0QUI Lucara Diamond Corp

May 9, 2024

NEWS RELEASE

LUCARA ANNOUNCES Q1 2024 RESULTS; PROGRESS ON UNDERGROUND EXPANSION 

VANCOUVER, May 9, 2024 /CNW/ (LUC - TSX, LUC - BSE, LUC - Nasdaq Stockholm)

Lucara Diamond Corp. ("Lucara" or the "Company") today reports its results for the quarter ended March 31, 2024. All amounts are in U.S. dollars unless otherwise noted.

Q1 2024 HIGHLIGHTS:

·      The Karowe Mine has operated continuously for over three years without a lost time injury.

·      The recovery of a 320-carat top light brown gem quality diamond, a 166-carat Type IIa diamond, followed by the recovery of a 111-carat Type IIa diamond in Q1 2024.

·      In January 2024, the successful execution of an amended project financing debt package of $220 million (the "Rebase Amendments") to amend the repayment profile in line with the rebase schedule released in July 2023 for the Karowe Underground Project ("Karowe UGP").

·      On February 18, 2024, the Company announced the signing of a new ten-year diamond sales agreement ("NDSA") with HB Trading BV ("HB") in respect of all qualifying diamonds produced in excess of 10.8 carats from the Karowe Mine.

·      Total revenue of $41.1 million (Q1 2023: $42.8 million) was achieved in the quarter which is reflective of a combination of the timing of production and quantity of large goods recovered and delivered to HB.

·      During Q1 2024, a total of 93,560 carats of rough diamonds (Q1 2023: 83,374) from Karowe were sold through the Company's three sales channels, generating revenue of $36.2 million before top-up payments of $4.9 million (Q1 2023: $34.7 million before top-up payments of $6.6 million).

·      Operating cost per tonne processed⁽¹⁾ was $26.00, a decrease of 2% over the Q1 2023 cost per tonne processed of $26.65. The continued impact of inflationary pressures, particularly labour, has been well managed by the operation. A strong US dollar (+5%) continues to offset a small increase in costs over the comparable period.

(1) See "Non-IFRS Financial Performance Measures"

William Lamb, President & CEO commented: "Our Karowe diamond mine delivered another solid operational quarter, continuing its track record of sustainable diamond production from this world-class asset. The Company's high-value diamond production forecast remains robust, underpinned by our focus on operating practices aligned with leading environmental, social and governance standards.

Work on the underground expansion project at Karowe also progressed well during the quarter. This key growth initiative remains on track with the rebase schedule and budget, positioning us to access the higher-value ore from the underground portion of the ore body, early in 2028.

While the diamond market remained relatively stable in Q1, we observed some cautious sentiment due to the broader macroeconomic climate of high inflation and interest rates impacting consumer demand in certain regions. However, the fundamental supply and demand dynamics continue to favour natural diamonds over the long-term as new mine supply remains constrained.

Lucara is well-positioned with our exceptional diamond production profile and our innovative process facilities and sales mechanisms to navigate this environment. We will continue executing our growth strategy while maintaining financial discipline to create sustained value for all our stakeholders."

REVIEW FOR THE QUARTER ENDED MARCH 31, 2024

·      Operational highlights from the Karowe Mine for Q1 2024 included:

o  Ore and waste mined of 0.8 million tonnes ("Mt") (Q1 2023: 0.5Mt) and 0.2 million tonnes (Q1 2023: 0.8Mt), respectively.

o  0.7 million tonnes (Q1 2023: 0.7Mt) of ore processed.

o  A total of 89,145 carats recovered, including 7,534 carats from the processing of historic recovery tailings, (Q1 2023: 89,640 carats) at a recovered grade of 11.7 carats per hundred tonnes ("cpht") of direct milled ore (Q1 2023: 12.8 cpht).

§ A total of 160 Specials (defined as stones larger than 10.8 carats) were recovered, with three diamonds greater than 100 carats including one diamond greater than 300 carats. 

§ Recovered Specials equated to 5.1% of the total recovered carats from direct milling ore processed during Q1 2024 (Q1 2023: 4%).

o The Karowe Mine has operated continuously for over three years without a lost time injury.

o The twelve-month Total Recordable Injury Frequency Rate of 0.30 (Q1 2023: 0.36) at the end of Q1 2024 reflects a continued focus on leading indicators and safe performance. 

·      Financial highlights for the three months ended March 31, 2024 included:

o Revenues of $41.1 million (Q1 2023: $42.8 million) were achieved despite a weaker rough diamond market. First quarter pricing stabilized in smaller goods and increases of 4% were observed compared to the fourth quarter of 2023. Revenue reflects the weighting of Lucara's revenue towards larger goods where pricing is heavily impacted by the individual goods delivered in a period. A 33% increase in the average price of larger goods sold was observed from the fourth quarter of 2023 and 18% from the first quarter of 2023. The price of goods in this size category are significantly impacted by the natural variability in quality of the recovered goods in any individual period. Revenue against plan was impacted by the quantity of larger goods delivered in Q1 2024.

o Operating margins of 51% were achieved (Q1 2023: 57%). A strong operating margin continues to be achieved through cost reduction initiatives assisted by a strong U.S. dollar.

o Adjusted EBITDA⁽¹⁾ was $12.7 million (Q1 2023: $15.3 million), with the decrease attributable to the changes in revenue and operating expenses.

o Net loss was $7.9 million (Q1 2023: net income of $1.0 million), resulting in a loss per share of $0.02 (Q1 2023: earnings of $0.00). The significant change to a net loss is due to the loss on extinguishment of debt of $10.5 million incurred in Q1 2024 in conjunction with recognizing the amendments to the  debt package.

o Cash outflows from operating activities was $4.2 million (Q1 2023: cash flow generated of $20.4 million). Operating cash flow per share⁽¹⁾ generated, before working capital adjustments, was consistent at $0.03 (Q1 2023: $0.03)

·      Cash position and liquidity at March 31, 2024:

o Cash and cash equivalents of $13.2 million.

o Working capital deficit (current assets less current liabilities) of $0.3 million.

o Cost overrun account balance ("CORA") of $37.0 million.

o $140.0 million drawn on the $190.0 million Project Loan ("Project Loan") for the Karowe UGP.

o $25.0 million drawn on the $30.0 million working capital facility ("WCF").

o The total debt drawn at the end of Q1 2024 was $165.0 million compared to $125.0 million at December 31, 2023.  The increase in debt drawn during Q1 2024 largely resulted as the Company did not have access to the Project Loan and WCF from June 2023 until January 2024 when the project finance debt package was finalized.

(1) See "Non-IFRS Financial Performance Measures"

DIAMOND MARKET

The long-term outlook for natural diamond prices remains positive, anchored on improving fundamentals around supply and demand as many of the world's largest mines reach their end of life.  In the short-term, De Beers, the largest diamond producer by value reduced their production guidance by up to 3.0 million carats, for 2024, to assist with stabilizing the diamond market. During the quarter, the G7 sanctions on the importation of Russian diamonds greater than one carat went into effect at the beginning of March and some trade delays were noted in the industry. The new procedures require all rough diamonds larger than 1.0 carat to be processed through the Antwerp World Diamond Centre for validation of point of origin.  The Company sees this as short-term support for diamond pricing as this, together with the reduction in production volumes from De Beers, will result in lower volumes of higher value goods being available in the market.

Sales of lab-grown diamonds increased steadily through 2023 and into Q1 2024 with many smaller retail outlets increasingly adopting these diamonds as a product. In Q1 2024, this market underwent further change with a number of major brands confirming that they would not market lab-grown stones. The overall long-term impact will support the natural diamond market as the Company expects a division between the natural and lab-grown diamond market. The longer-term market fundamentals for natural diamonds remain positive, pointing to continued price growth as demand is expected to outstrip future supply, which is now declining globally.

2024 OUTLOOK

This section of the press release provides management's production and cost estimates for 2024.  These are "forward-looking statements" and subject to the cautionary note regarding the risks associated with forward-looking statements. Diamond revenue guidance does not include revenue related to the sale of exceptional stones (an individual rough diamond which sells for more than $10.0 million), or the Sethunya. No changes have been made to the guidance released in November 2023.

(1) Operating cash costs are a non-IFRS measure.  See "Non-IFRS Financial Performance Measures".

The Company had expected higher diamond recoveries and diamond quality during Q4 2023 and Q1 2024.  This reflects the natural variability in the resource production in both recovery and diamond quality and were it to continue, this may impact revenue guidance for 2024. The Company has seen diamond recoveries and quality improve during April 2024.

DIAMOND SALES

Karowe diamonds are sold through three sales channels: through the HB sales agreement, on the Clara digital sales platform and through quarterly tenders.

HB SALES AGREEMENT FOR +10.8 CARAT DIAMOND PRODUCTION FROM KAROWE

For the three months ended March 31, 2024, the Company recorded revenue of $23.2 million from the HB arrangements (inclusive of top-up payments of $4.9 million), as compared to revenue of $24.5 million (inclusive of top-up payments of $6.6 million) for the three months ended March 31, 2023. The volume of carats delivered to HB was lower in the first quarter of 2024 than planned. The volume recognized as revenue in Q1 2024 was impacted by the timing of goods delivered as well as the number of stones greater than +10.8 carats recovered in the period. The plant performance remained strong with a 97% recovery factor achieved in Q1 2024; however, the weight percentage of recovered specials was lower than plan.

Recovered Specials for the quarter equated to 5.1% by weight of total recovered carats from ore processed during Q1 2024, with 89% of carats recovered coming from the South Lobe, 7% recovered from the Centre Lobe, and 4% recovered from mixed ore (Q1 2023: 4.0%; 64% Centre and North, 36% South Lobe ore). Natural variability in the quality profile of the +10.8ct stones in any production period or fiscal quarter results in fluctuations in recorded revenue and associated top-ups. 

The average price of goods delivered in the first quarter of 2024 remained strong and is directly comparable to the value delivered in the first quarter of 2023. Top-ups in the first quarter continue to be received from goods delivered in prior periods under the November 2022 diamond sales agreement with HB. As a result of these factors, revenue to HB was consistent at 57% of total revenue recognized in the first quarter of 2024 (Q1 2023: 57%). The product mix in Q1 2024 was predominantly from the South Lobe ore body, with some contribution from the Centre Lobe.

The Company had expected higher diamond recoveries and diamond quality during Q4 2023 and Q1 2024.  This decrease in both recovery and diamond quality contributed to the Company's additional working capital facility draw during the quarter.  Under the HB agreement payment for diamonds delivered under a value of $2.0 million is 60 days and for diamonds of value greater than $2.0 million is 120 days.  The Company has seen diamond recoveries and quality improve during Q2 2024, however due to the payment terms of the HB agreement these funds will not be received until Q3 2024 which has strained cash flows during Q2.  As a result, the Company drew $25.0 million from the project loan to fund its underground development.

The large stone diamond market fundamentals continued to support healthy prices from the multi-year highs observed at the peak in Q1 2022, despite an overall softening of demand in the market.

CLARA SALES PLATFORM

Total volume transacted on the platform was $4.9 million in Q1 2024 (Q1 2023: $5.3 million), with non-Karowe goods representing 33% of the total sales volume transacted. Prices trended flat during the first quarter of 2024 following a small uptick in pricing in December 2023 with a resumption of purchasing across most size categories. The number of buyers on the platform reached 106 as of March 31, 2024.

QUARTERLY TENDER

A total of 88,275 carats were sold in the Q1 2024 tender, generating revenues of $13.0 million or $147 per carat (Q1 2023 tender: $12.9 million from the sale of 77,750 carats or $166 per carat). Following a rebound in the fourth quarter of 2023, prices trended mostly flat across most size categories at tender. Like-for-like, prices were up 4% from December 2023 on all goods sold less than 10.8 carats, including on Clara.

KAROWE UNDERGROUND EXPANSION UPDATE

The Karowe UGP is designed to access the highest value portion of the Karowe orebody, with initial underground carat production predominantly from the highest value eastern magmatic/pyroclastic kimberlite (south) ("EM/PK(S)") unit. The Karowe UGP is expected to extend mine life to at least 2040.

On July 16, 2023, an update to the Karowe UGP schedule and budget was announced (link to news release). The anticipated commencement of production from the underground is H1 2028. The revised forecast of costs at completion is $683.0 million (including contingency). As at March 31, 2024, capital expenditures of $332.5 million had been incurred and further capital commitments of $64.4 million had been made. 

With the update, the Karowe Mine production and cash flow models were updated for the revised project schedule and cost estimate. Open pit mining will continue until mid-2025 and provide mill feed during this time. Stockpiled material (North, Centre, South Lobe) from working stocks and life of mine stockpiles will provide uninterrupted mill feed until late 2026 when Karowe UGP development ore will begin to offset stockpiles with high-grade ore from the underground production feed planned for H1 2028. The long-term outlook for diamond prices, combined with the potential for exceptional stone recoveries and the continued strong performance of the open pit could mitigate the modelled impact on project cash flows due to the changes in schedule. The Company continues to explore opportunities to further mitigate the modelled impact.

During the three months ended March 31, 2024, a total of $17.9 million was spent on the Karowe UGP development, surface infrastructure and ongoing shaft sinking activities. The following activities were completed during Q1 2024, including:

·      Main sinking in the production and ventilation shafts:

o  The ventilation shaft reached 426 metres below collar, with a planned final depth of 731 metres. The shaft is approximately 19 days ahead of the July 2023 schedule update (combined vertical and lateral metres).

o  The production shaft reached 449 metres below collar, with a planned final depth of 765 metres. The production shaft is approximately 15 days behind the July 2023 schedule update (combined vertical and lateral), with 9 days gained during the first quarter of 2024. The production shaft is not a critical path schedule item.

o  During Q1 2024, the first shaft stations at the 670-level were engaged in lateral development at 348 metres below collar (666 masl). The first lateral connection between the two shafts (670 level) was completed. Electrical and dewatering sump excavation was completed, and construction of equipment was carried out as a concurrent activity during shaft sinking.

o  During Q1 2024, the ventilation shaft sank 78 metres, completed three probe hole covers, continued the 670-level station development and replaced the initial winder kibble ropes. Total lateral development in Q1 2024 was 141 metres.

o  Production shaft activities included sinking a total of 101 metres, completion of four probe hole covers, lateral development on the 670-level station and replacement of the initial winder kibble ropes. A total of 26 metres of lateral development was completed.

o  Sinking and lateral development during the first quarter took place in the Thalbala mudstone and the Tlapana carbonaceous material. Water encountered in the core holes was derived from Granites. A mini grout cover was completed in the production shaft and sinking continued.

·      Construction of the permanent bulk air coolers at the production shaft continued with completion expected in Q2 2024. Planning for a surface dam for the water during production commenced.

·   Detailed engineering and fabrication of the permanent men and materials winder continued during the quarter, representing the last major component for the permanent winders.

·      Preparation of tender documents for the underground lateral development work.

·    Mining engineering advanced with a focus on supporting shaft sinking, underground infrastructure engineering and finalizing level plans.

·     During Q1 2024, the UGP achieved a twelve-month rolling Total Recordable Injury Frequency Rate of 0.65. Project to date Total Recordable Injury Frequency Rate at March 31, 2024 was 0.56. 

The capital cost expenditure for the underground expansion in 2024 is up to $100 million - see "2024 Outlook" below.

Activities planned for the Karowe UGP in Q2 2024 include the following:

·      Sinking within the ventilation and production shafts to the 470-level.

·   Sink through the Mea formation into Granites and commence 470-level station development and lateral development.

·      Planned cover drill campaigns in the ventilation and production shafts. Sinking planned for the second quarter will move through the Mea formation into the Granite lithologies. Probe hole grouting campaigns are planned in each shaft in the period.

·      Procurement of underground equipment, including an additional Load, Haul, Dump Aardvark for the production shaft station development. Major components of the Crusher and sinking pumps will be delivered to site.

·      Commissioning of the permanent bulk air cooler system.

·      Launch of the tender process for the underground lateral development work.

·      Continuation of detailed design and engineering of the underground mine infrastructure and layout.

·      Finalise engineering of the permanent men and materials winder. Commence earthworks for winder.

FINANCIAL HIGHLIGHTS - Q1 2024

 QUARTERLY RESULTS OF OPERATIONS - KAROWE MINE

ANNUAL MEETING INFORMATION

The Company's annual general and special meeting of shareholders will be held at the office of Blake, Cassels & Graydon LLP, 1133 Melville Street, Suite 3500, Vancouver, BC V6E 4E5, Canada on May 10, 2024 at 10:00 a.m. Pacific.

CONFERENCE CALL

The Company will host a conference call and webcast to discuss the results on Friday, May 10, 2024 at 6:00am Pacific, 9:00am Eastern, 2:00pm UK, 3:00pm CET.

To join the conference call please use the following link https://emportal.ink/4arz7Nw or the phone numbers listed below. 

Conference ID:

35323198 / Lucara Diamond

Dial-In Numbers:

   Toll Free Participant Dial-In North America                 (+1) 888 390 0605

   UK Toll Free                                                                        0800 652 2435

   Local Vancouver                                                               (+1) 416 764 8609

Webcast:

To view the live webcast presentation, please log on using this direct link: https://app.webinar.net/xMgd9elnpVN  

The presentation slideshow will also be available in PDF format for download from the Lucara website (Link to presentation).

Conference Replay:

A replay will be available until May 17, 2024. The pass code for the replay is: 085076 #.

   Replay number (Toll Free North America)                    (+1) 888 390 0541

   Replay number (Local)                                                      (+1) 416 764 8677

On behalf of the Board,

William Lamb

President and Chief Executive Officer

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For further information, please contact:

ABOUT LUCARA

Lucara is a leading independent producer of large exceptional quality Type IIa diamonds from its 100% owned Karowe Diamond Mine in Botswana. The Karowe Mine has been in production since 2012 and is the focus of the Company's operations and development activities. Clara Diamond Solutions Limited Partnership ("Clara"), a wholly-owned subsidiary of Lucara, has developed a secure, digital sales that ensures diamond provenance from mine to finger.  Lucara has an experienced board and management team with extensive diamond development and operations expertise.  Lucara and its subsidiaries operate transparently and in accordance with international best practices in the areas of sustainability, health and safety, environment, and community relations.  Lucara has adopted the IFC Performance Standards and the World Bank Group's Environmental, Health and Safety Guidelines for Mining (2007).  Accordingly, the development of the Karowe UGP adheres to the Equator Principles. Lucara is committed to upholding high standards while striving to deliver long-term economic benefits to Botswana and the communities in which the Company operates. 

The information is information that Lucara is obliged to make public pursuant to the EU Market Abuse Regulation and the Swedish Securities Markets Act. This information was submitted for publication, through the agency of the contact person set out above, on May 9, 2024 at 6:00pm Pacific Time.

NON-IFRS FINANCIAL PERFORMANCE MEASURES

This news release refers to certain financial measures, such as adjusted EBITDA, adjusted operating earnings, operating cash flow per share, operating margin per carat sold and operating cost per tonne of ore processed, which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. These measures may differ from those made by other corporations and accordingly may not be comparable to such measures as reported by other corporations. These measures have been derived from the Company's financial statements, and applied on a consistent basis, because the Company believes they are of assistance in the understanding of the results of operations and financial position. Please refer to the Company's MD&A for the quarter ended March 31, 2024 for an explanation of non-IFRS measures used.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain of the statements made and contained herein and elsewhere constitute "forward-looking information" and "forward-looking statements" as defined in applicable securities laws. Generally, any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, budgets, schedules, goals, strategy, projections, objectives, assumptions or future events or performance and often (but not always) using forward-looking terminology such as "expects", "is expected", "anticipates", "believes", "intends", "estimates", "potential", "possible" and similar expressions, or statements that certain actions, events, conditions or results "would", "will", "may", "might", "could" or "should" be taken, occur or be achieved or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements.

Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made, and they are subject to a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward-looking statements, including risks related thereto. The Company believes that expectations reflected in this forward-looking information are reasonable, but no assurance can be given that these expectations will prove to be accurate and such forward-looking information included herein should not be unduly relied upon.

In particular, forward-looking information and forward-looking statements in this news release may include, but are not limited to, information or statements of projected capital costs associated with the Karowe UGP and any conditions for borrowing  at the time of a borrowing request, and that the facilities are not otherwise terminated or accelerated due to an event of default, the Company's ability to comply with the terms of the facilities which are required to construct the Karowe UGP, that expected cash flow from operations, combined with external financing will be sufficient to complete construction of the Karowe UGP, economic and geopolitical risks, including the potential impacts from the ongoing conflict between Russia and Ukraine and the resulting indirect economic impacts that strict economic sanctions have, expectations regarding longer-term market fundamentals and price growth, the disclosure under "2024 Outlook", expectations regarding top-up payments, processing expectations, expectations that the Karowe UGP will extend mine life, forecasts of additional revenues, estimated capital costs, production and cost estimates, tax rates, expectations regarding the scheduling of activities for the Karowe UGP in 2024 and in future, that the estimated timelines to achieve mine ramp up and full production from the Karowe UGP can be achieved, the economic potential of a mineralized area, the size and tonnage of a mineralized area, anticipated sample grades or bulk sample diamond content, future production activity, the future price and demand for, and supply of, diamonds, future forecasts of revenue and variable consideration in determining revenue, estimation of mineral resources, exploration and development plans, cost and timing of the development of deposits and estimated future production, currency exchange rates, success of exploration, requirements for and availability of additional capital, capital expenditures, operating costs, the completion of transactions, and the profitability of Clara and the Clara Platform, the benefits to the Company of diamond supply agreements with HB and the ability to generate better prices from the sale of the Company's +10.8 carat production as a polished stone.

There can be no assurance that such forward looking statements will prove to be accurate, as the Company's results and future events could differ materially from those anticipated in this forward-looking information as a result of those factors discussed in or referred to under the heading "Risks and Uncertainties" in the Company's most recent MD&A and in the Company's most recent Annual Information Form, both available at SEDAR+ at www.sedarplus.ca, as well as changes in general business and economic conditions, the ability to continue as a going concern, changes in interest and foreign currency rates, changes in inflation, the supply and demand for, deliveries of and the level and volatility of prices of rough diamonds, costs of power and diesel, impacts of potential disruptions to supply chains, acts of foreign governments and the outcome of legal proceedings, inaccurate geological and recoverability assumptions (including with respect to the size, grade and recoverability of mineral reserves and resources), and unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalations, unavailability of materials and equipment, government action or delays in the receipt of government approvals, industrial disturbances or other job actions, adverse weather conditions, and unanticipated events relating to health safety and environmental matters).

Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date the statements were made, and the Company does not assume any obligations to update or revise them to reflect new events or circumstances, except as required by law.