Ms. Eira Thomas reports

LUCARA ANNOUNCES Q3 RESULTS WITH A 57% INCREASE IN REVENUE TO $72.7 MILLION FOLLOWING A STRONG PRODUCTION QUARTER

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

Q3 2021 highlights:

• Revenue of $72.7-million during Q3 2021, a 57-per-cent increase over the previous quarter, resulted in an average price per carat sold of $619;
• Board sanction of the $534-million Karowe underground expansion project extending the mine life out to 2040, following the arrangement of full project financing through a combination of debt and equity financings;
• The Karowe underground expansion project continued to ramp up in Q3 with the commencement of presinking activities on both the ventilation and production shafts under a total spend of $64-million to date in 2021;
• Strong production in the third quarter with recovery of specials (plus 10.8 carats) at 7.9 per cent weight per cent:
  • 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;
  • Recovery of a 393.5-carat top white Type IIa gem-quality diamond from direct milling of ore sourced from the M/PK(S) unit of the South Lobe. This is the third gem-quality plus-300-carat produced from the M/PK(S) unit in 2021, following the recovery of two top white gems (341 carats and 378 carats) in January, 2021. In addition, a 257.7-carat top white Type IIa gem-quality diamond was recovered during the August production month.
• Clara platform transaction values totalled $6.6-million in Q3 2021, a 136-per-cent increase from the $2.8-million transacted in Q3 2020. Clara observed strong price increases continuing through the quarter and the number of buyers on the platform increased from 84 to 87 as of Sept. 30, 2021;
• Sales under the HB supply agreement of $50.5-million in Q3 2021, resulting in an average price per carat of $8,066. The strong performance reflects a high proportion of specials (plus 10.8 carats) recovered and sold, higher market prices for diamonds, and top-up payments received for polished diamond sales.

Eira Thomas, president and chief executive officer, commented: "Strong production, including a high volume of specials (diamonds more than 10.8 carats in size), combined with our innovative and optimized approach to sales of rough and polished diamonds into a strengthening market for diamond jewellery, has delivered a 57-per-cent increase in revenues quarter over quarter. The company also formally sanctioned the underground expansion project, following the arrangement of full project financing, which will support operations at Karowe at current production rates until at least 2040. These developments have significantly derisked Lucara's outlook on growth and has positioned the company to benefit from a stronger, more stabilized diamond price environment as global rough diamond supply remains constrained."

Review for the three months ended Sept. 30, 2021:

• Operational highlights from the Karowe mine included:
  • Ore and waste mined of 1.3 million tonnes and 600,000 tonnes, respectively;
  • 740,000 tonnes of ore processed resulting in 97,412 carats recovered, achieving a recovered grade of 13.2 carats per hundred tonnes;
  • 212 specials (plus 10.8 carats) were recovered from direct milling during the third quarter, representing 7.9 per cent weight percentage of total direct milling recovered carats, a strong production quarter in terms of specials recovered (Q3 2020: 6.5 per cent);
  • A total recordable injury frequency (TRIF) of zero was achieved for the third consecutive quarter;
• Financial highlights for the three months ended Sept. 30, 2021, included:
  • Total revenue of $72.7-million was recognized in Q3 2021 (Q3 2020: $41.3-million) or $619 per carat (Q3 2020: $365 per carat) from the sale of 117,459 carats (Q3 2020: 112,943 carats);
  • The company recorded net income of $12.8-million during Q3 2021 (earnings per share of three cents), as compared with a net loss of $5.4-million for Q3 2020 (loss per share of one cent);
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for Q3 2021 of $36.8-million was the result of a high proportion of specials (plus 10.8 carats) recovered and sold, as well as overall higher market prices for diamonds, supported by incremental top-up payments received under the HB supply agreement for polished diamond sales. This compares with $9.9-million for the same period in 2020;
  • As at Sept. 30, 2021, the company had cash and cash equivalents of $26.6-million, an increase of $21.7-million from Dec. 31, 2020;
  • Following the achievement of financial close of the facilities on Sept. 2, 2021, first drawdown of $25-million occurred. The outstanding balance on the working capital facility was reduced from $50.0-million to $30.0-million.

Diamond sales

Diamond sales in Q3 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, which are to be manufactured and sold as polished. Clivage-low and rejection stones greater than 10.8 carats were sold in the quarterly tender held in September. The company recognized revenue of $72.7-million or $619 per carat from the sale of 117,459 carats. Stronger performance was driven by a high proportion of specials (plus 10.8 carats) recovered and sold over the quarter, higher diamond prices, and a contribution from top-up payments for polished diamonds sold under the HB supply agreement. 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 decided 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 recovered that exceed 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, less a fee and the cost of manufacturing. Changes to the payment profile were also amended in the extended agreement to better reflect the timing of mine production and the manufacturing process. This unique pricing mechanism delivers regular cash flow for this important segment of the company's production profile. The company recorded revenue of $50.5-million over the third quarter, compared with $25.9-million in Q3 2020. Polished sales frequency and prices achieved have continued to increase through 2021, resulting in higher revenue.

Clara sales platform

Clara, Lucara's 100-per-cent-owned proprietary, secure, Web-based digital sales platform, continues to gain scale and interest. In the third quarter, four sales took place with a total sales volume transacted of $6.6-million, a 136-per-cent increase from the $2.8-million transacted in Q3 2020. Clara also observed a steady upward price trend at each subsequent sale throughout the period. The number of buyers on the platform increased to 87 in Q3, from 84 in Q2, with the company maintaining a waiting list to manage supply and demand. Platform trials and discussions continued through the quarter and are continuing with third parties to build supply. Interest in Clara has grown considerably since 2020, sparked by global restrictions on travel, combined with a new openness to purchasing rough diamonds in an innovative way.

Karowe underground expansion update

The Karowe UGP will extend the mine life to at least 2040, with 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. Following the financial close of the facilities on Sept. 2, 2021, the company's board of directors formally approved the UGP, which has a $534-million capital cost and a five-year construction period. Mine ramp-up is expected in Q1 2026, with full production from the UGP expected in Q4 2026.

Highlights of the activities undertaken this year include:

• The company has spent $64.6-million to Sept. 30, 2021, primarily in relation to engineering and procurement of long lead items and the commencement of construction activities; the total planned spend for 2021 is up to $120.0-million.
• During Q3 2021, the company spent $32.0-million on project execution activities, including full mobilization of the presink shaft sinking contractor, commencing presinking of the ventilation and production shafts, ventilation shaft scotch derrick erection and installation, continued surface infrastructure construction for shaft development and the second phase of a 200-person camp, and the commencement of bush clearing on the route for the 29-kilometre 132-kilovolt transmission line bulk power upgrade.

Upcoming activities for the UGP

Activities on the UGP in Q4 2021 are expected to include the following: commissioning of scotch derrick cranes; completion of ventilation and production shaft presinking; continuation of shaft civil works; mobilize head frame material and contractor to start head frame preassembly; continuation of detailed design and engineering of the underground mine infrastructure and layout; commissioning of temporary generators; commencement of bulk power supply infrastructure and foundation works for the transmission line towers; transmission line engineering; and completion of other site related infrastructure. JDS Energy & Mining Inc. is the engineering procurement construction manager for the execution of the Karowe UGP. JDS is currently building up the on site project team in conjunction with the Lucara owners' team, while working closely with the Karowe diamond mine operations team.

Diamond market

Following a challenging 2020, the diamond market in 2021 continues to be in a healthy balance due to robust demand and lower rough supply. The market remained stable in Q3 despite concerns there may be a softening in the Chinese market. Mid-stream demand remains strong with capacity in particularly India remaining high, leading up to an expected strong holiday season over the coming months.

Update on COVID-19 response

Measures and guidelines implemented by the government of Botswana in late March, 2020, have allowed the Karowe mine to remain fully operational throughout the pandemic. These measures designated mining as an essential service in Botswana, and included increased travel restrictions, reduced overall staffing levels and appropriate social distancing, among other restrictions. The government of Botswana extended the state of emergency several times before it was lifted on Sept. 30, 2021. The company has been able to continue mining and processing activities during the state of emergency as most of the work force (plus 98 per cent) are Botswana nationals.

The company continues to operate under its approved crisis management plan, designed to protect the health and well-being of the company's 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. All contractors and visitors are required to have negative COVID-19 tests and adhere to all COVID-19 protocols while conducting work at company operations in Botswana. A government-sponsored vaccination program commenced in Botswana midyear. At the end of September, 67 per cent had received a first dose and 8 per cent of the company's work force was fully vaccinated. As the vaccination programs ramp up, the company is working toward fully vaccinating the work force by the end of Q4 2021.

2021 outlook

This section of the news release provides management's production and cost estimates for 2021. These are forward-looking statements and subject to the cautionary note regarding the risks associated with forward-looking statements. Based on expectations for revenue in Q4 2021, the lower end of diamond revenue guidance has been increased to $195.0-million from $180.0-million. In Q2 2021, a change was made to the allocation between ore and waste mining 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.

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.

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 Thursday, Nov. 4, 2021, at 7 a.m. PT (10 a.m. ET ) (2 p.m. United Kingdom time) (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:  40783748 or Lucara Diamond

Dial-in numbers

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

United Kingdom toll-free:  800-652-2435

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

Webcast:  A live webcast presentation will be available.

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 Nov. 11, 2021.

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

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

Passcode for replay:  783748

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.

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