LOM Pro's and Con's

This is my first post on Hot Copper. So for prospective shareholders and downrampers, let me explain the Pro's and Cons of this investment in Lucapa which I have held for a couple of years.

We always should look at the downside first.

Con's

Angola jurisdiction for Lulo concession- Will be perceived by institution investors as risky for many years. That will change overtime but may take another decade for sentiment to change. Most institutions will never invest in Angola.

Any kimberlite mine requires a substantial amount of Capital Investment with most of the cost being the removal of overburden before the kimberlite can be mined.

Time, this is not an overnight investment. Look elsewhere if your timeframe for investment is less than two years.

Wet season and Angola time will hinder progress. Need to be patient. If not invest elsewhere. If you are a trader I cannot comment.

Repatriation of money can also be slow from Angola and shareholding is only 39/40% in Angola compared with 70, 70,100 in Lesotho, Orapa and Australia.

Pro's

Diamond exploration takes patience and many years of hard work. (Jwaneng in Botswana took approximately ten years from initial soil sampling in 1959 to 1969 to discover commercial). This company in the short space of two years is now exploring in 4 locations, Australia, Botswana, Lesotho and Angola, producing alluvials in Angola and about to commission the Mothae mine in Lesotho.

The diversification/mitigation of risk into 4 different locations is a key strategic decision by the BOD to create the support of institutional investors. This is a foundation stone to build an international company but institutional investors will probably not join the register until Mothae is producing.

The purchase of Mothae is a bargain. Let's pay $9m for 70% of a business where there is a sunk investment of $36m. Or the counterfactual argument is I will receive $36m which I will invest in a mine called Mothae and as a bonus discover a JORC resource of 1 million carats down to 300m and then I will pay $9m for 70% of the rights to continue developing a discovered resource. Oh and there is more, there is some bulk sampled excavated material sitting on the surface that I can use to commission my extraction plant and something called a neck between the two ore bodies where the diamond bearing material has not been counted and some more material between 300m and 500m below ground not in the JORC resource. $15m Funding has now been secured from the key partner Equigold.

Compare the economics of this kimberlite with a yet to be discovered kimberlite in Angola, Brooking or Orapa. Now do you understand the value of this Lesotho acquisition?

Timing. Any other kimberlite discovery will take at least two years to get to the stage of Mothae. Mothae will be in positive cashflow by this time which will come in handy for cash to be invested in other potential mines.

JORC resource for Lulo as of 27th March 17 in Angola is 4 years plus. This effectively prices Lucapa shares as an option on exploration in Angola, Australian and Botswana with no time decay because the cash generated from Alluvial production finances exploration. Counterfactual argument. How many exploration companies go bust in the exploration phase or become so diluted with share issues because they have depleted their cash reserves?

Exploration.

Brooking Australia- BOD certainly have experience in this area with the Ellendale mine.

Orapa- Another good exploration option in an proven kimberlite district.

Angola.- Over 700 kimberlites in the Kesai Cration overall. They are exploring in part of this elephant country. Over 300 specials (10 carats or more) found to date. Those are the best indicator minerals. The challenge for Lucapa is there are so many possible kimberlites to explore. Some of the more interesting proximal kimberlites are either yet to be drilled or awaiting exporation results. L248 and L259 will be interesting and the kimberlite adjacent to MB28 where the 202 carat diamond was found. There is most likely at least 3 diamond bearing sources to be discovered. The source of large rough translucent diamonds from MB 6& 8, the source of yellow diamonds from MB 6& 8 which look like they have rounded edges and been transported further than the rough edge diamonds and the rough diamonds near MB28.

Is the company making progress ie becoming more or less valuable regardless of shareprice and sentiment?

Yes- JORC resources have increased by 1million carats over the last year.

Exploration is continuing.

Alluvial mining is continuing and diamonds are large and high value.

Cashflow in Alluvial mining and exploration is positive.

Funding is secured for the Mothae mine.

For new and existing shareholders the investment case IMO remains compelling.

My next post will be June 2018 where I will review critique and update my comments.

GLTA