Lucara Diamond

Lucara Announces Declaration of Quarterly Dividend

Lucara Diamond Corporation Q2 2017 Earnings Conference Call August 4, 2017 9:00 AM ET

View Transcript @SeekingAlpha.com

Executives

William Lamb – President and Chief Executive Officer

John Armstrong – Chief Financial Officer

Analysts

Kevin Kerdoudi – Bank of America

Geordie Mark – Haywood Securities

Richard Hatch – RBC

Geordie Mark – Haywood Securities

Operator

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.

William Lamb

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?

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] Our first question is from Kevin Kerdoudi of Bank of America. Your line is open.

Kevin Kerdoudi

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?

William Lamb

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.

Kevin Kerdoudi

Okay. Thank you very much.

Operator

Our next question is from Geordie Mark of Haywood Securities. Your line is open.

Geordie Mark

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?

William Lamb

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.

Geordie Mark

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.

William Lamb

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.

Geordie Mark

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?

William Lamb

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.

Geordie Mark

Okay. Thank you.

William Lamb

Thanks, Geordie.

Operator

Thank you. [Operator Instructions] Our next question is from Richard Hatch of RBC. Your line is open.

Richard Hatch

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.

William Lamb

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.

Richard Hatch

Thanks, William, very helpful.

William Lamb

Okay. Thanks Richard.

Operator

Thank you. We do have a follow-up from Geordie Mark of Haywood Securities. Your line is open.

Geordie Mark

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?

William Lamb

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.

Geordie Mark

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.

William Lamb

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.

Geordie Mark

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?

John Armstrong

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.

Geordie Mark

Great. Okay, thank you very much. Cheers guys.

Operator

Thank you. We also have a follow-up from Richard Hatch of RBC. Your line is open.

Richard Hatch

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?

William Lamb

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.

John Armstrong

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.

Richard Hatch

Okay. So we’re talking of grade ore like 10 or 11 something like reasonable?

John Armstrong

Yes, pretty reasonable. I mean, it is skewed a bit to some of the lower grade stockpiles, but it’s a fair number.

Richard Hatch

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?

William Lamb

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.

Richard Hatch

Thanks William. Cheers.

William Lamb

Okay.

Operator

At this time there is no other questions in queue. Turning it to Mr. Lamb for closing remarks.

William Lamb

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.

Operator

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.