According to Thomas - one of the founding members of the boutique high-value diamond producer, together with Lucas Lundin and Catherine McLeod Seltzer - the current supply chain is static, inefficient, and inflexible, and recent technological advances make disruption possible and inevitable.

"We fundamentally disagree with the entrenched push model of centralised diamond tender sales. Value is being lost across the entire diamond pipeline. We want to create a new pull model where producers and manufacturers alike stand to benefit from a new and improved system," Thomas said on the sidelines of the Precious Metals Summit held at Beaver Creek, Colorado.

Under the current model a single diamond can end up being sold up to 10 times in the secondary market before it ends up on a polishing mill, because useful diamonds are paired with lesser-grade stones in the current tender lots system.

This is where the company's newly acquired Clara digital diamond sales platform comes into play.

The company recently acquired the platform with the goal of creating a new revenue stream while providing the opportunity for market disruption. Clara is a secure, digital diamond sales platform that uses proprietary analytics together with cloud and blockchain technologies to transform the sales process.

It matched diamond demand to supply, ensuring diamond provenance from mine to end-product, driving efficiencies and unlocking value for all stakeholders, Thomas said.

According to her, the digital sales platform fits Lucara's reputation as a leader in innovation. Indeed, Lucara was the first diamond company in Africa to use autogenous grinding mill and the first to implement X-ray technology for large-stone recovery at its flagship Karowe mine, in Botswana.

While Clara has the potential to change the way diamonds are transacted today, it does not mean that the old model will become obsolete overnight.

"It remains an important mechanism for selling diamonds. Most of Lucara's revenue come from diamonds 10.8ct plus, or ‘specials' category. Clara really doesn't work for diamonds larger than that.

"It is ideally suited for diamonds between 1-15cts in size of better colours and quality that entail the bread and butter of the diamond industry. There is room for Clara and over time, this new mechanism could take over significant market share from the traditional model."

Secret sauce

Thomas said the system was live now based on production from Karowe, with one manufacturer onboarded on a trial basis. This is set to expand to five manufacturers in the coming weeks, and the company expects to report back to the market on progress during the fourth quarter results.

Thereafter more manufacturers and producers will be invited to join the platform.

"We are telling producers to consider selling half their production on Clara and half their production via traditional tenders and compare and see how they do. We are very confident that they'll see increased realised pricing at absolutely no risk to them," she said.

Since launching Clara, the platform has run about US$5 million of rough diamonds sales, unlocking between 18% to 23% of value throughout the supply chain. The revenue model for Lucara is based on producers and manufacturers logging into the system at which price levels they are willing to sell and buy, respectively, and Clara takes the spread between the bid and the ask.

"We expect that as people gain experience the margin will narrow and we'll get to a minimum transaction fee as the spread closes. We're not charging a fee but taking a portion of the unlocked value.

"The secret sauce in Clara is the matching algorithm."

Producers can secure better prices for individual diamonds and manufactures are able to buy the correct stones they need and will not have to engage in reselling. Another benefit is that stones are bought and sold continuously, evening out the flow of revenue as opposed to building inventory for sporadic tender sales.

Diamonds are scanned using proprietary technology as they are recovered at the mine site and they undergo a basic assortment for size and colour. On the manufacturers' side of the platform, polished diamond orders, using polished diamond parameters are uploaded. The digital cloud-based Clara platform then plans each rough diamond and matches the sellers with buyers based on the strength of demand from the buyer.

Meanwhile, owing to the Karowe mine's propensity for producing exceptional stones of high value, Lucara is not a significant direct competitor on the Clara system. It will continue to sell specials on exceptional tenders, to achieve maximum value.

Starting in the September quarter, Lucara will adopt a blended tender process, which combines the previously separate exceptional tenders for stones about $1 million in value or higher, and the regular stone tenders. "What we found is it does not make sense to inventory our highest value diamonds for up to 12 months while we assemble exceptional lots of about 10 stones per tender."

Exploration

The company has undertaken a major drilling programme this year to better understand the geotechnical considerations for the Karowe mine's South Lobe deposit at depth and the hydrogeology - the two risk areas geologists are currently working on. Those programmes will be complete by the end of the year, and those results will the feed into the feasibility that the company hopes to complete in 2019.

"We have done a lot of work over the past two years to better understand the potential for expanding the mine underground, because of the success of the first five years of openpit mining. Our achieved diamond prices far exceeded expectations, which gives us the confidence to study a mine expansion beyond 2026."

Lucara's drilling has helped to upgrade the resource below the openpit between 400-600m above sea level, and most of the resources have been converted to the indicated category. Going through that exercise Lucara has learned that the EMPKS geological unit, part of the South Lobe deposit, may have been the origin of the Lesedi La Rona and Constellation diamonds, among the largest diamonds recovered in modern history.

EMPKS accounts for about less than 15% of resources in the current pit, but as the company digs deeper, it dominates the orebody. Down at 400m above sea level, the deposit becomes 75% EMPKS. "It bodes very well for the underground economics. If the feasibility is successful, we could extend the mine life to 2036, and potentially beyond that."

Thomas noted that since production started at Karowe, Lucara had not undertaken much greenfields exploration. However, it is about to embark on such a programme and, in keeping with its affinity for deploying new technologies, it has signed up a third party to deploy an unmanned aircraft called Sunbird to collect magnetic data, in conjunction with a remote drill.

"We will be flying large prospective targets in Botswana that has been previously explored but were dismissed because the magnetic signature was too complicated. This technology can cut through the complex magnetics and this provides us with an exciting opportunity."

Thomas believes Botswana has become the most important diamond producing jurisdiction in the world today and because of that, Lucara will continue to invest and look for high-value opportunities and acquisitions to help it grow.