by Will Purcell
The diamond and specialty minerals stocks box score on Tuesday was a bleak 36-119-147 as the TSX Venture Exchange slumped 20 points to 547. Polished diamond prices fell again today, a decline that has peeled nearly 2 per cent off prices in the past month. Rough prices lost about 1 per cent in that time and further declines are expected: De Beers, which is holding a sale in Botswana this week, expects weakening demand in China sparked by the coronavirus crisis will result in oversupply. That would push prices lower, but De Beers plans to hold back supply to keep prices stable in the hope that the pandemic threat peters out.
Lukas Lundin and Eira Thomas's Lucara Diamond Corp. (LUC) slid three cents to 79 cents on 483,000 shares despite having another solid year at its Karowe mine in Botswana. The company racked up net income of $12.7-million (U.S.) in 2019, up from $11.7-million (U.S.) the year before, thanks to higher revenue. Lucara sold 411,732 carats for $192.5-million (U.S.) in 2019, averaging $467 (U.S.) per carat, compared with 350,798 carats for $176.2-million (U.S.), or $502 (U.S.) per carat, in 2018.
A solid fourth quarter salvaged the year for Lucara. Its revenue hit $56-million (U.S.) in the final three months thanks to an average diamond price of $568 (U.S.) per carat. That was its best result since the second quarter of 2018, when the company averaged $782 (U.S.) per carat -- a result heavily inflated by a special sale of exceptional diamonds in which Lucara sold a few thousand carats for $32.4-million (U.S.). Lucara now includes its exceptional gems in the regular sales, removing the nuggety effect on its quarterly revenue.
Ms. Thomas, president and chief executive officer, sees nothing in the 2019 results or in Karowe's performance through the first two months of 2020 to change Lucara's guidance for the current year. She expects the company will sell between 350,000 and 370,000 carats for between $180-million (U.S.) and $210-million (U.S.), which implies an average of roughly $525 (U.S.) per carat. Lucara believes the mine will produce about 20,000 more carats than it expects to sell, stones that presumably will be added to inventory. Operating cash costs will go up, from $31.88 (U.S.) per tonne to between $32 (U.S.) and $36 (U.S.) per tonne, but costs should remain well below the nearly $40 (U.S.) per tonne that Karowe averaged in 2018.
Meanwhile, Ms. Thomas continues to tout the performance of Lucara's Clara rough diamond sales platform, which generated $8.4-million (U.S.) in revenue across 15 sales last year. She says that Clara is "poised to achieve significant growth in 2020" through the addition of additional customers and by offering diamonds produced by other miners. Clara's first sale occurred late in 2018, when it sold $660,000 (U.S.) of diamonds to four customers. Clara has held three additional sales so far in 2020, generating another $2-million (U.S.) in revenue, and it has added five new customers to the 27 it had at the end of 2019.
Still, Clara needs to do much better if Lucara is to convince shareholders that its acquisition in 2018 was a good move. (Lucara issued 13.1 million shares, then worth $29-million, to the Clara owners, a group led by Ms. Thomas. Another 13.4 million shares become payable if Clara hits revenue milestones, but plenty more growing will be needed if Clara is to hit even the first of those targets: $200-million (U.S.) in cumulative revenue by early March of 2028.)
Lucara must also pay 16.75 per cent of the annual earnings before interest, taxes, depreciation and amortization generated by Clara to its founders and former owners for a 10-year period, but there has been some relief on that front: A year ago, one of the two founders and Clara's management team agreed to waive their payments until the end of 2020.
Ranjeet Sundher's Pacific Rim Cobalt Corp. (BOLT), down one cent to 24.5 cents on 437,000 shares, will become Bolt Metals Corp. on Wednesday. Mr. Sundher, CEO, says that the renaming is an "important step in our emergence as a resource developer in Asia's expanding electric vehicle supply chain." He says that the company will continue to acquire and develop battery metal projects while employing a vertically integrated mineral-to-market strategy to fully leverage those assets.
Right now, the number of promotable assets is one -- the Cyclops nickel and cobalt project in the Papua area of Indonesia -- and while Mr. Sundher touts "a number of exciting trends and developments" that lay the foundation for future growth in every vertical of the EV supply chain, development at Cyclops and the company's stock chart have been decidedly horizontal for the past year. (When its stock last went vertical, it was not in a good way, slumping from $1.59 at the start of 2018 to just 10 cents later that year.)
Cyclops produced assays of up to 1.54 per cent nickel and 0.12 per cent cobalt over 10 metres from shallow drilling last year. Cobalt grades were higher in some of the holes; the best coming in an eight-metre interval that averaged 1.03 per cent nickel and 0.29 per cent cobalt. Cyclops hosts a historical resource estimate that lists 37 million tonnes at 1.31 per cent nickel and 0.11 per cent cobalt.
George Putnam's Scandium International Mining Corp. (SCY), unchanged at nine cents on 42,000 shares, has wrapped up a three-year, three-stage program demonstrating its ability to produce aluminum-scandium master alloy from scandium oxide using a patent-pending process involving aluminothermic reactions. Mr. Putnam, CEO, cheered the result, saying that it shows that the company can make a proper scandium product -- exactly what its primary aluminum alloy customers want. (Referring to the prospective buyers as customers is a bit premature, as the company has yet to build its proposed Nyngan mine.)
Investors were full of optimism when Nyngan cleared feasibility nearly four years ago, proposing a 200-tonne-per-day mine that would cost $87-million (U.S.) to build -- an operation that would nibble away at a 1.43-million-tonne reserve averaging 409 parts per million scandium over a 20-year run. The discounted net present value was pleasing, at $177-million (U.S.) after taxes, but that was based on increasing enthusiasm for aluminum-scandium oxides.
Scandium International traded as high as 47.5 cents three years ago, but it never got to the heights envisioned by stock guru John Kaiser. In 2014, he touted the company and Nyngan as having the earmarks of a big score unfolding over the next few years that "may only be worth billions to shareholders," but with ramifications that could reshape the future. The billions and the reshaping are nowhere to be seen, but at last report, Mr. Kaiser was still a scandium believer.