Ms. Eira Thomas reports

LUCARA ANNOUNCES STRONG RESULTS FOR THE SECOND QUARTER OF 2021 AND FULL PROJECT FINANCING FOR THE KAROWE UNDERGROUND EXPANSION

Lucara Diamond Corp. has released its results for the second quarter of 2021 ending June 30, 2021, with strong financial and operational performance.

Recent highlights:

• Full project financing for the Karowe underground expansion project following successful completion of debt and equity financings in July:
  • On July 12, 2021, loan documentation was signed in relation to the previously announced senior secured project financing debt package of $220-million between Lucara Botswana as the borrower and a syndicate of five mandated lead arrangers. The facilities include two tranches: a project finance facility of $170-million to finance the development of the underground project, and a $50-million working capital facility to refinance the company's existing debt and to support continuing operations;
  • On July 15, 2021, the company closed two previously announced financings, generating gross proceeds of $41.4-million (Canadian) from the sale of 55,157,733 common shares at a price of 75 Canadian cents per share. Net proceeds from these financings will be used for working capital to support the development and continuing operation of the Karowe mine, including the underground expansion;
• Recovery of four pink diamonds from direct milling from the EM/PK(S) unit of the South lobe, including a 62.7-carat, high-quality, fancy pink Type IIa gem diamond and a 22.21-carat pink gem of similar quality along with two additional pink gems of similar colour and purity weighing 11.17 and 5.05 carats;
• Diamond market recovery in 2021 evidenced in Lucara's strong operational and financial results for Q2 2021, with revenue of $46.3-million resulting in an average price per carat sold of $671;
• Sales through Clara increased 38 per cent from Q1 2021, with transaction values of $8.3-million over six sales. Strong price increases continued through Q2 2021, and the number of buyers on the platform increased to 84 as of June 30, 2021;
• A record production quarter for the recovery of specials, plus 10.8 carats, in Q2 2021 resulting in 10.2-per-cent weight percentage of total direct milling recovered carats;
• The recovery of the third plus-1,000-carat diamond recovered from the Karowe mine since 2015, at 1,174.76-carat stone. During the first half of 2021, 21 diamonds greater than 100 carats and five diamonds over 300 carats have been recovered from Karowe.

Eira Thomas, president and chief executive officer, commented: "We end the second quarter with a stronger, more positive outlook on the diamond market, our business and our plans for growth. With a fully financed underground project now confirmed, we are excited to be ramping up on our expansion plans at Karowe in the second half of the year. Sales through Clara also continued strong in Q2, demonstrating a great need for this transformational technology as modernization of the diamond supply chain continues. In respect of mining, Karowe delivered another record quarter in respect of diamonds greater than 10.8 carats in size, including 21 diamonds greater than 100 carats, three diamonds greater than 300 carats and our third diamond over 1,000 carats. This remarkable resource continues to improve the deeper we mine, consistent with the resource model, and underpins our rationale for the Karowe underground expansion, extending mine life out to at least 2040."

Review for the three months ended June 30, 2021

Operational highlights from the Karowe mine included:

• Ore and waste mined of 1.0 million tonnes and 700,000 tonnes, respectively;
• 730,000 tonnes of ore processed resulting in 101,330 carats recovered, achieving a recovered grade of 13.9 carats per hundred tonnes;
• 261 specials (plus 10.8 carats) were recovered from direct milling during the second quarter, representing 10.2-per-cent weight percentage of total direct milling recovered carats, a record production quarter in terms of specials (Q2 2020: 6.4 per cent);
• In addition to the 1,174-carat stone recovered, 16 diamonds greater than 100 carats were recovered during the quarter, including two diamonds greater than 400 carats, two diamonds greater than 200 carats, with a further 12 stones between 100 and 200 carats in weight.

Financial highlights for the three months ended June 30, 2021, included:

• Total revenue of $46.3-million was recognized in Q2 2021 (Q2 2020: $7.5-million) or $671 per carat (Q2 2020: $109 per carat) from the sale of 68,961 carats (Q2 2020: 68,979 carats);
• Operating cash cost (1) per tonne of ore processed for the six months ended June 30, 2021, was $28.79 per tonne (Q2 2020: $27.14 per tonne), in line with 2021 guidance of between $28 and $32 per tonne;
• The company recorded net income of $6.0-million during Q2 2021 (earnings per share of two cents), as compared with a net loss of $13.9-million for Q2 2020 (loss per share of four cents);
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) was $22.2-million as compared with adjusted EBITDA of negative $10.0-million for the same period in 2020;
• As at June 30, 2021, the company had cash and cash equivalents of $13.7-million, an increase of $8.8-million from Dec. 31, 2020, and net debt (1) of $36.6-million.

(1) Non-IFRS (international financial reporting standards) measures

On April 6, 2021, a 24-month extension was executed to the definitive supply agreement with HB Antwerp (HB) in respect of all diamonds produced in excess of 10.8 carats in size from the Karowe mine. The extension will be effective for the period from Jan. 1, 2021, to Dec. 31, 2022.

On June 7, 2021, Lucara announced the recovery of a 470-carat top light brown clivage diamond from the Karowe mine, measuring 49 millimetres by 42 mm by 26 mm.

On June 22, 2021, Lucara announced the recovery of the third plus-1,000-carat diamond recovered from the Karowe mine since 2015. This recovery, a 1,174.76-carat diamond measuring 77 mm by 55 mm by 33 mm is described as a clivage gem of variable quality with significant domains of high-quality white gem material.

Diamond sales

Diamond sales in Q2 2021 continued to be 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 $46.3-million or $671 per carat from the sale of 68,961 carats with price recovery observed in most size and quality classes. Included in revenue for the six months ended June 30, 2021, is a variable consideration of $5.1-million which relates to top-up payments expected from polished diamond sales in excess of the initial planned value paid to Lucara under the initial HB sales agreements for rough diamonds delivered in 2020. Beginning in Q2 2020, all plus-10.8-carat diamonds mined from Karowe were delivered to HB pursuant to the terms of the diamond supply agreement described below.

HB supply agreement 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. 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 plus-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 partnership agreement with HB, entering into a definitive supply agreement for the remainder of 2020 for all diamonds produced in excess of plus 10.8 carats from the company's 100-per-cent-owned Karowe diamond mine in Botswana. In April, 2021, this agreement was subsequently extended for a 24-month period, effective from Jan. 1, 2021, to Dec. 31, 2022.

Under the amended supply agreement with HB, plus-10.8-carat production from the Karowe mine 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 an adjusted amount payable on actual achieved polished sales compared with 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 the company's production profile.

Clara sales platform

Interest in Clara, Lucara's 100-per-cent-owned proprietary, secure, Web-based digital sales platform, grew significantly in 2020 due to continued global restrictions impeding travel for many diamond manufacturers, combined with a new openness to purchasing rough diamonds in an innovative way. That positive momentum continued through first half 2021 with six sales in the second quarter and total sales volume transacted of $8.3-million, a 38-per-cent increase from the $6.0-million transacted in Q1 2021. Encouragingly, Clara also observed consistent price increases at each subsequent sale throughout the period. The number of buyers on the platform increased to 84 in Q2 from 80 in Q1. The company is maintaining a waiting list to manage supply and demand. A third party supplier trialled the platform in Q2, and discussions continue with third party sellers to build supply.

Karowe underground expansion update

The Karowe underground expansion project (UGP) will extend the mine life to at least 2040 mining predominately from the highest value EM/PK(S) unit and is forecast to contribute approximately $4-billion in additional revenues, using conservative diamond prices.

A revised project cost and schedule has been developed that captures the detailed engineering and design work through 2020 until May, 2021, incorporating all changes, improvements and COVID-19-related delays. Overall capital expenditures, including contingency, have increased marginally (approximately plus 4 per cent) to $534-million, driven by the increase to the production shaft diameter and additional mine development. The company has spent $51.4-million of the total budget on project execution activities through 2020 to June, 2021, and $22.6-million in Q2 2021. Total expenditures on the underground expansion project in 2021 are expected to be up to $120-million. The schedule to 75 per cent of full production has increased by 1.3 years in comparison with the 2019 feasibility study, driven mainly by COVID-19-related delays to commence the shaft presinking, and additional planned time for shaft station breakouts and ground support. The open-pit mining schedule has been adjusted to push the open pit to 2026, with mill throughput maintained at 2.7 million tonnes per annum. Underground operation parameters with respect to waste and ore tonnes mined, processed tonnes, recoverable diamond grade, recovered carats, and diamond pricing assumptions are unchanged from the 2019 feasibility study.

Diamond market

The diamond market continues to be strong and stable in 2021 following a very strong start to the year, where the company has seen price increases in virtually all sizes and quality of diamonds. The key dominant retail markets for diamonds in the United States and China remain buoyant, and the market continues to be supported from lower supply from producers and a pickup in capacity in the mid-stream in India. 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. The potential challenges created by the COVID-19 pandemic do, however, remain a key concern.

Update on COVID-19 response

Measures and guidelines implemented by the government of Botswana in late March, 2020, and the current state of emergency in Botswana have 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 Sept. 30, 2021. With increasing cases in Botswana and surrounding countries, and limited opportunities for vaccination, restrictions on the movement of people within zones in Botswana and curfews have been implemented, and are subject to change with limited notice. Concern remains over how governments across the jurisdictions in which Lucara and many of its customers operate will respond to increasing infection numbers and variants of COVID-19, even as mass vaccination campaigns are in progress in many countries.

The company continues to operate under its approved crisis management plan, designed to protect the health and well-being of its 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 its operations in Botswana, which began in January, 2021, and regular health screening, temperature checks and the use of infrared measurements are also routine. A government-sponsored vaccination program commenced in Botswana in July.

2021 outlook

This section provides management's production and cost estimates for 2021. A change to the allocation between ore and waste mining has been adjusted in the 2021 guidance to reflect ore gains realized in the first half of the year and adjustments in the mine plan to support dewatering activities. Ore gains realized are of lower-quality material and will be stockpiled. There are no other changes from the guidance previously released in February, 2021.

Sustaining capital and project expenditures are expected to be up to $21.0-million in 2021, excluding capital on the underground expansion. This includes expenditures associated with further upgrades to the XRT recovery circuit and implementation of body scanning technology (to enhance security), which had originally been planned for 2020 but was delayed whilst regulatory approval was pending (required approvals were received in Q4 2020).

The proposed underground expansion at the Karowe mine has an estimated capital cost of $534-million and a five-year development period. Total expenditures on the UGP in 2021 are expected to be up to $120-million. See "Karowe underground expansion update" above.

Proceeds from the 549-carat Sethunya collaboration agreement with Louis Vuitton and HB are expected to be realized in 2021. The group is collaborating and planning the creation of the highest-value polished diamonds from the unique rough stone, which will be made available to Louis Vuitton exclusively. Lucara will receive a payment based on the estimated polished outcome, determined by HB's state-of-the-art scanning and planning technologies, with a true up paid on the actual achieved polished sales thereafter, less a fee and the cost of manufacturing.

Conference call

The company will host a conference call and webcast to discuss the results on Wednesday, Aug. 11, 2021, at 7 a.m. PT, 10 a.m. ET, 3 p.m. U.K. time, 4 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:  03343101/Lucara Diamond

Dial-in numbers:

Toll-free participant dial-in North America:  1-888-390-0546

U.K. toll-free:  0-800-652-2435

All other international participant dial-in:  1-778-383-7413

Webcast

A live webcast presentation will be available on-line. The presentation slideshow will also be available in PDF format for download from the Lucara website.

Conference replay

A replay of the telephone conference will be available two hours after the completion of the call until Aug. 18, 2021.

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

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

Passcode for the replay:  343101 followed by the number sign

About Lucara Diamond Corp.

Lucara is a leading independent producer of large, exceptional-quality, Type IIa diamonds from its 100-per-cent-owned Karowe mine in Botswana, and owns a 100-per-cent interest in Clara Diamond Solutions, a secure, digital sales platform positioned to modernize the existing diamond supply chain and ensure diamond provenance from mine to finger. 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.