LUCARA ANNOUNCES RESULTS FOR THE FIRST QUARTER OF 2021 WITH STRONG FINANCIAL AND OPERATIONAL PERFORMANCE

Lucara Diamond Corp. (“Lucara” or the “Company”) today reports its results for the first quarter of 2021 ending March 31, 2021, with strong financial and operational performance.

HIGHLIGHTS:

• Revenue of $53.1 million or $579 per carat sold in Q1 2021, 56% higher than Q1 2020. This includes diamonds sold through a combination of regular tenders, Clara, and through HB Antwerp (“HB”) under the supply agreement announced in July 2020.
• Q1 2021 total operating cash costs of $29.24 per tonne processed(1), 7% lower than Q1 2020.
• Adjusted EBITDA(1) in Q1 2021 of $22.2 million, marking a return to higher levels of operating margin.
• Extension of the Karowe mining license for a period of 25 years to 2046, marking a critical step in the advancement of the Karowe underground expansion project.
• Specials recovered (+10.8 carats) equated to 6.8% weight percentage of total recovered carats.
• In January 2021, the Company announced the recoveries of two, top white gem quality diamonds (341 carats and 378 carats) from ore sourced from the M/PK(s) unit within the South Lobe. Both stones were recovered unbroken.
• In April 2021, Lucara announced the 24-month extension of its novel supply agreement with HB, in respect of all diamonds produced in excess of 10.8 carats in size, from the Karowe mine, to be sold as polished.
• In May 2021, Lucara received credit approved commitments from a syndicate of five international lenders for a senior secured project financing debt package of up to $220 million to fund an underground expansion at the Karowe Mine in Botswana.

(1) See Non-IFRS measures

Eira Thomas, President & CEO commented:

“Lucara has bounced back in the first quarter of the year, demonstrating its resiliency at a time of continued uncertainty in respect of the ongoing COVID-19 pandemic. Our solid performance in the first quarter reflects a stronger business environment, Lucara’s continued focus on operational discipline and our innovative approach to sales. We also made significant progress towards the completion of a supplemental debt financing package with credit approved commitments received from five international lenders, in support of our plans for underground expansion. Our outlook for the diamond market remains strong, and with close to 20 years of future mining now ahead of us at Karowe, Lucara is highly levered to an improving diamond price environment, particularly in respect of large, high value gem diamonds, the hallmark of Karowe’s production profile.”

REVIEW FOR THE THREE MONTHS ENDED MARCH 31, 2021

• Operational highlights from the Karowe Mine included:
  • Ore and waste mined of 1.1 million tonnes and 0.8 million tonnes, respectively.
  • 0.67 million tonnes of ore processed resulting in 80,014 carats recovered, achieving a recovered grade of 11.9 carats per hundred tonnes.
  • 188 Specials (+10.8 carats) were recovered from direct milling during the first quarter, representing 6.8% weight percentage of total direct milling recovered carats, in line with resource expectations.
  • 2 diamonds were recovered greater than 300 carats in weight and 2 diamonds were recovered greater than 200 carats in weight.
• Financial highlights for the three months ended March 31, 2021 included:
  • The Company recorded net income of $3.4 million during Q1 2021 (earnings per share of $0.01), as compared to a net loss of $3.2 million for Q1 2020 (loss per share of $0.01).
  • Adjusted EBITDA(1) was $22.2 million as compared to adjusted EBITDA of $8.1 million for the same period in 2020.
  • The value of the rough diamonds transacted through the Clara platform in Q1 2021 was $6.0 million over six sales, double the $3.0 million transacted on the platform in Q1 2020. Strong price increases have been observed in each of the sales conducted since the beginning of the year.
  • As at March 31, 2021, the Company had cash and cash equivalents of $27.9 million, an increase of $23.0 million from December 31, 2020 and net debt of $22.2 million. Following the quarter-end, on May 5, 2021 the Company’s $50 million working capital facility was extended with Rand Merchant Bank, a division of FirstRand Bank Limited, London Branch.

(1) See Non-IFRS measures

DIAMOND SALES

Diamond sales in Q1 2021 were held through a combination of regular tenders, and the Clara platform, for diamonds less than 10.8 carats, and through HB under the supply agreement for those diamonds greater than 10.8 carats. The Company recognized revenue of $53.1 million or $579 per carat from the sale of 91,760 carats. Price recovery was observed in most size and quality classes. Included in this amount is variable consideration of $9.1 million which relates to “top-up” payments which arise from polished diamond sales in excess of the initial planned value paid to Lucara. Beginning in Q2 2020, all +10.8 carat diamonds mined from Karowe were sold to HB pursuant to the terms of the diamond supply agreement described below.

HB SUPPLY AGREEMENT FOR +10.8 CARAT DIAMOND PRODUCTION FROM KAROWE

Karowe’s large, high value diamonds have historically accounted for approximately 60% to 70% of Lucara’s annual revenues. Though the mine remained fully operational following the declaration of COVID-19 as a global pandemic, Lucara made a decision not to tender any of its +10.8 carat production after early March 2020 amidst the uncertainty caused by the global crisis and the significant weakness observed in the rough diamond market. The polished diamond market performed better through this period and subsequently, in July 2020, Lucara announced a groundbreaking partnership agreement with HB, entering into a definitive supply agreement for the remainder of 2020, for all diamonds produced in excess of +10.8 carats from our 100% owned Karowe Diamond mine in Botswana. This agreement was subsequently extended for a 24 month period, from January 1, 2021 to December 31, 2022.

Under the supply agreement with HB, Lucara’s +10.8 carat production is being sold at prices based on the estimated polished outcome of each diamond, determined through state of the art scanning and planning technology, with a true up amount payable to Lucara on actual achieved polished sales in excess of the initial estimated polished price, less a fee and the cost of manufacturing. This unique pricing mechanism delivers regular cash flow for this important segment of our production profile.

Revenue from stones delivered to HB in 2020 will continue to be recognised in 2021 as polished diamonds are sold, and “top-up” payments are realised.

CLARA SALES PLATFORM

With global restrictions impeding travel for many diamond manufacturers, interest in Clara, Lucara’s proprietary, secure, web-based digital sales platform, grew significantly in 2020 and that positive momentum continued through Q1 2021. Six sales were held in the first quarter with total sales volume transacted of $6.0 million, more than double the volume from the comparable period in 2020. Encouragingly, Clara also observed consistent price increases at each subsequent sale throughout the period. The number of buyers on the platform increased to 80 and the Company is maintaining a waiting list to manage supply and demand. Discussions continue with third party sellers to build supply.

KAROWE UNDERGROUND EXPANSION UPDATE

During Q1 2021, the Company spent $9.9 million on project execution activities for the Karowe underground expansion, including shaft and geotechnical engineering, surface infrastructure, dewatering and power line engineering and procurement. Site construction work commenced early in the quarter and in March the production and ventilation shaft box cuts were drilled and blasted to bulk excavation elevations. A significant amount of time and effort was also spent on due diligence related to technical, environment and social matters as part of ongoing project financing efforts.

This follows the $18.7 million spent on project execution activities in 2020 including: site earthworks, geotechnical test pitting and drilling, power line engineering, and works on the shaft design and engineering. In Q4 2020, the Government of Botswana (“GRB”) approved the proposed powerline route and granted a 25-year extension to the Karowe Mine License to 2046, sufficient to cover the remaining open-pit life (to 2026) and the expected life of the proposed underground expansion, currently planned to 2040.

In March 2021, a mandate for a senior secured project financing package of up to $220 million (the “Mandate”) to fund the underground expansion at Karowe was executed with a syndicate of five international financial institutions, including ING Bank N.V., Natixis, Societe Generale, London Branch, Africa Finance Corporation and Afreximbank (collectively, the “MLAs”). The formal Mandate included a non-binding indicative term sheet for debt facilities of up to $220 million (the “Facilities”). In May 2021, Lucara received credit approved commitments for a senior secured project financing debt package of up to $220 million from the MLAs. Closing of the Facilities is targeted to be mid-2021, with financing in place for the second half of 2021. The receipt of credit approved commitments is a key milestone in the project financing process for the Karowe underground expansion, which has an estimated capital cost of $514 million and a five-year development period. The balance of development capital is expected to come from operating cash flow generated by open pit operations at Karowe during the development period. Detailed due diligence is expected to be concluded in the near term. Financial closing of the Facilities is subject to satisfactory completion of definitive documentation, and satisfaction of certain terms and conditions, including appropriate KYC checks.

An investment decision, subject to receipt of all required authorizations and the arrangement of financing, is expected in H2 2021. Total expenditures on the underground project in 2021 are expected to be $105 million. Until financial close of the Facilities is complete and an investment decision is made, a limited amount of funding has been approved for H1 2021, based on the Company’s ability to fund the initial capital expenditures from operating cash flow. Similar to the 2020 program, the 2021 program will focus on early works, including detailed engineering and design work, with the objective of mitigating key risks related to the development schedule.

DIAMOND MARKET

The diamond market began 2021 in a healthier position than it has at any stage over the past five years, resulting in increasing price performance in virtually all sizes and quality of diamonds in Q1 2021. This follows a challenging year in 2020 as a result of the global COVID-19 pandemic, characterized by global travel restrictions, low sales volumes, pricing pressure and overall, difficult economic conditions for miners, manufacturers, retailers and consumers.

During Q1 2021, the diamond market remained buoyant following a strong holiday sales period, particularly in China and the United States. Careful rough diamond supply management by the producers has also helped to re-balance polished diamond inventories and stabilize the market overall. COVID-19 remains a key concern, however, even as vaccination programs are being rolled out in many countries around the world. India, a major manufacturing centre for diamonds, is of particular concern heading into the second quarter as infection rates have increased dramatically, resulting in new lock-down measures.

UPDATE ON COVID-19 RESPONSE

Measures and guidelines implemented by the GRB in late March 2020, and the current state of emergency in Botswana, has still allowed for the Karowe Mine to remain fully operational throughout the pandemic as mining has been designated an essential service in Botswana. The current state of emergency has been extended and currently the published end date is September 30, 2021.

The Company continues to operate under its approved crisis management plan, designed to protect the health and well-being of our employees in Botswana and Canada as well as the financial well-being of the business. The Company has permission to conduct COVID-19 testing at our operations in Botswana and active testing of the workforce began in January 2021. Regular health screening, temperature checks and the use of infrared measurements are also a routine part of the operations.

News in full

In the TV clip below, Lucara’s CEO Eira Thomas explains the business, including the deal with Louis Vuitton and tells us more about Clara, Lucara’s wholly owned digital sales platform