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2021-11-03

Lucara Diamond Corp.: LUCARA ANNOUNCES Q3 RESULTS WITH A 57% INCREASE IN REVENUE TO $72.7 MILLION FOLLOWING A STRONG PRODUCTION QUARTER

VANCOUVER, November 3, 2021 /CNW/ (LUC - TSX, LUC - BSE, LUC - Nasdaq Stockholm)

Lucara Diamond Corp. ("Lucara" or the "Company") today reports its results for the third quarter of 2021 ending September 30, 2021, with strong financial and operational performance.

Q3 2021 HIGHLIGHTS:

  • Revenue of $72.7 million during Q3 2021, a 57% 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 funding through a combination of debt and equity financings.
  • The Karowe underground expansion project continued to ramp up in Q3 with the commencement of pre-sinking 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 (+10.8 carats) at 7.9% weight percent:

  • 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 +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 totaled $6.6 million in Q3 2021, a 136% 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 September 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 (+10.8 carat) recovered and sold, higher market prices for diamonds, and top-up payments received for polished diamond sales.

Eira Thomas, President & CEO commented: "Strong production, including a high volume of Specials (diamonds >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% 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 de-risked 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 SEPTEMBER 30, 2021

  • Operational highlights from the Karowe Mine included:
  • Ore and waste mined of 1.3 million tonnes and 0.6 million tonnes, respectively.
  • 0.74 million tonnes of ore processed resulting in 97,412 carats recovered, achieving a recovered grade of 13.2 carats per hundred tonnes.
  • 212 Specials (+10.8 carats) were recovered from direct milling during the third quarter, representing 7.9% weight percentage of total direct milling recovered carats, a strong production quarter in terms of Specials recovered (Q3 2020: 6.5%).
  • A Total Recordable Injury Frequency ("TRIF") of 0 was achieved for the third consecutive quarter.

  • Financial highlights for the three months ended September 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 $0.03), as compared to a net loss of $5.4 million for Q3 2020 (loss per share of $0.01).
  • Adjusted EBITDA(1) for Q3 2021 of $36.8 million was the result of a high proportion of Specials (+10.8 carat) 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 to $9.9 million for the same period in 2020.
  • As at September 30, 2021, the Company had cash and cash equivalents of $26.6 million, an increase of $21.7 million from December 31, 2020. 
  • Following the achievement of Financial Close of the Facilities on September 2, 2021, first drawdown of $25 million occurred. The outstanding balance on the working capital facility was reduced from $50.0 to $30.0 million.

(1)    See Non-IFRS measures

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 (+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 +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 +10.8 CARAT DIAMOND PRODUCTION FROM KAROWE

Karowe's large, high value diamonds have historically accounted for approximately 60% to 70% 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 +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 +10.8 carats from the Company's 100% owned Karowe Diamond mine in Botswana.  In April 2021, this agreement was subsequently extended for a 24-month period, effective from January 1, 2021 to December 31, 2022.

Under the amended supply agreement with HB, +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 our production profile.  The Company recorded revenue of $50.5 million over the third quarter, compared to $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% owned proprietary, secure, web-based digital sales platform, continues to gain scale and interest. In the third quarter, 4 sales took place with a total sales volume transacted of $6.6 million, a 136% 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 ongoing 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 Financial Close of the Facilities on September 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:

  • $64.6 million has been spent to September 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 pre-sink shaft sinking contractor, commencing pre-sinking 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 km 132kV 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 pre-sinking, continuation of shaft civil works, mobilize headframe material and contractor to start headframe pre-assembly, 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. ("JDS") is the Engineering Procurement Construction Manager for the execution of the Karowe UGP. JDS is currently building up the onsite 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. Midstream 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 distanc...

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