Lucara Diamond Corp has released the results of a positive underground feasibility study to expand its 100%-owned Karowe diamond mine.
The underground expansion of Karowe, which is one of the world's most prolific producers of large, high value type IIA diamonds and the only diamond mine in recorded history to have produced two +1 000 carat diamonds, is expected to double the mine life, and generate significant revenue and cashflow out to 2040, extending benefits to the company, its employees, shareholders, communities surrounding the mine, and Botswana.
The feasibility study looks to double the mine life from the original mine design of 2010 and add net cash flow of US$1.22 billion and gross revenue of $5.25 billion.
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The Karow Underground project, at a capital cost of $514 million, will extend the life of mine production profile of the entire operation to 7.8 million carats till 2040.
Karowe’s combined open pit/underground economic highlights:
- After-tax undiscounted net cash flow of $1,220 million, no real diamond price escalation
- After-tax NPV (5%) of $718 million
- Payback period of 2.8 years, extending the mine life 15 years (including stockpiles)
- Average LOM operation costs of $28.43/t of ore processed
"Lucara is highly encouraged by the results of the Karowe Underground feasibility study which has outlined a much larger economic opportunity than first envisaged in the 2017 PEA and represents an exciting, world class growth project for our company,” says Lucara president and CEO Eira Thomas.
“A significant portion of the cost to expand our mine underground can be funded from cash flow, and the investment is expected to be paid back in under three years, as the underground allows us to exploit the highest value part of the orebody first. What's more, margins remain healthy despite the application of conservative diamond pricing models that reflect the current, difficult market environment.
“Lucara's short term view is that the market is now stabilising. Longer term, the fundamentals are expected to strengthen in line with supply shortfalls from mature, depleting mines in Australia and Canada. It is important to note that a return to diamond prices observed in 2015 would nearly double the NPV (5%) of this project to $1.4 billion," says Thomas.
The updated mineral resource estimate at Karowe confirms increasing value with depth. The combined open pit and underground indicated resource now stands at 54.27 Mt at 15.3 cpht for a contained diamond resource of 8.3 million carats, excluding stockpiles.
The Karowe Underground feasibility study contemplated both a stand-alone underground scenario and a combined open pit underground LOM scenario. The feasibility study provides for the development of a long hole shrinkage operation to mine the South Lobe of the AK06 kimberlite resource below the current planned bottom of the open pit (which is expected to be at approximately 700 m above sea level, to a depth of 310 m above sea level. This will provide early access to higher value ore and allows for a short pay-back period of 2.8 years and low operating costs of $28.43/t processed.
Access to the South Lobe underground will be via two vertical shafts (production and ventilation) of approximately 765 and 715 m deep, respectively. All underground-mined kimberlite will be processed at the existing Karowe processing plant over a 13-15 year period following the cessation of the current open pit operations, which is expected to occur in 2025.
On the basis of a construction start in mid-2020, ore from underground mining will seamlessly integrate into current operations providing mill feed starting in 2023 with a ramp up to 2.7 Mtpa to the processing plant by 2026, and the opportunity to increase throughput. Current production rates will be maintained through the underground ramp up period.
As a brownfield operation, the Karowe Mine process plant and other site facilities and equipment are sufficient in many areas to support the planned underground mining operation. Existing on-site infrastructure includes offices, warehouses, laydown areas, maintenance facilities, a crushed kimberlite stockpile and reclaim, access and service roads, an airstrip, explosives magazines, and water and electrical infrastructure.
Upgrades to power infrastructure are required to support shaft services and are costed into the model.
The current mining license for open pit mining operations expires in 2023. An application to the Government of Botswana will be submitted to extend the mining license to cover the remainder of the open pit and proposed underground mining operations. Engagement with the Government of Botswana has been ongoing throughout the feasibility study.
In the first half of 2020, Lucara will focus on detailed engineering and early procurement initiatives with respect to the underground. The company will also be reviewing financing options and will update the market when such decisions are reached. The anticipated capital requirements in 2020 represent less than 10% of the pre-production capex estimate and can be funded out of the company's anticipated cash flow, as financing options are explored.
Because diamond deposits are rare and getting rarer Lucara is extending Karowe – a mine that is in a class of its own – having produced 15 diamonds in excess of 300 carats, including 2 greater than 1000 carats in just seven years of production. Further, we have sold ten diamonds for in excess of $10 million each, including the record-setting 813 carat Constellation which sold for $63.1 million.”
The Karowe mine has produced 2.5 million carats since 2012 and generated $1.5 billion in revenue.