Good morning. My name is Pam, and I'll be the conference operator for today. At this time, I'd like to welcome everyone to the Liqueira Diamond 2021 Q2 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there be a question and answer session.
And please press star followed by 2. Ms. Ira Thomas, you may begin your conference. Thank you very
much, Pam. Hello, and thank you for joining Lucara's 2nd quarter results call. Joining me from management today is Zara Bolt, CFO Doctor. John Armstrong, VP, Technical Services and Ayesha Hira, VP, Corporate Development and Strategy. In addition, we are pleased to be welcoming Gord Doerksen, President of JDS Energy's Engineering Division and our newly appointed EPC C Manager, who is on hand to address any specific inquiries related to our underground expansion project.
We will begin with a brief review of our quarterly performance followed by a more fulsome update on our underground project, which we are pleased to report is now ramping up to full speed following the completion project financing in Q2. I will be making forward looking statements, so I do encourage you to review this cautionary statement at your leisure on our website. Liqueira is certainly pleased to be reporting a solid strong quarter reflecting a better business environment and market fundamentals at the mine site and our offices in Jabaroni to manage the spread and to help support those impacted by the disease. Vaccines are slowly being rolled out now across the country and we are working closely with the government to support this effort. Q4.
For the quarter, with all COVID operating protocols in place, the result was continued safe, reliable production and all physical metrics achieved against plan. Key highlights for the period include full project funding for the Karowe underground expansion, following and the successful completion of debt and equity financings in July and a record production period for the recovery of specials or diamonds greater than 10.8 carats, which accounted for 10.2 weight percent of total direct milling recovered carats compared to approximately 6.5% in the comparable period last year. Other records of note, and the quarter delivered our 3rd diamond greater than 1,000 carats and Botswana's largest pink diamond weighing in at just over 62 carats in size. Zara will shortly take us through some additional financial and operating highlights, but I would like to set the stage with a brief comments on the diamond market, Carat approaching pre pandemic levels at $6.71 per carat. Strength was observed Throughout the value chain, Anclara also enjoyed strong sales results with increasing volumes and customer participation.
As a final summary comment, the recently completed debt and equity financings continue to support a healthy cash position and good available liquidity as we look forward to the 1st draw downs on the senior secured project financing in support of our underground expansion activities, which as and I said are in the process of ramping up for the remaining second half of the year. I think I've already spoken to COVID and just to mention that we continue to work very closely with the government. We've got stringent protocols in effect on-site and efforts to keep everyone safe and our operations continue at full steady state capacity. As mining has progressed deeper in the open pit and is now dominated by Southlog ore, we have seen strong resource performance and in Q2, a record recovery of specials or diamonds greater than 10.8 carats in size, In addition, the 11 74 carat stone, our 3rd diamond over 1,000 carats was recovered and we also recovered 16 diamonds greater than 100 carats, including 2 diamonds greater than 400 carats, 2 diamonds greater than 200 carats and a further 12 stones between 1200 carats in weight. This slide continues to demonstrate The consistent recovery of these diamonds remains the key value driver for Lucara, accounting for close to 70% of our revenues on a regular basis.
Under our novel 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 to Lucara on actual achieved polish sales in excess of the initial estimated polish price, less the fee and the cost of manufacturing. And the plus 10.8 carat diamonds of poor quality, which is the cleavage loathe and rejection goods are sold as rough parcels and do not enter the polishing pipeline at HB. Sales continued to ramp up during the period and we are beginning to see the benefits of this arrangement, which provides a transparent pricing mechanism on committed terms and is continuing to deliver regular cash and what we believe will be superior prices for this important segment of our production profile. And 2021. Lucara entered into a second strategic collaboration with HB in 2020, this time including Louis Vuitton, the world's leading luxury brand for the planning and polishing of the exceptional 549 carat white gen diamond we refer to as Setunia, meaning flower in Setswana that we recovered in February of last year.
Petunia 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 raise and 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 Setunia no later than December of 2021. Similar to our existing supply agreement with HB, Lucara will receive payment based on the final polished outcome, through to mid year, which has delivered higher diamond prices, both in terms of rough and polished. Analyst consensus estimates are that rough diamond prices are up between 15% 20% so far in 2021, demonstrating a strong recovery polished diamond jewelry sales trending upward as well. Tiffany, which is now owned by our partner Louis Vuitton, recorded another strong quarter in Q2 and the Company's Q1 results with good demand coming out of the U.
S. And China. Our outlook for the market remains positive as the fundamentals of Interest in Clara, Lucara's 100% owned proprietary secure web based digital sales platform continues to grow in 2021 owing to continued global restrictions impeding travel for many diamond manufacturers, combined with an increasing interest in purchasing rough diamonds in a more efficient, Innovative Way. That positive momentum continued through the Q2 with 6 sales and a total sales volume transaction of $8,300,000 which is a 38% increase from the $6,000,000 transacted in the Q1. Encouragingly, Clara also observed consistent price increases at each subsequent sale throughout the period.
The number of buyers on the platform has also increased to 84 in Q2, up from 80 in Q1, and the company is maintaining a waiting list to manage supply and demand. A third party supplier trialed the platform in Q2 and additional third party goods are planned for sale in Q3 as discussions continue with additional third party sellers to help us build supply. And I'd like now to turn over to Zara to take us through some additional financial and operating highlights.
Thanks very much, Eira. Good morning and good afternoon, everyone. Just a quick reminder that I'll be making some forward looking statements. Conference call. During today's call and which appear in the presentation are non IFRS measures.
Please refer to our MD and A for details on how these measures are calculated. All amounts are reported in U. S. Dollars unless otherwise stated. Let's begin with the financial highlights from the Q2, which are very different from where we were at this time last year.
Total revenues of $46,300,000 were recognized in the 2nd quarter, resulting in an average price per carat sold of $6.71 a carat. I would remind you that last year we made a deliberate decision due to very difficult market conditions not to sell any plus 10.8 carat diamonds through tender. As a result, our revenue for the Q2 last year $6,000,000 or earnings per share of $0.02 as compared to a net loss of $13,900,000 or a net loss of $0.04 per share and the comparative quarter from 2020. Adjusted EBITDA was $22,200,000 as compared to negative adjusted EBITDA of $10,000,000 for the same period in 2020. Cash flow from operations was $0.05 per share this quarter as compared to negative $0.02 $1,000,000 per share during the 3 months ended June 30, 2020.
The increase in revenue this quarter had the most significant impact on cash flow from operations, adjusted EBITDA and net income. Continuing the trend from the Q1 this year, pricing continued to increase in virtually all size classes, and Company, resulting in a strong financial performance for the first half of twenty twenty one. We ended the quarter with $13,700,000 in cash, $50,000,000 drawn on the working capital facility and net debt of $36,300,000 Our $50,000,000 working capital facility was extended in early May and will be refinanced shortly with funds from the $220,000,000 senior secured project financing. We're currently working through the conditions precedent to reach financial close for those facilities, which will allow us to refinance the existing working capital facility and submit our first utilization request for the underground expansion. Moving on to highlights from the 1st 6 months of June 30 of 2021, pardon me.
Revenues more than doubled from $41,600,000 to $99,900,000 for the 6 months ended June 30, 2021. This reflects a much stronger price environment following a significant and sustained increase in demand, which began in the latter part of 2020. Higher revenues have the most significant impact on the improvement to adjusted EBITDA, which is $44,500,000 this year as compared to a negative adjusted EBITDA of $1,800,000 last year and also to our net income of $9,400,000 for the 6 months ended June 30, 2021, as compared to a net loss of $17,100,000 for the same 6 month period in 2020. We achieved an average price per carat sold of $618 from the sale of almost 161,000 carats in the first half of this year. This compares to an average price per carat sold of $2.68 from the sale of 155,000 carats during the same 6 month period in 2020.
Operating expenses increased about 14% to 15% from the same period last year due to combination of higher power, labor and insurance costs. This is similar to the increase that was observed in the Q1 this year and reflective cost reductions that we implemented in Q2 2020 that have subsequently been removed. The operating cost per tonnevor processed with $28.79 compared to $27.14 for the same period last year. Cash flow from operations was $0.11 per share as compared to nil for the same period from 2020. Moving now to our operational highlights for the Q2.
These included ore and waste mined of 1,000,000 tonnes and 0 point and 7,000,000 tonnes respectively, 730,000 tonnes of ore processed, resulting in just over 101,000 carats recovered, achieving a recover grade of 13.9 carats per 100 tonnes. As Ira mentioned earlier, we recovered 2 60 1 Specials or Diamonds Greater Than 10.8 Carats in Weight from Direct Milling During the Second Quarter, representing 10.2 weight percent of total direct milling recovered carats. This is one of our highest production quarters to date in terms of the volume of specials recovered. In comparison, we recovered 6.4 weight percent specials in Q2 2020. In addition to a 11 74 carat stone recovered, 16 diamonds greater than 100 carats were also recovered during the quarter, including 2 diamonds greater than 400 carats, 2 diamonds greater than 200 carats, along with a further 12 stones between 102 100 carats in weight.
Mining and processing results were unplanned during the Q2. Although you will note that the split between ore and waste tons mined has been weighted more heavily to Oorton's mind. This was done to enable destocking of the benches in the northern part of the pit, which will help us maintain operational flexibility through the remainder of the year. The reduced waste mining is not expected to have an impact on our ability to access ore in line with the mine plan. Carats sold totaled just under 69,000 in the quarter, which was very close to the same number of carats $450 a carat sold or 67%, which is consistent with our Q1 results and more typical of our high margin operating history, Which apart from 2020 has been fairly consistent over the life of the mine.
Moving now to look briefly at the sales channels that we're using. This slide sets out how we sell our diamonds. Revenues from the sale of plus 10.8 carat diamonds to HB were $30,700,000 in the 2nd quarter, representing almost 77% of total revenues of $46,300,000 recognized in the second quarter. We have estimated variable consideration of $5,100,000 as of June 30 on shipments delivered to HB through the end of June, of slightly from the $4,900,000 estimate as at March 31. In the Q1, there was increase in the number of larger higher value diamonds sold and this continued into the Q2.
We achieved an average price of $6,767 $1 per carat for the special stole, almost doubled from the $3,554 a carat from Q1 this year. Shipments continue to be delivered to HP about twice a month. And with improvements made by HP in their manufacturing process, We're seeing a reduction in the length of time that it takes to analyze and manufacture the less complicated plus 10.8 carat stones we've delivered. As a result, some of you may have noticed that our receivable balance with HB remained at around $23,000,000 as of June 30. From a combination of the timing of deliveries to HV, improvements in their manufacturing processes and to the higher value of the production delivered following a very strong Q2 for recoveries.
Looking now at Clarum, which is our proprietary secure web based digital sales platform for Rough Diamonds. The value of Rough Diamonds transaction through Clara was $8,300,000 over 6 sales in the 2nd quarter, and the number of buyers on the platform increased to 84 as of June 30. The average price per carat sold through the Clara platform travel restrictions. Both the March May quarterly tenders were held in Antwerp rather than Jabaroni, and our September tender will take place from Antwerp as well. The diamonds sold through tender represent the largest volume, but lowest value portion of our production.
Which is an average price of $2.42 a carat for those diamonds less than 10.8 carats in weight, which is up from $186 a carat and the Q1 of 2019 for those same stones in the Q1 this year. We continue to see prices improve, which is encouraging. Moving just briefly to our 2021 annual guidance. You will see that we've adjusted the split between ore and waste Mining for the reasons I've noted previously. The balance of our 2021 guidance remains unchanged.
I will point out that we expect to spend up to $120,000,000 on the underground expansion this year, having already spent almost $33,000,000 by the end of June. On that note, I will hand the floor over to Doctor. John Armstrong, our Vice President, Technical Services to talk about where we are with the underground expansion project.
Okay. Thank you, Zara, and thank you, Ira. Good morning and afternoon and welcome everyone to the call. I'm pleased to present an update on the Croix underground expansion project and talk through some of the changes since 2019 feasibility study and some of the physical progress achieved during 2020 2021 and of course the next steps for the project. I would encourage everyone to take note of the cautionary statements on Slide 2 of this presentation deck.
2019. My remarks will include forward looking statements. As a reminder, all amounts referenced are in U. S. Dollars unless otherwise indicated.
Next slide please. The Curley underground project is now as described previously, a fully financed project Annual Meeting with operating cash flow from the open pit, a $220,000,000 finance facility and the recently closed Canadian $41,400,000 equity financing. The underground project will extend the mine life an additional 13 plus years out to 2,040 with an estimated $4,000,000,000 of additional revenue. The underground mining method, given its bottom up approach, targets the highest value rock type in the South Lobe, the EMPKS, which has the coarsest diamond sized frequency distribution, highest recoverable grade and is the dominant rock type that would mine in these early stages from the underground and is the source of many of the truly exceptional diamond recoveries, including the 1109 carat Lesedi La Rona, the 549 carat Setunia and 1758 carat Soello to name a few. Next slide please.
The long haul stoping method has been selected and basically this method is like a fully assisted block cave with the design and the layout of analogous to many block cave mines around the world. And contributes to an approximately 3 year payback period. We have all necessary permits in place, including a mining license extension to 2,046. Lycara has adopted the ISC performance standards extending those to the Equator Principles for the underground project. We are moving to the Gulf CIM towards sustainable mining initiative and the global industry standard for tailings management as part of our ongoing commitment to environmental and social best practices.
Much has happened since the conclusion of the feasibility study in the Q4 of 2019 and despite the challenges presented over the last 18 months, and the largest project in the world. This is a testament to the tremendous effort put forward by JDS Energy and Mining and KAR's EPCM for the project, Annual Report. Although COVID-nineteen related delays have impacted the original schedule, no material variances between the 2019 feasibility study and the current project design have resulted following the completion of detailed design and engineering work undertaken in 2020 2021. COVID-nineteen has impacted the schedule with delay in the precinct activities for shaft development by 1 year. And now we expect full production in the Q4 of 2026, a 1.3 year delay from the original feasibility study end date.
Annual Full Project CapEx, for me, has increased marginally by 4% to US534 $1,000,000 and the cost increases are driven mainly by an increase in the diameter of the production shaft, an additional sublevel and more other kind of minor changes that I'll touch on throughout the presentation. To the end of the Q2 of 2021, a Total of $51,400,000 has been spent on the project to date. These are focused on procurements of long lead time items, engineering design work for the shafts, Critical Early Works and Civil Works. The ultimate goal of this was to ensure minimal additional delays to the project schedule as we went through the financing exercise and to derisk the start of the project. The open pit mine plan has been rescoped and optimized to allow for continuous operation into 2026.
Overall underground operation parameters with respect to waste and ore tons mines, tariffs recovered and so forth and remain the same as the 2019 feasibility study. As a refresher, the underground project is targeting the Substantial resources remaining below the economic expense of the open pits in the South Lobe will be a 7,200 tonne per day shaft operation that utilizes the long haul shrink mining method, providing this additional 13 years of mine life after a 5 year construction period. The mine will be accessed from a 7 27 meter deep production shaft, 8.5 meters in diameter driven from surface and will be equipped with 2 21 tonne skips production hoisting and a service cage for amended material movement throughout the mine. The shaft will also serve as the main fresh air intake and the second shaft 6 meters in diameter driven from surface to 733 meters deep will form the installation shaft and the exhaust for the mine workings. A total of 7 levels will access the ore body, the 3 connected to the shaft system.
And the main extraction level on 310 will be laid out typical of the blockading arrangements and all the other levels will form drilling platforms that will drill from within the Kimberlite to do the sequencing on the drilling glass up through the stope. And we're planning to mine about 400 vertical meters entry from the 3 10 level up to the base of the open pit. The long haul method is planned to systematically drill and blast the entire lobe on a vertical retreat basis. A significant portion of the blasted muck is left in the stope during blasting and stoping to stabilize the host rock with only the swell Once the column is fully glassed, the stope will be drawn empty just simply by drawing the muck points down and we will cover the kimberlite skin as we mine down. And during the first 200 meter verticals of mining are contained within granite host rock With minimal dilution expected there, it's within our payback period and the dominant rock type to come out of the drop points at that point in time would be the MPKS.
In terms of some additional design changes that took place through the detailed work that was done, There's been an addition of an additional sub level, an undercut level just above 310 level. This will assist in the development of the drawbells and the trough style draw points and some optimizations around bend races. Next slide please. The long haul shrink method brings forth a number of advantages, especially early in the years of the underground operations at Crowe. Namely 1, access to the highest value portion of the Lower South Lobe, minimal dilution of mining occurs in confident granite host rocks, underground development can be done simultaneously with the open pits operations.
Volumeshically, the EMPKS uniform is a dominant rock type that will be extracted during the early stage of the underground operation with over 90% of the recoverable carats between the 310 and 400 levels attributable to this EFPKS unit, which as we previously mentioned has a demonstrably coarse diamond sized distribution and is a significant source of large high value diamonds from the current open pit operations. The graphic that you see on the bottom of the slide displays the recovered carats by source. This aligns with some of the disclosure around the 2019 feasibility study, but This particular slide here is a collection of images from just some of the significant diamond recoveries and the results that
have taken place from the south globe of the
AK-six Kimberlite. Karowe has now produced 3 diamonds in excess of 1,000 carats apiece, each of which has been recovered from processing of the EFPKS unit. These include the 1109 carat of Seti Lirona 17.60 carat Xuelo, the unnamed 11 74 carat diamond recovered just recently, along with a number of other top quality highway gems shown here, including the 549 carat satunia, the 813 carat Constellation. Production runs of the EMPTS have exceeded the model rate percent of plus 10.8 carat diamonds that is in 2019 feasibility study, which sits at 7.98 percent for the MPTS unit. In 2021, we have had 2 production runs at the MPTS that have exceeded 12 weight by its brother in the south globe.
The MPKS is also a significant producer of large high quality diamonds shown on the right side of this image, you'll see the 3.93 carat stone recently recovered in press release, the 378 carat stone that was recovered earlier this year. And what is it showing here is the 342 carat diamond also recovered earlier this year. For those of you that are into counting, there are 9 diamonds shown on this particular image, 6 of these diamonds have been recovered since the beginning of 2020. The demonstrably core size distributions for both the MPKS EMTTS and EMTTS and the continued recovery of these and other high value diamonds coupled with the continued strong overall strong resource performance and important economic drivers for the underground mine at Karowe. We'll spend a little bit of time on this slide.
This is diamond pricing. I'm actually going to spend There's a lot for the reader to unpack here. The main takeaways that I would like to emphasize The Liqueira is holding the same diamond price assumption as the 2019 feasibility study. Those are shown in the small inset table on the lower right Image. Those are the feasibility study.
Basically, those numbers enter the mine plan in 2023. There is no diamond price escalation post 2023 on the diamond prices. No exceptional stone recoveries are included in the model average prices. And I would say that if you take those modeled average prices and do a weighted average price against our production profile as shown on this diagram, The next slide will walk through some of the open pits and underground metrics. These have been modified to represent completion since the feasibility study, but the main takeaway is again here.
We're going to process around 47,000,000 tons of ore and that can be combined by or we're going to pardon me, we're going to mine about 47,000,000 tons, processed 54,000,000 tons. That includes the tail out to 2,040 of the large lifeline stockpiles, etcetera, that sit on surface. Our expected operating cash costs per tonne processed Next slide
please.
This next slide here is table that compares the 2019 feasibility study preproduction CapEx against our 2021 base case. And the overall capital increased by approximately 4%, dollars 534,000,000 And this particular diagram allows users to compare back to our feasibility study in our presentations around there. These are broken out into the same buckets that was in that particular material. Next slide, please. Showing on this slide is how the spend of that $534,000,000 Looks like going forward on an annualized basis, that's the image on the right.
The image on the left just provides pretty straightforward simple waterfall in terms of how the costs move around. There's a few things that I'll note. If you look at the annualized spend on the right and the dip in 2023 in capital costs that relates mainly that there are only being one activity taking place in the project at that time or one large activity taking place and that would just be shaft sinking. The 2021 2022 bumps in CapEx, those represent obviously the establishment surface civils, the camp, power line, substation construction and so forth. So quite a bit of activity in the 1st 2 years, settling into shafts linking in the 3rd year, 2020 four-twenty 25, the ramp up there is related to procurement for the underground infrastructure and the start of the underground mine development.
Next slide please. This looks at the underground operating cost estimates. These are unchanged from the feasibility study as we've not A total of $51,400,000 out of the total budget of 53, $534,000,000 has been spent to date. Where did that $51,400,000 go? That has been spent mainly on Precinct engineering is complete.
The detailed design and engineering around the 2 main shafts is ongoing, but fundamentally complete. And some equipment engineering, which are not critical to the critical path at the moment. Detailed work on the ventilation engineering is well advanced. Winders, hoists, shaft jumbos have all been procured. All the necessary equipment for the precinct is on-site.
The civil works are well advanced around 2 shafts and the C70 inches of that coming up installation of the ancillary buildings and so forth. We've completed Phase 1 of the 2 phases for the construction of the 200 person construction camp and we've initiated work on the temporary power and final bulk power supply. Next slide please. This slide has a high level indicative schedule. As mentioned previously, the COVID-nineteen delays have pushed started the pre safe by 1 year.
An additional third of the year was added after detailed design and engineering related to mainly ground support, you can see there's additional time around expectation breakouts and things of that nature. And what we're really showing here are the critical items and high level timelines that you can compare back to the feasibility study with ramp up the full production in the Q4 of 2026. Next slide, please. In terms of design changes, I'll run through these relatively quickly. As a result of the detailed work and some value engineering, The recommendation was to increase the production shaft to 8.5 meters, a slight increase to the depth of the ventilation shaft Additional approximately 17 meters deep.
Removal of the heavy lift hoist from the design of the ventilation shaft and the other design changes, increasing ground support for and breakouts based on geotechnical work that was done on the large database that we already have and the results aircraft from our centerline or pilot hole that were drilled down the center of both shaft locations. And the precinct will start with mobile cranes and then transitions Thank you, Scott Darrick Cranes. And then ultimately once the pre sink is done, the permanent sinking infrastructure we put in place. Next slide, please. In terms of hydrogeology relative to the feasibility study, given the COVID delays, the shaft development wouldn't get down deep enough provide will be needed for dewatering galleries on the 680 level.
So the need for that dewatering gallery system has been removed from the plan. So there's a number of savings there, savings in terms of lateral development drilling costs and also We got some wins back in the shaft development because we would remove any interferences between doing development while you're doing shafts. This means that the focus shifts to dewatering from surface. That plan has been scoped out and active at the moment, which focuses on more in pits holes for dewatering, inclined dewatering wells drilled from within the pit and sub horizontal holes drilled into the walls of the pit to assist the dewatering and depressurizing of the slopes. I mentioned the shaft pilot holes or centerline holes, so the people refer to them as.
We've mapped out the water strikes. There's no surprises there. The water strikes The main part of the crew sequence in the sandstone, water strikes were expected with expected water inflows. We also got understood a little bit more about the potential for water in the deep granite. We had a water strike in the deep granite, so what we learned there is that those particular domains do not recharge.
So they're basically purged water strikes that we can deal with by pumping and grouting. Previously, we had envisioned doing grout curtains from the surface around the shafts. And the next question comes from the line of the in shaft grouting during shaft sinking. We have engaged with a grout specialist to have a grout mitigation plan in place and all required equipment on-site for the start of the maintenance in 2022. Next slide please.
There are 2 power undertakings as part of this project. 1 being an upgrade to the bulk power supplies to the mine to support the current infrastructure and the infrastructure related and some temporary power to support the shaft seeking exercise until the bulk power is hooked up. We have and the Q1 of 2020 and 2021, negotiated and signed a self build agreement with Botswana Power Corp with the construction of 2 substations and a 29 kilometer long 132 kV transmission line. And we expect to have Ball Power hooked up to site in the Q4 of 2022. Work on substations has been awarded.
Work on the transmission lines is about to be awarded. The temporary power will be generated through diesel gensets. We have an arrangement with Greco for that. We will comment 3 stages to build up to some oxygen capacity in 2022 to support the main shaft sinking and mobilization for Stage 1, getting those gen tests on-site is actively underway at the moment. Next slide, please.
Now quickly just walk through some visuals of words that I've been speaking about. In terms of overall site and structure. What we see here is an aerial image of the 200 person camp. Phase 1 is active. Phase 2 is under construction.
Other activities around site infrastructure, including upgrades and expansion to the wastewater treatment plant, an expansion and upgrade to our reverse osmosis plant. We have looked at our solid waste landfill capacity. We understand that we have capacity for additional items that will come from the underground. We will need additional sale, but all permits are in place for that. This is some of the site infrastructure.
Next slide, please. This is looking at the underground surfaces infrastructure. So this is on the west side of the open pit. So in the distance, you'll see the open pit and the plants and behind us would be the waste rock dumps. North is to the left on this image, south is to the right.
So starting at the right, you can see physically where the temporary generator pad sits for the gensets. You can see the ventilation shaft, you can see where the ventilation shaft winders and temporary kibble winders will sit. You can see the location of the main hoist room, you can see the production shaft and the service liner for the production shaft. And then off on the far to the north of this particular set of infrastructure, the concrete patch plant and testing lab. Next slide, please.
This is an aerial image, just a different perspective. The same items that were shown on the previous image are shown here, but we You can see here, of course, on the left right side of the image is the lay down area for steel lay down, which will come for and also headframe construction. You can see the location of the production shaft collar and the ventilation shaft collar. And I would point out that since this Photo was taken a few weeks ago that at the ventilation shaft, that formwork that you see, that steelwork you see, all the cement has been poured around the shaft barrel. That area has now been backfilled and it's in the process of being handed over to UMS to start precinct.
So a lot of activity has taken place that we're on track to start the precinct here in the next week or so. A lot of work from 12 Mining Services who assisted with some of the civils, Talcon who did the civil construction and now UMS is taking over this to start the precinct.
Next slide, please. Like most
diamond projects, The currently underground expansion is sensitive to diamond price. Liqueira is of the view that the diamond price assumptions and models applied to the project are conservative. I think we've walked through that earlier in the deck. And as with all projects, there are risks and opportunities. And what we show here are where we see Some of the risks sitting now, this is a little bit different than what have been shown back in 2019 because Some risks have been decreased with obviously with increased level of engineering and fundamentally some of the risks have been taken away because we've done the physical construction.
Stifelblaze remain a risk due to COVID-nineteen. However, as mentioned by Ira, I mean, this is a very active process on-site, Ensuring the safety of our workforce, active monitoring of the workforce testing. And now as the vaccination rates ramp up in both South Africa and Botswana ensuring that the workforce gets vaccinated in a timely manner. Water strikes and dewatering and our risk going forward. We feel the mitigations we're putting in place with the grouting strategy will assist in the pits.
We have a process and a model and a plan for the pit dewatering, which is achieving its goals as we go forward. And it's just mitigation there is to stick to that plan and form the model and continue to update what we need to do there. And there are opportunities to win back schedule time. We can win back schedule time by understanding where the grouting will be required, and the duration of the grouting and getting the grouting right. We have the opportunity to draw down that kimberlite skin during mining As opposed to later in the mine life and going back and recovering it.
There is always the possibility and the opportunity around large diamond recovery. This is just straight up value recovery for the mine, for the company. And I think we've demonstrated over time There is a real opportunity to see some large high value diamonds come out of the operation. And we also have additional underground mineral resources that remain at this point of time we haven't spent a lot of time looking at them. This would be beneath the north and center lobes and also at depths within the south lobe.
The indicated resource It goes down to 250 meters above sea level. The underground extraction level is at 310. The base of the inferred is 60 meters above sea level and the south load is open below that. And the mining method chosen, we have not sterilized anything below that extraction level. So there are opportunities to add additional mineral resources at depth that we looked at at the appropriate time.
Next slide please. The next step, so going forward, we've talked about it and hit on it a couple of times here. The precinct mobilization is currently taking place. The mobilization for the temporary power is currently taking place. We have representatives from the Greco on-site, UMS South Africa and UMS Botswana are on-site with their crews getting ready to start the precinct.
And as I indicated that First Glass in the ventilation shafts should take place within the next 10 to 14 days. We're on track with revised schedule and on budget with the revised schedule to initiate that activity. Going forward over and the course of the remainder of the year will be to start substation construction, start the detailed design and engineering work on the transmission line and to start clearing along that transmission mine route, to start work on the underground mine and the underground mine structure with respect to the crushing convey systems and to start work on engineering and design of the fine tailings pond expansion at Crowe. And with that,
I
think that is the end of the presentation's material. Obviously, it's a very busy time on-site. It's an exciting time for everybody. We are being absolutely cognizant of COVID-nineteen and ensuring that everybody works in a safe manner. And this is the beginning of a 5 year project and we're glad that we're displaced with a fully financed project with a site that is ready to accept the precinct crews and to get into the real work of getting those shafts driven down.
And with that, thank you very much and we'll entertain any questions.
Thank you. Ladies and gentlemen, we will and now begin the question and answer session.
And the order they are received.
Annie Keys. One moment for your first question. Analyst Day. Your first question comes from Daniel McEvay with Ross Point Investments. Please go ahead.
Good morning, everyone. Thank you for the detailed presentation of the underground development plan. John, just looking at Slide 21, the first off, the CapEx growth in 2019 It's relatively modest. When I look at that Slide 21, I'm just wondering what was the increment for putting that extra undercut level in the plant? And what does that do for you?
The main Rationale behind that was to if you look at the two images side by each, the one that we're going with the distances that for drilling for the blast holes has decreased quite dramatically. So it derisks The development of those drawbells. So the blast whole lengths have shortened, which means you have more accurate drilling, Which means that fundamentally the setup of those drawbells will be closer to design than you would have got So it's sort of a it's the trade off there being some excess developments, but You're going to have better certainty around the setup of those drawbells, which will assist in the draw points and the longevity of those and the operation and And in a sense, there's sort of a swap of development meters here because we lost development meters at 680 by not having Dewatering Galleries.
Okay. And putting that extra undercut level in range, would that cost?
I don't have a particular Would it be more than 10,000,000 This one will be probably less than $10,000,000 given the meters drilled. A full sub level like one of the ones up 550 or something like that would be in the range of $10,000,000 and this would be less than 10,000,000
Okay. You talked about this a bit before, but just in what ways is the current design more this is one of them obviously, the Enercut. In what ways is it more conservative than the 2019 design? And in what ways does the current design Add more risk, if at all.
So I'd say the conservatism here is the edition of this undercut. The other design things will come as we do the detailed design around layouts, The detailed layouts for additional sub levels, I don't think we between 2019 and now have introduced any additional risks to the design. The idea is to remove the risks. We don't really have to be added any risk here.
Okay. Great. Thank you very
much. Thanks, Dan.
Your next question comes from Raj Ray with BMO Capital Markets. HITS. Please go ahead.
Thank you, operator, and good morning, Ira and team. My first question relates to the sales For this quarter, if you can throw some light as to why the sales were down quarter over quarter? And also the rough carat inventory that you had at the end of the quarter and how you expect that to unwind for the rest of the year?
Zara, do you want to start and I can jump in? Sure.
So I'll maybe take a second question plant. So we talked earlier in the call about the adjustment that we're making between ore and waste tons mined. So that's having an impact. And then combined so that the inventory balance is also combined with the lower volume of carats sold in the Q2. So the carats in rough diamond inventory increased about 40% from Q1 for those two main reasons.
The May tender was also earlier in the quarter, which resulted in a higher number of carats in inventory at June 30, when compared to the March 31 or year end.
Okay. And do you have a number for the Carats in inventory, but of diamond carats in the end of Q2?
Not at my fingertips. I can get that for you and send it through.
Okay. Thank you. And do you expect that to online for yes, go ahead.
Yes. We don't carry inventory. So all of our diamonds are either sold through HB or sold at our regular tenders. So just so you're clear on that, there has been no holdback of diamonds for any particular reason. They are all sold through.
And our Q2 sales really were very strong and based very much on kind of achieved our plan.
Okay. And the second question I have is Towards the CapEx. With respect to the future procurement, how much of that has already been priced? Specifically with respect to the additional ground support and then there's a with respect to the underground, most of the procurement is 2024, 2025. And what steel prices are you assuming in your updated CapEx number?
John, do you want to start?
Yes, sure. So with respect to procurement and contracts. At the present time, we have committed we are committed to about $100,000,000 of contracts, including procurement. And that includes so we We're able to get the steel ordered for head frames and things of that nature prior to some of the inflationary increases. What we have going forward in terms of that procurement that will take place for underground, We are looking at the present, I said, I mean, we've started the engineering and design work for the crush convey system.
So the idea is to get that pinned down as soon as possible and get the orders placed. In terms of steel prices, When they do the new costing that the current steel prices will be used, we haven't made any long term adjustments to our capital estimates in that respect.
Okay. Thank you.
Thank you. We've looked hard at that in anticipation of Any material changes and based on the fact that we've had early procurement of the bulk of our steel needs, we are not looking at that as a material risk.
Okay. Thank you, Ira. And then this question is for John again. Look, I'm a metallurgical engineer, so pardon me if I'm getting this wrong, but I had a question regarding the removal of the hoist from The ventilation shaft. What was the reason for having the hoist in the 1st place?
And Why are you expecting now that you don't need it? And if you can touch upon that from a flexibility perspective
Sure. Those are excellent questions. The removal of it, your initial thinking there was that the heavy lift hoists would be used to get equipment into the underground during the early stages of development of the underground. And then periodically over the life of mine would be used again to bring pieces of equipment out or bring pieces of equipment down. But it wasn't going to be used on a regular basis.
So the value engineering there was the trade off ends up being ended up with a slightly larger production shaft. And the upside in a way is you don't have procure that permanent hoist for the ventilation shaft. You don't have to build a headframe and you don't have to have a piece of equipment that requires rigorous ongoing maintenance that you only operate several times a year. So it was an expensive piece of equipment,
Like I said, to have sitting
there to maintain and only use it frequently. So the decision was made to remove it. With respect to kind of the redundancies, the ventilation shop has never been set up to replace the production shop, It doesn't have the right internal setup with the right diameters or loading pockets or such like that, that it could The egress, the ventilation shaft will still be the emergency egress out of the mine. And what we will have in place is something called the Tech Edge Mobile Rescue Winder. So it is a mobile emergency rescue winder that will be positioned at the ventilation shaft on a permanent basis.
So that would be used as the emergency egress. So that component is still covered off.
Okay. Thanks, John. That answers all my questions. Thank you.
Thanks,
Annual. Your next question comes from Scott McDonald with Scotiabank.
Head. Hi, everyone. Thank you for the update. A few questions from me just on the sales And Clara and a few on the underground. Just quickly on the sale, can you give any Color as to why the realized prices for your HV sales were so much higher This quarter versus prior quarters?
Sure. Well, it's a combination of 2 factors, Scott, it's really around obviously the type of diamonds that we're delivering. So we've had a very strong quarter in We had a strong quarter in Q1 and that continued into Q2 with the recovery of some very nice high value rough Diamond, so that is a contributing factor. And then the second piece really is around the continued strength of the rough diamond market. It has been a very buoyant period.
And we've you will have seen other peer group companies kind of reporting similar strong sales. So it's really the combination of the strong resource performance together with an improving overall price environment for rough diamonds
So I guess the outlook for the pricing to From HP is pretty good going into Q3 and Q4.
Yes. What I'm most encouraged about is The fact that we're seeing strength across the supply chain, so it's not limited in certain pockets or certain segments. We're seeing it in almost all categories of rough diamonds and then we're also seeing it in terms of polished jewelry sales. So, I think it's a fundamental shift, something we haven't seen for quite a long time in the diamond market. So we're and a lot of this, of course, is fueled by The fact that the supply and demand fundamentals really are starting to play out now.
So we have a very positive outlook and I think we're positioned and the Liqueira Diamond for months years to come here now.
Okay, excellent. Just a quick one on Your revenue guidance for the year. Are you no longer expecting the Suello to be sold this year? I'm not sure if that's going to be material in any case, but
Yes. That's a great question. I mean, the Suello for us is the value in that really and the collaboration with Louis Vuitton and HB. So it's kind of doing its job right now for us. It's being toured around the world, and we're very pleased
with the progress we made in China with
Louis Vuitton. Because of COVID, obviously, our original scheduled manufacturing Because it basically got stuck in a vault for the better part of 2020, and we didn't have that opportunity. So we are in discussions with LV and About what the next steps will be, and we'll probably have more to say about that towards year end. But you're right, I mean, that was For us, not necessarily about the value of the polish produced. Yes, we do expect that there's some nice white material in there.
But really the value of that stone as sort of an ambassador for what we're trying to do with this new partnership.
Got it. Thank you. Just moving on to Clara, so you completed a trial with a 3rd party supplier in Q2 and it sounds like you've got more trials planned in Q3. Just to confirm, are you Still in discussions with the 3rd party that did complete the trial? Are they did they give good feedback?
And are you hopeful that they'll ramp up their use of the platform.
Yes. We're in discussions with several potential long term participants. But what I would say is that those that have trialed the platform so far have been very pleased with the results and the intention is to continue to deliver some stones for sale. The key thing for us is really trying to land a larger committed supply and those discussions are continuing and we're and we're certainly hopeful that we're going to have more to say on that before year end. But the encouraging thing is that the sales are starting and the results and feedback we're getting is positive.
So we expect that we're going to be able to continue with that sort of positive momentum towards year end.
And how many third party suppliers are you in discussions with now? I think you said 2 last quarter. And I guess I'm just curious what sort of are the sticking points as to getting someone to commit to a larger supply?
It's really just, we're beyond 2 now. We've got discussions with several potential sellers on the platform right now. The sticking points are simply around, we're in a very strong market right now. So some would argue that diamonds are selling themselves. To make a change, to try something new, when people are basically Able to achieve strong results is, I think, probably our biggest challenge.
What is encouraging though is that, Again, for those that have decided to put some on and when they can see that Clara is doing as well or better even in this strong pricing environment that really becomes the impetus towards putting more volumes on. I think it will come. I think for the producers, they've obviously weathered a really challenging period. So they are just really happy to be selling their product at superior prices and getting their balance sheets back in order. And I think to make a big change in the midst of all of that is a big ask.
But I think as the market continues To stabilize, that's when we can start to get sort of attention and interest back on Clara. So it's definitely happening. And I think we will have more progress to report here in the next two quarters.
Okay. Excellent. If I may, I would like to ask a couple of quick ones on the underground or related, I guess you've rescoped the open pit to extend to 2026. Just John, could you give a bit of color on how you're actually able Do that or have you added new open pit reserves or are you just mixing in a bit more stockpile processing or how are you going to achieve that?
No, we haven't added any additional reserves to the open pit. So It's about scheduling and yes, the use of some stockpile material that I think even in the previous plan. There was some center load material that came through. So it's about sort of slowing the rate of ex pit ore, and it is offset with stockpile door. And so some of that stockpile material is coming out of the pit even now because as you can see we're destocking the benches in the north part of the pits and taking that ore to stockpile.
So it was just So, is this to ensure that we had or will have continuous ore coming from the pitstockpiles into 2026 and then really that ramp up starts in earnest and we'll be conducting a few minutes through 2026 to get to full production. There will be underground ore augmenting what's coming from the pits In the early parts of 2026.
Got it. Thank you. And just the last one, on the processing costs for the underground, Can you remind me why the processing costs in 2026 onward are so much Higher than your 2021 guidance. I think your underground during the underground, it's about $16 a tonne versus $11 to $12 a tonne in your 2021 guidance.
From the open pit or from the underground?
Well, I add, does it does the source of the ore matter for the processing costs? I guess, in In your presentation today, it showed, I think, it's $15.70 for the processing costs for the underground, whereas in your 2021 guidance, I believe it's $11 to $12 a tonne, if I'm not mistaken.
I don't have a response to that off the top of my head. We have to come back to you.
Analyst Day. Your next question comes from Paul Ziminski with CZDA. Please go ahead.
Hi, everyone. Congrats on an exciting quarter with all the special recoveries. I guess I'm maybe following up on Scott's Question and comment. I'm wondering how you're thinking about revenue guidance looking at the average price per carat in the quarter versus the implied full year guidance for average price. How much of the average price you achieved in Q2 was a result of The product mix and higher market prices versus maybe larger diamonds that were held back from sale last Due to the pandemic that are maybe being sold now.
Thanks, Balzar. Do you want to take a crack at that one?
Sure. So with respect to the 2021 revenue guidance, Paul, we're still Pretty comfortable that the $180,000,000 to $210,000,000 number is the right number. We're about halfway through the year. You'll remember having for a number of years now that it can really vary over the course of different quarters. So far this year, we've had, as Ira and John have mentioned, really strong performance from the resource, Really strong pricing and demand from the market.
The diamonds sold to HB in 2020 and are now mostly manufactured and sold. So that uplift from 2020 stones delivered is generally behind us. We're not seeing a lot of additional cash expected from those stones. We are seeing more current periods, so deliveries, shipments that have been delivered in our current production year Now being sold and we're starting to realize some of the uplift from those deliveries as HB has improved their manufacturing process and shortened some of the cycle times. Ira, do you want to add to that?
No. I think that what we're trying to do here, Paul, is Obviously, we're feeling optimistic about the market and the outlook. But again, because of the variable nature of any diamond resource. We've got 8 years of production that we rely on with our resource model. We have really, I think, done well in Q1 and Q2, and we'll see how we do through Q3, but we think it would be imprudent How they can vary from quarter to quarter, but at this point, certainly, we're feeling good about what's coming out of the ground.
Very good. Thank you.
Your final question comes from Oliver Grinchuk with Berenberg. Please go ahead.
Hi. Thanks for taking my question. Could you give us some color on what the ore mix and grade kind of looks like from the open pit and also when is the underground project due for Board approval? Thank you.
John, do you want to start and then I can take the second piece?
I would refer you to the mineral resource reserve statement for the open pit will give you that will give you the overall average grade that remains in the open pit. And this I believe we have a split by me versus them. So I would refer you to that document for what the remainder of the lifeline of the open pit looks like with respect to the carats in grade.
And Oliver, as you know, we are now essentially, the mine plan from here on in is Essentially dominated by the South Lobe. So it's all a mix of E and M down to 2026 with the exception blending that John referred to from existing stockpiles on surface. So the vast majority of the tonnes will be coming from either the E or the and blend variant, which accounts for the higher grades and the higher proportion for the drawdown on the facility. And so that is expected to happen pretty quick here. But where all systems go, the Board is entirely supportive and excited to be moving forward with the underground project.
The formal sanction will come once we've met all those conditions precedent.
That's very helpful. Thank you.
You're welcome.
There are no further questions at this time. Please proceed.
Okay. Well, thank you very much everybody for joining us in the middle of your summer for our Q2 results call. We look forward to speaking with you next quarter.
Ladies and gentlemen, This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.