Eira Thomas says gold investors should look at diamonds
With precious metals surging, Lucara Diamond’s Eira Thomas hopes investors can take a look at diamonds, too.
The CEO spoke to Kitco on Thursday.
“Diamonds are incredibly rare. We've had no major world class discoveries and more than 15 years,” said Thomas. “We feel that diamonds represent an excellent investment opportunity right now, especially for those contrarian investors and those value investors that are looking for a way to diversify.”
In 2007 Thomas founded Lucara Diamond Corporation with partners Lukas Lundin and Catherine McLeod Seltzer. The company acquired its flagship Karowe diamond mine in Botswana from De Beers.
Lucara is credited with innovations in its mill processing that preserved valuable, larger stones. Using modified X-ray transmission techniques, the company has been able to recover a larger percentage of the bigger stones rather than seeing them shattered during processing. Diamonds are tough but can still break during milling.
Some of Lucara's hits are the 1,758 carat Sewelô, the 1,109 carat Lesedi La Rona and the 813 carat Constellation which sold for a record US$63.1 million.
However, the diamond market has been tough to operate in. In 2019, the market was over-supplied, and prices were depressed. Quebec-based Stornoway Diamonds went bankrupt last year. Then COVID-19 struck in the spring of 2020, which hurt the diamond supply chain due to all the physical touchpoints, such as auctions and physical retail stores. Unlike precious metals, diamonds are also valued by their uniqueness and usually need to be seen to make a sale.
“Like a lot of luxury products, there were real limitations on moving diamonds around the world. People going to tenders to purchase diamonds are the traditional way that the diamond supply chain has worked,” said Thomas.
Lucara stopped tendering its diamonds in March and instead agreed to a definitive supply agreement for the remainder of 2020 with HB Group out of Antwerp, Belgium, for all diamonds produced in excess of 10.8 carats in size from Lucara's Karowe Diamond Mine in Botswana.
The pandemic and depressed diamond prices have cut production. In May Russian diamond giant, ALROSA, said today that it is cutting production to 28–31 million carats versus its initial guidance of around 34 million carats. Before the pandemic, analyst Paul Zimnisky forecast in December that diamond supply peaked in 2018 at annual production of 150 million carats. He sees production falling to 125 million carats by 2022.
Lucara is hoping to capitalize and grab more market share. The company is planning an underground expansion program, which has an estimated capital cost of $514 million and a five-year period of development.
"The majority of the underground expansion can be financed out of cashflow. We are looking to borrow between $150 to $200 million. We think we can do that in the form of debt. We've had good engagement with various lending institutions," said Thomas.