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 speaker's remarks, there will be a question and answer session. Ms. Eira Thomas, you may begin your conference.
Thank you very much, operator. Good day to everyone, and thank you for joining Lucara's third quarter results webcast. Joining me on the call today from management, we have Zara Boldt, our CFO, Dr. John Armstrong, VP of Technical Services, and Ayesha Hira, VP of Corporate Development and Strategy. I will be making forward-looking statements, 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 carats 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 third plus 1,000 carat diamond since mining began and our second plus 500 carat stone for the year. After cleaning, it now reports in as 998 carats, but it still ranks as the fourth 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 Sethunya, 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 HB 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 polish 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 to purchase diamonds in traditional venues, and we are expecting to expand trials with third-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 in both Asia and the U.S. markets.
Zara is gonna touch on the financials a little later, but we did record revenue of $41.3 million in the quarter and our Q3 EBITDA of $9.9 million, and an operating margin of 47%. Finally, and consistent with the message we delivered in Q2, we would 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 four, we've summarized our initial response and ongoing actions in respect of the pandemic. 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, two of which have now taken place in Antwerp, with the third scheduled for December.
The Karowe Underground Expansion project, which has the potential to add more than $4 billion in revenues and extend our mine life out to 2040, remains a top priority for the company. Though re-scoped from a planned spend of $53 million to an estimated spend of $22 million 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 2021.
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 EMPKS 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 Sethunya and the 998-carat diamond just announced.
Providing a little more insight on our third largest diamond recovery, the 998-carat diamond was recovered undamaged from processing of feed 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 second plus 500-carat diamond recovered from this circuit in 2020. To recover two 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 mine's incorporation of advanced technology to help recover these diamonds undamaged. Along with the 998, we recovered five 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 five percent 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 eight 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 third quarter, 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 Sethunya, meaning flower in Setswana, that was recovered from the Karowe Mine back in February of this year. Sethunya 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 Sethunya 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, less a commission and the cost of polishing. As discussed earlier in the presentation, Karowe's large, high-value diamonds have historically accounted for approximately 60%-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, Lucara'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 poorer 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 one. Lucara will receive payments for the polished diamonds from shipment one, 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 $25.9 million 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 one 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 second 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 markets, the interest from buyers in Clara doubled during the Q3 , increasing from 35 to 71 buyers. During Q3 2020, Clara began selling stones on behalf of third-party sellers, which was a significant objective for 2020 as well. Seven sales occurred on Clara during the Q3 , with total transaction volumes of $3.2 million.
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 and months. I would now like to turn it over to Zara Boldt, who will discuss our financial performance for the quarter in greater detail. Zara?
Thanks, Eira, 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 US 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 Eira has previously highlighted, we now sell our diamonds three 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 one and 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.
cleavage low and rejection goods above 10.8 carats are sold by HB as rough. We recognized revenue of $41.3 million during the quarter, including $25.9 million 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 5,633 carats sold in Q3 under the new supply agreement with HB represent only five percent of the total carats sold by volume, they contribute almost 63% of the revenue recognized. Contrast this to the 105,283 carats sold through tender for $12.6 million during the quarter. Sales through the tender contributed 93% 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 HB agreement does not yet reflect the sale of several high-value stones delivered to HB during the Q2 and Q3 , 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 one, 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 three months ended September 30th. I've just spoken about the $41.3 million in revenue recognized during the third quarter, which was about 90% of the revenue recognized in the comparative period. Revenue this quarter generated an average price per carat sold of $365. Adjusted EBITDA, a non-IFRS measure, was $9.9 million for the quarter, and we recorded a net loss from operations of $5.4 million. On a positive note, operating expenses decreased to $21.7 million during the quarter, primarily due to a lower operating cost per ton processed. Favorable foreign exchange rate movements and cost optimization efforts, including insourcing 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 two non-cash items, being depletion and amortization expense of $13.5 million and a $2.7 million 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 nine 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 nine 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 $82.9 million for the nine months ended September 30, 2020, from the sale of just over 268,000 carats or $309 per carat.
This compares to revenue of $136.5 million recognized for the nine months ended September 30, 2019, where we sold just over 313,000 carats at an average price of $436 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 second quarter 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 $8.1 million and contributed to the $22.4 million loss recorded for the nine-month period ended September 30. Karowe's year-to-date operating cash cost, also a non-IFRS measure, was $26.92 per tonne of ore processed as compared to $31.06 per tonne of ore processed in 2019.
This was below our initial full-year forecast of $32 - $36 per tonne processed and approximately 13% lower than the same period in 2019. The current period results include the impact of a seven percent depreciation of the Botswana pula compared to the US dollar reporting currency and realized cost savings following a cost optimization process in the second half of 2019, offset by an eight percent decrease in tonnes 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 $10.1 million cash and $20 million drawn on the working capital facility, an increase of $1 million from the balance drawn as of June 30th. A slower ramp-up under the HB agreement meant we continued 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 third quarter. A consistent operating environment continued through the third quarter, with both total tons mined and total tons processed in line with expectations, and carats 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 $201 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 third quarter 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 mine plan. Moving now to slide 16, we have some operational highlights for the nine months ended September 30th. Although ore tonnes 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 Eira 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. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Scott MacDonald at Scotiabank. Please go ahead.
Hi. Good morning, everyone. Thanks for the update. Just a few questions from me, just mainly about the HB agreement, also just wanted to circle back on the XRT replacement. 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 HB in Q3, how that might compare to the run-of-mine average production mix, just to get a sense of directionally whether that's above or below the average prices you'd expect to get on specials going forward?
Yeah, 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. I will let John jump in here and some comments on the overall mix. Basically, everything at the mine is going along as expected, and consistent with the recoveries that we've achieved over the last eight years. John, do you want to add anything there?
Sure. Thanks, Eira. Thanks, Scott, for the question. Further to what Eira said, 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 on the one table, what you 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. That average price there is a bit 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. 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 bring the overall AP up as we move forward.
Okay, great. Thank you for that. Just in terms of timing, just a couple things. Obviously, I guess the production of specials throughout the whole calendar year or up until the end of the calendar year will be subject to this HB agreement. Naturally, some of these sales will go into Q1 2021. I'm just trying to get a sense of the volumes you'd expect. Do you expect the Q4 volumes subject to the HB agreement would be similar to Q3, or is there going to be a bit more of a catch-up in Q4, do you think?
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 started up the agreement with HB and getting those stones into production. Of course, shipment one was not subject to the HB agreement. That shipment, as we've mentioned in the disclosure, was a trial that led up to the decision to enter into the agreement. Those diamonds basically are being manufactured and sold through HB for Lucara, and we receive payment for those once they are actually sold, less a commission. We are expecting more sales from shipment one as well. I think that we're now in a situation where we're delivering diamonds from the mine every two weeks to HB, which is giving us a nice, steady cash flow.
I think what you can look for in Q4 and into 2021 is catch up on the revenue side.
Okay, great. When are we going to start seeing the true-ups for the sales of the final polish? Will we start seeing that in Q4, or that might be more into 2021?
Yes. No, we believe it will be. Just to give you an example, what HB is aspiring to do with HB Antwerp is to basically really shorten the time from receipt of diamond through to final polish sale. The expectation is that for the vast majority of our stones, that time lag or cycle should get to below one month. Again, lots of challenges that we've been dealing with. This is a completely new arrangement. I have to say, it's improving every day, week by week, and we do expect that the timeline, again, or the time lag between mining that diamond and getting it out the door will be much reduced. We'll start to see those top-up payments coming into the revenue streams in a more predictable, regular way.
Okay, excellent. Maybe just on a similar note, maybe you could just give a bit of commentary on how this agreement might apply to the exceptional stones like the 998. I presume it'll take a bit longer on those ones.
Well, basically, the 998 will be dealt with the same way as every other diamond received through the HB agreement to this point. It will be subject to scanning and planning. 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. Yes, it will take longer to ultimately manufacture a stone of that nature. The planning will be far more detailed, we still will receive an initial payment after 60 days.
Okay, excellent. Just a last question on the HB agreement. Just based on how it's going so far, would you consider extending this into 2021 and perhaps beyond?
Yeah. Listen, I think we want to see more data points for sure to get comfortable, but early indications are positive. I think, ask us the same question in Q4, and we'll be able to give more insight on that. Right now we're feeling very encouraged.
Okay, great. Just a last question from 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. Yeah, that's a fair question. We replaced the original five machines that were commissioned in 2015. We did three shutdowns to take out the machines over the course of the one in the second quarter and two in the Q3 . The machines were due for replacement. There were some minor corrosion issues on the machines. 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. That's it from me. Thanks again, everyone.
Thanks, Scott.
Ladies and gentlemen, as a reminder, should you have any questions, please press star one. 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. Just on the agreement with the government of Botswana to allow the selling of diamonds in Antwerp, how long is that expected to be in place for? Is it essentially dependent upon international travel restrictions? Assuming the HB agreement proves to be fruitful, does that have any bearings on the potential to extend that agreement?
Sure. Afternoon, Ed, 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, they are completely privy to all the results from our sales going through HB as well as Clara. Really it's going to, I think, come down to making a value case for the Government and as to the rationale for selling this way. The jury's still out here, Ed, in terms of any decision to continue with sales using this mechanism.
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. I think they're very open-minded, and again, they've been very supportive of the approach.
Thank you. 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? Secondly, with regards to, I guess, the dominance of the EMPKS units in the underground mine plan, this is 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?
Yeah. 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. Yeah, 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. 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. I would also point out that we will have stockpiles should we run into an issue. We'll have a significant quantity of material on surface and stockpiles that could go through the plant. 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.
Yeah, that's in the process of running through that exercise.
Ed, just in terms of 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 the type of diamonds that we produce. 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 open up the market for our larger high-value diamonds. That certainly has been a factor that 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 Sewelô, 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.
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. This greater alignment along the value chain from mine to ultimate retail sale is how this industry is going to actually expand and grow in general terms.
Thank you very much. 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 for understandable 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 some distance between the workforce and the 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 for me.
Thank you. The next question comes from Richard Hatch at Berenberg. Please go ahead.
Thank you very much for the call, congrats on the 998. Just a point of clarification. I just want to make sure I've got my numbers right. Say, for example, the 549, when do you get the first cash installment for that one? I think you talked about a 60-day payment, then I think the MD&A talks about cash by end of Q4 2021. I just want to clarify, just in terms of cash flow, when you see the benefits of that stone, please.
Sure. Hi, Richard. Yeah, the 998 is subject to the HB agreement. The 549 we recovered prior to entering into that agreement, the agreement that we've got on the 549 is a separate agreement with HB and Louis Vuitton. We are working as sort of a tripartite group, the value of that stone will be realized once it's sold or at the latest December of 2021.
Okay. Got it. Right. Fine. I guess for the 998, I suppose you're sort of moving in towards the end of the year. 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, I suppose the diamond market's had a pretty rough year, although it seems to be improving, which is lovely to see. I'm just wondering, as you look at the CapEx and the IRR, NPV hurdles that you're going to put as a management across the Underground project, I mean, just off the back of the movements in the market this year, how comfortable and confident are you that it passes hurdles in terms of internal hurdles for a final investment decision? Second, just on that, I see that the spend's been pulled down to $22 million. I mean, how quickly does the balance of that $53 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. 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 eight years out of our models. We've used discounted pricing through 2021, and no diamond price escalator for 15 years of mining out to 2040. We are very optimistic, and we remain very confident in the economics of the Underground. John, do you want to just touch on the spend, please?
Sure. Yeah, Richard, in terms of the difference between what we anticipated spending and 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. We'll advise the market on what the spend next year would look like, but it's just not in 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. 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&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. We're feeling very optimistic about the potential for putting together a debt financing package in support of the Underground into 2021. 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.