Costs of underground expansion project jump by $136 million
After achieving some significant milestones early this year that included among others, the successful delivery of the 29km 132 kv bulk power supply for Letlhakane and Karowe Substations, the multi billion pula Karowe Underground Project has suffered great time schedule deliveries and inflated cost of construction.
When the project construction commenced, the estimated capital cost was $547 million with expectation to contribute approximately $4 billion in additional revenues once operational .
While the project is expected to extend the mine lifespan to at least 2040, with mine ramp expected in 2026, that has since changed with production underground set for 2028 during the first half. As a result the cost of construction upon completion has since skyrocketed to $683million.
The increase of $136 million in estimated capital to reach project completion is predominantly related to increased schedule duration and related labour costs.
According to Lucara Diamond Corp, the delay in delivery of the project on time is due to grouting programs which took longer than expected due to a combination of high‐water volumes in the sandstone lithologies between 870 and 752 meters above sea level in depth (144-262 meters below the shaft collar) combined with technical challenges associated with the transition to main sinking.
However, according to Lucara- the project remains technically and economically feasible, though the impact of actual and modelled delays changes the revenue profile due to the use of lower‐grade, stockpiled ore for mill feed rather than high‐grade ore from the underground as previously planned.
As a result, sufficient surface stockpiles of South, Centre and North Lobe kimberlite ore will in the meantime maintain current, un‐interrupted mill feed to the plant for the duration of the anticipated delay.
The long‐term outlook for diamond prices, combined with the potential for exceptional stone recoveries and the continued strong performance of the open pit could mitigate the modelled impact on project cash flows due to the schedule slippage.
“Lucara has made tremendous progress on the Karowe underground expansion project, despite many challenges over the last year as we transitioned into the main sink phase of the underground development.
Schedule delays due to longer than anticipated grouting activity have impacted the project timeline, however the grouting methodology selected has proven to be effective in controlling water inflows. As we transition out of the sandstones in early Q4 2023, we look forward to meeting planned sinking rates.
Despite these challenges, the project continues to deliver strong economics paying back capital in under three years. The project also comes at a time when the long‐term outlook for the diamond market is stronger than it has been for many years, representing an exciting growth opportunity for our shareholders and stakeholders in Botswana,” said Lucara Diamond Corp chief executive officer, Eira Thomas.
By the end of June 2023, capital expenditures of the project stood at $264.5 million while capital commitments of $369.7 million have been made. The remaining forecast to complete construction of the project is $419 million including unallocated contingency of $49.3 million.
Despite the delay and added costs of the project, The Lundin Group which are Lucara’s main shareholders remain committed to the project since it remains highly economic.
“The Karowe underground mine expansion provides access to the highest-value portion of the ore body responsible for delivering numerous record-breaking diamonds in respect of size and value, including three diamonds in excess of 1,000 carats,” said Adam Lundin.
Having opened in 2012, Lucara announced its intentions to switch from open pit mining to underground in 2019. Karowe is reputed for its high value diamond production, having produced among others, the 1,109-carat “Lesedi La Rona” diamond and the 1,758-carat “Sewelô” diamond.
