RAPAPORT... Lucara Diamond Corporation is a diamond mining company focused on two key assets. The Karowe mine in Botswana was fully commissioned in the second quarter of 2012, and the company is completing a preliminary economic assessment for the Mothae project in Lesotho.
 Name: William Lamb
From: Vancouver
Company: Lucara Diamond Corporation – CEO
Rapaport News: What prompted you to pursue a career in the diamond industry?
WL: Being a process engineer in South Africa, I started my career in the gold industry before moving to chrome and coal, where I built up knowledge of density concentration technologies. As diamond processing is simply the concentration of high density particles into smaller volumes for recovery, it was a logical next step to apply the knowledge I had to the diamond sector. This was back in 2004. I have since learned a great deal more about all aspects of the diamond sector, which I have been able to apply successfully to the development of Lucara.
Rapaport News: Do you have a business philosophy that guides you in your work?
WL: My personal philosophy is to use sound judgment, utilize only known information and be pro-active when it comes to managing risks. Everybody has a built-in desire to achieve more and it is only through sustained perseverance and focus that this can be achieved. You need to manage your business with a clear view of your short, medium and long-term objectives, as well as with an understanding of the risks and potential pitfalls that may deter you from achieving those goals. This allows you to better plan a path forward that manages the risks or avoids them completely.
Rapaport News: What has been the most notable change in the diamond industry over the course of your career?
WL: When I first started in the diamond sector, De Beers still dominated all aspects of the market. It was difficult to find information related to the sector outside of De Beers. With the emergence of other smaller diamond players, transparency has increased significantly. New technology has been developed for better, lower-cost diamond liberation and recovery. There has also been an influx of new diamond buyers – smaller players who are also looking to develop relationships with the new diamond producers – that are different from the past generation of buyers who dealt on a hand shake alone.
Rapaport News: How has that affected your work at Lucara?
WL: The ability to apply new technologies to small-scale operations, making them more profitable, has resulted in Lucara developing low cost operating designs and practices. This enables us to mine smaller-scale deposits which were previously considered uneconomical. On the sales side, we are able to provide smaller volumes of high-quality goods to the junior players in the industry and utilize this to develop strong relationships.
Rapaport News: How has Botswana’s emergence as a rough trading center impacted Lucara’s operations?
WL: This is still a work in progress. At present, we are still selling goods with viewings in Gaborone and Antwerp. We will transition to Gaborone only viewings in 2015. Currently, the benefits of this are not well understood, but with Okavango and De Beers doing all their sales from Gaborone, we see the potential to tap into a larger sector of the rough diamond market and to connect with more buyers who will be traveling to Botswana.
Rapaport News: How has the rough market evolved in the past year in terms of the trends that you have seen in sales, pricing, supply and demand?
WL: Since Lucara conducted its first sale of goods from the Karowe mine in June 2012, we have seen significant changes in the rough diamond sales sector. Many players in the industry talk about the supply/demand fundamentals: there are minimal prospects for new supply measured against the growing demand for polished goods. We have, however, observed that the most significant driver of rough diamond prices, on a short-term basis, is liquidity. The availability of funds, margins achieved and changes to banking practices affect prices far more than the quality of the diamond, unless, of course, it is a large exceptional stone. The demand for these stones is consistently high, and this is what sets Lucara apart with the consistent recovery of large high-value stones.
Rapaport News: What are your expectations for the overall diamond market in 2014 and what factors are influencing your forecasts?
WL: As mentioned before, liquidity in the industry will have the greatest impact on prices in 2014. With some of the large diamond banks no longer funding 100 percent of the De Beers boxes, the level of liquidity will reduce and this could have a negative impact on prices in the short term. Overall, the industry remains short on rough and this will be the driving factor in the year to come in maintaining strong upward movement in the price of rough.
Rapaport News: How does that impact your operations?
WL: The resource at Karowe has changed significantly as we have moved mining into the center and southern lobes of the resource. The recovery of large, high-value diamonds has placed us in a very strong financial position. The sale of these stones is impacted very little by the availability of funds. There is always demand and this provides for a more solid foundation for Lucara should the prices achieved for the smaller goods not meet our expectations.
Rapaport News: What are your short-term and long-term production forecasts at the Karowe mine?
WL: Through 2014, we will be upgrading the process facility to enable sustainable production at 2.5 million tonnes per annum of the hard, high-density material, which we will mine from the southern lobe. Our short-term focus is the integration of the new process streams into the current operating plant with minimal production delay. We still plan to produce between 400,000 and 420,000 carats of diamonds in 2014 which, based on the updated resource and 2013 sales figures, translates into $150 million to $160 million of revenue. We also know that there is a resource of large diamonds, although we cannot control the quality of production. We have seen some very high-value diamonds but these come with some very low-value goods as well. Speculating on the quality of the diamonds is not something we are willing to do and I think that the market sees this as being conservative. We see it as being practical within the realm of known data, yet we have the possibility of significant upside should we recover more gem-quality goods.
Rapaport News: Can you give us an overview of how your expectations at the mine have changed, particularly with regard to the exceptional large-size diamonds that have been recovered there?
WL: The recovery of the first large diamond in March 2013, a 239-carat diamond, which sold for $5.7 million, was the turning point for Lucara. Since this recovery, the mine has produced more than 20 diamonds larger than 100 carats. This is a significant achievement for an asset, especially considering that it did not demonstrate this trend during the exploration phase. It is the recovery of these stones which has enhanced the value of the resource significantly with the value of the in-situ indicated resource increasing by more than one billion dollars. The concern I have is that the original plant was not designed to recover these large diamonds, so as part of the plant upgrade we will be installing a large diamond recovery circuit. If the mine produces more than 20 diamonds larger than 100 carats with four larger than 200 carats in a 9-month period, it is only a matter of time before we see something larger. We want to be able to recover that stone before it sees any part of a crushing circuit.
Rapaport News: What are your plans for the Mothae mine in Lesotho?
WL: We still believe, based on the quality of the population of diamonds recovered from Mothae, that the project has the potential to become a valuable addition to our production portfolio. There are, however, gaps in the data regarding the diamond population, and during 2014 we will look to quantify the information to enable a more detailed data set that can be used to define a plan for the development of Mothae.
Rapaport News: How do you envision Lucara Diamond Corp. 10 years from now?
WL: There are a number of companies with development projects which should be coming on stream within the next two to three years. Lucara’s expertise lies in the development, construction and operation of projects. I would hope to see Lucara being part of a consolidated group of single-asset companies, developing a long-term sustainable company with strong cash flow and long-life assets.
Rapaport News: What advice would you give to someone starting out in the diamond sector?
WL: Understand the basics. As a management team, we spend a fairly large amount of time on site ensuring that we know exactly how the operation is running and to provide guidance where needed. This ensures that we understand the true nature of how the operation is functioning and are able to provide informed information back to investors. I feel that it is through having an understanding of the full mine-to-market aspect of the operation that I can point the company and its investors in the right direction.
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