Lucara Diamond : 2024 Year End Report
LUC.TO
Management's Discussion and Analysis
and
Consolidated Financial Statements Year Ended December 31, 2024
LUCARA DIAMOND CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 31, 2024
Management's discussion and analysis ("MD&A") focuses on significant factors that have affected Lucara Diamond Corp. ("Lucara" or the "Company") and its subsidiaries' performance and such factors that may affect its future performance. To better understand the MD&A, it should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2024, which are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards"). All amounts are expressed in U.S. dollars unless otherwise indicated.
The technical information related to mineral resources in the MD&A was prepared under the supervision of Dr. Lauren Freeman (Ph.D., Pr. Sci Nat), Lucara's Vice-President, Mineral Resources, and a Qualified Person, as that term is defined in National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101").
Some of the statements in this MD&A are forward-looking statements that are subject to risk factors set out in the cautionary note contained herein and, in the Company's, Annual Information Form ("AIF"). The AIF along with additional information about the Company and its business activities is available on SEDAR+ at www.sedarplus.ca.
The effective date of this MD&A is February 21, 2025.
ABOUT LUCARA
Lucara is a leading independent producer of large exceptional quality Type IIa diamonds from its 100% owned Karowe Diamond Mine in Botswana ("Karowe"). Karowe has been in production since 2012 and is the focus of the Company's operations and development activities. 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 is certified by the Responsible Jewellery Council, complies with the Kimberley Process, and 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 project (the "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 Company's corporate office is in Vancouver, Canada and its common shares trade on the Toronto Stock Exchange ("TSX"), the Nasdaq First North Growth Market, and the Botswana Stock Exchange under the symbol "LUC".
HIGHLIGHTS - FISCAL 2024
1 The carats reflect the final cleaned weight of the rough stone. The stone was previously reported at 2,492-carats.
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464 m of lateral development was completed, connecting the two shafts at the 670-level and 470-level. Each level is equivalent to a metre above sea level.
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DIAMOND MARKET
The long-term outlook for natural diamond prices remains cautiously optimistic despite current challenges. While the influx of Angolan rough diamonds and the subdued demand for polished diamonds, especially from China, have led to price corrections, particularly in smaller sizes, the industry sentiment suggests that the market may have reached its bottom during Q4 2024. A gradual recovery is expected to be driven by increasing demand for larger diamonds due to reduced production, and the overall long-term demand for natural diamonds.
While the diamond market is navigating a period of adjustment, it presents opportunities for strategic adaptation and growth. Indian diamond manufacturers are actively responding to evolving demand dynamics, exploring new markets and product segments, while prices of laboratory-grown diamonds have continued to decrease in 2024 with production outweighing demand for these products. Although De Beers and Alrosa's recent price adjustments have not yet spurred a significant uptick in demand, they demonstrate a commitment to market responsiveness and price stability. As the industry moves into 2025, buyers are exercising prudent inventory management while holding firm on polished prices, which could lead to a healthier and more sustainable market in the long run.
DIAMOND SALES
Karowe diamonds are sold through three sales channels: through a diamond sales agreement with HB Trading BV ("HB"), through quarterly tenders, and on the Clara sales platform.
HB Sales
Karowe's large, high value diamonds have historically accounted for approximately 60% to 70% of Lucara's annual revenues. In February 2024, Lucara entered into a New Diamond Sales Agreement ("NDSA") with HB, effective retroactively from December 1, 2023 . Under this sales agreement, all +10.8 carat gem and near gem diamonds from the Karowe Mine of qualities that could directly enter the manufacturing stream are sold to HB. The initial purchase price paid for the rough diamonds are based on an estimated initial polished value with a true up paid to the Company if the actual achieved polished sales price exceeds the initial price paid, or a repayment if the actual achieved polished sales price is below the initial price paid. The timing of payments varies based on the category of stones being delivered, as determined by the diamond's estimated initial polished value.
The arrangement contains elements of variable consideration as the Company's final consideration is contingent on the price obtained in the future sale of the polished stones by HB. Variable consideration is recognized to the extent that it is highly probable that its inclusion will not result in a significant revenue reversal at the time the uncertainty has subsequently been resolved. Final revenue is determined when the polished diamonds are sold by HB to the end buyer.
Quarterly Tenders
All +10.8 carat non-gem quality diamonds and all diamonds less than 10.8 carats which are not sold on the Clara sales platform are sold as rough diamonds through quarterly tenders.
Clara
Clara is a digital sales platform which is designed to transact single diamonds between 1 and 10 carats, in higher colours and quality. On October 4, 2024, the Company sold this non-core asset, resulting in its classification as discontinued operations for the year ended December 31, 2024. Consideration included $3.0 million in cash less working capital adjustments, the return of 10,000,000 Lucara common shares (valued at $3.3 million) and cancellation of a 13,400,000 Lucara common shares issuance obligation related to sales performance metrics and change of control.
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KAROWE UNDERGROUND PROJECT UPDATE
The UGP is designed to access the highest value portion of the Karowe orebody, with initial underground carat production predominantly from the eastern magmatic/pyroclastic kimberlite (south) ("EM/PK(S)") unit. The UGP is expected to extend the mine life to beyond 2040.
An update to the UGP schedule and budget was announced on July 16, 2023. The anticipated commencement of production from the underground is H1 2028. The revised forecast of costs at completion is $683.4 million (including contingency). As at December 31, 2024, capital expenditures of $347.9 million had been incurred and further capital commitments of $79.2 million had been made.
With the 2023 update to the UGP schedule and budget, the Karowe Mine production and cash flow models were updated for the revised project schedule and cost estimate. Open pit mining is expected to continue until the end of 2025 and to provide mill feed during this time. Stockpiled material (North, Centre, South Lobe) from working stockpiles and life-of-mine stockpiles should provide uninterrupted mill feed until 2027 when UGP development ore is scheduled to start offsetting stockpiles with high-grade ore from the underground development. Full scale underground production is planned for H1 2028. The long-term outlook for diamond prices, combined with the potential for exceptional stone recoveries and the continued performance of the open pit could mitigate the modelled impact on project cash flows due to the changes in schedule. The Company continues to explore opportunities to further mitigate the modelled impact.
During 2024, the UGP achieved a twelve-month rolling Total Recordable Injury Frequency Rate of 0.57. The UGP to date Total Recordable Injury Frequency Rate up to December 31, 2024 was 0.54.
A total of $64.7 million was spent on the UGP development in 2024 for the following surface infrastructure and ongoing shaft sinking activities:
The ventilation shaft 2024 development:
The production shaft 2024 development:
Related infrastructure 2024 development:
Activities planned for the UGP in Q1 2025 include the following:
3 Each level is equivalent to a metre above sea level.
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FINANCING
Project Facility and Working Capital Facility
On January 9, 2024, the Company's wholly owned subsidiary, Lucara Botswana, with Lucara Diamond Corp. as the sponsor and the guarantor, amended its debt package that was originally entered into in 2021 ("Rebased Amendments"). The senior secured project financing debt package of $220 .0 million (the "Facilities") consists of a project finance facility of $190.0 million ($170.0 million prior to amendment) to fund the development, construction costs and construction phase operating costs (the "Project Facility") of the UGP as well as financing costs on the Facilities, and a $30.0 million ($50.0 million prior to amendment) senior secured working capital facility (the "WCF") which is used for working capital and other corporate purposes. While the total quantum of the Facilities did not change, the repayment profile was extended in line with the rebase schedule released on July 16, 2023, and the Facilities maturity was extended to June 30, 2031. The Project Facility has quarterly repayments commencing on September 30, 2028. As of the date of this MD&A, the Facilities are fully drawn.
Interest rates
Both the Project Facility and the WCF bear interest at a rate of a USD Term Secured Overnight Financing Rate ("SOFR") plus a margin of 6.5% annually until the UGP project completion date, and 6.0% annually from the UGP project completion date to June 30, 2029. Thereafter, the margin increases to 7.0% annually for the Project Facility and 7.25% annually for the WCF. Commitment fees for the undrawn portion of the Project Facility and WCF are 35% of the margin per annum.
CORA
In addition, the Rebase Amendments required the Company to place $61.7 million in the CORA as a condition of the Facilities prior to June 30, 2025, with specific provisions of how and when funds may be released from the CORA. The Company is required to fund the remaining balance with the proceeds net of fees and royalites from the sale of exceptional stones recovered after August 2023 (defined as an individual rough diamond which sells for more than $10.0 million) and excess cashflow from operations.
As of December 31, 2024, the Company has drawn $180.0 million from the Project Facility and $25.0 million from the WCF and funded $49.1 million into the CORA.
Nemesia
Under the terms of the Rebase Amendments, the Company's largest shareholder, Nemesia S.à.r.l. ("Nemesia") provided a limited standby undertaking of up to $63.0 million. The limited standby undertaking consists of two components, namely: i) a $28.0 million component for the undertaking to support the requirement to fill the CORA to $61.7 million by June 30, 2025 and; ii) a $35.0 million component for a funding shortfall guarantee in support of the UGP completion.
In connection with the Rebase Amendments, Nemesia also provided a liquidity support guarantee of up to $15.0 million in aggregate in the event the Company's cash balance decreased below $10.0 million. In November 2023, the Company drew $15.0 million from Nemesia's liquidity support guarantee and issued a corresponding unsecured debenture (the "Debenture"). For each $500,000 drawn down under the Debenture, the Company is required to issue, subject to the receipt of all required regulatory approvals, 7,500 common shares per month to Nemesia until the amounts borrowed are repaid. As the scheduled issuance of the common shares would take Nemesia's shareholding in the Company above 20%, the requisite approval by the Company's disinterested shareholders of the common shares issuance to Nemesia was obtained at the May 10, 2024 - Annual and General and Special Meeting. On June 17, 2024, the Company and Nemesia entered into a supplemental agreement to amend the frequency of common share issuances to Nemesia from a monthly to a quarterly basis. As of the published date of this MD&A, Nemesia holds 25.9% of Lucara's total issued and outstanding shares.
As at December 31, 2024, the Company was in compliance with all covenants under the Facilities.
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INTEREST RATE SWAP
In February and September 2024, the Company amended a series of interest rate swaps to the expected Project Facility drawdown schedule under the Rebase Amendments. The total interest rate swaps were amended to amounts up to $142.5 million and the maturity was amended to September 26, 2030. The Company receives interest at the rate equivalent to the three-month USD Term SOFR plus a credit adjustment spread and pays interest at a fixed rate of between 2.447% and 2.577% on a quarterly basis.
As at December 31, 2024, the interest rate swaps had a total unrealized fair value of $8.4 million (December 31, 2023: $8.1 million), of which $2.1 million has been classified as a current asset in the Statement of Financial Position. During 2024, the Company recorded a $0.3 million gain (2023: loss of $1.7 million) on this derivative financial instrument. Movements in the unrealized fair value are recorded through the Statements of Operations.
TABLE 1: FINANCIAL HIGHLIGHTS
Three months ended
Year ended
December 31,
December 31,
In millions of U.S. dollars, except carats sold
2024
2023
2024
2023
Revenues
78.8
36.3
203.9
172.4
Operating expenses
(24.4)
(21.9)
(79.6)
(73.2)
Net income (loss) from continuing operations
38.5
(24.6)
43.6
(5.0)
Net income (loss) from discontinued operations
(1.5)
(12.1)
(3.7)
(15.2)
Earnings (loss) per share from continuing operations (basic)
0.09
(0.05)
0.10
(0.01)
Earnings (loss) per share from continuing operations (diluted)
0.08
(0.05)
0.09
(0.01)
Cash
22.8
13.3
CORA
49.1
18.6
Amounts drawn on WCF
25.0
35.0
Amounts drawn on Project Facility
180.0
90.0
Carats sold
112,615
111,523
399,215
379,287
The Company reported total 2024 revenues of $203.9 million from the sale of 399,215 carats. In comparison, total 2023 revenues were $172.4 million from the sale of 379,287 carats. In Q4 2024, the Company sold the Sethunya, a 549 carat Type IIA white gem-quality diamond, and the Eva Star, a 1,080 carat Type IIA diamond for a combined sum of $54.0 million and recognized $44.0 million in revenue net of fees, excluding royalties.
Net income from continuing operations for 2024 was $43.6 million, compared to a net loss of $5.0 million in 2023. The increase in net income from continuing operations for 2024 is primarily attributable to higher revenues due to the sale of the Sethunya and the Eva Star, lower administration and finance expenses, and lower tax expenses. The 2023 net loss was driven by a decline in net revenue, changes in tax positions, and adjustments to the fair value of derivative financial instruments. Net loss from discontinued operations was $3.7 million in 2024, compared to $15.2 million in 2023. The higher net loss from discontinued operations in 2023 was primarily due to the $11.2 million impairment of Clara and higher operating costs.
Total operating expenses were slightly higher in 2024 ($79.6 million) compared to 2023 ($73.2 million) predominantly due to higher processing costs associated with inventory movements as operating expenses are recorded on a per carat basis and recognized as the carat is sold. Please see Table 4: "Select Financial Information" below for details on the expense line items which had the most significant impact on net income from continuing operations.
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TABLE 2: QUARTERLY SALES RESULTS
Three months ended
Year ended
December 31,
December 31,
Revenue is in millions of U.S. dollars
2024
2023
2024
2023
Sales Channel
HB
$
62.1
$
17.4
$
142.8
$
106.2
Tender(1)
13.2
16.9
50.0
53.7
Clara
3.5
2.0
11.1
12.5
Total Revenue
$
78.8
$
36.3
$
203.9
$
172.4
HB
For the three months ended December 31, 2024, the Company reported revenue of $62.1 million from HB, compared to $17.4 million for the same period in 2023. Revenue from HB accounted for 79% of total revenue recognized in Q4 2024, up from 48% in Q4 2023. This revenue includes "top-up" and "top-down" payments, which are made to the Company when the final polished diamond sales price differs from the estimated initial polished value. HB revenue increased in Q4 2024 due to the sale of the Sethunya and the Eva Star and throughout the year due to a higher volume of carats sold. In Q4 2024, the Company sold the Sethunya, a 549 carat Type IIA diamond recovered in 2020, and the Eva Star, a 1,080 carat Type IIA white-gem quality diamond recovered in 2023, recognizing $44.0 million in revenue net of fees, excluding royalties. The Company previously received $20.0 million, with an additional $24.0 million due following this sale. Of this amount, $16.0 million was received in Q4 2024, and the remaining $8.0 million was received in 2025. As of December 31, 2024, the Company had $18.4 million in trade receivables from HB, including the remaining $8.0 million due from the sale of the Sethunya and the Eva Star.
Tender & Clara
For the three months ended December 31, 2024, sales through tender totaled $13.2 million, compared to $16.9 million in Q4 2023, while Clara sales totaled $3.5 million, up from $2.0 million in Q4 2023. A higher volume of carats were sold on the Clara platform in Q4 2024, whereas more carats were sold through quarterly tenders in Q4 2023. Both sales channels had lower average dollar-per-carat values compared to 2023, reflecting the decline in prices within the smaller-sized diamond categories.
TABLE 3: RESULTS OF OPERATIONS - KAROWE MINE
Q4-24
Q3-24
Q2-24
Q1-24
Q4-23
Sales
Revenues
$M
78.8
44.3
41.3
39.5
36.3
Karowe carats sold
Carats
112,615
116,221
76,388
93,991
111,523
Production
Tonnes mined (ore)
Tonnes
646,288
845,594
699,846
809,999
607,101
Tonnes mined (waste)
Tonnes
119,919
192,308
245,006
386,849
456,880
Tonnes processed
Tonnes
716,936
720,524
714,301
698,870
703,472
Average grade processed(1)
cpht (*)
12.7
13.4
12.9
11.7
14.0
Carats recovered(1)
Carats
91,046
96,597
92,419
81,611
98,177
Costs
Operating cost per tonne of ore processed(2)
$
31.52
27.34
26.32
23.28
31.96
Capital Expenditures
Sustaining capital expenditures
$M
5.5
2.0
3.4
1.8
8.0
Underground project(3)
$M
17.8
17.7
11.2
17.9
28.0
(*) Carats per hundred tonnes
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FOURTH QUARTER OVERVIEW - OPERATIONS - KAROWE DIAMOND MINE
Safety: Karowe registered no lost time injuries during the year ended December 31, 2024. As of December 31, 2024, the mine had operated over three years without a lost time injury. The rolling twelve-month Total Recordable Injury Frequency Rate for the Karowe Mine was 0.26 (2023: 0.19).
Environment and Social: The Company is developing and implementing a Tailing Management System in line with the requirements of the Global International Standard on Tailings Management ("GISTM"). The design for the Underground Life of Mine tailing facility feasibility study was completed in September 2024.
Production: Ore and waste mined during the fourth quarter of 2024 totaled 0.6 Mt and 0.1 Mt, respectively. During Q4 2024, tonnes processed were on target at 0.7 Mt at an average grade of 12.7 cpht, with a total of 91,046 carats recovered from processing which resulted in 94% recovery based on estimated mill feed resource grade. Ore processed was primarily from the South Lobe with small amounts of weathered kimberlite processed from the Centre and North stockpiles. In Q4 2024, the Company started and completed the execution of a pit steepening project which is expected to extend the life of the open pit by an additional eight months until the end of 2025.
Diamond Recoveries: A total of 195 Specials were recovered during the quarter, with 9 diamonds greater than 100 carats in weight. In the comparable 2023 quarter, a total of 153 Specials were recovered, with 1 diamond greater than 100 carats in weight. Recovered Specials equated to 6.3% (2023: 3.8%) of the weight percentage of total recovered carats from ore processed during Q4 2024.
All recovered stones, including the Motswedi and Seriti that remained unsold at the end of the reporting year, are accounted for at cost in inventory. Selling and monetizing the value contained in our 1,000+ carat diamond inventory may require considerable time given the complexities associated with the marketing, analysis, cutting and polishing and ultimate sales processes.
Karowe's operating cash cost: Karowe's operating cash cost for Q4 2024 (see "Non-IFRSFinancial Measures")
was $31.52 per tonne of ore processed (2023: $31.96 per tonne of ore processed), in the mid-range of the 2024 annual forecast of $28.50 to $33.50 per tonne processed. Costs remained lower for the year as the strong US dollar continued to offset inflationary pressures from labour increases.
Overall performance: Mine performance during the fourth quarter remained consistent with the strong operational results achieved over the past several years. Mining and processing results were on plan during Q4 2024.
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TABLE 4: SELECT FINANCIAL INFORMATION
Three months
ended
Year ended
December 31,
December 31,
In millions of U.S. dollars except for per share
2024
2023
2024
2023
2022
Revenues
78.8
36.3
203.9
172.4
203.8
Operating expenses
(24.4)
(21.9)
(79.6)
(73.2)
(69.8)
Adjusted operating earnings(1)
54.4
14.4
124.3
99.2
134.0
Royalty expenses
(9.4)
(4.5)
(23.2)
(20.1)
(24.1)
Administration
(5.2)
(6.3)
(14.8)
(19.1)
(18.6)
Sales and marketing
(1.0)
(1.6)
(3.1)
(3.5)
(2.9)
Depletion and amortization
(3.9)
(3.6)
(16.6)
(16.8)
(23.4)
Finance expenses
(0.8)
(1.0)
(2.9)
(4.2)
(3.7)
Foreign exchange (loss) gain
(10.8)
2.1
(6.9)
(5.1)
(3.9)
Gain (loss) on derivative financial instrument
4.0
(3.3)
0.3
(1.7)
10.7
Loss on disposal of assets
(0.2)
(0.9)
(0.2)
(0.9)
-
Loss on extinguishment of debt
-
-
(10.5)
-
-
Current and deferred income tax recovery (expense)
11.4
(19.9)
(2.8)
(32.8)
(24.4)
Net income (loss) from continuing operations
38.5
(24.6)
43.6
(5.0)
43.7
Continuing operations earnings (loss) per share (basic)
0.09
(0.05)
0.10
(0.01)
0.10
Continuing operations earnings (loss) per share (diluted)
0.08
(0.05)
0.09
(0.01)
0.10
Net loss from discontinued operations
(1.5)
(12.1)
(3.7)
(15.2)
(3.1)
Discontinued operations loss per share (basic and diluted)
(0.00)
(0.03)
(0.01)
(0.03)
(0.0)
Revenues and royalties
Total revenue increased by 18% from $172.4 million in 2023 to $203.4 million in 2024. In 2024, 399,215 carats were sold, compared to 379,287 carats in 2023. The increase in revenue for both 2024 and the fourth quarter was driven by the sale of the Sethunya and the Eva Star and an increase in carats sold.
Royalties to the Government of Botswana are paid at the rate of 10% of the final gross sales price achieved from the sale of all Karowe diamonds, rough or polished.
Adjusted operating earnings
Adjusted operating earnings for the year ended December 31, 2024, totalled $124.3 million, compared to $99.2 million in 2023, the increase being driven by an 18% rise in revenue and a 5% increase in carats sold. While operating expenses rose slightly to $79.6 million in 2024 (2023: $73.2 million), this is attributed to the increase in sales from diamond inventory in 2024 compared to 2023. The movement of diamond inventory from 2023 to 2024 of 37,110 carats (2022 to 2023: 2,662 carats) resulted in an increase in the costs of sales that is reflected in higher operating expenses.
Adjusted operating earnings is a non-IFRS measure and is reconciled in Table 4: "Select Financial Information".
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Disclaimer
Lucara Diamond Corp. published this content on February 22, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on February 22, 2025 at 01:28:01.986.