Lucara Diamond's (LUCRF) CEO William Lamb on Q2 2016 Results - Earnings Call Transcript

| About: Lucara Diamond (LUCRF)

Lucara Diamond Corp. (OTCPK:LUCRF) Q2 2016 Earnings Conference Call August 4, 2016 9:00 AM ET

Executives

William Lamb - President and CEO

Glenn Kondo - Chief Financial Officer

Paul Day - Chief Operating Officer

John Armstrong - Vice President, Mineral Resources

Analysts

Des Kivalaya - Royal Bank of Canada

Richard Hatch - RBC

Geordie Mark - Hayward

Edward Sterck - BMO

Operator

Good morning. My name is Simon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lucara Q2 2016 Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you.

Mr. Bill Lamb, CEO of Lucara Diamond. You may begin your conference.

William Lamb

Thank you Simon. thanks everybody for dialing into our Q2 results call. Just with me I have Glenn Kondo, our Chief Financial Officer, Paul Day, Chief Operating Officer as well as John Armstrong, our VP Exploration.

So we will just jump straight in on the first slide of cautionary statements. As we will be making some forward-looking statements during the presentation. On slide three and these are the specific highlights.

So again what we saw especially for the product, which is being produced from the Karowe Mine on very strong demand for that again through 2006 Q2 with $140.8 million with the sales or $1,824 per carat average sales and that compares to $38.1 million for the same period in 2015 as $412 obviously the $1800 per carat influenced quite significantly by the sale of the constellation diamond that [indiscernible] per carat and that was the [indiscernible].

On our operating costs, we have reduced our guidance from the 33.5 to 36 down 29 to 31. We are currently training towards 26 and a lot of you would have done calculations. We do have downtime plan for the last two quarters of year as we started trying our modifications the large diamond recovery and other works, which we had planned.

And the impact of the lower guidance have been able to lower guidance, but also rate been influenced by the expected costs increase, which has materialize so for this year. And where we had our original budget being done at 10 Pula per U.S. dollar, we have now based on where the exchange has move the rest of the year has remodeled at 11 Pula per for U.S. dollar.

In terms of EBITDA again very, very strong result $109.7 million EBITDA for the quarter, compared to $16.4 last year for the same period and an EBITDA margin of 78%. In terms of our earnings per share $0.12 for the quarter versus $0.02 last year and then I think [indiscernible] the announcement of our special dividends. And [indiscernible] which I did, would actually mentioned that the Bank of England was looking to drop interest rate and just sitting on a lot of cash doesn’t actually add value on this quarter.

You have any investment strategy and our investment is not the same as the shareholders, which we have. So partly that money back to shareholder given than the opportunity to gain additional recurrent on that, we feel, it’s a very prudent strategy. So we will be returning over and above the regular dividend of $0.015 for the quarter and additional CA$172 million and that is Canadian which translate to run about US$135 million.

Moving on to one of the next slide and this just looks to the half year results compared to where we were and for the bank position last year. The interesting numbers there really are, in terms of the average dollar per carat. At over $1,200 per carat of this year for 2016 roses 340 last year, obviously the 340 also influenced by the fact that we only had our first exceptional stone chamber early in the third quarter of 2015.

And the other number would, I would like to draw your attention to is the earnings per share. We have recorded $0.17 per share earnings for 2016 for the first half and compared to $0.04 last year and a total of $0.21 a share for the entire year 2013. So again demonstrating the robustness of the results which we currently mining in performance.

Moving on to slide five, our cash on hand, at the end of Q2 we sat with US$210.8 million currency. And as I mentioned with the payments of the dividends of a $135 million it still leaves us with a very, very strong cash position. That obviously still pending the sale of the [indiscernible] diamond which I'm sure there will be questions on later.

But it gives us a very strong buffer to continue to strengthen the balance sheet and [indiscernible] what we have been doing so far. Just a point to mention there, the last regular tender, which closed in June of 2016, $8.3 million was collected off at the end of the quarter and that will I think be recognized in Q3 results for this year.

Moving on, we will jump straight to Slide 7 and this around the health and safety and our corporate safety responsibility. I think it is going very, very well, that the programs which they have on [indiscernible] in terms of monitoring peoples’ safety, are definitely sort of paying dividends. We announced that in excess of 3.3 million man-hours without a loss time injury. So, very, very strong results there and we will continue to further keep safety as a focal point on the operations.

In terms of the community project, which we have, the Letlhakane abattoir is now being handed over to the District Counsel, things are going very, very well there. They are already keeping their target in terms of the last half they moved through the system and we will actually be down there for the official opening on Monday, the 15th of August. So, it's great actually be able to see these projects come to fruition and very, very quickly ramp up to sort of in excess of what the previous facilities were doing. So we are very happy with that.

And then sort of what the sale of the or the auction, of the [indiscernible] we did have three small [indiscernible] stones up for sale carats turned up sell. The sale of those went exceptionally well with the funds received for those being donated through the Lady Khama Trust to three charitable organizations.

I just want to make a correction here, it's not 24 million Pula, its 2.4 million Pula with a strong [indiscernible] around about $252,000 and that is significantly more than what we had expected though. We would like to thank those people that sit on those three stones and that is definitely going to worthy course. So, we will actually have an opportunity in the next few weeks to go out into those charities and I think that's important for us to understand exactly sort of where the benefits is being added back down into the Botswana economy and into these disadvantage areas.

And moving on to Slide 8, the operating performance, the plant is running exceptionally well and I think we had to take our hats off to Paul and his team where if we go to some of the I guess the [indiscernible] problems with getting into the south lobe, experiencing some of the high yield material. And we look at the tonnes processed to-date and obviously this has also had a positive influence on the operating cost year-to-date. We are now almost 200,000 tonnes if not more ahead of where we were in H1 last year, that's almost a month’s worth of production.

They are definitely getting their strides and the process launch has being performing exceptionally well. As you can see there that the carats recovered in excess of loss share gains this just obviously adds to just the flexibility, which we are going to have in terms of our sales as we head towards the end of the year. Slightly behind on the mining but again when we start to look at our guidance of 29 to 31 we do expect to make up a lot of that in the back end of the year.

Just in terms of revenues, $191.4 million of diamonds being sold to-date. Sold at what we have a bit of play in terms of when we have an exceptional tender in the back end of the year and that's obviously going to be dependent on sort of how the sales price as in the forward moving strategy for the [indiscernible] diamond.

But that’s been compared to $67.8 million for H1 2015. But the rest numbers of in terms of the revenue per carat, operating margin per carat obviously sort of a very, very good margin there, even compared - we had a very good margin in the previous half year, but I think again really strengthened by the sale of the Constellation Diamond, exceptional margin there of over $1,000 a carrot for what we have sold so far this year.

If we move on to Slide 9, and this is just our sales, as previously mentioned $1,824 a carrot was the average for Q1 I mean Q2 and then the total average sitting at [12334] (Ph) for the half year. Again, I think when we talk to look at the tenders which we have we just note that people who have actually just one diamond in the tender will automatically start to make bookings for the next tender. And that might be for the three, four, months down the line.

So, the demand for the diamonds which actually coming out specifically the quarter for us actually when we have single stone [indiscernible] when we are actually getting anywhere from 35 to high of 42 bps per stones and that really gives us a lot of comfort in terms of the quality of the diamond, which we are producing and how they are seen in the markets.

Just in terms of the sales of the Lesedi La Rona diamond we have said that that we are looking at options. And then I think that this is a good chance to just make it clear, a lot of people run around to make use of word the sales - but we could have sold that any time prior to that. The reason for us going down the auction platform was, because of the volume of large diamonds which we are producing.

And of that down was [indiscernible] get out sitting on significant inventory of large stones, polish large stones. We were looking to I guess effect where there was an alternative pool of money where these very large high value stones could be sold into where they do not affect the current market, but the behavior of the trade when we actually wait for auction [indiscernible] the auction. But we don’t believe that they understood what we were actually trying to achieve.

But as Lucara’s Chairman said trying to change 100 years worth of history is not something that you can change with a single auction. The options, which we still have for the sale of the Lesedi are exactly the same as what we had for Constellation. There are opportunities to put in tender, we are still having and pretty much every week we did or I am getting emails from two or three people, all with the diamond in stone is still for sale.

The demand for that stone specifically because of the size and rarity is still very high. Obviously, the demand from the trade as those backdoor because they don’t believe that they want to pay the same as whatever private individual will. So through all this there is a bit of a quite the period we already have viewing for the stone booked in early September.

So we do believe that the demand for the stone and the expected price which the company would like to see for it is definitely going to be achievable whether that actually happens this year or next year, we are not too concerned about that. Again, we are not sort of forced to sell of the stone. Our cash balance, which we have even after to paying the dividends is still very strong and it doesn’t affect our operating ability and to continue to do what we have been doing in the past.

So jumping on to Slide 11 for our exploration, we have a couple of things on to go there, the first one being our 10,000 meter deep drilling program and this is the convert in deferred resource below 400 meters into indicators, this will obviously give us opportunity to auction in terms of the last extension possibility for the month.

We currently have three active rigs on site. Two have been completed, out of the 10,000 meters we have completed just over 2,400 meters worth of drilling and pierce points are in line with the original geological model. So no surprises there, but not to know that there is this continuity on the kimberlites down below where we are currently expected to terminate [indiscernible].

Moving on to Slide 12, our prospecting licenses. Just to recap, in 2014 we were issued those two prospecting licenses by the government of Botswana. Block A contains the BK02 kimberlites, the that’s the one we had results come out on the [indiscernible] and then Block Expense holding four kimberlites, AK11, 12, 13 and 14. So in Q2 we have where we completed the surface trenching efforts in all the BK02 kimberlites. And actually we can just jump straight on to start taking for that.

So the 5,000 tonne sample which targeted was processed. Actually very interesting results coming out of that, it's not often that you have a bulk sample which generates 5k tonne and John correct me if I'm wrong 23, 24 stones larger than a carat from the first 5,000 tonnes. So encouraging results there. And again, I think people will look at the grade, the grade seems a little bit low. But we do have sort of other mining companies who are mining very, very costly diamonds sort of the fraction of that grade.

So for that kimerlites and you can actually see in the pictures there, we have now gotten our licenses from the Department of Environmental Affairs and two [indiscernible] drilling on other nominees which we have identified in the cost cutting areas. So, we have done the first lot at BK02, we do expect it to start processing moment here and this is really just to get sufficient diamonds for a value sample as well as in confirmation of the grade and hoping that [indiscernible] off distribution.

And on BK12 so this is the second sample that we started approaching in, we got to sort of reflect under half of the sample, so under half of the 5,000 tonnes processed and the grade was very, very low, we were looking at lower than 0.5 carats to a 100 tonnes. So instead of continuing to spent money on the pricing of the sample we have terminated that and we are just waiting for the drill to finish at BK02 and then we will mobilize draw to the next kimberlite which will be AK11.

There is a bit of sense covered there, so we need to fix that how much material we need to move before we can get into our 5,000 tonne sample from that. So encouraging results on the one hand, not to best results, they were not results I think every exploration would have seen. But if we are one for two so far on diamond exploration it's better than average of one and a half.

So, moving on to sort of just it's not that we included diamonds of all images and values of some of the diamonds which we have sold. This is where we will just reiterate, we do have a nice collection of sample of diamond available for our next exceptional stone tender, but at this point we are not in a position to actually announce the date for that one. As I mentioned previously the sale of the Lesedi, the a interest which we are seeing in Lesedi does mean that there is a good chance that we could divest all that stone during this year. And that gives us a lot of flexibility both in terms of whether we actually need to have an exceptional stone tender this year or do we actual monitor on whether the current diamond is going.

We keep those stones available for a very nice tender either in the back end of the year or early into next year. And then of course we also have the 374 carat diamond, which [indiscernible] to note that we also got this and it was announced in November, it hasn't been told yet and that one the gain and spectacular diamond. And we have options in terms of how best we would see these into the markets so that we are not actually overfeeding the market, but still having a certain level of return into the bank balance.

Slide 13, We are just going through and reiterate the outlook for 2016, so we expecting revenues $220 million which exclude the sales of constellation and Lesedi diamond. So in terms of carat I am solving the 343 and 380,000 carat and I am not too far of what we have done previously for the past three years. Tonnes processed between 2.2, 2.4 again eve if we look at the tonnes processed for the first quarter, because of the expected downtime four times of the new equipment et cetera for the current capital program in the second quarter of 2016. We are keeping the garden in terms of tonnes of processed as it was at the beginning of the year.

All mines between 3 and 3.5 wait mine 13 to 14 million tonnes, this is our third year of very hard way surfacing but these are also two years and that numbers started drop off very rapidly, so we don't expect the same increase in operating costs as one would get when you go deeper into the pit. So a bit of balancing out as we get into the years, far 667 et cetera. In terms of our operating cost, this is where the change comes to dropping by almost $4 a ton of the lot of that order being realized in the first half of the year.

So on new guidance for ton of processed between $29 and $31 per ton. In terms of the capital expenditures, how large down the recovery the screen is actually about videos of screen being tested. This is a new discharge screen along with some other [indiscernible] work on the large down recovering machine we currently have, so we are training within budget there $15 million to $18 million and the first part of that, the first shutdown actually happened in at back end of August into September.

So by the end of the 10 months, I am looking at full, we will have the capacity to process up to 90 millimeter material through the process ability. So again specific areas which we have voided in the process fronts and with one in particular is the block directly below where the constellation in Lesedi diamond where covered, that end becomes sort of fair game once we have these processed plant modification completed.

In terms of our all about the same capital excluding the two access the $1.5 million for more reliance and the more reconfiguration of offices for sales and admin also then get accounting for 3 million somewhere between $7 million and $8 million for on top of any capital. And that's very similar in line with what we have been saying for the past three or four years where we expect that number to average between 7 million and 8 million, so still on target for that.

Expression cost up $7 million, if anybody wants to know the amount of money which actually spent on the processing of the AK12 sample which abandoned, we are looking at somewhere around the 200,000 to 250,000 on that. So again, always another 250, we terminate the debt and then on the deep drilling also drilling was in budget there of the $3.7 million which we had allocated at the beginning of the year.

Just before we end the presentation, I would just like one or three comments on the diamond markets and obviously this is based on what everybody also relates. But I think when people look at the diamond markets, they generally refer to how the De Beers sales have gone with a secondary reference to how things have gone at El Rosa. De Beers now having had six sales this year selling $3.2 billion worth of diamonds, about half a billion dollars more than what they had sold to this point last year. All these things went a little bit pair shaped from here onwards. More interesting though De Beers produced round about 13.3 million carats worth of diamonds and sold in excess of 17 million.

Our sort of analysis all of that is a lot of the stuff, which nobody really wants to just pay. The De Beers offered price for in the last six months of 2015, they have now come out and they have actually purchased another $4 million carats at the profits which De Beers has offered. Our view on that especially in the smaller lower quality goods. We do expect to see significant weakness at Daly's into the next six months just because of high inventory.

And if we look at the fundamentals this flood demand on the jewelry side, looking at the sales of the major jewelers and those which actually have sort of, I guess very transparent results especially coming out of the Far East and China etcetera. Not the results which I think they would want to post and also not the results which we would want to see in terms of the consumption of diamond jewelry. So with the increase itself especially the higher value paid for some of the rough diamonds, we see that adding to a little bit of constraint within the market and not.

I think we are going to sort of approach the next six months very cautiously especially when we look at our regular tenders and exactly what we expect to get from them. Just taking that sort of one step forward what we haven’t seen and this is also driving is the same reaction to the Standard Chartered pulling sort of they are signing out of the middle market compared to where an [indiscernible] bank announced that they would be sitting out.

So there some to be the available credit with which people are either utilizing before Standard Chartered does start to close down their financing. But it is interesting that there wasn't the very negative reaction which we saw about a year and a half ago when ADB did the same.

So very general comments on the market, we also, with the quality of the diamonds which we have, I'm very optimistic in terms of the demand which we see for others but I think in the lower quality goods the general volume of production would be very cautious in terms of sustainable recovery in those areas.

So that concludes our presentation. Simon if I could hand back to you for the question and answer period please.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Des Kivalaya with Royal Bank of Canada. Your line is open.

Des Kivalaya

Good afternoon, good morning everybody, and just a few questions please, the first is William you mentioned that the power cost increase haven' come through, which you know that seems sort of strange, never known power companies or countries not to push power cost increases through in early. And then could you just speak to, you said that you have basically been avoiding the area where you found the Lesedi and the Constellation until you get the mega plant up and running and I presume that's a piece of tip that's going to cause you some down time.

Can you give us any indication as to what you might expect and maybe John can come in on this, how different is that part of the ore body to the other parts you are mining. And then just finally on water I know you haven’t had initial more [indiscernible] last year. Can you just update us on water in Barcelona please?

William Lamb

So we will do the first one. There is just nothing we don’t expect the one of [indiscernible] corporations to increase cost and it's just where we have gotten to now, we would have run the thing that there is 33.3% or 33.2% increase in power we haven’t seen that for the first six months, so obviously that automatically taken out of the six months of cost. So, the operating cost which we have 29% to 31% does include the potential that that’s going to come in some time in the next six months.

So it’s not that we are seeing an opportunity to do it this year as much as coming later in the year. In terms of the maybe down recovery or the large down recovery so it's really the changing of the configuration the first response to be able to get 90 millimeter material through the live down recovery and then the modifications of that machine in terms of the ejectors, the compressor, et cetera. So, the way we look at the downtime which we have got scheduled for that. It’s really getting in and replacing some of the kits.

But in terms of what we expect I’m looking at John and I don’t know if you want to weigh in. But it is an area on the context just and I think the reason why we would avoid it is if you look at just the number of stones which were [indiscernible] from that specific mine block. Now whether there is no differentiation in terms of the kimberlites. But it's on the context which - and I have seen sort of a lot of the stones which gem recovered always come from the context. But during that period it wasn’t just the - so Lesedi and the Constellation, there was 374, there was a 292, a 225, I think there was 243, a 100 maybe 103, all went in that mining block.

So we sort of being a little bit protective over what the block in that area could potentially contain. But are going to my references, and John you can jump in if you want to. There is no discernible difference in the kimberlites, it is just one of those areas which we are being hesitant to go back into just in case there is something. And again, there is no need for us to go in there and mine it, but sort of full for me to say that there is definitely going to be something in there and I think that sort of gross into the start again.

John Armstrong

Well, I will follow-up on William’s comments the kimberlites and that part of the south lobe is no different than geologically than the bulk of the south lobe. So the expectation could be that you could also recovery and we have recovered large stones also within the south lobe. And there is some avoidance to that area also due to mining purposes, there are [indiscernible] the things of this nature. So it's not only avoiding it for potential of its stones but avoiding it for mining purposes.

William Lamb

And Des on the water situation on the mine site because we actually do water the mining pits and that way our water comes from. And as we have got new to the harder materials the demand for water through the process plant get lot lower than what it was when we first started and we are mining the way that material. And so we do have sufficient water resources on site, [indiscernible] with the increased throughput and the efficiency of the operating team, once its launch they have put pressure on that water supply. But I’m looking at Paul, and Paul if you want to jump in there hasn’t really been as significant demand for water onsite, because we do have the water which we get from dewatering the pit. But Paul if you could [indiscernible] Gabarone and he can make one or two comments on the overall water situation in Botswana line?

Paul Day

Yes, sure, yes thanks. So as William said, onsite we are matching the water demand of the plants which we pumped from the within the mining license area. And we do have redundancy in there as well, we have 10 Pulas that we not currently equipped, in case we start getting exaggerated roll down, so onsite we are absolutely okay. And that's fairly same on water, so it's not fit for domestic use. The water crisis in Botswana is generally aimed around the domestic use of possible water and it's really a supply crisis between getting high rainfall in the north of the country and getting that water down to the south where the central population lives in Gabarone. It's not a mining issue.

Operator

Your next question comes from the line of Richard Hatch with RBC. Your line is open.

Richard Hatch

I'm sorry, [indiscernible] and question on cash tax payments, would you expect into the second half, I know you have build a quite an ability to say, what should be booking for H2 in terms of cash tax price. And then just in terms of cost guidance, I mean you have lowered it that's really good, do you think that this is something that will continue as you move into '17, do you think you can keep it down to this level?

William Lamb

Richard, I'm just going to pass over to Glenn just on the tax operation.

Glenn Kondo

Richard in terms of the overall path calculation that is we are forecasting this year, we have to use the 43% tax rate I think we are quite comfortable with the increase [indiscernible] full year and that includes direct [indiscernible].

Richard Hatch

So, would you expect that your cash tax matches your income statement tax plan or what's your guidance in terms of your actual cash tax paid?

Glenn Kondo

If you are looking at in terms of the fast cash going up, we will have a final settlement which we carry into Q1, so we saw that continuing, we saw that coming this year. So, based on that path calculation I could see carrying another 50 million that come really into Q1 next year.

William Lamb

And then on the operating cost Richard, if we look at what we have actually been able to achieve year-on-year I think we were little bit cautious going into 2016. Since and only because we only had less than half a year loss here running the new extra key streams, all the additional items which we would actually add in that. So I think we have been pretty positive to come in and place it with the guidance in or the revised guidance again next year. I think we have done very well [indiscernible] on handling costs very, very efficiently. So we have looked almost probably target that again instead of going up to the 33, 36 gain.

Operator

Your next question comes from the line of Geordie Mark with Hayward. Your line is open.

Geordie Mark

Just a few questions on the operating side, sales performance. In terms of the additional sort of just mined or tonnes. So, is there any sort of delta on reconciliation on volumes versus what you are sort of projecting for the quarter?

John Armstrong

Just to sort of read that question that, you are asking for the volumes mined versus that what was actually processed?

Geordie Mark

Basically, the volumes mined for all those your expectations, were they sort of consistent I'm just talking at [indiscernible] considering reconciliation.

John Armstrong

I think they were even if we go back when we have a look at the differential kimberlites mine from the different load, but also still according to the plan.

Geordie Mark

Okay great and in terms of throughput was exceptional and the daily rate on average was pretty good where they were and are you expecting I was just trying to gauge as you have done around that 1.3 million through the mill H1 and the upper end of your guidance is 2.4 for the year. I was just wondering the projected utilization you are looking at for the mill for the remainder of the year and given the H, I guess the Q2 performance in terms of throughput and see 2.4 million ton?

William Lamb

I think again we are making modification for the process also. If we look at the amount of downtime which has been scheduled specifically for the modifications on the move discharge screen or the new screen we are putting in the feet on to XRT circuit et cetera. We are looking at and I’m looking at Paul, there is only about two weeks of downtime for that.

Paul Day

That’s right. Yes we also have a lot of change out that will come in, so I am comfortable with coming on guidance, there is possibility a lot like that. But there is a lot of that will constrain as against production.

William Lamb

And we also added in some continuity when we do make the changes to process plants not that easy to put the screening and connect the electrics when it's running through the control system, there is always one or three particular things that sort of come up. So we actually have added in a little bit more conservatism under the throughout once those new pieces of equipment are installed.

Geordie Mark

Okay, and in terms of maybe back to the old mines, with proportions from the south load in terms of the mine and when we look at the 680,000 tonnes processed, can you give a sense sort of precautions sample material coming out of going through there?

William Lamb

For now actually the processed months are going to be very similar to what we have done mining and then back end of the year, and we look at in average around the between 70% and 75% material from the south lobe. Very liquid material coming north loan, but that only really size come when we do or finish the pushback there. But the remainder is coming from the central load.

Geordie Mark

That will be to the back half I guess in the proportion for milling, and if I can move over to some of the regular tender starting, obviously I think the average tended to 75 plus thousand, normal strength I guess saw in Q2 and realized in Q2 again at 350 carat. Is that kind of the number that we should look going forward, I guess because Q1 regular tender just trying to get a gauge on where we should be looking at?

William Lamb

The difficult here is I could say, yes, that's a good number and then when we did the regular tender at the end of August into September when we sort of come in at 400 something and it's very much depended on the quality of the large stone. If we look at the breakdown of the cars revenues we are sitting with 70% to 80% of our value coming in stones larger than sort of 8 carat, so when if we have one really-really good stone and this is what we had in the first thing in the year.

We had a couple of very, very good terms and that would automatically push the value up to into the 400 mark and the reason why it makes such a big difference is that the carat volume for those three high value stone is almost nominal when you look at the calculation. So I think we must only say if you are looking at the financial model it’s going to sit somewhere 350 and 400, especially as we have, knowing what we have in the next tender and a lot of those coming from the south, we most probably err toward the higher end there.

Geordie Mark

Thank you, and maybe just one follow on there with large gains for the mine, I calculate that you recovered at a 175 special stones about 10.8 carats in Q2, including 4 above 100 carats. Can you remind me what the sort of I guess it's a revolving criteria is for inclusion of stones in any future exceptional stone tender and what you are preferred minimum number of stones is for a tender and then I will leave it there. Thank you.

William Lamb

Alright, so the minimum is definitely 10, I think if we have any sort of lower number than 10, as the client sits there they shouldn’t wait for stones for quite a while. Especially if the client is taking two to three hours to have a look at a single stone, and that's the stone can see it's very difficult to actually manage the client bookings for that.

When we start to look at the average value, what we have seen over the past three or four years is that number transitions from $250,000 for a single stone to now on average $1 million is the lower value that we see for a stone going to the exceptional stone tender.

And that way it becomes sort of a anybody's day, if we have 10 stones that could be worth $20 million, $30 million, $50 million depending on the size and the quality and I think that when we started sort of try to let the market know what we have. It's the primary reason why we put those exceptional stone brochures out, so people can actually that the values and volume of carats being sold.

Geordie Mark

Thank you, very much William.

William Lamb

Thanks, Geordie.

Operator

Your next question comes from the line of Edward Sterck with BMO, your line is open.

Edward Sterck

Thanks very much, actually all of my questions have been answered.

William Lamb

Thanks Ed.

Operator

[Operator Instructions] Your next question comes from the line of Des Kivalaya with Royal Bank of Canada, your line is open.

Des Kivalaya

Hi, a question for Glenn, if the Lesedi is sold this year, to say at around, don’t speculate any more than around a $68 odd million that you turned down for the stone. What would that do to your 10 percentage tax rate?

Glenn Kondo

That's because we can still take orders, the capital expenditures this year, They are quite expensive it was up to [indiscernible] from what we have been taking at 42% to approximately 44%, 45%.

Des Kivalaya

Thanks Glenn.

Operator

Your next question comes from the line of Geordie Mark with Haywood, your line is open.

Geordie Mark

It's Geordie again. Just one last question, the 30,000 I guess 600 carats sold, I guess or realized in this quarter average price I guess just for the 378 carat. Was that a particular for the trench [indiscernible] thought of carats there it sounds like due to tender, with a hangover from you know H2 2015, just trying to get an idea obviously the average value of those stones is a little lower than those realized in Q2?

William Lamb

No, actually you can’t do any contributions on that. The same production which has been mined it was just the supposed that paid late. So, I don’t think we can do any conclusion with people buying the smaller quality or the lower value stones are the ones that They are paying late. It was just purely the timing of when money came into the bank. So there is no differentiation between the cash which was sold where that money came from but anything else which we told previously.

Geordie Mark

I was just thinking whether that was within our quarters small and it will be the average values?

William Lamb

Yes, I don’t have the exact numbers. But that could have been a part of sort of two to four that good but - and that’s where the average value would have come from. But there is no - I don’t think we can do any conclusions there, so it's excess from any other comp, it's just part of production.

Geordie Mark

Okay. Thank you.

William Lamb

Thanks Geordie.

Operator

There are no further questions at this time. Mr. Lamb, I will turn the call back over to you.

William Lamb

Thanks Simon. Thank you very much everybody for dialing in, for our Q2 results. We will keep everybody abreast on how things are going. And I think if we look at how the year has gone so far, I think there is still plenty of times ahead for what Lucara can actually do. So thanks a lot everybody, and have a good weekend. Thanks Simon.

Operator

You are welcome. Ladies and gentlemen this concludes today’s conference call. You may now disconnect.

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