Mr. William Lamb reports

LUCARA ANNOUNCES YEAR END 2023 RESULTS; CONTINUED DEVELOPMENT OF THE UNDERGROUND PROJECT

Lucara Diamond Corp. has released its results for the year and quarter ended Dec. 31, 2023. All amounts are in United States dollars unless otherwise noted.

Fiscal 2023 highlights

• The recovery of a 1,080-carat Type 2a white gem quality diamond in August, 2023, followed by a recovery of a 692-carat Type 2a diamond later in the month. The fourth plus-1,000-carat stone recovered from the Karowe mine.
• The Karowe mine recorded record plant throughput of 2.8 million tonnes milled for the year.
• In January, 2024, the successful execution of an amended project financing debt package of $220-million to amend the repayment profile in line with the rebase schedule released in July, 2023, for the Karowe Underground project (UGP).
• On Feb. 18, 2024, the company announced the signing of a new definitive sales agreement (NDSA) with HB Trading BV (HB) in respect of all qualifying diamonds produced in excess of 10.8 carats in size from the Karowe mine.
• Total revenue of $177.4-million for 2023, in line with revised guidance.
• Cash flow generated from operating activities of $63.4-million for 2023.
• Two thousand twenty-three operating cash cost of $28.75 per tonne of ore processed.
• Investment of $101.3-million in the Karowe UGP in 2023. Significant sinking progress was made in both the production and the ventilation shafts during the second half of 2023.

William Lamb, president and chief executive officer, commented: "Two thousand twenty-three was a challenging year for Lucara. Although mining activities in the open pit continued to show ongoing sustainable improvements, including record production through the mill, the development on the UGP experienced delays in the early part of the year. Positive progress was made in the sinking of both the production and the ventilation shafts resulting in both shafts starting lateral development at the 670 level at the end of the year. The company has dedicated significant effort and resources to focus on the UGP as this project represents a very exciting and valuable future for Lucara.

"The diamond market in general remains a volatile environment with market challenges coming from multiple areas. Lucara remains well positioned to meet these market challenges head on due to its unique high-value production mix and its ability to provide provenance for its diamonds through its well-defined sales channels. Our sales strategy which focuses on gaining access to the upstream value chain from polished diamonds is well aligned to the strategies of the government of the Republic of Botswana. The company aims to continue working toward long-term sustainable business practices to provide value for all our stakeholders."

Review for the year ended Dec. 31, 2023

• Operational highlights from the Karowe mine for 2023 included:
  • Ore and waste mined of 2.7 million tonnes (Mt) (2022: 3.3 Mt) and 3.1 million tonnes (2022: 1.5 Mt), respectively;
  • 2.8 million tonnes (2022: 2.8 Mt) of ore processed;
  • A total of 395,134 carats recovered, including 18,509 carats from the processing of historic recovery tailings (2022: 335,769 carats), at a recovered grade of 13.2 carats per hundred tonnes (cpht) of direct milled ore (2022: 12.1 cpht):
    • A total of 602 specials (stones larger than 10.8 carats in size) were recovered, with 22 diamonds greater than 100 carats including five diamonds greater than 300 carats;
    • Recovered specials equated to 5.3 per cent of the total recovered carats from ore processed during 2023 (2022 -- 7.2 per cent).
  • The Karowe mine has operated continuously for over three years without a lost-time injury.
• Financial highlights for 2023 included:
  • Revenues of $177.4-million (2022: $212.9-million) achieved despite a weaker rough diamond market. Fourth quarter pricing stabilized in smaller goods and increases of 5 per cent were observed compared with the third quarter of 2023, albeit approximately 19 per cent below prices observed in the fourth quarter of 2022. Revenue reflects the weighting of Lucara's revenue toward larger goods where pricing was observed to be more stable. The performance further reflects the increased volume of material processed from the North and Centre lobes in the first half of the year. During 2023, 26 per cent of the carats processed were recovered from the Centre Lobe, 3 per cent from the North Lobe and 71 per cent were recovered from South Lobe ore (2022: 100 per cent South Lobe ore). In comparison to the revenue earned in 2022, current year revenues reflected a more diverse product mix with a return to Centre and North Lobe processing during the year.
  • Operating margins of 56 per cent were achieved (2022: 63 per cent). A strong operating margin continues to be achieved through cost reduction initiatives assisted by a strong United States dollar.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization ) was $54.4-million (2022: $86.7-million), with the decrease attributable to the change in revenue.
  • Net loss was $20.2-million (2022: net income of $40.4-million), resulting in a loss per share of four cents (2022: earnings of nine cents). The change to a net loss is due to the decrease in revenue, an impairment of intangible assets and a significant non-cash deferred tax expense as the investment in the underground expansion project continues.
  • The company identified an impairment indicator for the company's Clara sales platform and completed an impairment test based on the fair value less cost of disposal expected to be derived from the platform. An impairment was recognized on the intangible asset by $11.2-million in Q4 2023.
  • Cash flow from operating activities was $63.4-million (2022: $96.2-million).
• During 2023, the company invested $101.3-million into the Karowe UGP, including capitalized borrowing costs:
  • Shaft sinking, lateral development and grouting programs were the focus in both the ventilation and production shafts in Q4 2023. At the end of 2023, the production and ventilation shafts were both at 348 metres below collar or 666 metres above sea level (masl) and the process of establishing the first shaft stations and lateral connection between the two shafts (670 level) had commenced.
  • During Q4 2023, the ventilation shaft sank 76 metres, the 718 slinging cubby was completed, the 670-level station catwalk was established and the lateral station development commenced. Total lateral development in Q4 2023 was 97 metres. During the quarter, development equipment, including a Kubota, a Sandvik DD321 boom jumbo drill and a Caterpillar R1300G 7-tonne load, haul, dump unit were mobilized at the 670-level for lateral development mining. Sinking and lateral development was in the Thlabala mudstones in dry conditions.
  • Production shaft activities included sinking a total of 114 metres and establishing the 670-level station catwalk and initiating lateral development. A total of 30 metres of lateral development was completed.
  • Commissioning of the temporary bulk air coolers at each shaft was completed and construction of the permanent bulk air coolers at the production shaft continued.
  • Detailed engineering and fabrication of the permanent men and materials winder commenced during the quarter, representing the last major component for the permanent winders.
• Cash position and liquidity at Dec. 31, 2023:
  • Cash and cash equivalents of $13.3-million;
  • Working capital deficit (current assets less current liabilities) of $16.6-million;
  • Cost overrun facility (COF) of $18.6-million;
  • $90.0-million drawn on the $170.0-million project loan for the Karowe UGP;
  • $35.0-million drawn on the $50.0-million working capital facility (WCF).
• On Jan. 9, 2024, the company announced that it had signed amended documentation in relation to the senior secured project financing debt package of $220.0-million executed in July, 2021 (the rebase amendments). The project facility portion had been increased from $170.0-million to $190.0-million, while the working capital facility had been decreased from $50.0-million to $30.0-million. While the total quantum of the facilities has not changed, the repayment profile has been extended in line with the rebase schedule released on July 17, 2023, and the maturity of the WCF has been extended to June 30, 2031.
• During 2023, the company announced the appointment of William Lamb as chief executive officer, effective Aug. 17, 2023, and Glenn Kondo, as chief financial officer, effective Jan. 1, 2024. Eira Thomas and Zara Boldt departed during 2023.

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. Currently, slower-than-anticipated economic growth in China and a voluntary import ban on rough diamonds into India in Q4 2023 dampened the recovery of rough diamond prices toward the end of 2023. Changes in global economic conditions, consumer demand, geopolitical events and industry-specific dynamics resulted in a challenging market in 2023 with reduced demand and downward pressure on both polished and rough diamond pricing, especially in the smaller size classes. Restricted supply by the largest producers toward the end of 2023, together with the Group of Seven discussions surrounding sanctions on rough diamonds from Russia, resulted in low levels of price recovery at the end of 2023.

Sales of lab-grown diamonds increased steadily through 2023 with many smaller retail outlets increasingly adopting these diamonds as a product. Lab-grown stones have established themselves in the marketplace and is expected to continue to take up increasing market share in the smaller to medium sized goods over time. 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-million), or the Sethunya. No changes have been made to the company's guidance which was released in November, 2023.

Diamond sales

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

Sales for plus-10.8-carat diamond production from Karowe

Karowe's large, high-value diamonds have historically accounted for approximately 60 per cent to 70 per cent of Lucara's annual revenues. In September, 2023, Lucara terminated the definitive sales agreement executed with HB in November, 2022 (for all plus-10.8-carat diamonds recovered from Karowe), due to HB's material breach of its financial commitments. The rough diamonds delivered to HB prior to the termination of the agreement continued to be manufactured and sold as polished diamonds. The company retains a contractual right to receive top-up payments from polished diamond sales for goods delivered prior to the termination of the agreement. The company continued to sell its plus-10.8-carat production through this established sales channels while it continued to work with the management of HB on options for a new diamond sales agreement which is subject to preapproval from the government of the Republic of Botswana.

For the three months ended Dec. 31, 2023, the company recorded revenue of $17.4-million from the HB arrangements (inclusive of top-up payments of $6.8-million), as compared with revenue of $24.1-million (inclusive of top-up payments of $3.6-million) for the three months ended Dec. 31, 2022. The fourth quarter saw a reduction in the goods delivered to HB as a result of the termination of the agreement at the end of the third quarter. Revenue was affected by a 92-per-cent recovery factor achieved in 2023, 8 per cent below plan. Revenue in the fourth quarter was also affected by the natural variability in the value of large stones recovered in any given period. As a result of these factors, revenue from HB decreased to 48 per cent of total revenue recognized in the fourth quarter of 2023 (Q4 2022 -- 60 per cent). The product mix in Q4 2023 was predominantly from the South Lobe orebody, with some contribution from the Centre Lobe (Q4 2022 -- 100 per cent South Lobe ore).

Clara sales platform

During Q4 2023, the sales volume transacted was $2.3-million (Q4 2022: $6.6-million), as lower volumes and lower valued goods were placed for sale (due to the shift in product mix from the Karowe mine). Some sales are recognized on a net revenue basis. A softer market was observed with the voluntary import ban on rough diamonds into India during the fourth quarter. Prices increased 5 per cent overall in December with a resumption of purchasing across most size categories; however, prices remain lower than Q4 2022. Price stability continues to be observed in the stones between five to 10.8 carats in size.

Quarterly tender

A total of 108,137 carats were sold in the December, 2023, tender, generating revenues of $16.9-million or $156 per carat (Q4 2022 tender: $12.2-million from the sale of 76,264 carats or $133 per carat). Rough diamond prices saw a strong rebound in the fourth quarter of 2023 following the significant decrease observed earlier in 2023 as market fundamentals strengthened. A 19-per-cent increase from the third quarter tender was observed owing to price increases and product mix offered in the fourth quarter tender.

Subsequent event

On Feb. 18, 2024, the company announced the signing of a NDSA with HB in respect of all qualifying diamonds produced in excess of 10.8 carats in size from the Karowe mine. The NDSA is subject to the approval of the company's project lenders. Upon such approval the agreement terms will be effective retroactively from Dec. 1, 2023. Since that time, Lucara has continued to supply qualifying rough diamonds to HB in order to fund its operations and the Karowe UGP.

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 underground expansion 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. This update was initiated in response to slower-than-planned ramp up to expected sinking rates in 2022, and, to account for time incurred to complete grouting programs while mining through the water-bearing geological zones. These chemical grouting programs took longer than anticipated due to a combination of high-water volumes in the sandstone lithologies between 870 and 752 metres above sea level in depth (144 metres to 262 metres below the shaft collar) and technical challenges associated with the transition to main sinking.

The updated schedule incorporates a 28-per-cent increase in the duration of construction, extending the anticipated commencement of production from the underground from H2 2026 to H1 2028. The revised forecast of costs at completion is $683.0-million (including contingency), a 25-per-cent increase to the May, 2022, estimated capital cost of $547-million. The forecasted increase of $136.0-million in estimated capital to reach project completion is predominantly related to increased schedule duration and related labour costs (approximately 56 per cent of the total increase), grouting costs (approximately 20 per cent of the total increase), with the balance of the increase attributable to owner's costs, procurement and indirect project costs. As at Dec. 31, 2023, capital expenditures of $310.5-million had been incurred and capital commitments of $77.2-million had been made.

During the year ended Dec. 31, 2023, a total of $101.3-million was spent on the Karowe UGP development, capitalized borrowing costs, surface infrastructure, grouting programs and continuing shaft sinking activities. The following activities were completed during Q4 2023:

• Main sinking in the production and ventilation shafts:
  • The ventilation shaft reached 348 metres below collar, with a planned final depth of 731 metres. The shaft is currently 61 metres or approximately 26 days ahead of the July, 2023, schedule update (combined vertical and lateral metres).
  • The production shaft reached 348 metres below collar, with a planned final depth of 765 metres. The production shaft is 11 metres or approximately 24 days behind the July, 2023, schedule update (combined vertical and lateral) mainly due to an unscheduled grouting event in Q3 2024. The production shaft is not on the project schedule critical path.
  • At the end of 2023, both shaft bottoms were at 348 metres below collar (666 masl) having completed the first shaft stations at the 670 level and engaged in the start of 670-level lateral development.
  • During Q4 2023, the ventilation shaft sank 76 metres, completed the 718 slinging cubby and established the 670-level station, catwalk and was engaged in level development. Total lateral developed in Q4 2023 was 97 metres. During the quarter, a Kubota, Sandvik DD321 two boom jumbo drill and a Caterpillar RG1300G seven-tonne LHD were slung down in the ventilation shaft to the 670 level for lateral development mining.
  • Production shaft activities included sinking a total of 114 metres and establishing the 670-level station, catwalk and initiating lateral development. A total of 30 metres of lateral development was completed.
  • Commissioning of the temporary bulk air coolers at each shaft was completed and construction of the permanent bulk air coolers at the production shaft continued.
  • Detailed engineering and fabrication of the permanent men and materials winder commenced during the quarter, representing the last major component for the permanent winders.
  • Both shafts have completed sinking through the water-bearing Ntane and Mosolotane sandstones. Sinking and lateral development during the fourth quarter took place in the Thalbala mudstone in dry conditions.
• Contract for fabrication of the permanent men and materials winder was signed during the quarter, representing the last major component for the permanent winders.
• Mining engineering advanced with a focus on supporting shaft sinking, underground infrastructure engineering and finalizing level plans.
• The impact of implementing a behavioural-based safety training program, Safe Start, in Q4 2022 has been evident in 2023. During 2023, the UGP achieved a 12-month rolling total recordable injury frequency rate of 0.19. Project to date total recordable injury frequency rate at Dec. 31, 2023, was 0.55.

The capital cost for the underground expansion in 2024 is expected to be up to $100-million -- see 2024 outlook. Activities for the Karowe UGP in Q1 2024 are expected to include the following:

• Resumption of sinking within the ventilation and production shafts;
• Completion of mining and construction activities on the 670-level station, including connection of the two shafts and establishment of electrical substation, sump and dewatering pumps, and ventilation doors;
• Planned grouting events at the base of the Tlapana carbonaceous shale and top of Mea formation is expected during the period in the production shaft;
• Procurement of underground equipment, including dewatering pumps, underground crush and convey systems, and the permanent stage winder;
• Commissioning of the permanent bulk air cooler system;
• Preparation of tender documents for the underground lateral development work;
• Continuation of detailed design and engineering of the underground mine infrastructure and layout.

Conference call

The company will host a conference call and webcast to discuss the results on Wednesday, Feb. 21, 2024, at 6 a.m. Pacific Time, 9 a.m. Eastern Time, 2 p.m. (United Kingdom time), 3 p.m. CET.

Conference ID:  26126065/Lucara Diamond

Dial-in numbers:

Toll-free participant dial-in North America:   1-888-390-0605

U.K. toll-free:  0800-652-2435

Local Toronto:  1-416-764-8609

Conference replay

A replay of the telephone conference will be available two hours after the completion of the call until Feb. 28, 2024. The pass code for the replay is: 126065 followed by the pound key.

Replay number (toll-free North America):  1-888-390-0541

Replay number (local):   1-416-764-8677

About Lucara Diamond Corp.

Lucara is a leading independent producer of large exceptional-quality Type 2a diamonds from its 100-per-cent-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, a wholly owned subsidiary of Lucara, has developed a secure, digital sales platform which 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 underground project 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.

We seek Safe Harbor.