Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lucara Diamond Q3 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. Ms. Ira Thomas, you may begin your conference.
Thank you very much, operator, and good day to everyone, and thank for joining Lucara's 3rd quarter results webcast. Joining me on the call today from management, we have Zara Bolts, our CFO Doctor. John Armstrong, VP of Technical Services and Ayesha Hira, VP of Corporate Development and Strategy. I will be making forward looking statements, so I do encourage you all to review our cautionary statement at your leisure on our website. I want to start off by acknowledging John Armstrong and our operations team at Karowe for delivering another solid quarter in terms of safety and in terms of all our physical metrics, including tons mined, tons milled and carrots produced.
This strong performance was also delivered at lower costs amidst strict COVID protocols and really reflects our continued focus on driving greater efficiencies in all aspects of our operations. In an exciting late breaking development, we also successfully recovered our 3rd plus 1,000 carat diamond since mining began and our 2nd plus 500 carat stone for the year. After cleaning, it now reports in as 998 carats, but it still ranks as the 4th largest diamond in recorded history and is a testament to the remarkable nature of the Karowe ore body and the advanced technology that we have incorporated into our mine design and flow sheet to recover these diamonds without damaging them. Both the 549 or Satuna as it's now been christened and the 998 were recovered through the Mega Diamond Recovery circuit, more on that in just a moment. In July, we announced a groundbreaking partnership with HP Antwerp, which in essence is a committed supply agreement for all diamonds produced greater than 10.8 carats for the remainder of the year.
Though still early, Lucara is now receiving regular revenue for its plus 10.8 carats diamonds using superior pricing based on the estimated polished outcome less the commission and the cost of polishing. For diamonds under 10.8 carats in size, Clara continues to deliver strong results, growing its customer base to more than 70 clients during the period and completing its first sale of third party goods through the platform. Clara continues to resonate strongly with manufacturers that are restricted from traveling purchase diamonds in traditional venues, and we are expecting to expand trials with 3rd party goods in Q4 and into 2021. Encouragingly, Q3 also saw stabilization of the rough diamond market and an improvement in consumer demand for polished diamonds, both Asia and the U. S.
Markets. Zara is going to touch on the financials a little later, but we did record revenue of $41,300,000 in the quarter and our Q3 EBITDA of 9,900,000 dollars and an operating margin of 47%. Finally, and consistent with the message we delivered in Q2, we have once again like to reiterate the fact that Lucara continues to maintain a strong balance sheet, ending the quarter with cash on hand, no long term debt and access to the necessary liquidity to manage our business effectively through the pandemic. Our longer term outlook for diamond demand remains robust and we believe that Lucara is well positioned to benefit as we mine deeper in the open pit and ultimately transition to underground accessing the highest value portion of the Karowe ore body. In the short term, we expect the diamond market to remain stable with longer term supply constraints manifesting in response to declining production from maturing mines.
On Slide 4, we've summarized our initial response and ongoing actions in respect of the pandemic. And even as we continue to operate at full capacity, our top priority remains protecting the health and well-being of all of our employees, contractors and our local communities of interest. We also continue to work closely with the government of Botswana and have received their permission to temporarily sell our diamonds outside of Botswana as a result of travel restrictions. The government has been fully supportive of our efforts to sell diamonds through HB and Clara in combination with traditional tenders, 2 of which have now taken place in Antwerp with the 3rd scheduled for December. The Karowe underground remain the Karowe underground expansion project, which has the potential to add more than $4,000,000,000 in revenues and extend our mine life out to 2,040 remains a top priority for the company.
Though rescoped from a planned spend of $53,000,000 to an estimated spend of $22,000,000 in 2020 as a result of the pandemic, Lucara has made significant progress on the underground program focused on long lead item procurement, detailed engineering and early site works using local contractors. Discussions with lenders in relation to a project debt facility for the portion of development CapEx needed to supplement our cash flow from operations has also progressed positively during the quarter. We are working towards an anticipated full project approval and funding in the first half of twenty twenty one. As with previous quarters, we would like to once again highlight the importance of Karowe's track record for delivering a consistent recovery of specials or diamonds recovered in excess of 10.8 carats in size, which account for 70% of our revenues. The lower right hand chart looks at the cumulative recovery of these diamonds beginning in 2013.
And what you will notice is that the frequency of these diamond recoveries has increased over time as the mine plan has become more South Lobe and EMTKS focused. Year to date, Karowe has produced 31 diamonds greater than 100 carats, including 10 diamonds greater than 200 carats. Exceptional recoveries this year include the 549 carat Satuna and the 998 carat diamond just announced. Providing a little more insight on our 3rd largest diamond recovery, the 9.98 carat diamond was recovered undamaged from processing of seed from the EMPKS unit of the South Lobe through the MDR or Mega Diamond Recovery XRT circuit that allows for diamond recovery post primary crushing and prior to milling. This recovery represents the 2nd plus 500 carat diamond recovered from this circuit in 2020.
To recover 2 plus 500 carat diamonds in a 10 month span, along with many other high quality diamonds across all size ranges is a testament again to the unique nature of the Karowe resource and the mines incorporation of advanced technology to help recover these diamonds undamaged. Along with the 998, we recovered 5 additional high value diamonds ranging from 51 carats up to 273 carats shown on this slide. Though it is not unusual for Karowe to yield up high value pockets such as this from time to time, and it is a really good reminder that when the majority of our revenue is coming from fewer than 5% of the carats produced by weight, quarterly variability in diamond quality and value is to be expected. On an annualized basis, however, over more than 8 years now of operations, we continue to demonstrate predictability and consistency. This will be touched on a little bit more as we get into a discussion about the Q3, which yielded the expected quantum of plus 10.8 carat diamonds.
However, the value component was impacted by a higher proportion of brown versus white during this period. Another important highlight for the quarter, Lucara was delighted to have entered into a second strategic collaboration with Louis Vuitton, the world's leading luxury brand and HB Antwerp for the planning and polishing of the exceptional 549 carat white gem referred to as sutuna, meaning flower in Setswana that was recovered from the Karowe mine back in February of this year. The tuna is one of the highest quality exceptional diamonds ever recovered at Karowe, and we believe this alliance is a unique opportunity to partner with industry leading participants within the supply chain to both raise the profile of our operations in Botswana and to transform this rare and unique rough diamond into an extraordinary bespoke polished diamond collection, catering exclusively to Louis Vuitton's global customer base. Under the terms of this agreement, Lucara will receive payment for diamonds created from Satsuna no later than December 2021. Similar to our existing supply agreement with HB announced in July and discussed in greater detail in the upcoming slide, Lucara will receive payment based on the final polished outcome, lesser commission and the cost of polishing.
As discussed earlier in the presentation, Karowe's large high value diamonds have historically accounted for approximately 60% to 70% of our annual revenues. Though the mine has remained fully operational throughout the COVID pandemic, Lucara made a deliberate decision not to tender any of its plus 10.8 carat production after early March 2020, amidst the uncertainty caused by the global crisis and the significant weakness observed in the rough diamond market. The polished diamond market performed much better through this period and subsequently in July 2020, Lucara announced a great groundbreaking partnership agreement with HB, entering into a definitive supply agreement for the remainder of 2020 for all diamonds produced in excess of 10.8 carats in size from Karowe. Under the supply agreement with HB, Lugara's plus 10.8 carat production is being sold at prices based on the estimated polished outcome of each diamond determined through state of the art scanning and planning technology with a true up amount payable on actual achieved polished sales in excess of the initial estimated polished price, less a fee and the cost of manufacturing. The plus 10.8 carat diamonds of poor quality, including cleavage low and rejection goods are sold as rough parcels and do not enter the polishing pipeline at HB.
Though we have experienced both startup and COVID related delays, this unique pricing mechanism is beginning to deliver regular cash flow at what we believe will be superior prices for this important segment of our production profile. The decision to enter into the supply agreement with HB for the remainder of 2020 followed a trial period in the Q2 of 2020, where approximately 3,100 carats of plus 10.8 carat rough diamonds were placed into manufacturing as shipment 1. Lucara will receive payments for the polished diamonds from shipment 1, once those diamonds are sold by HB to an end customer, less a fee and the cost of manufacturing. Beginning in the Q3 2020, the company recognized revenue of 25 $900,000 from these sales agreements. Revenue for plus 10.8 carat stones ordinarily part of the Q2 and Q3 tenders, as well as sales from shipment 1 will continue to be recognized in Q4 of 2020.
Moving to Slide 11, I'd like to spend a few minutes now talking about our 2nd transformative sales channel for quality diamonds less than 10.8 carats in size and this is Clara. With global restrictions impeding travel from many diamond terrors, the interest from buyers in Clara doubled during the Q3, increasing from 35 to 71 buyers. During Q3 20 20, Clara began selling stones on behalf of 3rd party sellers, which was a significant objective for 2020 as well. 7 sales occurred on Clara during the Q3 with total transaction volumes of $3,200,000 As Clara becomes the online marketplace of choice for rough buyers, discussions are now underway with several producers to begin trials for the sale of their diamonds on Clara in the coming weeks months. I would now like to turn it over to Zara Bould, who will discuss our financial performance for the quarter in greater detail.
Sarah?
Thanks, Zaira, and good morning and good afternoon to everyone who has joined the call today. As a reminder, some of the statements that I will make today will include forward looking information and all of our results are reported in U. S. Dollars. The most significant change in the Q3 this year comes from how we sell our diamonds.
As you can see from the table on Slide 12 and as Ira has previously highlighted, we now sell our diamonds 3 ways. The lower value stones less than 10.8 carats in size continue to be sold in a quarterly tender, better quality and higher value stones between 1 10 carats are sold through Clara and all plus 10.8 carat stones are sold through HB, with the caveat that only the higher value specials are placed into manufacturing. Clavage low and rejection goods above 10.8 carats are sold by HB as rough. We recognized revenue of $41,300,000 during the quarter, including $25,900,000 under the new HB sales agreement. From this table, you can clearly see how the plus 10.8 carat diamonds drive our results.
Although the 5,630 3 carats sold in Q3 under the new supply agreement with HB represent only 5% of the total carats sold by volume, they contribute almost 63% of the revenue recognized. Contrast this to the 105 1,283 carats sold through tender for $12,600,000 during the quarter. Sales through the tender contributed 93 percent of the carat volume sold, but only 30% of the value. When looking at this table, it is important to point out, however, that the average price of $4,597 a carat for sales under the HP agreement does not yet reflect the sale of several high value stones delivered to HB during the 2nd 3rd quarters, where we expect revenue to be realized before the end of this year or in early 2021. This delay relates to startup of processes and the time that it takes to properly analyze, plan, manufacture and ultimately sell the highest value diamonds, which are mined from Karowe.
While Lucara receives an initial payment every 60 days for all shipments received after shipment 1, the full realized value is achieved upon the final sale of each diamond. HB has invested heavily in technology and as their manufacturing processes ramp up, we expect to see turnaround times decrease. Moving to Slide 13, we have key financial results for the 3 months ended September 30. I've just spoken about the $41,300,000 in revenue recognized during the Q3, which was about 90% of the revenue recognized in the comparative period. Revenue this quarter generated an average price per carat sold of $3.65 Adjusted EBITDA, a non IFRS measure, was $9,900,000 for the quarter, and we recorded a net loss from operations of $5,400,000 On a positive note, operating expenses decreased to $21,700,000 during the quarter, primarily due to a lower operating cost per ton processed.
Favorable foreign exchange rate movements and cost optimization efforts, including in sourcing of the process plant contract were contributing factors. The operating margin achieved in the Q3 was comparable to that in 2019 at 47% versus 49%. Net loss for the quarter was impacted by 2 non cash items being depletion and amortization expense of 13,500,000 dollars and a $2,700,000 loss recognized as several of the XRT machines were upgraded. Cash flow from operations, also a non IFRS measure, was $0.03 per share. On Slide 14, we have financial highlights for the 9 months ended September 30.
The change in sales approach for our large stones had the most significant impact on our results year to date when compared to results from the 9 months ended September 30, 2019. This year, we've benefited from a positive exchange rate, targeted cost savings and production volume variances, which have been positive for processing, but negative for mining. We recognized revenue of $82,900,000 for the 9 months ended September 30, 2020, from the sale of just over 268,000 carats or $309 per carat. This compares to revenue of 130 $6,500,000 recognized for the 9 months ended September 30, 2019, where we sold just over 313,000 carats at an average price of $4.36 per carat. The reduction in revenue results from a combination of a 15% decrease in the number of carats sold and a deliberate decision not to sell any diamonds greater than 10.8 carats during the Q2 in favor of entering into a committed supply agreement with HB for the remainder of the year.
We've just discussed this. Lower revenue also impacted our adjusted EBITDA of $8,100,000 and contributed to the $22,400,000 loss recorded for the 9 month period ended September 30. Goro's year to date operating cash cost, also a non IFRS measure, was $26.92 per tonnevor processed as compared to $31.06 per tonnevor processed in 2019. This was below our initial full year forecast of $32 to $36 per tonne processed and approximately 13% lower than the same period in 2019. The current period result includes the impact of a 7% depreciation of the Botswana Pula compared to the U.
S. Dollar reporting currency and realized cost savings following a cost optimization process in the second half of twenty nineteen, offset by an 8% decrease in tons processed as compared to year to date 2019. On a year to date basis, cash flow from operations was $0.03 per share, down from $0.10 in the comparative period. We ended September with $10,100,000 cash $20,000,000 drawn on the working capital facility, an increase of $1,000,000 from the balance drawn as of June 30. A slower ramp up under the HP agreement meant we continue to rely on the working capital facility to manage monthly fluctuations in our cash flow, although we do expect this reliance to decrease in the coming months as we reach a more steady state under the HB agreement, which like Clara provides for regular payments for diamonds delivered and sold.
Moving to Slide 15, we have some operational highlights for the Q3. A consistent operating environment continued through the Q3 with both total tons mined and total tons processed in line with expectations. And carrots recovered and sold also generally in line with plan. Of note, we completed the final XRT machine upgrades without any significant restart issues. The operating cost per carat sold, again, a non IFRS measure, was $192 a carat versus 2 0.1 dollars per carat in the same quarter last year.
Operating expenses were positively impacted by lower mining costs incurred from the movement of less waste mined in the Q3 as compared to the same quarter in 2019. While we will need to catch up on the waste mining that was deferred this year in 2021, we have not otherwise significantly altered the 2020 minutee plan. Moving now to Slide 16, we have some operational highlights for the 9 months ended September 30. Although ore tons mined and processed are lower than the same period results from 2019, these results are in line with our expectations. This is also true for carats recovered, which were expected to be lower than 2019 due to several planned shutdowns this year that were required to upgrade the XRT recovery circuit.
I've already spoken about the changes that we've made to our sales channels and the impact that a small volume of plus 10.8 carat stones has on the revenue that we recognize. I will now hand it back to Ira for the question and answer period. Thank you very much.
Thank you very much, Zara.
Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Scott McDonald at Scotiabank. Please go ahead.
Hi, good morning, everyone. Thanks for the update. Just a few questions for me, just mainly about the HB agreement. And then also just wanted to circle back on the XRT replacement. So just first on the HB sales, first of all, thanks for providing that additional breakdown of the sales results.
That's very helpful. I just wonder if you could sort of characterize how that Q3 sales mix in terms of the quality that you sold to HV in Q3, how that might compare to sort of the run of mine average production mix, just to sort of get a sense of directionally whether that's above or below the sort of average prices you'd expect to get on specials going forward?
Yes. I think the point that we're trying to make there, Scott, is that we do get variability quarter to quarter, but you really have to be looking at the production run on an annualized basis. And I will let John kind of jump in here and some comments on our the overall mix. But basically everything at the mine is going along as expected and consistent with the recoveries that we've achieved over the last 8 years. John, do you want to add anything there?
Yes, sure. Thanks, Ira. Thanks, Scott, for the question. Further to what Ira said, yes, like in terms of volumes, we're spot on where we anticipated to be given the blend of material going through the plant and some of the quality aspects weren't there. I think the average price that you see in the 1 table, we have to bear in mind is the comment that what we don't see there is the sale from some of the higher value stones in the mix.
So that average price there is a bit of a kind of the low end of the expected pricing on the back of a little lower quality and the lack of some of the high value stones selling through. So I'm not I mean, overall, I'm not concerned about that average price going forward. I think that we've seen since the end of the quarter, some really nice recoveries come out of the mine, which will have a positive impact on the AP and kind of bring the overall AP up as we move forward.
Okay, great. Thank you for that. And just in terms of timing, just a couple of things that obviously, I guess, the production of specials throughout the whole calendar year or up until the end of the calendar year will be expect of the volumes you'd expect. Do you expect the Q4 volumes subject to the HB agreement would be kind of similar to Q3? Or is there going to be a bit more of a catch up in Q4, do you think?
Well, the volumes being sold through will be similar, Scott, but we are anticipating revenues to reflect a bit of a catch up. There definitely has been a time lag from the time that we sort of started up the agreement with HB and getting those stones into production. HB agreement. That shipment, as we've mentioned in the disclosure, was kind of a trial that led up to the decision to enter into the agreement. And those diamonds basically are being manufactured and sold through HB on for Lucara.
And they are subject we receive payment for those once they are actually sold, less a commission. So we are expecting more sales from shipment 1 as well. So I think that we're now in a situation where we're delivering diamonds from the mine every 2 weeks to AB, which is HB, which is giving us a nice steady cash flow. And I think what you can look for in Q4 and into 2021 is sort of catch up on the revenue side.
Okay, great. And when are we going to start seeing the true ups for the sales of the final polished? Will we start seeing that in Q4 or that might be more into 2021?
Yes. No, we believe it will be. And just to give you an example, like what we are or what HP is aspiring to do with HP Antwerp is to basically really shorten the time from receipt of diamond through to final polished sale. And the expectation is that for the vast majority of our stones that time lag or cycle should get to below 1 month. So again, lots of challenges that we've been dealing with.
This is a completely new arrangement. But I have to say it's improving every day, week by week. And we do expect that the timeline again or the timeline between mining that diamond and getting out the door will be much reduced. And so we'll start to see those top up payments coming into the revenue streams in a more predictable regular way.
Okay, excellent. And then maybe just on a similar note, how maybe you could give a bit of commentary on how this agreement might apply to the exceptional stones like the 998. I presume it will take a bit longer on those ones.
Well, it basically is the 998, will be dealt with the same way as every other diamond through the HB received through the HB agreement to this point. So it will be subject to scanning and planning. And after 60 days, we will be paid an initial purchase price based on those plans, with the final top ups paid when that diamond is ultimately manufactured and sold. And yes, it will take longer to ultimately manufacture a stone of that nature. The planning will be far more detailed, but we still will receive an initial payment after 60 days.
Okay, excellent. And then just last question on the BHP agreement. Just based on how it's going so far, would you consider extending this into 2021 and perhaps beyond?
Yes. Listen, I think we want to see more data points for sure to get comfortable, but early indications are positive. And I think ask us the same question in Q4, and we'll be able to give more insight on that. But right now, we're feeling very encouraged.
Okay, great. And just a last question for me before I pass it along, just for John. Can you remind us why you needed to or why you replaced some of the XRT machines this quarter?
Okay, Scott. Yes, that's a fair question. So we replaced the original 5 machines that were commissioned in 20 15. So we did 3 shutdowns to take out the machines over the course of the 1 in the second quarter and 2 in the third quarter. The machines were due for replacement.
There were some minor corrosion issues on the machine, so we've replaced them with the stainless steel units. Ultimately, as a result of that, we've seen less downtime associated with the XRTs, and we anticipate we can do some process improvements to improve throughput through those machines.
Okay, great. Thanks for that. And that's it for me. Thanks again everyone.
Thanks, Scott.
Next question comes from Edward Sterck at BMO. Please go ahead.
Good morning. I hope you're all well. I've got a handful of questions here. So just on the agreements with the government of Botswana to allow the selling of Darlington Antwerp, how long is that expected to be in place? Or is it essentially dependent upon international travel restrictions?
And then assuming the HB agreement proves to be fruitful, does that have any bearings on the potential to extend that agreement?
Sure. Afternoon, Ed. And I'm happy to jump in there. The government of Botswana, of course, was very relieved and grateful, I think, in some ways that we were able to find a solution to our sales through the pandemic when travel restrictions to Botswana were in place. Travel restrictions are starting to lift.
We are in constant communication with the government of Botswana, and so they are completely privy to all the results from our sales going through HB as well as ClearPoint. And really it's going to, I think, come down to making a value case for the government and as the rationale for selling this way. So we the jury is still out here, Ed, in terms of our any decision to continue with sales using this mechanism. But at the appropriate time, we expect to have that conversation with the government and determine whether this is something collectively that we want to continue to pursue. But I think they're very open minded.
And again, they've been very supportive of the approach.
Got it. Thank you. And then just a couple of follow-up questions. Firstly, on the underground project. Obviously, very understandably, a bit of a slowdown in terms of expenditure this year.
Does that have any impact on the timing of the transition from the open pit to underground? Are you going to have to stretch the open pit for an extra year or so as a result? And then secondly, with regards to, I guess, the dominance of the EMPKS unit in the underground mine plan, do you have any I mean, this is kind of like a bit of it's a good situation to be in, but it doesn't necessarily come without any problems. Do you have any concerns about the ability to sell that volume of large diamonds, assuming it continues to be as bountiful as it has been as a production unit?
Yes. Ed, I think I'm going to let John take the first piece, and then I'll jump in on the second one. Do you want to go ahead, John?
Sure. Thanks for the question, Ed. Yes, there has understandably been a delay to the timelines on the project. Things have been rescheduled. The capital spend of the project hasn't changed and the duration of the project hasn't changed.
So to your point, what we are doing at the moment is looking at what can be done to extend the life of the open pit so that we don't have a shortfall in production from the open pit as we ramp up the underground. We'd also point out that we will have stockpiles should we run into an issue. We do have we'll have a significant quantity of material on surface and stockpiles that could go through the plants, but we are looking at what can be done in the open pit to basically have ore from open pit and underground as we ramp up the underground. Thank you. And then both yes, that's we're in the process of running through that exercise.
And just in terms of our the quantum of big stones, that is absolutely not a concern for us. Karowe is a very unique asset. There's no mine in the world producing type of diamonds that we produce. But I will say that the opportunity of working with companies like HB Antwerp and of course Louis Vuitton, we think is a huge opportunity to kind of open up the market for our larger high value diamonds and that certainly has been a factor that sort of played in our decision to go down this path. Louis Vuitton has only just launched its high jewelry line and that really was with the Soello, the first diamond that we put into partnership with them back in January and they have announced their intention to turn high jewelry into a major business for that company.
So, Louis Vuitton obviously is the world's largest leading luxury brand, has a huge audience globally. And we really believe that these types of partnerships are going to be important in growing demand for diamonds in general, not just large high value stones. But this sort of greater alignment along the value chain from mine to ultimate retail sale industry is going to actually expand and grow in general terms.
Thank you very much. And then just a final question. Looking at the waste stripping this year, it's running below the guidance budget at the beginning of the year. Obviously, you haven't given any updated guidance yet to understand the reasons. But would it be fair to assume that any shortfall this year just due to perhaps, I don't know, COVID issues and trying to increase subsistence between the workforce and surface and so on.
Any shortfall in stripping will be caught up next year and that may result in a bit of an increase in unit costs as a result.
Yes, that's correct, Ed. Zara or John, do you have anything you want to add there?
No, I think that assumption is fair.
Thank you. That's all I have.
Thank you. The next question comes from Richard Hatch at Berenberg. Please go ahead.
Thank you very much for the call and congrats on the $998,000,000 Just a point of clarification. So I just want to make sure I've got my numbers right. Say, for example, the $549,000,000 when do you get the first sort of cash installment for that one? Because I think you talked about a 60 day payment and then I think the MD and A talks about cash by end of Q4 2021. So I just want to clarify just in terms of cash flow when you actually start when you see the benefits of that stone, please?
Sure. Hi, Richard. Yes, the $998,000,000 is subject to the HB agreement. The $549,000,000 we recovered prior entering into that agreement. And so the agreement that we've got on the $549,000,000 is a separate agreement with HB and Louis Vuitton.
So we are looking at sort of a tripartite group. And so that the value of that stone will be realized once it's sold or at the latest December of 2021.
Okay. Got it. Right. Fine. And then and I guess the for the $998,000,000 I suppose you're sort of moving in towards the end of the year.
So would you expect to see cash flow from that stone more likely to be a 2021 event rather than a Q4 2020 event?
Correct.
Just on the underground, the diamond market had some had a pretty rough year, although it seems to be improving, which is not lovely to see. But I'm just wondering kind of as you look at the CapEx and the kind of the IRR, NPV hurdles that you're going to put as a management across the underground projects. I mean just off the back of the movements in the market this year, how sort of comfortable and confident are you that it sort of passes hurdles in terms of internal hurdles for final investment decision? And second, just on that, I see that the spend has been pulled down to $22,000,000 I mean, how quickly does the balance of that $53,000,000 get pushed back into 2021? Should we be booking it in for 2021?
Or do we spread it? Or what's the thought process about how that gets spent? Thank you.
Sure, Richard. I'll start and then I'll turn it over to John. I just want to say we are highly confident about the merits and the value and the economics of the underground. We've used extremely conservative pricing in our feasibility study and we've had a further hard look at that amidst the challenges of 2020. And what you have to remember there, Richard, is that we've taken out in all of our estimates of diamond value, we've taken out all the large exceptional diamonds that have been recovered over the last 8 years out of our model.
And we've used discounted pricing through 2021 and no diamond price escalator for 15 years of mining out to 2,040. So we are very optimistic and we remain very confident in the economics of the underground. And John, do you want to just touch on the spend, please?
Sure. Yes, Richard, in terms of the difference between 2020, we anticipated spending what we will spend, relates mainly to the earthworks and the civil works and the start of the physical precinct, which now is pushed out to the Q3 of next year. So we'll advise the market on what the spend next year would look like, but it's that is just not an aggregate to what was forecast before. Obviously, with the delays, the spend on the CapEx is being looked at quite a bit in terms of either smoothing it out and making adjustments for the delay. But ultimately, at the end of the year, we'll provide the guidance on the spend for the underground next year.
Cool. Thanks, John. Thanks, team.
Thank you. That concludes today's Q and A session. I will now turn it over for closing comments.
Thank you, operator, and thank you everybody for joining us today. We are encouraged about the progress that we've made in Q3, and we're very confident in our ability to generate solid revenues as a result of all of our sales channels for the remainder of the year. And we're feeling very optimistic about the potential for putting together a debt financing package in support of the underground into 2021. So stay tuned for all of that. Lots more to come.
Thank you very much everybody and have a great rest of your day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.