Management’s Discussion and Analysis
And
Consolidated Financial Statements
Year Ended December 31, 2017
(AUDITED)
LUCARA DIAMOND CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
DECEMBER 31, 2017
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, 2017, 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
20, 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
Revenues and operating margins: The Company achieved revenues of $220.8 million during the
year (2016: $295.5 million) including the sale of the 1,109 carat Lesedi La Rona (“LLR”) for $53.0
million ($47,777 per carat). The 2017 average price was $847 per carat (including the sale of the
LLR) compared to 2016 average sales price of $824 per carat (including the sale of 813 carat
Constellation diamond for $63.1 million). Excluding the sale of the LLR the average sales price for
2017 was $647 per carat which was in line with the 2016 average sales price of $649 excluding
the sale of the 813 carat Constellation diamond. The consistently strong sales price demonstrates
the quality of Karowe’s south lobe diamonds in a market where average diamond prices have
decreased by up to 10% in certain size and quality fractions in 2017.
Karowe’s operating cash cost: Karowe’s total annual operating cash cost (see page 8 Non-IFRS
measures) was $34.6 per tonne processed (2016: $26.5 per tonne processed) compared to forecast
of $36-$30 per tonne processed. The Company’s expenditures remain well controlled with mining
and processing cost per tonne and all site costs within forecast.
Net Cash Position: The Company’s 2017 year-end cash balance was $61.1 million (2016: $53.3
million). The increase in cash during the year is primarily due to the sale of the LLR which was
partially offset by the Company’s capital expenditures of $34.2 million for the Mega Diamond
Recovery (‘MDR’) and Sub-middles XRT capital projects, stripping costs of $32.9 million of which
$24.8 million was capitalized and dividend payments of $29.4 million. The Company’s $50 million
credit facility remains undrawn.
Earnings and Basic Earnings Per Share: Earnings for 2017 were $65.1 million (2016: $70.7
million) and basic earnings per share were $0.17 for the year ended December 31, 2017 (2016:
$0.19).
Dividends: The Company paid its quarterly dividend of CA$0.025 per share on December 14, 2017
for a cumulative dividend of CA$0.10 per share in 2017 or a total of $29.4 million cash dividend to
our shareholders.
OPERATIONAL UPDATE
Karowe Operating Performance: Karowe’s performance was within the revised forecast for the
year in terms of ore mined and processed and carats recovered. Ore and waste mined in 2017 was
1.6 million tonnes and 15.9 million tonnes respectively. Tonnage processed was within forecast for
the year at 2.3 million tonnes. The south lobe continued to perform in Q4 2017 as it produced 177
specials (single diamonds larger than 10.8 carats) which equated to a 7.1% weight percentage of
total recovered carats in Q4 2017. This brings 2017 production to a total of 521 specials or a 5.6%
weight percentage of total recovered carats in 2017.
1 | P a g e
In Q1 2017, the Company’s new mining contractor, Moolman Mining Botswana (Pty) Ltd a subsidiary
of Aveng Mining (“Aveng Moolmans”) commenced mining at the Karowe mine. The ore and waste
mined for the year was lower than initial forecast as Aveng Moolmans experienced equipment
availability issues. To address performance Aveng Moolmans has engaged a mining sub-contractor in
Q4 2017 to focus only on mining ore as Aveng Moolmans focusses on waste mining while maintaining
the same cost charged per tonne mined.
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
2016
2017
Year ended
December 31
2016
2017
$
37.1 $
1.7
0.00
0.00
$ 61.1
66.0
11.2
0.03
0.03
$ 53.3
$
220.8
65.1
0.17
0.17
$ 61.1
$
295.5
70.7
0.19
0.18
$ 53.3
Average price per carat sold ($/carat)*
824
Operating expenses per carat sold ($/carat)*
156
Operating margin per carat sold ($/carat)*
668
(*) 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 8 for Non-IFRS measures.
743
197
546
847
238
609
535
255
280
2018 OUTLOOK
This section of the MD&A provides management's production and cost estimates for 2018. 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 2.4-2.7 million tonnes of ore, producing between 270,000 and
290,000 carats of diamonds in 2018. Revenue is forecast between $170 and $200 million.
Ore mined is forecast between 2.5-2.8 million tonnes and waste mined is expected to be between
13.0-16.0 million tonnes.
Karowe’s operating cash costs (see page 8 Non-IRFS measures) are expected to be between $38.00
and $42.00 per tonne. To fully gain access to the cut 2 south lobe ore requires a large volume of
waste to be mined which significantly impacts operating cash costs in 2018 similar to 2017. Operating
cash costs, excluding waste mining is expected to be between $21-$24 per tonne processed. The
strip ratio is forecast at approximately 5.0-6.0 in 2018 before decreasing significantly in 2019 to
approximately 2.7 and then forecast at under 2.0 stripping ratio going forward from 2020 onwards.
The decrease in waste mining is expected to add to free cash flow once the cut 2 push back is
complete in 2019.
Sustaining capital expenditures in 2018 is forecast to be up to $11 million, which includes final
expenditure for the sub-middles XRT project audit facility at $3.0 million which was part of the total
project cost at $45 million compared to forecast of $45-$48 million.
A budget of up to $3.0 million is approved for the completion of the pre-feasibility level study (“PFS”)
of the Karowe AK06 underground development and is expected to be completed by the end of
2018. Costs associated with geotechnical and hydrogeology drilling and additional studies in support
of an underground development study and are forecast at up to $26 million in 2018. The Company
also budgeted $6.0 million for advance exploration work on the Company’s prospecting licenses. The
Company is planning on completing drill programs at AK13, AK24 and LDD programs would be based
on positive microdiamond results from the core drilling and geophysical surveys in the vicinity of AK11
and AK24.
The USD/Pula budgeted foreign exchange rate for 2018 is 9.8.
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BUSINESS OVERVIEW
The Company is a diamond mining company focused in Africa. The Company’s business consists of
the acquisition, exploration, development and operation of diamond properties. The Company’s head
office is in Vancouver, BC, Canada and its common shares trade on the Toronto Stock Exchange, the
Nasdaq Stockholm Exchange in Sweden and the Botswana Stock Exchange under the symbol “LUC”.
The principal assets of the Company and the focus of the Company’s operations, development and
exploration activities reside in Botswana.
Table 2: Company’s current land holdings:
Country
Botswana
Botswana
Botswana
Name
Karowe Diamond License (AK6)
Prospecting License No. 371/2014 (AK11,13,24)
Prospecting License No. 367/2014 (BK02)
Interest Held Area (km2)
100%
100%
100%
15.3
25
1.1
RESULTS OF OPERATIONS
Table 3: Karowe Mine, Botswana
UNIT
Year 2017
Q4-17
Q3-17
Q2-17
Q1-17
Q4-16
66.0
66.0
66.0
-
88,957
88,957
743
743
847
535
US$
US$
Carats
64,444
67,125
59,598
69,358
260,526
26.1
26.1
77.9
77.6
79.6
79.9
37.1
37.1
220.8
220.8
US$M
US$M
US$M
US$M
Carats
26.1
-
64,444
77.9
(0.3)
64,289
79.6
0.3
62,434
37.1
-
69,358
220.8
-
260,526
Sales
Revenues
Proceeds generated from sales tenders conducted
in the quarter are comprised of:
Sales proceeds received during the quarter
Q2 2017 tender proceeds received post Q2 2017
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 8 Non-
IRFS measures)
Capital expenditures
-8+4mm sub-middles XRT project
LDR and MDR circuit
Sustaining capital
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
1,575,052
15,965,121
2,335,550
10.7
249,767
624,749
4,745,609
631,777
10.2
64,477
386,906
5,540,139
591,196
10.6
62,425
432,017
4,992,196
513,643
11.2
57,624
131,380
587,177
598,934
10.9
65,241
Tonnes
Tonnes
Tonnes
cpht (*)
Carats
US$M
US$M
US$M
US$M
5.3
3.6
1.9
10.8
18.4
7.1
8.7
34.2
5.4
0.1
4.1
9.6
4.9
1.8
2.2
8.9
2.8
1.6
0.5
4.9
1,161
1,336
1,280
1,207
US$
535
255
217
405
405
847
238
247
229
582,169
2,728,915
630,471
13.0
82,272
197
7.2
0.8
2.0
10.0
3 | P a g e
OPERATIONS: KAROWE MINE
Karowe had no lost time injuries during Q4 resulting in a twelve month rolling Lost Time Injuries
Frequency Rate (“LTIFR”) of 0.64.
In Q3 the Company’s new mining contractor, Aveng Moolmans, experienced equipment availability
issues that resulted in decreased ore and waste mined during the year. Additional trucks, shovels,
excavators and drill rigs were brought to site to address the operational issues. A mining sub-
contractor commenced operating on site during Q4 2017 to mine ore while Aveng Moolmans focusses
on waste mining. Operations improved in Q4 2017 and the Company continues to work with Aveng
Moolmans to work on improving its mining methods and operating efficiencies.
The two capital projects, an MDR project and a Sub-middles XRT project were successfully completed
and commissioned in Q3 2017. These capital projects were incorporated into the comminution
process to enhance diamond recovery and maintain design throughput. The primary purpose of the
MDR is to recover diamonds larger than 50mm prior to unit processes where the diamond may incur
breakage resulting in a lower diamond value. The sub-middles XRT circuit, which processes +4-8mm
material is operating to design capacity and has shown consistent recoveries when compared to those
recorded when processing low yield material through a standard Dense Medium Separation circuit.
An audit plant which is designed to process a portion of the coarse plant tailings above 4mm is
expected to be commissioned in Q1 2018.
During Q4 2017 the Company successfully transitioned to a new processing contractor at the Karowe
mine. The transition has increased capabilities on the operation of Karowe’s new circuits and the
Company anticipates continued cost reductions and increased operational utilization.
The results of an Underground Preliminary Economic Assessment (PEA) prepared in accordance with
National Instrument 43-101 (“NI 43-101”) demonstrates positive economic potential for the
development of an underground mine at Karowe (see press release dated November 2, 2017) and
supports a NI 43-101 Technical Report on the Karowe Underground PEA (press release December 15,
2017).
The preparation of the PFS is currently underway and is expected to be completed by the end of
2018. The PFS will include trade-off studies for alternatives to Sub-level open stoping such as block
caving, optimal sublevel intervals, potential lease option for mining equipment and other optionality.
In Q1 2018, the Company will initiate hydrological and geotechnical drilling with updates to the
structural and hydrological models. These updated models will inform the ongoing potential
underground mining options in support of the PFS and potential Feasibility level study (FS).
The drilling and related data collection and analysis programs were approved to prepare the Company
to continue the underground project into the FS following a viable PFS.
EXPLORATION AND RESOURCE UPGRADE
Karowe Resource (AK06 kimberlite) Upgrade Drilling
Work progressed on the updated geological and resource model for AK6, this program is designed to
increase confidence in the geological model for the south lobe of the AK06 kimberlite and provide
sufficient data and material for an updated resource to be utilized in the underground project study
for the Karowe mine. Updates to the geological model interpret a larger volume of the Eastern
magmatic/pyroclastic kimberlite (“EM/PK(S)”) unit at depth. A controlled sample of the EM/PK(S) unit
will be mined and processed through the Karowe process plant to increase data available for size
frequency and diamond value analysis. A similar program was conducted in 2013 for the
magmatic/pyroclastic kimberlite (“M/PK(S)”) unit in support of the 2013 resource update.
Botswana Prospecting Licenses:
In 2014, the Company was awarded two precious stone prospecting licenses (PL367/2014 and
PL371/2014). The prospecting licenses are located within a distance of 15 km and 30 km from the
Karowe Diamond mine. The BK02 license was extended for one year to Q3 2018 and the AK11/13/24
license was reduced by 50% in area and extended for two years until Q3 2019.
4 | P a g e
AK11
During Q4 2017, the Company completed a LDD program at AK11. A total of 1510 metres were
drilled in 8 LDD holes with an estimated in-situ tonnage of 490 tonnes. Material recovered from the
LDD samples commenced processing at the Company’s Bulk Sample Plant located at the Karowe Mine
in Q4 2017, results are expected in early Q2 2018.
AK13
During Q3 2017 logging and sampling of AK13 was completed and microdiamond samples shipped for
analysis. Microdiamond results are expected in Q1 2018 and followed by a drill program contingent on
the results.
AK24
During Q4 2017, a limited drone-based geophysical survey was flown over AK24 to confirm location
and nature of the anomaly. A drill program at AK24 is planned for Q1 2018.
5 | P a g e
SELECT FINANCIAL INFORMATION
Table 4:
In millions of U.S. dollars unless otherwise noted
Revenues
Operating expenses
Operating earnings (1)
Royalty expenses
Exploration expenditures
Administration
Sales and marketing
EBITDA (2)
Depletion and amortization
Finance expenses
Foreign exchange loss
Loss on disposition - Mothae
Gain on contractor settlement
Current income tax expense
Deferred income tax recovery (expense)
Net income for the year
Change in cash during the year
Dividends paid during the year
Cash on hand
Earnings per share (basic)
Earnings per share (diluted)
Per carats sold
Sales price
Operating expenses
2017
Year ended December 31,
2015
2016
$
220.8
(61.9)
158.9
(22.1)
(4.8)
(15.2)
(3.3)
113.5
(15.3)
(2.4)
(5.6)
-
7.0
(14.8)
(17.3)
65.1
$
295.5
(56.1)
239.4
(29.5)
(4.1)
(14.9)
(5.5)
185.4
(15.9)
(1.5)
(11.0)
(1.2)
-
(85.6)
0.5
70.7
7.7
(29.4)
61.1
0.17
0.17
(81.4)
(149.7)
53.3
0.19
0.18
$
223.8
(50.1)
173.7
(22.4)
(1.0)
(13.6)
(2.8)
133.9
(12.5)
(1.5)
15.5
-
-
(44.7)
(12.9)
77.8
33.9
(11.8)
134.8
0.21
0.20
$
847
238
$
$
824
156
13.5
593
133
16.3
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.
10.7
Table 5: Operating cost per tonne ore processed
reconciliation:
Year ended December 31,
2017
2016
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, 2017 and December 31, 2016.
(3) Net change in ore stockpile inventory for the year ended December 31, 2017 and December 31, 2016.
(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.
$ 61.9 $ 56.1
9.4
3.6
0.1
69.2
2,613,217
26.50
24.8
(0.9)
(5.1)
80.7
2,335,550
34.55
6 | P a g e
Revenues
During the year the Company had sales totalling 260,526 carats (2016: 358,806) for gross proceeds
of $220.8 million at an average price of $847 per carat (2016 sales were $295.5 million or $824 per
carat). The reduction in carats sold was due to the reduction in carats recovered during the year as
lower grade stockpile was processed in place of fresh south lobe ore due to the mining contractor’s
equipment availability issues. Excluding the sale of the LLR, the 2017 average price sold was $647
per carat. The exceptional stone sales resulted in an average price of $31,005 per carat from the sale
of 1,766 carats in 2017 (2016: $34,305 per carat from the sale of 2,624 carats), with the regular
tenders achieving $439 per carat (2016: $401 per carat).
Operating Earnings
Operating earnings for 2017 were $158.9 million (2016: $239.4) and operating expenses during the
year totalled $61.9 million or $238 per carat (2016: $56.1 million or $156 per carat), which resulted
in an operating margin (before royalties and depletion and amortization) of $609 per carat or 72%
(2016: 81%). The increase in operating expenses in 2017 which resulted in the lower operating
margin was anticipated as there were additional fully operational processing circuits in 2017 and
deeper ore and waste mining occurred at depth which increased mining costs.
Income Tax Expense
The Company’s 2017 income tax expense was $32.1 million, which consisted of a current income tax
charge of $14.8 million and a deferred income tax expense of $17.3 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 2017 performance levels, its tax rate
for 2017 was 22% (2016: 44%). The Company has paid $13.4 million of its current year tax expense
and the remaining current tax accrual of $1.4 million is due by April 30, 2018.
Foreign Exchange
The Company recorded a foreign exchange loss of $5.7 million in 2017 compared to a loss of $11.0
million in 2016. This non-cash foreign exchange loss of $5.7 million arises as a result of 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 2017 US dollar rate resulted in a foreign exchange loss
during the year.
Net income
Full year net income was $65.1 million (2016: $70.7 million). The $5.6 million decrease is primarily
due to lower sales and higher waste stripping costs incurred in 2017. This decrease was partially
offset by a $7.0 million gain (net of tax: $5.5 million) arising from the reversal of a trade payable
accrual for the cost of mining services that were in dispute with the Company’s previous mining
contractor following the correction of mined ore and waste volumes in Q3 2016. The dispute is now
closed.
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)
Full year EBITDA was $113.5 million (2016: $185.4 million), the EBITDA is lower than the prior year
is largely due to the decrease in revenue compared to the prior year.
EBITDA is a non-IFRS measure and is reconciled in table 4.
7 | P a g e
Operating Cost Per Tonne Ore Processed
The year ended December 31, 2017 operating cost per tonne processed was $34.6 per tonne
processed (2016: $26.5 per tonne processed) and was below the revised 2017 forecast of $36-$40
per tonne processed. The higher cost compared to 2016 is largely due to the increase in waste
mining at lower depth which was anticipated and accounts for an increase of $5 per tonne processed
based on an increase of 4.8 million tonnes of waste mined in 2017 compared to the prior year. The
remainder of the cost increase was due to expected higher operating costs impacted by the changes
to the process plant facilities. 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, 2017, the Company had cash of $61.1 million (2016: $53.3 million).
Cash increased during the year by $7.7 million. This increase is mainly due to sale of the LLR, which
was partially offset by the Company’s capital expenditures of $34.2 million mainly for the MDR and
Sub-middles XRT capital projects, stripping costs of $32.9 million of which $24.8 million was
capitalized and dividend payments of $29.4 million.
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:
Three months ended
Dec-17
Sept-17
Jun-17 Mar-17
Dec-16 Sept-16
Jun-16 Mar-16
A. Revenues
37,143
77,911
79,615
26,094
66,017
38,098
140,785
50,566
B. Administration expenses
(6,071)
(3,163)
(2,975)
(3,025)
(6,429)
(3,226)
(2,678)
(2,448)
C. Net income (loss)
1,571
32,903
32,174
(1,531)
11,204
(3,804)
46,116
17,141
D. Earnings (loss) per share
(basic and diluted)
Revenues
-
0.09
0.08
(-)
0.03
(0.01)
0.12
0.05
During the three months ended December 31, 2017, the Company completed one regular diamond
tender that generated gross proceeds of $37.1 million ($535 per carat).
Administration Expenses
During the three months ended December 31, 2017, administration expenses were $6.1 million (Q4
2016: $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
8 | P a g e
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, 2017, the Company paid $0.4 million (2016 $0.3 million) to a
charitable foundation directed by certain of the Company’s directors to carry out social programs on
behalf of the Company in Botswana.
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 other liabilities, the accounting is 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 19 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 19 of the Company’s consolidated financial statements.
OUTSTANDING SHARE DATA
As at the date of this MD&A, the Company had 382,619,334 common shares outstanding, 1,401,590
share units and 3,738,337 stock options outstanding under its stock-based incentive plans.
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
Other than in respect of operating lease arrangements for offices in Botswana, the Company is not
party to any off-balance sheet arrangements.
9 | P a g e
FINANCIAL INFORMATION
The report for the quarter ended March 31, 2018 is expected to be published on May 8, 2017. In
addition, the Company’s annual general meeting of shareholders will be held on May 10, 2017 in
Vancouver, British Columbia.
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, 2017
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 and Depletion
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.
10 | P a g e
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
11 | P a g e
December 31, 2017, 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, 2017, 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,
12 | P a g e
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.
13 | P a g e
February 20, 2018
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, 2017 and December 31, 2016 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
“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, 2017 and December 31, 2016 and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants
LUCARA DIAMOND CORP.
CONSOLIDATED BALANCE SHEETS
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
December 31, 2017 December 31, 2016
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 15)
Restoration provisions (Note 9)
Deferred income taxes (Note 15)
TOTAL LIABILITIES
EQUITY
Share capital (Note 10)
Contributed surplus (Note 11)
Deficit
Accumulated other comprehensive loss
TOTAL EQUITY
$
$
$
61,065 $
3,951
35,898
100,914
2,500
167,576
90,559
4,261
365,810 $
16,780 $
494
17,274
18,941
72,919
109,134
290,846
7,832
(3,043)
(38,959)
256,676
TOTAL LIABILITIES AND EQUITY
$
365,810 $
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
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
302,000
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
$
220,763 $
295,466
2017
2016
Cost of goods sold
Operating expenses
Royalty expenses (Note 8)
Depletion and amortization
Income from mining operations
Other expenses
Administration (Note 13)
Exploration expenditures
Finance expenses
Foreign exchange loss
Sales and marketing
Gain on contractor settlement (Note 14)
Loss on disposition of Mothae
Net income before tax
Income tax expense (Note 15)
Current income tax expense
Deferred income tax expense (recovery)
61,851
22,076
15,362
99,289
121,474
15,234
4,754
2,358
5,652
3,253
(6,996)
-
24,255
97,219
14,841
17,261
32,102
Net income for the year
Income per common share (Note 16)
Basic
Diluted
$
$
$
65,117 $
0.17 $
0.17 $
56,080
29,547
15,931
101,558
193,908
14,868
4,136
1,549
10,969
5,513
-
1,196
38,231
155,677
85,558
(538)
85,020
70,657
0.19
0.18
Weighted average common shares outstanding (Note 16)
Basic
Diluted
382,619,294
384,072,810
The accompanying notes are an integral part of these consolidated financial statements.
381,285,066
383,159,736
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
$
65,117 $
2017
Other comprehensive income
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
28
18,840
-
18,868
Comprehensive income
$
83,985 $
The accompanying notes are an integral part of these consolidated financial statements.
2016
70,657
651
14,315
3,310
18,276
88,933
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
Stock-based compensation
Deferred income taxes expense (recovery)
Finance costs
Gain on contractor settlement (Note 14)
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 other assets
Acquisition of marketable securities
2017
2016
$
65,117 $
70,657
15,968
5,652
1,484
17,261
2,293
(6,996)
-
100,779
3,992
4,520
(3,743)
(8,707)
96,841
16,322
9,182
2,027
(538)
1,464
-
1,196
100,310
(4,858)
(6,480)
14,362
(396)
102,938
(29,415)
632
(28,783)
(149,681)
2,039
(147,642)
(34,204)
(1,223)
(24,752)
(822)
-
(61,001)
(23,327)
(1,972)
(9,407)
-
(2,500)
(37,206)
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
663
479
7,720
53,345
61,065 $
(81,431)
134,776
53,345
$
Supplemental Information
Interest received
Taxes paid
Changes in trade payable and accrued liabilities related to
plant and equipment
431
(23,357)
476
(85,533)
804
(983)
The accompanying notes are an integral part of these consolidated financial statements.
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LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(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 20,
2018.
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, 2017 AND 2016
(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, 2017 AND 2016
(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 operating segments, 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, 2017 AND 2016
(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, 2017 AND 2016
(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, 2017 AND 2016
(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.
(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, 2017 AND 2016
(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, 2017 AND 2016
(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, 2017 AND 2016
(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 are 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, 2017 AND 2016
(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, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
4. ADOPTION OF IFRS PRONOUNCEMENTS
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. Based on the Company’s assessment, the Company does not
expect this standard to have a significant measurement or disclosure impact 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
certain 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.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018. Based on the
Company’s assessment, the Company does not expect this standard to have a significant
measurement or disclosure impact 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, 2017 AND 2016
(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. Based on the Company’s assessment, the Company does not expect this
standard to have a significant measurement or disclosure impact 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.
5. VAT RECEIVABLES AND OTHER
VAT
Other
Prepayments
6. INVENTORIES
2017
2,152 $
407
1,392
3,951 $
2016
5,882
119
1,966
7,967
$
$
2017
2016
Rough diamonds
Ore stockpile
Parts and supplies
14,116
17,089
9,647
40,852
Inventory expensed during the year ended December 31, 2017 totaled $61.9 million (2016 – $56.1
million).
13,171 $
12,037
10,690
35,898 $
$
$
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(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, 2016
$
2,930 $
136,615 $
1,165 $
3,249 $
143,959
Additions
Disposals and other
Reclassification
Translation differences
22,037
-
(10,527)
326
59
-
9,627
6,550
2
-
125
56
260
(29)
775
166
22,358
(29)
-
7,098
Balance, December 31, 2016
14,766
152,851
1,348
4,421
173,386
Additions
Reclassification
Disposals and other
Translation differences
34,522
(41,675)
-
947
113
40,281
(547)
15,451
42
444
(56)
140
177
950
(183)
432
34,854
-
(786)
16,970
Balance, December 31, 2017
$
8,560 $
208,149 $
1,918 $
5,797 $
224,424
Accumulated depreciation
Balance, January 1, 2016
$
- $
25,473 $
1,005 $
1,791 $
28,269
Depletion and amortization
Disposals and other
Translation differences
Balance, December 31, 2016
Depletion and amortization
Disposals and other
Translation differences
-
-
-
-
-
-
-
11,564
-
1,370
38,407
10,414
(392)
3,875
78
-
48
1,131
122
(56)
103
480
(16)
88
2,343
848
(183)
236
12,122
(16)
1,506
41,881
11,384
(631)
4,214
Balance, December 31, 2017
$
- $
52,304 $
1,300 $
3,244 $
56,848
Net book value
As at December 31, 2016
As at December 31, 2017
$
$
14,766 $
8,560 $
114,444 $
155,845 $
217 $
618 $
2,078 $
2,553 $
131,505
167,576
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(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, 2016
$
16,254 $
47,569 $
63,823
Additions
Revision in estimate of restoration provision
Translation differences
Balance, December 31, 2016
Additions
Revision in estimate of restoration provision
Translation differences
10,983
-
946
28,183
24,752
-
3,733
1,940
(295)
2,270
51,484
1,223
275
4,627
12,923
(295)
3,216
79,667
25,975
275
8,360
Balance, December 31, 2017
$
56,668 $
57,609 $
114,277
Accumulated depletion
Balance, January 1, 2016
$
1,025
$ 11,120 $
12,145
Depletion for the year
Translation differences
Balance, December 31, 2016
Depletion for the year
Translation differences
1,724
76
2,990
574
4,714
650
2,825
14,684
17,509
2,244
362
2,195
1,408
4,439
1,770
Balance, December 31, 2017
$
5,431
$ 18,287 $
23,718
Net book value
As at December 31, 2016
As at December 31, 2017
Karowe Mine
$
$
25,358
51,237
$ 36,800 $
$ 39,322 $
62,158
90,559
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 incurred a royalty expense of $22.1
million (2016: $29.5 million).
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(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 8.4% at December
31, 2017 (8.3% at December 31, 2016) and an inflation rate of 3.3% at December 31, 2017 (4.5% at
December 31, 2016) 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 $24.1 million (December 31, 2016 - $19.4 million).
Balance, beginning of year
$
Disposal of Mothae project
Changes in rates and estimates
Accretion of liability component of obligation
Foreign currency translation adjustment
$
2017
15,679
-
275
1,511
1,476
Long-term portion of restoration provisions
$
18,941
$
2016
16,157
(2,161)
(295)
1,274
704
15,679
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, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
11. SHARE BASED COMPENSATION
a.
Stock options
The Company’s stock option plan (the ‘Option Plan’) was approved by the shareholders of the
Company on May 13, 2015 and reserves 20,000,000 as the aggregate number of shares issuable
upon the exercise of all Options granted under the Option Plan. The Option Plan is 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, 2015
3,191,669
$
1.63
Number of shares issuable pursuant
to stock options
Weighted average exercise
price per share (CA$)
Granted
Exercised
Balance at December 31, 2016
Granted
Exercised(1)
Forfeited
2,160,000
(2,004,999)
3,346,670
910,000
(373,333)
(145,000)
2.53
1.33
2.39
2.78
2.27
2.75
Balance at December 31, 2017
(1) The weighted average share price on the exercise dates for the 2017 stock option exercises was
3,738,337
$
2.48
CA$2.97 (2016: CA$3.35).
Options to acquire common shares have been granted and are outstanding at December 31, 2017 as
follows:
Outstanding Options
Exercisable Options
Range of
exercise prices
CA$
$1.00 - $2.00
$2.01 - $3.00
$3.01 - $4.00
Number of
options
outstanding
33,334
3,585,003
120,000
3,738,337
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
CA$
1.80
2.44
3.94
2.48
1.64 $
2.18
2.36
2.18 $
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
CA$
1.80
2.31
3.94
2.36
1.64 $
1.80
2.36
1.82 $
Number of
options
exercisable
16,667
1,070,009
40,000
1,126,676
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
11. SHARE BASED COMPENSATION (continued)
During the year ended December 31, 2017, an amount of $0.7 million (2016 – $1.1 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:
2017
1.02
4.00
3.63
41.78
CA$0.025/share
quarterly
2016
0.80
4.00
3.68
47.46
CA$0.015/share
quarterly
Weighted average fair value of options granted (per option) CA$ 0.69 CA$ 0.78
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. Each SU vests in
three years and entitles the recipient to receive one common share and the cumulative dividend
equivalent the SU earned during the SU’s vesting period. For the year ended December 31, 2017,
the Company recognized a share-based payment charge against income of $0.8 million (2016: $0.9
million) for the SUs granted during the year.
Balance at January 1, 2016
529,889
$ 2.07
Number of shares issuable
pursuant to share units
Weighted average
price per share (CA$)
February 26, 2016 grant
March 31, 2016 dividend
June 16, 2016 dividend
September 15, 2016 dividend
November 8, 2016 vesting
December 15, 2016 dividend
645,000
6,380
4,550
137,847
(261,589)
5,416
Balance at December 31, 2016
1,067,493
March 8, 2017 grant
March 30, 2017 dividend
June 15, 2017 dividend
September 14, 2017 dividend
December 14, 2017 dividend
283,500
10,924
12,110
14,015
13,548
Balance at December 31, 2017
1,401,590
$
2.43
2.76
3.89
4.00
2.44
2.94
2.46
2.75
3.09
2.81
2.45
2.56
2.53
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
12. PRINCIPAL SUBSIDIARIES
The Company had the following subsidiaries at December 31, 2017:
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
Wati Ventures (Pty) Ltd.
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
Mining of diamonds
Proportion of
shares directly
held by the
Company (%)
100
100
100
-
-
-
-
-
Proportion of
shares held
by the group
(%)
-
-
-
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
$
$
14. GAIN ON CONTRACTOR SETTLEMENT
2017
2016
4,989 $
2,596
1,776
1,898
410
558
1,484
407
606
510
15,234 $
5,716
1,473
2,303
1,052
330
688
2,027
467
391
421
14,868
In Q4 2017, the Company settled its performance dispute with its previous mining contractor and
realized a net gain on the settlement of $7.0 million. The net gain arises as a result of the reversal of
a trade payable accrual for the cost of mining services invoiced by the previous mining contractor
relating to year 2015 and 2016. The dispute is now closed.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
15. INCOME TAXES
Current
Deferred
Income tax expense
2017
2016
$ 14,841 $ 85,558
(538)
17,261
85,020
$
32,102 $
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
Current tax effect of Botswana variable tax rate in excess of
Botswana standard tax rate
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
2017
2016
26.00%
26.00%
97,219
155,677
25,277
(4,251)
573
40,476
(6,657)
885
-
38,663
6,162
1,992
(269)
2,618
(431)
2,519
(1)
9,566
$
32,102 $
85,020
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 deferred income taxes based on current
financial performance and the life of mine plan.
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,
2017, these earnings amount to $154.3 million (2016: $98.8 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, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
15. 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
2017
50,516 $
17,261
5,142
Balance, end of year
$
72,919 $
Deferred income tax assets and liabilities recognized
2017
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
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
$
384 $
1,673
6,515
8,572
79,219
2,280
(8)
81,491
72,919 $
2017
21,166 $
43
27
21,236 $
$
$
$
2016
48,834
(538)
2,220
50,516
2016
363
2,798
5,390
8,551
57,064
1,984
19
59,067
50,516
2016
16,605
39
82
16,726
As at December 31, 2017, the Company has non-capital losses for income tax purposes which expire
as follows:
2018
2019
2020
Subsequent
to 2021
No expiry
date
- $
-
- $
-
67,965 $
-
- $
6,411
Total
67,965
6,411
Canada
United Kingdom
$
$
- $
-
- $
No tax benefit has been recorded for the Canadian and United Kingdom non-capital losses.
- $
- $
67,965 $
6,411 $
74,376
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
16. 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:
Income for the year
Weighted average number of common shares outstanding
2017
2016
65,117 $
70,657
382,619,294
381,285,066
0.17 $
0.19
$
$
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.
2017
2016
Income for the year
$
65,117 $
70,657
Weighted average number of common shares outstanding
Adjustment for stock options
Adjustment for share units
Weighted average number of common shares for diluted
382,619,294
139,044
1,314,472
381,285,066
788,085
1,086,585
earnings per share
384,072,810
383,159,736
$
0.17 $
0.18
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
17. 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
2017
2,662 $
159
1,164
3,985 $
2016
3,984
144
1,647
5,775
$
$
For the year ended December 31, 2017, the Company paid $0.4 million (2016 $0.3 million) to a
charitable foundation directed by certain of the Company’s directors to carry out social programs on
behalf of the Company in Botswana.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
18. 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
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
2017
2016
Karowe Mine
Corporate
and other
Total
$
220,763 $
- $
220,763
121,589
(4,754)
(1,138)
(4,953)
495
(31,343)
(115)
-
(1,220)
(699)
(11,986)
(759)
121,474
(4,754)
(2,358)
(5,652)
(11,491)
(32,102)
79,896
(14,779)
65,117
(60,179)
-
(60,179)
357,072
8,738
365,810
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
Capital expenditures
(34,706)
-
(34,706)
Total assets
302,000
(1) During the year ended December 31, 2017, one customer (2016: two customers) generated more than 10% of the
Company’s total revenue, representing 27% of the Company’s 2017 revenue (2016: 29% and 11% of the Company’s
2016 revenue).
289,646
12,354
The geographic distribution of non-current assets is as follows:
Plant and equipment
Mineral properties
Other
2017
2016
2017
2016
2017
Canada
Botswana
$
$
11 $
20 $
167,565
167,576 $
131,485
131,505 $
- $
90,559
90,559 $
- $
62,158
62,158 $
145 $
4,116
4,261 $
2016
-
3,020
3,020
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
19. 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. 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.
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).
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,
2017
December 31,
2016
$
$
2,318 $
182 $
2,298
855
The Company’s financial instruments are exposed to certain financial risks, including currency, credit,
liquidity and price risks.
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, 2017, the Company is exposed to currency risk relating to U.S. dollar cash
held within its subsidiaries with Canadian or Pula functional currency. Based on this exposure, a 10%
change in the U.S. dollar exchange rate would give rise to an increase/decrease of approximately
$5.4 million in net income for the year.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
19. FINANCIAL INSTRUMENTS (continued)
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.
Revolving credit facility
In Q2 2017, the Company renewed its credit facility with the Bank of Nova Scotia. The credit facility
is a three year $50 million revolving term credit facility and 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, 2017, 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, 2017, the full amount under this facility was available and undrawn.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated.)
20. 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: info@lucaradiamond.com
Investor Relations
E: reriksson@rive6.ch
Contact: Robert Eriksson, Investor Relations
E: louise.mason@citigatedr.co.uk
Contact: Louise Mason, Citigate Dewe Rogerson