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Edited Transcript of LUC.TO earnings conference call or presentation 10-May-19 1:00pm GMT

Q1 2019 Lucara Diamond Corp Earnings Call

VANCOUVER May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Lucara Diamond Corp earnings conference call or presentation Friday, May 10, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eira Margaret Thomas

Lucara Diamond Corp. - Founder, President, CEO & Director

* John P. Armstrong

Lucara Diamond Corp. - VP of Technical Services

* Zara E. Boldt

Lucara Diamond Corp. - CFO & Corporate Secretary

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Conference Call Participants

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* Geordie Mark

Haywood Securities Inc., Research Division - Co-Head Mining Research

* Paul Zimnisky

* Scott Macdonald

Scotiabank Global Banking and Markets, Research Division - Associate Analyst

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Presentation

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Operator [1]

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Good morning. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lucara Diamond's Q1 2019 Results Conference Call. (Operator Instructions)

Ms. Eira Thomas, you may begin your conference.

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Eira Margaret Thomas, Lucara Diamond Corp. - Founder, President, CEO & Director [2]

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Thank you very much, and thank you all for joining us today for Lucara's Q1 results call. Joining me is Zara Boldt, our CFO; Dr. John Armstrong, our Vice President, Technical Services; and Ayesha Hira, our Vice President, Corporate Development and Strategy.

I am going to be making forward-looking statements, so I do encourage everyone to peruse our cautionary statement at their leisure on our website.

I'm pleased to report that our continued focus on operational excellence has delivered another strong quarter in terms of safety, ore grades mined and carats produced. It was also a record quarter with respect to tonnes milled.

In April, you will have seen that we reported the recovery of a 1,758-carat near-gem quality diamond. This was a very exciting development. It is the second plus 1,000-carat diamond recovered from Karowe in under 4 years, and it was recovered intact and undamaged, thanks to our state-of-the-art XRT diamond recovery circuit.

Our first diamond sale of the year generated $48.7 million in revenue and reflected a healthy contribution of large high-quality single stones, including 7 stones which sold for more than $1 million each and achieved high price of $8.1 million for a 240-carat top white gem.

By quarter end, we had completed 3 sales on Clara, and I'm pleased to report increasing participation by all our manufacturers at each subsequent sale, and our ramp-up continues on plan.

On April 11, we paid our quarterly dividend of $0.025 a share, and we ended the quarter with cash and cash equivalents of $17.9 million and no debt.

Of course, fundamental to achieving strong operations at Karowe is a safe working environment, and we have very proudly achieved over 6.2 million man hours or 677 days without a lost time incident. Also highlighted on this slide is Lucara's commitment to community and local stakeholder engagements. Our priority has been to focus on local business development that can deliver broad-based community benefits. The highly successful Mokubilo Farm project is an example of one such initiative that we are now looking to expand further into its second phase.

Moving on to the diamond market, overall, we would characterize the current environment as stable, but quiet, with lower levels of goods available, which is matching lower levels of overall demand. Longer term, our outlook remains positive. We are anticipating supply and demand fundamentals to strengthen as older mines mature and approach end of life.

We also continue to work very closely with our fellow producers through the efforts of the Diamond Producers Association in the promotion of natural diamonds versus synthetics, focusing on the broad benefits generated by diamond mining and our strong ESG performance as an industry, and we really feel we are starting to see these efforts now start to gain traction.

In terms of sales, we -- 95,000 carats were sold during our first sale of the year, which is 50% more by weight compared to the comparable period in 2018 and that generated $48.7 million at an average price of USD 512 per carat. As always, the sale included a significant number of high-value single stones, including 31 stones larger than 10.8 carats; 7 stones, which as I mentioned before, sold for more than $1 million each, one of which achieved over $5 million and the second achieved over $8 million.

In April, we had further exciting news with the recovery of this remarkable 1,758-carat near-gem diamond. This is the largest diamond to be recovered in Botswana and the largest diamond from Karowe to date. And we are the only mine in recorded history to recover 2 diamonds greater than 1,000 carats. And I just want to say, it's a real testament to the incredible nature of the Karowe orebody itself and, of course, the state-of-the-art technology that we have deployed to successfully recover these amazing diamonds without actually damaging them. The 1,758-carat diamond displays similar characteristics of size and shape to our other large diamond recoveries, including the Lesedi. And what we're most excited about and which unfortunately doesn't necessarily come across well on the photos is the fact that there are significant domains within the stone that appear as clean, white material, including what we believe may comprise a kernel stone that could be as large as 350 to 400 carats. Further analysis of this diamond is ongoing.

By way of an update, our previous plus 1,000-carat diamond recovery, the infamous Lesedi La Rona, has now been polished and has yielded a stunning 302-carat diamond that is the largest, highest color, highest clarity diamond ever certified by the GEA -- GIA, rather.

Not surprisingly, then the recovery of these types of large, high-value diamonds in excess of 10.8 carats is really what's driving our revenue. Since 2012, we have recovered 181 diamonds larger than 100 carats and 13 in excess of 300 carats.

The recovery of these exceptional diamonds has, of course, motivated us to evaluate the potential for expanding the Karowe mine beyond the current open pit mine life of 2026 by going underground. Our feasibility study continues on schedule and on budget with anticipated delivery in the second half of the year.

As a reminder, a key consideration and value driver and the study relates to the fact that the geological unit, referred to as the EM/PK(S) which is shown in purple on the slide, becomes volumetrically more dominant as we mine deeper in the orebody. This is important because the EM/PK(S) is higher grade than the M/PK. And we now know it is the source of our largest diamonds, including the 813-carat constellation, which sold for a record $63 million and both of our plus 1,000-carat diamonds.

Our second organic growth project is Clara, a secure digital diamond sales platform that has the potential to completely transform how diamonds are sold, creating efficiencies and unlocking value and finally and importantly, also providing assurance on diamond provenance from mine to finger.

In the first quarter of 2019, we did conduct 2 sales bringing the total number of sales undertaken on Clara to 3, with the total value of over $2 million. But what's really important is the fact that as we are going through the sales process sale-by-sale, we are increasing participation on the platform and the breadth of the product that we are selling. So this is demonstrating very good progress, as we've said, all the way along. We're really trying to manage the balance of supply and demand on the platform. And as our manufacturers gain experience, we expect that this will start to pick up quite dramatically. It is our intention to add third-party supply to the platform before the end of the year.

And now, I would like to turn it over to Zara Boldt, our CFO, to run through some financial highlights from the quarter.

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Zara E. Boldt, Lucara Diamond Corp. - CFO & Corporate Secretary [3]

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Thanks, Eira. Good morning, and good afternoon. I will now take us through some of the highlights from our first quarter results, which are all reported in U.S. dollars. Q1 2019 was characterized by continuation of the strong operating performance observed during the latter half of 2018.

Looking at our financial highlights on Slide 15, we achieved revenues of $48.7 million or $512 a carat from the sale of over 95,000 carats, about 50% more carats sold as compared to the same period in 2018. A significant portion of those carats were in the smaller size classes and are being recovered following a number of operational improvements made to the plant over the last 18 months.

As we have previously stated, a significant portion of our revenue comes from the sale of gem-quality single stones in excess of 10.8 carats. Included in the quarterly sales revenue from the 3 months ended March 31, 2019, are proceeds from the sale of 2 diamonds in excess of 100 carats and 2 diamonds in excess of 200 carats.

A total of 7 diamonds sold for more than USD 1 million each, including 4 diamonds which sold for an excess of $3 million each. The 240-carat top white diamond achieved a sales price of $8.1 million.

During 2018, we moved to a blended tender process. This has resulted in a smoother revenue profile as compared to previous quarters. We reiterate our 2019 guidance of USD 170 million to USD 200 million in revenue.

Adjusted EBITDA for the quarter was $23.4 million after operating expenses of $16.1 million. We achieved a strong operating margin of $343 a carat or 67%, driven by significant increase in carats recovered.

As expected, for 2019, following the substantial completion of the waste stripping campaign in 2017 and 2018, the operating cost per tonne processed has decreased.

During the first quarter, our operating cost per tonne processed was $30.52, slightly below our guidance for the year of $32 to $37 per tonne processed. The lower cost this quarter was driven by higher volume of ore processed. Of note, a record 763,000 tonnes of ore was processed, this was the best quarter in Karowe's history, and a lower volume of waste was mined. Operating cost per tonne processed includes working capital increases of $2.9 million and $4.3 million for our rough diamond and ore stockpile inventories, respectively.

Net income of $7.4 million or $0.02 per share was consistent with our expectations for the quarter.

Moving now to Slide 16, which shows some of the operational highlights from the first quarter. Our operating performance in the first quarter was strong and is tracking well to our 2019 guidance.

During the quarter, we processed a record 763,000 tonnes of ore, and we recovered over 132,000 carats, including just under 11,000 carats recovered from reprocessing historic recovery tailings from previous milling.

This resulted in a recovered grade of 15.9 carats per 100 tonnes processed. Ore processed during the quarter was a blend from the North, Central and South lobes. We recovered 170 Specials during the quarter, including 7 diamonds greater than 100 carats in weight. These recoveries are consistent with our expectations.

We mined about 3.5 million tonnes during the quarter, of which just over 1 million tonnes was ore and the balance of 2.5 million tonnes was waste. The volume of ore mined during the first quarter was higher than expected due to resource gains in the North lobe that offset planned waste stripping. As a result, we did not capitalize any waste stripped during the quarter.

Total ore and waste mine volumes are expected to be within our guidance for the year, although the number of ore tonnes mined is likely to be at the higher end of guidance, which is 2.8 million tonnes. Waste tonnes mined is tracking well to be within our guidance of between 6 million and 9 million tonnes for 2019. Due to the higher volume of ore mined during the quarter, we expect that the strip ratio will be near or below the life of mine average of 2.46.

Our cash cost per tonne mined is also tracking well within our expectation of $4 to $4.50 per tonne.

Turning briefly to Slide 17. We see our 2019 outlook repeated. We are tracking well to this guidance. And with the exception of the strip ratio, which we expect will likely be lower, we are not making any adjustments to the 2019 guidance at this time.

So to wrap up, Lucara is a high-margin diamond producer. We are -- our Karowe mine is located in Botswana, which is a low-risk jurisdiction, it's a very good place to do business. We have a strong balance sheet. We have open-pit mine and mineral reserves to 2026 with the potential for underground to at least 2036. And we are looking at asset diversification and additional revenue streams through Clara.

At this point, I'll turn it back to Eira. Thanks very much, everyone.

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Eira Margaret Thomas, Lucara Diamond Corp. - Founder, President, CEO & Director [4]

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Thanks you very much, everyone, and I think we would like to open the floor to any questions. As a reminder, we do have other members of our executive team in attendance. I am also pleased to welcome our Managing Director from Botswana, Naseem Lahri and our General Manager of the Karowe Diamond mine, Jo Mchive, who are both in the room and available for questions as well.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Geordie Mark of Haywood Securities.

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Geordie Mark, Haywood Securities Inc., Research Division - Co-Head Mining Research [2]

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It looks like a very successful quarter for processing and costs and obviously the recovery of a very large stone, they -- show as well for EM/PK(S). Just some questions, if I may. In terms of the higher throughput, do you expect that to continue, and any particular nuances around why it had greater throughput in that quarter?

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John P. Armstrong, Lucara Diamond Corp. - VP of Technical Services [3]

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Yes, thanks, Geordie, for the question. In terms of the higher throughput, I mean one of the focuses of the operational team has been to improve overall plant utilization, and we're seeing that in terms of the tonnes going through the plants. And we anticipate to keep that good work up and try and get as many tonnes into plant as possible. With respect to the recovered grade, basically the recovered grade, that was -- I think, that was part of the question, basically, we did put through the plants, as planned, a little more material from the North and Centre lobe, which obviously are a little higher grade than South lobe. And we've also seen that we're getting more and more comfortable with the new resource model that came out in 2018. And we're seeing higher mining cost factors than we saw previously, which is good. We've seen improvements in the fine diamond recovery as a result of the final commissioning and execution of the 40-millimeter sub-middles XRT circuit. So we're seeing improvements in the overall recovered grade for us, there's a number of factors that play into that. We also anticipate that will continue going forward.

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Geordie Mark, Haywood Securities Inc., Research Division - Co-Head Mining Research [4]

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And maybe an extension on that one. With recovery of the plus 1,700-carat stone, are you seeing any greater confidence in the SFD for EM/PK(S) or would you sort of remodel that, given what you're seeing now versus the bulk sample before?

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John P. Armstrong, Lucara Diamond Corp. - VP of Technical Services [5]

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It's a good question. So basically, what we're in the process of doing, as part of the feasibility study, is looking to upgrade the -- from an inferred to indicated, the material between 400 and 300 meters above sea level. So at the bottom of our current indicated resource. And as part of that exercise, we'll reexamine the size distribution model for the EM/PK(S). In terms of the confidence in the size distribution model that we're currently using for the South lobe, I would say that I'm extremely confident in that size distribution model and what we're achieving out of the resource.

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Geordie Mark, Haywood Securities Inc., Research Division - Co-Head Mining Research [6]

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Okay. Great. Maybe one last question there, for Clara. It's increasing breadth of product being released and taken by stakeholders. Was there any particular selectivity there that they're looking at? Or are they looking at other parts of the size quality curve and anywhere in particularly looking for growth for obviously buyers?

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Eira Margaret Thomas, Lucara Diamond Corp. - Founder, President, CEO & Director [7]

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Yes, we can. I mean, Geordie, we're at the stage right now where we're starting to open up and invite other -- participation from other manufacturers on to the platform to increase demand that will internally allow us to start putting additional supply onto the platform. But what's been really critical over the first few sales is for us to generate and incorporate feedback from the first 3 sales. We've now got sort of version 2.0 of the platform, if you will, based on feedback from our customers, which has been very positive. And so we've made slight adjustments to make it more user-friendly. But what we're generally finding with our customers, first of all, every manufacturer that participated in the first sale has participated in each subsequent sale. And each time they participate, they increase the breadth of their order. So the way I would characterize this is everyone is starting now with dipping their toe in with modest orders to see how it works, they have a good experience, they come back and order more and they order a broader variety of polished. So it's going very, very well. It's progressing exactly at the pace we would expect it to be or would want it to be progressing. And again, as the confidence builds and people get more comfortable, our view is this will lead to a kind of hockey stick kind of adoption at some point. And what's really critical for now and for the remainder of the year is, as we work to build up participation, is that we are managing supply and demand very, very closely. And I don't know if that completely answers your question.

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Operator [8]

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Your next question comes from Scott Macdonald with Scotiabank.

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Scott Macdonald, Scotiabank Global Banking and Markets, Research Division - Associate Analyst [9]

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Congrats on a very nice quarter at the mine. So few questions for me, a couple quick ones to start maybe. The large stone, the 1,758, are you going to sell that in the -- with the regular sale in Q2, or is that going to be done separately?

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John P. Armstrong, Lucara Diamond Corp. - VP of Technical Services [10]

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Thanks, Scott, for the question. We -- at this point in time, for the 1,758, there's been a lot of discussion about what to do with that particular stone. And I think that for everyone's benefit, we'll just spend a little bit time analyzing what we see the value in that stone to be, and we are in no rush to monetize that diamond at the moment.

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Scott Macdonald, Scotiabank Global Banking and Markets, Research Division - Associate Analyst [11]

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So not going to be in the Q2 sale, might be in a later sale, but still to be determined, it sounds like. Okay.

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John P. Armstrong, Lucara Diamond Corp. - VP of Technical Services [12]

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Correct.

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Scott Macdonald, Scotiabank Global Banking and Markets, Research Division - Associate Analyst [13]

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Also the -- so I noticed you were reprocessing some tailings this quarter. Just curious what the rationale was for putting tailings through rather than stockpiles or other ore?

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John P. Armstrong, Lucara Diamond Corp. - VP of Technical Services [14]

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Well, to be clear, the reprocessing of the recovery tailings did not displace any fresh feed to the plant, to be 100% clear on that. We undertook that exercise, and we've done it previously, it's just to get an understanding of how the overall plant is running in terms of efficiencies. And we have set up recovery tails that is independent of anything going to the plant, and it's just basically an audit purpose, as I said, to understand how we're doing in terms of efficiency in the plant and it's strictly that. And we take the learnings from that and improve our overall process.

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Scott Macdonald, Scotiabank Global Banking and Markets, Research Division - Associate Analyst [15]

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Okay. Then just for Eira, on Clara, it sounds good that you're getting continuous and increased participation from the manufacturers with more breadth, but just in terms of dollar volume, it doesn't look like you've tried to step it up too much as yet. Just wondering when do you sort of see it ramping up in terms of the transaction volume on the platform? Or any kind of color you can provide there? I know it's kind of a fluid situation, but anything you can...

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Eira Margaret Thomas, Lucara Diamond Corp. - Founder, President, CEO & Director [16]

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Yes. Listen, Scott, I appreciate the question, and I think as we've tried to kind of articulate in the past is 2019, and we are intending to ramp up and commercialize the platform using our own production. We were not anticipating any revenues for Clara in 2019. And so we are actually very pleased with the performance of Clara so far. And what's really critical for us is just to manage that ramp up. So we're not in a position right now where we can guide accurately on how quickly that will happen. But as I said on Geordie's earlier question, what's really encouraging to us is the fact that we have repeat customers, we're getting very positive feedback and each time they come back, their order book increases. So we're very confident that this is working for the manufacturers. And so our efforts now are twofold; to continue to build the order book with our existing manufacturing partners; but also now we are ready to take on additional manufacturers, and so the team is actively working to onboard other manufacturers and that will then allow us to add third-party production. So it can ramp up pretty quickly once we kind of kick start it to that next level, but what's critical for us right now is not about volume, it's about experience and feedback and making sure that the platform is working well with all of our manufacturing partners, and that will ensure much greater success and widespread adoption as we get to the next phase. So we will continue to guide, but at this stage, I can't give you a more detailed kind of schedule.

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Scott Macdonald, Scotiabank Global Banking and Markets, Research Division - Associate Analyst [17]

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Okay. So for now, like do you anticipate kind of doing around 2 discrete sales per quarter for the time being or do you have any more sense of when you guys will move to a more continuous...

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Eira Margaret Thomas, Lucara Diamond Corp. - Founder, President, CEO & Director [18]

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No. Listen, I think that we anticipate a faster pace than that. And you will see the frequency of those sales increase towards the end of the year.

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Scott Macdonald, Scotiabank Global Banking and Markets, Research Division - Associate Analyst [19]

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Okay. But the move to continuous sales, you think that will sort of happen concurrently with an increase in volume, like what's bringing on more users to the platform, or is that -- do you think you need probably a bit more scale in order to get to continuous sales?

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Eira Margaret Thomas, Lucara Diamond Corp. - Founder, President, CEO & Director [20]

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Yes. And we will get there.

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Operator [21]

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Your next question comes from Geordie Mark, Haywood Securities.

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Geordie Mark, Haywood Securities Inc., Research Division - Co-Head Mining Research [22]

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Just a follow-on question for EM/PK(S). Just give us a feel in terms of Q1 versus 2019 of the percentage of material that was processed and then sold from EM/PK(S) in Q1 versus what the expectation is the average for 2019?

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John P. Armstrong, Lucara Diamond Corp. - VP of Technical Services [23]

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Okay, Geordie, I guess I'm not going to satisfy your question 100%. Overall, when we look at the achieved price at $500 -- $512 a carat for the first quarter sale, is 100% in line with the blend of material that we processed and we prepared for sale with the mix between the 3 lobes. We -- in terms of our mine plan going forward, we try and ensure that in every quarter we get some of the EM/PK(S) through the plant, but that's all in line with our mine plan. We don't make any attempts to seek out or chase after the EM/PK(S) at the expense of -- at the mine plan. And I think going forward, it's going to be -- the blend of goods that we saw in the first quarter is what we anticipate doing through the remainder of the year, maybe with little more focus on the South lobe material. In the first quarter, we did process more from the North and the Centre because of the mining gains in that particular part of the pipe.

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Geordie Mark, Haywood Securities Inc., Research Division - Co-Head Mining Research [24]

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Okay. And obviously with the change in the cutoff size down, do you have an idea of order of magnitude of the revenue per tonne gained from that change in cutoff?

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John P. Armstrong, Lucara Diamond Corp. - VP of Technical Services [25]

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We didn't change the cutoff. The cutoff has always -- the bottom cutoff size has remained 1.25 millimeters. What we've seen is basically an improvement in diamond recovery through the DMS plant because we're seeing finer, or a more restricted size range when we queue there, and we've seen some improvements in -- with the 40-millimeter XRT circuit. So in terms of dollar per tonne, I don't have a specific number to provide you. We're seeing a gain in carats at no expense. We're seeing sort of little more moderate uptick in revenue from those goods. And in the -- and basically also to be clear on this, is that we get a gain in revenue and we do get a bit of a knock on the average price per carat, but the focus should be on the bottom line revenue number.

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Operator [26]

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Your next question comes from Paul Zimnisky of PZDA.

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Paul Zimnisky, [27]

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Congrats on a really nice quarter. I guess regarding the strong production performance, John alluded that it's multivariate. I guess, how much of the improvement can be attributed to the new mining contractor versus recovery efficiencies due to XRT, and then the quality of the ore you had to break it down?

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John P. Armstrong, Lucara Diamond Corp. - VP of Technical Services [28]

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I think the -- we'll handle that in, I guess, 3 parts. The transition to Trollope to be the mining contractor for both ore and waste movement out of the pit has been -- was quite smooth through last year. And basically it's down to Jo and his team on site in terms of driving efficiencies with the mining contractor to hit our targets. And as was mentioned earlier in the call, we did see mining gains in the resource in the North and Centre lobe, which drove some of the improved movement of the ore out of the pit. In terms of the overall improvement in grade and things like that, like I answered with Geordie, it is an overall improvement in some diamond recovery in the final part of the curve due to better efficiencies in the plant. And then with the XRT circuit, as it sits, I mean, we commissioned the first XRT circuit in 2015 and then through latter part of 2017, we commissioned the 40 circuit. I think that overall, we're extremely pleased with what we're seeing come out of that circuit. There's been no change to the size distribution model. We're getting all the diamonds that we anticipated getting from the previous work. And we're working with TOMRA to basically improve that circuit as best we can to improve our diamond recovery in all the size ranges that we're processing. And I think that with the recovery of the 1,758-carat diamond, it demonstrates that the circuit works, that we can get material out of there, unbroken, and we can get -- we can produce diamonds that are up to plus 80 millimeters in 1 dimension and 65 millimeters in the other dimension. That diamond weighs 352 grams. I mean, it's quite an achievement to recover something like that, our second plus 1,000-carat diamond. So that circuit is performing as designed and as envisioned, and we look forward to improving it.

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Eira Margaret Thomas, Lucara Diamond Corp. - Founder, President, CEO & Director [29]

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And Paul, maybe I will just add one comment about, and just to reiterate, the emphasis on operational excellence, we have a very strong team at the mine under the leadership of Jo and Naseem. And that has been really driving a lot of the operational improvements that we've been experiencing.

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Paul Zimnisky, [30]

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That's wonderful. Congrats. And then I guess, you didn't raise production volume guidance? Is this just you're being conservative or is a reduction in relative production on a quarterly basis expected for the remainder of the year?

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Zara E. Boldt, Lucara Diamond Corp. - CFO & Corporate Secretary [31]

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I think, Paul, we've had a good quarter, and we expect that to continue. So I think, we'll evaluate that after the second quarter and provide an update at that time.

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Operator [32]

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(Operator Instructions)

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Eira Margaret Thomas, Lucara Diamond Corp. - Founder, President, CEO & Director [33]

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Operator, I think we had a question that came in online just asking about Clara's suppliers and whether or not we could say much more about that? We are under NDA, nondisclosure agreements, with all of our customers that are currently buying on Clara. So for our customers, we really have targeted, at the outset, the largest integrated manufacturing and jewelry houses. We are trying to open that up now to different manufacturing businesses as well. And then on the supply side, we are talking to a wide variety of producers and really actually getting some very good traction with some of our fellow producers. And of course, the opportunity, as a producer, is to try Clara. You don't have to change the way you sell your diamonds overnight. We are extending an invitation for our producers to take a portion of their goods and sell them to Clara and compare and see how they do compared to their traditional sales processes. So we are getting good traction, and there's lots of interest and really it's about making sure that we've got adequate demand at the time that we add third-party volume onto the platform.

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Operator [34]

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We have no further questions on the line at this time, please proceed.

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Eira Margaret Thomas, Lucara Diamond Corp. - Founder, President, CEO & Director [35]

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Okay. Well, thank you very much for joining Lucara's Q1 call. And everybody, have a great day and a great weekend. Thank you.

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Operator [36]

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Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.