I have been thinking about the current situation to do with future diamond sales from the current dry season and IM quite concerned about the current recoveries as I see the future revenue from sales as not being enough over a full year.
For at least 6 months of the year diamond recoveries cover costs or run at a small loss or profit.For 4 to 6 months diamond recoveries run at a profit between 500k to a few million a month or much more if a very large special is found.
My concern is that if a few 100 carat or a large diamond over 200 carats is not recovered this dry season,there will be little funds available to be distributed next year between the partners.
The partners at Lulo plan to explore and eventually mine diamonds along the Lulo river,so funds will need to be put aside for this cost
I suspect expansion plans at Lulo will suck up most of any available funds in the joint venture account next year meaning that not much will be available for distribution.
Large diamond recoveries need to increase in overall carats by a factor of two over the next two quarters for there to be any meaningful amount of funds left in the joint venture account for distribution in my opinion.
The market knows this hence why the share price is weak or falling as it is looking more likely as time goes by over the dry season at Lulo that there will be not much funds for distribution for Lucapa who needs funds for its administration and other project costs resulting in a high chance of more capital raisings.
IM very disappointed with the current recoveries as it is far lower than my expectations and far lower than is needed for Lucapa and its portfolio of cash burning assets.
Here's hoping a big one is found soon to change the current outlook.
LOM Price at posting:
26.0¢ Sentiment: None Disclosure: Held
