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Single diamond isolated on white.Evgeny Terentev/Getty Images/iStockphoto

Hello Lou,

Kindly review the seemingly never ending good news coming from Lucara Diamond, what are the risks? When is a good time to get out?



Hey Bola,

Thanks for the assignment.

Lucara Diamond Corp. owns 100 per cent of the Karowe Mine in Botswana, a 75 per cent interest in Mothae project in Lesotho, and three exploration licenses in Botswana. The first level of risk that I investigate when a company has operations outside of a developed economy is the political risk associated with the jurisdiction. The CIA World Fact Book provides a good first look at what might be germane to the analysis.

According to the book, Botswana is one of the most stable economies in Africa with 30 per cent of GDP and 70-80 per cent of export earnings coming from diamond mining. Lesotho is not as well developed and would benefit from an expansion of mining operations in the country. The next level of risk is assessing a mining companies status and what we have at Karowe is a producing mine with an estimated 13-year life. The company has been reporting that the mine has been performing in line with their plan with the added bonus of harvesting large high-value stones.

In 2013 operations at Karowe produced 732 diamonds larger than 10.8 carats with 44 larger than 50 carats, 17 larger than 100 carats, and 4 larger than 200 carats. These big rocks represented 4.2 per cent of total production but generated 52 per cent of revenue. Sweet when that happens.

An inspection of the charts will assist in answering your questions.

The three-year chart is a textbook image of the ideal chart. Its going in exactly the right direction. The stock broke above the downtrend line in May of 2013 and shortly thereafter a golden cross formed. LUC has enjoyed support along the 50-day moving average and has paused to build small bases along the advance.

The six-month chart provides a view of the support that has formed at $1.75 and well as the buy and sell signals generated by the MACD and the RSI. Currently the momentum indicators are suggesting that investors can expect more buying to follow.

LUC has been the beneficiary of better than expected results at Karowe in terms of the large valuable diamonds extracted in 2013. No one can be sure how mother nature has distributed her gifts but at this point I would let this thoroughbred run.

Make it profitable day and happy capitalism!

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