Canada’s Lucara Diamond (TSX:LUC) has become the latest miner to show how hard the coronavirus is hitting the sector as it posted a net loss of $3.2 million, or $0.01 a share, for the first three months of the year.
The figure is in sharp contrast with the $7.4 million in net
income, or $0.02 in earning per share, the Vancouver-based diamond producer
reported in the same period last year.
Production for the quarter was in line with guidance. Lucara
said it recovered 91,536 carats from 900,000 tonnes of ore mined, with eight
diamonds greater than 100 carats each found in the period.
Lucara’s finds so far this year include an unbroken 549-carat white diamond of “exceptional purity”, dug up at its prolific Karowe mine in Botswana. That’s the same operation that last year yielded the 1,758-carat Sewelô (“rare find”), the second-largest diamond ever mined.
“Declared an essential service by the Botswana government on
April 2, our Karowe mine continues to operate safely and at full production,”
the company’s president and chief executive, Eira Thomas, said.
Cash flow, however, didn’t match production results. It
totalled $2.4-million, compared with $10.6 million in the first quarter of 2019,
largely owing to a weaker pricing environment and a decrease in revenue between
the periods, Lucara said.
Due to current market uncertainty, the company is evaluating
how much cash flow expected from its operations it can put into the proposed $514
million underground expansion of Karowe. The project is expected to extend
the operation’s life for 20 years — until 2040.
“Most of the previously approved capital spend of $53
million for the Karowe underground expansion project was scheduled to be
invested in the latter part of the year and funded through cash flow from
operations,” the company said. “Given the uncertainty in global markets
resulting from covid-19, these capital expenditures will be reduced until more
certainty exists around Lucara’s cash flow projections.”
Diamond market distress
The diamond market began suffering from the effects of the
covid-19 spread in early March, and measures to contain it have already pushed big
and small miners over the edge.
The pandemic has already squashed diamond miners’ dawning
hopes of a recovery in a sector already reeling from weak prices and demand
since late 2018.
Russia’s Alrosa (MCX: ALRS), the world’s no.1 miner by
carats, halted
production this week at two of its assets, citing falling demand and sales
for diamonds as the main reason behind the measure.
De Beers, the world’s largest producer by value cut 2020 production guidance by a fifth last month. It had earlier cancelled its April sales event.
Canada’s Dominion Diamond Mines, the controlling owner of
Ekati mine and a 40% partner to Rio Tinto in the Diavik mine, filed for
insolvency protection.
South Africa’s Petra Diamonds (LON:PDL) has recently delayed
interest payments to
borrow $21 million in new debt, a crucial move to keep the company afloat.
Investment banks are increasingly reluctant to extend credit
to diamond producers, as inventory is not being sold and defaults are possible,
analysts have warned.
“We are concerned about oversupply of rough diamonds
following the reopening of economies, as a lot of inventory could potentially
be flooded into the system and the market might not be able to absorb all of
it, resulting in increased pricing pressure,” Citi said in a note last week.