So we’ll just jump straight into it, I’ll go to Slide 3. Just to go through the highlight of the Q2 results. The revenues for Q2 set at just under $80 million or over $1,300 per carat of that obviously being driven by the exceptional stone tender, which we had in Q2 with diamonds recovered from both Q2 and Q1 being sold. That brought our revenue for the year to just over $105 million or just under $106 million. We compare that to the $140 million from last year for Q2 and a high number Q3.
But obviously, as we go through this, one of key factors will be on how all the data from Q2 in the half year 2016 is excluded by the sale of the Constellation diamond, which came in at $63.1 million. But you would have seen in the press release and in the MD&A there is lot of reference to trying to bring that back to a quarter-on-quarter comparison excluding the Constellation diamond.
So operating margins again were very strong at 82% and this comes again from what I think management and the guys on started to do a very good job on, and that is focusing on cost control. And I’m sure that there almost going to be one or two questions around the mining contractor.
The mining contractor joined us back end of Q1, having – had the equipment stand for a year and getting everything up and running took a little bit longer than what we had expected. But based on the number of loading or piece equipment that they now have, the volume of the large trucks, the additional small trucks that they have on, we’re making a very, very good roads into – really getting to the very high waste and not too much on the ore but waste to move which we plan to do during 2017 and into 2018.
Where we have been focused, and as we’re now moving and that’s very difficult to talk to the summit of course you have an idea in your mind of what it is that we’re looking at. Because the south lobe has a bulge which kind of comes out to the Southwest, the volume of waste which we have to move to ensure that we access the full service area of south lobe is the reason why we are doing a much larger volume of waste moved this year and next year as we get down to the round about 100 meters, 120 meters below normal or above the sea level.
With that being said, the focus is on moving the material to get full exit to the south lobe. But one of the questions which we had from one of the directors in the board meeting yesterday was, our comfort level with the stockpile material which we have and with the changes which we’re making to the process plant to include the XRT technology which is yield independent. We do believe that the stockpiles which were created because of the very high yield and the abundance of fresh mental material will very soon be sort of a fair game for what we can to put to the process plant, giving us access to a much greater portion of south lobe material which is stockpiled and has not yet been put through the process plant.
In terms of our capital project, those are actually on track, actually slightly ahead of schedule. And just on the Mega Diamond Recovery we were down on stocks about 10 days ago and they start to put material through that one or two, so slight delays on completing the glove box with, but we do believe that Mega Diamond Recovery will be up and running most solely with all before the end of August. And then we’ve got a shutdown in August just to integrate the sub-middles and that will bring us to the end of our capital program.
There’s nothing really more that we can do to the process plant – some of the efficiency as well as working on the little bit cost drop which we do on a regular basis. Also on the resource update, the drilling is now completed at least 50% of the samples, have gone through the lab in Saskatchewan for market diamond work, and we’ll look forward to updating the market on that later on.
Moving on Slide 4, just the key performance indicators, and sort of I do like the slide especially where you see the dash lines which removes by what that Constellation diamond actually did. And again, I think this is a good demonstration of just how the quality of the product which we pull out of the Karowe mine, can skew the data when looking at on a quarter-by-quarter basis. And Slide 4, as well as Slide 5 are very good examples of how exactly how our production profile affects not just the quarterly, but sort of what we actually see in this very sporty revenue. But I think when we look at it over the year everything seem to just pan out.
So if we compare half year to half year as shown in Q4, the numbers are very, very consistent with what we had said we were going to do, but also with what we actually did last year if we exclude the Constellation. And I’m sure that if there’s a willing buyer for the Lesedi La Rona, we’ll be able to sort of duplicate back and have 2018 where we’ll have to exclude the sale of the Lesedi, just to make sure that we’re comparing apple to apple.
If we move on to Slide 5, and this is really sort of one of the new slides which we’re adding. We still get a lot of questions about why did you have three tenders in 2013, 2014; we’re talking exceptional stone tender. And I’ll reiterate again that, when we first start to recover the largest stone all the way back at the end of Q1 2013, we gone back to our clients and asked them what they considered as an exceptional stone, and kind of there was $250,000. And as we recovered more, oddly enough we recovered a lot of stones $250,000 or more.
Over the years, we’ve changed that bottom kind of cost period, in terms of what stones we put into the exceptional stone tender. So for the last two years, that bottom kind of cost period in terms of value has been $1 million. And sadly, we don’t recover as many million dollars stones as what we do with $250,000 stone. And you can see that in the increased value from 2013, 2014 into 2015 of what we had in our regular tender and have a very solid consistency of what we now put into the exceptional stone tender.
And I think of that which we’re trying to demonstrate in this curve. For example if you look at sort of 2016-2017, the large bars which we see in light blue, which are our exceptional stone tender result. If you split that into and half it into the previous quarter where we only had a regular tender, oddly enough that shows you just the even consistency of what that plant generates on the quarter-by-quarter basis, even though we’re not selling those diamond because we all are obviously trying to collect them to have sufficient volume for exceptional stone tender to draw those plants in.
Moving on to Slide 6, our financial position, at the end of the quarter, we still have $62.7 million in the bank again so we just want to reconstruct that. There are still areas where what we are spending on this year, we don’t expect to actually spend next year. And for anybody who actually tendered the capital markets day, there is a presentation on the website which has a right cash flow, a wonderful chart shows where the money has been spent. And as we go through that, if you look at what we spent on, the repayment of the debt after the construction, the dividend in assets are excess of $200 million, the capital project which we we’ve done from internal cash flow.
And I think if we the fact that we coming to the end of our capital projects only thing we’ll have will be $7 million to $8 million of sustaining capital going forward. It does open up the ability for us to now flex what we actually do with the free cash flow. To win a very strong position there, the mining contractor running it slightly lower than what we had for the previous one tender dollar for BCM moved. So that’s again where the management is focused on the cost control.
The mine plan as we’ve mentioned, focusing on the south lobe generating better margins from there. And all of those factors still contribute to our very strong position even with us paying up close to $50 million in dividends through the year. And then the last point, our Scotia revolving credit facility still remains undrawn.
So moving on to the mine and the operating performance on Slide 8. Staring behind, and sort of I think when we look at what we’ve had on the rainiest season ever, most solely more than 100 years in Botswana. You don’t hold your local water supply dam from focusing to overflowing in the space of around about four weeks or five weeks. On sort of a very wet season which did affect the movement of all and what we could get into the process plant knowing that we were processing a lot of weather material. And we did have a quite of few hang-ups in the first half of the year, and then the diamond plant to integrate to make it diamond recovery because we were making change to the front end of the process plant there’s no way to bypass that material and actually get it into the mode.
We do have – and still expect to process according to our guidance between 2.2 million to 2.4 million ton through the plant during the year, even though we are slightly down on the half year by 5%. In terms of all mine carat covered in line with what we had originally expected all the – if we look at the carats which we’re recovering, I see that there are comments that that is most solely the biggest concern for people. But we haven’t actually changed our revenue guidance. And that’s probably because the diamond which we are currently recovering – and it’s the first time we’ve actually put in the percentage plus 10.8 carat stones which we’ve recovered.
That is a very important number, because if you do the math over the year the production at increasing from 4.6%, plus 10.8 carat stones now setting at 5.9 carat. That does make a significant difference to the overall revenue generated from the sales and specially for the diamond from the south lobe. In terms of the waste moved you can obviously see the increase from where we were in Q2 last year to where we are this year, a significant jump almost sort of not quite double, but sort of more than 2 million tons moved on the waste type, and we do expect that trend to continue if not increase slightly as we go into Q3 and into Q4.
In terms of the revenue side of things again, skewed quite a bit by the Constellation diamond, but generating a 105 which when we look at the full year our guidance being between 200-220 we are fairly comfortable with that. The revenue generated setting at 800 to 852 still quite a bit above what we have seen through the year in previous years, only averaged around if again we remove the Constellation [indiscernible]. That’s one of the reasons why we look at, what we – where we mining, what we expect to get in the future and taking those numbers forward in terms of the revenue expected for 2017.
Moving on to Slide 9 on the CSR, very good safety record. We had one lost time injury during the quarter, and this sort of comes on the back of a very good run of 5 million hours which was achieved at the beginning of the year without a lost of time injury. We are now sort of very much focused on our behavior based safety programs which you’re running on stock. We’ve reinvigorated those since the lost time injury and the guy from south lobe are very much focused in. I think with having two if not three different sub contractors with a very large volume of people working on the two capital projects while we are running operations, the safety is being managed very, very well.
And in terms of CSR, that’s still going well. The Karowe emerging entrepreneurs fund is sort of the communities are clamoring for us to reissue another round of grants. But I think the process which we’ve been through with regard to making opportunities available for the local communities is working very well, where the vast majority of the people are paying back into the fund, which will allow us for opportunities for redistribution of those funds to new entrepreneurs and business ventures in 2018.
Moving on to Slide 10, this is our expiration and resource. As I mentioned, the expansion of the resource, this is to move more material from inferred below 400 meter below the surface mark into indicated and the 10,000 meter drilling program was completed earlier in the year. All of the samples required for the resource update have now been taken. And as I mentioned, about half of those had been completed in the microdiamond work. Indications from that our microdiamond are very consistent with what we mining now, so we don’t foresee any changes in terms of the size distribution and the geological continuity of what we see it there.
And in terms of assessing whether we’re going to be able access all of that material. We had originally decided that we were going to go for a full pre-feasibility, but because there is work on the hydrogeology which is required which is going to push the timeline out of that, and we do want investors to understand what the economic potential is. We are planning on completing a preliminary economic assessment that will be done in Q4, which we’ll put out to the market. And then as we go through the process will complete the drilling and then look to put out the pre-feasibility, most solely the end of Q1 next year. But I think the indication of what we have down there, the resource as well as the PA will need the investor to be able to do a much better analysis of what the future looks like of mining at Karowe.
Moving up the exploration, on the prospecting licenses we made good progress there. All the pilot holes at AK11 is now being drilled. So AK11 fits with a much sort of greater volume of sand material over the kimberlite and not as easy as what we had in BK02 and – AK12 in terms of being able to get involved in Bulk Sample. So we are doing a large diamond’s drill program there. We have a plan for 14 holes 12 of the pilot holes are being drilled above rig is on site – are on site at the moment. We do expect to start in samples flow to the Bulk Sample Plant most solely within the next two weeks or three weeks.
That kimberlite, maybe about [indiscernible] away from the Karowe mine hardly enough in terms of proximity versus BK02, much, much closer, so we are very very – sort of hopeful that knowing again the opportunities to discover something of significance through the exploration is always – as everybody in the call will understand that low probability, but I think the information which we’ve got market and we know there is diamonds in it. That’s why we’re moving forward with a large diamonds and drill program.
And so we look to put some of those results up at mostly in the late Q4 once we’ve got a substantial portion of those large diamonds and samples through the Bulk Sample Plant. In terms of AK13 logging and sampling that will be completed and microdiamond samples have also been shipped for analysis and we expected those results. And then based on those results have a determination of what we’re going to do later on in the year into 2018 with those on. And then obviously making sure that we actually have the permits, and we have a plant for FAO, we put in the extension application for those permit just so we can continue and I think we most solely get results from a back in Q3.
Moving on to outlook, as I’ve said, excluding the sale of the Lesedi, we do expect revenues of between $200 million to $220 million, that from the sale of slightly lower volume of carats as I mentioned. A significant portion of those coming from south lobe where we are now see much higher average dollar per carat. We’ve already touched on the production and pretty much everything else except for ore mine.
We don’t need to mine ore from the pit when we have the stockpile material which has a decent grade and where the plant modifications which you make we can now put that’s already favorable. So that’s not really going to change anything if anything we most solely see a small adjustment in terms of the overall operating cost, because we’re not mining that but again we are trying to move as much waste as possible to give up the flexibility to be able to go into the south lobe and if you want a mine in the along the contest in Southwest we can do that, if you want a mine in the contest between the State and the South we can do that too. So I think that’s what we’re looking at really the focus for mining and through this year and next.
In terms of our capital project, the sub-middles and Mega Diamond Recovery both of those remain on budget and slightly ahead of schedule. And then the sustaining capital still staying between $7 million and $9 million in exploration, depending on where we go with the AK13 results will certainly address that either up or down, but we don’t expect that to come in anywhere above the $10 million mark.
I’m going to just sort of quickly go through sort of one of two things on the diamond markets. Obviously, it’s the summer season now, so if you asked anybody what was happening in the diamond market and really been fairly quiet and not very bullish. I think there are some interesting trends which we have seen in the market, obviously there’s always going to be a concern in trend and if you speak to anybody in the diamond market and they generally have every thoughtful learning had the cloud outlook.
But I think the one thing we are launching fairly closely in term of the general market is what’s happening in the U.S. it does seem to be softening in the U.S. But again with that almost like when one door closes the window opens. And we have seen a significant recovery in diamond consumption out of China and the Asia-Pacific region and that been a pretty quiet area maybe about three years, or four years or additional five years now.
So then coming back to the market. Actually sort of compensate for the softness which we’re seeing in the U.S. market. If we look that, again, the results from our exceptional stone tender and what the market means to Lucara. The results from the tender very, very happy with those results, the gain showing robust of all the large diamond sector.
And I think that’s what’s it gives Lucara, a different view on the market on specifically, because our production profile is varied and very much weighted towards the larger high value goods where the royalty is so much higher and the people who are willing to still pay a significant margin on those stones, because that this pulled them on – pulled them.
I mean, we will always – I think any diamond company will always say that the outlook is positive, which we believe it is specifically for the production profile which Lucara has. But there always movements in the markets and we see that in the luxury goods sector, which is really the key driver for what we actually sell. So we are still cautious in moving forward.
So just before we go into the question-and-answer, I have with me Glenn Kondo, our CFO and John Armstrong, Mineral Resources VP. So if there are questions with regards to any of those specific one, I’ll just hand over to John or Glenn to answer those questions.
So at this time, I’d like to hand it back to the operator. Wills, if we can go to the question-and-answer period, please?
Thank you, sir. [Operator Instructions] Our first question is from Kevin Kerdoudi of Bank of America. Your line is open.
Good morning. Thank you for taking my question. I just want to come back on this equipment availability issues that your mining contract are just like experienced last quarter. Can you just give us more details about like the issue, I mean like, what it – because it was like too many trucks in maintenance or just like potentials, equipments that we’re missing?
Hi, Kevin. Thanks for your question. The main issue was the mining contractor had a fairly large fleet of trucks which they had been [indiscernible]. And the contractor that [indiscernible] actually Turkey kind of ran out of money. So the equipment had been standing forward a little under a year. So they had been going in stocking the equipment that you had run for certain period of time. But because they were moving it around, when they do it – they just stop – they were just a unit components failure on the equipment. It’s not that – it wasn’t that they had enough equipment on stone.
And it was – I think very frustrating for them because they believe that they done all the maintenance et cetera to get the machine or maintain machines in a working state. And it would just see that they do the bearing on those wheels for comprised on this one or something on those one. And it was more around – not really the rolling stock, but more the loading equipments. They have three big shovels. The size of the mining fleet which we have on stock now compared to a year ago is mostly two and half, three times larger.
And when you operating these big shovels, you need to maintain them and they had sort of hydraulic failures on the numbers of those. And when you have a lot of – a piece of loading equipment down regardless of how many trucks you have, if you don’t have something to load it. There was more in the loading equipment side of things, where we had delayed in the volume of material, which we can move. And they have now over the past sort of months, they’ve mobilized two additional 80 tonne excavated to stock is well so. When we only need three pieces of loading equipment, we now have six. So we do have a much higher level of contingency moving into second half of the year.
Okay. Thank you very much.
Our next question is from Geordie Mark of Haywood Securities. Your line is open.
Yes. Good day, William, Glenn and John. It’s good quarter results. Just a few questions, if I may. Maybe just in terms of the material processed showing you’ve given idea of the providence of the material processed in the quarter and what you see the providence on average for H2?
Well. I think sort of – if we look at – all that we’re going to be processing a little bit we have bunch of the vast majority of it comes from south lobe. There have been – I think the difficulty is when we talk about reprocessing material from stockpile. The stockpile material is south lobe. The reason why that material is on stockpile is, when we started mining into certain areas, we when actually have the geologists measuring the Mega stuff out in the field and if the Mega stuff is good correlation between the Mega stuff and the amount of free mantle material – fresh mantle material in the comps that was very high we put it on stockpile, every now and again, we – I just came to put some of those through this standard plant which we had, which really focused on the dense medium separation as the key driver at the back-end on the smaller material.
And two truckloads, the 3,200 tonnes of that in the plant would stand for 24 hours, because it just didn’t have the capacity to process those very, very high yield material. Hence the requirement for the sub-middle project. But as we’ve now been through it, they’ve made modifications to the process plant, we have adjusted way such things go and some other material which is out there – not all of it, now has the capacity to go through the plant. I’ll be completely honest, we put that two or three trucks worth of selling into the plant about two weeks ago.
And it was an awful weekend, because they think both times waiting for this constipated plant and now here or so. There is still vast material but we’ll be very selective of what we put out there. But it’s really the south lobe which has the three high component of fresh mantle material and that’s what sitting out from the stockpile that everything going forward – 98% is going to be south lobe, except when we – if we do push back and we’re actually now mining some of the cup two which comes with this base of which we are actually on kimberlite in the north lobe will be a little bit that of that going through. But the vast, vast majority is going to be south lobe going forward.
Okay, great. And so with fair amount, I guess going forward from H2 now and then into next year, you looking to – is there regional projection, as the same 8% of starting above 10.8% in that category.
It’s actually very consistent. We’ve seen months where the volume of +10.8 carats has exceeded 10%. I think when we look at what the south lobe has generated on average and on a consistent basis anywhere from 5% to 6% to the comfortable level, which we have seen.
Okay. I just want to end a last one more question and get back in the queue. In terms of inventory, the commentary around – I guess yield and dependent nature of the sub-middles. Is that fact to been incorporated into the current projections for processing this year? Or you trying to play the conservative role first and then when you see how it’s operating then potentially integrate more of the high yield south lobes?
Yes. You’ve obviously been following Lucara for a while. Yes, so that’s what we’ve done. In Q3, even though we doing things actually it’s get material through the sub-middle and we haven’t made any allowance forgoing into any of the very high yield material. And then even through Q4 we’ve been fairly conservative in our overall mine plan of what we put through that. We want to make sure that it’s fully optimized. It is going to be recovering, a very large sector of our value distribution, when we start to look at the material going through exhausting machines.
So we want to make sure that that’s after running before we go back to the high grade, high yield areas and some of the stockpile material. And we will obviously, stone have a flat constraint on the – it’s an area, if it’s not actually a defined unit. But when they did the expiration, the rarity 5% yield, even that’s with the extra key technology we still have all of the mines 4 millimeter material which will still go to the DMS. Some of that material, we will still have blend with lower yields. So we’re not there yet – that couple of years down the line.
Okay. Thank you.
Thank you. [Operator Instructions] Our next question is from Richard Hatch of RBC. Your line is open.
Hi guys, and thanks very much for the call. And three questions for me, please. Firstly, just on the contracts that you’re just finish up from that, when do you expect that to be fully addressed and all of other fleet unit fully available. So you can move the material in each maze. Second one, just on the market, it’s been treat to get your views on when we – when in your view you see the market actually tightening when we see some decent rough price appreciation. And then my third one is just on your cash guidance – I mean you’ve done very well in terms of each dollar per ton. And so far, when I look at your H2 average is going to be kind of pushing 40%. And so what was the view there – are your numbers conservative and you might be there. What was your view? Thanks.
All right. So, thanks, Richard. To answer your first question, everything is fully addressed. The new loading equipment which they have, the volumes which they are moving are in line with what we need to do to get to the full target of 17 plus or minus million tons by the end of the year, so the mining contract we’re very happy with. I think that the guys and staffs are putting a lot of pressure on them to continuously over-deliver which is good.
I’m going to come back to the market one – on to that one third. The cost guidance, even though we’ve done very well this year, also the first half of the year, I think the important thing to note is that the volume of waste which we mine between now or in H2 versus H1 is significantly greater. Pretty much no costs were allocated to waste money in the first quarter of the year. So we do actually expect the overall operating cost to come within our guidance because of the volume of waste. The waste is really what’s driving it, and that’s what’s going to drive year and next year.
And then with the resource update that the target is to actually have that out mostly midway through – somewhere in November in Q4. And with that there will be an associated update of mine plan. And I think the market will be very pleasantly surprised, but the waste which we are moving this year and next year, the volumes which we had planned to move in 2019 where we would strip ratio run about 2.7% based on the latest mine plan also that drops down to 1.9%. So we are spending money now knowing that we’re going to have a lot less waste to move, and obviously, money to spend in 2019 onward.
And then sort of coming back to the market, when do we expect to see rough process sustainably increase. It’s a difficult one, because we’re talking about the general markets. And if you look at the KP numbers, I think it was 136 million carats last year versus 129 million the year before. So Stornoway and Mountain Province, Firestone, the new production which is coming on, the Russian’s who actually cranked up production last year.
And all of those productions still sits in a price range of, let’s say from 140 carats – $140 per carat down. So you got to wait for the mines to actually sort of consume those carats as well, and out of some of the mines they’re all producing a mix of both good – good and bad, which is what we expect from all diamond mines.
For us at Lucara, we’re more focused on what the polished price index does, because if there’s demand for polish, there should be then associated demand for rough. But the volume of rough and polished in the pipeline, this is not sitting in pieces of jewelry, this is actually just free diamond sitting in the inventory. I think that most solely be the overhang in terms of what needs to move, and we can polish up to eight years.
It’s a slow and steady increase in the volume of polished inventory available. Where – when the market was under sort of a very high level of control that inventory volume was kept around about a year. We now estimate based on sort of discussions which we’ve had with players in the market, is that the volume of polished now sits at anywhere from two years to two and a half years worth. And I think that’s one of the key constrains in terms of not seeing a sustainable increase in both the polished process as well as in that rolling into rough, those two different supply demand fundamentals which you have to take into consideration.
So in terms of an analyst being able to say, I see a steady 3% per annum or whatever might be diamond price escalation on an ongoing basis. I don’t see that happening any time or the key fundamentals and the volumes in the market that actually happening where we can stand hand and heart and say this is what we see in terms of a real price escalator, not sort of inflation.
Thanks, William, very helpful.
Okay. Thanks Richard.
Thank you. We do have a follow-up from Geordie Mark of Haywood Securities. Your line is open.
Yes, thanks. Maybe we just follow through on Richard’s questions there. In terms of the – here you said the polished sort of inventory growing at two years, two and a half years. But I’m guessing that the composition of that stockpile of polished goods is sort of asymmetric towards the smaller goods versus what Lucara produces. Can you give us any sort of symmetry on that?
I’m not very – and Geordie, as far on that that is very much the case. I’d say, if you look at the inventory split of what Lucara produces, they may get 80% of our revenue comes from stones which are larger than 4 carats, which when you polish those it’s going to go down into minimum 1.5 carat, most solely around about 2.5 carat stone. If we look at the value in terms of dollars of inventory was only 90% to 95% of the inventory value sits in stones smaller than that.
Okay, great. And in terms of stones, obviously, your revenue guidance costs were roughly equal for revenue H1 and H2, making the assumption now that another exceptional stone intend to coming into play. I mean, what to say, critical massive stones and overall carat mass to make sense for an exceptional stone tender fee maybe I guess in Q4 or something.
Definitely the number of stones which we always focused on it’s a combination of that minimum of 15 stones in an exceptional stone tender. We have an average inventory all those, and if we go – we spent quite a bit of time discussing this with the board as well. If we go back and we have a look at it, it started to recover, it comes out is threes. And we’ve looked at all data, but I think it’s more than number of the stones versus the carat. But I would say that the historical sales et cetera that we’ve been through is a very good proxy for what we expect going forward.
Okay, great. And one last one. Just, John, can you highlight the lower sort of pierce point in the drilling through the inferred resources? And what you expect to likely kind of search distance out or down from that point to include resources and indicators, I guess? Just trying to get an ultimate idea, the differential minus 400 meter down through the deepest point on a potential insert or indicated resource?
Yes, I guess the main focus of the program was targeting that 200 meter slice below the present day indicated, so between 400 meters and 600 meters below the surface. Our deepest drilling got down to an excess of 700 meters below the surface. And overall the pipe geometry that was in the maiden resource and the resource updated 2013 hasn’t changed significantly in the updated drilling. So we’re dealing basically with the overall geometry and volumes sticking close to what we have in the inferred now.
There will be some modifications to the internal geological model based on the drilling and the petrology work that’s – and lodging that’s taking place now. But the main focus, Geordie, has been in that that 200 meter slice below the present day indicated.
Great. Okay, thank you very much. Cheers guys.
Thank you. We also have a follow-up from Richard Hatch of RBC. Your line is open.
Thanks, and thank you, and just a couple more, and sorry to ask the question about Lesedi. William, I know you talked a little bit about it. I mean, what are your thoughts at the moment? And is the partnership and strength looking more likely? And then just, I mean, you’re able to guide us to what the size and grade is for the south lobe stockpile you’ve got in hand, please?
Let’s talk about the Lesedi, I’ve thought to use this analogy. Everybody on the call almost already know that one or two wealthy people who on the weekend could go out and buy a Lamborghini at $250,000. What we’re asking for the stone is for somebody to go out and spend the equivalent of 280 Lamborghinis. And I’m using that as an example because I don’t think people quite understand the quantum of money which we’re looking at here. And what you’re actually buying is you’re buying something which you’re going to have to rely on expert opinion to give you the full details of what you can expect on the stone without really knowing the full outcome, the quality. We don’t know whether the stone is going to have grading. I’m sure with the 373 carat which were sold in the last EST, the people that own that may have an idea of what the final quality of the stone will be.
We have – and it is one of the topics we discuss with the board on a very regular basis. We do have one or two options for out rock [ph] sell, which are the following up on hardly enough yesterday. I got an e-mail in with a direct offer, but this is very similar to what we thought beginning of the year where everybody believed that they had somebody who would buy the stone. But when it actually comes down to the know your clients, the proof of fund, et cetera, it just doesn’t go anywhere. And it is an enormous amount of money which we’re hoping to get further stone. Obviously, we’re looking at maximizing the value because that’s what we’re here to do as far as the shareholders are concerned.
If that doesn’t pan out, I think most solely within the next six weeks to eight weeks, we’ll most solely look to enter into a partnership. I think we’ve got here at – it’s been almost two years since we recovered the stone and the market is I think trumping but waiting to see what the outcome from that is going to be. In terms of the overall volumes, I’m going to hand back to John. He’ll just quickly go through that. He has the numbers written down there.
Yes. In terms of the working stockpiles that are available, we have approximately 1.5 million tons sitting in a variety of stockpiles that are available to supplement the extra seed. And the majority of that 1.5 million tons is sourced from the south lobe.
Okay. So we’re talking of grade ore like 10 or 11 something like reasonable?
Yes, pretty reasonable. I mean, it is skewed a bit to some of the lower grade stockpiles, but it’s a fair number.
Okay, thank you. And then just my final question is, I mean, if you kind of look at your balance sheet, very strong facility which don’t draw very conservatively managed, and hats off to you for that. Some of your players are coming under some pressure. Are there any attractable opportunities out there which could help grow this business and gives you a little bit more scale or you’re quite comfortable with what you have in your current portfolio?
I think that the answer there is as a Lundin Group of Companies we look at all sort of possible option. And I think the one thing about the diamond industry is it is a very small universe of players. With Washington now completing the Seattle demand, it’s making it even smaller. So to sort of have an opportunity to speak to the people that are out there to look at those opportunities it’s something that we do under regular basis.
I think there’s a one thing that Lucara has is and everyone in the call knows that we traded at higher multiple whether that’s driven by our dividend policy, whether it’s driven by the production profile which we have. We do have a strong currency and therefore we’d like to be able to use that. It is high of a challenge to find something which is going to be anywhere close to as, well, they have the same margins what we’ve got, but I think we also believe that one of the key things why investors hold the core of stock is because of the dividend policy, the potential for an exceptional stone or an exceptional dividend or special dividend coming out there as we have twice before.
And any acquisition would have to be value accretive in excess of our dividend policy. Because we don’t want to change what we’ve actually been doing so far and sort of a value add to our investors as concerned. So now we’re looking at everything, Richard.
Thanks William. Cheers.
At this time there is no other questions in queue. Turning it to Mr. Lamb for closing remarks.
Thanks Wilson. So, again, thank you very much for dialing into our Q2 or half year result. I think consistency of which Lucara has been able to deliver over the part four years or five years is again what we’re demonstrating through the – interesting years coming sort of as far as the resource updates, the underground study in the next half of the year we’ll look forward to updating the market on this.
Otherwise, thank you very much everybody. If you’re in Canada, have a good long weekend. Thanks friends.
Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Everyone have a great day.