Management’s Discussion and Analysis
And
Consolidated Financial Statements
Year Ended December 31, 2016
LUCARA DIAMOND CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2016
Management’s discussion and analysis (“MD&A”) focuses on significant factors that have affected
Lucara Diamond Corp. (the “Company”) and its subsidiaries performance and such factors that may
affect its future performance. In order to better understand the MD&A, it should be read in
conjunction with the audited consolidated financial statements of the Company for the year ended
December 31, 2016, which are prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). All amounts
are expressed in U.S. dollars unless otherwise indicated. The effective date of this MD&A is February
16, 2017.
Some of the statements in this MD&A are forward-looking statements that are subject to risk factors
set out in the cautionary note contained herein. Additional information about the Company and its
business activities is available on SEDAR at www.sedar.com.
FINANCIAL UPDATE
Net Cash Position: The Company’s year-end cash balance was $53.3 million (2015: $134.8 million).
The decrease in cash during the year is primarily due to the Company’s special and regular dividend
payments of $149.7 million to its shareholders. The Company’s $50 million credit facility remains
undrawn.
Cash flows and Operating Cost Per Tonne of Ore Processed: During the year, the Company
sold 358,806 carats for total revenues of $295.5 million (2015: $223.8 million) at an average sales
price of $824 per carat (2015: $593 per carat). Excluding the sale of the 813 carat Constellation
diamond, the 2016 average sales price was $649 per carat. The Company’s focus on cost control
resulted in a cost per tonne processed of $26.5 (Revised guidance $25.0-$28.0 per tonne - see table
5 and page 9 Non-IFRS measures).
Earnings and Earnings Per Share: Earnings for 2016 were $70.7 million (2015: $77.8 million)
and earnings per share were $0.19 for the year ended December 31, 2016 (2015: $0.21) and $0.03
per share for the quarter ended December 31, 2016 (2015: $0.05). The Company’s earnings per
share were negatively impacted by $0.03 per share due to a foreign exchange loss of $11 million as
compared to 2015’s foreign exchange gain of $15 million which contributed $0.04 to 2015 earnings
per share. Withholding taxes of $7.4 million on funds remitted from Botswana for the payment of the
special dividend in 2016 reduced earnings per share by a further $0.02.
Earnings Before Interest, Tax, Depreciation and Amortization “EBITDA” and Operating
Margin: The Company recorded EBITDA for the year of $185.4 million (2015: $133.9 million) and
an operating margin of 81% (2015: 78%) (see table 4 and page 9 Non-IRFS measures). The
increase in EBITDA and operating margin was largely due to the sale of the Constellation, an 813
carat Type IIA diamond sold for a world record rough diamond price of US$63.1 million or US$77,649
per carat.
Dividends: The Company paid its quarterly dividend of CA$0.015 per share on December 15, 2016
for a cumulative dividend of CA$0.51 per share in 2016. The $149.7 million cash dividend paid in
2016 resulted in a milestone achievement for the Company as the cumulative dividends paid since
2014 exceed the total amount of share capital ever raised by the Company.
In 2017, the Company is increasing its regular annual dividend to CA$0.10 per share to be paid in
four equal payments on a quarterly basis. The Company has declared a first quarter dividend of CA$
2.5 cents per share which will be paid on March 30, 2017 to holders of securities on the record of the
Company’s common shares at the close of business on March 17, 2017. The Company anticipates
that it will declare a further three payments of CA$0.025 per share in 2017 by the end of each
quarter for a total yearly dividend of CA$0.10 per share. However the declaration of all future
quarterly dividends remains at the discretion of the Board of Directors and is subject to the
requirements of the Company’s dividend policy.
OPERATIONAL UPDATE
Karowe Operating Performance: Karowe’s performance was better than forecast for the year in
terms of ore processed and carats recovered. In February 2017, the Company’s new mining
contractor, Moolman Mining Botswana (Pty) Ltd a subsidiary of Aveng Mining (“Aveng Moolmans”)
commenced mobilization to the Karowe mine. Ore and waste mined for the year was lower than
forecast as the Company transition to its new mining contractor. Since December 2016, during the
period of transition to Aveng Mining, Karowe processed ore from stockpile. Forecast 2017 operating
outlook remains in line with market guidance (see press release dated November 30, 2016).
Botswana Prospecting Licenses: In 2014, the Company was awarded two precious stone
prospecting licenses (PL367/2014 and PL371/2014) which are known to host the kimberlites, BK02,
AK11 and AK12, AK13 and AK14. The prospecting licenses are located within a distance of 15 km and
30 km from the Karowe Diamond mine. During the fourth quarter of 2016, the Company completed
processing an additional 5000 tonnes of kimberlite from the BK02 kimberlite. Processing of audit
material and diamond sorting will be complete in Q1 2017. Drilling will progress at the AK13 and
AK14 kimberlites during Q1 2017.
Diamond Market: Supply and demand fundamentals in the diamond market remain unbalanced,
resulting in a very cautious market. The large volume of rough diamonds sold into the market in 2016
has not translated into increased sales of polished diamonds. Polished diamond price indices remain
at very low levels, restricting the ability for rough diamond prices to see short term and sustainable
growth.
Demonetisation in India towards the end of 2016 resulted in low to almost no liquidity for polishers to
pay their employees. Although this is a short term concern for the sector, additional supply being
brought into the market by three new diamond producers may continue to have an impact on prices
for the smaller and lower quality rough diamonds.
The market for large high value rough diamonds remains resilient and there remains strong demand
for these goods. Lucara continues to receive a high number of bids for its high value single stones as
polishers look to move into the higher margin areas of the industry.
FINANCIAL HIGHLIGHTS
Table 1:
In millions of U.S. dollars unless otherwise noted
Revenues*
Net income for the period
Earnings per share (basic)
Earnings per share (diluted)
Cash on hand
Three months ended
December 31
2015
2016
Year ended
December 31
2015
2016
$
66.0
11.2
0.03
0.03
$ 53.3
$
65.2
19.0
0.05
0.05
$ 134.8
$
295.5
70.7
0.19
0.18
$ 53.3
$
223.8
77.8
0.21
0.20
$ 134.8
Average price per carat sold ($/carat)**
Operating expenses per carat sold ($/carat)**
Operating margin per carat sold ($/carat)**
(*) Revenue is presented based on cash receipts received during the period and excludes any tender proceeds received after quarter end. See table 3: results of
operations for a reconciliation of revenue and total proceeds for tenders proceeds received after quarter end.
(**) Average price per carat sold, operating expenses per carat sold and operating margin per carat sold are Non-IFRS measures, see table 3: results of operations for
reconciliations and page 9 for Non-IFRS measures.
743
197
546
824
156
668
693
137
556
593
133
460
2017 OUTLOOK
This section of the MD&A provides management's production and cost estimates for 2017. These are
“forward-looking statements” and subject to the cautionary note regarding the risks associated with
forward-looking statements.
Karowe Mine, Botswana
Karowe is forecast to process 2.2-2.5 million tonnes of ore, producing between 290,000 and
310,000 carats of diamonds in 2017. Revenue is forecast between $200 and $220 million. This
excludes the anticipated sale of the Lesedi La Rona held in inventory at December 31, 2016.
Ore mined is forecast between 2.4-2.7 million tonnes and waste mined is expected to be between
17.0-20.0 million tonnes.
Karowe’s operating cash costs (see page 9 Non-IRFS measures) are expected to be between $36.00
and $40.00 per tonne processed following a planned increase in waste mining as the Company
advances toward early completion of a major push back by the end of 2018. This will create further
optionality for accessing the high value south lobe ore.
Capital expenditure in 2017 is forecast at between $33-$35 million. This capital investment is largely
for the completion of the Mega Diamond Recovery (MDR) and -8+4mm sub-middles XRT projects,
which commenced in 2016 and are to be completed in 2017. Both projects are forecast to be
completed within budgeted costs between $15-$18 million and up to $30 million respectively.
Sustaining capital is forecast to be between $7-$9 million in 2017.
A budget of up to $10.0 million is allocated to advance exploration work and the completion of a pre-
feasibility level underground study. The Company continues its advanced bulk sampling and drilling
work at BK02, AK11 and AK13. Deep drilling on the Karowe AK06 kimberlite south lobe is to be
completed in 2017 with the aim of converting inferred resources below 400 metres depth to an
indicated resource and to determine the economic viability of underground mining with a view to
potentially extending the life of the mine.
The USD/Pula budgeted foreign exchange rate for 2017 is 10.3.
BUSINESS OVERVIEW
The Company is a diamond mining company focused in Africa. The Company’s business consists of
the acquisition, exploration, development and operation of diamond properties. The Company’s head
office is in Vancouver, BC, Canada and its common shares trade on the Toronto Stock Exchange, the
Nasdaq Stockholm Exchange in Sweden and the Botswana Stock Exchange under the symbol “LUC”.
The principal assets of the Company and the focus of the Company’s operations, development and
exploration activities reside in Botswana.
Table 2: Company’s current land holdings:
Country
Botswana
Botswana
Botswana
Name
Interest Held Area (km2)
Karowe Diamond License
Prospecting License No. 371/2014
Prospecting License No. 367/2014
100%
100%
100%
15.3
55.4
1.1
RESULTS OF OPERATIONS
Table 3: Karowe Mine, Botswana
UNIT
Year 2016
Q4-16
Q3-16
Q2-16
Q1-16
Q4-15
824
743
US$
65.2
65.2
65.2
-
94,026
94,026
693
66.0
66.0
38.1
29.8
50.6
50.6
295.5
295.5
140.8
149.1
US$m
US$m
US$m
US$m
Carats
Carats
US$
66.0
-
88,957
88,957
743
50.6
-
77,990
77,990
649
38.1
(8.3)
84,059
114,659
355
140.8
8.3
107,801
77,200
1,383
295.5
-
358,806
358,806
824
Sales
Revenues
Proceeds generated from sales tenders conducted in
the quarter are comprised of:
Sales proceeds received during the quarter
Q2 2016 tender proceeds received in Q3 2016
Carats sold for proceeds generated during the period
Carats sold for revenues recognized during the period
Average price per carat for proceeds generated during
the period**
Average price per carat for proceeds received during
the period***
Production
Tonnes mined (ore) (****)
Tonnes mined (waste) (****)
Tonnes processed
Average grade processed
Carats recovered
Costs
Operating costs per carats sold (see page 9 Non-IRFS
measures)
Capital project expenditures
Plant Optimization
-8+4mm sub-middles XRT project
LDR and MDR circuit
Sustaining capital
Bulk Sample Plant
Total
(*) carats per hundred tonnes
(**) Average price per carat for proceeds generated during the period includes all sales tendered during the period including proceeds received post the quarter end
(***) Average price per carat for proceeds received during the period includes all sales proceeds collected during the period including proceeds received during the quarter
(****) restated following Q3 2016 survey
2,722,375
11,058,041
2,613,217
13.5
353,974
650,290
3,092,110
650,646
12.5
81,423
884,212
2,868,798
680,190
14.6
99,582
582,169
2,728,915
630,471
13.0
82,272
605,705
2,368,218
651,909
13.9
90,697
Tonnes
Tonnes
Tonnes
cpht (*)
Carats
US$m
US$m
US$m
US$m
US$m
US$m
-
7.2
6.0
10.0
0.1
23.3
-
-
2.3
5.8
-
8.1
-
-
2.9
1.7
-
4.6
-
-
-
0.5
0.1
0.6
-
7.2
0.8
2.0
-
672,110
2,631,224
567,966
15.6
89,247
1.6
-
-
0.6
0.7
2.9
1,824
US$
649
197
149
332
136
693
137
156
141
10.0
OPERATIONS: KAROWE MINE
Safety performance was excellent for the year with a Safety and Health Lost Time Injury Frequency
rates for 2016 of zero (measured per 1,000,000 hours) (2015: less than 0.4). All safety, health,
environmental and corporate responsibility indices were within target. The Company has achieved
five million man hours without a lost time injury.
Ore mined in Q4 2016 was 0.6 million tonnes and waste was 2.7 million tonnes. Tonnes of ore and
waste mined were lower than forecast as Karowe’s previous mine contractor commenced
demobilization from site and ore was processed from stockpile. The process plant has performed well
during Q4 with tonnes processed being 14% ahead of forecast for the quarter and 6% ahead of
forecast for the year resulting in Karowe achieving its carats recovered forecast in excess of 350,000
carats.
As greater volumes of south lobe ore are processed the recovered grade has decreased in line with
the resource model. The south lobe contains high value diamonds resulting in higher revenue per
tonne ore processed compared to the centre and north lobes.
The project to increase the top size of diamonds recoverable by the existing Large Diamond Recovery
was successfully implemented on schedule and within budget. The MDR circuit project is on schedule
at 45% complete. The related civil work has commenced at site and fabrication is on schedule and
forecast to be completed in Q2 2017.
The sub-middles XRT project (targeting the recovery of diamonds between 4mm and 8mm using XRT
technology) is 25% complete. Excavation in preparation of civil work has commenced. The project is
on schedule for completion in Q3 2017. This project will further address processing of the very dense
high quality South lobe ore at depth and is anticipated to result in a highly efficient and cost effective
processing methodology for processing this ore.
In January 2017, the Company announced the appointment of Aveng Moolmans as the new mining
contractor for the Karowe mine. Aveng Moolmans is contracted for a six year period to provide full
mining services including all drill, blast, load and haul functions for both ore and waste. In February
2017, Aveng Moolmans has commenced mobilization of its mining equipment fleet into the Karowe
mine.
EXPLORATION AND MOTHAE
Karowe Resource Upgrade Drilling
Drilling commenced on the planned 10,000 metre deep drill programme designed to test the Karowe
AK06 kimberlite at depths below 400m with the objective of converting inferred mineral resources
into the indicated category in support of underground mining studies. The drilling component of the
program is expected to be completed in February 2017.
Botswana Prospecting Licenses:
In 2014, the Company was awarded two precious stone prospecting licenses (PL367/2014 and
PL371/2014) which are known to host kimberlites, BK02, AK11 and AK12, AK13 and AK14. The
prospecting licenses are located within a distance of 15 km and 30 km from the Karowe
mine. Ground geophysical surveys were conducted over the known kimberlite occurrences within the
prospecting licenses during Q4 2014, Q1 2015 and Q2 2016. The geophysical results confirmed the
kimberlite localities and have provided information that has been used to plan our core drilling and
surface sampling programs.
BK02
In Q2 2016, the company completed processing a bulk sample with a total of 274.33 carats being
recovered from the processing of 5,916 tonnes, for a sample grade of 4.6 cpht. The largest diamond
recovered was a 5.48 carat brownish octahedron. In addition, a total of 24 stones were recovered
greater than 1 carat in weight, including 3 diamonds in excess of 2 carats in weight. In Q3 2016, the
Company completed sampling of an additional 5,000 tonnes of kimberlite in order to recover a parcel
of diamonds sufficient for basic valuation purposes. Processing of the second BK02 sample was
completed in Q4 2016 with audit samples and diamond sorting forecast be complete in Q1 2017.
During Q4 2016, 14 drill holes totaling 1670 metres were drilled into the BK02 kimberlite. An
additional three drill holes (320m) were completed in early Q1 2017. Drill core logging is underway
and will be sampled for microdiamond analysis and is forecast to be complete in Q3 2017.
AK 11
During Q3 a drill program was initiated and completed at AK11 with a total of ten core holes (1570
metres of drilling). This program constituted the first ever drilling on AK11. Nine holes were drilled at
AK11 and all intersected kimberlite, the tenth hole which did not intersect kimberlite tested a
geophysical anomaly to the west of AK11. Preliminary core logging indicates that AK11 has two
distinct pipe infill sequences, a well preserved crater infill (graded bedding, re-sediment kimberlite)
and a more magmatic/pyroclastic kimberlite phase. Drilling confirmed the size of AK11 at
approximately 2.5 hectares. Logging and sampling of the drill core is underway, microdiamond
samples are currently being processed and is forecast to be completed by Q2 2017.
Drilling will progress to AK13 and AK14 during Q1 2017.
Mothae Diamond Project, Lesotho
On March 31, 2016, the Company completed the transfer of its shares of Mothae Diamonds Pty Ltd
and the Mothae site bulk sample plant to the Government of Lesotho. As consideration, the
Government of Lesotho has released the Company from all liabilities relating to the rehabilitation of
the Mothae Diamond Project. Lucara has no remaining ownership in this project.
INVESTMENT
In Q4 2016, the Company acquired 4,476,773 Units of Tsodilo Resources Limited for $2.5 million in a
private placement financing. Each Unit is comprised of one common share and one common share
purchase warrant, each such warrant entitling the holder to purchase one common share of Tsodilo
for a period until the close of business on December 12, 2018 at an exercise price of USD$0.75.
Lucara was granted a pre-emptive right to maintain its percentage ownership in Tsodilo as well as a
right of first refusal to purchase all or any portion of Tsodilo’s or its subsidiaries’ rights, title or
interest in or to Tsodilo’s BK16 project pursuant to a right of first refusal agreement. The funds
received by Tsodilo from Lucara are specifically designated and ring fenced for work on BK16. The
BK16 property covers an area of 1.02 square kilometers and is located 28 km northeast from the
Karowe mine and is 14 km from BK02.
SELECT FINANCIAL INFORMATION
Table 4:
In millions of U.S. dollars unless otherwise noted
Revenues
Operating expenses
Operating earnings (1)
Royalty expenses
Exploration expenditures
Care and maintenance
Administration
Sales and marketing
EBITDA (2)
Depletion, amortization and accretion
Finance income (expenses)
Foreign exchange gain (loss)
Loss on disposition - Mothae
Restoration and impairment charge - Mothae
Current income tax expense
Deferred income tax expense
Net income for the year
Change in cash during the year
Cash on hand
Earnings per share (basic)
Earnings per share (diluted)
Per carats sold
Sales price
Operating expenses
2016
Year ended December 31,
2014
2015
$
$
295.5
(56.1)
239.4
(29.5)
(4.1)
(0.1)
(14.8)
(5.5)
185.4
(15.9)
(1.5)
(11.0)
(1.2)
-
(85.6)
0.5
70.7
(81.4)
53.3
0.19
0.18
$
223.8
(50.1)
173.7
(22.4)
(1.0)
(0.6)
(13.0)
(2.8)
133.9
(13.7)
(0.3)
15.5
-
-
(44.7)
(12.9)
77.8
33.9
134.8
0.21
0.20
$
824
156
$
$
593
133
16.3
265.5
(47.2)
218.3
(26.6)
-
(1.2)
(12.8)
(4.3)
173.4
(14.6)
0.8
(19.4)
-
(21.2)
(41.6)
(31.7)
45.7
51.5
100.8
0.13
0.13
644
115
17.7
Average grade (carats per hundred tonnes)
(1) Operating earnings is a non-IFRS measure defined as sales less operating expenses and royalty expenses.
(2) EBITDA is a non-IFRS measure defined as earnings before interest, taxation, depreciation and amortization.
13.5
Table 5: Operating cost per tonne ore processed
reconciliation:
Year ended December 31,
2016
2015
In millions of U.S. dollars with the exception of tonnes processed and operating cost per tonne processed
Operating expenses
Capitalized production stripping costs(1)
Net change rough diamond inventory(2)
Net change ore stockpile inventory(3)
Total operating costs for ore processed
Tonnes processed
Operating cost per tonne ore processed(4)
(1) Capitalized production stripping cost in investing activities in the audited consolidated statements of cash flows.
(2) Net change in rough diamond inventory for the year ended December 31, 2016 and December 31, 2015.
(3) Net change in ore stockpile inventory for the year ended December 31, 2016 and December 31, 2015.
(4) Operating cost per tonne processed for the year is a non-IFRS measure defined as the sum of operating expenses, capitalized
production stripping costs, and net change in rough diamond inventory and ore stockpile divided by the tonnes ore processed for the
period.
$ 56.1 $ 50.1
12.6
(1.2)
3.1
64.5
2,238,975
28.85
9.4
3.6
0.1
69.2
2,613,217
26.50
Revenues
During the year the Company had sales totalling 358,806 carats for gross proceeds of $295.5 million
at an average price of $824 per carat. Excluding the sale of the 813 carat Constellation diamond, the
2016 average price sold was $649 per carat. The exceptional stone sales resulted in an average price
of $34,301 per carat from the sale of 2,624 carats in 2016 (2015: $31,597 per carat from the sale of
3,114 carats), with the regular tenders achieving $400 per carat (2015: $335 per carat).
Operating Earnings
Operating earnings for 2016 were $239.4 million and operating expenses during the year totalled
$56.1 million, or $156 per carat, which resulted in an operating margin (before royalties and
depletion and amortization) of $668 per carat or 81% compared to prior year of 78%.
Income Tax Expense
The Company’s 2016 income tax expense was $85.0 million, which consisted of a current income tax
charge of $85.5 million and a deferred income tax recovery of $0.5 million for the year. The Company
is subject to a variable tax rate in Botswana that increases as profit as a percentage of revenue
increases. The lowest variable tax rate is 22% while the highest variable tax rate is 55% only if
taxable income was equal to revenue. At the Company’s 2016 performance, its tax rate for 2016 was
44% (2015: 40%). The Company has paid $76.3 million of its current year tax expense and the
remaining current tax accrual of $9.2 million is due by April 30, 2017.
Foreign Exchange
The Company recorded a foreign exchange loss of $11.0 in 2016 compared to a gain of $15.5 million
in 2015. This non-cash foreign exchange loss of $11.0 million has been recorded due to the
Company’s Botswana subsidiary’s functional currency being Pula. The functional currency is the
currency used in the primary economic environment where an entity operates. Under international
accounting standards the Company’s US dollar cash balance is translated to Pula in its Botswana
operating entity and then reconverted to US dollar for reporting purposes. The strengthening of the
Pula compared to the year-end December 2015 rate resulted in a foreign exchange loss during the
year.
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)
Full year EBITDA was $185.4 million compared to $133.9 million in 2015. The EBITDA is higher than
the prior year largely due to the increase in revenue compared to the prior year.
EBITDA is a non-IFRS measure and is reconciled in table 4.
Operating Cost Per Tonne Ore Processed
The year ended December 31, 2016 operating cost per tonne processed was $26.5 per tonne
processed (2015: $28.85 per tonne processed) and was within the revised 2016 guidance of $25.0-
$28.0 per tonne processed. The lower cost compared to 2015 is largely due to an increase in
processed volumes of ore general costs savings and a devaluation of the average pula exchange rate
to the US dollar during 2015. Operating cost per tonne processed is a non-IFRS measure and is
reconciled in the table on table 5 to the most directly comparable measure calculated in accordance
with IFRS, which is operating expenses.
Liquidity and Capital Resources
As at December 31, 2016, the Company had cash of $53.3 million (2015: $134.8 million).
Cash decreased during the year by $81.4 million. This decrease is mainly due to the Company’s
special dividend and regular quarter dividend payments to its shareholders of $149.7 million. Also
during the year, the Company incurred capital expenditure of $23.3 million, largely for the LDR and
MDR circuits of $6 million and -8+4mm sub middles project of $7.2 million and $9.4 million of
capitalized production stripping costs.
SUMMARY OF QUARTERLY RESULTS
(All amounts expressed in thousands of U.S. dollars, except per share data). The Company’s financial
statements are reported under IFRS issued by the IASB.
Table 6: The following table provides highlights, extracted from the Company’s financial statements,
of quarterly results for the past eight quarters (unaudited):
Three months ended
Dec-16
Sept-16
Jun-16 Mar-16
Dec-15 Sept-15
Jun-15 Mar-15
A. Revenues
66,017
38,098
140,785
50,566
65,212
90,878
38,122
29,634
B. Administration expenses
(6,429)
(3,226)
(2,678)
(2,448)
(5,214)
(3,005)
(2,353)
(2,425)
C. Net income (loss)
11,204
(3,804)
46,116
17,141
18,958
44,181
8,625
6,006
D. Earnings (loss) per share
(basic and diluted)
Revenues
0.03
(0.01)
0.12
0.05
0.05
0.12
0.02
0.02
During the three months ended December 31, 2016, the Company completed two diamond
tenders, one of which was an exceptional diamond tender. The exceptional diamond tender
generated gross proceeds of $38.7 million and the regular tender in the fourth quarter achieved
$27.3 million.
Administration Expenses
During the three months ended December 31, 2016, administration expenses increased to $6.4
million with full year costs in line with the previous year.
NON-IFRS FINANCIAL MEASURES
This MD&A refers to certain financial measures, such as EBITDA, Operating costs per carats sold, and
Operating cost per tonne ore processed, which are not measures recognized under IFRS and do not
have a standardized meaning prescribed by IFRS. These measures may differ from those made by
other corporations and accordingly may not be comparable to such measures as reported by other
corporations. These measures have been derived from the Company’s financial statements, and
applied on a consistent basis, because the Company believes they are of assistance in the
understanding of the results of operations and financial position.
EBITDA (see “Select Financial Information”) is the term the Company uses as an approximate
measure of the Company’s pre-tax operating cash flow and is generally used to measure performance
and evaluate trends of individual assets. EBITDA comprises earnings before deducting interest and
other financial charges, income taxes, depreciation and amortization and net loss attributable to non-
controlling interests.
Operating costs per carats sold (see “Karowe Mine, Botswana”) is the term the Company uses to
describe the mining, processing and site administration costs to produce a single carat of diamond.
This is calculated as operating costs per carat of diamond sold.
Operating cost per tonne ore processed (see “Select Financial Information”) is the term the Company
uses to describe operating expenses per tonne processed on a cash basis. This is calculated as
Operating cost divided by tonnes of ore processed for the period. This ratio provides the user with
the total cash costs incurred by the mine during the period per tonne of ore processed,
including waste capitalisation costs, mobilization costs and working capital movements. The most
directly comparable measure calculated in accordance with IFRS is operating expenses. A table
reconciling the two measures is presented in table 5.
RELATED PARTY TRANSACTIONS
For the year ended December 31, 2016, the Company paid $0.3 million (2015 $0.6 million) to a
charitable foundation directed by certain of the Company’s directors to carry out social programs on
behalf of the Company.
FINANCIAL INSTRUMENTS
Financial assets and liabilities have been classified into categories that determine their basis of
measurement and, for items measured at fair value, whether changes in fair value are recognized in
the consolidated statements of operations or consolidated statements of comprehensive loss. Those
categories are: fair value through profit or loss; loans and receivables; available for sale assets; and,
for liabilities, amortized cost.
The fair value of the Company’s available for sale financial instruments is derived from quoted prices
in active markets. The fair value of all other financial instruments of the Company approximates their
carrying values because of the demand nature or short-term maturity of these instruments.
In the normal course of business, the Company is inherently exposed to currency and commodity
price risk. For a discussion of certain risks and assumptions that relate commodity price risk, currency
risk, liquidity risk and credit risk, refer to Note 18 in the Company’s consolidated financial statements.
For a discussion of the methods used to value financial instruments, as well as any significant
assumptions, refer also to Note 18 of the Company’s consolidated financial statements.
OUTSTANDING SHARE DATA
As at the date of this MD&A, the Company had 382,246,001 common shares outstanding, 1,067,493
share units and 3,346,670 stock options outstanding under its stock-based incentive plan.
RISKS AND UNCERTAINTIES
The operations of the Company are speculative due to the high risk nature of its business which
includes acquisition, financing, exploration, development and operation of diamond properties. The
material risk factors and uncertainties, should be taken into account in assessing the Company’s
activities are described under the heading “Risks and Uncertainties” in the Company’s most recent
Annual Information Form available at http://www.sedar.com (the “AIF”). Any one or more of these
risks and uncertainties could have a material adverse effect on the Company.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
FINANCIAL INFORMATION
The report for the quarter ended March 31, 2017 is expected to be published on May 3, 2017. In
addition, the Company’s annual general meeting of shareholders will be held on May 11, 2017 in
Vancouver, British Columbia.
NEW ACCOUNTING PRONOUNCEMENTS
The Company prepared its financial statements in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Note 3 of the audited consolidated financial statements for the year ended December 31, 2016
provides details of significant accounting policies and accounting policy decisions for significant or
potentially significant areas that have had an impact on our financial statements or may have an
impact in future periods.
The following are new IFRS pronouncements that have been issued but are not yet effective are
listed below. The Company plans to apply the new standards or interpretations in the annual
period for which it is first required.
IFRS 2 - Share-based payments
The amendment clarifies the measurement basis for cash-settled, share-based payments and the
accounting for modifications that change an award from cash-settled to equity-settled. It also
introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it
was wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s
tax obligation associated with a share-based payment and pay that amount to the tax authority.
The completed version of IFRS 2 is effective for annual periods beginning on or after January 1,
2018, with early adoption permitted. The Company is currently assessing the effect of this
standard and its related amendments on our financial statements.
IFRS 9 - Financial Instruments
IFRS 9, Financial Instruments addresses the classification, measurement and recognition of
financial assets and financial liabilities. IFRS 9 requires financial assets to be classified into three
measurement categories on initial recognition: those measured at fair value through profit and
loss, those measured at fair value through other comprehensive income and those measured at
amortized cost. Investments in equity instruments are required to be measured by default at fair
value through profit or loss. However, there is an irrevocable option to present fair value changes
in other comprehensive income. Measurement and classification of financial assets is dependent
on the entity’s business model for managing the financial assets and the contractual cash flow
characteristics of the financial asset.
IFRS 9 introduces a new three-stage expected credit loss model for calculating impairment for
financial assets. IFRS 9 no longer requires a triggering event to have occurred before credit losses
are recognized. An entity is required to recognize expected credit losses when financial
instruments are initially recognized and to update the amount of expected credit losses recognized
at each reporting date to reflect changes in the credit risk of the financial instruments. In addition,
IFRS 9 requires additional disclosure requirements about expected credit losses and credit risk.
The completed version of IFRS 9 is effective for annual periods beginning on or after January 1,
2018, with early adoption permitted. The Company is currently assessing the effect of this
standard and its related amendments on our financial statements.
IFRS 15 - Revenue from Contracts with Customers
The new revenue standard introduces a single, principles based, five-step model for the
recognition of revenue when control of a good or service is transferred to the customer. The five
steps are: identify the contract(s) with the customer, identify the performance obligations in the
contract, determine transaction price, allocate the transaction price and recognize revenue when a
performance obligation is satisfied. IFRS 15 also requires enhanced disclosures about revenue to
help investors better understand the nature, amount, timing and uncertainty of revenue and cash
flows from contracts with customers and improves the comparability of revenue from contracts
with customers.
IFRS 15 will be effective for annual periods beginning on or after January 1, 2018, with early
adoption permitted. The Company is currently assessing the effect of this standard on our
financial statements.
IFRS 16 - Leases
The new Leases standard requires lessees to recognize leases traditionally recorded as operating
leases in the same manner as financing leases.
IFRS 16 will be effective for annual periods beginning on or after January 1, 2019, with early
adoption permitted. The Company is currently assessing the effect of this standard on our
financial statements.
IAS 12 – Income taxes – Deferred tax
This amendment is to clarify the requirements for recognising deferred tax assets on unrealised
losses and the accounting for deferred tax where an asset is measured at fair value and that fair
value is below the asset’s tax base. This amendment also clarifies certain aspects of accounting
for deferred tax assets.
IAS 12 is effective on January 1, 2017. This policy amendment does not affect the Company’s
financial statements.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The application of certain accounting policies requires the Company to make estimates that affect
both the amount and timing of the recording of assets, liabilities, revenues and expenses. Some of
these estimates require judgments about matters that are inherently uncertain.
Note 3 to the audited consolidated financial statements for the year ended December 31, 2016
includes a summary of the significant accounting policies adopted by the Company. The following
policies are considered to be critical accounting policies since they involve the use of significant
estimates.
Estimated Recoverable Reserves and Resources
Mineral reserve and resource estimates are based on various assumptions relating to operating
matters. These include production costs, mining and processing recoveries, cut-off grades, long term
commodity prices and, in some cases, exchange rates, inflation rates and capital costs. Cost
estimates are based on feasibility study estimates or operating history. Estimates are prepared by
appropriately qualified persons, but will be affected by forecasted commodity prices, inflation rates,
exchange rates, capital and production costs and recoveries amongst other factors. Estimated
recoverable reserves and resources are used to determine the depreciation of property, plant and
equipment at the operating mine site, in accounting for deferred stripping costs and in performing
impairment testing. Therefore, changes in the assumptions used could affect the carrying value of
assets, depreciation and impairment charges recorded in the income statement.
Depreciation, Depletion and Accretion
Mineral properties and plant and equipment comprise a large component of the Company’s assets
and as such, depreciation and depletion of these assets have a significant effect on the Company’s
financial statements. Upon commencement of commercial production, the Company amortizes
mineral property and mining equipment and other assets over the life of the mine based on the
depletion of the mine’s proven and probable reserves. In the case of mining equipment and other
assets, if the useful life of the asset is shorter than the life of the mine, the asset is amortized over its
expected useful life.
Proven and probable reserves are determined based on a professional evaluation using accepted
international standards for the assessment of mineral reserves. The assessment involves geological
and geophysical studies and economic data and the reliance on a number of assumptions. The
estimates of the reserves may change based on additional knowledge gained subsequent to the initial
assessment. This may include additional data available from continuing exploration, results from the
reconciliation of actual mining production data against the original reserve estimates, or the impact of
economic factors such as changes in the price of commodities or the cost of components of
production.
A change in the original estimate of reserves would result in a change in the rate of depreciation and
amortization of the related mining assets and could result in an impairment of the mining assets.
Mineral Properties
The Company carries its mineral properties at cost less any provision for impairment. The costs of
each property will be amortized over the economic life of the property on a unit of production basis.
Costs are charged to operations when a property is abandoned or when impairment in value, other
than temporary, has been determined. Exploration costs are charged to operations as incurred.
The Company undertakes a periodic review of the carrying values of mineral properties and whenever
events or changes in circumstances indicate that their carrying value may exceed their fair value. In
undertaking this review, management of the Company 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.
Income Taxes
Deferred income tax assets and liabilities are determined based on differences between the financial
statement carrying values of assets and liabilities and their respective income tax bases (“temporary
difference”), and losses carried forward. Deferred income tax assets and liabilities are measured using
tax rates that are expected to be applied to the temporary differences when they reverse, based on
the laws that have been enacted or substantively enacted by year end. The effect on deferred income
tax assets and liabilities of a change in tax rates is included in operations in the period in which the
change is substantively enacted. The amount of deferred income tax assets recognized is limited to
the extent that it is probable that future tax profits will be available against which the temporary
difference can be utilized.
Management of the Company is required to exercise judgments and make assumptions about the
future performance of the Company in determining its ability to utilize loss carry-forwards and realize
the benefits of deferred income tax assets.
Decommissioning and Site Restoration
The Company has obligations for site restoration and decommissioning related to its diamond
properties. The future obligations for decommissioning and site restoration activities are estimated by
the Company using mine closure plans or other similar studies which outline the requirements that
will be carried out to meet the obligations. Because the obligations are dependent on the laws and
regulations of the countries in which the mines operate, the requirements could change as a result of
amendments in the laws and regulations relating to environmental protection and other legislation
affecting resource companies. As the estimate of obligations is based on future expectations, a
number of assumptions and judgments are made by management in the determination of closure
provisions. The decommissioning and site restoration provisions are more uncertain the further into
the future the mine closure activities are to be carried out.
The Company’s policy for recording decommissioning and site restoration provisions is to establish
provisions for future mine closure costs at the commencement of mining operations based on the
present value of the future cash flows required to satisfy the obligations. The amount of the present
value of the provision is added to the cost of the related mining assets and depreciated over the life
of the mine. The provision is accreted to its future value over the life of the mine through a charge to
finance costs. Actual results could differ from estimates made by management during the preparation
of these consolidated financial statements and those differences may be material.
INTERNAL FINANCIAL REPORTING AND DISCLOSURE CONTROLS
Disclosure controls and procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information
required to be disclosed by the Company in its annual filings, interim filings or other reports filed or
submitted by it under securities legislation is recorded, processed, summarized and reported within
the time periods specified in the securities legislation and include controls and procedures designed to
ensure that information required to be disclosed by the Company in its annual filings, interim filings
or other reports filed or submitted under securities legislation is accumulated and communicated to
the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of the Company’s disclosure controls and procedures. As of
December 31, 2016, the Chief Executive Officer and Chief Financial Officer have each concluded that
the Company’s disclosure controls and procedures, as defined in NI 52-109 - Certification of
Disclosure in Issuer’s Annual and Interim Filings, are effective to achieve the purpose for which they
have been designed.
Internal controls over financial reporting
Internal controls over financial reporting are designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements in accordance with IFRS.
Management is also responsible for the design of the Company’s internal control over financial
reporting in order to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with IFRS.
The Company’s internal controls over financial reporting include policies and procedures that: pertain
to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions
and disposition of assets; provide reasonable assurance that transactions are recorded as necessary
to permit preparation of the financial statements in accordance with IFRS and that receipts and
expenditures are being made only in accordance with authorization of management and directors of
the Company; and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could have a material effect on the financial
statements.
Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of the Company’s internal controls over financial reporting.
As of December 31, 2016, the Chief Executive Officer and Chief Financial Officer have each concluded
that the Company’s internal controls over financial reporting, as defined in NI 52-109 - Certification of
Disclosure in Issuer’s Annual and Interim Filings, are effective to achieve the purpose for which they
have been designed.
Because of their inherent limitations, internal controls over financial reporting can provide only
reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made and contained herein in the MD&A and elsewhere constitute
forward-looking statements as defined in applicable securities laws. Generally, these forward-
looking statements can be identified by the use of forward-looking terminology such as “expects”,
“anticipates”, “believes”, “intends”, “estimates”, “potential”, “possible” and similar expressions, or
statements that events, conditions or results “will”, “may”, “could” or “should” occur or be
achieved.
In particular, this MD&A may contain forward looking information pertaining to the following: the
estimates of the Company’s mineral reserves and resources; estimates of the Company’s
production and sales volumes for the Karowe Mine; estimated costs for capital expenditures
related to the Karowe Mine; start-up, exploration and development plans and objectives;
production costs; exploration and development expenditures and reclamation costs; expectation of
diamond price and changes to foreign currency exchange rates; expectations regarding the need
to raise capital; possible impacts of disputes or litigation; and other risks and uncertainties
described under the heading “Risks and Uncertainties” in the Company’s most recent Annual
Information Form available at http://www.sedar.com (the “AIF”).
Forward-looking statements are based on the opinions, assumptions and estimates of
management as of the date such statements are made, and they are subject to a number of
known and unknown risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any future results,
performance or achievement expressed or implied by such forward-looking statements. Such
assumptions include: the Company’s ability to obtain necessary financing; the Company’s
expectations regarding the economy generally, results of operations and the extent of future
growth and performance; and assumptions that the Company’s activities will not be adversely
disrupted or impeded by development, operating or regulatory risk. The Company believes that
expectations reflected in this forward-looking information are reasonable but no assurance can be
given that these expectations will prove to be correct and such forward-looking information
included in this MD&A should not be unduly relied upon.
There can be no assurance that such statements will prove to be accurate, as the Company’s
results and future events could differ materially from those anticipated in this forward-looking
information as a result of those factors discussed in or referred to under the heading “Risks and
Uncertainties” in the Company’s AIF, as well as changes in general business and economic
conditions, changes in interest and foreign currency rates, the supply and demand for, deliveries
of and the level and volatility of prices of rough diamonds, costs and availability of power and
diesel, acts of foreign governments and the outcome of legal proceedings, inaccurate geological
and recoverability assumptions (including with respect to the size, grade and recoverability of
mineral reserves and resources) and unanticipated operational difficulties (including failure of
plant, equipment or processes to operate in accordance with specifications or expectations, cost
escalations, unavailability of materials and equipment, government action or delays in the receipt
of government approvals, industrial disturbances or other job actions, adverse weather conditions,
and unanticipated events relating to health safety and environmental matters).
Accordingly, readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date the statements were made, and the Company does
not assume any obligations to update or revise them to reflect new events or circumstances,
except as required by law.
Consolidated Financial Statements
Year Ended December 31, 2016
(Audited)
February 16, 2017
Independent Auditor’s Report
To the Shareholders of Lucara Diamond Corp.
We have audited the accompanying consolidated financial statements of Lucara Diamond Corp., which
comprise the consolidated balance sheets as at December 31, 2016 and December 31, 2015 and the
consolidated statements of operations, comprehensive income, cash flows and changes in equity for the
years then ended, and the related notes, which comprise a summary of significant accounting policies and
other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Lucara Diamond Corp. as at December 31, 2016 and December 31, 2015 and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
Chartered Professional Accountants
2
LUCARA DIAMOND CORP.
CONSOLIDATED BALANCE SHEETS
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
December 31, 2016 December 31, 2015
ASSETS
Current assets
Cash and cash equivalents
VAT receivables and other (Note 5)
Inventories (Note 6)
Investments
Plant and equipment (Note 7)
Mineral properties (Note 8)
Other non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade payables and accrued liabilities
Taxes payable (Note 14)
Current portion of restoration provisions (Note 9)
Restoration provisions (Note 9)
Deferred income taxes (Note 14)
TOTAL LIABILITIES
EQUITY
Share capital (Note 10)
Contributed surplus (Note 11)
Retained earnings/(deficit)
Accumulated other comprehensive loss
Total equity attributable to shareholders of the Company
Non-controlling interests
TOTAL EQUITY
$
53,345 $
$
$
7,967
40,852
102,164
3,153
131,505
62,158
3,020
302,000 $
26,617 $
9,198
-
35,815
15,679
50,516
102,010
289,969
6,488
(38,640)
(57,827)
199,990
-
199,990
TOTAL LIABILITIES AND EQUITY
$
302,000 $
The accompanying notes are an integral part of these consolidated financial statements.
Approved on Behalf of the Board of Directors:
“Marie Inkster”
Director
“William Lamb”
Director
134,776
3,188
35,245
173,209
-
115,690
51,678
3,593
344,170
12,987
9,507
2,134
24,628
14,024
48,834
87,486
286,658
5,270
40,847
(76,103)
256,672
12
256,684
344,170
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
Revenues
$
295,466 $
223,846
2016
2015
Cost of goods sold
Operating expenses
Royalty expenses (Note 8)
Depletion and amortization
56,080
29,547
15,931
101,558
50,100
22,385
13,696
86,181
Income from mining operations
193,908
137,665
Other expenses
Administration (Note 13)
Care and maintenance
Exploration expenditures
Finance expenses
Foreign exchange loss (gain)
Sales and marketing
Loss on disposition of Mothae
14,781
87
4,136
1,549
10,969
5,513
1,196
38,231
12,997
636
1,046
285
(15,475)
2,796
-
2,285
Net income before tax
155,677
135,380
Income tax expense (Note 14)
Current income tax expense
Deferred income tax expense (recovery)
Net income for the year
Attributable to:
Shareholders of the Company
Non-controlling interests
Income per common share (Note 15)
Basic
Diluted
$
$
$
$
$
Weighted average common shares outstanding (Note 15)
Basic
Diluted
85,558
(538)
85,020
44,732
12,878
57,610
70,657 $
77,770
70,657 $
- $
77,849
(79)
0.19 $
0.18 $
0.21
0.20
381,285,066
383,159,736
379,516,883
380,832,368
The accompanying notes are an integral part of these consolidated financial statements.
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
Net income for the year
$
70,657 $
77,770
2016
2015
Other comprehensive income (loss)
Items that may be subsequently reclassified to net income
Change in fair value of available-for-sale securities
Currency translation adjustment
Item that was reclassified to net income
Currency translation adjustment – Mothae disposition
651
14,315
3,310
18,276
36
(38,955)
-
(38,919)
Comprehensive income
$
88,933 $
38,851
Comprehensive income attributable to:
Shareholders of the Company
Non-controlling interests
88,933
-
38,928
(77)
$
88,933 $
38,851
The accompanying notes are an integral part of these consolidated financial statements.
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
Cash flows from (used in):
Operating Activities
Net income for the year
Items not involving cash and cash equivalents:
Depletion and amortization
Unrealized foreign exchange loss (gain)
Stock-based compensation
Deferred income taxes expense (recovery)
Finance costs
Loss on disposition of Mothae
Net changes in working capital items:
VAT receivables and other current assets
Inventories
Trade payables and other current liabilities
Taxes payable
Financing Activities
Dividends paid
Proceeds from exercise of stock options
Investing Activities
Acquisition of plant and equipment
Capitalized mineral property expenditure
Capitalized production stripping costs
Acquisition of marketable securities
2016
2015
$
70,657 $
77,770
16,322
9,182
2,027
(538)
1,464
1,196
100,310
(4,858)
(6,480)
14,362
(396)
102,938
(149,681)
2,039
(147,642)
(23,327)
(1,972)
(9,407)
(2,500)
(37,206)
14,106
(14,476)
703
12,878
1,388
-
92,369
1,134
(8,756)
2,871
(2,309)
85,309
(11,783)
358
(11,425)
(23,612)
-
(12,587)
-
(36,199)
Effect of exchange rate change on cash and cash
equivalents
Increase (decrease) in cash and cash equivalents
during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
479
(3,748)
(81,431)
134,776
53,345 $
33,937
100,839
134,776
$
Supplemental Information
Interest received
Taxes paid
Changes in trade payable and accrued liabilities related to
plant and equipment
476
(85,533)
1,831
(46,731)
(983)
(104)
The accompanying notes are an integral part of these consolidated financial statements.
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
Number of
shares
issued and
outstanding Share capital
Contributed
surplus
Cumulative
deficit
Accumulated
other
comprehensive
loss
Non-
controlling
interests
Total
Balance, January 1, 2015
379,369,079 $
286,138 $
4,713 $
(25,128) $
(37,182) $
14 $
228,555
Exercise of stock options
Stock-based compensation
Effect of foreign currency
translation
Change in fair value of available-
for-sale securities
Free-carried non-controlling
interests
Dividends paid(1)
Net income (loss) for the year
610,334
-
520
-
(162)
703
-
-
-
-
-
-
-
-
-
-
-
-
-
16
-
-
-
-
-
(75)
(11,799)
77,849
-
-
(38,957)
36
-
-
-
-
-
2
-
75
-
(79)
358
703
(38,955)
36
-
(11,783)
77,770
Balance, December 31, 2015
379,979,413 $
286,658 $
5,270 $
40,847 $
(76,103) $
12 $
256,684
Balance, January 1, 2016
379,979,413 $
286,658 $
5,270 $
40,847 $
(76,103) $
12 $
256,684
Exercise of stock options and
share units
Stock-based compensation
Effect of foreign currency
translation
Change in fair value of available-
for-sale securities
Free-carried non-controlling
interests
Dividends paid(2)
Net income for the year
2,266,588
-
3,311
-
(1,272)
2,027
-
-
-
-
-
-
-
-
-
-
-
-
-
463
-
-
-
-
-
-
(150,144)
70,657
-
-
17,625
651
-
-
-
-
-
-
-
2,039
2,027
17,625
651
(12)
-
-
(12)
(149,681)
70,657
Balance, December 31, 2016
382,246,001 $
289,969 $
6,488 $
(38,640) $
(57,827) $
- $
199,990
(1) On June 18, 2015, the Company paid a cash dividend of CA$ 0.02 per share. On December 17, 2015, the Company paid a cash dividend
of CA$ 0.02 per share.
(2) On March 31, 2016, the Company paid a cash dividend of CA$ 0.015 per share. On June 18, 2016, the Company paid a dividend of
CA$0.015 per share. On September 15, 2016, the Company paid a Special dividend of CA$0.45 per share and a regular dividend of
CA$0.015 per share. On December 15, 2016, the Company paid a dividend of CA$0.015 per share.
The accompanying notes are an integral part of these consolidated financial statements.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
1. NATURE OF OPERATIONS
Lucara Diamond Corp. together with its subsidiaries (collectively referred to as the “Company”) is
a diamond mining company focused on the development and operation of diamond properties in
Africa. The Company holds a 100% interest in the Karowe Mine and three prospecting licenses
located in Botswana.
The Company’s common shares are listed on the TSX, NASDAQ Stockholm and Botswana Stock
Exchanges. The Company was continued into the Province of British Columbia under the Business
Corporations Act (British Columbia) in August 2004 and its registered office is located at Suite
2000 – 885 West Georgia Street, Vancouver, British Columbia, V6C 3E8.
2. BASIS OF PRESENTATION
The Company prepared its financial statements in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”). The same accounting policies have been consistently applied in all periods presented.
These financial statements were approved by the Board of Directors for issue on February 16,
2017.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in the preparation of these consolidated financial
statements are as follows:
(a) Basis of measurement
These consolidated financial statements have been prepared under the historical cost convention,
except for investments in equity securities, which are measured at fair value.
(b) Consolidation
These consolidated financial statements include the accounts of the Company and all of its
subsidiaries. (See Note 12 Principal subsidiaries)
Subsidiaries are entities controlled by the Company. An entity is controlled by the Company when as
a group; it is exposed to, or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity. Subsidiaries are included in
the consolidated financial statements from the date control is obtained until the date control ceases.
Where the Company’s interest is less than 100%, the Company recognized non-controlling interests.
All intercompany balances, transactions, income, expenses, profits and losses, including unrealized
gains and losses have been eliminated on consolidation.
Non-controlling interests represent the equity in a subsidiary not attributable, directly and indirectly,
to the Company and is presented separately within equity in the consolidated balance sheet,
separately from equity attributable to the shareholders of the Company. Losses within a subsidiary
continue to be attributed to the non-controlling interests even if that results in a deficit balance.
Changes in the Company’s ownership interest in subsidiaries that do not result in a loss of control
are accounted for as equity transactions.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Critical accounting estimates and judgments
The preparation of consolidated financial statements requires management to use judgment in
applying its accounting policies and estimates and assumptions about the future. Estimates and
other judgments are continuously evaluated and are based on management’s experience and other
factors, including expectations about future events that are believed to be reasonable under the
circumstances. The following discusses the most significant accounting judgments and estimates
that the Company has made in the preparation of the consolidated financial statements:
Estimated recoverable reserves and resources – Mineral reserve and resource estimates are based
on various assumptions relating to operating matters. These include production costs, mining and
processing recoveries, cut-off grades, long term commodity prices and, in some cases, exchange
rates, inflation rates and capital costs. Cost estimates are based on feasibility study estimates or
operating history. Estimates are prepared by appropriately qualified persons, but will be affected by
forecasted commodity prices, inflation rates, exchange rates, capital and production costs and
recoveries amongst other factors. Estimated recoverable reserves and resources are used to
determine the depreciation of property, plant and equipment at the operating mine site, in
accounting for deferred stripping costs and in performing impairment testing. Therefore, changes in
the assumptions used could affect the carrying value of assets, depreciation and impairment charges
recorded in the income statement.
Valuation of mineral properties – The Company carries its mineral properties at cost less any
provision for impairment. The Company undertakes a periodic review of the carrying values of
mineral properties as well as whenever events or changes in circumstances indicate that their
carrying values may exceed their fair value. In undertaking this review, management of the
Company is required to make significant judgments. These judgments 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.
Current and Deferred Taxes - The current and deferred tax provisions are determined by the
Company’s calculation whilst the actual amounts of income tax expense are not final until tax returns
are filed and accepted by the relevant authorities. Judgment is required in assessing whether
deferred tax assets and certain deferred tax liabilities are recognized on the balance sheet and what
tax rate is expected to be applied in the year when the related temporary differences reverse.
Deferred tax liabilities arising from temporary differences are recognized unless the reversal of the
temporary differences is not expected to occur in the foreseeable future and can be controlled.
Assumptions about the generation of future taxable profits and repatriation of retained earnings
depend on management’s estimates of future production and sales volumes, commodity prices,
reserves and resources, operating costs, decommissioning and restoration costs, capital
expenditures, dividends and other capital management transactions. These estimates and judgments
are subject to risk and uncertainty and could result in an adjustment to the deferred tax provision
and a corresponding credit or charge to profit.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Decommissioning and site restoration – The Company has obligations for site restoration and
decommissioning related to its diamond property. The future obligations for decommissioning and
site restoration activities are estimated by the Company using mine closure plans or other similar
studies which outline the requirements that will be carried out to meet the obligations. Because the
obligations are dependent on the laws and regulations of the country in which the mine operates,
the requirements could change as a result of amendments in the laws and regulations relating to
environmental protection and other legislation affecting resource companies. As the estimate of
obligations is based on future expectations, a number of assumptions and judgments are made by
management in the determination of closure provisions. The decommissioning and site restoration
provisions are more uncertain the further into the future the mine closure activities are to be carried
out.
The Company’s policy for recording decommissioning and site restoration provisions is to establish
provisions for future mine closure costs at the commencement of mining operations based on the
present value of the future cash flows required to satisfy the obligations. The amount of the present
value of the provision is added to the cost of the related mining assets and depreciated over the life
of the mine. The provision is accreted to its future value over the life of the mine through a charge
to finance costs. Actual results could differ from estimates made by management during the
preparation of these consolidated financial statements.
(d) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating
resources and assessing performance of the operating segments, has been identified as the person
that makes strategic decisions. The CEO is deemed the chief operating decision-maker of the
Company.
The Company’s primary reporting segments are based on individual diamond properties, being the
Karowe Mine and Corporate. The Corporate office provides support to Karowe Mine with respect to
sales, treasury and finance, technical support, regulatory reporting and corporate administration.
(e) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Company’s entities are measured using the
currency of the primary economic environment in which the entity operates (the “functional
currency”). The consolidated financial statements are presented in U.S. dollars. The functional
currency of the parent company, Lucara Diamond Corp., is the Canadian dollar.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at exchange rates of monetary assets and
liabilities denominated in currencies other than an entity’s functional currency are recognized in the
statement of operations.
Group companies
The functional currency of the significant subsidiary of the Company, Boteti Mining (PTY) Ltd., is the
Botswana Pula. The results and financial position of the group companies, which have a functional
currency different from the presentation currency, are translated into the presentation currency as
follows:
(i) Assets and liabilities for each balance sheet presented are translated at the closing rate at the
date of that balance sheet
(ii) Income and expenses are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the rate on the dates of the
transactions).
(iii) All resulting exchange differences are recognized in other comprehensive income as cumulative
translation adjustments.
(f) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term
highly liquid investments with original maturities of three months or less.
(g) Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows
from the assets have expired or have been transferred and the Company has transferred
substantially all risks and rewards of ownership. Financial liabilities are derecognized when the
obligation specified in the contract is discharged, cancelled or expires.
At initial recognition, the Company classifies its financial instruments in the following categories:
(i) Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is
classified in this category if acquired principally for the purpose of selling or repurchasing in the
short-term. Derivatives are also included in this category unless they are designated as hedges.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments in this category are recognized initially and subsequently at fair value.
Transaction costs are expensed in the consolidated statement of operations. Gains and losses
arising from changes in fair value are presented in the consolidated statement of operations
within “other gains and losses” in the period in which they arise.
(ii) Available-for-sale investments: Available-for-sale investments are non-derivatives that are either
designated in this category or not classified in any of the other categories.
Available-for-sale investments are recognized initially at fair value plus transaction costs and are
subsequently carried at fair value. Gains or losses arising from re-measurement are recognized in
other comprehensive income. When an available-for-sale investment is sold or impaired, the
accumulated gains or losses are moved from accumulated other comprehensive income to the
statement of operations and are included in “other gains and losses”. Available-for-sale
investments are classified as non-current, unless an investment matures within twelve months, or
management expects to dispose of it within twelve months.
(iii) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The Company’s loans and
receivables comprise cash and trade receivables and are included in current assets due to their
short-term nature. Loans and receivables are initially recognized at the amount expected to be
received, less, when material, a discount to reduce the loans and receivables to fair value.
Subsequently, loans and receivables are measured at amortized cost using the effective interest
method less a provision for impairment.
(iv) Financial liabilities at amortized cost: Financial liabilities at amortized cost include trade payables.
Trade payables are initially recognized at the amount required to be paid, less, when material, a
discount to reduce the payables to fair value. Subsequently, trade payables are measured at
amortized cost using the effective interest method.
Impairment of financial assets
At each reporting date, the Company assesses whether there is objective evidence that a financial
asset (other than a financial asset classified as fair value through profit or loss) is impaired.
The criteria used to determine if objective evidence of an impairment loss exists include:
(i) significant financial difficulty of the obligor;
(ii) delinquencies in interest or principal payments; and
(iii) it becomes probable that the borrower will enter bankruptcy or other financial reorganization.
For equity securities, a significant or prolonged decline in the fair value of the security below its cost
is also evidence that the assets are impaired.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
If such evidence exists, the Company recognizes an impairment loss, as follows:
(i) Financial assets carried at amortized cost: The loss is the difference between the amortized cost
of the loan or receivable and the present value of the estimated future cash flows, discounted
using the instrument’s original effective interest rate. The carrying amount of the asset is reduced
by this amount either directly or indirectly through the use of an allowance account.
(ii) Available-for-sale financial assets: The impairment loss is the difference between the original cost
of the asset and its fair value at the measurement date, less any impairment losses previously
recognized in the statement of operations. This amount represents the loss in accumulated other
comprehensive income that is reclassified to net loss.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if
the amount of the loss decreases and the decrease can be related objectively to an event occurring
after the impairment was recognized. Impairment losses on available-for-sale equity instruments are
not reversed.
(h) Inventories
Inventories, which include rough diamonds, ore stockpile and parts and supplies, are measured at the
lower of cost and net realizable value. The amount of any write-down of inventories to net realizable
value is recognized in the period the write-down occurs. Cost is determined using the weighted
average method. Cost includes directly attributable mining overhead but excludes borrowing costs.
Net realizable value represents the estimated selling price in the ordinary course of business, less all
estimated costs to completion and selling expenses.
(i) Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and impairment losses. The
cost of an asset consists of its purchase price, any directly attributable costs of bringing the asset to
its present working condition and location for its intended use and an initial estimate of the costs of
dismantling and removing the item and restoring the site on which it is located.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow
to the Company and the cost of the item can be measured reliably.
Depreciation of each asset is calculated using the straight line or unit of production method to
allocate its cost less its residual value over its estimated useful life. The estimated useful lives of plant
and equipment are as follows:
Machinery
Mineral property & plant facilities
Furniture and office equipment
5 to 10 years
based on recoverable reserves on a unit of production
basis
2 to 3 years
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance
sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount
and are recognized within “other gains and losses” in the statement of operations.
(j) Exploration and evaluation expenditures and mineral properties
Exploration and evaluation expenditures relate to the search for mineral resources, the determination
of technical feasibility and the assessment of commercial viability of an identified resource.
Exploration and evaluation activities include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Researching and analyzing historical exploration data;
Gathering exploration data through topographical, geochemical and geophysical studies;
Exploratory drilling, trenching and sampling;
Determining and examining the volume and grade of the resource; and
Surveying, transportation and infrastructure requirement
Exploration and development expenditures are expensed as incurred on mineral properties not
sufficiently advanced as to identify their development potential. When it has been established that a
mineral property is considered to be sufficiently advanced and an economic analysis has been
completed, all further expenditures for the current year and subsequent years are capitalized as
incurred. Costs associated with acquiring a mineral property are capitalized as incurred.
(l) Capitalized production stripping asset
During the production phase, mining expenditures (exploration or development costs) incurred either
to develop new ore bodies or to develop mine areas in advance of current production are capitalized
to mineral properties. Stripping costs incurred in the production phase are accounted for as variable
production costs. However, stripping costs are capitalized and recorded on the statement of financial
position as deferred stripping, a component of mineral properties, when the stripping activity provides
access to sources of reserves or resources that will be produced in future periods that would not have
otherwise been accessible in the absence of this activity. The deferred stripping costs are depleted on
a unit-of-production basis over the reserves or resources that directly benefited from the stripping
activity.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) Impairment of non-financial assets
Long lived assets are reviewed for impairment when events or changes in circumstances indicate that
the carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell and its value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible
reversal of the impairment at each reporting date.
(n) Provisions
Asset retirement obligations
The Company 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 and the amount of the
liability is reasonably determinable. Asset retirement obligations are initially recognized and recorded
as a liability based on estimated future cash flows discounted at a 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 risk free discount rate. Corresponding
amounts and adjustments are added to the carrying value of the related long-lived asset and
amortized or depleted to operations over the life of the related asset.
Environmental expenditures
Environmental expenditures that relate to current operations are expensed or capitalized 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 are recorded
when environmental assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated.
Other provisions
Provisions are recognized when:
(cid:120)
(cid:120)
the Company has a present legal or constructive obligation as a result of a past event;
a reliable estimate can be made of the obligation.
Provisions are measured at the present value of the expenditures expected to be required to settle
the obligation, using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the obligation. The increase in the provision due to the
passage of time is recognized as finance costs.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(o) Income taxes
Income taxes are recognized in the statement of income, except where they relate to items
recognized in other comprehensive income or directly in equity, in which case the related taxes are
recognized in other comprehensive income or equity.
Current taxes receivable or payable are based on estimated taxable income for the current year at
the statutory tax rates enacted or substantively enacted less amounts paid or received on account.
Deferred taxes is recognized using the balance sheet method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not recognized for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable income, and differences relating to
investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will
not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable
temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary
differences when they reverse, based on the sliding tax rate that is expected at the time of reversal
and the laws that have been enacted or substantively enacted by the year end.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities where there is a legal right to do so, but they intend to
settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future tax profits will be
available against which the temporary difference can be utilized. Deferred tax assets are reviewed at
each year end and are reduced to extent that is no longer probable that the related tax benefit will
be realized.
Uncertain tax positions and interest and penalties related to uncertain tax positions are accounted
for under IAS 12, the Company first determines whether it is more likely than not that a tax position
will be sustained upon examination. If a tax position meets the more-likely-than-not recognition
threshold it is then measured to determine the amount of benefit or liability to recognize in the
financial statements. The tax position is measured as the amount of benefit or liability that is likely
to be realized upon ultimate settlement. The Company assesses the validity of conclusions regarding
uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that
might cause the Company to change their judgment regarding the likelihood of a tax position.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(p) Share capital
Common shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
(q) Revenue recognition
Revenues from diamond sales are recognized when the risks and rewards of ownership pass to the
customer, which is when proceeds are received and title is transferred to the purchaser.
(r) Stock-based compensation
The Company has a stock-based compensation plan, under which the entity receives services from
employees and non-employees as consideration for equity instruments (options) of the Company.
Stock options and share units granted to employees are measured on the grant date. Stock options
granted to non-employees are measured on the date that the goods or services are received.
The fair value of the employee and non-employee services received in exchange for the grant of the
options is recognized as an expense. The total amount to be expensed is determined by reference to
the fair value of the stock options and share units granted and the vesting periods. The total expense
is recognized over the vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied.
The cash subscribed for the shares issued when the options are exercised is credited to share capital,
net of any directly attributable transaction costs.
(s) Income per share
Income per share is calculated by dividing the income attributable to the shareholders of the
Company by the weighted average number of common shares issued and outstanding during the
year. Diluted income per share is calculated using the treasury stock method.
(t) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases (net of any incentives
received from the lessor) are charged to the statement of operations on a straight-line basis over the
period of the lease.
(u) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying
asset are capitalized as part of the cost of that asset. Other borrowing costs not directly attributable
to a qualifying asset are expensed in the period incurred.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
4. ADOPTION OF IFRS PRONOUNCEMENTS
The IFRS pronouncements that have been issued but are not yet effective are listed below. The
Company plans to apply the new standards or interpretations in the annual period for which it is
first required.
IFRS 2 - Share-based payments
The amendment clarifies the measurement basis for cash-settled share-based payments and the
accounting for modifications that change an award from cash-settled to equity-settled. It also
introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it
was wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s
tax obligation associated with a share-based payment and pay that amount to the tax authority.
The completed version of IFRS 2 is effective for annual periods beginning on or after January 1,
2018, with early adoption permitted. The Company is currently assessing the effect of this
standard and its related amendments on our financial statements.
IFRS 9 - Financial Instruments
IFRS 9, Financial Instruments addresses the classification, measurement and recognition of
financial assets and financial liabilities. IFRS 9 requires financial assets to be classified into three
measurement categories on initial recognition: those measured at fair value through profit and
loss, those measured at fair value through other comprehensive income and those measured at
amortized cost. Investments in equity instruments are required to be measured by default at fair
value through profit or loss. However, there is an irrevocable option to present fair value changes
in other comprehensive income. Measurement and classification of financial assets is dependent
on the entity’s business model for managing the financial assets and the contractual cash flow
characteristics of the financial asset.
IFRS 9 introduces a new three-stage expected credit loss model for calculating impairment for
financial assets. IFRS 9 no longer requires a triggering event to have occurred before credit losses
are recognized. An entity is required to recognize expected credit losses when financial
instruments are initially recognized and to update the amount of expected credit losses recognized
at each reporting date to reflect changes in the credit risk of the financial instruments. In
addition, IFRS 9 requires additional disclosure requirements about expected credit losses and
credit risk.
The completed version of IFRS 9 is effective for annual periods beginning on or after January 1,
2018, with early adoption permitted. The Company is currently assessing the effect of this
standard and its related amendments on our financial statements.
IFRS 15 - Revenue from Contracts with Customers
The new revenue standard introduces a single, principles based, five-step model for the
recognition of revenue when control of a good or service is transferred to the customer. The five
steps are: identify the contract(s) with the customer, identify the performance obligations in the
contract, determine transaction price, allocate the transaction price and recognize revenue when a
performance obligation is satisfied.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
4. ADOPTION OF NEW IFRS PRONOUNCEMENTS (continued)
IFRS 15 also requires enhanced disclosures about revenue to help investors better understand the
nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers
and improves the comparability of revenue from contracts with customers.
IFRS 15 will be effective for annual periods beginning on or after January 1, 2018, with early
adoption permitted. The Company is currently assessing the effect of this standard on our
financial statements.
IFRS 16 - Leases
The new Leases standard requires lessees to recognize leases traditionally recorded as operating
leases in the same manner as financing leases.
IFRS 16 will be effective for annual periods beginning on or after January 1, 2019, with early
adoption permitted. The Company is currently assessing the effect of this standard on our
financial statements.
IAS 12 – Income taxes – Deferred tax
This amendment is to clarify the requirements for recognising deferred tax assets on unrealised
losses and the accounting for deferred tax where an asset is measured at fair value and that fair
value is below the asset’s tax base. This amendment also clarifies certain aspects of accounting for
deferred tax assets.
IAS 12 is effective on January 1, 2017. This policy amendment does not affect the Company’s
financial statements.
5. VAT RECEIVABLES AND OTHER
VAT
Other
Prepayments
6. INVENTORIES
2016
2015
5,882 $
119
1,966
7,967 $
1,416
915
857
3,188
$
$
2016
2015
Rough diamonds
Ore stockpile
Parts and supplies
10,497
16,977
7,771
35,245
Inventory expensed during the year ended December 31, 2016 totaled $56.1 million (2015 – $50.1
million).
14,116 $
17,089
9,647
40,852 $
$
$
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
7. PLANT AND EQUIPMENT
Cost
Construction
in progress
Mine and
plant
facilities
Vehicles
Furniture
and office
equipment
Total
Balance, January 1, 2015
$ 38,681
$ 101,727 $
1,394 $
2,735 $
144,537
Additions
Disposals and other
Reclassification
Translation differences
23,440
-
(56,725)
(2,466)
11
-
55,741
(20,864)
Balance, December 31, 2015
2,930
136,615
Additions
Disposals and other
Reclassification
Translation differences
22,037
-
(10,527)
326
59
-
9,627
6,550
-
(28)
6
(207)
1,165
2
-
125
56
57
(6)
978
(515)
3,249
260
(29)
775
166
23,508
(34)
-
(24,052)
143,959
22,358
(29)
-
7,098
Balance, December 31, 2016
$
14,766 $
152,851 $
1,348 $
4,421 $
173,386
Accumulated depreciation
Balance, January 1, 2015
$
-
$ 19,903 $ 1,066 $
1,552 $
22,521
Depletion and amortization for
the year
Disposals and other
Translation differences
Balance, December 31, 2015
Depletion and amortization for
the year
Disposals and other
Translation differences
-
-
-
-
-
-
-
9,507
-
(3,937)
25,473
11,564
-
1,370
118
(8)
(171)
1,005
78
-
48
530
(5)
(286)
1,791
480
(16)
88
10,155
(13)
(4,394)
28,269
12,122
(16)
1,506
Balance, December 31, 2016
$
- $
38,407 $
1,131 $
2,343 $
41,881
Net book value
As at December 31, 2015
As at December 31, 2016
$
$
2,930 $
14,766 $
111,142 $
114,444 $
160 $
217 $
1,458 $
2,078 $
115,690
131,505
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
8. MINERAL PROPERTIES
Cost
Capitalized
production
stripping
asset
Karowe
Mine
Total
Balance, January 1, 2015
$
5,792 $
56,710 $
62,502
Additions
Revision in estimate of restoration provision
Translation differences
Balance, December 31, 2015
Additions
Revision in estimate of restoration provision
Translation differences
12,587
-
(2,125)
16,254
10,983
-
946
-
(718)
(8,423)
47,569
1,940
(295)
2,270
12,587
(718)
(10,548)
63,823
12,923
(295)
3,216
Balance, December 31, 2016
$
28,183 $
51,484 $
79,667
Accumulated depletion
Balance, January 1, 2015
$ 200
$ 9,573 $
9,773
Depletion for the year
Translation differences
Balance, December 31, 2015
Depletion for the year
Translation differences
947
(122)
3,313
(1,766)
1,025
11,120
1,724
76
2,990
574
4,260
(1,888)
12,145
4,714
650
Balance, December 31, 2016
$
2,825
$ 14,684 $
17,509
Net book value
As at December 31, 2015
As at December 31, 2016
Karowe Mine
$
$
15,229
25,358
$ 36,449 $
$ 36,800 $
51,678
62,158
A royalty of 10% of the sales value of diamonds produced from Karowe is payable to the
government of Botswana. During the year, the Company had a royalty expense of $29.5 million.
(2015: $22.4 million).
Mothae Diamond Project
On March 31, 2016, the Company completed the sale of its shares of Mothae Diamonds Pty Ltd and
the Mothae site bulk sample plant to the Government of Lesotho. As consideration, the Government
of Lesotho has released the Company from all liabilities relating to the rehabilitation of the Mothae
Diamond Project. Lucara has no remaining ownership in this project.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
9. RESTORATION PROVISIONS
The Company’s restoration provisions relate to the rehabilitation of its diamond property. The
provisions have been calculated based on total estimated rehabilitation costs and discounted back to
their present values. The pre-tax discount rates and inflation rates are adjusted annually and reflect
current market assessments. The Company has applied a pre-tax discount rate of 8.3% at December
31, 2016 (8.2% at December 31, 2015) and an inflation rate of 4.5% at December 31, 2016 (4.4% at
December 31, 2015) at the Karowe Mine project. The Karowe rehabilitation costs are expected to
commence in the year 2022. The estimated Karowe liability for reclamation and remediation costs on
an undiscounted basis is approximately $19.4 million (December 31, 2015 - $18.0 million).
Balance, beginning of year
$
Disposal of Mothae project
Changes due to discount rate changes
Accretion of liability component of obligation
Foreign currency translation adjustment
Balance, end of year
Less: Current portion
2016
16,157
(2,161)
(295)
1,274
704
15,679
-
2015
$ 18,759
-
(718)
1,277
(3,160)
16,158
2,134
Long-term portion of restoration provisions
$
15,679
$ 14,024
10. SHARE CAPITAL
The authorized share capital consists of an unlimited number of common shares, with no par value.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
11. SHARE BASED COMPENSATION
a.
Stock options
The Company has a new stock option plan (the ‘New Plan’) approved by the shareholders of the
Company on May 13, 2016 which reserves 20,000,000 as the aggregate number of shares issuable
upon the exercise of all Options granted under the New Plan. The New Plan supersedes the
Company’s old stock option plan (the ‘Old Plan’) which was a rolling stock option plan approved by
the shareholders of the Company on May 31, 2011, which reserved 10% of the issued and
outstanding shares of the Company for issuance. No further awards shall be granted under the Old
Plan. However, any outstanding awards granted under the Old Plan shall remain outstanding and
shall continue to be governed by the provisions of such plan. With regard to the New Plan, subject
to the Board of Directors discretion, options granted may have a vesting period of up to three years,
with 1/3 of the options vesting 12 months from the date of grant; 1/3 of the options vesting 24
months from the date of grant; and the remaining 1/3 vesting 36 months from the date of grant.
Movements in the number of stock options outstanding and their related weighted average exercise
prices are as follows:
Balance at December 31, 2014
2,038,670
$ 0.92
Number of shares issuable pursuant
to stock options
Weighted average exercise
price per share (CA$)
Granted
Cancelled
Exercised(1)
Balance at December 31, 2015
Granted
Exercised(1)
1,770,000
(6,667)
(610,334)
3,191,669
2,160,000
(2,004,999)
2.14
0.70
0.77
1.63
2.53
1.33
Balance at December 31, 2016
(1) The weighted average share price on the exercise dates for the 2016 stock option exercises was
3,346,670
$
2.39
CA$3.35 (2015: CA$2.13).
Options to acquire common shares have been granted and are outstanding at December 31, 2016 as
follows:
Outstanding Options
Exercisable Options
Range of
exercise prices
CA$
$1.00 - $2.00
$2.01 - $3.00
$3.01 - $4.00
Number of
options
outstanding
33,334
3,193,336
120,000
3,346,670
Weighted
average
remaining
contractual
life (years)
1.6356 $
3.3349
3.3644
3.3190 $
Weighted
average
exercise
price
CA$
1.80
2.34
3.94
2.39
Number of
options
exercisable
-
240,005
-
240,005
Weighted
average
remaining
contractual
life (years)
- $
0.7599
-
0.7599 $
Weighted
average
exercise
price
CA$
-
2.23
-
2.23
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
11. SHARE BASED COMPENSATION (continued)
During the year ended December 31, 2016, an amount of $1.1 million (2015 – $0.7 million) was
charged to operations in recognition of stock-based compensation expense, based on the vesting
schedule for the options granted.
The fair value of each option granted is estimated on the date of grant using the Black-Scholes
option pricing model with weighted average assumptions and resulting values for grants as follows:
Assumptions:
Risk-free interest rate (%)
Term (years)
Expected life (years)
Expected volatility (%)
Expected dividend
Results:
2016
2015
0.80
4.00
3.68
47.46
CA$0.015/share
quarterly
0.80
4.00
3.63
47.48
CA$0.02/share
semi annually
Weighted average fair value of options granted (per option)
$ 0.78 $ 0.74
b. Share units
The Company has a share unit (“SU”) plan that provides for the issuance of SUs. The value of a SU
at the issuance date is equal to the closing value of one Lucara common share. The SU vests in
three years and each SU entitles the recipient to receive one common share and the cumulative
dividend equivalent SU earned during the SU’s vesting period.
For the year ended December 31, 2016, the Company recognized a share-based payment charge
against income of $0.9 million (2015: $0.2 million) for the SUs granted during the year.
Balance at December 31, 2014
-
$ -
Number of shares issuable
pursuant to share units
Weighted average
price per share (CA$)
May 14, 2015 grant
June 18, 2015 dividend
December 17, 2015 dividend
Balance at December 31, 2015
February 26, 2016 grant
March 31, 2016 dividend
June 16, 2016 dividend
September 15, 2016 dividend
Employee termination vesting
December 15, 2016 dividend
520,000
5,304
4,585
529,889
645,000
6,380
4,550
137,847
(261,589)
5,416
Balance at December 31, 2016
1,067,493
$
2.07
1.96
2.29
2.07
2.43
2.76
3.89
4.00
2.44
2.94
2.46
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
12. PRINCIPAL SUBSIDIARIES
The Company had the following subsidiaries at December 31, 2016:
Name
African Diamonds Ltd.
Country of
incorporation
and place of
business
UK
Lucara Management Services
Ltd.
Lucara Diamond Holdings (I)
Inc.
Mothae Diamond Holdings Inc.
UK
Mauritius
Mauritius
Boteti Diamond Holdings Inc.
Mauritius
Lucara Diamond South Africa
(Pty) Ltd.
Wati Ventures (Pty) Ltd.
South Africa
Botswana
Debwat Exploration (Pty) Ltd.
Botswana
Boteti Mining (Pty) Ltd.
Botswana
Nature of
business
Intermediate
holding company
Intermediate
services company
Intermediate
holding company
Intermediate
holding company
Intermediate
holding company
Intermediate
holding company
Intermediate
holding company
Intermediate
holding company
Mining of
diamonds
Proportion of
shares directly
held by the
Company (%)
100
Proportion of
shares held by
the group (%)
-
100
100
-
-
-
-
-
-
-
-
100
100
100
100
100
100
All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in
the subsidiary undertakings held directly by the parent company do not differ from the proportion of
ordinary shares held.
13. ADMINISTRATION
$
Salaries and benefits
Professional fees
Office and general
Marketing
Stock exchange, transfer agent, shareholder communication
Travel
Stock based compensation
Management fees
Depreciation
Donations
2016
2015
5,716 $
1,473
2,216
1,052
330
688
2,027
467
391
421
6,213
1,122
1,610
951
294
730
703
342
410
622
$
14,781 $
12,997
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
14. INCOME TAXES
Current
Deferred
Income tax expense
2016
2015
$ 85,558 $ 44,732
(538)
12,878
85,020 $ 57,610
$
Income tax expense differs from the amount that would result from applying the Canadian federal
and provincial income tax rates to net income before tax. These differences result from the following
items:
Statutory tax rate
Net income before tax
Computed income tax expense
Differences between Canadian and foreign tax rates
Non-deductible expenses and other permanent differences
Benefits from previously unrecognized tax benefits
Current tax effect of Botswana variable tax rate in excess of
2016
2015
26.00%
26.00%
155,677
135,380
40,476
(6,657)
885
-
35,199
(5,712)
909
(334)
Botswana standard tax rate
38,663
19,574
Deferred tax effect of Botswana variable tax rate in excess of
Botswana standard tax rate
Change in deferred benefits not recognized
Exchange rate differences
Withholding taxes
(431)
2,519
(1)
9,566
4,142
1,268
600
1,964
$
85,020 $
57,610
The Company is subject to a variable tax rate in Botswana based on a profit and revenue ratio which
increases as profit as a percentage of revenue increases. The lowest variable tax rate is 22% while
the highest variable tax rate is 55% only if taxable income were equal to revenue. The Company
has estimated the variable tax rate to be at 34.38% for the deferred income taxes following the
updated Karowe 43-101 technical report and current financial performance.
The Company has not recognized deferred tax liabilities in respect of historical unremitted earnings
from foreign subsidiaries for which the Company is able to control the timing of the remittance and
which are considered by the Company to be reinvested for the foreseeable future. At December 31,
2016, these earnings amount to $98.8 million (2015: $177.3 million). All of these earnings would be
subject to withholding taxes if they were remitted by the foreign subsidiaries.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
14. INCOME TAXES (continued)
The movement in deferred tax liabilities during the year, without taking into consideration the
offsetting balances within the same tax jurisdiction, is as follows:
Balance, beginning of year
Deferred income tax (recovery) expense
Foreign currency translation adjustment
2016
2015
$
48,834 $ 43,646
(538)
2,220
12,878
(7,690)
Balance, end of year
$
50,516 $ 48,834
Deferred income tax assets and liabilities recognized
2016
2015
Deferred income tax assets
Non-capital losses
Unrealized foreign exchange loss
Restoration provisions
Total deferred income tax assets
Deferred income tax liabilities
Mineral properties, plant and equipment
Future withholding taxes
Unrealized foreign exchange gains
Other
Deferred income tax liabilities
Deferred income tax liabilities, net
Deferred income tax assets not recognized
Tax losses
Mineral property, plant and equipment
Other deductible temporary differences
$
363 $
2,798
5,390
8,551
57,064
1,984
-
19
59,067
50,516 $
421
-
4,821
5,242
47,432
1,368
4,646
630
54,076
48,834
$
$
$
2016
2015
16,605 $
39
82
16,726 $
19,711
38
88
19,837
As at December 31, 2016, the Company has non-capital losses for income tax purposes which expire
as follows:
2016
2017
2018
Subsequent
to 2019
No expiry
date
- $
-
- $
-
55,436 $
-
- $
4,619
Total
55,436
4,619
Canada
United Kingdom
$
$
- $
-
- $
No tax benefit has been recorded for the Canadian and United Kingdom non-capital losses.
- $
- $
55,436 $
4,619 $
60,055
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
15. INCOME PER COMMON SHARE
a) Basic
Basic earnings per common share are calculated by dividing the net income attributable to the
shareholders of the Company by the weighted average number of common shares outstanding
during the year:
2016
2015
Income for the year – attributable to Shareholders of the
Company
$
70,657 $
77,849
Weighted average number of common shares outstanding
381,285,066
379,516,883
$
0.19 $
0.21
b) Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of common
shares outstanding to assume conversion of all dilutive potential common shares. For stock options,
a calculation is done to determine the number of shares that could have been acquired at fair value
(determined as the average market share price of the Company’s outstanding shares for the year),
based on the exercise prices attached to the stock options. The number of shares calculated above
is compared with the number of shares that would have been issued assuming the exercise of stock
options.
2016
2015
Income for the year – attributable to Shareholders of the
Company
$
70,657 $
77,849
Weighted average number of common shares outstanding
Adjustment for stock options
Adjustment for share units
Weighted average number of common shares for diluted
381,285,066
788,085
1,086,585
379,516,883
983,365
332,120
earnings per share
383,159,736
380,832,368
$
0.18 $
0.20
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
16. RELATED PARTY TRANSACTIONS
a) Key management compensation
Key management personnel are those persons having the authority and responsibility for planning,
directing and controlling the activities of the Company, directly or indirectly. Key management
personnel include the Company’s executive officers, vice-presidents and members of its Board of
Directors.
The remuneration of key management personnel were as follows:
Salaries and wages
Short term benefits
Stock based compensation
b) Other related parties
2016
2015
3,984 $
144
1,647
5,775 $
3,098
65
473
3,636
$
$
For the year ended December 31, 2016, the Company paid $0.3 million (2015 $0.6 million) to a
charitable foundation directed by certain of the Company’s directors to carry out social programs on
behalf of the Company.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
17. SEGMENT INFORMATION
The Company’s primary business activity is the development and operation of diamond properties in
Botswana. The Company has two operating segments: Karowe Mine and Corporate and other.
Revenues(1)
Income from mining operations
Exploration expenditures
Finance income (expenses)
Foreign exchange gain
Other expenses
Taxes
Net income (loss) for the year
Capital expenditures
Total assets
Revenues(1)
Income from mining operations
Exploration expenditures
Finance income (expenses)
Foreign exchange gain
Other expenses
Taxes
Net income (loss) for the year
Capital expenditures
Total assets
2016
Karowe Mine
Corporate
and other
Total
$
295,466 $
- $
295,466
194,071
(4,136)
(1,059)
(8,434)
(9,868)
(75,454)
(163)
-
(490)
(2,535)
(11,709)
(9,566)
193,908
(4,136)
(1,549)
(10,969)
(21,577)
(85,020)
95,120
(24,463)
70,657
(34,706)
-
(34,706)
289,646
12,354
302,000
2015
Karowe Mine
Corporate
and other
Total
$
223,846 $
- $
223,846
137,615
(1,046)
256
14,704
(7,430)
(55,744)
50
-
(541)
771
(8,999)
(1,866)
137,665
(1,046)
(285)
15,475
(16,429)
(57,610)
88,355
(10,585)
77,770
(36,199)
-
(36,199)
337,920
6,250
344,170
(1) During the year ended December 31, 2016, two customers (2015: two customers) generated more than 10% of
the Company’s total revenue, representing 29% and 11% of the Company’s 2016 revenue (2015: 12% and 13% of
the Company’s 2015 revenue) .
The geographic distribution of non-current assets is as follows:
Plant and equipment
Mineral properties
Other
2016
2015
2016
2015
2016
2015
Canada
Botswana
$
$
20 $
56 $
131,485
131,505 $
115,634
115,690 $
- $
62,158
62,158 $
- $
51,678
51,678 $
- $
3,020
3,020 $
26
3,567
3,593
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
18. FINANCIAL INSTRUMENTS
a) Measurement categories and fair values
As explained in Note 3, financial assets and liabilities have been classified into categories that
determine their basis of measurement and, for items measured at fair value, whether changes in fair
value are recognized in the consolidated statements of operations or consolidated statements of
comprehensive loss. Those categories are: fair value through profit and loss; loans and receivables;
available for sale assets; and, for liabilities, other liabilities.
The fair value of the Company’s available for sale financial instruments is derived from quoted prices
in active markets for identical assets. The fair value of all other financial instruments of the Company
approximates their carrying values because of the demand nature or short-term maturity of these
instruments.
The Company’s financial assets and liabilities are categorized as follows:
ASSETS
Loans and receivables
Cash and cash equivalents
Other receivables
Available for sale – Investments
Fair value through profit and loss – Investments
LIABILITIES
Amortized cost
Trade payables and accrued liabilities
December 31,
2016
December 31,
2015
$
$
53,345
-
$
53,345
$
2,298
855
$
3,153
$
134,776
4
134,780
-
-
-
$
$
26,617
26,617
$
$
12,987
12,987
b) Fair value hierarchy
The following table classifies financial assets and liabilities that are recognized on the balance sheet
at fair value in a hierarchy that is based on significance of the inputs used in making the
measurements. The levels in the hierarchy are:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs).
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
18. FINANCIAL INSTRUMENTS (continued)
Level 1: Available for sale – Investments
Level 2: Fair value through profit and loss – Investments
Level 3: N/A
c) Financial risk management
December 31,
2016
December 31,
2015
$
$
2,298 $
855 $
-
-
The Company’s financial instruments are exposed to certain financial risks, including commodity
price, currency, credit, liquidity and price risks.
Commodity price risk
The Company is subject to commodity price risk. Diamonds are not a homogenous product and the
price of rough diamonds is not monitored on a public index system. The fluctuation of prices is
related to certain features of diamonds such as quality and size. Diamond prices are marketed in
U.S. dollars and long term U.S. dollar per carat prices are based on external market consensus
forecasts. The Company does not have any financial instruments that may fluctuate as a result of
commodity price movements.
Currency risk
The Company is exposed to the financial risk related to fluctuating foreign exchange rates. All sales
revenues are denominated in U.S. dollars, while directly related costs are denominated in Botswana
Pula. At December 31, 2016, the Company is exposed to currency risk relating to U.S. dollar cash
held within the Company. Based on this exposure, a 10% change in the U.S. dollar exchange rate
would give rise to an increase/decrease of approximately $5.3 million in net income for the year.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails
to meet its contractual obligations. The majority of the Company’s cash and cash equivalents is held
through a large Canadian financial institution with a high investment grade rating. Considering the
nature of the Company’s ultimate customers and the relevant terms and conditions entered into with
such customers, the Company believes that credit risk is limited as goods are paid on receipt.
The carrying amount of financial assets recorded in the financial statements, net of any allowance
for losses, represents the Company’s maximum exposure to credit risk.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they
become due. Cash flow forecasting is performed in the operating entities of the Company and
aggregated in head office which monitors rolling forecasts of the Company’s liquidity requirements to
ensure it has sufficient cash to meet operational needs at all times. Such forecasting takes into
consideration the Company’s debt financing plans.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
18. FINANCIAL INSTRUMENTS (continued)
Guarantee
As part of the Company's environmental obligation related to the Karowe Mine, the Government of
Botswana required a reclamation bond for the Mine. On July 1, 2015, Standard Chartered Bank
Botswana Limited has provided the Government of Botswana with a reclamation bond of Botswana
Pula 100.0 million ($9.3 million) for Boteti Mining (Pty) Ltd, a wholly owned subsidiary with respect
to the Karowe Mine. Consequently, the Company has provided a guarantee for a maximum amount
of Botswana Pula 80.0 million ($7.5 million) with Standard Chartered Bank Botswana Limited. In
addition, the Company has deposited Botswana Pula 20.0 million ($1.8 million) with Standard
Chartered Bank Botswana Limited, accounted for in non-current other assets.
Revolving credit facility
In May 2014, the Company renewed its credit facility with the Bank of Nova Scotia. The credit facility
was increased to a $50 million revolving term credit facility with a maturity date of May 5, 2017,
which may be extended if both parties agree. Funds drawn under the revolving credit facility are due
in full at maturity. The facility contains financial and non-financial covenants customary for a facility
of this size and nature. As at December 31, 2016, the Company is in compliance with all financial
and non-financial covenants. Outstanding amounts under the facility bear interest at LIBOR or an
alternative base rate plus an applicable margin based on the Company’s leverage ratio.
The Company has provided security on the three year facility by way of a charge over the
Company’s Karowe assets and a guarantee by the Company’s subsidiaries, which hold the Karowe
assets.
The Bank of Nova Scotia has first ranking security over the Karowe assets.
As at December 31, 2016, the full amount under this facility was available and undrawn.
19. CAPITAL MANAGEMENT
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue
as a going concern in order to pursue the development of its mineral properties and to maintain a
flexible capital structure which optimizes costs of capital at an acceptable risk.
In the management of capital, the Company considers items included in equity attributable to
shareholders and its debt facility to be capital.
The Company manages the capital structure and makes adjustments to it in light of changes in
economic conditions and the risk characteristics of the Company’s assets. In order to maintain or
adjust the capital structure, the Company may attempt to issue new shares or debt instruments,
acquire or dispose of assets, or to bring in joint venture partners.
In order to facilitate the management of its capital requirements, the Company prepares annual
expenditures budgets and life-of-mine plans which are updated as necessary depending on various
factors, including successful capital deployment and general industry conditions. The annual and
updated budgets and life-of-mine plan are approved by the Board of Directors.
Vancouver Corporate Office:
Suite 2000
885 West Georgia Street
Vancouver, BC
Canada V6C 3E8
T: 604 689 7842
F: 604 689 4250
E: tanuja.skerlec@lucaradiamond.com
Contact: Tanuja Skerlec, Investor and Public Relations Manager
E: reriksson@rive6.ch
Contact: Robert Eriksson, Investor Relations
E: louise.mason@citigatedr.co.uk
Contact: Louise Mason, Citigate Dewe Rogerson