LUCRF - Lucara Diamond Corp. (LUCRF) Q4 2022 Earnings Call Transcript
Lucara Diamond Corp. (LUCRF)
Q4 2022 Earnings Conference Call
February 22, 2023, 10:00 AM ET
Company Participants
Eira Thomas - President and Chief Executive Officer
Zara Boldt - Chief Financial Officer
John Armstrong - VP, Technical Services
Chris Schauffele - Project Manager
Conference Call Participants
Paul Zimnisky - PZDA
Presentation
Operator
Good morning. My name is Marjorie, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Lucara Diamond 2022 Year End Results Conference Call. 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 very much.
Ms. Eira Thomas, your -- you can -- may begin your conference.
Eira Thomas
Thank you very much. Welcome everybody to Lucara's year-end conference call, and thank you for joining us today.
On the call from managements, we have Zara Boldt, CFO; Dr. John Armstrong, VP Technical Services; Naseem Lahri, Managing Director of Lucara Botswana; and Chris Schauffele, our Project Manager for the underground expansion project. We will be taking you through a quick review of the quarter and our fiscal 2022 highlights, and then we will open it up for questions.
I will be making forward-looking statements throughout this presentation, so we do encourage you to review this cautionary statement at your leisure, which is available on our website.
In 2022, Lucara was proud to commemorate 10 years of continuous operations from its 100% owned Karowe diamond mine in North Central Botswana and successfully delivered on all of its financial and operating metrics, including strong safety performance, open-pit production and processing through the mill on plan, healthy diamond sales and revenue generation, which resulted in $86.7 million in EBITDA and cost trending below guidance despite increasing pressures around inflation. The resource continue to perform as expected achieving a healthy Specials count of 7.2% by weight, including 34 stones greater than 100 carats.
For the underground expansion project, we achieved a number of important milestones, including the completion of all pre-sinking activities on schedule and budget, the execution of our main shaft sinking contract, the commencement of main shaft sinking, and the completion of a new power line on schedule and budget. Importantly, we commenced our first grouting phase in the production shaft in December, which was successfully completed in February of 2023, confirming that our planned approach and methodology for grouting is appropriate and effective. The impact of delays and a slower-than-anticipated ramp-up in shaft sinking cycle time, together with the potential mitigations and experience gained from the first grouting program will be incorporated into a refreshed schedule and budget, which is expected to be completed in the second quarter of 2023.
Touching on the market. Overall diamond market fundamentals remained healthy and stable in 2022, though price softening observed in the second half of the year did impact revenues year-over-year. Our outlook for diamond prices in 2023 and beyond remains optimistic as global supply shortages continue to play out in the market. Importantly, Lucara retains access to ample liquidity in support of its growth plans.
Zara Boldt, Lucara's CFO, will now take us through some financial and operating highlights for the quarter and full year.
Zara Boldt
Thanks very much, Eira. Good morning, and good afternoon, everyone. Thank you for joining us for our Q4 2022 earnings call.
Just a quick reminder that I'll be making some forward-looking statements. So, please refer to Slide 2 of today's presentation for our cautionary statement.
Also, certain financial measures that I will refer to during today's call and which appear in the presentation are non-IFRS financial performance measures. These include adjusted EBITDA, adjusted operating earnings, operating cash flow per share, operating margin per carat sold, and operating costs per tonne of ore processed. Please refer to our MD&A for details on how these measures are calculated.
As a reminder, all references are to U.S. dollars, unless otherwise stated.
So, let's begin with the financial highlights from the fourth quarter ending December 31, 2022. We recognized total revenues of $42.5 million in the fourth quarter, down from $57.9 million in Q4 2021. This included $40.1 million from the sale of 81,000 carats from Karowe, inclusive of top-up payments of $3.6 million, as well as $2.4 million from the sale of third-party goods on the Clara platform. The change in quarterly revenue was predominantly driven by a 21% decrease in carats sold during the fourth quarter. The sales agreement with HB accounted for 60% of total Karowe revenue recognized in the fourth quarter. Despite the overall decrease in revenue recognized, diamond market fundamentals continue to support healthy prices, as steady demand and some inventory shortages were reported.
Natural variability in the quality profile of the plus-10.8 carat production in any production period or fiscal quarter results in fluctuations in recorded revenue and associated top-ups. During the fourth quarter of 2022, 8.28% of Specials of total carats recovered was consistent with the Karowe resource model. As more North and Center lobe material is expected to be processed in 2023, while this material is higher grade, the weight percentage of Specials is expected to decrease while the volume of carats recovered is expected to increase when we're comparing to 2022.
Karowe diamond sold during the quarter generated an average price of $450 per carat, excluding [Technical Difficulty] payments. This compares to an average price of $473 per carat achieved in the same quarter last year. In just a moment, we will look at our results by sales channel both for the quarter and year-to-date.
Adjusted EBITDA of $12.6 million decreased from $21.1 million in the same period in 2021, driven by the change in quarterly revenue.
Net income for the quarter was $7.1 million or $0.02 basic earnings per share. This compares to $1.7 million or no earnings per share in Q4 2021. Non-cash items such as depletion and amortization, foreign exchange gains and losses, gains and losses from derivative financial instruments and income tax expenses introduce volatility to net income.
Operating cash flow per share, a non-IFRS financial performance measure, was $0.03 as compared to $0.05 per share in the fourth quarter last year.
Our next slide sets out the operational highlights for the fourth quarter. As mentioned earlier in the call, we met our 2022 guidance for all operating metrics. Ore and waste mined during the fourth quarter of 2022 totaled 484,000 and 199,000 tonnes, respectively. During Q4 2022, tonnage processed was on target at 691,000 tonnes with an average grade of 12.5 carats per 100 tonnes.
We recovered almost 87,000 carats during the fourth quarter, and we sold just over 81,000 carats for proceeds of $36.5 million, excluding top-up payments of $3.6 million. Of the almost 87,000 carats recovered during the fourth quarter of this year included were 233 Specials with 13 diamonds greater than 100 carats, including two diamonds greater than 200 carats and two diamonds greater than 300 carats in weight. Recovered Specials equated to 8.6% of the weight of total recovered carats from ore processed during the fourth quarter. Ore processed was substantially from the EM/PK(S) and M/PK(S) units of the South Lobe and recoveries during the quarter were within the expected range of the South Lobe resource model.
Our operating expense per Karowe carats sold was $193 during the fourth quarter. This compares to $200 per Karowe carat sold in Q4 2021. Operating expenses decreased by $3.8 million or approximately 17% from $22.3 million in Q4 2021 to $18.5 million in Q4 2022. This reflects a decrease in carats sold. Increases to input costs, especially for labor, fuel and power costs were experienced and have been offset by the benefit of a stronger U.S. dollar.
Moving to Slide 6 of the presentation where we have financial highlights for the year ended December 31, 2022. Those results were strong from both the financial and operational perspective. And as mentioned earlier, we're right in line with our 2022 guidance.
Total revenue of $212.9 million, including $9.1 million from non-Karowe goods transacted through Clara, was reflective of a strong market early in 2022 and upside exposure to polish diamond prices achieved through the committed sales agreement with HB. During fiscal '22, this agreement was extended for a 10-year period to December 2032.
Sales of Karowe diamonds continue to generate most of the company's annual revenue. During the year ended December 31, 2022, a total of 327,000 carats were sold through our three sales channels, generating revenue of $165.4 million, before top-up payments of $38.4 million, at an average price of $506 per carat sold.
Strong revenues were the main driver for both the adjusted EBITDA of $86.7 million and net income of $40.4 million. Depletion and amortization expense of $25 million, deferred income tax expense of $24.1 million and a $10.7 million gain on interest rate swaps had the most impact on net income for the year ended December 31, 2022, and when we compare to net income earned for the year ended 2021.
Deferred income tax expense primarily relates to the significant capital expenditures incurred for the Karowe underground project development in 2022, which totaled just over $106 million. These expenditures are tax deductible in the year that the costs are incurred, which reduces the current tax liability of the company. A deferred tax expense is recorded and the deferred tax liability is created to account for the tax that will be owed in future years.
Karowe's operating cash costs for 2022, also a non-IFRS financial performance measure, was $27.94 per tonne of ore processed. This was below our full year forecast of $29.50 to $33.50 per tonne processed. Cost per tonne of ore processed reflects cost inflation, mainly related to labor, fuel and power, offset by the benefit of a comparatively stronger U.S. dollar and a lower amount of ore mined when compared to 2021.
Strong cash flow from operations equivalent to $0.19 per share allowed us to reduce the working capital balance to zero for several months in 2022. Draws of $40 million from the project loan facility this year in combination with excess cash flow from operations, supported an investment of just over $106 million in the Karowe underground expansion project. Chris Schauffele will speak to construction highlights from the fourth quarter shortly.
As of December 31, 2022, the amount drawn from the project debt facility was $65 million, and we had $15 million drawn from the working capital facility. After year-end, we drew a further $25 million from the project loan facility, which increases the amount drawn to $90 million, as well as a further $8 million from the working capital facility, which increases the amount drawn on that facility to $23 million.
With respect to our available liquidity, there are two points that I would like to highlight. The current working capital facility matures on September 2, 2023. It is our intention to seek a renewal of this facility from our existing lenders prior to its expiry. However, there is no guarantee that the facility will be renewed on the same terms as the maturing facility. Historically, we have used this facility to manage our short-term working capital requirements.
Also, prior to September '23, we will also be required to place $52.9 million into a cost overrun facility pursuant to the terms of our facility's agreement. We expect to meet this funding requirement by making regular monthly contribution to the cost overrun facility during 2023.
Let's now look briefly at some operational highlights for the year ended December 31, 2022. During the year just ended, we achieved all key operational metrics in line with our 2022 guidance. We mined 3.3 million tonnes and we processed almost 2.78 million tonnes of ore, recovering just under 336,000 carats at a recovered grade of $12.12. We sold 327,000 carats for gross proceeds of $165.4 million, before top-up payments of $38.4 million. Full year operating cost per carat sold of $213 is reflective of higher input costs, as previously described, generally offset by the benefit of stronger U.S. dollar against the Botswana Pula. Our strong operational results were achieved with an excellent safety record as the Karowe mine has operated for more than two years without a lost time incident.
Moving now for a quick review of our three different sales channels. We've included a lot of information on this slide with both the current and comparative quarterly and full year results for sales from the Karowe mine presented. But we think it's important to emphasize that overall, pricing has remained stable across the three different sales channels even with variability in the volume of carats sold in each period. As you can see, volume has an important impact on the average price per carat achieved on a quarterly basis.
For the three months ended December 31, 2022, we recorded revenue of $24.1 million from the HB agreement, including top-up payments of $3.6 million. The decrease in revenue in the fourth quarter versus the comparative quarter in 2021 can be attributed primarily to the number of high-value diamonds, which we delivered to HB earlier in 2021, for which the value of top-up payments was as expected, higher.
Top-up values will typically increase as the more valuable stones move through production and become available for sale. So, while a lower number of carats were delivered to HP in the fourth quarter of 2021 when we're comparing to Q4 2022, the initial value of those shipments were comparable due to the value of the stones delivered in Q4 2021.
Despite the overall decrease in revenue recognized in Q4 2022, diamond market fundamentals continue to support healthy prices as steady demand and some inventory shortages were reported. Natural variability in the quality profile of the plus-10.8 carat production in any production period or fiscal quarter does result in fluctuations in recorded revenue and associated top-ups and should be expected.
For the year ended December 31, 2022, the company recorded revenue of $128.7 million, including top-up payments of $38.4 million from the sale of just over 11,000 carats to HB.
For Clara, during the fourth quarter, sales volumes transacted were $6.6 million, down slightly from $7.7 million in Q4 2021. While fewer sales were held during the quarter, the volume of third-party goods transacted represented approximately 40% of total volumes transacted and contributed revenue of $2.4 million, up from $1.4 million in the comparative quarter
15 sales were completed on Clara in 2022, down from 21 sales in 2021, with a total sales volume transacted of $35.7 million, an increase from $28.7 million in 2021. In 2022, the frequency of sales was adjusted to ensure optimal client participation. Revenue generated from the sale of third-party goods increased from $2.1 million in 2021 to $9.1 million in 2022.
The fourth quarter tender in 2022 reflected a good performance in rough diamond pricing across all tendered size classes, although lower than what was achieved in the first two quarterly tenders of 2022, as concerns of a global economic slowdown became more prominent against the backdrop of high inflation, interest rate increases and uncertainty in supply chain. Approximately 76,000 carats were sold in the December '22 tender, generating revenues of 12.2 -- pardon me, $12.2 million. This compares to about 97,000 carats sold for $19 million in the Q4 2021 tender. For the year, we sold 305,000 carats through tender for gross proceeds of $53.3 million, up slightly from the $51 million in revenue earned through tender sales in 2021.
This next slide sets out our 2023 guidance. There are a couple of points that I'd like to highlight here. In 2023, our revenue forecast assumes that 52% of the carats recovered will come from the higher-value M/PK(S) and EM/PK(S) units within the South Lobe, while the remaining 48% of carats recovered will come from the Center Lobe in accordance with the mine plan. This is expected to generate revenue between $200 million and $230 million in 2023. Centre Lobe material, while higher grade, has a lower weight percentage of stones greater than 10.8 carats in size when compared to South Lobe material.
We expect to recover between 395,000 and 425,000 carats next year, and to sell between 385,000 and 415,000 carats. As a result, while our gross revenue is expected to be consistent with the amounts recognized in '21 and '22, the average price per carat sold is expected to decrease.
In 2023, capital costs for the underground expansion are expected to be up to $105 million, and we'll focus mostly on shaft thinking activity along with construction of the bulk air cooler, tendering of the underground development contract and underground equipment purchases. We expect to spend up to an additional $20 million on sustaining capital and project expenditures related to open pit mining operations where the focus will be on replacement and refurbishment of key asset components in addition to dewatering activities.
We are also planning an expansion of the tailing storage facility in accordance with the Global Industry Standard on Tailings Management, and we expect to complete a community sports facility in Letlhakane.
Lucara [on its] (ph) progressive tax rate computation allows for the immediate deduction of operating costs, including capital expenditures in the year in which they are incurred. Based on our projected 2023 revenue of about $200 million, up to $230 million, and assuming the underground development expenditures of $105 million, the tax rate should be about zero for 2023.
That concludes the update on our financial results for fiscal 2022. I'll now hand back to Eira to continue. Thank you very much.
Eira Thomas
Thank you very much, Zara.
Further to the comments made in my opening remarks, in 2022, the diamond market began on a solid trajectory following a banner year for diamond prices in 2021, but then softened considerably towards year-end in response to increasing global geopolitical uncertainties and rising inflation, which resulted in a weaker holiday sales period in the U.S. compared to the previous year. Despite this pullback, the market remains stable and price improvement, along with increasing market depth, has been observed in early 2023.
We remain cautiously optimistic that these price improvements will continue, particularly as China emerges from a period of prolonged lockdowns owing to the pandemic. Medium to longer term, we remain optimistic about diamond prices as rough diamond supply shortfalls continue to manifest globally, a combination of aging mines and little to no capital being invested in exploration.
I think I missed a slide there. Going back. On this slide, we want to just talk a little bit more about our resource performance. As Zara mentioned, our performance and the recovery of Specials in Q4 remains in line with expectations and consistent with historical recoveries and quarterly variability expected within the South Lobe. During Q4, we recovered 233 Specials or single diamonds greater than 10.8 carats in size, including 13 greater than 100 carats in size, representing approximately 8.6 weight percent Specials of total carats recovered.
One thing we did want to reiterate here, which Zara has already mentioned in her discussion and including about guidance, is that unlike in the last couple of years, 48% of the carats recovered in 2023 will come from Central Lobe material, which again is higher grade, but has a lower weight percentage of stones greater than 10.8 carats in size when compared to South Lobe material. And as a result, we do expect our recoveries to track more similarly to the large stone profiles highlighted on this graph from 2016 and 2017.
Lucara's diversified and optimized approach to diamond sales is unique in the industry and creates greater alignment along the value chain, driving efficiencies using technology, adding transparency and unlocking value for all participants. In 2022, 26% of our revenues were generated through traditional rough diamond tenders, 11% from Clara, our proprietary digital marketplace focused on sales of better-quality rough diamonds between 1 and 15 carats in size, and 63% from sales of polished diamonds manufactured by HB from our plus-10.8 carat high-value rough diamond production.
This multichannel approach to sales continues to generate a stronger overall revenue profile for Lucara, and by aligning ourselves with other participants in the value chain, including direct relationships with HB and select retail brands, contributes to longer-term pricing stability. Increasingly important, as sanctions continue to ramp up in relation to Russian diamond trade, our approach provides complete transparency and assurance on diamond provenance.
After two years of trial sales through HB, where all of Lucara's highest value plus-10.8 carat production from Karowe was being channeled into a unique manufacturing partnership rather than being sold is rough, in November of 2022, the company made a bold decision to extend this arrangement for another 10 years. HB is using state-of-the-art scanning, planning and manufacturing technologies to maximize the value of each and every rough diamond, selling into existing demand and delivering Lucara a polished price, less a set fee and the cost of manufacturing.
For the first time in our 10-year history, we have insight on what becomes of each and every plus-10.8 carat rough diamond produced from our mine participating in each step of the planning and manufacturing process right through to the final polish sale. Not only has this approach stabilized prices for our most valuable production segment, but it has also demonstratively grown demand, our core objective.
In the fourth quarter, Clara, Lucara's 100% owned proprietary secure web-based digital sales platform, continue to grow in scale and interest, and importantly, continue to add third-party supply volumes, which now account for approximately 40% of the volumes transacted. For the full year, total sales volumes increased by 25%. And importantly, revenue generated from the sale of third-party goods increased by more than 400%, highlighting a positive trajectory.
Another key milestone for the platform in 2022 was the completion of our first producer trial, which generated highly positive results and has led to advanced discussions around formalizing a longer-term contract, a key objective for the platform in 2023.
Moving on to the underground. As a reminder, this is a fully financed project that will extend our mine life out to at least 2040. And as Zara has already indicated, we made great progress in 2022 with expenditures of approximately $106 million with the project facility now drawn down -- drawdown that sitting at about $65 million at the end of the fourth quarter.
And on this slide, we are highlighting the economics around the project. And I really want to emphasize that the numbers you see here are based on very conservative diamond prices based on a discount to diamond prices in 2018. We've since emerged into a much stronger market. In addition, we removed our largest -- highest value diamonds from our economic model in order to be -- add an extra layer of conservancy. So, that's $4 billion of anticipated additional net revenues from the underground, we do believe is conservative.
I'm now going to turn it over to Chris Schauffele, who will give us a little more detail on some of the progress that we've made on the underground expansion in 2022. Chris?
Chris Schauffele
Yes. Thank you, Eira, and hello to everybody on the call.
A bit of an operational update here. So, our Q4 focus for the underground expansion was centered around shaft sinking and advancing the depths of both the production and ventilation shafts. At the close of the year, the production shaft was at a depth of 132 meters below the surface and within the basalt rock formation, and just about the transition into the sandstones, it's about six meters away from the sandstones. The ventilation shaft was at a depth of 179 meters below the surface and was within the sandstone formation.
For our cycle times, which are the key metrics to determine how long it takes to advance each shaft, they have improved over the quarter. Improvements were largely related to equipment and personnel changes that were implemented. However, as of the close of the year, sinking cycle times have not yet consistently met our planned rates.
During December, the ventilation shaft was within the sandstones and the production shaft six meters away from entering this formation. The sandstones are known to be water-bearing and pre-excavation shaft grouting has commenced within each shaft. Grouting is performed in advance of sinking to seal out water from entering the shaft excavation.
The grouting materials we're using are a type of chemical grout that can permeate deeply into the sandstone formation. And the chemical grout, this is a proven technology we're using and used in many shafts around the world. Our grout uptake within the sandstone formation is indicating that the chemical grout type being used is effective for sealing out the water.
So, based on the learnings and actual performance for both the cycle times and grouting durations, we are preparing a refresh to the project's budget and schedule. Work on the refresh is ongoing and will be ready by the end of Q2 of this year.
Other aspects of the project continued to track well through the quarter. These are mainly surface aspects. So, prior to the year-end, we had successfully commissioned and energized our bulk power supply, which consists of 29 kilometers of high-voltage 132KV transmission lines and two substations. This was really a collaborative effort between the project team and the Botswana Power Corporation, and now the project is being fully powered by line power.
We have also awarded the shaft bulk air cooling contract for which detailed engineering is now underway, and this contract will transition into construction later this year.
In terms of our spend for the underground expansion in 2022 was $106 million, bringing the total investment to $226 million at the close of the year. Our committed funds, which include purchase orders that are in process such as underground mobile equipment and underground infrastructure equipment, totaled $112 million at the close of the year.
And this concludes the underground expansion update. Thank you.
Eira Thomas
Thank you very much, Chris.
I'd like to now go on and say a few words about our approach to sustainability before closing out the call. During 2022, Lucara continued to strengthen its relationship with Botswana, working with all of our communities of interest to understand needs and to progress and develop meaningful work plans that can contribute towards sustainable economic development beyond the life of our mine.
Highlights from these efforts included continued support for agricultural products designed to make Botswana less reliant on food imports; investment in a new national scale sports facility in Letlhakane; and feasibility work to understand the opportunity of adding solar energy power generation at our mine site, not only to decarbonize our own operations, but to provide much-needed alternative power options for our local communities.
Another important objective undertaken by our mining and sustainability teams in 2022 included the development and implementation of an updated tailings framework aligned to the Global International Standard for Tailings Management, or GISTN. And during the fourth quarter, connections to a new tailings dam paddock, constructed according to these GISTN guidelines, were completed and the paddock was put into use in January of this year.
Another initiative launched in '22 in anticipation of underground operations commencing in 2026 was the development of a training plan for workforce transition, including underground mine rescue training.
Lucara does produce an annual sustainability report and we do encourage everyone to have a look at this report, which is available on our website.
So, summing up, 2022 was another busy and productive year for Lucara. The mine continues to perform well and we will continue to drive efforts around operational excellence, aimed at improving performance and increasing efficiencies in 2023 in support of our ongoing underground expansion program.
We continue to believe that Lucara represents an excellent investment opportunity. The diamond market is positioned to do well from now and well into the future, owing to market fundamentals that are underpinned by global supply shortfall. And we think that Lucara is one of the best ways to get exposure to the diamond business having a strong anchor flagship project in Karowe, which will be mining diamonds now out into at least 2040.
In addition, we have asset diversification through Clara, which is not a mining opportunity, but it is a diamond opportunity, and we really believe that Clara has the potential to continue to disrupt the historical approach to diamond sales and become an important contributor to Lucara's future cash flows.
With that, I'd like to say thank you very much for all of you participating today. And I'd now like to open the call up to questions.
Question-and-Answer Session
Operator
Thank you, Ms. Thomas. [Operator Instructions] Ms. Thomas, we'll take our first question from Paul Zimnisky from PZDA.
Paul Zimnisky
Hi, everyone. Two questions for me, please. I guess this will be more relevant in the future, but how should we look at how non-Karowe rough showed on Clara's translating to revenue and profit for Lucara? I guess, for example, could this be implied from total revenue minus rough sales, minus top-up payments?
And then just secondly, could you please provide an update or some commentary on what you're seeing in a large stone market? Maybe how is looking compared to six months ago and 12 months ago? Thanks.
Eira Thomas
Sure. Thank you, Paul. And maybe I'll just ask a point of clarification on your question on Clara. Can you -- sorry, can you just say that again? I wasn't quite clear what your -- first part of your question was there.
Paul Zimnisky
Yes. What's the best way to imply, I guess, the revenue and profit to Lucara from the sales commissions of third-party rough on Clara?
Eira Thomas
Yes. So, as you know, Paul, the rationale behind Clara is not only for selling our own goods, achieving better prices, which we do. And we know that because we can compare to historical results over 10 years of selling our diamonds through traditional tenders. But the rationale, of course, for Clara is really to open it up to third-party sales, and it really is a volume story. So, as we ramp up on third-party volumes, that really drives the cash flow generating potential. So, at the moment, the way that our business model is evolving, we are basically charging a commission for sales through Clara, and that commission is what's driving the revenue numbers you see in our quarterly earnings.
John or Zara, do you want to add anything to that piece before we go to the second part?
Zara Boldt
Not from me. Thank you.
John Armstrong
Not from me, Eira. Thank you.
Paul Zimnisky
Okay. Eira, I guess just on Slide Number 14, where you showed the five-year growth potential profile. If we look at the revenue there, I mean, is that -- so that's kind of what we're talking about. So, say, you generated approximately $9 million in third-party commissions from Clara in 2022. So, the forecast is that number will be closer to $30 million in 2023. Is that -- am I understanding that correctly?
Eira Thomas
Yes. And it really is dependent on securing that additional third-party supply, Paul, but really the concept there and what you see in that five-year plan is really assuming that we can get to 10% of global market share for transactions through Clara. So, between $1.5 billion and $2 billion of transactions. And if we can do that, that will generate the types of revenues that you see there, revenues and cash flow, quite frankly, that will be comparable to what we're generating to Karowe. But it is very much dependent on increasing that supply. And we are -- we believe, at a very important inflection point having completed our first successful producer trial. And of course, we're continuing to ramp up on the third-party supply from secondary sources as well. So that is our plan for 2023.
Paul Zimnisky
So, is that included in the revenue guidance, the third-party revenue from Clara? Or is that potential upside?
Eira Thomas
Zara, do you want to answer that?
Zara Boldt
Yes. Potential upside. Thank you.
Eira Thomas
Yes. We've been very conservative on that, Paul. But -- and it has taken time to get adoption on Clara, but it is starting to happen. And I think when people have the opportunity to trial the platform, the results are very, very compelling and speak for themselves. I think the other rationale for using Clara today really comes from a desire to increase transparency and be confident in provenance, and we're getting a lot of interest on Clara from that perspective as well.
Paul Zimnisky
Great. Thanks. And then, just quickly if you could maybe comment on the large stone market and maybe how it looks today versus six months ago and 12 months ago?
Eira Thomas
Yes. I think what's really important about our initiative with HB is the assumption is that the reason we entered into this is related to increase margin capture downstream. That's really only part of the story. By channeling all of our goods through a single manufacturer, it gives us much greater control on how those diamonds are sold and how we can work with existing demand out there in the marketplace. So, a big part of the rationale for HB has been around stabilizing prices for our largest, most valuable diamonds. And that's really been, I think, the theme for us over the last 2.5 years.
Large stone prices did come under pressure prior to COVID and then extreme pressure during COVID. What we've seen definitely is price stabilization now for our large stones. And the potential here -- we're starting to see those prices actually strengthen. That's one of the reasons that we remain very excited about our new sales strategy, because we really do believe this is only the beginning. We believe if we continue to be very disciplined and focused on how we sell our diamonds that will actually support continued price appreciation for our large stones, which is not what we saw between sort of 2016 and 2020. So, we think we're really at the beginning of the recovery in the large diamond prices.
Paul Zimnisky
Excellent. Thank you very much.
Eira Thomas
You're welcome.
Operator
And at this time, we have no further questions in the queue.
Eira Thomas
Okay. Well, thank you very much, everybody, for joining us, and we look forward to connecting with you in Q1. Bye for now.
Operator
Thank you. And ladies and gentlemen, that does conclude today's conference. We appreciate your participation. Have a wonderful day.
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Lucara Diamond Corp. (LUCRF) Q4 2022 Earnings Call Transcript