Lucapa Diamond believes that it will become the only company in the world with multiple diamond mining operations whose average diamond value is in excess of $1,000 per carat, once the Mothae mine is commissioned this year.
Company chief executive and managing director Stephen Wetherall told Rough & Polished’s Mathew Nyaungwa in a wide-ranging interview early this month on the sidelines of a mining conference in Cape Town that this development would make Lucapa a “very niche” diamond mining company.
Lucapa, which had a 40 percent stake in Lulo, which is currently mining alluvial diamonds in Angola, was set to commence commercial production at its 70 percent-owned Mothae kimberlite project in Lesotho during the second half of the year.
Lesotho leads the world’s highest average US dollar per carat diamond production.
Lulo, on the other hand, which had been in operation for three years achieved record run of mine alluvial prices.
Its total sales were $106 million at an average price of $2,100 per carat.
This year alone, Lulo, had recorded sales of $9.1 million at an average price of $2,192 per carat.
Below are excerpts from the interview.
What are your plans for the Lulo project in Angola and what is your projected output this year?
We have over the last three years built it to a sustainable production level of about 240, 000 bulk cubic meters per annum. That is around 20 000 bulk cubic metres per month, but in a wet season a little bit less and dry season a little bit more to an average out of 20,000 bulk cubic metres. We are anticipating an output of around 20,000 to 22,000 carats at the average grades and we are expecting the same average dollar per carat that we have been achieving on average over the last year and a half, so I would say anywhere between $1700/carat and $2000/carat, so a very special mine.
In terms of alluvial mining, are you still focusing on Block 8?
Absolutely Mathew, Block 8 has been very, very productive for us and it has provided us with a lot of revenue and cash, but obviously all alluvial resources are finite. Most certainly there is still life left in Block 8 and will certainly mine there, but we will also be at Block 6 and 28 which are the other resource blocks that we have opened up and identified as well. We don’t just want to go and mine one block holistically until the resource there is [finished], we mine in other areas as well.
I understand in 2015 you were saying that it will only take about four years before you deplete the in situ diamond resource at Block 8 (interrupted)
A JORC compliant resources is a funny thing, it grows in the alluvial space. When we put out our first JORC compliant resource in 2015 that resource estimated an economic life of around four years, but we have continued to work on growing the exploration effort and the resource, so where we stand now we generally have a three to four-year time or resource horizon ahead of us. So we mine and concurrently try to replenish the resource with exploration at the same time.
You have been recovering some big stones from Lulo, what has been the secret?
The secret? It’s just a fantastic resource. I don’t think there is any secret, I suppose other people such as ourselves, good diamond people, would be recovering the same [stones]. The nice thing about an alluvial operation is that it doesn’t have any heavy crushing circuits, you are not going to break stones, so the stones we are recovering are undamaged, unbroken and have been lying there for many, many years; millions of years. I don’t think we have a special secret, I think in terms of development, we developed it in an appropriate and sustained manner and I think the operation, the throughput level we have grown it to, will see us maintain operations for some time to come.
At some point you were assessing treatment options for the E46 alluvial terraces (interrupted)
Can you provide an update on that?
Well we are mining the other alluvial terraces as we speak. There are also lazeria areas, which are the floodplains of the river and we also have the rivers themselves that we would also like to get into. We are looking at various options of how to access those areas, perhaps in a wet season and using dredging technology, river diversions that sort of thing, as we believe that is a significant potential resource, and we want to make sure that we have a plan access them, get the gravels out and put the gravels through the plant.
Let’s look at your operations in Lesotho. When is Mothae going to come on stream in terms of commercial production?
We are on track with our 150 tonne per hour plant, we anticipate that we will be bringing it into operation in July or August this year, so following dry and wet commissioning we will commence ramping it up to full nameplate capacity in September or October of this year. We are looking forward to the production from that facility. What we have also done is that in order to get diamonds and diamond data out earlier than anticipated, in order to allow us to optimally plan for the mine future as well, is to obtain additional data in some of the areas that are yet unknown or less known in the pipe, we have actually expedited a bulk sampling programme.
So I am pleased to say that as we stand here today we will be getting diamonds out very, very soon, way ahead of commercial production and firstly, that will allow us to show the market and the world the type of diamonds that are there. Secondly, it will allow us to add resource areas into the mine plan. Thirdly, when you recover diamonds it’s great, it means you are also going to be generating early revenue so that will also supplement the investment and operational capital that is needed for finalising the phase one development.
Do you have a production target?
Yes, we do have production targets and the first phase production will be 1,080,000 tonnes per annum so come the end of this year we should have our nameplate capacity up at 90,000 tonnes per month which will be a 1,080,000 per annum.
In terms of carats how much are you looking at?
On a monthly basis…you are looking at 1,800 carats to 2,000 carats, but they are very special carats because they are high-end so we should be looking at $1,000-1,300 per carat for those diamonds…we have a desire to stay in the high-end game and I am pretty excited to say that once the Mothae mine is commissioned this year, we will be the only diamond company with multiple operations whose average diamond value is in excess of $1,000 per carat, so it will be a very niche diamond mining company.
Talk to me about your exploration work in Australia? I understand you recovered some few diamonds at Brooking (interrupted)
A few diamonds, Mathew? It’s an understatement [Laughs]. We were brought this ground by three senior geologists, who on their own had been evaluating and furthering it. We got quite excited about the opportunity when we saw the previous exploration results they had from the programmes, so we got involved in it and developed a drill programme targeting specific areas based on these results, and on further sampling programmes and electromagnetic surveys that we ran.
We were targeting initially just to find lamproite. Lamproite is the host rock for diamonds in Australia, well in that area in any event. In some of the holes that we put in the ground we identified lamproite, but the one hole that recovered lamproite to a depth of 70 m was Little Spring Creek. From the HQ drill core, we took 86.8kg of the core out, crushed it and picked it for micro diamonds. We recovered 119 diamonds in total, 112 micro diamonds and 7 macro diamonds in that same sample, so very, very exciting.
Some people have described it as the most significant diamond discovery in Australia in the last few decades. We are very excited about the programme there, because that’s not our only target, there are three or four other targets with similar micro diamond recoveries from the stream and soil sampling programmes.
We will evaluate Little Spring Creek further, and we will go and drill the other holes that we want to do as well on the other targets. I think its early days yet but a very, very exciting year ahead for us at Brooking in Australia.
Still focusing on exploration, can you shed some more light on the state of your Lulo kimberlite exploration programme?
The Lulo kimberlite exploration continues to operate the way it has been designed. We have identified approximately 70 targets that we want to go and complete the drilling on. When you have a concession that has about – in that part of concession – 250 targets or anomalies, you get barren kimberlites, diamondiferous kimberlite and indicator minerals wash over each other over a period of time…so you actually don’t know if you have an exciting target or not by just merely sampling at the surface.
So what we are doing is systematically going through and drilling all the targets identified, getting the geological samples out of the core at depth and sending that to the laboratories in order to give us the mineral chemistry information that we need to use to decide whether we carry on with that target or we move to another target. So that will take some time, I think we should have drilled all those targets by the end of the next dry season in Angola and that will focus our minds and our attention on which targets to do further work on.
Can you also provide an update of your drilling exercise in Botswana?
It has unfortunately taken a bit longer than we would have hoped obtaining the necessary approvals. We needed to get the land use rights or approvals, which we did go and get. Once you have those you require environmental approvals, which we are applying for right now,. It might require us to do an EIA (Environmental Impact Assessment) and that will take some time. We obviously already know who to use and the time that it will take, but unfortunately we just have to complete those steps first. I think we have time on our hands now because it’s not really very good drilling weather at the moment, so by the time that the EIA is completed I think the weather will be on our side and we will be able to put some holes in the ground.
There is one anomaly and two known kimberlites on that ground, our biggest target on that ground being the anomaly that we want to go and put holes into and see if it is in fact kimberlite. We will also drill the other kimberlites on that ground as well and assess them for diamond content, but it looks like it’s going to be the second half of 2018 before we actually get any holes in the ground unfortunately, but it is what it is, you have to apply and get the right approvals.
Do you get funding challenges for your exploration projects?
We do and that is why we developed a strategy to bring the Lulo alluvial mine into production, because when you do go back into the investor market and you are seeking funding for exploration – unless you have fantastic results to excite them to give you more funding - it’s generally very difficult to get that funding. You are issuing many shares, discounting your share price just to get the funding and I think it’s generally a recipe for disaster. So from our perspective we realised that we had a special resource at Lulo and we could actually build that into a profitable cash generating mine…its returning funds or distributions to its shareholders and also re-paying Lucapa’s investment loan to the project. So we are getting money back into the system from our operations. It’s very, very tough for diamond exploration companies to get money, but I think the way we have strategised is working; building cash positive operations.
You are mining and exploring diamonds in Angola, soon you will be producing stones as well in Lesotho. You are conducting some exploration work in Australia and planning to drill in Botswana. What is your next port of call?
I have a desire or passion for large stones and I think that as long as we can focus on that area and look for projects in that area, naturally we want to grow, but I think right now for 2018 we are going to focus on our knitting so to speak, just to make sure we can deliver to our shareholders the projects that are in our portfolio.
We will deliver on the Lulo kimberlite exploration, we want to continue generating free cash in the Lulo alluvial mine, we will further assess and drill our targets at Brooking in Australia and we will put our first holes in the ground in Botswana. I think once we have done that, with Mothae coming on stream and generating cash, positive cash I think it will free the management and Board up to the point where we will start thinking what is next?
There are other projects that we can put into the portfolio and I think once we start showing the world what Mothae produces, we will also become a little bit more attractive to other players out there? In short, yes, we will look at other projects.