Ms. Eira Thomas reports

LUCARA ANNOUNCES Q3 2019 RESULTS

Lucara Diamond Corp. has released its results for the quarter ended Sept. 30, 2019. Amounts are in U.S. dollars unless otherwise stated.

Highlights for the quarter ended Sept. 30, 2019:

• A strong operating environment prevailed at the Karowe mine in third quarter 2019 with guidance met or exceeded with respect to all mining and processing activities, including:
  • Ore and waste mined of 800,000 tonnes and 1.5-million tonnes, respectively;
  • 680,000 tonnes of ore processed for a recovered grade of 13.9 carats per hundred tonnes;
  • Carats recovered of 104,990 (including 10,646 carats recovered from reprocessing historical recovery tailings from previous milling);
  • Two hundred eleven specials were recovered from direct milling during the third quarter, representing 6.1-per-cent weight percentage of total direct milling recovered carats, in line with mine plan expectations;
  • Seven diamonds were recovered greater than 100 carats in weight;
  • A 9.74-carat gem-quality blue diamond and a 4.13-carat gem-quality pink diamond were recovered in September, 2019.
• During third quarter 2019, revenue recognized totalled $45.3-million (third quarter 2018: $45.7-million) or $390 per carat (third quarter 2018: $450 per carat) from the sale of 116,200 carats (third quarter 2018: 101,600 carats). Better recoveries in smaller, lower-value diamonds resulted in a 14-per-cent increase in the number of carats sold. While still profitable, the smaller goods impact the average price per carat sold.
• The company recorded a net loss of $4.0-million for third quarter 2019, resulting in a one-cent loss per share for the quarter. This compares with net income of $5.1-million for third quarter 2018 and earnings per share of one cent. An increase in operating expenses and depletion and amortization (a non-cash expense) had the most significant impact on the current quarter's results.
• Cash flow from operations in third quarter 2019 totalled $13.8-million compared with cash flow from operations of $3.7-million in third quarter 2018.
• The value of the rough diamonds sold through the Clara platform doubled in third quarter 2019 with $2.4-million of goods transacted and five sales held, which brings the total value transacted on the platform as of Sept. 30, 2019, to $6.0-million since sales began. Clara's customer base has grown another 35 per cent in the third quarter, from 20 to 27, and sales continue to ramp up according to plan.
• Changes in guidance: Total revenue in 2019 is expected to be at the lower end of guidance between $170-million and $180-million. Operating cost per tonne processed is also expected to be at the lower end of guidance between $32 and $34 per tonne. Total carats recovered and sold are expected to be between 400,000 and 425,000 carats, and total tonnes mined are expected to be between 9.5 million and 11.0 million tonnes.
• Revenue of $136.5-million for the nine months ended Sept. 30, 2019, from three tenders and sales through Clara. This is comparable with revenue of $135.6-million for the nine months ended Sept. 30, 2018, in which three regular stone tenders and one exceptional stone tender were held.
• The operating cash cost (1) for the nine months ended Sept. 30, 2019, was $31.06 per tonne processed (year-to-date 2018: $38.98 per tonne processed) compared with the revised full-year forecast cash cost of $32 to $34 per tonne processed. Operating cash cost per tonne processed was positively impacted by the completion of a significant waste stripping campaign in 2018, an increase in tonnes processed in 2019 and foreign exchange.
• A continued focus on operational discipline at Karowe has resulted in a strong operating margin of 58 per cent year to date (YTD 2018: 63 per cent) and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) year to date of $50.2-million (YTD 2018: $55.7-million). Operating expenses per carat sold have decreased to $182 per carat in the nine months ended Sept. 30, 2019, from $208 per carat in the comparable period in 2018, due to a 30-per-cent higher volume of carats sold period to period.
• Net income for the nine months ended Sept. 30, 2019, was $4.1-million, resulting in earnings per share of one cent. This compares with net income of $17.9-million and earnings per share of five cents for the nine months ended Sept. 30, 2018.
• As at Sept. 30, 2019, the company had cash and cash equivalents of $4.8-million. All draws on the company's working capital facility were repaid during third quarter 2019, leaving $50-million available for use at Sept. 30, 2019.
• Cash flow from operations for the nine months ended Sept. 30, 2019, totalled $31.0-million as compared with $35.7-million for the nine months ended Sept. 30, 2018.
• The company paid a quarterly dividend of 2.5 Canadian cents per share on Sept. 19, 2019.

(1) A non-international financial reporting standard measure.

Eira Thomas, president and chief executive officer, commented: "Lucara continues to deliver solid results and strong margins on the back of strong operational performance at Karowe in third quarter. With operating margins at Karowe approaching 60 per cent and no long-term debt, Lucara is well positioned to continue to weather the difficult diamond pricing environment that has prevailed since the beginning of the year. Moreover, this continued strong performance, combined with the encouraging results reported in our recently completed feasibility study (see news release "Lucara Announces Positive Feasibility Study For Karowe Underground"), provides a compelling rationale for investing in an underground expansion at Karowe, potentially adding 13-plus years of mine life and generating an after-tax [net present value] (at 5 per cent) of $718-million and in excess of $5.0-billion in gross revenue. Our latest special stone recoveries, which include a 9.7-carat blue diamond, a 4.1-carat pink diamond, a top-white 123-carat diamond and, most recently, a top-white 106-carat diamond, continue to bode well for our final sale of the year, and we remain on track to meet or exceed our guidance in every respect. We continue to see positive progress with Clara, reaching $6-million of total value transacted on the platform since sales began in December, 2018."

Change in dividend policy

With the announcement of a positive feasibility study for development of an underground mine at Lucara's 100-per-cent-owned Karowe diamond mine, Lucara's board of directors has determined that it is in the best interest of the company and its shareholders to suspend the quarterly dividend payment of 2.5 Canadian cents per share, effective immediately. The feasibility study demonstrates the potential to extend the mine life at Karowe to 2040 while generating significant economic benefits for the company, its shareholders and employees, the communities surrounding the mine, and the country of Botswana. In anticipation of a decision to proceed with construction of an underground mine at Karowe, the board of directors is of the view that it would be prudent to redirect the company's available cash so that those funds can be available for early works, including detailed engineering, procurement initiatives and project financing.

                                            FINANCIAL HIGHLIGHTS 
                      (in millions of U.S. dollars, except carats or otherwise noted)
  
                                                      Three months ended Sept. 30,     Nine months ended Sept. 30,
                                                             2019            2018           2019             2018
                                                                                                               
Revenues                                                    $45.3           $45.7         $136.5           $135.6
Net income for the period                                    (4.0)            5.1            4.1             17.9  
Earnings per share (basic and diluted)                      (0.01)           0.01           0.01             0.05  
Cash on hand                                                  4.8            31.1            4.8             31.1  
Average price per carat sold ($/carat)*                       390             450            436              564   
Operating expenses per carat sold ($/carat)*                  201             185            182              208   
Operating margin per carat sold ($/carat)*                    189             265            254              356   
                                                          -------         -------        -------          ------- 

* Average price per carat sold, operating expenses per carat sold and 
operating margin per carat sold are non-international financial reporting
standard measures.

The company recognized revenue of $136.5-million or $436 per carat for its sales in the first nine months of 2019, yielding an operating margin of $254 per carat (58 per cent). Starting in September, 2018, the company moved to a blended sales tender, combining the sale of exceptional stones with the balance of run-of-mine production into one tender, held quarterly. This change was made to decrease the inventory time for large, high-value diamonds and to generate a smoother revenue profile that better supports price guidance on a per-sale basis. During 2019, diamonds recovered between November, 2018, and July, 2019, were sold either in a blended sales tender or through the Clara digital sales platform. The one exception to this new practice was the retention of the 1,758-carat diamond named Sewelo. Due to the unique and complex nature of the Sewelo, additional analysis of the diamond is being undertaken while the company considers how best to maximize value from this unique and rare diamond.

In the first nine months of 2019, a total of 313,189 carats were sold (YTD 2018: 240,245 carats), achieving a year-to-date average sales price of $436 per carat (YTD 2018: $564/carat). The number of carats sold was 30 per cent higher than in the comparative period driven by better recoveries in the smaller, lower-value sizes. While still profitable, the smaller goods impact the average price per carat sold when compared with the prior year. The significant increase in carats is due to the continued strong performance of the plant, which processed 2.16 million tonnes during the nine months ended Sept. 30, 2019 (YTD 2018: 2.03 million tonnes milled). An improved mine call factor also contributed to higher recoveries of diamonds.

While most of Karowe's diamond production is sold through a blended sales tender, beginning in late 2018, certain stones from Karowe's production sized between one and four carats and of better quality were offered for sale on Clara, Lucara's revolutionary, Web-based, digital sales platform that allows customers to purchase rough diamonds individually, based on specific demand. The first sale through Clara took place in December, 2018. Five sales were completed on the platform during the first six months of 2019, and a further five sales through Clara were completed in third quarter 2019, with $2.4-million in value transacted in third quarter 2019 and a total of $6.0-million transacted since sales began. Continued growth of the platform is expected in the fourth quarter based on increasing demand from a growing customer base, which expanded from 20 to 27 participants in third quarter 2019. The company's objective is to begin adding third party production to the platform before the end of the year to meet anticipated demand.

Operating expenses increased from $50.0-million in the nine months ended Sept. 30, 2018, to $57.1-million in the nine months ended Sept. 30, 2019, mainly due to a combination of an increase in the average cost per tonne mined (related to the new mining contractor) and lower volumes of total tonnes mined, as well as higher volumes of total tonnes processed. Waste tonnes mined decreased as compared with the same period in 2018 as the significant waste stripping campaign (Cut 2) undertaken between 2017 and 2018 was substantially complete by the end of 2018. In addition, ore mining was stronger than expected early in 2019 due to resource gains in the North lobe that offset planned waste mining. Due to the higher volume of ore mined during the first few months of 2019, no waste stripping costs were capitalized, and the strip ratio was reduced to below the life-of-mine average of 2.46. As a result, no capitalized stripping is now expected during 2019 (versus a strip ratio of 2.84 in 2019 guidance). In 2018, costs relating to waste mining in excess of the life-of-mine average strip ratio were capitalized. Additionally, due to higher plant availability, a 6-per-cent increase in total tonnes processed was achieved in the nine months ended Sept. 30, 2019, compared with the nine months ended Sept. 30, 2018. An increase in carats processed and sold resulted in a decrease in the operating expense per carat sold from $208 per carat in the nine months ended Sept. 30, 2018, to $182 per carat in the nine months ended Sept. 30, 2019.

Depletion and amortization, a non-cash expense, increased from $20.1-million in YTD 2018 to $38.1-million in YTD 2019 due to a combination of factors, including a 30-per-cent-higher volume of carats sold (313,189 carats YTD 2019 versus 240,245 carats YTD 2018). The increase in this expense has been driven by several things: a larger number of fine diamonds recovered following improvements to the processing circuit implemented in late 2017, a higher mineral property balance from the waste stripping campaign between 2017 and 2018, and a corresponding increase in the rate of unit of production depletion from a change to the reserve base in third quarter 2018. With depletion and amortization expense almost double what it was in the same period last year, net income decreased to $4.1-million for the nine months ended Sept. 30, 2019, as compared with net income of $17.9-million in the same period in 2018. Earnings per share decreased to one cent as compared with earnings per share of five cents for YTD 2018. Adjusted earnings before interest, tax, depletion and amortization for YTD 2019 were $50.2-million (YTD 2018: $55.7-million) (adjusted EBITDA is a non-international financial reporting standard measure).

The first nine months of 2019 were characterized by a continued, strong, stable operating environment at the Karowe mine. Following record production achieved during the first two quarters of the year, the operations continued to deliver strong performance through third quarter 2019, with 800,000 and 1.5 million tonnes of ore and waste mined, respectively, and 680,000 tonnes of ore processed. As a result, production yielded higher carat recoveries against plan and contributed to the sale of 116,200 carats during third quarter 2019 at an average sales price of $390 per carat (third quarter 2018: 101,600 carats sold at an average price of $450 per carat). The main driver for the differential in the average sales price per carat quarter to quarter was a 14-per-cent increase in the number of carats sold.

Net income and earnings per share performance was as expected for both the third quarter and year-to-date results and reflects the continued strength of production being realized at Karowe from the investments made over the past two years, as well as the transition to a blended sales tender in third quarter 2018, which has created a smoother revenue profile.

While the pricing environment for both polished and rough diamonds remains challenging, during 2019, several large diamond producers have reduced the number of diamonds offered for sale and have provided greater flexibility to their customers, which has provided some stability to the marketplace. Further, U.S. polished demand remains strong. Karowe's annual production (expected to be between 400,000 and 425,000 carats in 2019) represents a small fraction of the global rough diamond supply that is mined and sold each year. Diamonds mined from Karowe are sold either through a quarterly tender or through the Clara digital sales platform. Buyers of Karowe diamonds do not have firm purchasing commitments in either sales channel, so they are free to bid only on the diamonds, which are of interest to them. This system benefits both Lucara and its customers and results in competitive pricing for Karowe goods. As a result, Lucara has not held back any goods in inventory (with the exception of the 1,758-carat Sewelo) and expects to be able to achieve its 2019 revenue guidance, albeit at the lower end ($170-million to $180-million) of the 2019 guidance.

2019 outlook

Two thousand nineteen guidance has been updated for diamond revenue, diamonds recovered and sold, ore and waste tonnes mined, and operating cash cost per tonne processed.

Karowe diamond mine full-year 2019 outlook (in millions of U.S. dollars unless otherwise noted)

Diamond revenue:  $170-million (U.S.) to $180-million (U.S.)

Diamond sales (carats):  400,000 to 425,000

Diamonds recovered (carats):  400,000 to 425,000

Ore tonnes mined:  3.0 million to 3.4 million

Waste tonnes mined:  6.5 million to 7.5 million

Ore tonnes processed:  2.5 million to 2.8 million

Total operating cash costs (1) including waste mined (2) (per tonne processed):  $32 to $34

Operating cash costs excluding waste mined (per tonne processed):  $21 to $24

Botswana general and administrative expenses, including marketing costs (per tonne processed):  $2 to $3

Tax rate:  22 per cent to 29 per cent

Average exchange rate -- U.S. dollar to pula:  10.5

(1) Operating cash costs are a non-IFRS measure.

(2) Includes ore and waste mined cash costs of $4 to $4.50, processing cash costs of $12 to $13 and mine-site departmental costs (security, technical services, mine planning, health and safety, and geology) of $5 to $6 (all dollar figures in per tonne mined or processed).

Revenues for 2019 are expected to be at the lower end of guidance, between $170-million and $180-million (previously $170-million to $200-million). The company's revenue guidance is intentionally quite broad at the beginning of the year because of the Karowe mine's unique production profile, which is characterized by a consistent, high contribution of specials (individual stones greater than 10.8 carats each). Those specials which are gem quality contribute to a significant percentage of the company's annual revenue. Through September, 2019, a total of 19 diamonds have sold for more than $1-million each, including seven diamonds, which sold for more than $2-million each, and one diamond, which sold for over $8-million.

Sustaining capital and project expenditures are expected to be approximately $12.0-million, slightly lower than the original forecast of up to $14.0-million in 2019. These expenditures include the construction of an additional slimes dam and design improvements related to the XRT recovery circuit. This does not include investments being made on the underground feasibility study.

A budget of $14.8-million was approved to complete a feasibility study that was initiated in 2018, evaluating the potential for an underground mining operation at Karowe. In 2019, efforts have focused on follow-up geotechnical and hydrogeological drilling and related studies, with the results of the feasibility study. The feasibility study is expected to be completed on budget.

Conference call

The company will host a conference call and webcast to discuss the results on Nov. 5, 2019, at 6 a.m. Pacific Time, 9 a.m. Eastern Time, 2 p.m. United Kingdom time or 3 p.m. CET.

Conference call

Please call in 10 minutes before the conference call starts and stay on the line (an operator will be available to assist you).

Conference ID:  07240950/Lucara Diamond

Dial-in numbers

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

All international participant dial-in:  1-778-383-7417

The presentation slide show will also be available in PDF format for download from the Lucara website shortly before the conference call.

Conference replay

A replay of the telephone conference will be available two hours after the completion of the call until Nov. 12, 2019.

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

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

The passcode for the replay is 240950 followed by the number sign.

About Lucara Diamond Corp.

Lucara is a leading independent producer of large exceptional-quality Type 2a diamonds from its 100-per-cent-owned Karowe mine in Botswana. The company has an experienced board and management team with extensive diamond development and operations expertise. The company operates transparently and in accordance with international best practices in the areas of sustainability, health and safety, environment, and community relations.

We seek Safe Harbor.