Paul Day, COO, Lucara Diamond Corp.

MACIG Connect Series

“The 1,111-ct stone is a historic discovery; one of our immediate challenges is to obtain maximum benefit out of this diamond for…Lucara, Botswana, and the industry as a whole.”

Lucara Diamonds commissioned the Karowe mine in 2012, and has since managed to bring the mine into full production and is now uprooting some of the world’s largest diamonds. What have been Lucara’s strategic steps towards the success of this asset?

Paul Day (PD): You are 100% correct Lucara mines and sells some of the largest diamonds in the world, and last week we recovered the largest gem quality diamond recovered for over a hundred years and the second largest gem quality diamond ever mined. This was an incredibly high quality 1,111-carat (ct) stone recovered from our Karowe Mine in Central Botswana. We are absolutely ecstatic and it is the culmination of a lot of hard work prepping ourselves to get to this position. In the diamond industry, large is entirely relative. The largest stone ever to be recovered in the whole of Canada is less than 70 ct. At Karowe as I speak we have recovered over 97 +100-ct stones in less than three years, but the road to getting here is more than just good luck.

When we established the mine, we observed a slightly coarser diamond distribution from the exploration bulk sample data than one would normally see, and this was a good first indicator. With this in mind during process design we opted to install an autogenous mill rather than the traditional scrubber crushing circuit due to the reduced damage to any possible large stone population one would get from a mill. As we progressed into the first year of operation we started to see a coarser distribution than even the exploration data predicted, and in March 2013 we recovered a 124-ct and a 239-ct diamond. This was a game-changing moment.

We immediately engaged in a large bulk sampling campaign of the South and Centre lobes of the ore body, which makes up about 85% of the total mining reserve. Geo-statistical analysis of diamond SFD curves demonstrated continuity of a coarse diamond population across geological boundaries, and we were able to significantly upgrade the value of our geological resource based upon that data. Extrapolation of those same SFD curves was giving very strong indications that were looking at something truly special, and that potential top size for recoveries was absolutely massive. We re-designed our processing circuit with the primary aim of being able to recover these large diamonds as early as possible in the process plant, prior to damage and value reduction by the comminution circuit. Lucara engaged in a $55-million plant upgrade, and introduced XRT (X-ray transmission) technology, which was an absolute world first in the industry as a primary diamond recovery technology. We started that work in September 2013 and commissioned the new process circuit in early 2015.

The CEO recently stated that this past year Lucara had 8% weight percent specials; meaning eight percent of the diamonds recovered were greater than 10.8 ct. Would you accredit that to the new XRT machine?

PD: The recovery of large undamaged stones yes. The large diamonds have to exist in the ground to begin with of course. Some geological resources host very fine diamonds, and mines built around those deposits set themselves up to recover those stones very efficiently, We are fortunate to have a coarser diamond population at Karowe and acted quickly to identify this and maximize the value potential and yes I would certainly assign Lucara’s success in recovering our large intact and undamaged stones to Autogenous Milling and the XRT technology and the way that Lucara has implemented both at Karowe.

Is Lucara on its way to achieving the throughput goals of 2015?

PD: We have an optimized mine plan and our strategy is always to re-optimize and add value on a continuous basis. Yes, we will be in line with throughput guidance, but we are more concerned about mining value. Lucara is happy to compromise throughput in order to preserve the value of stones. We could pump out 600,000 ct of diamonds at $200 per carat, but we would much prefer to produce 350,000 ct at an AP of $600 to $700 per ct. We are not chasing carat volume. Carats are vanity, revenue is sanity, but profit and AP (average price) is, in fact, absolute reality.

With a mine life of 13 years, what reserves at Karowe remain?

PD: The exiting pit, down to 320 meters (m), at 2.5 million metric tons (mt) per year sees the operation in its open pit incarnation through to 2026. However, with the high value per mt of Karowe’s ore, I believe there is a real opportunity to take the mine underground. Our geologists have a program in place to drill out the deeper portion of the ore body currently sitting in Inferred category and upgrade this to Indicated category. Rigs are currently mobilizing to site and will drill holes down to 700 m below datum. Provided that the overall grade and diamond valuation holds up we will start the engineering design work to take this operation underground later in the year (2016).

With the abundance of undeveloped land in Botswana, how did Lucara choose which blocks to pursue for new prospecting licenses?

PD: Lucara has been granted two prospecting license areas in Botswana by the National Geological Survey. We applied for the exploration licenses through a competitive tender process where we had to demonstrate Lucara’s technical and financial strength against other tenderers. We were granted two prospective mining blocks both close to the Karowe mine and hosting four known kimberlites. Should either of these blocks come to economic fruition, we have the choice to develop separate mines out at the ore body location or we can process the material up to a concentrate stage, and transport concentrate to the Karowe mine where we have an established processing facility. Lucara has invested $4.5 million in the construction of a custom built Bulk Sampling Plant at Karowe and we are processing exploration ore for evaluation purposes as we speak.

The development timeline is hard to predict at this stage of exploration. Typically it takes about four to five years to bring a diamond mine into production. This comprises of one to two years of prospecting and Ore Dressing Studies, a year for feasibly study and environmental permitting and two years of construction. I do not think we would have break the schedule to put in a time based financing step as both our cash reserves our credit rating are pretty damn good. Five years from putting our first successful drill hole into the ground operational commissioning should be possible.

Many are accrediting the energy shortage to production delays and extended timelines. How is Lucara working to decrease both water and power consumption?

PD: Within Botswana, there have been power constraints but we have had very few production interruptions due to this. The Botswana Power Corp., hand in hand with the Botswana government, has prioritized the mining sector. Notwithstanding that Lucara has its own initiatives, with an internal load-shedding schedule on site, so that when we do have power constraints our team can for example close the crushing circuit and, mill off the fine ore stockpile, and re-start the primary crusher when power is more freely available. The technical team on site is also very conscious of power saving. When we undertook the plant upgrade in 2015, power was a priority in design, purchasing low power units including the XRT technology.

In regards to water, Karowe is completely self-sufficient. The water that we pump from the pit dewatering program, which is in place to maintain the geotechnical integrity of the pit, is used in the process plant. The water is saline, therefore not drinking water. We do not extract water from the local potable resource, leaving that for agricultural, domestic and industrial consumption.

You personally have worked on projects in Mali, Ghana, Namibia, etc. How does Botswana’s operational environment compare?

PD: Botswana has a very mature mining industry, and has been mining diamonds for over well over 40 years. In some of the more remote places that I have worked, mines need to be entirely self-sufficient. Power has to be generated, water pumped, technical expertise imported, camps built, food and other supplies flown in etc. Botswana in contrast has enjoyed far more development, and has an extensive electricity distribution network, over 6,000knm of tarmac roads as well as a good rail network. Botswana has a skilled mining workforce, and at Karowe, our local company Boteti Mining (Pty) Ltd., which operates the mine, is made up of 99% citizen employees; this is the highest ratio that I have ever encountered.

Since the great diamond discovery, Lucara’s stock price has risen over 30%, and the world is paying much closer to your moves. What does Lucara hope to achieve in the coming years?

PD: The 1,111-ct stone is a historic discovery; one of our immediate challenges is to obtain maximum benefit out of this diamond for all stakeholders; Lucara, Botswana, and the industry as a whole. Diamonds have taken a dip recently and the recovery of this stone is a spotlight on our world, giving the opportunity to ignite interest in the whole diamond sector and hopefully assist in relinquishing the lull. For 2016 and onwards Karowe will continue to recover large and exceptional stones. The extension of Lucara’s resource base is very critical to us, so the work that we are doing in the prospecting license areas in Botswana is of paramount importance, as is deep drilling to extend the Karowe resource and permit the continuation of the underground mining development. We are always active pursuing expansion of our company, and our technical prowess and positive cash flow and reserves will permit us to take the leading role in any merger or acquisition arrangement.

This interview was conducted as part of research by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2016. A pre-release report on the Central African Copperbelt was released in October 2015 and can be accessed here. To participate in this report, please contact Molly Concannon at mconcannon@gbreports.com or +27 63 629 1968.

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