Best rough diamond market 'since 2012' drives Lucapa to big earnings upgrade

The rough diamond market has shaken off challenges from manufactured diamonds and the pandemic to power to its best conditions for producers since 2012.

The turnaround has driven the ASX’s most prominent active diamond miner, Lucapa Diamond Company (ASX:LOM) to a spike in profitability.

It said this morning its full year EBITDA would be ~45% higher to $26-28 million, above the $17-21 million initially forecast.

That has been driven by higher realised prices for the diamonds from its Lulo and Mothae mines in Africa of US$1,242 – 1,312 per carat compared to initial guidance of US$957 – 1,034/ct.

Lucapa said the healthy rough diamond market and a higher proportion of large and fancy pinks from the Lulo mine in Angola resulted in the higher prices.

While production guidance is down from 40,400-42,600ct to 35,000 – 37,200ct, prices will be the main driver for an explosion in revenue form $50-56m to $66-71m.

It also comes despite a big upwards revision in costs from US$638-657/ct to US$828 – 844/ct, driven by a stronger South African Rand, lower production and stronger prices causing higher royalties and commissions.

Lucapa MD Stephen Wetherall said the strength of the diamond market would help reduce corporate debts.

“Lucapa and our partners set ambitious 2021 operational and financial targets for both mining operations as the diamond industry began to emerge from the pandemic,” he said.

“With nine months now behind us, we are extremely pleased to provide revised full-year guidance that sees an uplift of approximately 45% in our EBITDA guidance to $26 – $28 million.”

“The forecast record financial performance at Lulo this year, is expected to accelerate returns to Lulo shareholders and the capital loan repayments to Lucapa, which in turn we expect to utilise in reducing the corporate debt levels”.

It will also boost Lucapa’s coffers for its exploration and developments plans at the 40% owned Lulo JV and the Merlin diamond mine in the Northern Territory, the shuttered Australian mine known for producing some of the country’s biggest rough diamonds Lucapa bought for $8.5m this year.

Lucapa expects to spend $8-10m on exploration and development and $6-9m on growth capex at Lulo and Mothae this year.