Lucara Diamond (LUC.TO) has reported its earnings in May. We warned investors that the financial result in the first quarter of this year might be a bit disappointing, as there will be no revenue from exceptional stone tenders. We expected the free cash flow – if there would be any – to have been very limited.
Fortunately the results were a bit better than we expected as the company’s cash flow statements indicated Lucara was breaking even on the adjusted cash flow level. The balance sheet is still looking very good with a working capital position of $100M.
Despite not generating any positive free cash flow, the second half of this year will be much better as not only there will be new exceptional stone tenders (Lucara recently recovered a 342 carat type IIa diamond at the Karowe mine which will be sold in a tender in July) which will sharply increase the revenue and operating cash flow, the capital expenditures will drop as well as the capex spending on the processing plant will decrease from this quarter on.
Meanwhile, Lucara announced it has sold its Mothae project for $7.5M + a profit sharing interest which is a good thing as we weren’t too keen on Lucara spending its precious cash on the Mothae asset. Lucara Diamond still is our favorite company in the diamond sector as the company is living up to its promises.
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Disclosure: The author holds a long position in Lucara Diamond Corp. Please see our disclaimer for current positions.
