Lucara Diamond Corp. [LUC-TSX, BSE, NASDAQ Stockholm] signed a definitive supply agreement for the remainder of 2020 with HB Group of Antwerp, Belgium, in respect of all diamonds produced in excess of 10.8 carats in size from its 100%-owned Karowe diamond mine in Botswana.
Large, high-value diamonds in excess of 10.8 carats in size from Karowe account for approximately 70% of Lucara’s annual revenues, and though the mine has remained fully operational throughout the COVID-19 pandemic, Lucara decided not to tender any of its 10.8-plus-carat inventory after early March, 2020, amid the uncertainty caused by the global crisis.
Under the terms of this novel supply agreement with HB, the purchase price paid for Lucara’s 10.8-plus-carat rough diamonds shall be based on the estimated polished outcome, determined through state-of-the-art scanning and planning technology, with a true-up paid on actual achieved polished sales thereafter, less a fee and the cost of manufacturing. This unique pricing mechanism is expected to deliver regular cash flow for this important segment of Lucara’s production profile at superior prices.
Advantages include regular cash flow for Lucara using a superior pricing mechanism; significant potential revenue upside, particularly suited for Lucara’s large, exceptional diamonds; and increased tax revenue and additional beneficiation opportunities for the government of Botswana.
The arrangement will create a more efficient, streamlined supply chain that achieves complete alignment between Lucara and HB to maximize the value of each 10.8-plus-carat diamond.
Eira Thomas, CEO, commented: “Building on the partnership established for the manufacturing of the Sewelo earlier this year, Lucara is pleased to have now secured a broader supply agreement with HB to purchase all of our 10.8-plus-carat rough diamonds, through to year-end. This agreement will deliver regular revenues on superior pricing terms to those currently being achieved at tender, and helps position Lucara to move forward with key underground expansion activities for Karowe in 2020. It is our strong view that the success of our industry in these very uncertain times requires better alignment between producers, manufacturers and retailers to establish a healthier, more efficient global diamond supply chain. We are excited to be working with HB to support this new paradigm.”
Oded Mansori, co-founder of HB, stated: “Aligned in our core values and beliefs, HB is pleased to be entering into this definitive supply agreement with Lucara, turning our long-term vision for transparency and sustainability in the value chain into reality. HB represents a new, innovative approach, using technologies that nullify speculation in favor of a stronger ecosystem, the first of its kind for our industry.”