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

Good morning. My name's Colin, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Lucara Diamond 2020 Year-End Results Conference Call. [Operator Instructions] Ms. Eira Thomas, you may begin your conference.

Thank you very much, Colin, and welcome, everyone. Thank you for joining Lucara's 2020 Year-End Results Conference Call. Joining me from management today for the presentations and Q&A is Zara Boldt, our CFO. We have Dr. John Armstrong, our Vice President of Technical Services; and we also have Ayesha Hira, our Vice President of Corporate Development and Strategy. I will be making some forward-looking statements throughout the presentation. So I do encourage you to review our cautionary statement at your leisure, which is available on our website. As we reflect on the year that just passed, I feel a great deal of pride and gratitude for the collective efforts of the Lucara team in collaboration with the Government of Botswana to keep our mine running and our workforce safe, 98% of whom are Botswana Nationals. We have emerged into a much better business environment in early 2021, a rough diamond market having recovered well, despite the prevailing challenges of the global pandemic. While our operations continued on an uninterrupted pace in 2020 and delivered production consistent with our plan, rough diamond prices plunged in the early stages of the pandemic, and Lucara made a deliberate decision not to sell any diamond larger than plus 10.8 carats after the first quarter. We also necessarily scaled back on our plans for the underground project and worked quickly to implement several operational changes to help drive down costs without impacting current to future ore mining or carat recoveries. Despite these challenges that we faced, it was a record-setting year for the recovery of special bodies, single diamonds in excess of 10.8 carats. And that included the beautiful 549-carat top white gem we have christened Sethunya in February of 2020 and a 998-carat high white clivage diamond that was recovered later in November. Throughout the year, a total of 34 stones in excess of 100 carats, of which 10 stones exceeded 200 carats were recovered. And in recent developments, in 2021, the company was pleased to announce a strong start to the year with the recovery of 2 top white gem-quality diamonds, 341 carats and 378 carats, respectively, from ore sourced from the M/PK(S) unit of the South Lobe, both stones were recovered unbroken. Back in 2020, we also negotiated and completed 2 unique collaboration agreements with Louis Vuitton and HB Antwerp to create a high jewelry collection from the historic 1,758-carat Sewelô, the largest diamond ever mined at Botswana and the 549-carat Sethunya, and I'll say a little bit more about that in just a moment. The global pandemic also became an important catalyst for sales through Clara, our unique secure web-based digital sales platform for rough diamonds between 1 and 15 carats in size. Clara's customer base tripled from 25 to 75 customers, and we are now maintaining an active waiting list. Importantly, Lucara went into this crisis with a strong balance sheet with cash on hand, no debt, and access to liquidity. This afforded us flexibility with our approach to sales, and we made a deliberate and strategic decision to move away from selling our large diamonds through traditional rep tenders in favor of an innovative supply agreement with HB Antwerp for the highest value part of Karowe's production, leading to regular cash flows and the opportunity to participate in additional revenue generated from the sale of polished diamonds. We feel confident that by refusing to sell our large high-value diamonds at low prevailing rough diamond prices, we have helped protect the prices for large high-value polished diamonds, and the result has been a sharp V-shaped recovery in prices for these goods. In terms of our COVID response, the Karowe Mine remains fully operational, adhering to strict operating protocols implemented almost a year ago. Positive COVID cases at the mine and in the nearby village of Letlhakane have risen in relation to the New South African strain. However, we remain well below the national average for infections. And we continue to conduct regular testing and are satisfied that the safety protocols in place in relation to social distancing and hygiene measures are working. Unfortunately, we have recently reported our first COVID-related death amongst our -- 1 of our contractors. Ever vigilant, we continue to regularly engage with our workforce and make sure they feel supported in all aspects of our operations. As I mentioned in my opening remarks, 2020 was another record year for the recovery of specials, ore diamonds greater than 10.8 carats in size. Specials regularly account for more than 70% of our revenues. And as you can see from the chart in the lower right, we continue to recover these diamonds consistently month-by-month, year-by-year. With time, as we have mined deeper, contributions of ore from the North and Central Lobes has decreased, and the mine plan has become more influenced by contributions of South Lobe ore. South Lobe ore, in turn, has a higher concentration in special, which is evidenced by an increase in the annual cumulative production of these diamonds as the South Lobe dominates the production profile. The strong economics generated from our 2019 feasibility study examining the potential for underground expansion are based on continuing to access high-value South Lobe ore on a 100% basis from the end of the open pit in 2025 to at least 2040. South Lobe ore has been the source of many of our record historic recoveries, such as Lesedi La Rona and the Sewelô. The second of our 2 groundbreaking agreements with Louis Vuitton, the world's leading luxury brand, is highlighted on this slide. And Lucara, together with Louis Vuitton and HB, are collaborating on the planning and creation of a high-value polished diamond collection from Sethunya. And in line with its long tradition of personalization, Louis Vuitton envisages crafting a beautiful bespoke and made-to-order collection to create -- sorry, an unusual and storied family heirloom. So this is an exciting opportunity for Lucara, and we will and do expect under this agreement to receive payment based on the polished outcome of Sethunya, no later than the fourth quarter of 2021. Lucara's key growth project, the expansion of the Karowe Mine underground continued under an $18.7 million rescope budget, focused on derisking the project schedule, procurement of long-lead equipment and detailed design and engineering. Towards the year-end, the project achieved a major milestone with the receipt of a 25-year extension of the mining license at Karowe to 2046 from the Government of Botswana, sufficient to cover the remaining open pit life out to 2026 to beyond the expected life of the proposed underground expansion currently planned to 2040. In Q1 of 2021, efforts will focus on the early civil works, detailed design, and engineering, and procurement. Lucara remains actively engaged with a broad group of lenders to arrange a debt financing of approximately $150 million to $200 million to supplement cash flow from operations that will fund the majority of the $514 million CapEx. This financing is expected to be concluded in the second half of the year ahead of full project sanction thereafter. Going on to the diamond market. I think volatility really characterized the rough diamond market in 2020, with rough diamond prices having been discounted by as much as 40% at the height of the pandemic. Fortunately, polished diamond prices did not experience a similar fate, and though demand for polish was initially weak when the pandemic began. Towards the year-end, it became apparent that consumer demand for diamonds and diamond jewelry had recovered to near pre-pandemic levels and has actually been outpacing demand for other luxury products during the pandemic, such as fashion and luxury vacations, not surprisingly. And though our short-term outlook for the diamond market remains cautiously optimistic, our medium- to longer-term view remains strong, particularly as we see global supply on the decline with the closing of Argyle this past year and several large producers now heading into their sunset years. As I mentioned in my earlier opening remarks, Lucara made a deliberate decision early in the crisis, not to sell any of its high-value plus 10.8 carat rep diamonds after the first quarter at a time when heavy rough diamond pricing discounts were being observed by a number of our peer producers. Instead, we entered into a committed supply agreement with HB Antwerp beginning in July for this critical segment of our production. Under the terms of this arrangement, initial -- an initial price is paid based on an estimated polished outcome determined through state-of-the-art scanning and planning technology and with the ultimate true-up paid on actual achieved polished sales, less a fee and the cost of manufacturing. This has provided us with regular cash flow from the most important, large, high-value segment of our production. It's important to note that revenues from shipments in 2020 will continue to be -- revenues from these shipments in 2020 will continue to be recognized in 2021, and Zara will be saying more about that in a moment. I think also, just to mention that this agreement really has given Lucara exposure to polished sales of our highest value diamonds, and we all remain very encouraged by these early results. We are currently considering an extension to this agreement, and we will be updating the market in due course. Moving on to Clara. The crisis really has become an important catalyst for sales to Clara, where we actually managed to increase our customer base by 178% in 2020 and are now maintaining an active waiting list as we build out scale on the platform. Biweekly sales on Clara continued throughout 2020, providing regular cash flows and good visibility into pricing trends in the market. We completed a total of 42 sales during the year, generating $23.7 million by value. That accounts for more than 15,000 carats now sold through the platform. Importantly, we did begin sales of third-party diamonds in 2020, and that is a very important focus area for Clara in 2021 to meet the growing demand. And now I'd like to turn the call over to Zara Boldt, our CFO, to take us through a summary of some of our financial highlights. Zara?

Thanks very much, Eira. Good morning, and good afternoon, everyone. I will be making some forward-looking statements. So I would direct your attention back to Slide 2, and all amounts that we will be -- that I will be speaking to are in U.S. dollars. It's important to note as we go through our financials for the fourth quarter and the full year of 2020 that the change in sales approach for the plus 10.8 carat production under the HB supply agreement had the most significant impact on our results. With respect to the plus 10.8 carats sold through this agreement for a number of reasons that I'll touch on in a moment, there are amounts that would otherwise have been recorded as revenue in 2020, which are now expected to be realized in 2021. We will discuss this and our sales channels in more detail shortly. Turning to our Q4 2020 results. We recognized revenue of $42.4 million or $402 per carat. This includes diamonds sold through a combination of regular tenders, Clara, and through HB Antwerp under the supply agreement announced in July 2020. Adjusted EBITDA, which is the non-IFRS measure, was $10.2 million for the fourth quarter, and we recorded a net loss of $3.9 million. Cash flow from operations, also a non-IFRS measure, was $0.02 per share for the fourth quarter. Moving to Slide 12, we have financial highlights from fiscal 2020. For the year ended December 31, 2020, we recognized total revenue of $125.3 million or $335 per carat. This compares to total revenue of $192.5 million or $468 a carat in 2019. As mentioned, the year-over-year decrease is largely due to the timing of sales under the HB agreement and revenue will continue to be recognized in 2021, as rough diamonds delivered in 2020 are sold as polished and top-up payments are realized. Revenue earned under the HB sales agreement is recognized on a net basis after deductions for fees and the cost of manufacturing, both of which are payable to HB. I would like to highlight that the revenue recognized in 2020 under the HB sales agreement is inherently conservative. This is because while Lucara participates in any upside from the sale of polished stones, the structure of the agreement requires HB to assume all downside risk arising from the manufacturing process. The new arrangement with HB resulted in delayed cash flows from operations, partly resulting from market weakness, COVID-related delays, and a slower-than-expected ramp-up in manufacturing and sales. Included in total revenue of $125.3 million is an estimate of variable consideration of $7.2 million for the top-up payments. This estimate is conservative as it doesn't reflect the full value of the top-up payments owed nor does it include an estimate for some large high-value diamonds currently in the pipeline. Further, as certain large high-value diamonds take longer to plan and manufacture, there is an impact to the overall average price achieved as smaller, lower total value stones and rejection stones are sold disproportionately earlier in the process. Lower revenue drove the decrease in adjusted EBITDA, a non-IFRS measure, to $18.4 million in 2020 as compared to $73.1 million for the same period in 2019. Net loss for the year of $26.3 million or $0.07 per share compared to net income of $12.7 million or $0.03 per share in 2019. Like adjusted EBITDA, the net loss for the year was most directly impacted by lower revenues. Operating expenses totaled $72.6 Million or $194 per carat sold in 2020. This compares to operating expenses of $77.7 million or $189 per carat sold in 2019. In 2020, we achieved an operating margin before royalty's depletion and amortization of $141 per carat or 42%. This compares to an operating margin of $279 per carat or 60% in 2019. The 7% decrease in operating expenses results from consistent continued operations in 2020 and includes our decision to defer approximately 2 million tonnes of waste mining to 2022 and 2023 as a cost savings Measure in response to the uncertainty arising from the pandemic. For the year ended December 31, 2020, operating cost per tonne processed was $27.80. This compares to a similar metric of $31.88 in 2019, and it's 13% lower than 2019. Positive impacts were felt from the 6% depreciation of the Botswana Pula against the U.S. dollar and cost management in a year of uncertainty. In 2020, we in-sourced the process plant contract midyear, which also contributed to the lower operating cost per tonne process. This was partially offset by a 4% decrease in tonnes processed due to planned XRT upgrades completed in the second and Third quarters of 2020. Operating cost per tonne processed is a non-IFRS measure, and it's reconciled in the MD&A to the most directly comparable measure, which is calculated in accordance with IFRS, and that's operating expenses. Cash flow from operations per share, a non-IFRS measure, was $0.04 per share versus $0.15 in 2019. Our next slide looks at some operational highlights from Karowe in the fourth quarter. In response to the uncertainty presented by the pandemic, certain Operational changes were implemented in the second quarter that resulted in significant cost savings without impacting current or future ore mining or carat recoveries. In the fourth quarter, we mined 748,000 tonnes of ore, and we processed 685,000 tonnes of ore, mostly from the South Lobe. We recovered just over 100,000 carats, and we sold almost 106,000 carats. And we achieved an operating cost per carat sold of $205, again a non-IFRS measure. During the fourth quarter, we recovered 195 Specials, which were single diamonds greater than 10.8 carats, including 9 diamonds greater than 100 carats in weight. Included in this total were 4 diamonds greater than 200 carats, including 1 998 carat stones. Moving to our operational highlights for 2020 on Slide 14. For the year ended December 31, 2020, operational highlights from the Karowe Mine included continuous operations supported by a workforce almost entirely comprised of Botswana Nationals with implementation of new health and safety protocols to protect the health and well-being of employees, contractors and our local communities. Ore and waste mined of 3 million tonnes and 2.7 million tonnes, respectively. 2.7 million Tonnes of ore processed, resulting in almost 382,000 carats recovered, achieving a recovery grade of 14.3 Carats per 100 tonnes. Successful completion of planned XRT upgrades, a key component of the diamond recovery circuit and in-sourcing midyear of the process plant contract. We sold 374,000 carats at an average price of $335 per carat. Compared to 2019, this represents a decrease of 9% by volume and 28% by value. Specials recovered during the year equated to 6.7 weight per tonnage of total recovered carats, the fourth year in Karowe's operations to achieve greater than 6% weight percentage of total recovered carats. The operating costs per carat sold, a non-IFRS measure, was $194, resulting in an operating margin of $141 a carat or $0.42. Maintaining a high operating margin, despite the staggered realization of revenue under the HB agreement is a testament to the unique nature and the value of the Karowe ore body. On Slide 15, we provided a table which sets out how we sold our diamonds last year. On this slide, we've set out for the fourth quarter and for the full year 2020, our sales through tender on Clara and through the HB sales agreements, our most significant challenge in 2020 related to achieving our revenue targets in a very difficult diamond market. As Eira previously stated, deep pricing discounts were observed in mid-2020 as much as minus 40% for several months. By entering into the unique sales agreement with HB and removing a significant percentage of large high-value rough diamonds from the market, we helped support the prices for these valuable diamonds, which contribute the largest percentage of our total revenue. Almost 60% of our 2020 revenue came from diamonds sold through tender. However, only the first tender of the year included any plus 10.8 carat stones. A small volume of stones were sold on Clara. And beginning in April, all plus 10.8 carat stones were sold through the 2 sales agreements with HB Antwerp, whereby the high-value specials are being manufactured and sold as polished diamonds. It can take several months to analyze, plan, and then manufacture and sell the largest highest-value diamonds. As a result, we expect to receive upside from stones delivered in 2020 when the polished diamonds are sold in 2021. The average price per carat sold under the HB agreement of $2,160 a carat in the fourth quarter and $2,822 a carat for the year is not representative of the ultimate value that we expect to achieve when the largest highest-value stones delivered in 2020 are ultimately sold in 2021. Also, please note that the Specials sold in the first quarter tender influence the average price of $171 achieved in that tender for the year and are not part of the average price presented for the HB agreement. In the fourth quarter, we have observed a positive trend in the average price per carat sold as a result of increased sales under the HB agreement. The COVID-related delays, which impacted manufacturing in 2020, have now largely been resolved, and we're starting to see a reduction in the time between planning and polishing and ultimately, final sales to the end buyer. On that note, let's move to Slide 16, where we set out our 2021 guidance. In 2021, the company's revenue forecast incorporates an increase in the proportion of carats recovered from the higher value M/PK(S) and EM/PK(S) units within the South Lobe in accordance with the mine plan. Although we are seeing stronger prices and remain encouraged by the market for 2021, we continue to be conservative on our outlook for diamond prices due to the ongoing risk and uncertainty caused by the COVID-19 pandemic with respect to the diamond market. The assumptions for carats recovered and sold are consistent with achieved performance in recent years. The number of tonnes processed is also consistent with recent achievements. Noting that actual tonnes processed in 2020 was lower than 2019 due to several multi-day shutdowns for upgrades within the XRT recovery circuit. Waste tonnes that were deferred in 2020 is a cost saving measure are expected to be caught up in either 2022 or 2023. The estimated processing costs per tonne process is lower than previous years, reflecting a combination of strong operating performance in the plant and in-sourcing of the process plant contract in mid-2020. Proposed underground expansion at the Karowe Mine with an estimated capital cost of $514 million and a 5-year development period. An investment decision, subject to receipt of all required authorizations and the arrangement of financing, is targeted for the second half of 2021. The year-end capital spend on the expansion program is expected to be USD 105 million. Until financing can be arranged, an investment decision is made, funding has been approved for the first half of 2021 based on the company's ability to fund the initial capital expenditures from operating cash flow. Like the 2020 program, the 2021 program will focus on early works, including detailed engineering and design work, with the objective of mitigating key risks related to the development schedule. Sustained CapEx and project expenditures are expected to be up to $21 million in 2021, including expenditures associated with further upgrades to the XRT recovery circuit and implementation of body scanning technology to enhance security, which had originally been planned for 2020, but only received regulatory approval in the fourth quarter last year. While 2020 was an exceedingly difficult year in so many ways and for so many people, we were fortunate to be able to continue to operate without interruption to be able to find innovative ways to not only protect but also to maximize the value of Karowe's unique production profile from continued sales through Clara, our first of its kind web-based digital marketplace for rough diamonds up to 15 carats in size and do an innovative new supply agreement with HB Antwerp for our highest-value diamonds greater than 10.8 carats in size. We also established a groundbreaking joint venture with Louis Vuitton, the world's leading luxury brand on 2 of our historic diamonds, which aims to extract even more value from the supply chain and help grow demand for our large high-value diamonds longer term. As we look forward to 2020, we see evidence of a better diamond market. We will continue to focus on achieving operational excellence at Karowe, obtaining third-party supply for Clara and are completing a debt financing for the underground expansion. Thank you very much for joining our call today. At this point, I will turn the floor back to Eira.

Thank you very much, Zara. And I think we're happy to take questions at this point.

[Operator Instructions] Your first question comes from Oliver Grewcock from Berenberg.

The $7.2 billion [Technical Difficulty] would expect to receive [Technical Difficulty]

Zara, do you want to start on to it.

Certainly. We expect to receive it in the first half of 2021. And again, Oliver, I would point out that that is a conservative estimate made in line with the accounting requirements.

That's great. And what does the waste profile look like on a tonnage basis [Technical Difficulty]

Sorry, the question broke up. Could you repeat it, please?

What the waste profile look like on a tonnage basis for 2022 and 2023, please?

Oliver, it's very manageable. But John, do you want to tackle that one, or Zara?

Yes. I think in a general sense, the waste profile for 2021 is similar to that of 2020. And for the next couple of years, '22 and '23, the waste profile does start to decrease along with our overall tonnes mine when you maintain the ore mining. I can -- give me a second, I can pull up the exact numbers. So maybe we'll carry on, on all digital.

Yes. And just a reminder, Oliver, we've completed all of the major waste stripping associated with the remainder of the open pit mining. So that was completed almost 2 years ago now. So it's a pretty modest amount of waste tonnes. Yes, we did defer some in 2020 in order to help drive down cost, but it was a relatively modest amount that we feel very confident in being able to catch up here over the next couple of years.

Yes, sure. So the waste tonnes mined going forward are in the neighborhood of 3 million tonnes in the coming year, and then it drops to about 2.5 million tonnes for a couple of years. And then towards the end of the life of the open pit, it's less than 1 million tonnes. So as Eira noted, we've pushed through the major component of the cut to waste stripping, and now it's just maintaining the waste stripping to allow free accessed ore. So no major plans for additional waste movement.

Could I possibly ask one more, if that's okay?

Sure.

The $105 million for the underground, is this -- sorry, the year 1 spend, is this for the year from the FID? Or is this an estimated 2022 spend? And the -- how much of the previously guided $53 million budgeted CapEx is outstanding?

Shall I take that one?

Sure, Zara.

The $105 million is planned for 2021. We don't expect that to trickle into 2022. We had expected to spend about $53 million or $54 million on the underground in 2020. That budget was rescoped and revised. We ended up spending $18.7 million in 2020.

Your next question comes from Scott Macdonald from Scotiabank.

Thanks for the update. Just a few questions for me. Maybe starting with Clara. Eira, can you share any sort of early feedback you've gotten from the third-party sellers you've got on the platform now?

Yes. It's actually been really positive. I mean, we just started selling third-party goods in 2020. We had a plan for a number of trials in 2020, which were necessarily deferred through the pandemic. Pleased to say that we've got a number of those now back on track. So we're in discussions and advancing and feeling very confident that we will get additional trials going here this year. But the feedback from the third-party sales through the platform in 2020 was very positive so with a good experience.

Okay. Great. And so I guess, in terms of allowing -- you said you have a wait list of customers, I guess you're waiting to get some more third-party supply on before you add more customers?

Yes. That's key for us now, Scott. If there was a silver lining in the pandemic, it was Clara. The pandemic became a real catalyst for sales through the platform. And we're now at the point where the existing supply of minus 10.8 carat diamonds from Karowe really is insufficient to continue to meet the demand that exists from the platform. So it is going to be important that we add that third-party supply in 2021, and we are making good progress on that agenda. And we really think this is going to be a very important year for Clara, where it is an important inflection point for the platform and the feedback on both sides, both from our new seller and from our buyers, is then consistently in creating a positive.

Got you. Okay. And then maybe just a couple on the HB agreement. I just want to make sure I understand this correctly. So the -- you've recorded some revenue for about 20,000 carats sold from the HB agreements cumulatively through 2020. Is that all of the carats that will be sold from that initial agreement, notwithstanding if you extend with them? And so is it only just the top-up payments remaining plus part of which you accrued for? Or are there more carats also to be added to that 20,000 total?

Zara, you will take that. And then I can jump in.

Sure. There will be more carats added to that total, Scott, for deliveries made in November and December, where we will receive payment in 2021. So those are part of our 2021 revenue guidance. Our production year runs from November to October.

Okay. And when will we -- like will all the true -- when do you expect all the true-up payments and all the final payments be received? I think you said by the end of the first half of the year, the 2020 HB agreement will be totally closed out.

Yes. I think that's fair. Certainly, we're seeing strong sales through that agreement. And so hopefully, those sales will continue at the same level and that revenue will be recognized earlier rather than later. But yes, definitely within the first half of 2021.

Okay. And then just a quick one, just to confirm, the Sethunya and the Sewelô sales proceeds, that's -- that is included in your revenue guidance for 2021?

Yes.

Yes. There is some estimates included in that. Again, conservatively.

Sure. And then just a last one for me on the debt. So I think you said you're looking at $150 million to $200 million of project debt for the underground project. Could you just walk me through how you sort of arrived at that figure? What factors you considered when deciding that's the right amount?

Sure. I mean, we looked at the length of time of the build. It's 5 years, it's a fairly long build. And $514 million is the estimated CapEx. We looked at the cash flow that we expect to generate from the open pit to the end of its life in 2025, 2026. And then we looked at what would make sense to do from a gearing perspective. So that we are intending to use the cash flows from the open pit as our equity. At this point, we are not expecting to have to do any further external financing other than the debt. One of the advantages with the capital program is that those expenditures are deductible in the year that they are encouraged. So they reduced our tax rate effectively to 0 for the term of the build. What else can I say? Yes, we think it's a pretty decent ratio. We've -- as we mentioned in the presentation, due diligence has been progressed with a group of potential lenders, and we do expect to complete the financing by mid-year.

I think, Scott, just to highlight that there's a conservative assumptions around revenues. And just as a reminder that in the economic model and how we've modeled it, we have taken out all of our larger highest-value diamonds from the economic model. So any diamonds that we will cover like that, obviously, diminish the need for borrowing. But of course, we can't predict exactly when we're going to get those, but those have been removed from our estimates.

Okay. Great. And then just the last one on the similar topic. I believe your credit facility is maturing in the first half of the year. Is this going to be sort of rolled up into the project debt financing package in terms of maybe refinancing that? Or is that a separate item?

Yes -- no. Ultimately, we would expect it will form part of the project financing package.

Your next question comes from Paul Zimnisky from PZDA.

I just have a question on Clara. It sounds like it's progressing nicely. But looking a little bit longer term, I guess, [indiscernible]. Could you actually hear me, okay?

No. [indiscernible]

Okay, sorry about that. [ I kind of heard a tune ] from my end. Yes, but looking at Clara, I guess, a little bit longer term. I mean, where do you think you could be from a third-party commission revenue standpoint in, say, 3 years? And even if you can give an indication of where you think the commission business could be as a percent of total company revenue? That would be really helpful.

Yes. Listen, Paul. I mean, I really believe that this is the way the world is going to go. We can see that digitalization efforts are ramping up everywhere now for some -- including the larger diamond companies. And what Clara presents, of course, is a completely unique approach to digitalization because it's not just digitalizing existing sales process. It's completely transforming them and creating a more efficient supply chain. So in our initial kind of estimates for Clara and our 5-year plan, our goal was to ramp up and take a conservative 10% of global market share, getting us between $1 billion and $1.5 billion worth of transactions. That's kind of like the 5-year plan. And I think what's really important to point out that the technology is completely scalable. So we're ready to go. There's no additional commercialization efforts or in the significant investments that are required in order to accept that or manage those level of transactions. And so it's really about introducing our peer group of producers and secondary market sellers to Clara and giving them an opportunity to trial it. So we think it can go quite quickly once we get those trials moving. And based on the early feedback we got in 2020, we were very encouraged, and we just have to really continue to kind of push that agenda for 2021. The demand is there. We know we can ramp up from the demand now quite comfortably. The feedback from the 78 buyers that are on the platform right now is, we love this. We just need more. So that's ultimately where we're going. I think that 10% of global market share is actually quite conservative. I think we can do better than that. But as a reminder, under our sort of business model, if we can ramp up to sales to that level, we will start generating cash flow through Clara, which are very consistent with what we're generating through our mine. So it's an exciting opportunity. And it's low operating cost. It has the potential to be an important growth avenue for Lucara longer term.

Brilliant. That's great to hear. And just one on the debt financing. Is the current super low global interest rate environment helping you guys, you think, relative to where they were a year or 2 ago? Can you just maybe provide any comments on, I guess, the interest rate environment and the timing of the financing?

Yes. I mean, I -- Eira, do you want to take that one?

No, go ahead, Zara. No, I was going to say go ahead, Zara, and maybe Ayesha wants to jump in there, too.

I don't think the interest rate environment is having much of an impact in terms of the availability of capital for us. It will certainly help our cost of capital. But in terms of the availability, I don't think that's had too much of an impact. And yes, I think we are expecting kind of midyear this year to be in a position to execute on that financing. Ayesha, did you want to jump in on anything there?

Sorry, no -- not a lot more to add. That's good summary, Zara. I think we're encouraged by the diamond market right now, Paul. And I think that's definitely put us on a good track for financing completion, as Zara pointed out, for the second half.

Your next question comes from Daniel McConvey from Rossport Investments.

I just -- I was just in tranche, I just want to make sure I got the numbers right. So the plan for 2021 is to spend $101 million on the underground, is that?

$105 million.

$105 million. Okay. So that's back-end loaded, I'd imagine, simply because you wait. But I just -- I guess, the concern would be that you start spending that money in anticipation of getting the debt financing. And then for whatever reason the debt financing gets postponed or something happens, whatever. I guess, just how are you just managing that risk that you don't start spending until those until that money is actually locked up?

Dan, it's definitely back-end loaded, but I'll maybe turn it to Zara just to say a few words.

Yes. I mean, we've looked a lot on the schedule. Certainly, as soon as the financing is available, the team is ready to go. There are -- the team has done an incredible amount of really great work over the last -- I guess, it's been sort of 12 to 14 months since the feasibility study came out in terms of progressing and derisking the project. We've done a lot of due diligence upfront on the technical aspects of the project. And so we should be able to execute fairly quickly on the debt financing. We expect to have sufficient cash flow from operations in the first half of the year really to manage that spend schedule and be ready to roll when the financing is in place, and our Board has made a formal investment decision.

Okay. You understand my concern. I just -- if things go along, you have a schedule, you can order these lead time items and then you -- in any -- that you don't -- I'm just hoping you don't press. I don't think you will, but I'm just -- the concern would be pressed buttons to make major commitments and if something gets postpone and puts you in a cash situation where you have to raise equity. So I'm just -- it's a tricky year. So yes, just...

Yes, Dan, rest assured that we're working this very closely, and we've got a very seasoned board that's been involved in many big capital projects. So they are also on this and watching it very closely. And we think we've got a very manageable plan, and we certainly, despite 2020 being a challenging year and having to scale that kind of our plans for the underground in 2020, we were able to use that time, I think, to really make a significant kind of improvements to the execution plan and strategy. And the plan that we've got going forward, we think is a good one. I should point out that the very -- this is a brownfield expansion project. We're not building a new mill. We're using all of the existing site infrastructure. So the big capital spend is in relation to shaft sinking. And so really, it's about getting everything prepared and ready to go to begin that major contract, which will prevail over the next 5 years. So I don't want to suggest that it's simple. There is a lot of moving pieces, and we do have to be very careful in kind of managing the schedule and plan and making sure that we're hitting kind of important milestones. But at this point, we use the time in 2020. We've had continuous engagement with a broad group of vendors. And as Zara pointed out, the diamond market has improved pretty dramatically since we began those conversations to where we are now. So there is a high level of interest and engagement, I would say, with our lending group, which is great to see. So we're feeling very confident in being able to put this all together and get going in earnest in the second half of the year.

Okay. Is there any -- what is the biggest lead time item that might be coming up? The shaft is the big thing. That's not really a lead time item, but is there any big piece of equipment, et cetera, that are in the plan for 2021?

John, do you want to jump in there?

Yes. Thanks. The way we managed 2020 was getting the orders in for the truly long-lead time item. So in terms of shaft muckers, some of those are actually available now. They've gone through the procurements. The big-ticket items relate to the completion of the refurbishment on the winders, which is staggered throughout the year for final delivery of those permanent winders toward the end of 2021. So it's not that there's a significant one-off payment related to any of the long-lead time items. And then we -- and then the other -- the procurement will be starting on the headframe steel, again, to show up towards the latter part of the year.

[Operator Instructions] Okay. It appears there are no further questions at this time, please proceed.

Okay. Well, thank you, everybody, for joining us today. I think just to sum up, we're feeling very optimistic of where we've -- the market that we've emerged into in 2021. The outlook looks a whole lot better than it has for several years for the diamond business. Lucara is a high-margin asset. We've got a lot of years ahead of us. Arguably, the most valuable part of the ore body is yet to be accessed. So we are excited about the growth prospects for the organization, both in terms of the underground expansion and with Clara. And we're feeling good about making significant progress on both of those projects in 2021. So thank you very much, and we look forward to speaking with you next quarter. Thanks, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.