When the De Beers Group, a diamond mining monopoly sold AK6 (Karowe Diamond Mine) 5 years ago, the idea was to dispose of a low-value asset at a mere US$49 million. It was a decision the thinkers at the diamond mining giant would live to regret. Just this week the AK6 released the world’s second largest stone ever mined with a value that will easily quadruple the mine’s selling price. The De Beers bosses this week would not admit regretting that sale, all they could say to Staff Writers BOITSHEPO MAJUBE and KEABETSWE NEWEL was that selling the mine was “a good decision at the time”.
De Beers finds itself in that unenviable position watching in awe as Lucara Diamond Corporation enjoys international limelight, enjoying what the mining giant cast away and mining a rare-gem after the other. The latest find by the Canadian miner has been confirmed the world’s second largest diamond in history, but most within the company say this may just be the beginning.
This week De Beers hosted a resources conference in Gaborone, where they were supposed to celebrate how diamonds accelerated Botswana’s social and economic status. Despite the exquisite set-up and reception at the glossy Gaborone International Convention Centre (GICC) which could have captivated all attention, the talk of town, even within the De Beers conference was Lucara’s ‘gigantic precious stone’. While De Beers executives attempted to spread the De Beers gospel, there was an elephant in the room, the 1.111 carat find sparkling on smartphones and on conversations. One gentleman with an English accent kept asking where Lucara was located. We later learned that the man, whose interest was the fist-sized gem stone, was a journalist from The Guardian in the United Kingdoms.
All this was for a reason. History had been made, with the largest ever diamond to be discovered in the world for the past 100 years. The 1.111 carat diamond which was discovered at a mine ‘rejected’ by De Beers, had obviously attracted everybody’s attention within the diamond mining and trading circles. Karowe mine, formerly known as AK6 was originally discovered by De Beers in 1969. The diamond mining conglomerate however decided then that the AK6 kimberlite was ‘too small’ and low grade based on De Beers assessment then, a decision which Philippe Mille, De Beers Group CEO says was “a good decision at the time”.
The Business Weekly & Review inquired with him during the conference whether he thinks De Beers made a good decision by selling off the mine, considering the value that comes from it presently. He chose not to give a direct answer, although by saying that it was a good business decision in 2010 could indirectly mean that presently that decision has created a self-inflicted check-mate scenario for De Beers.
De Beers, was the first to conduct explorations in almost all smaller mines in Botswana, but it decided then that it would only mine where there is mass prospect hence rendering all small mines a waste of time.
Lucara acquired a majority stake in the AK6 project from De Beers in December 2009, and later bought the African Diamonds stake in 2010 to own the mine 100 percent.
Lucara’s latest discovery at Karowe, is just a continuation of the mine’s consistent production of high-value stones. Marketing Operations Manager, Steve Lincoln said that Karowe’s first high-value stone discovered in March 2013 was a game changer as it opened up significant stones. He said 2108 high value stones have been discovered up to now. Of these, he said 230 stones were above 50 carats, 84 have been above 100 carats while 18 of those have been above 200 carats.
Lincoln said De Beers’ decision to sell Karowe mine at U$49 million (Just around P500 million) was Lucara’s biggest gain. What pleases him the most is that Lucara shareholders have gotten over 100 percent return on investment (ROI) and are now enjoying profitability.
In 2014 alone Lucara’s revenue was US$265 million, and Dr Keith Jefferies at Econsult Botswana says estimates are such that Lucara’s latest discovery could fetch 40 percent on the 2014 revenue. Jefferies believes that Lucara has unearthed a valuable rock which will benefit the Toronto Stock Exchange (TSX) listed company.
Lucara had already been inundated with inquiries from potential buyers, which could see the highest bidder acquiring the stone.
The company’s share price at the TSX rose 32 percent on the back of the news, adding about $150 million to its market value. On the Botswana Stock Exchange (BSE), Lucara closed the day trading at 1695, lower than the 12 month high of 1875 thebe per share.
Tlotlo Ramalepa said that the discovery of rare gems at Lucara may not necessarily affect the share price on the BSE because Lucara here is listed as a secondary option on the foreign companies index (FCI) which is normally illiquid and lacks trading activity.
He said however that where the company has a primary listing in Canada, the share price will obviously appreciate bringing in more value for its shareholders.
A cut in diamond prices will not affect Lucara
According to Lincoln, Lucara has already received over 20 phone calls from interested buyers, bidding for the second largest diamond after the Cullinan diamond, which was unearthed near Pretoria, South Africa, in 1905.
The Business Weekly & Review asked Lincoln whether Lucara was not feeling the pressure of a dwindling demand in the diamond market which has pushed down prices. “Our stones are quite unique, and we have a unique class of customers who are not controlled by economic and market dynamics,” Lincoln responded. He said Lucara’s clients are top-class diamond and jewelry collectors, who just want to make history.
“Look at the crown jewels. We sell to royal families, wealthy businessmen who at most times remain anonymous and they always pay higher than market prices,” he said, adding that while Lucara feels a bit of pressure on their ‘normal’ diamonds, the pressure would not have any negative impact on their operations.
He was corroborated by Dr. Jefferis who said Lucara specializes on high value stones, which attracts the high-end buyer. “Most of them would not be disrupted by market dynamics, such as a fall in demand and prices, because theirs is a special market independent from economic downturns,” said Dr Jefferis.
William Lamb, the company’s Chief Executive Officer, said Lucara had already been inundated with inquiries from potential buyers, which could see the highest bidder acquiring the stone. The company has yet to decide how to sell the stone, but it is likely to be auctioned once it has been prepared for sale. “People are still reeling from the fact that it’s over 1,000 carats,” Lamb said in a statement.
The stone has yet to be evaluated, but Kieron Hodgson, a commodities and mining analyst, was quoted as saying it had “the potential to be one very expensive diamond”.
He told AFP: “Valuation will depend on potential inclusions, how it would behave in cutting, optimal shape as well as final colour. All these things will need to be evaluated prior to bidding.”
The stone is known as a type IIa diamond. These are clear and almost pure carbon diamonds, with none of the nitrogen that gives some diamonds a yellow hue. “De Beers seldom gets these, but even the most optimistic of thinkers at the mining giant know that, they go this one wrong, 1.111 carats wrong,” commented an DeBeers insider..