Lucara Diamond Corp. (LUC) Earnings Call Transcript & Summary

Good evening, and good morning, everyone, and welcome to this Lucara Diamond Virtual Town Hall meeting. Very happy to have you all signed up today. As you know, we used to do these town hall meetings in person in Stockholm. It's not possible to do that these days. And I actually think that this is a better format because it allows for people from all over the world to join the presentation. [Operator Instructions]. And I always forgot -- forget. But my name is Robert Eriksson. I work with Investor Relations and Corporate Communications for the Lundin Group and work together with my colleagues in Lucara, mainly looking after the Swedish investors and media, et cetera. But without further ado, I would like to hand over to Lucara Diamond's CEO, Eira Thomas.

Thank you very much, Robert. I'm really pleased to be here. I would prefer to be in Sweden, but, you're right, this is a great opportunity to reach a much broader audience. So welcome to everyone. I will be making some forward-looking statements throughout this presentation. So I do encourage all of you to review our cautionary statement at your leisure, which is available on our website. So for those of you that are less familiar with Lucara, just as a reminder, our flagship asset is the Karowe diamond mine, which is situated in North Central Botswana, and it has been in operation since 2012. And we have become really renowned for our production of large, high-value diamonds. Over the past 8 years, we've mined approximately 2.9 million carats generating revenues of $1.6 billion. And interestingly, we have also returned well in excess of the capital invested in the original mine build, which was approximately $200 million, to our investors through dividends. So since -- or between, rather, 2014 and 2019, Lucara paid out $271 million in dividends. We did make a deliberate decision at the end of 2019 to suspend the dividend in favor of reinvesting these proceeds and the cash into what we believe is a very exciting growth opportunity for the company, and that is the expansion of our mine underground and the potential for extending the mine life from 2025 to 2040, and I'll talk a little bit more about that a little later in the presentation. The other thing that Lucara has really become well-known for is its approach to innovation and the incorporation of new technology. We are the first diamond mine in the world to have incorporated state of the art XRT technology or primary diamond recovery, and that, in turn, has allowed us to recover our large, high-value diamonds without damaging them. And in fact, we are the only diamond mine in the world to also have recovered 2 diamonds in excess of 1,000 carats in size. And on this slide, you can see both of those stones, the record-breaking 1,109 carat Lesedi La Rona, which was just recovered in 2015; and then, in 2019, the largest diamond ever to come out of Botswana, the 1,758 carat Sewelô. And those diamonds are shown with some of the other record recoveries from Karowe, all those diamonds greater than 500 carats in size. And just to show you what becomes of those diamonds in rough form, they ultimately are then polished. And diamonds from Karowe have been polished into some of the largest, highest-value decolor diamonds ever graded by the GIA. That, in turn, has allowed us to attract the world's largest leading luxury brand, Louis Vuitton. And in 2020, we entered into a groundbreaking partnership with Louis Vuitton centered around the historic 1,758 carat Sewelô, which is a bit of a mystery diamond. As you can see, it's a diamond which is coated in black diamond. We do know that there is white diamond within, but it's very difficult to scan or analyze this diamond to determine exactly what's within. So our plan, after touring this diamond around the world to talk about the phenomena of natural diamonds, it will come back to Europe, and it will be polished by Lucara and its partners, Louis Vuitton and HB, creating a bespoke, high-value jewelry collection centered on and catering to Louis Vuitton customers. Importantly, for Lucara, almost 5% of those retail proceeds will then flow back into our sustainability projects in Botswana. More recently, we entered into a second partnership with Louis Vuitton, and, this time, it's on one of our highest value stones ever recovered, the 549 carat Sethunya, which was recovered from processing of the EM/PK(S) earlier this year. Again, the plan with this diamond is to work with Louis Vuitton and our manufacturing partners in Antwerp to create a bespoke, beautiful, made-to-order, polished diamond collection targeted at Louis Vuitton customers. We will be receiving payment for this time and, as part of this collaboration, no later than the fourth quarter of 2021. So we talked a lot about our big stones and the consistent recovery of those stones since 2012. I want to talk a little bit more now about what we're doing at the mine today. And of course, the big question on everyone's mind is, how is the mine been operating through COVID? And the answer to that is that we were declared an essential service by the government of Botswana in late March. So our mine has been operating at full production since that time, albeit respecting new protocols in place to address social distancing and hygiene in relation to COVID measures. Obviously, and importantly, our focus has really been on protecting the health and well-being of our employees and our host communities, and I'm pleased to report that everything at the mine site continues to go very well. As I mentioned at the outset, and as we've continued to talk about, large diamonds are very important to our revenue profile. And in fact, specials, or diamonds greater than 10.8 carats in size, contribute 70% of our revenues and approximately 5% of our diamonds by volume. Since 2012, we've recovered 15 diamonds in excess of 300 carats and, as I mentioned, 2 stones greater than 1,000 carats in size. And what you're looking at, with the graph on the lower right-hand corner, basically is the cumulative recovery of diamonds greater than 10.8 carats in size month-by-month, year-by-year since 2013, all the way through to today. And what you see in that bright green line basically is the performance of our large stone recovery for this year. And the thing to really note is that, that line has become steeper since mining began, as we mine deeper within the ore body, and we have a higher contribution of ore coming from the South Lobe. And this, in turn, will become more important as we get into a discussion of the underground, which is entirely focused on mining within the south flow. So we get more stone -- we get a higher frequency of large diamond recoveries from the South Lobe, and we get a higher frequency of these recoveries also as we mine deeper. So a little bit about the diamond market. It has been a challenging few years for the diamond market, and Lucara has not been immune to this. We did, however, see a lot of improvements emerging in late 2019 and a real stabilization of the diamond supply chain, which was really as a result of polished inventories coming down in the midstream and new production really coming from Canada being absorbed also into the market. And of course, we're also seeing a number of aging world-class diamond lines around the world starting to wind down through this period as well. And in fact, the Argyle Diamond Mine in Australia, which is a very important global producer, closed its doors just weeks ago. So what we've seen in the diamond market overall is definitely some stabilization, and we are anticipating, longer term, a very strong supply and demand rationale for the diamond industry going forward. However, we did see that interrupted by COVID. And on the next slide here, you can see that demand for rough diamonds and polished diamonds significantly deteriorated as a result of the COVID pandemic. However, we also see that diamond demand has recovered. And interestingly, from this graph, what you'll note is that polished prices performed actually much better than rough diamond prices through this period. And that, in turn, became the rationale for Lucara to consider how it could weather the COVID prices in a more -- and come through it in a more resilient way. And that has led us, in Q2, to think about selling our diamonds under a new arrangement. And in July, we finalized a supply agreement with the HB company out of Antwerp for all of our diamonds greater than 10.8 carats in size. So rather than trying to sell these diamonds into a difficult rough diamond market, where prices were depressed as much as 30%, we instead opted to sell our diamonds to HB Antwerp, where they would go into manufacturing and ultimately be sold as polished. The pricing mechanism under this agreement, we think, is far superior for Lucara because we are actually achieving a polished price less a commission and the cost of manufacturing. Another big advantage of this supply agreement is rather than selling our diamonds quarter-by-quarter, which is traditionally how Karowe production has been sold, we are now selling our diamonds on a bimonthly basis, which means we have the potential for regular cash flow throughout the year. We have committed to this supply agreement with HB Antwerp until the end of the year, and we will revisit it that time whether it makes sense to continue with this type of arrangement or to go back to our traditional form of diamond sales through tendering. In addition to the HB supply agreement for all diamond less than 10.8 carats in size, we are selling these largely through our new sale digital, web-based marketplace, Clara. And as many of you that have been following Lucara now for some years will recall. Clara is a technology that Lucara invested in, in 2018. And in 2019, we really commercialized this technology to the point where we are now basically ready to sell third-party diamonds on this platform as well. And just as a recap, what Clara is all about is really creating a much more efficient marketplace for our diamonds under 10.8 carats. And it has the potential to unlock significant value for not only us, as producers, but also for our buyers. It also assures provenance. The other big advantage of Clara that has really been -- we've been able to really promote and talk about through COVID is the fact that as a digital platform, there is no need to get on a plane and travel to buy your diamond. So this is the first platform of its kind in the world that will allow our buyers to order diamonds online from the comfort of your desk without having to travel. We have completed 36 sales on the platform since the inception, and we have grown a number of buyers from around 27 pre-COVID to now over 70 customers, so that's more than 163% growth profile in 2020. And really, if there's any silver lining to COVID, it really has been the fact that people have had to look for alternative ways to purchase diamonds. So it's been a big catalyst for us, and we are now at the point where our diamonds from Karowe are alone not enough to satisfy the current demand, and we are working on establishing trials of third-party supply from other producers. And in fact, we did sell our first third-party goods through the platform in the third quarter from secondary goods available for sale on the market. I'm going to go on now and just talk about some highlights for the year and for the quarter. I think we've talked through most of the highlights here, other than I did not mention that we had yet another exceptional recovery. Just days ago, this is -- it's close to our third 1,000 carat diamond. Unfortunately, it was just 2 carats short of that. It came in at 998 carats, but certainly exciting to see that recovery, along with a number of other high-value diamonds over the last few weeks. And again, very consistent with Karowe and what this diamond mine has continued to yield since mining began back in 2012. The other highlights on this slide that I just want to focus on really are around our balance sheet. I think it's important to understand that we entered the COVID crisis with a strong balance sheet with good access to liquidity. And that has been really important because it allowed us the flexibility to think about how and when we sell our diamonds. And in fact, we did make a deliberate decision in the second quarter when rough diamond prices were very depressed. We made a decision not to sell any diamonds greater than 10.8 carats in size in Q2 in favor of securing and negotiating the supply agreement with the HB Group in Antwerp. So if we look at Q3, there is -- you can see that, actually, it's pretty comparable quarter-over-quarter from 2019 in many ways because in Q3, we did see the diamond market start to stabilize. And of course, we did start to realize some revenues from the new sales agreement with HB. I do want to point out that throughout the crisis, we've had a strong focus on operational excellence in driving down costs, and you can see that we were able to take costs out of the system again in Q3. If we go on and have a look at how that appears year-to-date, again, the EBITDA and revenues are obviously very impacted by our decision not to sell diamonds in Q2, but, once again, you can see that cost profile trending well below our costs in 2019, same year-to-date. All of the other physical metrics are trending very consistent with our operating plan that we put in place at the beginning of the year and then adjusted as a result of COVID, but the mine continues to perform well. So just to kind of sum up what we've talked about here for sales, because I think it's really important to emphasize that we have made a big change, we are now selling our diamonds 3 basic ways. We're selling them through Clara, and this is all good quality diamonds under 10.8 carats in size. We're selling all of our good quality diamonds greater than 10.8 carats in size in turn through HB out of Antwerp, our manufacturing partner, where we, again, are being paid a polish price, less a commission and the cost of polishing, and more finally selling -- continuing to sell the remaining diamonds, those smaller, lower quality diamonds through tenders, and those are being conducted in Antwerp. So you can see the revenue that's being recognized from each of those sales channels. And I do just want to emphasize that the revenue that we're recognizing from HB is -- does not include several, large, high-value, polished stones, which are expected to be sold in Q4, and will take that number up. So I'd like to use the remaining time in the presentation now to talk about a couple of things. Firstly, I want to talk about growth, and then I want to go on and talk a bit about what we're doing on our ESG file in Botswana. So as I mentioned at the outset, we are very excited about the potential for expanding our mine underground, extending the mine life out to 2040. This will double the mine life from our original 2010 feasibility study, and it's going to add at least $4 billion in additional net revenues. And I say at least because I think it's important to point out that we've used a very conservative diamond price model or not only the feasibility study that we completed in 2019, but also, as we look out, due to the challenging environment we currently find ourselves in with COVID. We have been deliberately conservative, so we've used very conservative prices. And we've pulled out all of the revenues that we have received from our exceptional diamonds over the last 8 years in this model as well. If you were to put those diamonds back in, that would add another $500 million in additional revenue over the proposed new life of mine. One of the important value drivers, as I also mentioned at the beginning, is the fact that we are mining exclusively in the South Lobe as we go underground. And as we mine deeper, the south flow becomes dominated by a geological rock type we call the EM/PK(S), which is the highest value rock unit of the Karowe ore body. It has higher grade, and it has a coarser size distribution. And we now know that it has been the source of our largest, most valuable diamonds, including the Lesedi La Rona and the record-breaking 1,758 carat Sewelô, the largest diamond to have ever been mined in Botswana. On this slide, we highlight some of the key feasibility findings. We're looking at a capital cost to build the underground of around USD 500 million. However, the payback on that is under 3 years. So we've got some very attractive economics, and we're looking at an NPV of $1.3 billion pretax at a 5% discount. And just to kind of reiterate the importance of not only the South Lobe, but the EM/PK(S) unit within it, this slide is just highlighting our average price per carat to -- in 2019 compared to our expected average price per carat for the underground. And that is because you can see it's all about the contribution of ore types. And right now, in the open pit, we continue to have contributions coming from the North Lobe, the Center Lobe, the M/PK(S) and the EM/PK(S) as we get underground the proportion of EM/PK(S) increases dramatically, and that lends itself to a higher rock value and an average price, as I mentioned, of more than $700 a carat for the underground. So next steps. Throughout COVID, and as a result of uncertainty in respect of our revenues, we did make a decision to scope back our plans for 2020. We had originally planned to spend $53 million. We basically reduced that to $22 million, but that did allow us to continue to move forward with all of our critical path items, and that has positioned us for a strong year in 2021 to continue executing on the underground plan. In 2020, we have completed detailed engineering and all of our early site works, and we focused on local procurement. As we go forward into 2021, we are looking to secure some additional financing. Lucara, as I mentioned, went into the crisis with a very strong balance sheet and no debt. We are -- we're looking to add some debt to supplement cash flow from operations to build the underground. And when we look at a CapEx of almost $500 million, the vast majority of that will come from cash flow from operations, but we would like to add around $150 million of debt in order to support that. Discussions are underway. They're going very, very well. We've got good engagement from a broad range and number of banks and lending institutions, and we expect to be able to say more on that early in the year with the idea of a back-ended, heavier spend on the underground in the second half of 2021. And now, finally, and last but not least, I do want to talk a little bit about Lucara's approach to sustainability. We are extremely focused on transparency, the protection of our people and strong stakeholder engagement. We are certified by the Responsible Jewellery Council. We are compliant with the Kimberley Process, and we are a member of the Natural Diamond Council. In 2018, we also became a United Nations Global Compact participant, and we are currently contributing to 10 of the United Nations 17 Sustainable Development Goals. We also published a sustainability report that if you haven't had a chance to review, it is available on our website and is published in accordance with GRI Standards. I also want to talk a little bit about what we're doing kind of on the ground in Botswana. We have launched something called the Karowe Village Initiative in the last 18 to 24 months, which is really focused on investing in community-driven and own projects in Botswana. So we're working very closely with our teams on the ground in Botswana and our communities of interest. And what we're highlighting here is, one, very successful project, where we -- where the community of Mokubilo had basically expressed concern over malnutrition and unemployment in their community settlements. And as a result, we invested in a community farm, initially targeted at addressing those issues, and it's been so successful that this farm is now producing in excess produce and eggs, which are now being sold into local supermarket chains. So what was initially targeted as an initiative to solve the problems of malnutrition and unemployment has now turned into a long-term, sustainable business for this community, which is generating revenues. This project also provides a number of important training and education opportunities, and we have schools coming through and opportunities for villages to come and learn how to farm. We are now looking at expanding this project into its second phase and working closely with the government of Botswana and the university to roll out this project into other parts of Botswana as well. I'm sorry. I went the wrong way. So just to conclude, before I turn this over to questions, I'd like to highlight the fact that Lucara has continued to operate well through the pandemic. We remain a premier, mid-tier, investable diamond company well positioned for long-term sustainable growth through our underground out to 2040, and we also have exciting asset diversification with Clara. And Clara is really at an interesting inflection point, is a high degree of interest, not only from our customers, who are enjoying buying diamonds this way, but also from our fellow producers, who are looking to create a better opportunity for selling rough diamonds as well. So with that, I'd like to say thank you very much, and I'm happy to take questions.

Thank you very much, Eira. Good presentation, and that's probably why we don't have that many questions. But we have a few questions regarding the share price development and the shareholders being disappointed about that. I think we all know that the sector has been -- it's been difficult for the sector. But if we lump those questions together and ask you, what is your plan forward to create shareholder value? What do you think is the most important steps for the company?

Yes. Listen, I think it's a great question. And by the way, I am a very large shareholder. The last big position I invested in this company was $2.60. So I certainly feel the pain of our shareholders, and it's something we are very focused on. It has been challenging. The diamond market really has gone through a difficult period. And diamond prices have been wobbly. What we're seeing now is much more stable -- a much more stable marketplace overall. That was interrupted by COVID, but what we've seen, particularly in the third quarter, is that it has recovered. It's recovered quite well. We've seen emerging demand in Asia, and we've seen good stable demand also coming out of the U.S. And I think that's because diamonds, as a luxury product, are still of interest to consumers that, by the way, can't spend disposable income on things like luxury travel. So we do feel that the stability we're now seeing in the diamond market is here to stay. And that, in turn, is going to be very helpful for the diamond companies that have really struggled to get and kind of get an audience in the public capital markets. I think also with the election and the big run that gold has had, we are getting more and more inbound interest on diamonds as an asset class, as an investment opportunity, as a hard asset. We do understand that there are Chinese buyers, in particular, that are looking to invest in diamonds as something that obviously is easier to move around physically than gold. And so it's not just in on jewelry. So I do think the stabilization we're seeing for the diamond market is real and here to stay. I think, for Lucara, what we need to do is to continue to execute on our growth plan. Putting together a financing for the underground, I think, will be an important catalyst for the company and our share price. And as I mentioned, we're well on our way in respect of that and feeling very comfortable and confident. We've got a very economic project in front of us. We're in a great jurisdiction. We've got strong support from the government. So I think that will be an important catalyst for the company. And I think the real sleeper story has sort of been Clara. Clara has really ramped up and, I think, demonstrated that this industry is way overdue for modernization. And we think the traction that we're now getting with our fellow producers has the potential to take Clara to the next level, and we think we'll begin to see that in 2021 as well.

Thank you, Eira. We're getting more questions here, and they're really good questions, I must say. So let's get over to the next one. A very broad question, but it would be interesting to hear your view, Eira, about the topic of synthetic versus natural diamonds.

Sure. Great question, and we do get that a lot. The reality is the synthetics and natural diamonds really work almost as separate markets. I think they're actually very compatible. We have seen synthetics grow their market share in recent years. They're sitting at somewhere between 3% and 5%. And I do think they're here to stay, but I really don't think they compete with natural diamonds. And why do I say that? I say that because the technology for synthetic diamonds continues to get better and better. So a 1 carat D flawless diamond that you would have bought 5 years ago -- I should say, a 1 carat D flawless synthetic diamond that you would have bought 5 years ago for around $2,000 a carat is -- or, sorry, much more than that, $15,000 a carat, is now $700 a carat. So it has really been kind of a race to the bottom for the synthetic diamond producers. And I really think that these diamonds are being bought by consumers for different reasons. They are being bought for fashion jewelry. They're being bought for the purposes of travel, where you don't want to take your story family heirlooms on a beach vacation. Those are some of the reasons that people will buy synthetic diamonds. On the other hand, natural diamonds continue to be viewed as the most important gift for life's commemorative moments, birthdays, anniversaries. And we don't see synthetic diamonds moving into that space for the simple reason that natural diamonds do hold their value. And of course, they tell a story of a gift from the Earth that's billions of years old and is truly rare. And so we believe that natural diamonds will always be positioned for that segment of the marketplace. Hopefully, I've answered that.

We have a question on Clara. Has the launch of Clara provoked any negative reaction from traditional channels, say, in marketing large stones?

No. I mean, listen, I think, Clara, because it is targeting diamonds under 10.8 carats, it's really focused on the bread and butter of the industry. And we all recognize that for Lucara, most of our value is in the big stones, which don't qualify for sale on Clara. So I don't think it's been negative that way. I would say that our HB agreement, which is moving, which is taking our big stones and moving them from a traditional tender into a committed sales channel, where we're working with the manufacturer to identify the best and highest value polished outcome, is definitely a departure. And it's causing some pauses certainly in the industry, but, again, what we think is so important about modernizing the diamond supply chain is, if you think about it, the prevailing supply chain is really hampered by the fact that each of the participants within that value chain make their money on the backs of one of the other participants. So if you're a manufacturer, you're trying to buy your rough diamonds as cheaply as possible and selling them on as to -- for the highest price to the retailer. And what we're doing now with both Clara and with our HB sales agreement is we're creating true alignment. Our manufacturing partner, HB, gets paid more if they can achieve a higher outcome for the polished, and we get paid more in turn as well. And that's the first time where we've ever seen that type of collaboration and alignment. And it's really similar for Clara. Clara is more about creating efficiencies, but, on Clara, you can buy exactly the polished diamonds you're looking for without having to buy a whole assortment of diamonds that you don't actually want and have to then go on and re-trade. So the combination of these 2 sales channels is really transforming how we would traditionally think about diamond sales. And we think it's good for everybody.

I think we stay with Clara then for a while. Would you -- would it be possible for you to sell other precious stones through the Clara platform, say, for example, sapphires or emeralds?

Yes, that's a great question. We do get that question, and it is possible that the platform could be adopted to different types of gemstones and other types of marketplaces. But certainly, we would see doing something like that in parallel, not as a part of Clara proper. They really are different marketplaces. And they trade differently, and the customers and are also different.

We have a question on the underground expansion. Why do you think 5% is an appropriate discount rate for this expansion? Given the risk of the market, this particular shareholder is a little bit surprised that you are not using a higher discount rate, say, 10% or even above 10%. The current share price does suggest that the marketing, the right discount rate is much higher.

Yes. Listen, if you go to our feasibility study and have a look at the discount rates that we used, you'll see a range of discounting, you'll see sensitivity to that. For whatever reason, the standard has been 5%. And in order to really compare apples-to-apples to other studies that are out there, we felt that it was appropriate to use that number. But we do have the economics with higher discount rates available in all of our materials. And in fact, in this presentation, which you'll be able to find online, we include. We don't in this one. It's definitely on our website. And the other thing I would point out that is important when you think about discount rate. This is not a new project. This is a brownfield project. We've been operating this mine already for 8 years. So we are not building a new mill. We are basically expanding our mine underground and contributing ore from underground to the same infrastructure that's already in existence. So we do feel that it does not warrant a discount as much as 10%. And we could have a debate on where everyone would be more comfortable, and the analysts, of course, will all have different views, but 7% would be fine as well. In either case, I think the point that we're trying to make here is that this is a very economic project whatever discount rate you want to use, and we've been extremely conservative on the diamond prices that we've used. My personal view is that by the time this underground expansion is built in 5 years' time, that the value proposition could be quite significantly higher.

The underground projects, we're getting quite a few questions about that. And from an engineering standpoint, can you talk a little bit more about the LHS, long hole shrinkage, process and -- as the method. And where is it being used today? And how has it worked in those places?

Sure. Great question. We didn't have time to get into all the details, but you're correct. We are using long hole shrinkage as our mining method for the underground. And maybe I'll just take a step back and talk about, first of all, why we're using that method and what's really driving that decision. As we went into the feasibility study, we're really exploring 2 options. One was to basically start a sublevel caving opportunity by ramping down from the base of the open pit. And then the second was really -- and sinking a shaft and looking for a bulk mining method underground. And once we really collected all of the detailed information from the drilling campaign conducted between 2016 and 2017, we drilled a lot of holes underground. And that's when we really learned about the dominance of the EM/PK(S) or geology as we mine deeper. And that is a very important value driver, and we recognize that if we could get to the bottom of the ore body sooner that the potential to pay back capital would be dramatically improved. The other thing that really drove that decision was around the geotechnical considerations. Karowe is a very unusually hard kimberlite. It's one of the hardest kimberlites in the world. And we had hoped that we could actually look at a block cave from underground, whether the geotechnical characteristics of the surrounding country rocks really didn't support a block cave. So we then moved to long hole shrinkage. And the reason that we like this methodology is that it is tried and tested in ore bodies around the world. It's a very standardized approach to underground -- bulk underground mining. We're basically drilling and blasting all of the ore body and simply drawing the from underground and delivering it to surface via shafts. And that is where we've landed. It is being used in other diamond mines as well. And in fact, the Renard diamond mine in Canada in Québec is using a very similar underground mining method very successfully. So it is a low-risk underground mining method and one that is also still relatively low-cost in terms of OpEx. So our payback on that $500 million investment is under 3 years.

And we also have a couple of questions on the HB agreement, and the first one being, what is the time line for HB to evaluate the 998 carat recent discovery?

They have 60 days to do that. So under the agreement, all of our diamonds are delivered by monthly, and then they have 60 days basically to scan and plan and then we're paid an estimated polished outcome less a commission and the cost of polishing. And then ultimately, as that diamond actually goes into production and diamonds, a diamond or diamonds are sold from the 998, if, in fact, that initial estimate was conservative, and they achieve a higher price, then we receive what is referred to as a top-up payment.

And the next question on the HP agreement is about inventory. How many carats are currently in inventory in the agreement with HB, where you have not yet received the payment?

Well, it's not quite as simple as that because we do have a number of shipments. And if you go to our financials, we try and get into that in a little bit more detail between shipments one through 4 that are referred to. So what we footnoted in the table that I showed you is that a number of high-value diamonds from shipment one have not yet been sold or included in those numbers from that table. They will, we hope, be recognized in Q4 or Q1 at the latest. And, I guess, just to back up a moment, we entered into that agreement with HB in July. So basically diamonds from Q2 that had been held in inventory that we had not sold basically became subject to that agreement. We also had additional diamonds from Q1 that we did bring to Antwerp, and we did enter into a straight partnership with HB to manufacture those diamonds. So those are to our accounts. Those are diamonds that we are manufacturing with HB paying them a straight commission when those diamonds are sold. And those are the diamonds that are currently still in inventory, and I don't have the exact details of the number of carats.

So growing...

Did I confuse everybody?

Would Lucara ever look to explore or develop a new mine in either Botswana or somewhere else? Or do you see the end of the company being the end of the Karowe mine?

No. Listen, I think that Lucara has always got its eyes and ears open. We'd love to add another mining asset into our portfolio. Diamond assets are rare. They are not very many of them. And we did -- we have Ayesha Hira, our Vice President of Corporate Development and Strategy, who was a deliberate hire to help us continue to investigate and look at potential opportunities that exist out there. And we continue to do that on a regular basis.

And we have another question on the underground project. When will the Clara be announcing details of the funding required to build the underground mine?

Yes. As soon as we've got them in place, but certainly, early in 2021 is what we're targeting.

And I think we'll take the last question here. Can you see a scenario where a significant portion of the global diamond market adopts your innovative exploratory route to market, both the HB and Clara distribution methods?

And the shorter answer is yes. I really believe that this industry has been in need of modernization for a very long time. I think if you even look to the world's largest producers, Alrosa and De Beers, they're all making noises about the need to modernize. I think that if we're going to continue to grow demand for our product, it's time. So yes, I believe that COVID has been a positive catalyst. If there's a silver lining of COVID, it is exactly that.

We keep getting a lot of good questions there, so I think we'll continue for a little bit.

Okay.

What is the rationale for Louis Vuitton for their cooperation with Lucara? Has the hiccup with Tiffany had any impact?

No. It hasn't. Listen, Louis Vuitton decided that it wanted to launch a high jewelry line earlier this year. And in fact, they -- picture on the screen is basically commemorating an event that was held to inaugurate the launch of their high jewelry line. So we went into partnership on this very large unusual diamond, and then they announced that this has become a very important priority for the company. So Louis Vuitton has always been in diamond jewelry, but in a relatively modest way. And of course, LVMH, the broader group of companies, has a number of diamond jewelry brands, including now Tiffany. And so all of this is very much in keeping with their belief that diamonds basically have underperformed other luxury goods, and they really feel there is a huge opportunity to build demand and interest in diamond jewelry. And that, again, the alignment that we've created through this relationship with LV and HB, is very consistent with that belief. The other thing that's very important to Louis Vuitton is providence. They want to be able to tell their customers with confidence where each and every diamond they sell where it comes from, and that they are supporting responsible businesses. So a lot of what brought LV to us was around our track record in Botswana and the ability to provide that provenance piece, and then ultimately just recognizing that the industry really was in need of modernization. And so it's -- LV is a very successful brand because they really focus on the customer. And that is a piece, I think, that's really been missing in the diamond supply chain. We mine the diamonds, and manufacturers buy them. They create a bunch of polish, they then try and sell them. We're trying to turn that on its head, where we're working with the brands in a much more tethered way to fulfilling the demand of the actual customers at the outset, the customer is in charge of determining what it is that we're going to polish. And in doing that, we believe we can create more demand and achieve, ultimately, higher prices for our rough diamonds.

And then coming back to the share price, do you see any risk of being taken over -- Lucara being taken over by a bigger company?

I think we obviously ask ourselves that question all the time. It's something that we watch very carefully. I think the reality is that the whole space has been really under significant pressure, and we don't see anyone out there right now that would be an immediate threat to Lucara, despite the fact that we've had underperformance of our shares. Similarly, all our peers are in the same boat. So there's nobody out there, I guess, with a better equity valuation. I think that would have anything very attractive to offer our shareholders and our large shareholder, in particular. I mean, obviously, having the Lundin family as our largest shareholder is very helpful in that regard and ensuring that we're not vulnerable to unwanted interest.

And it's obvious that the Lucara shareholders in the past, they really liked all the dividends they received from the company. Very impressive dividends.

Yes.

So some of them want to know when they can expect a dividend to be paid the next time.

Well, I think I love the dividend, too. I think that we wouldn't have suspended the dividend if we didn't feel that this growth opportunity was really important to creating and unlocking significantly more shareholder value. I think I would point to the fact that, again, we've been extremely conservative with our diamond prices. We haven't put any kind of a diamond price escalator. We're using discounted diamond prices out to the end of the mine life. We've taken out our big stones. We've recovered the 998 last week. As we mine deeper, we'll recover more of those. All we need is a few more big stones, and the underground shortfall is paid for, and we're back in a position where we can think about a dividend. So I would say, obviously, we understand the value of the dividend, not only to our shareholders, but in really attracting interest in the company and helping the share price. And we will continue to look at that. And our hope is that we would get back to paying a dividend sooner than later, but it will be dependent on the market and obviously getting that financing squared away here in the next coming months.

Really impressed by all the questions that keep coming in, and I think this is a good opportunity, and I have a promise that we'll be done under the hours. We have a few more minutes. How dollarized are your operating costs? How does the pooler weakness help your bottom line?

The exchange rate has helped us this year, for sure. And -- but we have taken real cost out of the system very deliberately. We made adjustments to the mine plan in 2020, not only in response to new COVID measures where we had to increase social distancing, for example, in the pit. So we did make a deliberate decision to reduce the mining of waste, for example. So there are definitely real cost savings. And I do have to give a shout-out to the team in Botswana because they have operated the mine incredibly well through what has obviously been a difficult period. We've replaced some of our XRT machines this year. Those replacement projects were all completed on time and on budget. And they are continuing to really drive an agenda of operational excellence, and they've been able to do that even through COVID. So yes, the pool helped us, but the lion's share of that was around cost management.

And what about your collaboration with Sarine Technologies? How important is that for the Clara platform?

It's really important. I didn't mention Sarine, but their scanning and planning technology sort of underpins the Clara platform. We have a 10-year supply agreement with Sarine, and they are not -- and they're exclusive to us. They cannot go off and work with any other producer on a sales platform of this nature. So we continue to work with Sarine and finding ways to make the platform more efficient. And in fact, we are working together with Sarine to offer -- Sarine basically provides a providence service for our buyers, where basically we can bolt-on an interface between Clara and a Sarine product called a Sarine Diamond Journey, which allows our customers to basically track that diamond from its source right through to the point that it ends up on a retail, jewelry, store shelf.

Thank you very much, Eira. Good answers to all the questions, and thank you very much to all the participants at today's presentation. Thank you for the really good questions. And we're looking forward to see you soon again, and we will keep coming back in this format and others. And thank you very much to the viewers, and thank you, Eira.

Thank you very much, everybody.