Lucara ended the September quarter with a strong balance sheet showing about US$91 million in cash. 

"While there are limited opportunities for M&A, Lucara is well placed in a sector where rationalisation is likely in the medium-term," the bank said, adding it would expect the miner to look out for late-stage exploration or development assets to grow its own output.

In the meantime, RBC said the underground mine plan at Karowe in Botswana offered attractive upside, as it had large stone potential that could increase average prices received and would extend the project's mine life by 10 years after the openpit is sated in 2026. 

It said the project was worth US$175 million, discounting a risk of 25%, which resulted in a value of $132 million.

The bank noted that there were a number of catalysts that could boost Lucara's share price in the near-term, including an updated resource estimate for the underground mine in the December quarter, which in turn would help shape the prefeasibility study. 

The PFS, due in the June 2018 quarter, should include more accurate capital and operational expenditure numbers and assumptions.

Lucara is expected to be able to fund the $194 million construction with cash on hand, although there were some risks attached to this.

RBC said these include water ingress, the need for underground construction and operational skills, and the requirement to renew its mining licence.

"We believe that given management's strong track record, coupled with some conservatism in the existing budgets (25% capex contingency and 10% opex contingency), the project appears robust, and will, in our view, drive value for Lucara into the long-term," it said.

RBC noted that Lucara's shares had traded at a premium valuation to its peers over recent years due to strong free cash flow generation, high dividend yields, lower geopolitical risk, strong project management, large stone upside and the underground potential at Karowe.

"After a pullback, the shares are trading at about one-times our risked net asset value and we believe that further upside exists," the bank said.

However, there were some general risks to the company's investment rating, named by RBC as the possibility of weaker grades and lower values, despite its stronger-than-expected grades and prices so far, opex inflation and slower economic growth across the globe. 

Lucara's shares were trading at C$2.38 (US$1.87) on November 8, down from C$3.75 a year ago.