ANNUAL
report
FOR THE YEAR ENDED 31 DECEMBER 2022
OUR FUTURE IS
clear
02 | Lucapa Diamond Company Limited | Annual Report 2022
Lucapa Diamond Company Limited | Annual Report 2022 | 03
2022 at a
glance
100% Project
Attributable
100% Project
Attributable
Revenue
Carats Recovered
A$149.0m
(Record)
A$69.1m
(Record)
66,138
(Record)
35,677
(Record)
Price Per Carat
Tonnes Processed
A$2,309
A$1,950
2.2m
(Record)
1.2m
(Record)
EBITDA
LTIFR
A$45.6m
A$14.9m
0.40
Lulo
0.35
Mothae
04 | Lucapa Diamond Company Limited | Annual Report 2022
Our
People
Lulo employees
(incl contractors)
by gender
95% Male
5% Female
Mothae employees
(incl contractors)
by gender
72% Male
28% Female
Largest
Recoveries
Lulo Diamond Project
170ct
July 2022
the "Lulo Rose"
Mothae Kimberlite Mine
204ct
May 2022
Contents
Company Overview
Chairman’s Letter
2022 Group Highlights
Review of Operations
Lulo Alluvial Mine, Angola
Mothae Kimberlite Mine, Lesotho
Merlin Kimberlite Project, Australia
Lulo Joint Venture, Angola
Brooking Diamond Project, WA
Orapa Area F Project, Botswana
Mineral Resources
Sales and Marketing
Corporate Governance Statement
Financial Report
Directors’ Report
Consolidated financial statements
Corporate information
Basis of preparation
Consolidated statement of profit
or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Director’s Declaration
Independent Auditor’s Report
Additional ASX Information
Definitions and Abbreviations
06
08
09
10
12
14
16
18
20
20
22
24
26
36
38
54
54
54
55
56
57
58
59
93
94
100
102
Lucapa Diamond Company Limited | Annual Report 2022 | 05
Lulo Mine (40%)
Angola
Lulo Exploration JV (39%)
Angola
Orapa Exploration (100%)
Botswana
Mothae Mine (70%)
Lesotho
Company Overview
Lucapa Diamond Company Limited is listed under the ticker LOM on the Australian Securities
Exchange (ASX). The company is a diamond miner and explorer with assets across Africa and
Australia. It has interests in two producing diamond mines in Angola (Lulo – 40%) and Lesotho
(Mothae – 70%). The large, high-value diamonds produced from these two niche mines attract
some of the highest prices per carat for rough diamonds globally.
The Lulo mine has been in commercial production since 2015, while the
Mothae mine commenced commercial production in 2019.
Lucapa acquired 100% of the Merlin Diamond Project in the Northern
Territory of Australia in 2021. The Merlin mineral lease and exploration
licence contain 13 previously discovered kimberlite pipes containing a
4.4 million carat JORC 2012 compliant resource. There are also numerous
unresolved geophysical anomalies on the leases. The mineral licence
runs until 2047 following the renewal of the licence for 25 years.
Lucapa and its project partners are also exploring for potential primary
source kimberlites or lamproites at the prolific Lulo concession in
Angola, the Brooking project in Australia and the Orapa Area F project
in Botswana.
Lucapa has a cutting and polishing partnership with Safdico
International, a subsidiary of leading international high-end jeweller
Graff. Under the agreement, Safdico, can purchase up to 60 percent
of Lulo’s alluvial rough production as a preferred buyer and has an
agreement to buy 100 percent of Mothae’s rough production, both
at full market value. The mines then share in a significant portion of
the additional margins derived by the partnership from beyond the
mine gate.
Lucapa has its corporate offices in Perth, Western Australia. The Board,
management team and key stakeholders in Lucapa have deep global
diamond industry experience and networks through the value chain
from exploration to retail.
06 | Lucapa Diamond Company Limited | Annual Report 2022
Our Values
Safety
We conduct operations
in a safe, responsible
and environmentally
conscious manner.
Integrity
We interact with all
stakeholders with
integrity, honesty,
transparency
and fairness.
Teamwork
We attract and employ
the best skillsets,
encourage teamwork,
diversity, and reward
performance.
Partnership
We partner with the
local communities and
governments in the
countries where we
operate, for mutual
benefit.
Merlin Diamond Project (100%)
Australia
Brooking Exploration (80%)
Australia
Lucapa Head Office
Australia
Our Purpose
Lucapa produces natural diamonds
sustainably and cares for its people,
communities, and the countries in which
we operate.
Our Vision
Lucapa’s vision is to become a pre-eminent
mid-tier diamond company with multiple
assets, vertically integrating through the
supply chain, to bring greater value to
all stakeholders.
Lucapa Diamond Company Limited | Annual Report 2022 | 07
Chairman’s
Letter
Dear Shareholders,
If you’re wondering why diamonds are so
rare and command the prices that they do,
the answer partly lies in the elusive hunt
for them.
Exploring for diamonds is extremely difficult
and the statistics that lie behind the
successful discoveries are quite staggering.
According to several industry reports, over
the last century and a half, geologists have
sampled about 7,000 kimberlite pipes
globally and found that around 1,000 of
them are diamondiferous. Of these 1,000,
only around 60 kimberlites were considered
economically viable.
Let me put this in perspective for you
in respect of what Lucapa is doing in its
exploration program in Angola, one of the
most diamondiferous yet under-explored
countries globally.
We are searching for the underlying primary
kimberlite source (or sources) of the
magnificent large and high-value diamonds
which are being regularly recovered via our
commercial alluvial mining operations on
the same Lulo concession.
For more than a decade we have
meticulously worked through over 500
geophysical anomalies, drilled 146 targets
to discover 128 kimberlites so far at Lulo.
Our efforts to step up the exploration have
been aided by the ongoing investment in
excavators and mining fleet.
In 2022, this took another leap forward with
the commissioning of a dedicated kimberlite
bulk sampling plant which alleviates the
need to take the alluvial processing plant
off-line to process samples.
Our investment and the
exploration team’s methodical
testing is starting to bear fruit.
It means we can now process, on average,
two bulk samples every six weeks.
Recently, a bulk sample from kimberlite
L164 yielded 64 diamonds weighing a total
of 84.37 carats. Unusually, two Special
sized diamonds (+10.8 carats) were among
those recovered in the samples taken so far
at L164.
While we have been investing in diamond
exploration for over a decade, globally,
diamond exploration has fallen dramatically
from its peak in 2008 when almost a billion
US dollars was spent according to S&P data.
In 2021, global diamond exploration fell to
US$202 million, while in Australia, that
figure was just US$1.5 million.
With many of the major diamond mines
nearing depletion or requiring significant
investment to extend their lives, global
production is expected to continue to fall
this decade to well below the 117 million
carats it recorded in 2022. This means supply
will continue to tighten.
This year we will continue our drive to find
the primary kimberlite source (or sources)
of the large, high-value alluvial diamonds
at our Angolan operations. We believe, after
many years of investing in the elusive hunt,
we are on the cusp of a major discovery that
will transform this Company and reward
our shareholders.
Finally, a word about our performance in
2022. Lucapa repatriated A$22.9million
in capital loan repayments and dividends
from our Angolan Operations. On the
operations side, Lulo broke many records
for carats recovered, gravel processed,
and +100 diamonds recovered. Over at
Mothae, the volume of ore processed broke
records, however other headwinds held back
the performance.
Mothae, though, has started 2023 on a
positive note and we expect it will again be
a cash generator in the year ahead.
Thank you to all our valued teams and our
partners in Angola, Lesotho, Botswana and
Australia for your patience and support.
With best wishes,
Miles Kennedy
We believe, after many years of investing in the elusive hunt,
we are on the cusp of a major discovery that will transform
this Company.
08 | Lucapa Diamond Company Limited | Annual Report 2022
2022 GROUP
highlights
Record full year
revenues of
Record full year
Attributable revenues of
100% EBITDA
Attributable
EBITDA generated of
Settled
A$149m
A$69.1m
A$45.6m
A$14.9m
A$18.6m
A$22.9m
at A$2,390 per carat
(on a 100% project
basis).
at A$1,950 per carat.
in debt.
repatriated in capital
loan repayments
and SML dividends
from Angola.
Lulo Alluvial Mine, Angola
Mothae Kimberlite Mine, Lesotho
572,708m3
Gravel processed
35,398
Carats recovered
1,207,060
Tonnes of ore processed
30,740
Carats recovered
453
Special sized diamonds (+10.8 carats) recovered
197
Special sized diamonds recovered
Advanced the Merlin
Feasibility Study
to be published in 2023.
Extended Merlin
Mineral Lease
for 25 years to 2047.
Extended Orapa Area F
Exploration Licence
in Botswana
for two years.
Commissioned
dedicated bulk
sample plant
for Lulo kimberlite exploration.
Ramped up Lulo
kimberlite exploration
with two bulk samples
processed every six weeks
on average.
Treated six bulk
samples
from 5 kimberlite
targets at Lulo.
Recovered 41
diamonds weighing a
total of 66.05 carat
from L164/01 during
bulk sampling.
Heritage survey
completed at Brooking
ahead of drilling program.
Lucapa Diamond Company Limited | Annual Report 2022 | 09
REVIEW OF
operations
10 | Lucapa Diamond Company Limited | Annual Report 2022
Lucapa is a unique integrated multi-asset diamond company listed on the ASX
with activities spanning exploration, evaluation, mine development, production,
rough sales and marketing and cutting and polishing. Lucapa’s Board and
management team have decades of global experience across all facets of the
diamond industry and have successfully advanced Lucapa’s vision to become a
leading global producer of large and high-quality diamonds.
The company has two operating diamond mines – the Lulo alluvial
mine in Angola (“SML”) and the Mothae kimberlite mine in Lesotho
(“Mothae”). Both mines attract some of the highest average US$ per
carat prices for their production and are regular producers of exceptional,
large and high-value diamonds. Recovered diamonds which are
larger than 4.8 carats account for approximately 75% of Lucapa’s
rough revenues.
Lucapa is advancing a feasibility
study into the Merlin Diamond
Project in the Northern Territory of
Australia. The company also has a
number of early stage exploration
projects in Australia and Africa.
The key initiatives which Lucapa achieved against its growth objectives
in 2022 include:
• Record operational performance from SML with volumes
sold and exceptional
recovered and
processed,
carats
diamond recoveries;
• Settled A$18.6 million of debt;
• Repatriated A$22.9 million from Angola in capital loan repayments
and SML dividends;
• Investment in Mothae’s processing plant in 2021 and 2022 resulted
in record throughput;
• Commissioning of the stand-alone Kimberlite Bulk Sampling
Plant at Lulo and processing of six bulk samples from five
kimberlite targets;
• Advanced the Feasibility Study for the 100% owned Merlin
Diamond Project in the Northern Territory of Australia following
the completion of a scoping study in 2022;
• Advanced through the diamond value chain with both operating
mines generating returns from beyond the mine gate. The cutting
and polishing partnerships with a high-end diamantaire sees both
mines share in the additional margins generated by the sale of
polished stones; and
• Advanced our blue-sky projects through exploration activities in
Angola, Australia and Botswana.
Mothae Mine, Lesotho.
Lucapa Diamond Company Limited | Annual Report 2022 | 11
REVIEW OF OPERATIONS
Lulo Alluvial Mine,
Angola
Lucapa
40%
Endiama 32%
Rosas and Petalas 28%
Conducted by Sociedade Mineira Do Lulo
Lulo had another stellar year in 2022, with the previous years’ investment in new mining
fleet, an infield screening plant and minor upgrades to the main plant resulting in increased
production and operational efficiencies.
This is reflected in the record overall performance of SML, the operator
of the Lulo Alluvial Mine, with new records being set for volumes
processed, carats recovered, carats sold and numbers of exceptional
diamond recoveries.
Rough diamond revenues were up slightly on the previous year at
US$79.6 million (A$117.3 million) with an average diamond price of
US$2,449 (A$3,610) per carat. EBITDA for the year was US$35.2 million
(A$53.0) million.
Lulo recovered 44% more carats in 2022 than the previous year
with 35,398 carats recovered from 572,708m3 of gravel processed.
The grade was 22% higher at 6.2cphm3 and ten +100 carat diamonds
were recovered with the largest being the 170 carat pink coloured
“Lulo Rose”. This is the highest number of +100 carat diamonds
recovered in a year at Lulo and went hand in hand with the record
number of Special sized stones recovered, with 453 being recovered
at Lulo during 2022.
The cutting and polishing activities performed well in 2022, with
Lulo receiving an additional US$1.4 million in cutting and polishing
margins. The overburden and gravel handled during 2022 stood at
6.2 million cubic metres, an increase of 52% over the previous year’s
4.1 million cubic metres, setting a new annual record for volumes mined.
The infield screening plant’s location near the southern terraces
and lezirias (flood plains), such as MB46 and MB28, has improved
operational efficiencies, as the gravels are screened and washed before
being transported more than 20 kilometres to the main treatment
plant, reducing the volume needing to be transported by up to 90%.
Ten +100 carat diamonds were recovered
115ct | December 2022
134ct | November 2022
159ct | November 2022
123ct | October 2022
100ct | September 2022
12 | Lucapa Diamond Company Limited | Annual Report 2022
Lulo recovered 44%
more carats in 2022
than the previous
year with 35,398 carats
recovered from
572,708m3 of gravel
processed.
This frees up mining equipment that would otherwise be
tied up transporting gravel to the main treatment plant to
instead be used to increase mining productivity and growing
production. Mining from the northern blocks, such as MB19,
MB24, MB6 and MB23 still gets transported straight to
the main treatment plant, which is relatively close to those
mining blocks.
An updated JORC classified mineral resource for Lulo was
published by Lucapa in April 2023, estimating an inferred
resource of 153,870 carats at a modelled value of US$2,000 per
carat as at 31 December 2022. This is a two percent increase in
resource carats and a 4% increase in modelled value per carat
when compared to the 31 December 2021 resource.
with the largest being the 170 carat “Lulo Rose”.
112ct | September 2022
131ct | September 2022
160ct | September 2022
170ct | July 2022
115ct | April 2022
Lucapa Diamond Company Limited | Annual Report 2022 | 13
REVIEW OF OPERATIONS
Mothae Kimberlite
Mine, Lesotho
Lucapa
70%
Government of Lesotho 30%
Conducted by Mothae Diamonds Pty Ltd
Following the investment in the treatment facilities to increase the capacity, Mothae achieved
record throughput for 2022 of 1,207,060 tonnes of ore, a 7% increase on the previous year,
although grade was down 14% for the year to 2.5cpht due to a different mix of ore.
Mothae recovered 30,740 carats in 2022, five percent fewer than the
previous year due to the lower grade previously mentioned. Recoveries
included 197 Special sized stones and 651 diamonds greater than
4.8 carats, an increase of 17% and 4% respectively over 2021 and
both annual records. Of the Special size stones, four were more than
+100 carats in size with the largest weighing 204 carats.
It was a challenging year for the Mothae operations, some mass
balance bottlenecks were encountered in the plant following the plant
upgrades in 2021, leading to a lower than designed increase to plant
throughput. In addition, energy cost inflation saw diesel, explosives
and consumables increase input costs during the year, which materially
impacted operating margins. Logistical issues affecting the wider
mining industry were also felt at Mothae, where the mining contractor
experienced lengthy delays in sourcing parts and spares for critical
machinery impacting on mining productivity and efficiencies. As a
direct result of the energy cost inflation and mass balance challenges
noted above, Mothae booked a non-cash impairment charge of
US$10.6 million during the year.
Very pleasingly, the investigations and modeling into improving
treatment facility efficiencies and to increase throughput concluded
just prior to years end, with good solutions presented. These low cost
solutions were implemented early in 2023 and are already showing
positive results.
Diamond revenues of US$22.1 million were achieved at Mothae for 2022
at an average diamond price of US$690 (A$987) per carat.
The cutting and polishing activities performed well in 2022, with
Mothae receiving an additional US$0.8 million in cutting and polishing
margins. As per the partnership agreement, Safdico purchased the
run-of-mine production from Mothae for the year with Mothae paid
the full market value of the rough diamonds upfront, sharing equally
in the margins generated thereafter.
Diamond revenues of US$22.1 million
were achieved at Mothae for 2022
at an average diamond price of
US$690 (A$987) per carat.
14 | Lucapa Diamond Company Limited | Annual Report 2022
197 Special sized
stones and 651
diamonds greater
than 4.8 carats,
an increase of
17% and 4%
respectively
over 2021.
Lucapa Diamond Company Limited | Annual Report 2022 | 15
REVIEW OF OPERATIONS
Merlin Kimberlite
Project, Australia
Lucapa
100%
Conducted by Australian Natural Diamonds Pty Ltd
Lucapa’s wholly owned subsidiary, Australian Natural Diamonds Pty Ltd (“AusND”) completed
the A$8.5 million strategic and potentially transformative acquisition of Merlin in late 2021,
which included the 24km2 Mineral Lease, 210km2 Exploration Licence encompassing the
Mineral Lease and all existing equipment, infrastructure and assets on the Mineral Lease
and Exploration Licence.
The two tenements contain 13 previously discovered kimberlite pipes
with an existing 4.4 million carat JORC 2012 compliant indicated
and inferred mineral resource. Merlin also has significant exploration
potential with over 70 unresolved anomalies and all previous kimberlite
discoveries that have been tested on the project have been shown to
be diamondiferous.
Following the release of a Scoping Study in late 2021 demonstrating
a long-life mine development with strong economics for the Merlin
project, a feasibility study was commenced in early 2022. Subsequently,
and following a significant increase in rough diamond prices since
the publication of the original Scoping Study, an Updated Scoping
Study was released in March 2022 which delivered a production
target of 2.1 million carats from 14 million tonnes of ore treated over
a 14-year mine life. The feasibility study for the Merlin project is
nearing completion, along with the preparation of applications for
project approvals.
Exploration also continued at Merlin with the interpretation of
De Beers 1997 proprietary airborne hyperspectral data, which identified
seven new kimberlite targets at Merlin with elevated magnesium rich
clay readings, commonly associated with kimberlites.
Soil samples were then collected over these targets for spectral
analysis, combined with a heavy mineral sample taken around the
centre of each target. Initial analysis of the sampling results did not
indicate the presence of kimberlite at these locations, however, further
interpretation of the data is continuing.
Following an on-country meeting with the traditional owners
in Borroloola in May, the assignment deeds for the Native Title
agreements for both the Mineral Lease and Exploration License were
finalised and executed in Q4 and AusND looks forward to working
with its Native Title partners throughout the life of the Merlin project.
In December 2022 AusND received
confirmation that the Merlin Mineral
Lease had been renewed for a further
25 years to 2047.
The largest diamond ever recovered in Australia
was this 104 carat Type IIa from Merlin in 2002.
16 | Lucapa Diamond Company Limited | Annual Report 2022
An Updated Scoping Study was released in
March 2022 which delivered a production target
of 2.1 million carats from 14 million tonnes of ore
treated over a 14-year mine life.
Lucapa Diamond Company Limited | Annual Report 2022 | 17
KIMBERLITE EXPLORATION
Lulo Joint Venture,
Angola
Lucapa
39%
Endiama 51%
Rosas and Petalas 10%
Conducted by Project Lulo Joint Venture
The kimberlite exploration activities at the Project Lulo Joint Venture (“Project Lulo JV”) reached
important milestones during the year with the successful construction and commissioning of
a dedicated Kimberlite Bulk Sampling Plant (“KBSP”) along with the subsequent recovery of
Special diamonds (individual diamonds >10.8 carats in weight) from kimberlite L164.
The commissioning of the KBSP in
September, and arrival of the kimberlite
earthmoving fleet, including all-terrain
trucks and other mining equipment, saw
the processing of samples ramp up, with
the project now having the ability to process
two bulk samples every six weeks, resulting
in a total of six samples from five kimberlite
targets being processed in 2022.
The two samples taken from kimberlite
L164 yielded the best and most encouraging
results at Lulo yet, with 41 diamonds
totalling 66.05 carats recovered from a
2,200m3 sample including two Special
sized diamonds weighing 15.27 carats and
12.37 carats, confirming the kimberlite
is a primary source hosting Special sized
diamonds, similar to those being recovered
in the alluvial mining operations.
Discovery and delineation drilling continued
throughout the year with 55 core holes
(2,733m) drilled to both confirm the
presence of new kimberlites and to locate
suitable areas in kimberlites selected for
bulk sampling. A further 19 geophysical
anomalies were proven to be kimberlites
during the year.
Twenty high-priority kimberlite targets have
been identified to date for bulk sampling
using a combination of geological factors,
including the presence of high-interest
diamond indicator minerals highlighted
through mineral chemistry analysis,
as shown on the map in figure 1.
Lucapa continued to progress negotiations
with its Angolan partners to secure a
majority stake in the Project Lulo JV
and is in the process of drafting a new
mineral investment contract with its
Project Lulo partners. Lucapa believes
that securing a majority stake in the
3,000km2 kimberlite exploration licence
will open opportunities to expedite the
program that aims to identify the primary
kimberlite sources of the exceptional alluvial
diamonds being mined by SML at Lulo.
Results from the 2022 Bulk sampling
campaign are as follows:
SAMPLE
ID
VOLUME
TREATED
CARATS
L164
2,200
66.05
L403
2,505
L030
2,424
L032/01
1,962
L032/02
L018
363
162
0.08
0.00
0.00
0.00
0.00
Lulo JV
Kimberlite Project
Exploration
Status Map
Figure 1: Project Lulo JV kimberlite exploration status map as at 31 March, 2023.
18 | Lucapa Diamond Company Limited | Annual Report 2022
41 diamonds totalling 66.05 carats recovered from
a 2,200m3 sample including two Special sized
diamonds weighing 15.27 carats and 12.37 carats.
Lucapa Diamond Company Limited | Annual Report 2022 | 19
LAMPROITE EXPLORATION
Brooking Diamond
Project, WA
Lucapa
80%
Leopold Diamond
Company 20%
Conducted by Brooking Diamonds Pty Ltd
Work continued at Brooking
during the year including
airborne drone magnetic
surveys covering the gravity
and electromagnetic targets
to assist in determining if
the targets are lamproites.
In addition, 241 soil geochemistry samples
were taken from two targets at Brooking.
The heritage survey was completed during
the year.
KIMBERLITE EXPLORATION
Orapa Area F Project,
Botswana
Lucapa
100%
Conducted by Lucapa Diamonds (Botswana) Pty Ltd
The application to extend
the prospecting licence
was approved for two years
until June 2024. No field
work was undertaken taken
at the Orapa Area F project
in 2022.
The next phase of exploration
in
2023 will seek to confirm via drilling
whether the identified targets at Orapa
are kimberlites.
20 | Lucapa Diamond Company Limited | Annual Report 2022
Mothae Mine, Lesotho.
Lucapa Diamond Company Limited | Annual Report 2022 | 21
Mineral
Resources
The updated Lulo Diamond Resource was independently estimated and reconciled on a
depletion and addition basis to 31 December 2022 by external consultants, Z Star Mineral
Resource Consultants (Pty) Ltd (“Z Star”) of Cape Town, South Africa.
MB 23E
MB 29
MB 04
MB 06
MB 10
MB 06
MB 19
MB 27
MB 550
MB 08
MB 25
MB 14
MB 28
MB 18
MB 46
MB 41
MB 212
MB 57
MB 304
MB 45
MB 116
MB 99
MB 129
MB 179
MB 137
MB 209
Lulo Concession
Alluvial Diamond Resource
as at 31st December 2022
Blocks included in Lulo Diamond Resource
Blocks being or to be assessed
0
10
kilometers
After accounting for mining depletion of
35,398 carats during the 2022 calendar
year, the alluvial exploration activities
undertaken during the year increased the
Lulo Diamond Resource in-situ carats by
two percent to 153,870 carats. This is the 5th
consecutive year the resource carats have
increased, despite the significant increase in
mining and processing capacities over the
last seven years.
The Mothae resource update is based solely
on depletion due to mining over 2022.
The Merlin resource estimate remains
unchanged from the previous year.
LULO JORC CLASSIFIED INFERRED ALLUVIAL DIAMOND RESOURCE – 31 DECEMBER 2022
LUCAPA 40% OWNED
DATE
AREA
(M2)
DILUTED
VOLUME (M3)
CARATS/
STONE
31 Dec 22
2,700,000
2,640,000
31 Dec 21
2,150,000
2,199,000
1.23
1.26
STONES
CARATS
125,460
153,870
119,700
151,040
DILUTED
GRADE
(CPHM3)
MODELLED
DIAMOND
VALUE*
(US$/ CARAT)
5.82
6.87
2,000
1,930
Notes:
i. m2 = square metres; m3 = cubic metres; cphm3 = carats per 100 cubic metres
ii. Diluted volumes have been estimated based on historical mining production data to better reflect recoverable volumes and grades
iii. Bottom cut off screen size: effective 1.5mm
iv. Table contains rounded figures
*
Special stones are not excluded in the modelling stage, either in terms of size or assortment
v
22 | Lucapa Diamond Company Limited | Annual Report 2022
MOTHAE JORC CLASSIFIED DIAMOND RESOURCE - 31 DECEMBER 2022
LUCAPA 70% OWNED (TO 300M BELOW SURFACE)
RESOURCE
CLASSIFICATION
DATE
TONNES (MT)
GRADE (CPHT)
CARATS (MILLION)
MODELLED VALUE
(US$/ CARAT)
Indicated
31-Dec-22
Inferred
TOTAL
Indicated
30-Dec-21
Inferred
TOTAL
6.98
39.16
46.13
8.05
39.27
47.32
3.1
2.4
2.5
3.1
2.4
2.6
0.21
0.96
1.17
0.25
0.96
1.21
629
602
607
635
601
608
Notes:
(i) Table contains rounded figures
(ii) The grade and average modelled value estimates are quoted at a 3mm BCOS but with incidental diamond recoveries in the +9 and +11 DTC sieves included
(iii) The update is solely based on resource depletion due to mining between 31 Dec 2021 and 31 Dec 2022.
(iv) The Indicated Resource contains material to 75m below pit bottom (at 30 Sep 2020) in the South Lobe only. The Inferred Resource contains the remaining material to 300m below surface in the South, Neck and North lobes
(v) The tonnes and grades are quoted as dry tonnes and dry grades
(vi) Unclassified kimberlite exists from a depth of 300m to 500m below surface
(vii) This resource was first published 15th October 2020
v
RESOURCE
CLASSIFICATION
Indicated
Inferred
TOTAL
MERLIN JORC CLASSIFIED DIAMOND RESOURCE – 31 DECEMBER 2022
LUCAPA 100% OWNED
DATE
31-Dec-22
TONNES (MT)
GRADE (CPHT)
CARATS (MILLION)
13.4
14.4
27.8
17
15
16
2.28
2.07
4.35
Notes:
(i) Mineral Resource reported in Lucapa’s ASX announcement “Acquisition of Merlin Diamond Project and A$23M Capital Raising” on 24 May 2021. No changes to the resource have been made since.
(ii) Mineral Resource grades based on previous mining operations recovery using a +0.95mm slotted bottom screen and +5DTC cut-off;
(iii) Insufficient grade data available to determine +5DTC cut-off grade for Tristram and Bedevere pipes therefore full-cut-off grades are used;
(iv) Rounding of tonnage and carats may result in computational inaccuracies.
Information included in this announcement that relates to exploration results and resource estimates is based on and fairly represents information
and supporting documentation prepared and compiled by Richard Price MAusIMM who is a Member of the Australasian Institute of Mining
and Metallurgy. Mr Price is an employee of Lucapa Diamond Company Limited. Mr Price has sufficient experience which is relevant to the style of
mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in
the 2012 Edition of the Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves. Mr Price consents to the inclusion
in the announcement of the matters based on this information in the form and context in which it appears.
Information included in this report that relates to the stone frequency, grade and size frequency valuation and validation in the Lulo Diamond
Resource estimate is based on, and fairly represents, information and supporting documentation prepared and compiled by Sean Duggan
(Pri.Sci.Nat 400035/01) and David Bush (Pri.Sci.Nat 400071/00).
Messers. Duggan and Bush are directors and employees of Z Star Mineral Resource Consultants (Pty) Ltd, of Cape Town, South Africa. Both hold
qualifications and experience such that both qualify as members of a Recognised Overseas Professional Organisation (ROPO) under relevant
ASX listing rules. Messers. Duggan and Bush both have sufficient experience which is relevant to the style of mineralisation and type of deposit
under consideration and to the activity which they are undertaking to each qualify as a Competent Person as defined in the 2012 Edition of the
Joint Ore Reserves Committee (JORC) Code. Messers. Duggan and Bush both consent to the inclusion in the announcement of the matters based on
this information in the form and context in which it appears.
Lucapa Diamond Company Limited | Annual Report 2022 | 23
SALES AND
marketing
24 | Lucapa Diamond Company Limited | Annual Report 2022
The Group currently markets its diamonds through unique cutting and polishing partnerships,
tenders and negotiated sales.
Lulo Diamond Sales
Ten run-of-mine sales were concluded by SML during the year, along
with one Special stone tender organised by Sodiam which included
seven exceptional diamonds, including the 170 carat pink coloured
“Lulo Rose”, three +100 white Type IIa diamonds and three other Special
size diamonds.
The tender achieved US$20.4 million (A$30.1 million) at an average price
of US$26,536 (A$39,237) per carat.
The partnership with high-end diamantaire Safdico International,
a subsidiary of renowned fine jeweller Graff, continues to reap benefits
for both mines from beyond the mine gate.
Safdico, as a preferred buyer of SML, is eligible to purchase up to 60% of
Lulo’s annual rough production from SML, as is permitted under Angola’s
diamond marketing regulations.
The cutting and polishing activities performed within expectations in 2022,
with Lulo receiving an additional US$1.4 million in margins.
Mothae Diamond Sales
Under the committed buying and selling agreement with Mothae,
the entire diamond production from Mothae is sold into a cutting and
polishing partnership with Safdico.
Mothae is paid up front for the rough market value of the diamonds,
with both companies sharing in the resultant margins generated by the
polished diamonds.
Twelve diamond sales for Mothae goods were held during the year
with revenues of US$22.1 million (A$33 million) achieved at an average
diamond price of US$690 (A$987) per carat.
The cutting and polishing activities performed well in 2022, with Mothae
receiving an additional US$0.8 million in margins.
Diamond prices continued to strengthen at the beginning of 2022
with the overall rough diamond index reaching an all time high before
retreating. The GTD overall diamond price index ended the year up 7%.
The tender achieved
US$20.4 million (A$30.1 million)
at an average price of US$26,536
(A$39,237) per carat.
Lucapa Diamond Company Limited | Annual Report 2022 | 25
CORPORATE
GOVERNANCE
statement
Mothae Mine, Lesotho.
26 | Lucapa Diamond Company Limited | Annual Report 2022
In fulfilling its obligations and responsibilities to its various stakeholders,
the Board of Lucapa is a strong advocate of good corporate governance.
The Board has adopted corporate governance policies and practices
consistent with the ASX Corporate Governance Council’s “Corporate
Governance Principles and Recommendations” (“Recommendations”)
where considered appropriate for a Company of Lucapa’s size
and complexity.
Lucapa has implemented the ASX Corporate Governance Council’s
Fourth Edition Corporate Principles (“Fourth Edition”) and
Recommendations. Accordingly, this Corporate Governance Statement
has been prepared on the basis of disclosure under the Fourth Edition
of these principles. Details of the Company’s compliance with these
principles are summarised in the Appendix 4G announced to the ASX
in conjunction with the Annual Report.
This statement describes how Lucapa has addressed the Council’s
guidelines and eight corporate governance principles and where
the Company’s corporate governance practices depart from the
Recommendations, the Company discloses the reason for adoption of
its own practices on an “if not, why not” basis.
Given the size, complexity and development nature of the Group
and the cost of strict compliance with all the Recommendations,
the Board has adopted a range of modified procedures and practices
which it considers appropriate to enable it to meet the principles of
good corporate governance. At the end of this statement is a checklist
setting out the Recommendations with which the Company does or
does not comply. The information in this statement is current as at
20 April 2022.
Background
Lucapa has a highly experienced and well credentialed Board
and management team, with a proven history of developing diamond
projects successfully, quickly and cost effectively in a corporately
responsible manner.
Lucapa recognises the importance of its people in building a strong
and successful organisation. To achieve this, Lucapa has focused on
developing the right culture across the organisation, which is strongly
based on a vision, mission and values communicated in our teams
in Australia and Africa to ensure they know what is expected of
them, both operationally and behaviourally, and are recognised
for their good work.
Vision
Lucapa’s vision is to become a pre-eminent mid-tier diamond company
with multiple assets, vertically integrating through the supply chain,
to bring greater value to all stakeholders.
Mission
Lucapa’s mission is to explore and grow our production of niche
high-value diamonds in a safe, responsible, innovative and profitable
manner for the benefit of all stakeholders.
Values
Integrity
We interact with all stakeholders with integrity, honesty, transparency
and fairness.
Safety
We conduct operations in a safe, responsible and environmentally
conscious manner.
Teamwork
We attract and employ the best skillsets, encourage teamwork,
diversity and reward performance.
Partnership
We work with the local communities in which we operate for common
benefit.
The Board is targeting the highest standards of corporate governance
to continue their track record of delivering this value.
In 2022, the Company remained resilient throughout the COVID-19
crisis. The Company continued to prioritise the health and wellbeing of
staff, contractors and stakeholders by maintaining stringent protocols
to limit the impact of the COVID-19 pandemic on sites. There were no
employees that had to be retrenched as a result of the global pandemic.
Employees pivoted to assist local communities with food hampers
where possible. Travel to mine sites was still partially restricted but
managed through the dedication of key employees on our sites.
The Company has achieved significant vaccination rates to assist with
managing the pandemic into 2023.
The following governance-related documents can be found on the
Company’s website at www.lucapa.com.au under the section marked
“Corporate Governance”.
Charters
• Board
Board
• Code of Conduct
• Policy and Procedure for Selection and
(Re)Appointment
of Directors
• Policy on Assessing the Independence of Directors
• Securities Trading Policy
• Risk Management Policy
• Procedure
for the Selection, Appointment and Rotation
of External Auditor
• Policy on Continuous Disclosure
• Shareholder Communication Policy
• Diversity Policy
• Whistle Blower Policy
• Anti-Bribery and Corruption Policy
• Anti-Slavery Policy
Lucapa Diamond Company Limited | Annual Report 2022 | 27
Principle 1
Lay solid foundations for
management and oversight
The main function of the Board is to lead and oversee the management
and strategic direction of the Group. The Board regularly measures
the performance of management in implementation of the strategy
through regular Board meetings.
Lucapa has adopted a formal Board charter delineating the roles,
responsibilities, practices and expectations of the Board collectively,
the individual Directors and management.
The Board of Lucapa ensures that each member understands their roles
and responsibilities and ensures regular meetings so as to retain full
and effective control of the Company.
Role of the Board
The Board responsibilities are as follows:
• Setting the strategic aims of Lucapa and overseeing management’s
performance within that framework;
• Making sure that the necessary resources
(financial and
human) are available to the Group and management to meet its
strategic objectives;
• Overseeing and measuring management’s performance
in
delivering the Company’s strategic objectives;
• Selecting and appointing a Managing Director with the appropriate
experience and skills to help the Group in the pursuit of its
strategic objectives;
• Controlling and approving financial and compliance reporting,
capital structures and material contracts;
• Ensuring that a sound system of risk management and internal
controls is in place;
• Setting the Company’s vision, core values and standards;
• Undertaking regular review of the corporate governance policies
to ensure adherence to the ASX Corporate Governance Council
principles;
• Ensuring that the Company’s obligations to shareholders are
understood and met;
• Ensuring the health, safety and well-being of employees
in conjunction with management, developing, overseeing
and reviewing the effectiveness of the Group’s occupational health
and safety systems to assure the well-being of all employees;
• Ensuring an adequate system is in place for the proper delegation
of duties for the effective day to day running of the Group without
the Board losing sight of the direction that the Group is taking;
• Establishing a diversity policy and setting objectives for
achieving diversity.
Delegation to management
Other than matters specifically reserved for the Board, responsibility for
the operation and administration of the Company has been delegated
to the Managing Director. This responsibility is subject to an approved
delegation of authority which is reviewed regularly.
Internal control processes are designed to allow management to
operate within the parameters approved by the Board and the
Managing Director cannot commit the Group to additional activities
or obligations in excess of these delegated authorities without specific
approval of the Board.
Election of Directors
The Board is responsible for overseeing the selection process of new
Directors, and undertakes appropriate checks before appointing a
new Director, or putting forward a candidate for election as a Director.
All relevant information is provided in the Notice of Meeting seeking
the election or re-election of a Director including:
• Biographical details including qualifications and experience;
• Other directorships and material interests;
• Term of office;
• Statement by the Board on independence of the Director;
• Statement by the Board as to whether it supports the election or
re-election; and
• Any other material information.
Terms of appointment
Non-executive Directors
To facilitate a clear understanding of roles and responsibilities all
non-executive Directors have signed a letter of appointment.
This letter of appointment includes acknowledgement of:
• Director responsibilities under the Corporations Act, Listing Rules,
the Company’s Constitution and other applicable laws;
• Corporate governance processes and Group policies;
• Board and Board sub-committee (if applicable)
meeting obligations;
• Conflicts and confidentiality procedures;
• Securities trading and required disclosures;
• Access to independent advice and employees;
• Confidentiality obligations;
• Directors fees;
• Expenses reimbursement;
• Directors and officers insurance arrangements;
• Other directorships and time commitments; and
• Board performance review.
Executive Directors
The Executive Directors have a signed services agreement. For further
information refer to the Remuneration Report.
Role of Company Secretary
The Company Secretary is accountable to the Board for:
• Advising the Board and committees on corporate
governance matters;
• The completion and distribution of Board and committee papers;
• Completion of Board and committee minutes; and
• The facilitation of Director induction processes and ongoing
professional development of Directors.
• All Directors have access to the Company Secretary who has a
direct reporting line to the Chairman.
Diversity
The Board values diversity in all aspects of its business and is committed
to creating a working environment that recognises and utilises the
contribution of its employees. The purpose of this is to provide diversity
and equality relating to all employment matters. The Group’s policy is to
recruit and manage on the basis of experience, ability and qualification
for the position and performance, irrespective of gender, age, marital
status, sexuality, nationality, race/ cultural background, religious or
political opinions, family responsibilities or disability.
28 | Lucapa Diamond Company Limited | Annual Report 2022
The Group opposes all forms of unlawful and unfair discrimination. The Board comprises four Directors, all of whom are male. The Board has determined
that the composition of the current Board represents the best mix of Directors that have an appropriate range of qualifications and expertise in the
industries and the jurisdictions in which the Group operates, can understand and competently deal with current and emerging business matters and
can effectively assess the performance of management.
The Group’s diversity objective is to improve gender diversity at all levels of its business on a year-on-year basis whilst recognising that it operates in
very competitive labour markets in remote locations, with strong cultural sensitivities, where positions are sometimes difficult to fill. There is periodic
reporting at the Group’s operations to measure the gender mix within various levels of the organisation. The Group is committed to continually assessing
and proactively monitoring these diversity trends and advocates that every candidate suitably qualified for a position has an equal opportunity of
appointment regardless of gender, age, ethnicity or cultural background.
The Company continues to identify female candidates as part of the Board competencies analysis for the independent Non- executive director position.
31 DECEMBER 2022
31 DECEMBER 2021
GENDER
REPRESENTATION
Board representation
Group representation
FEMALE
MALE
FEMALE
MALE
NO.
0
125
%
0
14
NO.
4
781
%
100
86
NO.
0
130
%
0
16
NO.
4
670
%
100
84
The Board is aware that many studies suggest that greater gender diversity at Board and management level creates a positive force for driving
corporate performance as qualified and committed directors with different backgrounds, experiences and knowledge will likely enhance corporate
performance. In that regard, the Board remains focused on resolving the gender imbalance on the Board by continuing to identify a pipeline of suitably
qualified candidates with careful consideration of those who strengthen the Board skills matrix.
The Company continues to support the Australian Institute of Company Director’s Board diversity initiatives and will continue to evolve its Board in
alignment with the Company’s needs and diversity best practice.
Performance review
Board and Board committees
A review of the Board’s performance and effectiveness is conducted annually and the performance of individual Directors is undertaken regularly.
The Board has the discretion for these reviews to be conducted either independently or on a self-assessment basis.
The review focuses on:
• Strategic alignment and engagement;
• Board composition and structure;
• Processes and practices;
• Culture and dynamics; relationship with management; and
• Personal effectiveness.
A review of the Board’s performance and effectiveness in respect of the year ended 31 December 202
was conducted.
2
Managing Director and senior executives
Performance evaluations of the Managing Director and senior executives is undertaken annually through a performance appraisal process which
involves reviewing and assessment of performance against agreed corporate objectives and individual key performance indicators or deliverables.
A review of the Managing Director and Chief Operating Officer’s performance and effectiveness in respect of the year ended 31 December 2022
was conducted.
Retirement and rotation of directors
Retirement and rotation of directors are governed by the Corporations Act 2001 and the Constitution of the Company. Each year, one third of Directors
must retire and may offer themselves for re-election. Any casual vacancy filled will be subject to shareholder vote at the next Annual General Meeting
of the Company. It is intended that Mr Miles Kennedy will stand for re-election by rotation at the Company’s Annual General Meeting, scheduled for
30 May 2023.
Lucapa Diamond Company Limited | Annual Report 2022 | 29
Independent professional advice
Each Director of the Company or a controlled entity has the right to seek
independent professional advice at the expense of the Company or the
controlled entity. However, prior approval of the Chairman is required
which will not be unreasonably withheld.
Access to employees
Directors have the right of access to any employee. Any employee
shall report any breach of corporate governance principles or Company
policies to the Chairman or as outlined under the Whistleblower policy.
If the breach is not rectified to the satisfaction of the employee, they
shall have the right to report any breach to an independent Director
without further reference to senior executives of the Company.
Directors’ and officers’ liability insurance
Directors’ and officers’ liability insurance is maintained by the Company
for the Directors and senior executives at the Company’s expense.
Board meetings
The frequency of Board meetings and the extent of reporting from
management at Board meetings are as follows:
• A minimum of four scheduled meetings are to be held per each
financial year;
• Other meetings will be held as required;
• Meetings can be held where practicable by electronic means;
• Information provided to the Board
includes all material
information related to the operations of the Group including
exploration, evaluation, development and mining operations,
budgets, forecasts, cash flows, funding requirements, investment
and divestment proposals, new business development activities,
investor
relations, financial accounts, sales and market
information, taxation, external audits, internal controls, risk
assessments, people and health, safety and environmental
reports, statistics and new business;
• Once established or as necessary, the Chairman of the appropriate
Board sub-committee or other meeting will report at the
subsequent Board meeting the outcomes of that meeting.
The number of Directors’ meetings (including meetings of committees
of Directors where applicable) and the number of meetings attended
by each of the Directors of the Company during the financial year are
set out in the Directors’ Report.
Principle 2
Structure the Board to be
effective and add value
The names of the Directors of the Company and their qualifications
are set out in the section headed “Information on Directors” in the
Directors’ Report.
The ASX Corporate Governance Council guidelines recommend that
the Board should constitute a majority of independent Directors
and that the Chairperson should be independent. The Board consists
of four Directors of whom one is considered independent, being Mr
Miles Kennedy (non-executive Chairman - appointed as a director
on 12 September 2008 and served as Executive Director until 11
December 2014). The Board considers that whilst Mr Kennedy has
served as a Director for a long period, he remains independent from
management and substantial shareholders and is therefore able to
bring an independent judgement to bear on issues before the Board
and to act in the best interests of the Company as a whole rather
than in the interests of an individual shareholder or other party.
Mr Ross Stanley (non-Executive Director – appointed 26 July 2018) has
a substantial shareholding in the Company and therefore does not
meet the criteria for an independent Director. Mr Stephen Wetherall
(appointed 13 October 2014) is Managing Director and therefore does
not meet the criteria for an independent Director due to his executive
role. Mr Nick Selby (appointed 4 September 2017) is an Executive
Director and therefore does not meet the criteria for an independent
Director due to his executive role.
Board skills and experience
The Company objective is to have an appropriate mix of experience
and expertise on the Board and Committees so that the Board can
effectively discharge its strategic, corporate governance and oversight
responsibilities.
The composition of the Board has been structured so as to provide
the Company with an adequate mix of non-executive and executive
Directors with exploration, development and mining industry
knowledge, country specific knowledge, technical, commercial, capital
markets and financial skills together with integrity and judgment
considered necessary to represent shareholders and fulfil the business
objectives of the Group.
The Board acknowledges that it is not comprised by a majority of
independent directors. However, the Chairman is independent
and the Board comprises Directors who each have extensive exploration,
development and mining industry knowledge, country specific
knowledge, technical, financial, capital markets and commercial
expertise. The Board will address the skills commensurate with the
growth and development of the Group’s activities to ensure those
skill sets are complemented by additional industry or other expertise
in the sector.
As the Company transitions from an emerging miner/explorer to
mid-tier producer, the Board will set about identifying and assessing
suitable independent non-executive director candidates to complement
the existing competencies of the Board to drive performance, create
shareholder value and lead ethically by example.
30 | Lucapa Diamond Company Limited | Annual Report 2022
This mix is described in the Board skills matrix as follows:
SKILLS
DIRECTORS HOLDING
THIS SKILL
Resources industry and Africa experience
Diamond industry and marketing
Strategy
Mergers and acquisitions
Finance
Risk Management
Government relations
Capital projects; financing/ project
management
Sustainable development
Previous board experience
Governance
Policy
Executive leadership
Remuneration
4
4
4
4
4
4
4
4
4
4
4
4
4
4
The competencies that the current Board members have formulated
their analysis are based upon the criteria judged as important by the
Board given the Company’s current stage of growth, in conjunction
with independent industry guidance as follows:
• Resources Industry Experience - experience in the resources
industry, including broad knowledge of exploration, operations,
project development, markets, shipping and competition.
• Diamond Industry Experience - specific experience
in the
diamond industry, including an in-depth knowledge of exploration,
operations, project development, markets, cutting and polishing,
competitors and relevant technology.
• Strategy – identifying and critically assessing the strategic
opportunities and threats to the organisation and developing
and
in context to an
organisation’s policies and business objectives.
implementing successful strategies
• Mergers and Acquisition – experience managing, directing or
advising on mergers, acquisitions, divestments and portfolio
optimisations.
• Finance – senior executive or other experience in financial
accounting and reporting, internal financial and risk controls,
corporate finance and restructuring corporate transactions.
• Risk Management - experience working with and applying broad
risk management frameworks in various countries, regulatory or
business environments, identifying key risks to an organisation,
legal
monitoring risks and compliance and knowledge of
and regulatory requirements.
• Government Relations – senior management or equivalent
in politically,
experience (particularly transactional) working
culturally and regulatory diverse business environments.
• Capital Projects; Financing / Project Management – experience
with projects involving contractual negotiations, significant capital
outlays, procuring project investment and securing partners with
long investment horizons.
• Sustainable Development – senior management or equivalent
experience in economic, social and environmental sustainability
and workplace health and safety practices.
• Previous Board Experience – serving on boards of varying size
industries and for a range of
and composition
organisations. Awareness of global practices, benchmarking,
some international experience.
in varying
• Governance – implementing the high standards of governance
in a major organisation that is subject to rigorous governance
standards and assessing the effectiveness of senior management.
• Policy – identifying key issues for an organisation and developing
appropriate policy parameters within which the organisation
should operate.
• Executive Leadership – experience in corporate structuring,
overseeing strategic human capital planning, evaluating the
performance of senior management,
relations,
organisational change management and sustainable success in
business at senior level.
industrial
• Remuneration –
experience
remuneration governance
and employment law, performance and incentive schemes.
in
frameworks,
remuneration
strategy,
Corporations Act
The Board Skills Matrix is an important driver to formalise the director
nomination processes. It was applied during the reporting period as
several candidates were considered for the independent Non-executive
director position to complement the existing skill sets on the Board.
The Board will continue to seek to identify suitable candidates in
alignment with the Company’s needs and best practice.
Nomination of other Board members
Membership of the Board of Directors is reviewed on an on-going
basis by the Chairperson of the Board to determine if additional core
strengths are required to be added to the Board in light of the nature
of the Group’s businesses and its objectives and diversity.
As the Company transitions to become a mid-tier producer, the Board
will focus on a measured process to ensure it maintains a strong,
well-credentialed Board to oversee the Company’s next growth phase
led by the development of the Merlin Project that is value accretive
for shareholders.
The appointment of an independent Non-executive Director was not
achieved during this reporting period. However the Board Skills Matrix
will form an integral basis in the identification and assessment of
suitable candidates based on readily available information on respective
backgrounds, current Board positions and visible competencies.
The Board currently performs the role of a Nomination Committee
given the Company’s size and stage of growth. However this will be
reviewed to ensure there is a continued emphasis on board membership
which aligns with the Company’s corporate culture and addresses
independence and diversity.
Director induction and ongoing
professional development
The Company does not have a formal induction program for Directors
but does provide Directors with information detailing policies, corporate
governance and various other corporate requirements of being a director
of an ASX listed company. To the extent required, new Directors are
provided access to the diamond industry centres and given audiences
with key management, industry participants and players as part of
the induction. Due to the size and nature of the business, Directors
are expected to already possess a level of both industry, technical,
corporate and commercial expertise before being considered for
a directorship of the Company. Directors are provided with the
opportunity to access employees of the business and any information
as they require on the business including being given access to regular
operational updates, industry update, news articles and publications
where considered relevant.
Lucapa Diamond Company Limited | Annual Report 2022 | 31
Principle 4
Safeguard the integrity of
corporate reports
Lucapa has a financial reporting process which includes quarterly, half
year and full year reports which are signed off by the Board before they
are released to the market.
The Company’s Continuous Disclosure policy ensures that any corporate
reports that are released to the market that are not audited or reviewed
by an external auditor are reviewed by the Board and appointed
responsible officers, which are the Managing Director, the Company
Secretary and Chief Financial Officer (or equivalent), to verify the
accuracy of information before being released.
The Board does not have a separate Audit Committee given the current
size of the Board. However it is intended that a committee will be
established comprised by a majority of independent directors as the
Company transitions to become a mid-tier producer.
In the interim, the four Board members, who each have extensive
corporate, commercial and financial expertise, manage the financial
oversight as well as advise on the modification and maintenance of the
Group’s financial reporting, internal control structure, external audit
functions, and appropriate ethical standards for the management of
the Group.
In discharging its oversight role, the Board is empowered to investigate
any matter brought to its attention with full access to all books,
records, facilities, and personnel of the Group and the authority to
engage independent counsel and other advisers as it determines
necessary to carry out its duties.
The Managing Director and Chief Financial Officer (or equivalent)
reports on the propriety of compliance on internal controls
and reporting systems and ensures that they are working efficiently
and effectively in all material respects.
The Company has established procedures for the selection, appointment
and rotation of its external auditor. The Board is responsible for the
initial appointment of the external auditor and the appointment of
a new external auditor when any vacancy arises. Candidates for the
position of external auditor must demonstrate complete independence
from the Company through the engagement period. The Board may
otherwise select an external auditor based on criteria relevant to the
Company’s and Group’s business and circumstances. The performance
of the external auditor is reviewed on an annual basis by the Board.
The Company’s external auditor attends each Annual General meeting
and is available to answer questions from shareholders relevant to
the conduct of the external audit, the preparation and content of the
Auditor’s Report, the accounting policies adopted by the Company
and the independence of the auditor.
Principle 3
Instill a culture of acting
lawfully, ethically and responsibly
Directors, officers, employees and consultants to the Group are
required to observe high standards of behaviour and business ethics
in conducting business on behalf of the Group and they are required
to maintain a reputation of integrity on the part of both the Group and
themselves. The Group does not contract with or otherwise engage
any person or party where it considers integrity may be compromised.
Lucapa recognises the importance of its people in building a strong
and successful organisation. To achieve this, Lucapa has focused on
developing the right culture across the organisation, which is strongly
based on a vision, mission and values communicated in our teams
in Australia and Africa to ensure they know what is expected of
them, both operationally and behaviourally, and are recognised for
their good work.
Code of Conduct
The Company’s Code of Conduct policy has been endorsed by the Board
and applies to all Directors, officers, employees and consultants.
Whistleblower policy
In line with the Code of Conduct, the Company has a Whistleblower
policy that ensures that all eligible whistleblowers who make a report
in good faith can do so without fear of intimidation, disadvantage
or reprisal.
Anti-Bribery and Corruption
and Anti-Slavery policies
The Company’s Anti-Bribery and Corruption and Anti-Slavery policies
have been endorsed by the Board and applies to all Directors, Group
employees, consultants, contractors and third-parties.
Conflicts of interest
Directors are required to disclose to the Board actual or potential
conflicts of interest that may or might reasonably be thought to exist
between the interests of the Director or the interests of any other party
in so far as it affects the activities of the Group and to act in accordance
with the Corporations Act if the conflict cannot be removed or if it
persists. That involves taking no part in the decision- making process
or discussions where a conflict does arise.
Trading in Company securities
Directors are required to make disclosure of any trading in the
Company’s shares. The Company policy in relation to share trading
is that Directors, key management personnel, officers, employees,
consultants and contractors of the Group (“Staff”) are prohibited to
trade whilst in possession of unpublished price sensitive information
concerning the Group or within a certain period of the release of results
i.e. the blackout period. That is information which a reasonable person
would expect to have a material effect on the price or value of the
Company’s shares.
Staff must receive authority to acquire or sell shares from the Chairman
or the Company Secretary prior to doing so to ensure that there is no
price sensitive information of which Staff might not be aware. The
undertaking of any trading in shares by a Director must be notified
to the ASX.
32 | Lucapa Diamond Company Limited | Annual Report 2022
Principle 5
Make timely and balanced disclosure
The Company has adopted a formal policy dealing with its disclosure
responsibilities. The Board has designated the Company Secretary
as the person responsible for overseeing and coordinating disclosure
of information to the ASX as well as communicating with the ASX.
In accordance with the ASX Listing Rules the Company immediately
notifies the ASX of non-public information:
• Concerning the Group that a reasonable person would expect to
have a material effect on the price or value of the Company’s
securities; and
• That would, or would be likely to, influence persons who commonly
invest in securities in deciding whether to acquire or dispose of the
Company’s securities.
The policy also addresses the Company’s obligations to prevent the
creation of a false market in its securities. The Company also publishes
other information to assist investors to make an informed decision
on its website.
The Managing Director has ultimate authority and responsibility for
recommending market disclosure to the Board which, in practice, is
exercised in conjunction with the Board and Company Secretary.
In addition, the Board will also consider whether there are any matters
requiring continuous disclosure in respect of each and every item of
business that it considers.
Principle 6
Respect the rights of
security holders
The Board’s fundamental responsibility to shareholders is to work
towards meeting the Company’s strategic objectives to add value for
them. The Board maintains an investor relation program which will
inform shareholders of all major developments affecting the Group by:
• Preparing half yearly and yearly financial reports;
• Preparing quarterly cash flow reports and reports as to activities;
• Making announcements in accordance with the listing rules and
the continuous disclosure obligations;
• Posting all the above on the Company’s website once released to
the ASX;
• Annually, and more regularly if required, holding a general meeting
of shareholders and forwarding to them the annual report, if
requested, together with notice of meeting and proxy form; and
• Voluntarily releasing other information which it believes is in the
interest of shareholders.
The Annual General Meeting enables shareholders to discuss the
annual report and participate in the meetings either by attendance
or by written communication. The Company provides all shareholders
with a Notice of Meeting so they can be fully informed and be able to
vote on all resolutions at the Annual General Meeting. Shareholders
are able to discuss any matter with the Directors and/ or the auditor of
the Company who is also invited to attend the Annual General Meeting.
Shareholders have the option to receive all Company and share registry
communications electronically and may also communicate with the
Company by contacting the Company via email
Principle 7
Recognise and manage risk
The Board has adopted a Risk Management policy, which sets out
the Group’s risk profile. Under the policy, the Board is responsible for
approving the Group’s policies on risk oversight and management
and satisfying itself that management has developed and implemented
a sound system of risk management and internal control.
Under the policy, the Board delegate’s day-to-day management of risk
to the Managing Director, who is responsible for identifying, assessing,
monitoring and managing risks with other executive management.
The executive is also responsible for updating the Group’s material
business risks to reflect any material changes, with the approval
of the Board.
In fulfilling the duties of risk management, the executive has
unrestricted access to Group employees, contractors and records
and may obtain independent expert advice on any matter they
believe appropriate.
The Board does not have a separate Risk Management Committee as
the Board monitors and reviews the integrity of financial reporting
and the Group’s internal financial control systems. Management
assess the effectiveness of the internal financial control on an annual
basis and table any concerns and/ or recommendations at Board
meetings where required.
In addition, the following risk management measures have been
adopted by the Board to manage the Group’s material business risks:
• Establishment of financial control procedures and authority limits
for management;
• Approval of an annual budget;
• Adoption of a compliance procedure for the purpose of ensuring
compliance with the Company’s continuous disclosure obligations;
• Adoption of a corporate governance manual which contains
other policies to assist the Group to establish and maintain its
governance practices; and
• Compilation, maintenance and review of a risk register to
identify the Group’s material business and operational risks
and risk management strategies for these risks. The risk
register is reviewed half yearly and updated as required. The
Executive reports to the Board on material business risks at each
Board meeting.
The Board has required the executive to design, implement
and maintain risk management and internal control systems to
manage the material business risks of the Group. The Board also
requires management to report to it confirming that those risks are
being managed effectively.
The Chief Financial Officer (or equivalent) has provided a declaration
to the Board in accordance with section 295A of the Corporations
Act and has assured the Board that such declaration is founded on a
sound system of risk management and internal control and that the
system is operating effectively in all material respects in relation to
financial risks.
The Board monitors the adequacy of its risk management framework
regularly to ensure that it continues to be sound and deals adequately
with contemporary and emerging risks and that the Company
is operating with due regard to the risk appetite set by the Board
and discloses that reviews have taken place at the end of each
reporting period.
Internal Audit
The Group does not have an internal audit function as the Board
believes the business is neither the size nor complexity that requires
such a function. The Board is currently responsible for monitoring
the effectiveness of internal controls, risk management procedures
and governance.
Lucapa Diamond Company Limited | Annual Report 2022 | 33
Sustainability and Industry risks
The Group’s operations are and will continue to be subject to a range of
the hazards and risks normally incidental to exploring for, evaluating,
developing and mining diamond resources.
The Company and its subsidiaries have detailed risk matrices which
are regularly reviewed, and which highlight critical risk factors that
the Group faces at any particular time. Principal risks to the business
include, amongst others, those relating to:
• Macroeconomic factors, sovereign and partner risk, global diamond
market and diamond demand and pricing;
• The ability to raise capital and/ or required additional funding
for continued exploration, evaluation, development and mining
operations;
• Operational issues such as severe weather conditions, supply
delays, major equipment breakdowns and labour disputes;
• The ability to replace resource and reserves as they are depleted or
become uneconomical and/ or achieve exploration success;
• Environmental, health and safety and social issues (see below); and
• Retention and reliance on key executives.
As the Group expands its activities either within existing projects or
with the addition of new projects, it is expected that the sustainability
risks will change accordingly.
The Board reviews the overall sustainability of both the diamond
business and more specifically, the Group, in its normal course of
business.
Details of the Group’s sustainability activities and strategic direction
are set out in the ESG Report.
Environmental and Social Risks
The Group strives to operate in accordance with the highest standards
of environmental practice and comply in all material respects with
applicable environmental laws and regulations. Such regulations
typically cover a wide variety of matters including, without limitation,
prevention of waste, pollution and protection of the environment,
labour regulations and worker safety. The Company may also be subject
under such regulations to clean-up costs and liability for toxic or
hazardous substances which may exist on or under any of its properties
or which may be produced as a result of its operations.
The Company has adopted a formal Anti-Bribery and Corruption
and Anti-Slavery policies which apply to all staff, consultants
and contractors that work with the Group. The policies seek to ensure
that the Company operates in an ethical and transparent manner in all
business dealings and that the Company has a Whistleblower policy
and mechanism for staff to alert management should any issues or
incidents occur.
The Board monitors the adequacy of its environmental and social
risk management to ensure that it continues to be sound and deals
adequately with contemporary and emerging risks in the respective
jurisdictions the Group operates within.
34 | Lucapa Diamond Company Limited | Annual Report 2022
The FY22 framework for STI’s in the form of cash and equity, Project
Based Incentives in the form of equity and LTI’s in the form of
equity, were measured against the Company’s relevant targets in
FY22 such as;
STI;
• Production
• Expenditures/ Capex
• ESG and Safety
• Exploration
PBI;
• Production at the Merlin Project
LTI;
• Absolute shareholder return
The independent review has considered Non-executive directors
total fixed remuneration in relation to benchmarked peers in which
non-executives are encouraged to hold shares in the Group to
partake in the future growth of the Group and, to participate in the
Group’s profits and dividends that may be realised in future years.
In FY22, the non-executive directors were offered the ability to
split their fixed remuneration between cash and equity subject to
shareholder approval.
Principle 8
Remunerate fairly and responsibly
The Company does not have a Remuneration Committee given
the size of the Board. However it is intended that a committee will
be established comprised by a majority of independent directors
as the Company transitions to become a mid-tier producer. In the
interim, the Board monitors and reviews the remuneration level
and policy of the Group.
Details of the remuneration policy are contained in the Remuneration
Report included in the Directors’ Report. The Company’s policy
is to remunerate non-executive Directors at a fixed fee for time,
commitment and responsibilities. Any services over and above
their agreed responsibility is remunerated separately on normal
commercial terms. Remuneration for non-executive Directors is not
linked to individual performance. The Company may grant options
and performance rights to non-executive Directors. The grant of
options and performance is designed to recognise and reward efforts
as well as to provide non-executive Directors with additional incentive
to continue those efforts for the benefit of shareholders and the Group.
The maximum aggregate amount of fees (including superannuation
payments) that can be paid to non-executive Directors is subject to
approval by the shareholders at general meeting.
Pay and rewards for executive Directors and senior executives
consists of a base salary, performance and retention incentives.
Medium and long-term performance incentives may include options
and/ or performance rights granted at the discretion of the Board and
subject to obtaining the relevant approvals. The grant of options and/
or performance rights is designed to recognise and reward efforts
as well as to provide additional incentives and retentions and may
be subject to the successful completion of performance hurdles.
Executives are offered a competitive level of base pay at market rates
(for comparable companies and industry) and are reviewed annually to
ensure market competitiveness. The Company’s policy is not to allow
transactions in associated products which limit the risk of participating
in unvested elements of equity-based compensation plans.
The Directors are not entitled to a termination bonus or retirement
benefit (other than for superannuation). The Directors’ contracts
contain a service bonus in the event of a takeover or change of control,
subject to shareholder approval where required.
During the reporting period the Board engaged an independent
remuneration consultant, BDO Remuneration and Reward Pty Limited,
to review the pay and rewards for Directors and senior executives
including independent benchmarking as the Company continues to
maximise operating performance from its existing mines and moves
toward its key strategic objective, which is the development of
and ultimately the production from the Company’s recently acquired
Merlin Project in the Northern Territory, Australia.
The Company is entering an important phase and the Board
believes that whilst the remuneration framework is appropriate
and fit-for- purpose based on the Company’s development and growth
profile and to drive and deliver the outcomes desired by all shareholders,
it has adopted the recommendations from the independent
remuneration consultant which focus on providing directors, key
management personnel and senior management with clear short
term, project based and long-term incentives to drive alignment of the
Company’s key objectives.
Lucapa Diamond Company Limited | Annual Report 2022 | 35
FINANCIAL
report
36 | Lucapa Diamond Company Limited | Annual Report 2022
Directors’ Report
Consolidated financial statements
Notes to the consolidated financial statements
Director’s Declaration
Independent Auditor’s Report
Additional ASX Information
Definitions and Abbreviations
38
54
59
93
94
100
102
Lucapa Diamond Company Limited | Annual Report 2022 | 37
Directors’ report for the year ended 31 December 2022
The Directors present their report together with the financial report of Lucapa and the Group for the financial year ended
31 December 2022 and independent auditor’s report thereon.
2
1.
Directors
The Directors of the Company at any time during or since
the end of the financial period are:
Name
M Kennedy
S Wetherall
N Selby
R Stanley
Position
Non-Executive
Chairman
Chief Executive
Officer/ Managing
Director
Chief Operating
Officer/ Executive
Director
Non-Executive
Director
Appointment date
12 September 2008
13 October 2014
4 September 2017
26 July 2018
The qualifications, experience and other directorships of
the Directors in office at the date of this report are:
Miles Kennedy
Mr Kennedy has held directorships of Australian listed
companies for more than 30 years. He was previously
Chairman of companies including Sandfire Resources,
Kimberley Diamond Company, Blina Diamonds, Macraes
Mining Company, MOD Resources and Auris. He has
extensive experience in the management of public
companies with specific emphasis in the resources
industry. He lives in Dunsborough, Western Australia.
Stephen Wetherall
Mr Wetherall is a chartered accountant and member of
the South African Institute of Chartered Accountants
with more than 20 years’ experience in financial and
operational management, corporate transactions and
2.
Company Secretary
strategic planning, most of which has been in the
diamond industry. He has held senior financial and
executive roles with diamond major De Beers and
London-listed Gem Diamonds. He lives in Perth, Western
Australia.
Nick Selby
Mr Selby is an extraction metallurgist with over 35 years'
experience in the mining industry. He began his career
with De Beers, where he spent 19 years in a range of
technical roles. Mr Selby joined Gem Diamonds in 2005,
where he was responsible for establishing diamond
projects in various countries including Angola, Australia,
DRC, Central African Republic, Indonesia, Lesotho and
Botswana. He lives in Perth, Western Australia.
Ross Stanley
Mr Stanley has an extensive background in the resources
industry in Australia and Africa, specialising in drilling
and related exploration and mining services. He was the
founder and Managing Director of ASX-listed Stanley
its merger with Layne
Mining Services prior to
Christensen in 1997. Mr Stanley was also a major
shareholder and Non-Executive director of Perth-based
gold miner Equigold NL, which was taken over by Lihir
Gold for A$1.1 billion in 2008. He is a Non-Executive
director of ASX listed Cambodian gold miner Emerald
in Dunsborough, Western
Resources NL. He
Australia.
lives
Mr Clements was appointed Company Secretary on 2 July
2012. Mr Clements holds a Bachelor of Commerce degree
from the University of Western Australia and is a Fellow
of the Institute of Chartered Accountants of Australia, a
Fellow of the Governance Institute of Australia and
Institute of Company
member of the Australian
Directors. Mr Clements currently holds the position of
company secretary and/ or director of several publicly
listed companies and has experience in corporate
governance, finance, accounting and administration,
capital
regulatory
requirements.
raising, ASX compliance and
3.
Directors’ meetings
The number of Directors’ meetings and the number of
meetings attended by each of the Directors of the
Company during the financial year are:
a: Number of meetings attended;
b: Number of meetings held during the time the
Directors were in office during the year.
M Kennedy
S Wetherall
N Selby
R Stanley
Board Meetings
a
5
5
5
5
b
5
5
5
5
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LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
38 | Lucapa Diamond Company Limited | Annual Report 2022
Directors’ Report
Directors’ report for the year ended 31 December 2022
4.
Nature of operations and principal activities
In 2022, the Group continued to focus on its Angolan
assets (alluvial diamond mining, resource extension and
its Lesotho asset
kimberlite exploration at Lulo),
(kimberlite diamond mining and capacity expansion at
Mothae) and its Australian assets (completing the
transformative acquisition of Merlin in the Northern
Territory and lamproite diamond exploration at Brooking
in Western Australia). Limited work was also undertaken
at Lucapa’s Botswana asset (kimberlite exploration at
Orapa Area F).
5.
Operating and financial review
Overview
Lucapa is a unique integrated multi-asset diamond
company listed on the ASX with activities spanning
exploration, evaluation, mine development, production,
rough sales & marketing and cutting & polishing.
Lucapa’s Board and management team have decades of
global experience across all facets of the diamond
industry and have successfully advanced Lucapa’s vision
to become a leading global producer of large and high-
quality diamonds.
The company has two operating diamond mines – the
Lulo alluvial mine in Angola (“SML”) and the Mothae
kimberlite mine in Lesotho (“Mothae”). Both mines
attract some of the highest average US$/ carat prices for
their production and are
regular producers of
exceptional, large and high-value diamonds. Recovered
diamonds which are larger than 4.8 carats account for
approximately 75% of Lucapa’s rough revenues.
In 2022, Lucapa continued to achieve
objectives against its goals:
•
its growth
Previous years capital investment in an infield
sceening plant, the main plant and new mining
fleet had a positive impact, resulting in increased
production and operational efficiencies in 2022 at
Lulo;
Investment in Mothae’s processing plant in 2021,
resulted in record throughput in 2022;
Following the commissioning of the stand-alone
Kimberlite Bulk Sampling Plant at Lulo, the
kimberlite exploration program ramped up. Two
bulk samples every six weeks on average are
processed. The samples are excavated from the
diamondiferous kimberlite province lying directly
beneath the mining blocks where the large and high-
value Lulo alluvial diamonds are being recovered by
SML;
Advanced the Feasibility Study for the 100% owned
Merlin Diamond Project in the Northern Territory of
Australia following the completion of a scoping
study in 2022;
Advanced through the diamond value chain with
both operating mines generating returns from
beyond the mine gate. The cutting & polishing
partnerships with a high-end diamantaire sees both
mines share in the additional margins generated by
the sale of polished stones; and
Advanced our blue-sky projects through exploration
activities in Angola, Australia and Botswana.
•
•
•
•
•
2022 Group highlights include:
•
•
•
•
•
•
•
•
•
•
•
•
full
revenues of
year Attributable
Record full year revenues of A$149 million @
A$2,309/ carat (on a 100% project basis);
Record
A$69.1 million @ A$1,950/ carat;
Attributable EBITDA generated of A$14.9 million;
Record operational performance from SML with
volumes processed, carats recovered & sold and
exceptional diamond recoveries;
Settled A$18.6 million of debt;
Repatriated A$22.9 million from Angola in capital
loan repayments and SML dividends;
Advanced the Feasibility Study for the Merlin
Diamond Project and Publication of the Updated
Scoping Study for Merlin demonstrating strong
economics
(refer ASX
for a
announcement 3 March 2022);
Extended Merlin Mineral Lease for 25 years to 2047;
Extended Exploration Licence for Orapa Area F in
Botswana for two years;
Six bulk samples from 5 kimberlite targets at Lulo
were treated during the year;
41 diamonds weighing a total of 66.05 carats
recovered from the L164/01 bulk sample, including
two diamonds larger than 10.8 carats; and
Strong balance sheet with US$6.9 million cash
balance and interest-bearing debt down to US$6.4
million.
long-life mine
Following the positive 2022 performance, Lucapa
achieved an attributable EBITDA for the year ended
31 December 2022 of US$9.9 million (A$14.9 million)
(2021: US$16.6 million (A$22.3 million)). The Group
reported a loss after tax of US$15.1 million for the year
(2021: profit of US$2.8 million) after recognising a non-
cash impairment charge of US$10.6 million in respect of
Mothae and a US$3.0 million unrealized foreign
exchange loss on the intergroup loan from Lucapa to
Mothae due to the weakening of the South African rand
against the United States dollar.
SML, Lucapa’s 40% held alluvial diamond mining
operation in Angola, performed exceptionally well in
2022, with records being achieved for both gravel
processed and carats recovered. Cash operating cost/ m3
(excluding royalties and selling costs) for the year of
US$69 per m3 compared reasonably with the prior year of
US$62 per m3 in the current environment.
3 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 39
Directors’ Report Directors’ report for the year ended 31 December 2022
5. Operating and financial review (continued)
The first quarter of 2022, saw a quick return of and
growth in consumer demand in the key diamond
consumption market of North America and the emerging
markets of China and India. With polished inventory
levels in the industry being severely depleted through
the pandemic, both rough and polished diamond prices
rose steeply, with the rough price index increasing by
over 30% on average at the beginning of 2022, before
retracting as a result of macro-economic factors. The
rough price index stabilized in the last quarter to end
approximately 7% up for the year.
As a consequence of solid operational performance, high
volumes of large diamond recoveries and an overall
better pricing environment, SML achieved an EBITDA of
US$35.2 million
(2021:
(A$53.0 million)
US$37.2 million (A$50.0 million)). Lucapa’s attributable
portion amounted to US$14.1 million (A$21.2 million).
in 2022
The Group’s equity accounted share of SML’s results
(after accounting for depreciation and other below-the-
line items) was a US$7.7 million (A$11.1 million) profit
(2021: US$7.6 million (A$10.1million).
Additionally, Mothae, Lucapa’s 70% held kimberlite
mine in Lesotho, achieved record throughput for 2022.
However, overall performance and margins were
impacted by mass balancing constraints, input cost
inflation and waste stripping profile. Cash operating
costs increased year-on-year to US$19.3/ tonne (2021:
US$15.3/ tonne).
Mothae booked a EBITDA
loss of US$2.4 million
(A$3.7 million) for 2022 (2021: a positive US$5.6 million
(A$7.6 million). Lucapa’s attributable portion amounted
to a US$1.7 million loss (A$2.6 million).
The impairment charge for Mothae has been estimated
based on the uncertainties surrounding:
•
inflated medium/ long-term costs for material
inputs, such as diesel, explosives and consumables;
critical equipment availability and spares supply,
such as drill rigs; and
local currency movement compared to the United
States dollar.
•
•
•
•
The Company and mine management are exploring
various options to restore cash operating margins.
Fewer stones were allocated to the polishing partnership
in 2022 from Lulo due to a number of high-value stones
being tendered through Sodiam.
SML accrued
US$1.4 million (A$2.3 million) (2021: US$2.5 million
(A$3.4 million)) from the polishing partnership while
Mothae accrued US$0.8 million (A$1.2 million) (2021:
US$1.6 million (A$2.1million)) for the year.
The Group results for the year also includes a fair value
loan with SML of
investment
gain on Lucapa’s
US$2.5 million (A$3.6 million) (2021: US$2.4 million
(A$3.2 million) following the decision to expand
production capacity and thereby accelerate investment
loan repayments back to Lucapa.
During the year the Company strengthened its balance
sheet by repaying A$17.9 million in interest bearing debt.
At 31 December, 2022, Lucapa’s interest-bearing debt
sat at US$6.4 million (A$9.4 million) (2021: US$19.9
million (A$27.3 million)).
As at 31 December 2022, after taking into account the
Mothae impairment charge of US$10.6 million, the
Group’s assets exceeded liabilities by US$85.3 million
million
(2021:
(A$125.2
(A$124.1 million)).
US$90.2
million)
Review of financial condition
Given the Group’s mix of mining, evaluation and
exploration assets, and given their various stages of
development, the Group may require funding for
continued exploration, evaluation, development and/ or
mining activities. To the extent that sufficient cash is
not generated by the Group’s activities or mining
operations for the payment of loan, interest and/ or
dividends, funding will be required.
result of the current global
As a
inflationary
environment, supply chain constraints and general
economic uncertainties, and the potential unknown
future impact on the assumptions contained in the
Group’s cash flow forecasts over the next 12 months, the
Directors recognise that the Group may have to source
funding solutions and/ or restructure existing financing
facilities in order to ensure the realisation of assets and
extinguishment of liabilities as and when they fall due.
The ability of the Group to continue to pay its debts as
and when they fall due for the 12-month period from the
date the financial report is signed is dependent on:
•
The Group’s staff, operations, partners and the
global diamond
industry not being adversely
impacted by the economic environment or Russia/
Ukraine conflict, thereby impacting key forecast
assumptions and scheduled loan, interest and/ or
dividend payments;
The Group, as required, successfully sourcing
equity, raising new debt and/ or restructuring
existing debt facilities with its financiers; and
The Company continuing to achieve success with
its exploration and development projects, such as
the Lulo kimberlite exploration program in Angola
and Merlin mine development in Australia.
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LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
40 | Lucapa Diamond Company Limited | Annual Report 2022
Directors’ Report
Directors’ report for the year ended 31 December 2022
5. Operating and financial review (continued)
The Directors believe that the going concern basis is
appropriate for the preparation of the financial
statements due to the following reasons:
•
The diamond market is stable for higher value
productions and has rebounded strongly after
COVID-19 resulting in diamond prices returning to
above pre-pandemic levels;
The book value of the Group’s assets exceeds its
liabilities by US$85.3 million (post the Mothae
impairment charge);
All approvals for SML to repay Lucapa’s alluvial
investment loan are in place and should follow
directly following SML shareholder approval;
Lucapa should be able to provide the necessary
interim financial support to Mothae whilst
it
assesses a revision to the mining methodology to
improve margins. Alternate strategic options also
exist;
As per the Updated Scoping Study (refer ASX
announcement on 3 March 2022), the Merlin
acquisition and mine development is likely to
significantly increase Lucapa’s earnings and cash
flow generation once developed. To note, the
development is subject to a positive feasibility due
for publication in 2023 and successfully securing
project development funding;
The Group has historically been successful in raising
equity for the furtherance of its projects and under
•
•
•
•
•
ASX Listing Rule 7.1 the Company has the capacity
to place securities to raise equity: and
The Group has historically been successful in raising
and restructuring debt facilities.
•
However, despite the Group’s previous track record in
sourcing new funds or restructuring debt facilities as
above for its projects, there remains no assurance it will
in the future be successful in obtaining funding required
or restructuring debt facilities as and when needed.
Attributable performance measures
The table below reconciles the Attributable EBITDA of
US$9.9 million (A$14.9 million) for the year to the
Operating loss as per the Consolidated statement of
profit or loss and other comprehensive income:
US$000
A$000
Operating (loss)/ profit as per statement of profit
or loss
Adjust for non-attributable entries:
Mothae - 30% minority share
(15,381)
(23,192)
728
1,097
Add back non-cash items:
AASB16 lease payments & foreign exchange
translation
Mothae depreciation & impairment and LOM
depreciation
SML depreciation, tax and
fair value adjustments
Attributable EBITDA
2,365
3,566
15,750
23,748
6,404
9,866
9,657
14,876
Below is a breakdown of the attributable EBITDA by
business unit:
_______________________________________________________________________
US$000s
Rough revenue & polished margin
Royalty & selling costs
Operating costs
EBITDA
A$000s
Rough revenue & polished margin
Royalty & selling costs
Operating costs
EBITDA
SML
(40% attributable)
31-Dec-22
31-Dec-21
Mothae
(70% attributable)
31-Dec-22
31-Dec-21
Corporate & other
(100% attributable)
31-Dec-22
31-Dec-21
Group
31-Dec-22
31-Dec-21
32,400
(3,320)
(15,016)
14,064
48,854
(5,006)
(22,642)
21,206
32,240
(3,349)
(14,016)
14,875
43,235
(4,491)
(18,796)
19,948
16,040
(1,047)
(16,691)
(1,698)
24,186
(1,579)
(25,167)
(2,560)
18,524
(1,165)
(13,433)
3,926
24,841
(1,562)
(18,014)
5,265
-
-
(2,500)
(2,500)
-
-
(3,770)
(3,770)
-
-
(2,185)
(2,185)
48,440
(4,367)
(34,207)
9,866
50,764
(4,514)
(29,634)
16,616
-
-
(2,930)
(2,930)
73,040
(6,585)
(51,579)
14,876
68,076
(6,053)
(39,740)
22,283
Notes
Mothae - Rough revenue: As per ASX announcement on 24 January 2023, management completed and implemented optimisation
modelling to improve plant throughput – a trial has been running for ~5 weeks to date and the results are very positive. Management are
also investigating a solution to add ~250,000 tonnes p.a. additional treatment capacity. This investigation will be completed shortly, but
likely only be implemented following the formal withdrawal of the VAT Amendment Bill by the Lesotho Government.
Mothae - Operating costs: Costs increased 24% as a direct result of significant inflationary pressure on energy and blasting costs (average
diesel price up 56%) in 2022 and an increase in total ore and waste tonnes mined from 1.2mt in 2021 to 1.9mt in 2022. Diesel price inflation
alone added ~US$2.2m to annual costs. Management are investigating cleaner hybrid solutions, with the purpose of reducing carbon
emissions and energy costs.
5 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 41
Directors’ Report
Directors’ report for the year ended 31 December 2022
5. Operating and financial review (continued)
Significant changes in the state of affairs
General
In 2022, the global diamond market recovered from the
pandemic related downturn, with rough diamond prices
rising more than 30 percent in the first quarter. During
the year, diamond prices normalised, ending the year 7%
above December 2021 prices.
However, the positive movement in diamond prices was
somewhat offset by inflationary pressures and supply
constraints impacting margins at both operations.
Angola
Capital investment at Lulo of approximately US$20
million carried out over three years is bearing fruit. The
In-Field Screening Plant and new earthmoving fleet and
other equipment is making operations more efficient
and increasing throughput.
The commissioning of the dedicated Kimberlite Bulk
Sampling Plant in the third quarter of 2022 has been a
gamechanger for the kimberlite exploration program.
In 2022, six samples from 5 kimberlites were tested, with
kimberlite L164/01 resulting in the recovery of 41
diamonds weighing a total of 66.05 carats. The sample
also included two Special sized diamonds, confirming
that Lulo primary source kimberlites host special sized
diamonds.
Lesotho
Throughput at the Mothae plant in 2022 was a record.
However, Mothae operations had a challenging year,
with price inflation of diesel and explosives impacting
margins. A review into the mining methods as well as
strategic options are being considered to improve
margins. The passing of the previous Lesotho
government’s Value Added Tax Amendment Bill which
will effectively abolish the 15 percent VAT refund for
goods, services and capital items has been paused.
Australia
Western Australia
In 2022, samples were taken over high interest targets at
Brooking. The Heritage survey was also completed in
advance of planned drilling program in 2023.
Northern Territory
The Merlin Diamond Project Feasibility Study was
advanced in 2022, following the publishing of an
updated Scoping Study of the preliminary technical and
economic viability of Merlin in March.
Historic hyperspectral data covering Merlin was
interpreted with seven new kimberlite targets identified
at Merlin.
Botswana
The Exploration licence for the 100% owned Orapa Area
F project in Botswana was renewed for a further two
years, ahead of planned drilling in 2023.
Corporate
The Company completed the following share capital
transactions during the period:
Transaction
Issue of shares
Issue of shares on exercise of options
Business Risks
Diamond prices and marketability
The ultimate profitability of the Company’s operations
will be dependent upon the market price and
marketability of diamonds. There is a risk that a
profitable market may not exist for the sale of diamonds
produced by the Company.
stability of exchange
Commodity prices, including diamond prices fluctuate
widely and are affected by numerous factors beyond the
control of the Company. General economic factors as well
as the world supply of mineral commodities in general,
the
rates and political
developments can all cause significant fluctuations in
diamond prices. The prices of mineral commodities have
fluctuated widely in recent years and future diamond
price declines could cause commercial production to be
uneconomic, thereby having a material adverse effect on
the Company’s business, financial condition and results
of operations.
Number
166,666,668
61,729
Issue/ exercise
price (A$)
Funds raised
(US$000)
Option expiry
0.075
0.100
9,056
4
n/a
18-Dec-22
investment
Moreover, resource and reserve estimates and studies
using different diamond prices than the prevailing
market price could result in material write-downs of the
Company’s
in the assets and even a
reassessment of the economic feasibility of the
Company’s projects which could result in putting one or
more projects on care and maintenance and slowing
down operations until there is a change in diamond
prices. Despite the high quality of the diamond
production from the Company’s operations, an increase
in the acceptance of manufactured (synthetic or lab-
grown) gem-quality diamonds for the jewellery industry
could negatively affect the market for natural stones.
Sovereign risks
In addition to its activities in Australia, the Company is
also involved in operations in Angola, Botswana and
Lesotho and may explore other opportunities in other
countries in the future.
6 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
42 | Lucapa Diamond Company Limited | Annual Report 2022
Directors’ Report
Directors’ report for the year ended 31 December 2022
5. Operating and financial review (continued)
Whilst the Directors are of the opinion that the
democratic and regulatory systems in those countries
are relatively stable, the Company may be adversely
affected by changes in economic, political, judicial,
administrative, taxation or other regulatory factors.
There can be no assurance that the political environment
in these jurisdictions will continue and this could
materially adversely affect the Company’s prospects,
operations, financial condition and results of operations.
The Company’s projects and businesses may be
adversely impacted by acts of terrorism or war. While the
Company will undertake all reasonable due diligence in
assessing the risks of terrorism and war in the countries
and regions in which it invests, the risks of acts of
terrorism and war cannot be fully mitigated.
Other risks and uncertainties include, but are not limited
to, high rates of inflation, labour unrest, mass migration,
pandemics, shortages of food, water, currency exchange
fluctuations, limitations or delays in repatriation of
profits, renegotiation or nullification of existing licences,
changes in taxation policies, currency controls and
regulations that favour or require the awarding of
require foreign
contracts to
contractors to employ citizens, or purchase supplies
from, a particular jurisdiction.
local contractors or
The occurrence of any of these risks or any material
changes in government policies, attitude or legislation
that affect foreign investment, repatriation of foreign
currency, taxation or mineral exploration, development
or mining activities, may adversely affect the viability
and profitability of the Company’s assets and operations
in Angola, Botswana and Lesotho or other southern
African jurisdictions in a highly material manner. Failure
to comply strictly with applicable laws, regulations and
tenure and
local practices
development, could
reduction or
result
expropriation of entitlements.
to mineral
loss,
relating
in
Industry profitability can be affected by changes in
government within Angiola, Botswana, Lesotho, South
Africa, Australia and elsewhere, which are not within the
control of the Company. The Company’s activities are
subject to extensive laws and regulations controlling not
only the activities of the Company, and the possible
effects of those activities on the environment and on the
interests of local inhabitants, among other things.
Licences and permits from regulatory authorities are
required for many aspects of the Company’s activities.
There is no guarantee that the required licences in
Anolga, Botswana, Lesotho or Australia will continue to
be extended past the current expiry dates could
materially affect the Company’s prospects, operations,
financial condition and results of operations.
Whilst the Company is satisfied that it has taken
reasonable measures to ensure an unencumbered right
to explore, develop its licence areas in Angola, Australia,
Lesotho and Botswana, some of these countries are
7 | P a g e
subject to greater risks than more developed markets,
including significant legal, economic and political risks.
Title to mining properties in Angola, Australia, Lesotho
and Botswana is subject to potential litigation by third
parties claiming an interest in them and the failure to
comply with all applicable
laws and regulations,
including
failure to pay taxes, meet minimum
expenditure requirements or carry out and report
assessment work may invalidate title to mineral rights
held by the Company.
Regulatory delays
The business of mineral exploration, project evaluation,
development, mining and processing is subject to
various national and local laws and plans relating to,
amongst others, licencing and maintenance of title;
environmental consents; taxation; employee relations;
heritage or historic matters; health and safety; royalties;
land acquisition and other matters.
consents,
authorisations
Although the board believe that the Company is well
placed to have all of its licences issued or renewed in
relation to its material assets, should the Company
identify future development opportunities or operations
there is a risk that the necessary concessions, permits,
licences,
and
titles,
agreements to implement planned exploration, project
development, or mining may not be obtained or renewed
under conditions or within time frames that make such
plans economic, that applicable laws, regulations or the
governing authorities will change or that such changes
will result in additional material expenditures or time
delays could materially adversely affect the Company’s
prospects, operations, financial condition and results of
operations.
Risks and hazards inherent in exploration,
development and mining
Exploration, evaluation, development and mining
generally involves a high degree of risk. The Company’s
operations are and will continue to be subject to all the
hazards and risks normally incidental to exploring for,
evaluating, developing and mining diamond resources.
Whilst the Company has taken, and will continue to
take, all precautions necessary to minimise risk, the
Company’s operations will be exposed to hazards
including, but not limited to: environmental hazards,
periodic interruptions due to bad or hazardous weather
conditions, unusual or unexpected geology or grade
problems, unanticipated changes in the gravels or ore-
body characteristics and diamond recovery, difficulties in
sourcing, commissioning and operating plant and
equipment, mechanical failure or plant breakdown,
unexpected shortages, delays or
in the
sourcing or cost of consumables, spare parts, plant and
equipment,
labour disputes, seismic
activity, flooding, fire, equipment failure, pit wall failure
and other conditions
in the exploration,
involved
evaluation, development and mining activities.
industrial or
increases
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 43
Directors’ Report
Directors’ report for the year ended 31 December 2022
6. Dividends
No dividends were paid or declared by the Company during the current or prior financial year.
7. Environmental regulation
The Group’s mining and exploration activities are subject
to various environmental regulations. The respective
Company, subsidiary and associate Boards are
responsible for the regular monitoring of environmental
exposures
environmental
compliance with
regulations.
and
The Group is committed to achieving a high standard of
environmental performance and conducts its activities in
a professional and environmentally conscious manner
and in accordance with applicable laws and permit
requirements.
The Board believes the Group has adequate systems in
place for the management of
its environmental
requirements and is not aware of any material breach of
those environmental requirements as they apply to the
projects.
•
•
23 diamonds from 365m3 kimberlite sample
L164/02; and
13 diamonds from 902m3 kimberlite sample
L056.
Both targets will be subject to further sampling.
On 23 February 2023, Lucapa announced:
•
•
the recovery by SML of a 150 carat Type IIa white
diamond from Mining Block 28; and
the receipt of the dividend from SML referred to
above, amounting to A$2.1 million (net of
withholding tax).
Merlin Diamonds, Northern Territory, Australia
The Merlin Feasibility study will be completed in 2023.
The development of Merlin
is dependent on the
Company structuring and securing an appropriate
funding solution to maximise the benefits for all
stakeholders.
There is also a plan to carry out further exploration
activities on the Merlin orbit tenement in 2023.
Orapa Area F, Botswana
The Exploration licence for the 100% owned Orapa Area
F project in Botswana was renewed for a further two
years, ahead of planned drilling in 2023.
8. Events subsequent to reporting date
On 16 January 2023, Lucapa announced the recovery of 41
diamonds from the kimberlite bulk sample L164/01.
On 24 January 2023, Lucapa announced:
•
•
it had received a total of A$23 million was
repatriated from its associate SML in 2022; and
SML shareholders approved a A$5.9 million
capital repayment and A$2.3 million dividend to
be paid to Lucapa in 2023.
On 16 February 2023, Lucapa announced the following
recoveries of diamonds from two Lulo kimberlite
exploration bulk samples:
9.
Likely developments
The Directors consider the following as a summary of the
likely developments and expected results for the next 12
months.
Lulo, Angola
Lucapa and its partners plan to continue alluvial mining
and mine development at Lulo in 2023, while continuing
both the kimberlite and alluvial exploration programs.
Further sales of Lulo diamonds are planned, with more
diamonds continuing to be delivered into the cutting &
polishing partnership with Safdico.
Discussions with the Angolan partners to secure a
majority stake in the Project Lulo JV will continue.
Mothae, Lesotho
Lucapa and its Lesotho Government partner plan to
continue kimberlite mining activities and carry on
investigations into mass balance constraints. Lucapa
will continue to build on its marketing activities and
cutting and polishing partnership.
Brooking, Western Australia
Planning a drilling campaign in 2023, following heritage
survey which was completed
in 2022 and the
forthcoming submission of program of works.
8 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
44 | Lucapa Diamond Company Limited | Annual Report 2022
Directors’ Report
Directors’ report for the year ended 31 December 2022
10. Directors’ interest
The relevant interest of each Director in the shares and options over such instruments issued by the Company and other
related bodies corporate, as notified by the Directors to the ASX in accordance with S205G(1) of the Corporations Act 2001,
at the date of this report is as follows:
Performance
rights - various
expiry dates (1)
Director
M Kennedy
-
S Wetherall
14,234,220
N Selby
7,644,300
R Stanley
-
(1) Performance rights issued following shareholder approval at the
annual general meeting held 30 May 2022, subject to various
vesting conditions.
Fully paid
ordinary shares
3,116,819
4,425,100
2,187,350
80,940,347
11. Share options and performance rights
Unissued shares under options and performance rights
At the date of this report unissued ordinary shares of the Company under option and performance rights are set out below.
These options and performance rights over unissued shares do not entitle the holder to participate in any share issue of
the Company or any other body corporate.
Expiry date
Share options
30 July 2025
Performance rights
Various expiry dates (1)
Exercise price
(A$)
Number of
securities
Quoted
$0.00
5,000,000
$0.00 56,693,481
-
-
(1) Performance rights issued following shareholder approval at the annual general
meeting held 30 May 2022, subject to various vesting conditions.
12. Remuneration report (audited)
Principles of compensation
12.1
Key management personnel (“KMP”) have authority and
responsibility for planning, directing and controlling the
activities of the Group, including Directors of the
Company and other Executive management. Currently,
KMP comprises the Directors of the Company.
Compensation levels for KMP are competitively set to
retain appropriately qualified and
attract and
experienced Directors and Executives. The Directors of
the Company obtain
independent advice on the
appropriateness of compensation packages of KMP
given trends in comparative companies both locally and
internationally, and the objectives of the Group’s
compensation strategy.
suitably qualified
The compensation structures are designed to attract and
retain
industry experts and
candidates,
reward the achievement of strategic
objectives, and achieve the broader outcome of creation
of value for shareholders. Compensation packages
include a mix of fixed compensation, equity-based
compensation as well as employer contributions to
superannuation funds.
Shares, options and performance rights may only be
issued to Directors subject to approval by shareholders in
general meeting.
Fixed compensation
Fixed compensation consists of base compensation,
determined from a market review, to reflect core
performance requirements and expectations of the
relevant position and statutory employer contributions
to superannuation funds. Compensation levels are
generally reviewed annually by the Board through a
process that considers individual, segment, comparable
peers and overall performance of the Group.
9 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 45
Directors’ Report
Directors’ report for the year ended 31 December 2022
12. Remuneration report (audited) (continued)
Directors’ fees
Total compensation for Directors and Non-Executive
Directors is set based on advice from external advisors
with reference to fees paid to other Directors of
comparable companies. Non-Executive Directors’ fees
are presently
limited to an aggregate total of
US$500,000 per annum, excluding the fair value of any
options or performance rights granted. Directors’ fees
cover all main Board activities and membership of any
committee and subsidiary Boards. The Board has no
established retirement (other than superannuation) or
redundancy schemes
in relation to Directors. The
Directors’ contracts contain a service bonus in the event
of a takeover or change of control, subject to shareholder
approval where required.
Use of remuneration consultants
The services of a remuneration consultant were procured
during
recommendations were
incorporated into the Group’s Incentive and Retention
Plan which was approved at the annual general meeting
held on 30 May 2022.
2022
and
the
Equity-based compensation (Long-term incentive)
The Company has an equity-based incentive plan under
which Directors and management are awarded share
options and performance rights. The purpose of the plan
is to assist in the incentivisation, reward and retention
of Directors and management, align their interests with
those of the shareholders of the Company and to focus
on the Company’s development strategy.
financial period
Short-term and long-term incentive structure and
consequences of performance on shareholder wealth
Given the Group’s principal activities during the course of
consisting of exploration,
the
evaluation, development and mining of mineral
resources, successful expansion and acquisition
workstreams, the Board has for 2022 given significance
to service criteria, performance criteria and overall
market related criteria in setting the Group’s incentive
and retention schemes.
The Board does not consider the Group’s earnings to be
the only appropriate key performance indicator for
setting remuneration packages. In addition, the issue of
rights as part of the
options and performance
remuneration package of Directors, management,
employees and contractors is an established practice for
listed exploration, development and mining companies
and has the benefit of conserving cash whilst
appropriately rewarding and retaining the recipient.
In circumstances where cash flow permits, the Board
may approve the payment of a discretionary cash bonus
as a reward for performance.
In considering the relationship between the Group’s
remuneration policy and the consequences for the
Company’s shareholder wealth, changes
the
Company’s share price are considered.
in
Remuneration outcomes
Details of the remuneration outcomes for the year ended
31 December 2022 are summarised below.
Executive fixed remuneration
Mr Wetherall’s and Mr Selby’s total fixed remuneration
for FY21 was A$633,938 and A$479,588 respectively.
Following the recommendations from BDO Reward WA
Pty Limited (BDO) as an independent remuneration
consultant in relation to the pay and rewards for
directors and senior executives, including independent
benchmarking, Mr Wetherall’s and Mr Selby’s total fixed
remuneration was adjusted in FY22 to A$714,417 and
A$500,352 respectively based upon the 62.5 percentile
quartile, peer group market analysis and rating.
Executive incentives
Short-term incentives (‘STI’)
A new STI framework was established following the
recommendations from BDO whereby performance
measures set for the KMP and key staff in FY22 based
upon the Company’s relevant targets in relation to
production, operating & capital expenditure, ESG/safety
and exploration. Performance rights were issued to Mr
Wetherall (2,858,220) and Mr Selby (1,668,300) and key
staff. Seventy two percent of the STI measures were
achieved in FY22 and a cash bonus was paid to the
executive directors, Mr Wetherall (A$101,303) and Mr
Selby (A$59,129) and key staff and 2,056,751 and
1,200,751 performance rights were determined to vest for
Mr Wetherall and Mr Selby respectively subject to a
further 12-month retention vesting condition.
Project Based Incentive (‘PBI')
Following shareholder approval at the Company’s annual
general meeting held 30 May 2022, performance rights
with various vesting conditions and performance
milestones relating to the commissioning of and
production at the Merlin Project were issued to Mr
Wetherall (8,532,000) and Mr Selby (4,482,000) and key
staff. The resolution received more than 99% of ‘Yes’
votes.
Long-term incentives (‘LTI’)
Following shareholder approval at the Company’s annual
general meeting held 30 May 2022, performance rights
with various vesting conditions and performance
the Company’s Absolute
milestones
Shareholder Return, were
issued to Mr Wetherall
(2,844,000) and Mr Selby (1,494,000) and key staff.
relating
to
Non-executive director remuneration
Following the recommendations from BDO as an
independent remuneration consultant in relation to the
pay and rewards for non-executive directors the total
fixed remuneration of Mr Kennedy and Mr Stanley was
adjusted in FY22 to A$193,877 and A$118,871 respectively
based upon peer group market analysis and rating.
10 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
46 | Lucapa Diamond Company Limited | Annual Report 2022
Directors’ Report
Directors’ report for the year ended 31 December 2022
12. Remuneration report (audited) (continued)
Remuneration in 2022
The Board currently monitors and
reviews the
remuneration level and policy of the Group as the
Company does not have a Remuneration Committee
given the size of the Board. However it is intended that
a Remuneration Committee will be established
comprised by a majority of independent Directors as the
Company transitions to become a mid-tier producer and
explorer.
The Board engaged an
independent remuneration
consultant, BDO Reward WA Pty Limited (BDO), to
review the pay and rewards for Directors and senior
executives including independent benchmarking as the
Company continues to maximise operating performance
from its existing mines and exploration programs and
moves toward another transformative and key strategic
objective, which is the development of and ultimately
the production from the Company’s recently acquired
Merlin Project in the Northern Territory, Australia.
remuneration
framework was
The Company, as well as the diamond industry generally,
have emerged from a difficult period. The Company is
entering an important phase and the Board believes that
whilst the
largely
appropriate and fit-for-purpose based on the Company’s
development and growth profile and to drive and deliver
the outcomes desired by all Shareholders, it has adopted
the recommendations from BDO as an independent
remuneration consultant which focus on providing
Executive Directors, key management personnel and
senior management with clear short term incentives,
project based incentives and long term incentives to
drive alignment of the Company’s key objectives in a
cost-effective way.
The FY22 framework for STI’s in the form of cash and
equity, PBI’s in the form of equity and LTI’s in the form
of equity, are to be measured against the Company’s
relevant targets and
individual key performance
indicators (KPI’s) in FY22 such as:
STI’s
-
Company Targets
•
Production
•
Operating and Capital Expenditures
•
ESG/ Safety
•
Exploration
Individual KPI’s for participants in the Incentive Plan
-
PBI’s
-
Commissioning of and production at the Merlin
Project
LTI’s
-
Absolute Shareholder return
A Performance Right is exercisable, at no cost, on
satisfaction of relevant performance hurdles, into a
Share. The Performance Rights proposed to be granted
to the Executive Directors will vest based on the
achievement of short term, project based and long term
incentive performance hurdles respectively and as a key
staff retention mechanism, employment with the
Company at time of vesting.
The results of the FY22 STI incentive are as follows:
Milestones
Production (carats)
- SML
- Mothae
Operating expenditure
- SML
- Mothae
Capital expenditure
- SML
- Mothae
ESG
Social - ESG plan
implemented
- SML
- Mothae
Environmental - zero
major incidents
- SML
- Mothae
Safety - LTIFR
- SML
- Mothae
Corporate
Exploration plans
implemented
- Lulo
- Merlin
- Brooking
Actual for FY22
% of
target
achieved Vesting %
Final
award %
97.9% 100.0% 12.50%
0.0% 0.00%
72.4%
%
weighting
25.00%
12.50%
12.50%
12.50%
6.25% 106.27% 62.3% 3.89%
6.25% 105.26% 72.4% 4.53%
12.50%
6.25%
6.25%
25.00%
3.13%
3.13%
3.13%
3.13%
4.17%
4.17%
4.17%
25.00%
12.50%
6.25%
6.25%
100%
87.3% 100.0% 6.25%
83.5% 100.0% 6.25%
100%
100%
3.13%
3.13%
100%
100%
3.13%
3.13%
0% 0.00%
0% 0.00%
4.17%
100%
100% 12.50%
100% 6.25%
50%
3.13%
72%
The Company did not set individual KPI’s for participants
in the Incentive Plan in FY22. However it intends to
implement these KPI’s in FY23.
Service contracts (as at the date of these financial
statements)
Stephen Wetherall
Mr Wetherall has been engaged to act as the Company’s
Chief Executive Officer/ Managing Director. Mr Wetherall
is entitled to receive remuneration of A$714,417 (gross,
including superannuation) per annum which is subject to
review by the Board from time to time. He will be eligible
to participate in any future incentive and retention plans
implemented by the Board. Shareholder approval will be
sought for his participation in any incentive plan
involving equity of the Company. The appointment may
be terminated for various causes of a standard nature.
Upon termination, no benefits are due unless approved
by shareholders.
11 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 47
Directors’ Report
Directors’ report for the year ended 31 December 2022
12. Remuneration report (audited) (continued)
Nick Selby
Mr Selby has been engaged to act as the Company’s Chief
is
Operating Officer/ Executive Director. Mr Selby
entitled to receive remuneration of A$500,352 (gross,
including superannuation) per annum which is subject to
review by the Board from time to time. He will be eligible
to participate in any future incentive and retention plans
implemented by the Board. Shareholder approval will be
sought for his participation in any incentive plan
involving equity of the Company. The appointment may
be terminated for various causes of a standard nature.
Upon termination, no benefits are due unless approved
by shareholders.
Miles Kennedy
Mr Kennedy has been engaged to act as the Company’s
non-executive Chairman. Mr Kennedy is entitled to
receive Director fees of A$193,877 (gross) per annum,
which is subject to review by the Board from time to
time. The appointment may be terminated for various
causes of a standard nature. Upon termination, no
benefits are due unless approved by shareholders.
Ross Stanley
Mr Stanley has been engaged to act as a non-executive
Director of the Company. Mr Stanley is entitled to receive
Director fees of A$118,871 (gross) per annum, which is
subject to review by the Board from time to time. The
appointment may be terminated for various causes of a
standard nature. Upon termination, no benefits are due
unless approved by shareholders.
12 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
48 | Lucapa Diamond Company Limited | Annual Report 2022
Directors’ Report
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1
1
Lucapa Diamond Company Limited | Annual Report 2022 | 49
Directors’ Report
Directors’ report for the year ended 31 December 2022
12. Remuneration report (audited) (continued)
12.3
Equity instruments
All options refer to options and performance rights over ordinary shares of the Company, which are exercisable on a one-
for-one basis.
12.3.1 Analysis of movements in options, performance rights and shares
Options and performance rights over equity instruments
The movement during the reporting period in the number of options and performance rights over ordinary shares in the
Company held, directly, indirectly or beneficially, by each KMP, including their related parties, is as follows:
Held at
1 January
Options acquired
Exercise of
options and
performance
rights
Expired without
exercise
Options and
performance
rights granted
Held at 31
December
Vested &
exercisable
525,026
445,850
297,892
9,287,683
655,026
655,850
462,892
9,287,683
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(525,026)
(445,850)
(297,892)
(9,287,683)
-
14,234,220
7,644,300
-
(130,000)
(210,000)
(165,000)
-
-
-
-
-
-
14,234,220
7,644,300
-
525,026
445,850
297,892
9,287,683
-
-
-
-
525,026
445,850
297,892
9,287,683
Directors
2022
M Kennedy
S Wetherall
N Selby
R Stanley
2021
M Kennedy
S Wetherall
N Selby
R Stanley
Movements in shares
The movement during the reporting period in the number of ordinary shares in the Company held, directly, indirectly or
beneficially, by each KMP, including their related parties, is as follows:
Received upon
exercise of
options and
performance
rights
-
-
-
-
-
-
-
-
Held at
1 January
3,116,819
4,425,100
2,187,350
67,607,014
2,850,153
2,825,100
1,787,350
55,007,014
Sales
Purchases
-
-
-
-
-
-
-
-
-
-
-
13,333,333
266,666
1,600,000
400,000
12,600,000
Held at 31
December
3,116,819
4,425,100
2,187,350
80,940,347
3,116,819
4,425,100
2,187,350
67,607,014
Directors
2022
M Kennedy
S Wetherall
N Selby
R Stanley
2021
M Kennedy
S Wetherall
N Selby
R Stanley
No shares were granted to KMP during the reporting period as compensation in 2022 or 2021.
End of audited section.
14 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
50 | Lucapa Diamond Company Limited | Annual Report 2022
Directors’ Report
Directors’ report for the year ended 31 December 2022
13.
Indemnification and insurance of officers and Directors
The Company has entered into deeds of indemnity,
insurance and access (“Deeds”) with each of
its
Directors. Under these Deeds, the Company indemnifies
each Director or officer to the maximum extent
permitted by the Corporations Act 2001 from liability to
third parties and in successfully defending legal and
administrative proceedings and applications for such
proceedings. The Company must use its best endeavours
to insure a Director or officer against any liability, which
does not arise out of conduct constituting a wilful breach
of duty or a contravention of the Corporations Act 2001.
The Company must also use its best endeavour to insure
a Director or officer against liability for costs and
expenses incurred in defending proceedings whether civil
or criminal.
The Company has, during and since the end of the year,
in respect of any person who is an officer of the Company
liability
or a related body corporate, paid a premium in respect of
Directors and Officer
insurance which
indemnifies Directors, officers and the Company of any
claims made against the Directors, officers of the
Company and the Company, subject to conditions
contained in the insurance policy. The Directors have not
included details of the premium paid in respect of the
Directors’ and officers’ liability and legal expenses’
insurance contracts, as such disclosure is prohibited
under the terms of the contract.
The Company has not entered into any agreement to
indemnify the auditors against any claims by third
parties arising from their reports on the financial report
for the year ended 31 December 2022 and prior period
ended 31 December 2021.
15 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 51
Directors’ Report
Directors’ report for the year ended 31 December 2022
14.
Auditor independence and non-audit services
The Directors received the following declaration from the Company’s auditors, Elderton Audit Pty Ltd:
During the period Elderton Audit Pty Ltd have not
performed any other services for the Company in
addition to their statutory audit and as a result the
Directors are satisfied
that auditors have not
compromised the auditor independence requirements of
the Corporations Act 2001.
Audit services
Other services
Details of the amounts paid to the current auditor of the
Company, Elderton Audit Pty Ltd are set out below:
31 Dec 2022
US$
39,652
-
31 Dec 2021
US$
37,562
-
39,652
37,562
16 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
52 | Lucapa Diamond Company Limited | Annual Report 2022
Directors’ Report
Directors’ report for the year ended 31 December 2022
Signed in accordance with a resolution of the Directors, on behalf of the Directors.
MILES KENNEDY
Chairman
Dated this 27th February 2023
17 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 53
Directors’ Report
Consolidated financial statements
FOR THE YEAR ENDED 31 DECEMBER 2022
Consolidated financial statements for the year ended 31 December 2022
Corporate information
Lucapa Diamond Company Limited (“Lucapa” or “the
Company”) is a company domiciled and incorporated in
Australia. The address of the Company’s registered
office is 34 Bagot Road, Subiaco WA 6008. The
Company, its subsidiaries and associates (collectively
Basis of preparation
Statement of compliance
The financial report is a general purpose financial report
which has been prepared in accordance with Australian
Accounting Standards (“AASBs”) (including Australian
Interpretations) adopted by the Australian Accounting
Standards Board (“AASB”) and the Corporations Act
2001. The financial report of the Group complies with
International Financial Reporting Standards (“IFRSs”)
and
International
Accounting Standards Board (“IASB”).
interpretations adopted by the
The basis of preparation of the financial report is set out
below and in the notes to the consolidated financial
statements. The financial statements were authorised
for issue by the Board of Directors on the date of the
Directors’ report.
Basis of measurement
The financial statements have been prepared on the
going concern basis, which contemplates the continuity
of normal business activities and the realisation of
assets and settlement of current liabilities in the
ordinary course of business.
EBITDA
Going concern
As detailed in the Directors’ report, the Group recorded
an Attributable
of US$9.9 million
(A$14.9 million) (2021: US$16.6 million (A$22.3 million))
and a loss after tax of US$15.1 million for the full year
ended 31 December 2022, (2021: a profit of US$2.8
million). The results include, amongst others, the non-
cash impairment charge of US$10.6 million in respect of
Mothae and a US$3.0 million unrealised foreign
exchange loss on the intergroup loan from Lucapa to
Mothae due to the weakening of the South African rand
against the United States dollar.
Mothae’s results for the year was affected by the global
inflationary environment’s impact on material inputs,
supply chain and processing constraints. SML reported
another strong year with results in line with expectations
and generated sufficient cash flow for the payment of a
US$10.0 million dividend to shareholders as well as
alluvial investment loan repayments to Lucapa of
US$12.2 million during the year.
The Group reduced interest bearing debt during the year
from US$19.9 million to US$6.4 million as at
31 December 2022.
As at 31 December 2022, after taking into account the
Mothae non-cash impairment charge of US$10.6 million,
“the Group”) are primarily involved in the exploration,
evaluation, development and mining on diamond
projects in Africa and Australia.18
Group’s
the
US$85.3 million (2021: US$90.2 million).
exceeded
assets
liabilities
by
Despite current inflationary environment pressures on
costs and the supply chains, the Directors believe that
the going concern basis is appropriate for the following
reasons:
•
The diamond market is stable for higher value
productions and has rebounded strongly after
COVID-19 resulting in diamond prices returning to
above pre-pandemic levels;
The book value of the Group’s assets exceeds its
liabilities by US$85.3 million (post the Mothae
impairment charge);
All approvals for SML to repay Lucapa’s alluvial
investment loan are in place and should follow
directly following SML shareholder approval;
Lucapa should be able to provide the necessary
it
interim financial support to Mothae whilst
assesses a revision to the mining methodology to
improve margins. Alternate strategic options also
exist;
As per the Updated Scoping Study (refer ASX
announcement on 3 March 2022), the Merlin
acquisition and mine development is likely to
significantly increase Lucapa’s earnings and cash
flow generation once developed. To note, the
development is subject to a positive feasibility due
for publication in 2023 and successfully securing
project development funding;
The Group has historically been successful in raising
equity for the furtherance of its projects and under
ASX Listing Rule 7.1 the Company has the capacity
to place securities to raise equity: and
The Group has historically been successful in raising
and restructuring debt facilities.
•
•
•
•
•
•
However, despite the Group’s previous track record in
sourcing new funds for its projects, there remains no
assurance that it will in the future be successful in
obtaining funding as and when needed.
18 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
54 | Lucapa Diamond Company Limited | Annual Report 2022
Consolidated financial statements
Consolidated statement of profit or loss
and other comprehensive income
Consolidated statement of profit or loss and other comprehensive income
FOR THE YEAR ENDED 31 DECEMBER 2022
for the year ended 31 December 2022
Note
31 Dec 2022
US$000
31 Dec 2021
US$000
Revenue
Cost of sales
Gross (loss)/ profit
Share of profit of associate
Royalties and selling expenses
Corporate expenses
Share-based payments
Foreign exchange loss
Operating (loss)/ profit
Finance cost
Finance income
Fair value adjustments
(Loss)/ profit before income tax
Income tax expense
(Loss)/ profit after income tax
Other comprehensive income
Total comprehensive (loss)/ income for the year
(Loss)/ profit attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive (loss)/ income attributable to:
Owners of the Company
Non-controlling interests
Earnings per share
Basic (loss)/ earnings per share (cents)
Diluted (loss)/ earnings per share (cents)
2
3
10
3
12
7
4
4
7
5
6
6
23,350
(37,585)
(14,235)
7,660
(1,164)
(3,692)
(70)
(3,880)
(15,381)
(2,063)
12
2,822
(14,610)
(464)
(15,074)
1,066
(14,008)
(10,302)
(4,772)
(15,074)
(9,779)
(4,229)
(14,008)
Cents
(0.73)
(0.73)
26,791
(22,278)
4,513
7,554
(1,293)
(3,485)
-
(3,483)
3,806
(3,523)
20
2,543
2,846
(43)
2,803
911
3,714
4,495
(1,692)
2,803
4,985
(1,271)
3,714
Cents
0.43
0.43
The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the
accompanying notes.19
19 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 55
Consolidated financial statements
Consolidated statement of financial position
AS AT 31 DECEMBER 2022
Consolidated statement of financial position
as at 31 December 2022
Note
31 Dec 2022
US$000
31 Dec 2021
US$000
Assets
Cash and cash equivalents
Trade and other receivables
Contract assets
Inventories
Other current financial assets
Total current assets
Property plant and equipment
Non-current financial assets
Investment in associate
Total non-current assets
Total assets
Liabilities
Trade and other payables
Current borrowings
Total current liabilities
Non-current provisions
Non-current borrowings
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Accumulated losses
Equity attributable to owners of the Company
Non-controlling interests
Total equity
7
7
8
7
9
7
10
7
7
11
7
5
12
6,905
2,412
-
2,359
4,000
15,676
63,110
7,497
15,686
86,293
101,969
7,881
6,393
14,274
2,329
33
26
2,388
16,662
85,307
154,230
(3,798)
(55,129)
95,303
(9,996)
85,307
7,366
2,310
601
3,058
9,772
23,107
70,935
13,012
12,026
95,973
119,080
7,314
13,344
20,658
1,710
6,520
26
8,256
28,914
90,166
145,542
(4,772)
(44,837)
95,933
(5,767)
90,166
The consolidated statement of financial position is to be read in conjunction with the accompanying notes.20
20 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
56 | Lucapa Diamond Company Limited | Annual Report 2022
Consolidated statement of changes in equity
FOR THE YEAR ENDED 31 DECEMBER 2022
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|
1
2
Lucapa Diamond Company Limited | Annual Report 2022 | 57
Consolidated statement of cash flows
Consolidated financial statements
FOR THE YEAR ENDED 31 DECEMBER 2022
Consolidated statement of cash flows
for the year ended 31 December 2022
Note
31 Dec 2022
US$000
31 Dec 2021
US$000
Cash flows from operating activities
Receipts from products and related debtors
Cash paid to suppliers and employees
Interest and finance cost
Interest received
Net cash (used in)/ from operating activities
Cash flows from investing activities
Payments for exploration costs
Payments for development
Proceeds from associate
Payments for property plant and equipment
Net cash from/ (used in) investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Share issue costs
Repayment of borrowings
Proceeds from borrowings
Net cash (used in)/ generated from financing activities
Net (decrease)/ increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Exchange loss on foreign cash balances
Cash and cash equivalents at end of period
7
22,669
(24,350)
(1,907)
13
(3,575)
(3,356)
(3,689)
15,818
(1,097)
7,676
9,060
(584)
(12,872)
-
(4,396)
(295)
7,366
(166)
6,905
26,008
(20,254)
(2,663)
20
3,111
(2,475)
-
1,883
(12,624)
(13,216)
16,726
(919)
(4,358)
2,685
14,134
4,029
4,136
(799)
7,366
Reconciliation of profit/ (loss) after tax to cash flows from operations:
(Loss)/ profit for the period
Adjustments for:
(15,074)
2,803
Depreciation expense
Loss on disposal of assets
Impairment
Director and employee options
Exchange gains
Interest and other finance costs paid
Fair value gain on financial assets
Share of profit of associate
Other non cash items
Working Capital adjustments:
Movement in inventory
Movement in trade and other receivables
5,142
131
10,608
70
165
916
(2,822)
(7,660)
(1,368)
725
(3)
4,962
-
-
-
799
859
(2,543)
(7,554)
(287)
1,934
(1,303)
Movement in trade and other payables relating to operating
activities
5,595
3,441
Net cash (used in)/ from operating activities
The consolidated statement of cash flows is to be read in conjunction with the accompanying notes.22
Refer Notes 7e and 12 for details on non-cash financing and investing activities.
(3,575)
3,111
22 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
58 | Lucapa Diamond Company Limited | Annual Report 2022
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2
Lucapa Diamond Company Limited | Annual Report 2022 | 59
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
1.
Segment reporting (continued)
Additional information
The Group engages in business activities within the
following business segments:
•
exploration & evaluation projects in Angola,
Botswana and Australia;
• mining
in Angola and Lesotho and mine
•
development in Australia; and
corporate and other administrative functions in
Western Australia to support and promote its
activities.
The Group’s operating segments are managed by
geographical region as the risks and required rates of
returns are largely affected by differences in the regions
in which they operate.
2.
Revenue
Financial overview 24
Revenue from contracts with customers
Sale of goods
Additional information
The Group’s revenue arises from the sale of rough
diamonds and from cutting and polishing of diamonds.
Accounting policy
To determine whether to recognise revenue, the
following 5-step process is followed:
Identifying the contract with a customer;
Identifying the performance obligations;
•
•
• Determining the transaction price;
• Allocating
transaction price
the
performance obligations; and
to
the
• Recognising revenue when/ as performance
obligation(s) are satisfied.
The transaction price is the amount to which the Group
expects to be entitled to in exchange for the transfer of
goods and services and is allocated amongst the various
performance obligations based on their relative stand-
alone selling prices. The transaction price for a contract
excludes any amounts collected on behalf of third
parties.
Revenue is recognised either at a point in time or over
time, when (or as) the Group satisfies performance
obligations by transferring the promised goods or
services to its customers.
Accounting policy
Segment disclosures are based on information that is
provided to the Board of Directors, which is the Group’s
chief decision-making body.
An operating segment is a component of the Group that
engages in business activities from which it may expend
capital and generate revenues and incur expenses,
including
relate to
revenues and expenses that
transactions with any of the Group’s other components.
All operating segments’ operating results, for which
discrete financial information is available, are reviewed
by the Group’s Managing Director and management to
assess their performance and make decisions with
respect to the allocation of resources to that segment.
31 Dec 2022
US$000
31 Dec 2021
US$000
23,350
23,350
26,791
26,791
Revenue from the sale of rough diamonds is recognised
on a point in time basis.
Revenue from cutting and polishing partnerships:
•
•
is considered to be variable consideration and is
recognised to the extent that it is highly
probable that its inclusion will not result in a
significant revenue reversal in the future when
the uncertainty has been resolved. This is
generally the case when cutting and polishing
work has substantially been completed and
relative certainty exists over the quality of the
final product or when the polished diamonds
have been sold;
is recognised once a high level of certainty exists
regarding factors that influence the sale prices
including the size, quality and colour of the final
are
These
diamonds.
polished
considered per individual stone.
factors
If the Group satisfies a performance obligation before it
receives the consideration, either a contract asset or a
receivable is recognised in the statement of financial
position, depending on whether something other than
the passage of time is required before the consideration
is due.
24 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
60 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
3.
Expenses
Financial overview 25
Note
31 Dec 2022
US$000
31 Dec 2021
US$000
Breakdown of expenses by nature
Raw materials, consumables and other input costs
Changes in inventories of finished goods and work in progress
Employee benefits expenses (excluding share based payments)
Depreciation and amortisation
Impairment charge
Auditors remuneration
Mining and short term leases
Consulting fees and other administrative expenses
Total cost of sales and corporate expenses
Employee benefits expenses
Wages, salaries and director remuneration
Superannuation costs
Share-based payments
Other associated employee expenses
12
Auditors remuneration
Elderton Pty Ltd (Auditors of parent company & consolidation)
Audit services
Other services
Other group auditors (for subsidiary companies)
Audit services
Other services
16,657
370
7,255
5,141
10,608
51
221
974
41,277
6,960
109
70
186
7,325
40
-
40
11
-
11
51
10,888
2,029
6,754
4,962
-
47
134
949
25,763
6,367
97
-
290
6,754
38
-
38
9
-
9
47
Accounting policy
Expenses recognised in profit or loss are classified and
presented on a functional basis.
Employee benefits
Short-term employee benefits
Liabilities for employee benefits for wages, salaries and
annual leave that are expected to be settled within 12
months of the reporting date represent present
obligations resulting from employees’ services provided
to reporting date and are calculated at undiscounted
amounts based on remuneration wage and salary rates
that the Group expects to pay as at the reporting date
including
as workers
such
on-costs,
compensation insurance and payroll tax.
related
Long-term employee benefits
The Group’s net obligation in respect of long-term
employee benefits is the amount of future benefit that
employees have earned in return for their service in the
current and prior periods plus related on-costs: that
benefit is discounted to determine its present value, and
the fair value of any related assets is deducted. The
discount rate is the yield at the reporting date on
government bonds
that have maturity dates
approximating the terms of the Group’s obligations.
Termination benefits
Termination benefits are recognised as an expense when
the Group is demonstrably committed, without realistic
possibility of withdrawal, to a formal detailed plan to
either terminate employment before the normal
retirement date, or to provide termination benefits as a
result of an offer made to encourage voluntary
redundancy.
Share based payments
Refer note 12.
25 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 61
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
4.
Finance cost and income
Financial overview 26
Finance cost
Finance cost on borrowings
Interest expense on lease labilities
Unwinding of discount rate on rehabilitation liability
Finance income
Interest income on bank deposits
31 Dec 2022
US$000
31 Dec 2021
US$000
1,864
74
125
2,063
12
12
3,218
208
97
3,523
20
20
Net finance cost on financial instruments
2,051
3,503
Accounting policy
Finance income and expenses comprises interest income
on funds invested, interest expense on borrowings
calculated using the effective interest method and
unwinding of discounts on provisions.
Interest income is recognised in the statement of profit
or loss and other comprehensive income as it accrues,
using the effective interest method. All borrowing costs
are recognised in the statement of profit or loss and
other comprehensive income using the effective interest
method.
to
General and specific borrowing costs that are directly
attributable
the acquisition, construction or
production of a qualifying asset are capitalised during
the period of time that is required to complete and
prepare the asset for its intended use or sale. Exchange
differences arising from foreign currency borrowings
used to acquire qualifying assets are regarded as an
adjustment to the interest cost and included in the
capitalised amount. Qualifying assets are assets that
necessarily take a substantial period of time to get ready
for their intended use or sale.
26 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
62 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
5.
Income tax
Financial overview 27
Current tax expense
Current income tax charge
Deferred tax expense
Relating to origination and reversal of temporary differences
Total income tax expense
Reconciliation of tax expense and the accounting profit multiplied
by Australia’s domestic tax rate
Net (loss)/ before tax
Income tax benefit using the Australian domestic tax rate of 30%
Increase in income tax due to tax effect of:
Non-deductible expenses
Tax rate differential on foreign income
Net current year tax losses not recognised
Foreign taxes paid
Derecognition of previously recognised tax losses
Decrease in income tax expense due to:
Non-assessable income
Share of profit of associate
Impact of movement in unrecognised temporary differences
Utilisation of previously unrecognised tax losses
Deductible equity raising costs
Income tax expense
Recognised deferred tax assets and liabilities
Recognised deferred tax assets
Tax losses
Accruals & provisions
Less: Set off of deferred tax liabilities
Net deferred tax assets
Recognised deferred tax liabilities
Property plant and equipment
Other
Less: Set off of deferred tax assets
Net deferred tax liabilities
Deferred tax assets not recognised
Tax revenue losses
Tax capital losses
Deductible temporary differences
31 Dec 2022
US$000
31 Dec 2021
US$000
464
-
464
(14,610)
(4,383)
2,386
610
3,031
464
3,083
(1,182)
(2,298)
(1,010)
(198)
(39)
464
4,847
640
5,487
(5,487)
-
(5,071)
(442)
(5,513)
5,487
(26)
17,698
4,506
3,220
25,424
60
(17)
43
2,846
854
1,253
290
-
60
1,446
(1,105)
(2,266)
(215)
(236)
(38)
43
7,929
478
8,407
(8,407)
-
(8,280)
(153)
(8,433)
8,407
(26)
12,439
4,806
451
17,696
27 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 63
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
5.
Income tax (continued)
Additional information
The estimated tax losses above may be available to be
offset against taxable income in future years. The
availability of these losses is subject to satisfying
taxation legislative requirements. The deferred tax asset
attributable to tax losses has not been brought to
account in these financial statements because the
Directors believe it is not presently appropriate to regard
realisation of the future income tax benefits as probable.
Accounting policy
Income tax expense represents the sum of the tax
currently payable and deferred tax. The tax currently
payable is based on taxable profit/ (loss) for the period.
Taxable profit differs from net profit as reported in the
statement of profit or loss and other comprehensive
income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The
Group’s liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by
the balance sheet date for each jurisdiction.
Management periodically evaluates positions taken in
the tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
Deferred tax is the tax expected to be payable or
recoverable on differences between the carrying amount
of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of
taxable profit/ (loss) and is accounted for using the
balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary
deductible
against which
differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be
available
temporary
differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises
from goodwill (or negative goodwill) or from the initial
recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects
neither the tax profit/ (loss) nor the accounting profit/
(loss).
liabilities are recognised for taxable
Deferred tax
in
temporary differences arising on
subsidiaries and associates, and interests in
joint
ventures, except where the Group is able to control the
reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the
foreseeable future.
investments
The carrying amount of deferred tax assets is reviewed
at each balance sheet date and reduced to the extent
that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are
expected to apply in the period when the liability is
settled or the asset realised. Deferred tax is charged or
credited in the statement of profit or loss and other
comprehensive income, except when it relates to items
charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they
relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
28 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
64 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
Notes to the consolidated financial statements
for the year ended 31 December 2022
for the year ended 31 December 2022
6.
6.
Earnings per share
Earnings per share
Financial overview 29
Financial overview 29
Basic (loss)/ earnings per share (cents per share)
Basic (loss)/ earnings per share (cents per share)
Diluted (loss)/ earnings per share (cents per share)
Diluted (loss)/ earnings per share (cents per share)
Earnings used in calculating earnings per share
Earnings used in calculating earnings per share
Attributable to members of the Company used in calculating basic
Attributable to members of the Company used in calculating basic
earnings per share
earnings per share
Attributable to members of the Company used in calculating
Attributable to members of the Company used in calculating
diluted earnings per share
diluted earnings per share
Weighted average number of shares used as the denominator
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares outstanding during
Weighted average number of ordinary shares outstanding during
the period used in calculation of basic earnings per share
the period used in calculation of basic earnings per share
Weighted average number of ordinary shares outstanding during
Weighted average number of ordinary shares outstanding during
the period used in calculation of diluted earnings per share
the period used in calculation of diluted earnings per share
31 Dec 2022
31 Dec 2022
31 Dec 2021
31 Dec 2021
Cents
Cents
(0.73)
(0.73)
(0.73)
(0.73)
Cents
Cents
0.43
0.43
0.43
0.43
US$000
US$000
US$000
US$000
(10,302)
(10,302)
(10,302)
(10,302)
Number
Number
4,495
4,495
4,495
4,495
Number
Number
1,404,558,518
1,404,558,518
1,056,753,147
1,056,753,147
1,406,888,388
1,406,888,388
1,057,017,483
1,057,017,483
Accounting policy
Accounting policy
Basic earnings/ (loss) per share is calculated by dividing
Basic earnings/ (loss) per share is calculated by dividing
the net profit/ (loss) attributable to the ordinary
the net profit/ (loss) attributable to the ordinary
shareholders of the Company by the weighted average
shareholders of the Company by the weighted average
number of ordinary shares of the Company during the
number of ordinary shares of the Company during the
period. Diluted earnings/ (loss) per share is determined
period. Diluted earnings/ (loss) per share is determined
by adjusting the net profit/ (loss) attributable to the
by adjusting the net profit/ (loss) attributable to the
ordinary shareholders and the number of shares
ordinary shareholders and the number of shares
outstanding for the effects of all dilutive potential
outstanding for the effects of all dilutive potential
shares, which comprise share options.
shares, which comprise share options.
29 | P a g e
29 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 65
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7.
Financial instruments and financial risk management
Financial overview 30
Summary of carrying value of financial instruments
Financial assets
Cash and cash equivalents
Trade and other receivables
Other current financial assets
Non-current financial assets
Financial liabilities
Trade and other payables
Current borrowings
Non-current borrowings
Summary of amounts recognised in profit or loss
Fair value adjustments
In respect of the associate receivable
On borrowing embedded derivatives
Foreign exchange gain
On revaluation of intergroup loans
On other financial instruments
Note
31 Dec 2022
US$000
31 Dec 2021
US$000
7a
7b
7c
7c
7d
7e
7e
6,905
2,412
4,000
7,497
20,814
7,881
6,393
33
14,307
2,481
341
2,822
(3,010)
(870)
(3,880)
7,366
2,310
9,772
13,012
32,460
7,314
13,344
6,520
27,178
2,364
179
2,543
(3,397)
(86)
(3,483)
Net finance cost on financial instruments
4
2,051
3,503
Additional information
Financial risk management
The Group has exposure to market, credit and liquidity
risks from the use of financial instruments. This note
presents information about the Group’s exposure to
each of the above risks, their objectives, policies and
processes for measuring and managing risk, and the
management of
disclosures are included throughout this financial report.
Further quantitative
capital.
identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks
and adherence to limits. Risk management policies and
systems are reviewed to reflect changes in market
conditions and the Group’s activities. The Group,
through its training and management standards and
procedures, aims
to develop a disciplined and
constructive control environment in which all employees
understand their roles and obligations.
The Board of Directors has overall responsibility for the
establishment and oversight of the risk management
framework. Risk management policies are established to
30 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
66 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7.
Financial instruments and financial risk management (continued)
far as possible, that it will always has sufficient liquidity
to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable
losses or risking damage to the Group’s reputation.
Ultimate responsibility for liquidity risk management
rests with the Board of Directors. The Group manages
liquidity risk by maintaining adequate cash reserves, or
from funds raised in the market, or by debt and by
continuously monitoring forecast and actual cash flows.
The liquidity profile of the Group’s financial liabilities are
disclosed in the relevant notes below.
Capital risk management
The Group’s objectives when managing capital are to
safeguard its ability to continue as a going concern, so as
to maintain a strong capital base sufficient to maintain
future exploration and development of its projects. In
order to maintain or adjust the capital structure, the
Group may return capital to shareholders, issue new
shares, raise debt finance or sell assets to reduce debt.
The Group’s focus has been to raise sufficient funds
through equity and debt finance to fund exploration,
mine development, evaluation activities and corporate
overhead.
Fair value hierarchy
Details of the significant accounting policies and
methods adopted, including the criteria for recognition,
the basis of measurement and the basis on which
revenues and expenses are recognised, in respect of each
class of financial asset, financial liability and equity
instrument are disclosed below.
The financial assets and liabilities are classified as
follows in terms of the fair value hierarchy:
•
the SML receivable (Note 7c): level 3 due to the use
of unobservable inputs;
the Equigold embedded derivative: level 3 due to
the use of market based and observable inputs; and
other financial assets and liabilities approximate
their net fair value, determined in accordance with
the accounting policies.
•
•
Market risk
•
Commodity price risk
The Group is focussed on its diamond mining and
exploration
in Africa and Australia.
Accordingly, the Group is exposed to the global
pricing structures of the diamond market.
interests
•
•
Foreign exchange risk
The Group operates internationally and is exposed
to foreign exchange risk arising from various
currency exposures, primarily with respect to the US
dollar, Australian dollar, South African rand and
Angolan kwanza. Foreign exchange risk arises from
future commercial transactions, recognised assets
and liabilities and net investments in foreign
operations that are not in the individual business
unit’s functional currency. The Group manages its
foreign exchange
its net
exposures, maintaining an appropriate balance
between foreign currency assets and liabilities and
making use of hedging instruments. The Group does
not speculate with the use of hedging instruments
and derivatives. The extent of the Group’s exposure
to foreign currency risk at balance date is disclosed
below for each category of financial instrument.
risk by monitoring
Cash flow interest rate risk
Cash flow interest rate risk, is the risk that a
financial instrument’s value will fluctuate as a result
of changes in the market interest rates on interest-
bearing financial instruments. The Group does not
currently use derivatives
these
exposures. The extent of the Group’s exposure to
interest rate risk at balance date is disclosed below
for each category of financial instrument.
to mitigate
Credit risk
Credit risk refers to the risk that a counterparty will
default on its contractual obligations resulting in a
financial loss to the Group. The Group’s potential
concentration of credit risk mainly relates to amounts
advanced to SML (Note 7c). The Group’s short-term cash
surpluses are placed with banks that have investment
grade ratings. The maximum credit risk exposure
relating to the financial assets is represented by their
carrying values as at the balance sheet date.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The
Group’s approach to managing liquidity is to ensure, as
31 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 67
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7.
Financial instruments and financial risk management (continued)
Accounting policy
Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognised
when the Group becomes a party to the contractual
provisions of the financial instrument and are measured
initially at fair value adjusted by transactions costs,
except for those carried at fair value through profit or
loss, which are measured
initially at fair value.
Subsequent measurement of financial assets and
financial liabilities are described below.
Financial assets are derecognised when the contractual
rights to the cash flows from the financial asset expire,
or when the financial asset and all substantial risks and
rewards are
is
derecognised when
is extinguished, discharged,
cancelled or expires.
transferred. A
it
financial
liability
Subsequent measurement of financial assets
For the purpose of subsequent measurement, financial
assets of the Group are classified into either the
amortised cost or fair value through profit or loss
(“FVPL”) categories. Classifications are determined by
both the Group’s business model for managing the
financial asset and
flow
characteristics of the financial assets.
the contractual cash
All income and expenses relating to financial assets that
are recognised in profit or loss are presented within
finance costs, finance income or other financial items,
except for impairment of trade receivables which is
presented within other expenses.
Financial assets at amortised cost
Financial assets are measured at amortised cost if the
assets meet the following conditions (and are not
designated as FVPL):
•
•
they are held with the objective to hold the assets
and collect its contractual cash flows;
the contractual terms of the financial assets give
rise to cash flows that are solely payments of
principal and interest on the principal amount
outstanding.
initial
recognition, these are measured at
After
amortised cost using the effective interest method.
Discounting is omitted where the effect of discounting is
immaterial. The Group’s cash and cash equivalents,
trade and most other receivables fall into this category
of financial instruments.
Financial assets at fair value through profit or loss
Financial assets that are held within a different business
model other than ‘hold to collect’ or ‘hold to collect and
sell’ are categorised at fair value through profit and loss.
Further, irrespective of business model financial assets
whose contractual cash flows are not solely payments of
principal and interest are accounted for at FVPL. All
derivative financial instruments fall into this category.
Subsequent measurement of financial liabilities
The Group’s financial liabilities include borrowings, trade
and other payables and derivative financial instruments.
Subsequent to initial recognition, financial liabilities are
measured at amortised cost using the effective interest
method, except for derivatives and financial liabilities
designated at FVPL, which are carried subsequently at
fair value with gains or losses recognised in profit or loss.
All interest-related charges and, if applicable, changes in
an instrument’s fair value that are reported in profit or
loss are included within finance costs or finance income.
Leases
Contracts are assessed at
inception to determine
whether a contract is, or contains, a lease. It is classified
as such if the contract conveys the right to control the
use of an identified asset for a period of time in exchange
for consideration.
A single recognition and measurement approach is
applied for all leases, except for short-term leases,
leases of low-value assets and leases to explore for or
mine minerals and similar non-regenerative resources.
The Group recognises lease liabilities to make lease
payments and right-of-use assets representing the right
to use the underlying assets.
Right-of-use assets are included under Property Plant
and Equipment (refer note 9).
Lease liabilities are recognised at the commencement
date of the lease and measured at the present value of
lease payments to be made over the lease term. The
lease payments include fixed payments (including in-
substance fixed payments) less any lease incentives
receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under
residual value guarantees. The lease payments also
include the exercise price of a purchase option
reasonably certain to be exercised by the Group and
payments of penalties for terminating the lease, if the
lease term reflects the Group exercising the option to
terminate.
lease
The Group uses its incremental borrowing rate at the
lease commencement date to calculate the present
value of lease payments, if the interest rate implicit in
the
is not readily determinable. After the
commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced
for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
lease payments (e.g., changes to future payments
resulting from a change in an index or rate used to
determine such lease payments) or a change in the
assessment of an option to purchase the underlying
asset.
32 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
68 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7.
Financial instruments and financial risk management (continued)
Lease liabilities are included in interest-bearing loans
and borrowings.
principal and interest cash flows, discounted at the
market rate of interest at the reporting date.
Lease payments for short-term leases, leases of low-
value assets and leases to explore for or mine minerals
as well as variable lease payments that do not depend on
an index or a rate are recognised as expenses (unless
they are incurred to produce inventories) in the period in
which the event or condition that triggers the payment
occurs.
Determination of fair values
Trade and other receivables
The fair value of trade and other receivables is estimated
as the present value of future cash flows, discounted at
the market rate of interest at the reporting date.
Financial liabilities
Fair value, which is determined for disclosure purposes,
is calculated based on the present value of future
7a.
Cash and cash equivalents
Financial overview
Balances on hand
Bank balances
Foreign exchange risk
Significant accounting judgements, estimates and
assumptions
Financial assets
The Group’s financial assets include the receivable in
respect of associate, SML, that represents the future
reimbursement in US dollars of the Group’s historic
alluvial exploration and development costs incurred at
Lulo. The recoverable amount of the receivable is
reassessed using calculations which incorporate various
key assumptions as per above.
31 Dec 2022
US$000
31 Dec 2021
US$000
6,905
6,905
7,366
7,366
Cash balances exposed to foreign currency risk, based on notional amounts
325
4,416
Interest rate risk
Cash balances held at variable interest rates
Average rate for 2022: 1.5% (2021: 0.4%)
Additional information
Foreign exchange sensitivity analysis
A sensitivity analysis has been prepared to demonstrate
the sensitivity to a reasonably possible change in foreign
exchange rates, with all other variables held constant.
33
6,905
7,366
A change of 10 percentage points in foreign exchange
rates at the reporting date would have an estimated
impact of US$0.03 million (2021: US$0.4 million) before
tax on the statement of profit of loss and other
comprehensive income. There would be no effect on the
equity reserves other than those directly related to the
statement of profit of loss and other comprehensive
income. The analysis is performed on the same basis as
for the prior period.
33 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 69
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7b.
Trade and other receivables
Financial overview
Current
GST/ VAT receivable
Prepayments and other receivables
Foreign exchange risk
Receivable balances exposed to foreign currency risk, based on
notional amounts
Interest rate risk
Non-interest bearing balances
34
Additional information
Foreign exchange sensitivity analysis
A sensitivity analysis has been prepared to demonstrate
the sensitivity to a reasonably possible change in foreign
exchange rates, with all other variables held constant.
31 Dec 2022
US$000
31 Dec 2021
US$000
1,289
1,123
2,412
1,344
966
2,310
264
982
2,412
2,310
A change of 10 percentage points in foreign exchange
rates at the reporting date would have an estimated
impact of US$0.02 million (2021: US$0.1 million) before
tax on the statement of profit of loss and other
comprehensive income. There would be no effect on the
equity reserves other than those directly related to the
statement of profit of loss and other comprehensive
income. The analysis is performed on the same basis as
for the prior period.
34 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
70 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7c.
Financial assets
Financial overview 35
Non current financial assets
Receivable in respect of SML
At 1 January
Investment during the period
Repayment received
Transferred to Deferred exploration and evaluation costs (note 9)
Fair value adjustment due to discounting
At end of period
Less: Current portion of receivable
Non current receivable
Security deposit for environmental rehabilitation in repect of Merlin
Total non current financial assets
Current financial assets
Receivable in respect of SML
Current portion of receivable
Interest rate risk
Non-interest bearing balances
31 Dec 2022
US$000
31 Dec 2021
US$000
26,366
1,038
(12,218)
(2,543)
12,643
(1,831)
10,812
(4,000)
6,812
685
7,497
29,415
273
(1,883)
(1,439)
26,366
(4,312)
22,054
(9,772)
12,282
730
22,784
4,000
9,772
11,497
22,784
Additional information
The receivable in respect of SML was transferred from
Alluvial development in 2016 and represents the future
reimbursement in US dollars of the Company’s historic
alluvial exploration and development costs incurred at
Lulo. The receivable has been re-measured to its
estimated fair value using the income approach, which is
a valuation technique that converts future cash flow into
a single discounted present value and is classified as
level 3 in the fair value hierarchy due to the use of
unobservable inputs.
Significant unobservable inputs are the timing and
amounts of future repayments which are based on the
expected cash flows per the Company’s forecast model
for SML. Sensitivity factors which could impact the
valuation include operational recoveries, prices and
delays in the timing of repayments which will decrease
the fair value estimate. A discount rate of 16.39% (2021:
12.27%) has been applied in the fair value calculation.
35 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 71
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7d.
Trade and other payables
Financial overview
Trade payables
Short-term advance
Accruals and other payables
Total
Foreign exchange risk
Payable balances exposed to foreign currency risk, based on
notional amounts
Interest rate risk
Non-interest bearing balances
Liquidity risk
Contractual maturities profile
Payable within one year
36
Additional information
The short-term advance relates to monies advanced to
Mothae in terms of the minimum cash price of US$630/
carat contained in the partnership agreement with
Safdico International Limited. The advance is non-
interest bearing and repayable from future sales,
polished partnership profits, in cash by 31 December
2022, or as otherwise agreed. These repayment terms are
currently being revised with a view to extending the
partnership agreement (subject to approval from the
GoL).
31 Dec 2022
US$000
31 Dec 2021
US$000
1,664
2,685
3,532
7,881
2,695
2,685
1,934
7,314
1,515
1,164
7,881
7,314
7,881
7,314
Foreign exchange sensitivity analysis
A sensitivity analysis has been prepared to demonstrate
the sensitivity to a reasonably possible change in foreign
exchange rates, with all other variables held constant.
A change of 10 percentage points in foreign exchange
rates at the reporting date would have an estimated
impact of US$0.2 million (2021: US$0.4 million) before
tax on the statement of profit of loss and other
comprehensive income. There would be no effect on the
equity reserves other than those directly related to the
statement of profit of loss and other comprehensive
income. The analysis is performed on the same basis as
for the prior period.
36 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
72 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7e.
Borrowings
Financial overview 37
Current borrowings
Lease liabilities
Other short-term loans
Current loans - Embedded derivatives
Total
Non-current borrowings
Lease liabilities
Other non-current loans
Other non-current loans - Embedded derivatives
Total
Foreign exchange risk
Borrowings exposed to foreign currency risk, based on notional amounts
Interest rate risk
Balances at variable interest rates
Average rate for 2022: 15.7% (2021: 12.3%)
Refer interest rate sensitivity analysis below
Balances at fixed interest rates
Average rate for 2022: 9.8% (2020: 9.8% )
Liquidity risk
Contractual maturities profile, including estimated interest payments and
excluding the impact of netting agreements
Borrowings
Payable within one year
Payable after one year but less than five years
Payable after more than five years
Leases
Payable within one year
Payable after one year but less than five years
Payable after more than five years
Other disclosures in respect of leases
Cash outflow
Low value lease expense
Expense relating to variable lease payments not included in the
measurement of lease liabilities
Non-cash financing recognised
31 Dec 2022
US$000
31 Dec 2021
US$000
70
5,801
522
6,393
33
-
-
33
-
1,313
12,031
-
13,344
109
5,548
863
6,520
7,999
2,066
6,196
3,838
12,805
7,557
-
-
82
34
-
1,390
32
-
-
14,029
5,660
-
1,450
123
-
1,688
29
2,064
222
37 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 73
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7e.
Borrowings (continued)
Additional information
Terms and conditions
Lease liabilities
The lease liabilities consist of the amounts due in
respect of the following:
• Mining equipment and plant at Mothae, leased at
monthly payments of ZAR107k (US$6.3k) per month
until May 2024; and
Various lease contracts for office space, office and
other equipment used in its operations. Lease terms
vary between 1 and 3 years.
•
Generally, the Group’s obligations under its leases are
secured by the lessor’s title to the leased assets. Certain
lease contracts
include extension and termination
options.
Other loans
The loan amounts reflect the balances due to Equigold,
IDC and New Azilian. The terms of the loans include the
following:
Equigold
•
•
Loan facility and interest of US$4.4 million (2021:
US$4.9 million) fully utilised;
The principal balance is repayable in three quarterly
payments of US$1.2 million commencing January
2023.
• Market related fees were payable on draw down and
•
•
•
•
•
with interest payments;
Equigold, at its election, can convert the last two
quarterly payments into ordinary shares in the
Company at the then market price;
Interest is payable at 9.75% pa;
Fifty percent of quarterly interest and fees can be
converted into ordinary shares in the Company at
the then market price at Lucapa’s election;
Fifty percent of quarterly interest and fees can be
converted into ordinary shares in the Company at
the then market price at Lucapa’s election after
agreement with Equigold;
The loan is secured by way of a General Security
Deed granted by Lucapa in favour of the lender over
collateral consisting of the Company’s investment in
and loan to Mothae Diamonds (Pty) Ltd.
IDC
•
•
•
•
•
Total loan facility of ZAR33 million (US$1.9 million)
(2022: ZAR67 million (US$4.2 million)), fully utilised
at the end of the period;
The capital balance is repayable in two quarterly
payments from January 2023;
Interest
is payable quarterly based on the
Johannesburg Interbank Average Rate (JIBAR) plus
8.6%;
The loan is secured by way of:
o
Bonds over Mothae’s movable assets, diamond
treatment facility and ancillary equipment;
o Mortgage over the mining right and the land
right granted under the mining agreement;
o A 70% proportional guarantee by Lucapa of all
amounts due and payable;
o A subordination of Lucapa’s shareholder claims
in and loans to Mothae, back ranking to the
Equigold loan agreement;
o A pledge and session by Lucapa of its shares in
Mothae and a cession of all its loans and claims
against Mothae, once such are released by
Equigold;
o A cession of insurance policies and proceeds
interest noted
thereof with the Lender’s
thereon;
Certain negative pledges.
o
Certain financial covenants to be maintained.
New Azilian
•
•
•
New Azilian is an entity associated with non-
executive director Ross Stanley;
The loan facility was A$11.0 million (US$8.4 million)
as at 31 December 2021. The loan was settled in full
during February 2022;
The loan was secured by way of a General Security
Deed granted by Lucapa in favour of the lender over
collateral consisting of all of the Company’s present
and after acquired property, undertaking and rights,
excluding the Company’s investment in and loan to
Mothae, which was released in full upon settlement
of the loan.
38 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
74 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
7e.
Borrowings (continued)
Embedded derivative
Equigold – embedded derivative in relation to last two
quarterly payments
(US$2.5 million) has been
recognised at fair value, using a Black Scholes valuation
with the following inputs:
•
LOM share price at measurement date: A$0.046
(2021: A$0.09);
Exercise price: A$0.043 (2021: A$0.085);
Estimated volatility: 75% (2021: 70%);
Expiry date: 1 April 2023/1 July 2023;
Risk-free interest rate: 3.83% (2021: 1.85%);
USD/ AUD exchange rate: 0.681:1 (2021: 0.727:1).
•
•
•
•
•
Cash flow sensitivity analysis for variable rate
instruments
A sensitivity analysis has been prepared to demonstrate
the sensitivity to a reasonably possible change in
interest rates, with all other variables held constant
through the impact on floating rate interest rates.
A change of 100 basis points in interest rates at the
reporting date would have an estimated impact of
8.
Inventories
Financial overview 39
Diamond inventory
Consumables and other inventory
US$0.2 million (2021: US$0.5 million) before tax on the
statement of profit of loss and other comprehensive
income. There would be no effect on the equity reserves
other than those directly related to the statement of
profit of loss and other comprehensive income. The
analysis is performed on the same basis as for the prior
period.
Foreign exchange sensitivity analysis
A sensitivity analysis has been prepared to demonstrate
the sensitivity to a reasonably possible change in foreign
exchange rates, with all other variables held constant.
A change of 10 percentage points in foreign exchange
rates at the reporting date would have an estimated
impact of US$0.0 million (2021: US$0.8 million) before
tax on the statement of profit of loss and other
comprehensive income. There would be no effect on the
equity reserves other than those directly related to the
statement of profit of loss and other comprehensive
income. The analysis is performed on the same basis as
period.
for
prior
the
31 Dec 2022
US$000
31 Dec 2021
US$000
1,000
1,359
2,359
1,956
1,102
3,058
Additional information
During the year, US$10.2 million (2021: US$4.3 million)
was recognised as an expense under cost of sales for
inventories carried at net realisable value.
first-in first-out principle, and includes expenditure
incurred in acquiring the inventories, production or
conversion costs and other costs incurred in bringing
them to their existing location and condition.
Accounting policy
Inventories are measured at the lower of cost and net
realisable value. The cost of inventories is based on the
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of
completion and selling expenses.
39 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 75
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
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76 | Lucapa Diamond Company Limited | Annual Report 2022
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Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
9.
Property plant and equipment (continued)
Additional information
Deferred exploration and evaluation costs
Deferred exploration and evaluation costs represent the
cumulative expenditure incurred in relation to the Lulo,
Mothae, Orapa Area F and Brooking projects on diamond
including plant and
exploration and evaluation
equipment. The Company continues to explore for the
primary kimberlite sources of the alluvial diamonds
being recovered on the Lulo concession, evaluate the
neck and other areas of the Mothae kimberlite resource,
explore for kimberlite in Botswana and for lamproite in
Australia.
The Group has a 39% interest in the Project Lulo Venture
(“the JV”), an unincorporated entity classified as a joint
operation that operates under the terms of a Mineral
Investment Contract entered into between the partners.
Accordingly, the Group’s interest in the assets, liabilities,
revenues and expenses attributable to the JV have been
included in the appropriate line items in the consolidated
financial
exploration and
evaluation costs of US$27.4 million (31 December 2021:
US$22.7 million) in the schedule above are related to the
JV.
statements. Deferred
Other assets
Other assets comprise vehicles, computer equipment,
furniture & fittings and office equipment.
Impairment testing
The Group recognised an impairment charge in the
current year in respect of Mothae as per the Directors’
Report (refer page 4). The following key assumption
averages were used in the impairment testing:
• Ore volume treated: 1.4 Mtpa (2021: 1.6 Mtpa);
• US$/ carat sold: 1,351 (2021: 847);
• Discount rate: 10% (2021: 10%);
• ZAR/ US$ exchange rate: 17.0 (2021: 15.5).
These are considered to be level three fair value
measurements in both years as they are derived from
valuation techniques that include inputs that are not
based on observable market data.
Accounting policy
Recognition and measurement
Items of property plant and equipment are measured at
cost less accumulated depreciation and accumulated
impairment losses.
Cost includes expenditure that is directly attributable to
the acquisition of the asset. The cost of self-constructed
assets includes the cost of materials and direct labour,
any other costs directly attributable to bringing the asset
to a working condition for its intended use, and the costs
of dismantling and removing the items and restoring the
site on which they are located.
When parts of an item of property plant and equipment
have different useful lives, they are accounted for as
separate items (major components) of property plant
and equipment.
Gains and losses on disposal of an item of property plant
and equipment are determined by comparing the
proceeds from disposal with the carrying amount of
property plant and equipment and are recognised net
within “other income” in the statement of profit or loss
and other comprehensive income.
Subsequent costs
The cost of replacing part of an item of property plant
and equipment is recognised in the carrying amount of
an item if it is probable that the future economic
benefits embodied within the item will flow to the Group
and the cost of the item can be measured reliably. The
carrying amount of the replaced part is derecognised. All
other costs are recognised in the statement of profit or
loss and other comprehensive income as an expense
incurred.
Depreciation
Depreciation is recognised in the statement of profit or
loss and other comprehensive income on a reducing
balance basis over the estimated useful lives of each part
of an item of property plant and equipment.
The estimated useful
comparative periods are as follows:
lives
in the current and
• Computer equipment: 3-5 years
• Office equipment : 5-10 years
• Mine development: Lesser of life of mine or
period of lease
• Mine infrastructure and plant facilities: Based
on resources on a unit of production basis
Depreciation methods, useful lives and residual values
are reviewed at each reporting date.
viable
technically
Mine development
Once a mining project has been established as
commercially
feasible,
and
expenditure other than that on land, buildings, plant and
equipment
is capitalised as Mine development.
Development includes previously capitalised exploration
and evaluation costs, pre-production development
costs, certain mining assets, development studies and
other subsurface expenditure pertaining to that area of
interest. On completion, development cost is deprecated
as per above.
If, after having commenced the
development activity, a judgement is made that a
development asset is impaired, the appropriate amount
is written off to profit and loss.
41 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 77
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
9.
Property plant and equipment (continued)
Deferred exploration and evaluation
Exploration and evaluation expenditure incurred is
accumulated in respect of each identifiable area of
interest. These costs are only carried forward to the
extent that the right to tenure of each identifiable area
of interest are current, and either the costs are expected
to be recouped through successful development of the
area, or activities in the area have not yet reached a stage
that permits reasonable assessment of the existence of
economically recoverable reserves. Exploration assets
that are not available for use are not amortised.
costs are only
Exploration and evaluation assets are initially measured
at cost and include acquisition of mining tenements,
studies, exploratory drilling, trenching and sampling and
associated activities and an allocation of depreciation of
in exploration activities. General and
assets used
administrative
the
measurement of exploration costs where they are
related directly to operational activities in a particular
area of interest.
Deferred exploration and evaluation costs in relation to
an abandoned area are written off in full against profit or
loss in the period in which the decision to abandon that
area is made.
included
in
A regular review is undertaken of each area of interest to
determine the appropriateness of continuing to carry
forward costs in relation to that area of interest.
Stripping activity assets
Costs associated with removal of waste overburden are
classified as stripping costs. Stripping activities that are
undertaken during the production phase of a surface
mine may create two benefits, being either the
production of inventory or improved access to the ore to
be mined in the future.
Where the benefits are realised in the form of inventory
produced in the period, the production stripping costs
are accounted for as part of the cost of producing those
inventories. Where production stripping costs are
incurred and where the benefit is the creation of mining
flexibility and improved access to ore to be mined in the
future, the costs are recognised as a non-current asset,
referred to as a ‘stripping activity asset’ and included as
a separate category of Property plant and equipment, if:
•
•
•
improved
future economic benefits (being
access to the orebody) are probable;
the component of the orebody for which access
will be improved can be accurately identified;
and
the costs associated with the improved access
can be reliably measured.
If all the criteria are not met, the production stripping
costs are charged to the statement of profit or loss as
operating costs. The stripping activity asset is initially
measured at cost, which is the accumulation of costs
directly incurred to perform the stripping activity that
improves access to the identified component of ore, plus
an allocation of directly attributable overhead costs. If
incidental operations are occurring at the same time as
the production stripping activity, but are not necessary
for the production stripping activity to continue as
planned, these costs are not included in the cost of the
stripping activity asset. If the costs of the stripping
activity asset and the inventory produced are not
separately identifiable, a relevant production measure is
used to allocate the production stripping costs between
the inventory produced and the stripping activity asset.
The stripping activity asset is subsequently amortised
over the expected useful life of the identified component
of the orebody that became more accessible as a result
of the stripping activity. The expected average stripping
ratio over the average life of the area being mined is used
to amortise the stripping activity. As a result, the
stripping activity asset
less
amortisation and any impairment losses.
is carried at cost
The average life of area cost per tonne is calculated as
the total expected costs to be incurred to mine the
orebody divided by the number of tonnes expected to be
mined. The average life of area stripping ratio and the
average life of area cost per tonne are recalculated
annually in light of additional knowledge and changes in
estimates. Changes in the stripping ratio are accounted
for prospectively as a change in estimate.
at
assets
recognised
Right-of-use assets
Right-of-use
the
are
commencement date of a lease (i.e., the date the
underlying asset is available for use) and are measured
at cost,
less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement
of lease liabilities. The cost of right-of-use assets
includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or
before the commencement date
lease
incentives received. Right-of-use assets are depreciated
on a straight-line basis over the shorter of the lease term
and the estimated useful lives of the assets.
less any
Joint operations
A joint arrangement in which the Group has direct rights
to underlying assets and obligations for underlying
liabilities is classified as a joint operation.
Interests in joint operations are accounted for by
recognising the Group’s assets (including its share of any
assets held jointly); its liabilities (including its share of
any liabilities incurred jointly); its revenue from the sale
of its share of the output arising from the joint
operation; its share of the revenue from the sale of the
output by the
its expenses
(including its share of any expenses incurred jointly).
joint operation; and
42 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
78 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
9.
Property plant and equipment (continued)
judgements, estimates and
Significant accounting
assumptions
Asset useful lives and residual values
Property, plant and equipment are depreciated over its
useful life taking into account residual values where
appropriate. The actual useful lives of the assets and
residual values are assessed annually and may vary
depending on a number of factors. In re–assessing asset
useful lives, factors such as technological innovation,
product life cycles and maintenance programmes are
taken
Residual value assessments
consider issues such as future market conditions, the
remaining life of the asset and projected disposal values.
into account.
Valuation of mineral properties
The Group carries the acquisition of
its mineral
properties at cost less any provision for impairment. The
Group undertakes a periodic review of the carrying values
of mineral properties and whenever events or changes in
circumstances indicate that their carrying values may
exceed their fair value. In undertaking this review,
management of the Group
is required to make
significant estimates. These estimates are subject to
various risks and uncertainties, which may ultimately
have an effect on the expected recoverability of the
carrying values of the mineral properties and related
expenditures.
Exploration and evaluation assets
The Group assesses the carrying value of exploration and
evaluation assets in accordance with the accounting
policy noted above. The basis of determining the
carrying value
involves numerous estimates and
judgements resulting from the assessment of ongoing
exploration activities, as per the accounting policy note.
Development
Development activities commence after commercial
viability and technical feasibility of the project is
established. Judgement is applied in determining when a
project is commercially viable and technically feasible. In
exercising this judgement, management is required to
make certain estimates and assumptions, with inherent
uncertainty, as to the future events.
Mineral resource, ore reserves and production target*
estimates
Ore reserves and production target estimates are
estimates of the amount of ore that can be economically
and legally extracted from the mineral resources of the
is the
Group’s mining properties. An ore reserve
economically mineable part of a measured and/ or
indicated resource. A production target may include
lower confidence
inferred resources under certain
circumstances and if there are reasonable grounds to do
so. Such production target estimates and changes to
them may impact the company’s reported financial
position and results, in the following way:
•
The
carrying value of exploration and
evaluation assets, mine properties, property
•
•
•
•
plant and equipment, and goodwill may be
affected due to changes in estimated future
cash flows;
Depreciation and amortisation charges in the
statement of profit or
loss and other
comprehensive income may change where such
charges are determined using the unit of
production method, or where the useful life of
the related assets change;
Capitalised stripping costs recognised in the
statement of financial position, as either part
of mine properties or inventory or charged to
profit or loss, may change due to changes in
stripping ratios;
Provisions for rehabilitation and environmental
provisions may change where reserve estimate
changes affect expectations about when such
activities will occur and the associated cost of
these activities;
The recognition and carrying value of deferred
income tax assets may change due to changes
in the judgements regarding the existence of
such assets and in estimates of the likely
recovery of such assets.
The Group estimates its mineral resource, ore reserves
and production targets based on information compiled
by appropriately qualified persons relating to the
geological and technical data on the size, depth, shape
and grade of the ore body and suitable production
techniques and recovery rates. Such an analysis requires
complex geological judgements to interpret the data.
The estimation of ore reserves and production targets
are based upon factors such as estimates of foreign
exchange rates, commodity prices, future capital
requirements and production costs, along with
geological assumptions and
in
estimating the size and grade of the ore body.
judgements made
The Group estimates and reports ore reserves and
mineral resources in line with the principles contained in
the Australian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves (2012) published by
the Joint Ore Reserves Committee of the Australasian
Institute of Mining and Metallurgy, the Australian
Institute of Geoscientists and Minerals Council of
Australia (“JORC Code”).
*The term “production target” is defined to mean a projection or
forecast of the amount of mineral to be extracted from a particular
mining tenement or tenements for a period that extends past the
current year and the forthcoming year.
43 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 79
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
10.
Investment in associate
Financial overview 44
Summarised financial information of SML
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Group’s carrying amount of the investment
Revenue
Cost of sales
Administrative and selling expenses
Fair value adjustments
Finance cost
Profit before tax
Income tax expense
Profit for the period
Total comprehensive income for the period
Group’s share of profit for the period
EBITDA
Contingent liabilities
Capital commitments
Payable within one year
- Approved, not yet contracted
- Approved and contracted
Additional information
in SML and has
The Group has a 40% ownership
recognised its share of SML’s results since its formal
incorporation in May 2016. The earnings of SML include
fair value adjustments in relation to the discounting of
the financial asset of Lucapa reflected under note 7c.
The contingent liability relates to additional income tax
potentially payable following a recent change to the
Angolan Industrial Tax Code in respect of the treatment
of unreleased foreign exchange gains and losses due to
movements between the United States dollar and the
Angolan kwanza. SML’s tax for the year has been
recognised based on external advice obtained. A ruling
from the Angolan tax office has been requested in this
regard and is being awaited.
Accounting policy
Associates are those entities over which the Group is
able to exert significant influence, but which are not
subsidiaries. A joint venture is an arrangement that the
Group controls jointly with one or more other investors,
and over which the Group has rights to a share of the
arrangement’s net assets rather than direct rights to
31 Dec 2022
US$000
31 Dec 2021
US$000
31,067
26,034
12,703
10,812
33,586
15,686
80,999
(32,568)
(22,978)
(2,481)
(300)
22,672
(3,523)
19,149
19,149
7,660
35,159
1,094
37,140
30,333
20,984
22,054
24,435
12,026
80,602
(34,164)
(16,804)
(2,364)
-
27,270
(8,386)
18,884
18,884
7,554
37,187
-
5,209
3,044
8,127
1,270
underlying assets and obligations for underlying
liabilities.
Investments
accounted for using the equity method.
in associates and
joint ventures are
Any goodwill or fair value adjustment attributable to the
Group’s share in the associate or joint venture is not
recognised separately and is included in the amount
recognised as investment.
The carrying amount of the investment in associates and
joint ventures is increased or decreased to recognise the
loss and other
Group’s share of the profit or
comprehensive
joint
venture, adjusted where necessary to ensure consistency
with the accounting policies of the Group.
income of the associate and
its associates and
Unrealised gains and losses on transactions between the
joint ventures are
Group and
eliminated to the extent of the Group’s interest in those
entities. Where unrealised losses are eliminated, the
underlying asset is also tested for impairment.
44 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
80 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
11.
Non-current provisions
Financial overview 45
Provision for environmental rehabilitation
At 1 January
Increase during the year
Unwinding of discount rate
Foreign exchange difference
At end of period
Additional information
The provision for rehabilitation has been recognised in
respect of Mothae and Merlin.
Mothae
The estimate is based on an independent expert’s report
of the expected rehabilitation cost over the life of the
mine and discounted back to present value using a pre-
tax discount
reflects current market
include an estimated
assessments. Assumptions
rehabilitation timing of between 10 and 13 years (2021: 11
and 14 years), an annual inflation rate of 7.5% (2022:
5.0%) and a discount rate of 8.7% (2021: 8.8%).
that
rate
Merlin
The estimate is based on the Mining Management Plan
for Merlin as approved by the government of the
Northern Territory of Australia and discounted back to
present value using a pre-tax discount rate that reflects
current market assessments. Assumptions include an
estimated rehabilitation timing of 17 years (2021:17
years), an annual inflation rate of 3.0% (2021:2.3%)
and a discount rate of 4.9% (2021: 4.3%).
Accounting policy
A provision is recognised if, as a result of a past event,
the Group has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an
outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting
the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of
money and, when appropriate, the risks specific to the
liability.
Asset retirement obligations
The Group recognizes a liability for an asset retirement
obligation on long-lived assets when a present legal or
constructive obligation exists, as a result of past events
reasonably
and the amount of the
liability
is
31 Dec 2022
US$000
31 Dec 2021
US$000
1,710
625
125
(131)
2,329
1,105
610
97
(102)
1,710
determinable. Asset retirement obligations are initially
recognized and recorded as a liability based on estimated
future cash flows discounted at a credit adjusted risk
free rate. This is adjusted at each reporting period for
changes to factors including the expected amount of
cash flows required to discharge the liability, the timing
of such cash flows and the credit adjusted risk free
discount rate. Corresponding amounts and adjustments
are added to the carrying value of the related long-lived
asset and amortised or depleted to operations over the
life of the related asset.
Environmental liabilities
Environmental expenditures that relate to current
operations are expensed or capitalised as appropriate.
Expenditures that relate to an existing condition caused
by past operations and which do not contribute to
current or future revenue generation are expensed.
Liabilities
environmental
recorded when
assessments and/ or remedial efforts are probable, and
the costs can be reasonably estimated.
are
Significant accounting judgements, estimates and
assumptions
Included in liabilities at the end of each reporting period
is an amount that represents an estimate of the cost to
rehabilitate the land upon which the Group has carried
out its exploration and evaluation for mineral resources.
Provisions are measured at the present value of
management's best estimate of the costs required to
settle the obligation at the end of the reporting period.
Actual costs incurred in future periods to settle these
obligations could differ materially from these estimates.
Additionally, future changes to environmental laws and
regulations, life of mine estimates, and discount rates
could affect the carrying amount of this provision.
45 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 81
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
12.
Share capital and share-based payments
Financial overview 46
LISTED SECURITIES
Movement in ordinary shares (ASX code: LOM)
On issue at beginning of period
Issue of shares
Issue of shares on exercise of options and performance rights
Transaction costs
31 Dec 2022
Number
US$000
1,272,831,478
166,666,668
61,729
-
145,542
9,056
4
(372)
On issue at end of period
1,439,559,875
154,230
Movement in listed options (ASX code: LOMOC)
On issue at beginning of period
Issue of options
Exercise of options
Expiry of options
On issue at end of period
UNLISTED SECURITIES
113,971,605
-
(61,729)
(113,909,876)
-
Movement in unlisted options (A$0.08 exercise price; expired 18 December 2022)
On issue at beginning of period
Expiry of options
48,680,475
(48,680,475)
On issue at end of period
Movement in unlisted options (A$0.08 exercise price; expire 30 July 2025)
On issue at beginning of period
Issue of options
Exercise of options
Expiry of options
On issue at end of period
-
5,000,000
-
-
-
5,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
Additional information
Terms and conditions
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company.
46 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
82 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
12.
Share capital and share-based payments (continued)
Share-based payments
Weighted average remaining contractual life of share options and
performance rights in issue (years)
Weighted average Lucapa share price during the period/ year (A$)
Share-based payments recognised
Profit or Loss
Director and employee options
Non-cash financing and investing activities
Share issue expenses
31 Dec 2022
31 Dec 2021
3.52
0.061
0.51
0.063
US$000
US$000
70
-
70
-
74
74
47 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 83
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
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84 | Lucapa Diamond Company Limited | Annual Report 2022
3
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8
4
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
12.
Share capital and share-based payments (continued)
Accounting policy
Share capital
Equity instruments, including preference shares, issued
by the Company are recorded at the proceeds received.
Incremental costs directly attributable to the issue of
equity instruments are recognised as a deduction from
equity, net of any tax effects.
Share based payments
The fair value of options and rights granted is measured
using the Black-Scholes or binomial option pricing
models, taking into account the terms and conditions
upon which the instruments were granted. The fair value
is recognised in employee benefits expense together
with a corresponding increase in equity (share-based
payment reserve), over the period in which the service
and, where applicable, the performance conditions are
fulfilled. The cumulative expense recognised at each
reporting date until the vesting date reflects the extent
to which the vesting period has expired and the Group’s
best estimate of the number of equity instruments that
will ultimately vest. The expense or credit in profit or loss
for a period represents the movement in cumulative
expense recognised as at the beginning and end of that
period.
Service and non-market performance conditions are not
taken into account when determining the grant date fair
value of awards, but the likelihood of the conditions
being met is assessed as part of the Group’s best
estimate of the number of equity instruments that will
ultimately vest. Market performance conditions are
reflected within the grant date fair value.
Any other conditions attached to an award, but without
an associated service requirement, are considered to be
non-vesting conditions. Non-vesting conditions are
reflected in the fair value of an award and lead to an
immediate expensing of an award unless there are also
service and/ or performance conditions.
No expense is recognised for awards that do not
ultimately vest because non-market performance and/
or service conditions have not been met. Where awards
include a market or non-vesting condition, the
transactions are treated as vested
irrespective of
whether the market or non-vesting condition is satisfied,
provided that all other performance and/ or service
conditions are satisfied.
Where the terms of an equity-settled award are
modified, as a minimum an expense is recognised as if
the terms had not been modified. In addition, an
expense is recognised for any increase in the value of the
transaction as a result of the modification, as measured
at the date of modification.
Where an equity-settled award is cancelled, it is treated
as if it had vested on the date of cancellation, and any
expense not yet recognised for the award is recognised
immediately. However, if a new award is substituted for
the cancelled award and designated as a replacement
award on the date that it is granted, the cancelled and
new award are treated as if they were a modification of
the original award, as described
in the previous
paragraph.
The amounts carried under share-based payment
reserves are allocated to share capital when underlying
shares are issued upon the conversion of options or
rights, and to accumulated income/ losses upon the
expiry of option or rights.
price
share
inputs
include
Determination of fair values
The fair value of options issued is measured using the
Black-Scholes or binomial option pricing models.
Measurement
on
measurement date, exercise price of the instrument,
expected volatility (based on weighted average historic
volatility adjusted for changes expected due to publicly
available information), weighted average expected life of
the instruments (based on historical experience and
general option holder behaviour), expected dividends,
and the risk-free interest rate (based on government
bonds). Service and non-market performance conditions
attached to the transactions are not taken into account
in determining fair value.
Significant accounting judgements, estimates and
assumptions
The Company measures the cost of equity-settled
transactions by reference to the fair value of the equity
instruments at the date at which they are granted.
Where required, the fair value of options granted is
measured using valuation models, taking into account
the terms and conditions as set out above. The
accounting estimates and assumptions relating to
equity-settled share-based payments would have no
impact on the carrying amounts of assets and liabilities
within the next annual reporting period, but may impact
expenses and reserves.
49 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 85
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
13.
Commitments and contingencies
50
Operating lease commitments iro mining and exploration rights
Minimum lease payments under non-cancellable operating lease
agreements
Payable within one year
Payable after one year but less than five years
Payable after more than five years
Capital commitments
Payable within one year
Approved, not yet contracted
Approved and contracted
31 Dec 2022
US$000
31 Dec 2021
US$000
160
553
845
1,558
2,928
-
126
376
180
682
1,315
-
Contingencies
The Group did not have any contingent liabilities as at 31 December 2022 (2021: Nil).
14.
Parent entity information
50
Current assets
Total assets
Current liabilities
Total liabilities
Share capital
Reserves
Accumulated losses
(Loss)/ profit for the period
Total comprehensive (loss)/ income for the period
31 Dec 2022
US$000
31 Dec 2021
US$000
7,210
113,952
5,875
5,875
154,230
(5,501)
(40,652)
108,077
(12,172)
(12,172)
6,663
126,506
10,437
14,861
145,542
(5,409)
(28,488)
111,645
8,587
8,587
50 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
86 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
15. Related party disclosures
Financial overview 51
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Share-based payments
31 Dec 2022
US$
31 Dec 2021
US$
1,082,405
60,494
27,297
1,170,196
1,327,358
69,503
-
1,396,861
Other related party transactions
The following payments, relating to office rent and associated costs were
made to entities associated with non-executive director Miles Kennedy:
Kennedy Holdings (WA) Pty Ltd
12,654
117,338
Loan facility agreement with an entity associated with non-executive
director Ross Stanley:
Amount due to New Azilian Pty Ltd (refer Note 7)
Finance cost for period
-
69,684
7,999,176
1,023,819
regarding
individual Directors'
Additional information
Individual Directors’ and executives’ compensation
disclosures
Information
and
executives' compensation and some equity instruments
disclosures as required by Corporations Regulations
2M.3.03 is provided in the remuneration report section of
the Directors’ report. Apart from the details disclosed in
this note, no Director has entered into a material
contract with the Company since the end of the previous
financial year and there were no other material contracts
involving Director’s interests at period-end.
Key management personnel and director transactions
A number of key management persons, or their related
parties, hold positions in other entities that result in
them having control or significant influence over the
financial or operating policies of those entities. A
number of these entities transacted with the Company
in the reporting period. The terms and conditions of the
transactions with management persons and their
related parties were no more favourable than those
available, or which might reasonably be expected to be
available, on similar transactions to non-director related
entities on an arm’s length basis.
51 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 87
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
16.
Group information
52
The consolidated financial statements of the Group include the
following subsidiaries:
Lucapa Diamonds (Botswana) (Proprietary) Limited
Incorporated in Botswana
Equity interest held
Australian Natural Diamonds Pty Ltd
Incorporated in Australia
Equity interest held
Brooking Diamonds Pty Ltd
Incorporated in Australia
Equity interest held
Heartland Diamonds Pty Ltd
Incorporated in Australia
Equity interest held
Mothae Diamonds (Pty) Ltd
Incorporated in the Kingdom of Lesotho
Equity interest held
Lucapa (Mauritius) Holdings Limited
Incorporated in Mauritius
Equity interest held
Summarised financial information of subsidiaries with non-controlling interests
Mothae Diamonds (Pty) Ltd
Assets and liabilities at the end of the period
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Profit or loss and cash flow items for the period
Revenue
Loss for the period
Total comprehensive loss for the period
Cash flows (used in)/ from operating activities
Cash flows used in investing activities
31 Dec 2022
%
31 Dec 2021
%
100
100
100
100
70
100
100
100
100
-
70
100
31 Dec 2022
US$000
31 Dec 2021
US$000
4,826
21,414
8,912
50,647
23,350
(15,907)
(11,678)
(823)
(1,086)
6,536
26,909
11,791
40,877
26,791
(5,643)
(4,372)
6,284
(3,102)
Dividends paid to non-controlling intrests
-
-
52 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
88 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
17.
Other significant accounting policies
The financial statements have been prepared using
consistent accounting policies to those used for the prior
year, except as set out below. 53
New or revised accounting policies
The Group has applied the following standards and
amendments for the first time for the annual reporting
period commencing 1 January 2022:
•
•
•
•
AASB 2020-3 Amendments to Australian
Accounting Standards – Annual Improvements
2018-2020 and Other Amendments;
AASB 2021-7 Amendments to Australian
Accounting Standards – Effective Date of
Amendments to AASB 10 and AASB 128 and
Editorial Corrections;
AASB 2022-2 Amendments to Australian
Accounting Standards – Extending Transition
Relief under AASB 1; and
AASB 2021-3 Amendments to Australian
Accounting Standards – Covid-19-Related Rent
Concessions beyond 30 June 2021.
The adoption of these standards has not resulted in any
material changes to the Group’s financial statements.
The following new/ amended standards have been
issued, but are not yet effective:
•
•
•
•
•
•
•
•
•
with
Liabilities
AASB 17 Insurance Contracts;
AASB 2014-10 Amendments to AASs – Sale or
Contribution of Assets between an Investor and
its Associate or Joint Venture;
AASB 2020-1 Amendments to Australian
Accounting Standards – Classification of
Liabilities as Current or Non-current;
AASB 2022-6 Amendments to Australian
Accounting Standards – Classification of
Liabilities as Current or Non-current – Deferral
of Effective Date and IASB amendment Non-
current
Covenants
(Amendments to IAS 1);
AASB 2021-2 Amendments to Australian
of
Accounting Standards
of
Accounting Policies
Accounting Estimates;
AASB 2021-5 Amendments to Australian
Accounting Standards – Deferred Tax related to
Assets and Liabilities arising from a Single
Transaction;
AASB 2022-1 Amendments to Australian
Accounting Standards – Initial Application of
AASB
17 and AASB 9 – Comparative
Information;
AASB 2022-5 Amendments to AASs – Lease
Liability in a Sale and Leaseback;
AASB 2022-6 Amendments to AASs – Non-
current Liabilities with Covenants;
– Disclosure
and Definition
•
•
AASB 2022-7 Editorial Corrections to AASs and
Repeal of Superseded
and Redundant
Standards; and
AASB 2022-7 Editorial Corrections to AASs and
Repeal of Superseded
and Redundant
Standards.
The requirements of these standards are currently being
reviewed, but it is not currently expected to have a
material impact on the Group’s financial statements.
Significant accounting judgements, estimates and
assumptions
requires
The preparation of financial statements
management to make
judgements, estimates and
assumptions that affect the application of accounting
policies and reported amounts of assets, liabilities,
income and expenses. Actual results may differ from
those estimates. Estimates and underlying assumptions
are reviewed on an ongoing basis.
Revisions to
accounting estimates are recognised in the period in
which the estimate is revised and in any future periods
affected.
Judgements made by management in the application of
Australian Accounting Standards that have significant
effect on the financial statements and estimates with a
significant risk of material adjustment in the next year
are discussed where relevant in the individual notes
above.
discusses with
Management
the
development, selection and disclosure of the Group’s
critical accounting policies and estimates and the
application of these policies and estimates.
the Board
Principles of consolidation
The Group financial statements consolidate those of the
Company and all its subsidiaries as at the end of the
period. The Company controls a subsidiary if it is
exposed, or has rights, to variable returns from its
involvement with the subsidiary and has the ability to
affect those returns through
its power over the
subsidiary.
All transactions and balances between Group companies
are eliminated on consolidation, including unrealised
gains and
losses on transactions between Group
companies.
Where unrealised losses on intra-group asset sales are
reversed on consolidation, the underlying asset is also
impairment from a group perspective.
tested for
Amounts reported
in the financial statements of
subsidiaries have been adjusted where necessary to
ensure consistency with the accounting policies adopted
by the Group.
53 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 89
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
17.
Other significant accounting policies (continued)
Profit or loss and other comprehensive income of
subsidiaries acquired or disposed of during the year are
recognised from the effective date of acquisition, or up
to the effective date of disposal, as applicable.
Non-controlling interests, presented as part of equity,
represent the portion of a subsidiary’s profit or loss and
net assets that is not held by the Group. The Group
attributes total comprehensive
loss of
subsidiaries between the owners of the parent and the
non-controlling interests based on their respective
ownership interests.
income or
Functional and presentation currency
An entity’s functional currency is the currency of the
primary economic environment in which it operates. All
items included in the financial statements of entities in
the Group are measured and recognised in the functional
currency of the entity. The Group’s presentation currency
is US dollars, which is also the functional currency of the
Company.
Foreign currency transactions and balances
Transactions in foreign currencies are translated to the
respective functional currencies of the Group at
exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the
functional currency at the foreign exchange rate at that
date.
Foreign exchange differences arising on
retranslation are recognised in the statement of profit or
loss and other comprehensive income.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on
acquisition, are translated to US dollars at foreign
exchange rates ruling at the reporting date. The income
and expenses of foreign operations are translated to US
dollars at exchange rates approximating the foreign
exchange rates ruling at the dates of the transactions.
Foreign exchange differences arising on retranslation are
recognised directly in a separate component of equity.
When a foreign operation is disposed of in part or in full,
the relevant amount in equity is transferred to the
statement of profit or loss and other comprehensive
income.
Foreign exchange gains and losses arising from a
monetary item receivable from or payable to a foreign
operation, the settlement of which is neither planned
nor likely in the foreseeable future, are considered to
form part of the net investment in a foreign operation
and are recognised directly in equity.
Impairment
Financial assets
A financial asset is assessed at each reporting date to
determine whether there is a risk of default. A financial
asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative
effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset
measured at amortised cost
is calculated as the
difference between its carrying amount, and the present
value of the estimated future cash flows discounted at
the original effective interest rate.
Individually significant financial assets are tested for
impairment on an individual basis. The remaining
financial assets are assessed collectively in groups that
share similar credit risk characteristics.
All impairment losses are recognised in the statement of
profit or loss and other comprehensive income.
An impairment loss is reversed if the reversal can be
related objectively to an event occurring after the
impairment loss was recognised. For financial assets
measured at amortised cost the reversal is recognised in
the statement of profit or loss and other comprehensive
income.
Non-financial assets
The carrying amounts of the Group’s non-financial
assets, other than inventories, are reviewed at each
reporting date to determine whether there is any
indication of impairment. If any such indication exists,
the asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash-generating
unit is the greater of its value in use and its fair value less
costs to sell. In assessing value in use, the estimated
future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks
specific to the asset. For the purpose of impairment
testing, assets are grouped together into the smallest
group of assets that generates cash inflows from
continuing use that are largely independent of the cash
inflows of other assets or groups of assets (the “cash-
generating unit”).
An impairment loss is recognised if the carrying amount
of an asset or its cash-generating unit exceeds its
recoverable amount. Impairment losses are recognised
in the statement of profit or
loss and other
comprehensive income. Impairment losses recognised
in respect of cash-generating units are allocated first to
reduce the carrying amount of any goodwill allocated to
cash-generating units (group of units) and then, to
reduce the carrying amount of the other assets in the
unit (group of units) on a pro rata basis.
losses recognised
Impairment
in prior periods are
assessed at each reporting date for any indications that
the loss has decreased or no longer exists.
An
impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed
the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment
loss had been recognised.
54 | P a g e
LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
90 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Fair value is measured using the assumptions that
market participants would use when pricing the asset or
liability, assuming they act in their economic best
interests. For non-financial assets, the fair value
measurement is based on its highest and best use.
in the
Valuation techniques that are appropriate
circumstances and for which sufficient data are available
to measure fair value, are used, maximising the use of
relevant observable inputs and minimising the use of
unobservable inputs.
Assets and
liabilities measured at fair value are
classified into three levels, using a fair value hierarchy
that reflects the significance of the inputs used in
making the measurements. Classifications are reviewed
at each reporting date and transfers between levels are
determined based on a reassessment of the lowest level
fair value
of
measurement.
is significant to the
input that
fair
and
recurring
non-recurring
For
value
measurements, external valuers may be used when
internal expertise is either not available or when the
valuation is deemed to be significant. Where there is a
significant change in fair value of an asset or liability
from one period to another, an analysis is undertaken,
which includes a verification of the major inputs applied
latest valuation and a comparison, where
in the
applicable, with external sources of data.
Rounding of amounts
The company is of a kind referred to in ASIC Legislative
Instrument 2016/191, relating to the ‘rounding off’ of
amounts in the financial statements. Amounts in the
financial statements have been
in
accordance with the instrument to the nearest thousand
dollars, or in certain cases, the nearest dollar.
rounded off
Notes to the consolidated financial statements
for the year ended 31 December 2022
17. Other significant accounting policies (continued)
indicative of
Significant accounting judgements, estimates and
assumptions
The Group assesses impairment at the end of each
reporting year by evaluating specific conditions that may
be
impairment triggers. Recoverable
amounts of relevant assets are reassessed using
calculations which incorporate various key assumptions,
including estimating diamond prices, foreign exchange
rates, production
recoverable diamonds,
operating costs, capital requirements & its eventual
disposal and latest life of mine plans.
levels &
Future cash flows expected to be generated by the
assets are projected, taking
into account market
conditions and the expected useful lives of the assets.
The present value of these cash flows, determined using
an appropriate discount rate, is compared to the current
net asset value and, if lower, the assets are impaired to
the present value. If the information to project future
cash flows is not available or could not be reliably
established, management uses the best alternative
information
a possible
to
impairment.
estimate
available
Goods and services tax/ value added tax
Revenues, expenses and assets are recognised net of the
amount of goods and services tax (“GST”) or value added
tax (“VAT”), except where the amount of GST or VAT
incurred is not recoverable from the taxation authority, it
is recognised as part of the cost of acquisition of an asset
or as part of an item of expense. Receivables and
payables are stated with the amount of GST or VAT
included.
The net amount of GST and VAT recoverable from, or
payable to, the taxation authority is included as part of
receivables or payables.
Cash flows are included in the statement of cash flows
on a gross basis. The GST and VAT component of cash
flows arising from investing and financing activities
which is recoverable from, or payable to, the taxation
authority is classified as operating cash flows.
Determination of fair values
When an asset or liability, financial or non-financial, is
measured at fair value for recognition or disclosure
purposes, the fair value is based on the price that would
be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at
the measurement date; and assumes that the
transaction will take place either in the principal market
or, in the absence of a principal market, in the most
advantageous market.
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Lucapa Diamond Company Limited | Annual Report 2022 | 91
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Notes to the consolidated financial statements
for the year ended 31 December 2022
18.
Events subsequent to reporting date
On 16 January 2023, Lucapa announced the recovery of 41
diamonds from the kimberlite bulk sample L164/01.
On 24 January 2023, Lucapa announced:
•
•
it had received a total of US$15.8 million (A$23
million) was repatriated from its associate SML
in 2022.
SML shareholders approved a US$ 4 million (A$
5.9 million) capital
repayment and US$
1.6million (A$ 2.3million) dividend to be paid to
Lucapa in 2023.
On 16 February 2023, Lucapa announced the following
recoveries of diamonds from two Lulo kimberlite
exploration bulk samples:
•
•
23 diamonds from 365m3 kimberlite sample
L164/02; and
13 diamonds from 902m3 kimberlite sample
L056.
Both targets will be subject to further sampling.
On 23 February 2023, Lucapa announced:
•
•
the recovery by SML of a 150 carat Type IIa white
diamond from Mining Block 28; and
the receipt of the dividend from SML referred to
above, amounting to A$2.1 million (net of
withholding tax).
No other matters or circumstances have arisen since the
end of the financial period, which significantly affected
or may significantly affect the operations of the Group,
the results of those operations, or the state of affairs of
the Group in subsequent financial periods. 56
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92 | Lucapa Diamond Company Limited | Annual Report 2022
Notes to the consolidated financial statementsFOR THE YEAR ENDED 31 DECEMBER 2022
Director’s declaration
for the year ended 31 December 2022
1.
In the opinion of the Directors of Lucapa Diamond Company Limited: 57
(a)
the financial statements and notes, and the remuneration report in the Directors’ Report, as set out on pages
38 to 92, are in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 31 December 2022 and of its
performance for the financial period ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001;
the financial report also complies with International Financial Reporting Standards as disclosed in the
Statement of compliance on page 18; and
Subject to the uncertainty outlined in the Directors’ report and basis of measurement sections, there are
reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and
payable.
(b)
(c)
2.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001 for the financial
year ended 31 December 2022.
Signed in accordance with a resolution of the Directors.
MILES KENNEDY
Chairman
Dated this 27th February 2023
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Lucapa Diamond Company Limited | Annual Report 2022 | 93
Director’s DeclarationFOR THE YEAR ENDED 31 DECEMBER 2022 Independent auditor’s report
for the year ended 31 December 2022
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94 | Lucapa Diamond Company Limited | Annual Report 2022
Independent Auditor’s ReportFOR THE YEAR ENDED 31 DECEMBER 2022
Independent auditor’s report
for the year ended 31 December 2022
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Lucapa Diamond Company Limited | Annual Report 2022 | 95
Independent Auditor’s ReportFOR THE YEAR ENDED 31 DECEMBER 2022
Independent auditor’s report
for the year ended 31 December 2022
54
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96 | Lucapa Diamond Company Limited | Annual Report 2022
Independent Auditor’s ReportFOR THE YEAR ENDED 31 DECEMBER 2022 Independent auditor’s report
for the year ended 31 December 2022
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Lucapa Diamond Company Limited | Annual Report 2022 | 97
Independent Auditor’s ReportFOR THE YEAR ENDED 31 DECEMBER 2022
Independent auditor’s report
for the year ended 31 December 2022
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98 | Lucapa Diamond Company Limited | Annual Report 2022
Independent Auditor’s ReportFOR THE YEAR ENDED 31 DECEMBER 2022
Independent auditor’s report
Independent auditor’s report
for the year ended 31 December 2022
for the year ended 31 December 2022
45 to 50
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LUCAPA DIAMOND COMPANY LIMITED ABN 44 111 501 663
Lucapa Diamond Company Limited | Annual Report 2022 | 99
Independent Auditor’s ReportFOR THE YEAR ENDED 31 DECEMBER 2022
Capital structure
Ordinary Share Capital
1,439,559,875 ordinary fully paid shares held by 5,485 shareholders.
Substantial shareholders
As at 13 April 2023, substantial shareholder notices had been lodged
with ASX by the following shareholders:
SPREAD
NUMBER OF
HOLDERS
NUMBER OF
SHARES
FULLY PAID ORDINARY
SHARES NAME
NUMBER
HELD
% OF ISSUED
CAPITAL
1
1,001
5,001
10,001
to
to
to
to
1,000
5,000
145
35,948
Regal Funds Management
Pty Ltd
1,222
3,746,050
Ilwella Pty Ltd
10,000
901
7,202,162
100,000
2,255
82,786,595
Tazga Two Pty Ltd as trustee
For Tazga Two Trust
Shadbolt Future Fund
(Tottenham) Pty Ltd
116,813,067
61,394,405
8.11%
7.62%
55,007,014
5.35%
64,000,000
5.02%
100,001 and above
962
1,345,789,120
As at 13 April 2023 there were 2,520 fully paid ordinary shareholders
holding less than a marketable parcel.
Note: The above details may not reconcile to the information in the Top
20 holders of quoted securities list as the shares may be held across
multiple associated holdings or if updated substantial shareholder
notices have not been required to be lodged with ASX.
Voting rights
Ordinary Shares
On a show of hands, every member present in person or by proxy shall
have one vote and upon a poll each share shall have one vote.
Options and Performance Rights
Options and performance rights carry no voting rights and convert to
one ordinary share upon exercise.
On-market buy-back
There is no current on-market buy back.
100 | Lucapa Diamond Company Limited | Annual Report 2022
Additional ASX Information
Top 20 holders of quoted securities
FULLY PAID ORDINARY SHARES NAME
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
TAZGA TWO PTY LTD
NUMBER
HELD
% OF ISSUED
CAPITAL
159,078,779
11.05%
155,850,130
10.83%
80,940,347
5.62%
PONDEROSA INVESTMENTS WA PTY LTD
55,645,255
3.87%
SHADBOLT FUTURE FUND (TOTTENHAM) PTY LTD
SAFDICO INTERNATIONAL LIMITED
UBS NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM
BNP PARIBAS NOMS PTY LTD
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
54,065,776
3.76%
49,609,592
3.45%
31,000,000
2.15%
24,371,333
1.69%
21,705,146
19,771,274
1.51%
1.37%
PS SUPER NOMINEES PTY LTD
17,226,692
1.20%
MR KENNETH JOSEPH HALL
BNP PARIBAS NOMINEES PTY LTD
17,200,000
16,783,281
1.19%
1.17%
ASHANTI INVESTMENT FUND PTY LTD
14,400,000
1.00%
PULLINGTON INVESTMENTS PTY LTD
SUI HEE LEE
ALL-STATES FINANCE PTY LIMITED
MR ALEXANDER JAMES WENTWORTH HILL
MR BARNABY COLMAN CADDICK
14,200,249
0.99%
14,000,000
0.97%
13,500,000
0.94%
12,000,000
0.83%
11,800,000
0.82%
PULLINGTON INVESTMENTS PTY LTD
11,365,730
0.79%
794,513,584
55.19%
Lucapa Diamond Company Limited | Annual Report 2022 | 101
Additional ASX Information
Definitions and abbreviations
_
A$
AIFRS
AGM
ASX
Attributable
AusND
Brooking
EBITDA
Endiama
Equigold
ESG
GoL
GTD Index
JIBAR
June half,
the half year or
H1
Lucapa,
the Company or
LOM
MB
Merlin
Mothae
Mtpa
New Azilian
Orapa
Rosas & Petalas
QX 20XX
Safdico
SFD
SML
Specials
the Board
the Group
the IDC
the Second Half or
H2
VK
US$
Z Star
ZAR, R or Rand
Australian dollar
Australian International Financial Reporting Standards
Annual general meeting of shareholders
Australian Securitues Exchange
Attributable ownership in the projects based on Lucapa’s holding. This is a non-AIFRS
measure. For statutory reporting purposes, SML is equity accounted given Lucapa holds
a 40% interest and Mothae is consolidated given Lucapa holds a 70% interest
Australian Natural Diamonds Pty Ltd (Lucapa 100% held subsidiary; registered in
Australia)
Brooking Pty Ltd
Earnings before interest, taxation, depreciation & amortisation and other non-trading
items (EBITDA is a non-AIFRS measure)
Endiama E.P. (Angola’s national diamond mining company)
Equigold Pte Ltd (registered in Singapore)
Environmental, Social and Governance
Government of the Kingdom of Lesotho
GTD Consulting Overall Rough Diamond Price Index
Johannesburg Interbank Agreed Rate
The six months ended 30 June
Lucapa Diamond Company Limited (ASX code: LOM)
Mining block
Merlin Diamond Project, owned by AusND
Mothae Diamonds (Pty) Ltd (Lucapa 70% subsidiary, GoL 30% and registered in the
Kingdom of Lesotho)
Million tonnes per annum
New Azilian Pty Ltd
Orapa Area F, Botswana
Rosas & Petalas S.A. (Private venture partner in Lulo, registered in the Republic of
Angola)
Reference to one of the quarter periods in a calendar year
Safdico International, a subsidiary of Graff International
Size frequency distribution
Sociedade Mineira Do Lulo Lda, (Lucapa 40% asscociate, Endiama 32% and Rosas &
Petalas 28% and registered in the Republic of Angola)
Diamonds individually weighing in excess of 10.8 carats
The Lucapa Board of Directors
The Company, its subsidiaries and associates
the Industrial Development Corporation of South Africa Limited
The six months ended/ ending 31 December
Volcaniclastic kimberlite
United States dollar
Z Star Mineral Resource Consultants Pty Ltd
South African rand
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102 | Lucapa Diamond Company Limited | Annual Report 2022
Definitions and Abbreviations
Lucapa Diamond Company Limited | Annual Report 2022 | 103
Lucapa Diamond Company
ACN 111 501 663
34 Bagot Road,
Subiaco WA 6008
Tel: +61 8 9381 5995
Fax: +61 8 9380 9314
Email: general@lucapa.com.au
www.lucapa.com.au