REG - Lucara Diamond Corp - 3rd Quarter Results

Lucara DiamondAnnouncement

03/11/2022 07:00

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RNS Number : 1474F  Lucara Diamond Corp  03 November 2022

November 2, 2022

 

NEWS RELEASE

 

2022 GUIDANCE ON-TRACK FOLLOWING STRONG OPERATIONAL PERFORMANCE IN THIRD
QUARTER AS UNDERGROUND SHAFT SINKING CONTINUES

 

VANCOUVER, November 2, 2022 /CNW/ (LUC - TSX, LUC - BSE, LUC - Nasdaq
Stockholm)

 

Lucara Diamond Corp. ("Lucara" or the "Company") today reports its results for
the quarter ended September 30, 2022.

Q3 2022 HIGHLIGHTS:

·      Revenue for the three and nine months ended September 30, 2022
totalled $49.9 million and $170.5 million, respectively.

·      For the nine months ended September 30, 2022, a total of 245,764
carats were sold from Karowe at an average price of $528 per carat, generating
revenue of $129.9 million before top-up payments of $33.8 million.

·      A strong U.S. Dollar helped to mitigate increases in input costs,
resulting in an operating cash cost of $29.33 per tonne of ore processed((1))
for the three months ended September 30, 2022.

·      A strong year-to-date operational performance supports the
Company's 2022 revenue guidance of $195 million and $225 million.  Operating
cost per tonne on an annualized basis is expected to be at the low-end of 2022
Guidance ($29.50 to $33.50).

·      Rough and polished diamond prices continued to exceed prices from
2021, despite growing global economic uncertainties.

·      On Clara, more than 40% of sales came from third-party goods
transacted, reflecting a positive trend towards increased diversification of
supply and less reliance on Karowe production. Revenue from sales transacted
on Clara during the three months ended September 30, 2022 totalled $8.3
million.

·      Production metrics remained in line with 2022 guidance, with 0.9
million tonnes of ore and 0.5 million tonnes of waste mined, and 0.7 million
tonnes of ore processed during the three months ended September 30, 2022.

·      The main sink phase for the production shaft commenced at the end
of September; sinking of the ventilation shaft continued.

·     A total project investment of $23.9 million into the Karowe UGP
during the current quarter focused on the transition to main sink activities
for both shafts, procurement of underground mobile equipment and construction
of the upgraded transmission line and related substations.

Eira Thomas, President & CEO commented: "Lucara remains on track for
another solid year, with sales from our large, high value diamonds continuing
to achieve consistent, healthy polished prices under our committed supply
agreement with HB, despite recent market softening.  Clara also continued to
make good progress during the quarter, adding third party supply from both
producer trials and secondary market sources, to positive results.
Importantly, third party supply now accounts for more than 40% of sales on
Clara.  It was also a busy and productive period for the underground project.
 Main sinking commenced on the production shaft and mitigations implemented
during the third quarter in response to operational start-up challenges are
beginning to take effect, with progress made to reduce cycle times for both
production and ventilation shafts."

 

REVIEW FOR THE QUARTER ENDED SEPTEMBER 30, 2022

·      Operational highlights from the Karowe Mine for the three months
ended September 30, 2022 included:

o Mined 0.9 million tonnes (Q3 2021: 1.2) and 0.5 million tonnes (Q3 2021:
0.7) of ore and waste, respectively.

o Processed 0.7 million tonnes of ore (Q3 2021: 0.7) and recovered 78,879
carats (Q3 2021: 95,907 carats), achieving a recovered grade of 11.4 carats
per hundred tonnes (Q3 2021: 13.0 cpht).

o A total of six diamonds greater than 100 carats including one stone greater
than 200 carats were recovered during the quarter.

o The year-to-date Total Recordable Injury Frequency Rate ("TRIFR") of 0.32
(Q3 2021: zero) at the end of Q3 2022 reflects four medical treatment cases
reported during the third quarter of 2022.

·      Financial highlights for the three months ended September 30, 2022
included:

o Revenues from the sale of 99,301 carats recovered from the Karowe Mine were
$46.5 million. The sales agreement with HB Trading BV ("HB") accounted for 58%
of total Karowe revenue recognized in the quarter.

o Operating cash costs of $29.33 per tonne processed((1)) on plan reflect the
impact of higher input costs, partially offset by a comparatively stronger
U.S. Dollar.

o Adjusted EBITDA((1)) of $13.8 million and net income for the quarter of $1.8
million ($0.00 basic earnings per share).

·      Cash position and liquidity:

o As at September 30, 2022, the Company had cash and cash equivalents of $34.8
million.

o Drawn $65.0 million from the $170.0 million project loan facility.

o The working capital facility of $50.0 million was undrawn as at September
30, 2022.

 2022 OUTLOOK

This section of the press release provides management's production and cost
estimates for 2022.  These are "forward-looking statements" and subject to
the cautionary note regarding the risks associated with forward-looking
statements. No changes were made to the Company's 2022 Guidance as of Q3
2022.  In February 2022, based on updated expectations for revenue in 2022,
the diamond revenue guidance issued was increased to between $195.0 million
and $225.0 million (from $185.0 million to $215.0 million). 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.

 Karowe Diamond Mine                                                                    Full Year - 2022
 In millions of U.S. dollars unless otherwise noted
 Diamond revenue (millions) (revised as of February 2022)                               $195 to $225
 Diamond sales (thousands of carats)                                                    300 to 340
 Diamonds recovered (thousands of carats)                                               300 to 340
 Ore tonnes mined (millions)                                                            3.1 to 3.5
 Waste tonnes mined (millions)                                                          1.5 to 2.1
 Ore tonnes processed (millions)                                                        2.6 to 2.8
 Total operating cash costs((1)) including waste mined((2)) (per tonne processed)       $29.50 to $33.50
 Botswana general & administrative expenses including marketing costs (per tonne        $3.50 to $4.00
      processed)
 Tax rate((3))                                                                          0%
 Average exchange rate - USD/Pula                                                       11.0

(1) Operating cash costs are a non-IFRS measure.  See "Non-IFRS Financial
Performance Measures".

(2) Includes ore and waste mined cash costs of $5.75 to $6.25 (per tonne
mined) and processing cash costs of $12.00 to $13.00 (per tonne processed).

(3) The Company is subject to a variable tax rate in Botswana based on a
profit and revenue ratio which increases as profit as a percentage of revenue
increases. The lowest variable tax rate is 22% while the highest variable tax
rate is 55% (only if taxable income were equal to revenue).  Capital
expenditures are deductible when incurred. With planned capital expenditures
of up to $110 million for the UGP, a tax rate of 0% is forecast for 2022.
Should capital expenditures vary from plan, the Company could be subject to
current tax.

DIAMOND SALES

Diamond sales in Q3 2022 continued through HB under the sales agreement for
those gem and near-gem diamonds greater than 10.8 carats which are to be
manufactured and sold as polished. Other diamonds continued to be sold through
a combination of the Clara platform and regular tenders.

The Company recognized total revenues of $49.9 million in Q3 2022. This
included $46.5 million from the sale of 99,301 carats from Karowe, top-up
payments of $9.0 million as well as $3.4 million from the sale of third-party
goods on the Clara platform. In the comparative quarter, the Company achieved
revenues of $72.7 million which included $72.5 million from the sale of
117,162 carats from Karowe, top-up payments of $2.7 million as well as $0.2
million in revenue from third-party goods sold through the Clara platform.

HB SALES 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.  In 2020, Lucara
announced a partnership agreement with HB, entering into a definitive sales
agreement for diamonds recovered that exceed +10.8 carats from the Company's
100% owned Karowe Diamond mine in Botswana. This agreement was subsequently
amended and extended to December 31, 2022.  The mechanisms of the agreement
result in complete transparency within the value chain and create important
alignment between the producer and the manufacturer for the first time.

Under the amended sales agreement, +10.8 carat gem and near gem diamonds from
the Karowe Mine of qualities that can directly enter the manufacturing stream
are being sold to HB at prices based on the estimated polished outcome of each
diamond. The estimated polished value is 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. Following
the extension of the HB Agreement in 2021, all +10.8 carat non-gem quality
diamonds and all diamonds less than 10.8 carats in weight which did not meet
the criteria for sale on Clara are being sold as rough through the quarterly
tender. In the agreement extension, payment terms were amended 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.

For the three months ended September 30, 2022, the Company recorded revenue of
$27.1 million from the HB agreement (inclusive of top-up payments of $9.0
million), as compared to revenue of $50.5 million in Q3 2021 (inclusive of
top-up payments of $2.7 million). The decrease in revenue in Q3 2022 versus
the comparative quarter can be attributed primarily to the number of high
value diamonds delivered to HB in Q3 2021 (four pink diamonds and two Type IIa
top white gem diamonds (393.5 carats and 257.5 carats)) for which an initial
MPV payment was received in Q3 2021.  In addition, more carats were delivered
to HB in the comparative quarter (6,258 carats vs.2,412 carats).  Despite the
overall decrease in revenue recognized in Q3 2022, diamond market fundamentals
continued to support healthy prices as steady demand and some inventory
shortages were reported. Natural variability in the quality profile of the
+10.8ct production in any production period or fiscal quarter results in
fluctuations in recorded revenue and associated top-ups between periods is
expected.  During Q3 2022, 7.1% weight percentage Specials of total carats
recovered was consistent with the Karowe resource model.

As a result of the sales agreement with HB, the Company also participated in
polished diamond price increases during Q3 2022 as rough diamonds sold to HB
in previous quarters were polished and sold.  In Q3 2022, estimated top-up
payments of $9.0 million (Q3 2021: $2.7 million) were included in revenue for
the quarter. At September 30, 2022 a number of higher value and more
technically complex stones that take longer to manufacture had not fully
completed the manufacturing and sales process. These stones were delivered to
HB in 2021 and the first nine months of 2022.  As these stones finish the
manufacturing process and are sold, the Company' may record additional revenue
in the form of "top-up" payments from these sales.

CLARA SALES PLATFORM

Clara, Lucara's 100% owned proprietary, secure, web-based digital sales
platform, continues to gain scale and interest.  Interest in Clara continues
to grow as the benefits of purchasing rough diamonds in an innovative way
become evident.  In Q3 2022, four sales (Q3 2021: four sales) took place with
a total sales volume transacted of $8.3 million, a 26% increase from the $6.6
million transacted in Q3 2021, as Karowe goods were supplemented by growth in
supply from additional sources. The number of buyers on the platform remained
stable during the quarter with the Company maintaining a waiting list to
manage supply and demand.

Additional supply is required to meet existing demand and drive the platform's
growth and the Company continued trial sales on the Clara platform with a
third-party producer in Q3 2022.  The Company intends to continue to seek
additional supply in 2022, both from third-party producers and the secondary
market.

KAROWE UNDERGROUND EXPANSION UPDATE

The Karowe UGP is expected to extend the mine life to at least 2040, with
initial underground carat production predominantly from the highest value
EM/PK(S) unit and is forecast to contribute approximately $4 billion in
additional revenues, using conservative diamond prices.  The updated
estimated capital cost for the Karowe UGP is $547 million (including
contingency) and reflects expected pricing changes following execution of the
main sink contract in Q2 2022.  Mine ramp up is expected in 2026 with full
production from the Karowe UGP expected in H2 2026.  The Company is using a
combination of cash flow from operations and project debt for the investment
in the Karowe UGP, which is fully financed.

During the three months ended September 30, 2022, a total of $23.9 million was
spent on the Karowe UGP development, primarily in relation to ongoing
construction activities and procurement of long lead items, including:

·      Main sinking of the production shaft commenced at the end of
September while main sinking in the ventilation shaft continued.  As main
sinking activity ramped up in the ventilation shaft during the third quarter,
several operational issues arose resulting in sinking rates achieving less
than plan due to longer cycle times. In response to the operational challenges
and longer duration cycle times, changes and mitigations were actioned during
the quarter. Observed cycle times and sinking rates are improving. The start
of main sink activity in the production shaft was delayed due to longer than
planned commissioning of the winders and hoisting plant.  Cycle times are now
improving.

·      Procurement of shaft station underground mobile equipment
progressed with equipment deliveries expected to commence in Q4 2022 and Q1
2023.

·      The Letlhakane and Karowe substation construction continued with
focus on civil work and cable pulling for control equipment installation. The
transmission line towers were equipped with stringing hardware and safety nets
were installed over existing line crossings.

Activities for the Karowe UGP in the fourth quarter of 2022 are expected to
include the following:

·      Sinking within both the ventilation and production shafts.

·      Procurement of underground equipment, including awarding the bulk
air cooler tender.

·      Continuation of detailed design and engineering of the underground
mine infrastructure and layout.

·      Commissioning the 29 km, 132kV bulk power supply powerline.

DIAMOND MARKET

After a strong start to the third quarter of 2022, diamond price softening was
observed in late August and into September, however, solid market fundamentals
continue to support diamond prices despite growing concerns of a global
economic slowdown. High levels of reported inflation persisted, and
governments responded with increasingly forceful measures in attempts to
reduce it to sustainable levels.

A cautious economic outlook combined with the uncertainty caused by
geopolitical events, including the ongoing conflict in Ukraine and continuing
implications of the COVID-19 pandemic (specifically in China where the demand
for diamonds has not yet recovered) remain a risk to diamond pricing trends in
the short term with demand from the US a critical driver on prices of both
rough and polished diamonds. The longer-term market fundamentals remain
unchanged and positive, however, pointing to strong price growth over the next
few years as demand is expected to outstrip future supply.

The benefits of the committed sales agreement with HB continued to be realized
during the third quarter of 2022 as the Company participated in the upside to
manufacturing polished diamonds for goods delivered in previous quarters. The
integrated approach, using state of the art scanning and planning technology
has further enhanced the final achieved polished outcome for very large (+50
carat polished) and high value diamonds, a critical production segment for the
Company.

FINANCIAL HIGHLIGHTS

                                                                    Three months ended September 30,                  Nine months ended
                                                                                                                      September 30,
 In millions of U.S. dollars, except carats or otherwise noted      2022                  2021                  2022         2021

 Revenues                                                           49.9                  72.7                  170.5        172.1
 Operating expenses                                                 (25.8)                (23.2)                (60.8)       (58.0)
 Net income for the period                                          1.8                   12.8                  33.3         22.2
 Earnings per share (basic)                                         0.00                  0.03                  0.07         0.05
 Earnings per share (diluted)                                       0.00                  0.03                  0.07         0.05
 Operating cash flow per share((1))                                 0.03                  0.08                  0.17         0.19
 Cash on hand                                                       34.8                  26.6                  34.8         26.6
 Amounts drawn on working capital facility                          -                     30.0                  -            30.0
 Amounts drawn on project finance facility                          65.0                  25.0                  65.0         25.0
 Karowe Revenue                                                     46.5                  72.5                  163.7        171.4
 Average price per carat sold ($/carat)((2))                        337                   596                   528          546
 Carats sold                                                        99,301                117,162               245,763      277,702

 

QUARTERLY RESULTS OF OPERATIONS - KAROWE MINE, BOTSWANA

                                                   UNIT        Q3-22    Q2-22      Q1-22    Q4-21    Q3-21
 Sales
 Revenues from the sale of Karowe diamonds         US$M        46.5     50.0       67.2     56.5     72.5
 Karowe carats sold                                Carats      99,301   66,167     80,295   102,791  117,162
 Average price per carat - excluding top-ups((1))  US$         377      557        690      436      596
 Production
 Tonnes mined (ore)                                Tonnes      920,410  1,091,192  811,947  610,072  1,190,856
 Tonnes mined (waste)                              Tonnes      453,860  357,764    482,104  276,263  696,907
 Tonnes processed                                  Tonnes      693,398  719,207    666,488  705,877  738,986
 Average grade processed((2))                      cpht ((*))  11.4     12.0       12.6     12.8     13.0
 Carats recovered                                  Carats      78,879   86,317     83,917   90,634   97,412
 Costs
 Operating expense per Karowe carat sold((3))      US$         227      221        212      200      193
 Margin (mining operations) per Karowe carat sold  US$         150      336        478      236      403
 Operating cost per tonne of ore processed((4))    US$         29.33    28.78      27.80    29.74    29.73

 Capital Expenditures
 Sustaining capital expenditures                   US$M        4.0      4.1        0.8      9.1      3.4
 Underground expansion project((5))                US$M        23.9     29.1       31.1     21.8     32.0

CONFERENCE CALL

CONFERENCE CALL

The Company will host a conference call and webcast to discuss the results on
Thursday, November 3, 2022 at 7:00 a.m. Pacific, 10:00 a.m. Eastern, 2:00 p.m.
UK, 3:00 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:

9230878 / Lucara Diamond

 

Dial-In Numbers:

   Toll-Free Participant Dial-In North America                 (+1)
888 204 4368

   UK Toll free
                                0800 358 6377

   Local Vancouver
                        (+1) 604 449 6082

   Local Toronto
                           (+1) 647 794 4605

 

Webcast:

To view the live webcast presentation, please log on using this direct link:
https://app.webinar.net/oVQNzQ4mERL (https://app.webinar.net/oVQNzQ4mERL)

 

The presentation slideshow will also be available in PDF format for download
from the Lucara website (Link to presentation
(https://lucaradiamond.com/newsroom/presentations/) ).

 

Conference Replay:

A replay of the telephone conference will be available two hours after the
completion of the call until

November 10, 2022.

 

   Replay number (Toll Free North America)                    (+1)
888 390 0541

   Replay number (Local)
                    (+1) 416 764 8677

 

The pass code for the replay is: 910144#.

 

On behalf of the Board,

Eira Thomas

President and Chief Executive Officer

 

Follow Lucara Diamond on Facebook (https://www.facebook.com/LucaraDiamond/) ,
Twitter (https://twitter.com/LucaraDiamond) , Instagram
(https://www.instagram.com/lucaradiamond/) , and LinkedIn
(https://www.linkedin.com/company/lucara-diamond-corp-)

 

For further information, please contact:

 

 Hannah Reynish       Investor Relations & Communications
                      +1 604 674 0272| info@lucaradiamond.com (mailto:info@lucaradiamond.com)

 Sweden               Robert Eriksson, Investor Relations & Public Relations
                      +46 701 112615 | reriksson@rive6.ch (mailto:reriksson@rive6.ch)

 UK Public Relations  Charles Vivian / Jos Simson, Tavistock
                      +44 778 855 4035 | lucara@tavistock.co.uk (mailto:lucara@tavistock.co.uk)

 

ABOUT LUCARA

Lucara is a leading independent producer of large exceptional quality Type IIa
diamonds from its 100% 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
("Clara"), a wholly-owned subsidiary of Lucara, has developed a secure,
digital sales platform that uses proprietary analytics together with cloud and
blockchain technologies to modernize the existing diamond supply chain,
driving efficiencies, unlocking value and ensuring 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 expansion
project ("UGP") 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.

 

The information is information that Lucara is obliged to make public pursuant
to the EU Market Abuse Regulation and the Swedish Securities Markets Act. This
information was submitted for publication, through the agency of the contact
person set out above, on November 2, 2022 at 4:30pm Pacific Time.

NON-IFRS FINANCIAL PERFORMANCE MEASURES

This news release refers to certain financial measures, such as adjusted
EBITDA, adjusted operating earnings, operating cash flow per share, operating
margin per carat sold and operating cost per tonne of ore processed, which are
not measures recognized under IFRS and do not have a standardized meaning
prescribed by IFRS. These measures may differ from those made by other
corporations and accordingly may not be comparable to such measures as
reported by other corporations. These measures have been derived from the
Company's financial statements, and applied on a consistent basis, because the
Company believes they are of assistance in the understanding of the results of
operations and financial position. Please refer to the Company's MD&A for
the three and nine months ended September 30, 2022 for an explanation of
non-IFRS measures used.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain of the statements made and contained herein and elsewhere constitute
forward-looking statements as defined in applicable securities laws.
Generally, these forward-looking statements can be identified by the use of
forward-looking terminology such as "expects", "anticipates", "believes",
"intends", "estimates", "potential", "possible" and similar expressions, or
statements that events, conditions or results "will", "may", "could" or
"should" occur or be achieved.

Forward-looking statements are based on the opinions and estimates of
management as of the date such statements are made, and they are subject to a
number of known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievement
expressed or implied by such forward-looking statements. The Company believes
that expectations reflected in this forward-looking information are
reasonable, but no assurance can be given that these expectations will prove
to be accurate and such forward-looking information included herein should not
be unduly relied upon.

In particular, forward-looking information and forward-looking statements in
this news release may include, but are not limited to, information or
statements with respect to the equity and project debt financings, the
intended use of proceeds, the Company's ability to comply with the terms of
the Facilities which are required to construct the Karowe UGP, that expected
cash flow from operations, combined with external financing will be sufficient
to complete construction of the Karowe UGP, that the estimated timelines to
achieve mine ramp up and full production from the Karowe UGP can be achieved,
the economic potential of a mineralized area, the size and tonnage of a
mineralized area, anticipated sample grades or bulk sample diamond content,
future production activity, the future price and demand for diamonds, future
forecasts of revenue and variable consideration in determining revenue,
estimation of mineral resources, exploration and development plans, cost and
timing of the development of deposits and estimated future production,
permitting time lines, currency exchange rates, success of exploration,
requirements for and availability of additional capital, capital expenditures,
operating costs, timing of completion of technical reports and studies, tax
rates, timing of drill programs, government regulation of operations,
environmental risks and ability to comply with all environmental regulations,
reclamation expenses, title matters including disputes or claims, limitations
on insurance coverage, negotiations and agreements among the Company and the
Botswana Mine Workers Union, the completion of transactions and timing and
possible outcome of pending litigation, the profitability of Clara and the
Clara Platform, and the scaling of the digital platform for the sale of rough
diamonds owned by Clara, the benefits to the Company of diamond supply
agreements with HB and the ability to generate better prices from the sale of
the Company's +10.8 carat production as a polished stone.

There can be no assurance that such forward looking statements will prove to
be accurate, as the Company's results and future events could differ
materially from those anticipated in this forward-looking information as a
result of those factors discussed in or referred to under the heading
"COVID-19 Global Pandemic" in the Company's most recent MD&A and under the
heading "Risks and Uncertainties" in the Company's most recent Annual
Information Form, both available at http://www.sedar.com, as well as changes
in general business and economic conditions, the ability to continue as a
going concern, changes in interest and foreign currency rates, changes in
inflation, the supply and demand for, deliveries of and the level and
volatility of prices of rough diamonds, costs of power and diesel, impacts of
potential disruptions to supply chains, acts of foreign governments and the
outcome of legal proceedings, inaccurate geological and recoverability
assumptions (including with respect to the size, grade and recoverability of
mineral reserves and resources), and unanticipated operational difficulties
(including failure of plant, equipment or processes to operate in accordance
with specifications or expectations, cost escalations, unavailability of
materials and equipment, government action or delays in the receipt of
government approvals, industrial disturbances or other job actions, adverse
weather conditions, and unanticipated events relating to health safety and
environmental matters).

Accordingly, readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date the statements were
made, and the Company does not assume any obligations to update or revise them
to reflect new events or circumstances, except as required by law.

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