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Diamond mining heavyweight Lucara Diamond, listed on both the Toronto and Botswana stock exchanges, has sent a chill through the market, openly questioning its ability to survive as a going concern. The stark admission comes on the heels of dwindling diamond sales and an increasing reliance on limited financial lifelines, placing immense strain on the company’s cash flow and working capital.
The first quarter of 2025 painted a grim picture, with revenues plummeting to a disappointing $30.3-million, a significant drop from the $39.5-million recorded in the same period last year. This slump was attributed to a double whammy of lower carat sales and a shift towards processing lower-grade ore. Unusually heavy rainfall played a disruptive role, hampering mining operations at their flagship Karowe openpit mine in Botswana. Consequently, the company sold a mere 72 871 carats, a considerable downturn from the 93 560 carats sold in the first three months of 2024.
The bleak performance has forced Lucara to drastically revise its full-year revenue forecast, now anticipating figures between $150-million and $160-million, a substantial downward adjustment from previous expectations. This revised outlook has triggered a critical reassessment of the company’s financial stability and its capacity to fund ongoing operations alongside the ambitious underground expansion project (UGP) at the Karowe mine.
“These conditions cast significant doubt on the company’s ability to continue as a going concern,” the company somberly stated in its quarterly report released on Friday, a disclosure that will undoubtedly send ripples of concern through investors and the broader industry.
While project financing for the UGP has been fully secured to date, the future progress of this crucial expansion now hinges precariously on cash flow generated from existing operations, access to a dedicated cost overrun reserve account (CORA), and the potential acquisition of additional debt or equity financing. In a move to bolster its immediate financial position, lenders approved a draw of up to $28.0-million from the CORA on April 3rd. This lifeline was secured after the company’s largest shareholder, Nemesia, stepped in to extend its shareholder standby undertaking until the underground project reaches completion.
Under the terms of this crucial standby facility, Nemesia has committed a substantial $63.0-million, earmarked for both replenishing the CORA with $28.0-million and providing a $35.0-million safety net to cover any potential project funding shortfalls.
Despite the financial headwinds, Lucara’s president and CEO, William Lamb, offered a glimmer of hope regarding the underground project’s advancement. “The underground project at Karowe is progressing, with advancements in shaft connecting lateral development during the quarter. Surface infrastructure construction progressed as planned,” he stated. “We anticipate reaching shaft bottom in the coming months, though we remain mindful of the complexity inherent in such major development projects.”
The quarter also saw Lucara recover a respectable 93 716 carats, including the notable discovery of six stones exceeding 100 carats and an exceptional 1 476-carat non-gem diamond, which fetched a solid $1.11-million at tender. Furthermore, the recovery of 139 “specials” – stones weighing over 10.8 carats – accounted for a significant 5.6% of the total carats recovered directly from the ore feed.
However, Lamb issued a stark warning about the immediate future, cautioning that the transition from the current openpit operations to the new underground mine would usher in a challenging two-year period.
“As we navigate the transition from openpit to underground operations, shareholders are reminded that 2026 and 2027 will present significant challenges, with production relying primarily on lower-value stockpile material,” Lamb explained. “This interim period will require careful management of resources and expectations until the underground project begins contributing to our production profile.”
In a bid to navigate these turbulent waters, Lucara is actively exploring various options to secure additional financing. However, the company has cautioned that these future efforts may not prove successful or may fall short of the required amounts, adding another layer of uncertainty to their precarious situation.
“Lucara remains focused on prudently managing this crucial transition phase while continuing our commitment to recovering high-quality diamonds, though we recognise the path ahead involves navigating considerable operational and financial adjustments before we can realise the full potential of our underground resources,” Lamb concluded, a statement that underscores the significant hurdles the diamond miner currently faces as it embarks on this high-stakes transition.
