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Is LUCARA DIAMOND (OTCMKTS:LUCRF) Undervalued On Above-Industry ROE And Blockchain Ambitions?

Is LUCARA DIAMOND (OTCMKTS:LUCRF) Undervalued On Above-Industry ROE And Blockchain Ambitions?
Written by
Jim Bloom
Published on
March 1, 2018
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LUCARA DIAMOND (OTCMKTS:LUCRF) has traded in a downtrend for long, despite appearing undervalued with above-industry return on equity. A surge in selling pressure has pushed the stock to near all-time lows, waiting to see if the stock will bottom out.The stock appeared to have bottomed out, on spiking to near the $2 a share mark. However short sellers came back and pushed the stock lower, in what appears to be a continuation of the long-term sale trend.While there is no doubt about the company’s long-term prospects, its underperformance in the recent past should be a point of concern to investors. For starters, Lucara Diamond needs to close above the $2 a share level, seen as a key resistance level above which it could make a comeback.Given the strength of the downward pressure, the stock remains susceptible to further declines as it is currently trading near its 52-week low of $1.70 a share. LUCRF Daily ChartBefore we look at the factors that are likely to have a significant impact on investors’ confidence in the stock, let us first look at what the company does.Lucara Diamond is a mining company engaged in the acquisition, exploration, and development of diamond properties in Africa. The company was incorporated in 1981 and was formerly known as Bannockburn Resources.The company’s principal property is the Karowe mine located in Botswana.Recent developmentsLeveraging Blockchain technology Pursuit Lucara Diamond has been the subject of increased volatility in the recent past on the company joining the race to use blockchain technology. A $29 million acquisition of Clara Diamond solutions came as a surprise consequently helping push the stock up the charts before it fell.An investment in Clara Diamonds presents a unique opportunity for Lucara Diamond to leverage the capabilities of a technology that continues to send shockwaves around the world. Clara Diamond owns a secure digital sales platform that it plans to use to transform how rough diamonds are sold.The firm uses proprietary analytics with cloud and blockchain technologies to unlock value for diamond producers and manufacturersPlans are already underway to commercialize the Clara platform using a selection of the company’s diamond production from the Karowe Diamond mine. However, the long-term plan is to scale the platform to accommodate diamond uptake from a variety of sources.What Next The investment comes at a time when diamond producers are increasingly looking at blockchain technology to improve the traceability of their diamond holdings. Blockchain systems are being used in supply chain management to streamline the process by recording each transaction on an immutable blockchain.Lucara Diamonds has since joined the likes of De Beers and Alrosa PJSC that have leveraged blockchain technology to reassure buyers that the stones they buy are genuine.

“We believe that Clara will not only modernize the entire diamond sales process but unlock additional value for all participants across the diamond market,” said Lucara chairman Lukas Lundin.

Management Changes The acquisition of Clara Diamond comes at a pivotal time for Lucara Diamond. The company’s founder and Chief Executive Officer, Eric Thomas has stepped down from his position. During his tenure, the mining company evolved to become one of the world’s highest margin diamond company.Lamb is accredited for championing the technological advancement of Lucara Diamond mines in a bid to optimize revenue generation and minimize losses.Eira Thomas takes over as the Chief Executive Officer with over 25 years’ experience in the mining industry.

“Eira, as the new CEO, will be well supported by a focused and experienced team at Karowe as we look to expand the mine underground, and I am pleased to be taking on a key advisory role as we embark upon this next, exciting phase in Lucara's development," said Mr. Lamb.

Lucara Diamond financial position and ValuationDespite share price underperformance, Lucara Diamond was a top performer in the diamond mining industry. The company delivered a 25.3% ROE last year compared to the industry average of 7.43%. In addition, the company generated more profit relative to its equity. The company’s cost of equity over the past 12 months stood at 17.70% which means the company was able to cover its operating costs at the back of minimum equity.What to Expect Of Lucara Diamond in 2018While Lucara Diamond underperformance in the stock market over the past 12 months is a point of concern, its above-industry ROE is one of the bright spots that point to a bright future. The company’s ability to generate significant returns at no debt is positive, which any investor should pay more attention to when it comes to investments.While the company’s long-term prospects look bright, it might be time to take a pause until the stock bottoms out. A spike above the $2 mark should position the stock as an interesting long-term play given its ability to generate shareholder value.We will be updating our subscribers as soon as we know more. For the latest updates on LUCRF, sign up below!Disclosure: We have no position in LUCRF and have not been compensated for this article.

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