Management's Discussion and Analysis
and
Consolidated Financial Statements
Year Ended December 31, 2020
LUCARA DIAMOND CORP.
ANNUAL MANAGEMENT’S DISCUSSION AND ANALYSIS
December 31, 2020
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, 2020, 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.
Disclosure of a scientific or technical nature in the MD&A was prepared under the supervision of Dr. John
P. Armstrong (Ph.D., P.Geol.), Lucara’s Vice-President, Technical Services and a Qualified Person, as that
term is defined in National Instrument 43-101.
Some of the statements in this MD&A are forward-looking statements that are subject to risk factors set out
in the cautionary note contained herein. Additional information about the Company and its business
activities is available on SEDAR at www.sedar.com.
The effective date of this MD&A is February 22, 2021.
ABOUT LUCARA
Lucara is a leading independent producer of large exceptional quality Type IIa diamonds from its 100%
owned Karowe Diamond Mine in Botswana. The Karowe Mine has been in production since 2012 and is
the focus of the Company’s operations, development, and exploration activities. Clara Diamond Solutions
Limited Partnership (“Clara”), a wholly-owned subsidiary of Lucara, has developed a secure, digital sales
platform that uses proprietary analytics together with cloud and blockchain technologies to modernize the
existing diamond supply chain, driving efficiencies, unlocking value and ensuring diamond provenance from
mine to finger. Lucara has an experienced board and management team with extensive diamond
development and operations expertise. Lucara and its subsidiaries operate transparently and in
accordance with international best practices in the areas of sustainability, health and safety, environment,
and community relations.
The Company’s corporate office is located in Vancouver, 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”.
2020 HIGHLIGHTS
• Mining and processing operations continued without interruption at the Karowe Mine, where more than
98% of the workforce are Botswana Nationals.
•
In response to the uncertainty presented by the pandemic, certain operational changes were
implemented resulting in significant cost savings without impacting current or future ore mining or carat
recoveries.
• Received approval from the Government of the Republic of Botswana (“GRB”) to temporarily move
quarterly tender sales to Antwerp, Belgium from Gaborone, Botswana.
• A record setting year for the recovery of Specials (single diamonds in excess of 10.8 carats):
o a 549 carat top-white gem diamond “Sethunya” (February 2020)
o a 998 carat, high white clivage diamond (November 2020)
o
throughout the year, a total of 34 stones in excess of 100 carats, of which 10 stones
exceeded 200 carats
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• Two unique collaboration agreements entered into with Louis Vuitton and HB Antwerp to create a high
jewellery collection from the historic 1,758 carat “Sewelô”, the largest diamond ever mined in Botswana,
and the 549 carat “Sethunya”.
• An innovative supply agreement with HB Antwerp for the highest value part of Karowe’s production,
leading to regular cash flows and the opportunity to participate in additional revenue generated from
the sale of polished diamonds.
• Clara’s customer base increased from 25 to 75 customers (+178% in 2020), with a waiting list of new
clients now being maintained.
• Regular, bi-weekly sales on Clara throughout 2020 provided regular cash flow and visibility into price
trends.
• Work on the Karowe underground expansion project continued with an investment of $18.7 million
under a re-scoped budget focused on de-risking the project schedule (procurement of long lead
equipment, detailed design and engineering).
• The GRB granted a 25 year extension of the mining license at Karowe to 2046, sufficient to cover the
remaining open-pit life (to 2026) and the expected life of the proposed underground expansion,
currently planned to 2040.
• Operational highlights from the Karowe Mine included:
o Continuous operations with implementation of new health and safety protocols to protect
the health and well-being of employees, contractors and local communities.
o Ore and waste mined of 3.0 million tonnes and 2.7 million tonnes, respectively.
o 2.7 million tonnes of ore processed resulting in 381,706 carats recovered, achieving a
recovered grade of 14.3 carats per hundred tonnes.
o Successful completion of planned XRT upgrades, a key component of the diamond
recovery circuit.
• Financial highlights for the year ended December 31, 2020 included:
o Total revenues of $125.3 million (2019: $192.5 million) or $335 per carat (2019: $468 per
carat). Revenue from the HB Antwerp agreement will continue to be recognised in 2021 as
rough diamonds delivered in 2020 are sold as polished, and “top-up” payments are
realised. Price improvement was observed in all size categories in sales concluded in
December 2020.
o Operating cash costs of $27.80 per tonne processed(1) (2019: $31.88 per tonne
processed), 13% lower than the prior year.
o Adjusted EBITDA(1) of $18.4 million as compared to adjusted EBITDA for the same period
in 2019 of $73.1 million, a decrease driven by lower revenues.
o Net loss for the year of $26.3 million ($0.07 loss per share) as compared to net income of
$12.7 million ($0.03 per share) in 2019.
o As at December 31, 2020, the Company had cash and cash equivalents of $4.9 million and
$30.5 million drawn ($19.5 million available) from a $50 million working capital facility. No
long-term debt.
(1) Operating cash cost per tonne processed and Adjusted EBITDA are non-IFRS measures (see page 10)
• Recent developments:
o
In January 2021, the Company announced the recoveries of two, top white gem quality
diamonds (341 carats and 378 carats) from ore sourced from the M/PK(s) unit within the
South Lobe. Both stones were recovered unbroken.
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DIAMOND MARKET
The diamond industry begins 2021 with a healthier supply-demand balance than it has had at any stage in
the past five years. This follows an incredibly challenging year in 2020, characterized by global travel
restrictions, low sales volumes, pricing pressure and overall, difficult economic conditions for miners,
manufacturers, retailers and consumers.
Since the end of 2020, the rough market has seen healthy price improvements, supported by a strong
holiday sales period. Looking ahead, supply curtailments and a pick up in consumer demand are expected
to support a continuation of a stable, positive price trend in both the rough and polished markets. Longer-
term fundamentals are expected to remain strong, with the lack of new projects in the pipeline and the
expected increase in demand from growth markets, particularly in China, due to rising wealth levels and
consumerism.
SUPPLY AGREEMENT FOR +10.8 CARAT DIAMOND PRODUCTION
Karowe’s large, high value diamonds have historically accounted for approximately 60% to 70% of Lucara’s
annual revenues. Though the mine remained fully operational following the declaration of COVID-19 as a
global pandemic, Lucara made a decision not to tender any of its +10.8 carat production after early March
2020 amidst the uncertainty caused by the global crisis and the significant weakness observed in the rough
diamond market. The polished diamond market performed better through this period and subsequently, in
July 2020, Lucara announced a ground breaking partnership agreement with HB Antwerp (“HB”), entering
into a definitive supply agreement for the remainder of 2020, for all of the diamonds produced in excess of
+10.8 carats from our 100% owned Karowe Diamond mine in Botswana.
Under the supply agreement with HB, Lucara’s +10.8 carat production is being sold at prices based on the
estimated polished outcome of each diamond, determined through state of the art scanning and planning
technology, with a true up amount payable to Lucara on actual achieved polished sales in excess of the
initial estimated polished price, less a fee and the cost of manufacturing. This unique pricing mechanism
has delivered regular cash flow for this important segment of our production profile. The decision to enter
into the supply agreement with HB for the remainder of 2020 followed a trial period during Q2 2020 where
approximately 3,100 carats of +10.8 carat rough diamonds were placed into manufacturing (“Shipment 1”).
Lucara is receiving payment for the polished diamonds from Shipment 1 as those diamonds are sold by HB
to end customers, less a fee and the cost of manufacturing.
For the year ended December 31, 2020, the Company recognized revenue totalling $55.2 million from the
two agreements with HB, including an accrual for estimated variable consideration of $7.2 million related
to “top-up” payments arising from polished diamond sales in excess of the initial purchase price paid to
Lucara. Revenue from the HB agreement will continue to be recognised in 2021 as polished diamonds are
sold, and “top-up” payments are realised.
UPDATE ON COVID-19 RESPONSE
During 2020, the Karowe Mine remained fully operational under new measures and guidelines implemented
by the GRB in late March 2020. These measures designated mining as an essential service in Botswana
and included increased travel restrictions, reduced overall staffing levels and appropriate social distancing.
The GRB has subsequently extended the state of emergency to March 31, 2021. With increasing cases in
Botswana and surrounding countries, restrictions on the movement of people within zones in Botswana and
curfews have been implemented and are subject to change with limited notice. The Company was able to
continue mining and processing activities during 2020 as most of the workforce (+98%) are Botswana
Nationals.
The Company continues to operate under its crisis management strategy, designed to protect the health
and well-being of our employees in Botswana and Canada as well as the financial well-being of the
business. The Company was recently granted permission to conduct COVID-19 testing at our operations
in Botswana and active testing of the workforce began in January 2021. Regular health screening,
temperature checks and the use of infrared measurements are a routine part of the operations. The
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Company has also constructed several isolation pods for use by the community as a government-
sponsored isolation facility has not yet been constructed in the Letlhakane area.
KAROWE UNDERGROUND UPDATE
On November 4, 2019, the Company announced the results of a Feasibility Study for an underground mine
at Karowe. A copy of the Company’s news release and the related technical report prepared pursuant to
the requirements of NI 43-101 – Standards of Disclosure for Mineral Projects have been filed on Sedar
(www.sedar.com) and are available on the Company’s website at: www.lucaradiamond.com.
In November 2019, Lucara’s Board of Directors approved a $53 million capital program for the Karowe
underground expansion project, with most of the budget scheduled to be spent in the latter part of 2020
and funded through the cash flow from current operations. Given the uncertainty in global markets resulting
from COVID-19, the originally planned capital budget was reduced to $22 million for 2020.
During the year ended December 31, 2020, $18.7 million was spent on project execution activities including
the following: site earthworks (consisting of laydown preparation and clearing of shaft and surface
infrastructure locations), geotechnical test pitting and drilling, and completion of two pilot holes at the shaft
locations, a 746 metre hole for the ventilation shaft and a 768 metre hold for the production shaft. The
Company was able to complete on-site earth works and geotechnical studies by using local contractors
while a State of Emergency remained in effect in Botswana. Long lead time item orders were also placed
for shaft muckers, and hoist and winder refurbishment was initiated. In addition, power line engineering
and detailed shaft design and engineering (consistent with original targets for 2020) progressed. In Q4
2020, the Government of Botswana approved the proposed powerline route and granted a 25-year
extension to the Karowe Mine License to 2046, sufficient to cover the remaining open-pit life (to 2026) and
the expected life of the proposed underground expansion, currently planned to 2040.
The Company is actively exploring opportunities to arrange debt financing for the underground expansion
for those amounts which are expected to exceed the Company’s cash flow from operations during the
construction period. The underground expansion program has an estimated capital cost of $514 million
and a five year period of development.
CLARA
With global restrictions impeding travel for many diamantaires, interest in Clara, Lucara’s digital sales
platorm, grew significantly in 2020 with the number of buyers on the platform increasing from 27 to 75.
During 2020, Clara began selling stones on behalf of third party sellers, which was a significant objective
for the year.
Five sales were completed during the fourth quarter of 2020, with total transaction volumes of $4.6 million
increasing the total number of sales in 2020 to twenty-three and total transaction volumes, including third-
party transaction volumes, to $11.6 million. Clara sells rough diamonds, on a stone by stone basis, between
1 and 15 carats and of better qualities. A more frequent sales schedule during 2020 provided current
pricing information during a period of significant uncertainty and limited sales. Offered prices and volumes
transacted dropped sharply between March and June 2020 but rebounded in the second half of the year.
As Clara becomes the online marketplace of choice for rough buyers, discussions are underway with
several producers to begin trials for the sale of their diamonds on Clara.
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FINANCIAL HIGHLIGHTS
Table 1
In millions of U.S. dollars, except carats or
otherwise noted
Three months ended
December 31
2019
2020
Revenues
Net income (loss) for the period
Earnings (loss) per share (basic and diluted)
Operating cash flow per share*
Cash on hand
Amounts drawn on working capital facility
$ 42.4 $
(3.9)
(0.01)
0.02
4.9
30.5
Average price per carat sold ($/carat)*
Operating expenses per carat sold ($/carat)*
Operating margin per carat sold ($/carat)*
402
205
196
56.0
8.7
0.02
0.05
11.2
-
568
209
359
$
Year ended
December 31
2019
$
192.5
12.7
0.03
0.15
11.2
-
468
189
279
2020
125.3
(26.3)
(0.07)
0.04
4.9
30.5
335
194
141
Carats sold
105,648
98,547
373,748
411,732
(*) Operating cash flow per share before working capital adjustments, average price per carat sold, operating expenses per carat sold
and operating margin per carat sold are Non-IFRS measures, see Table 2: Results of Operations for reconciliations and page 10 for
Non-IFRS measures.
The Company recognized revenue of $42.4 million or $402 per carat from the sale of 105,648 carats in the
fourth quarter of 2020 resulting in a margin of 49%. In comparison, the Company achieved revenues of
$56.0 million or $568 per carat for its sales in the fourth quarter of 2019. That tender was the strongest
tender of 2019 due to a stabilization of rough pricing in all size classes.
Fourth quarter revenue included 89,772 carats sold through tender in December 2020 and the remainder
sold through a combination of Clara and HB under the supply agreement announced in July 2020. Under
the HB supply agreement, Lucara’s +10.8 carat production is being sold at prices based on the estimated
polished outcome, with a true up amount paid on the actual achieved polished sales thereafter, less a fee
and the cost of manufacturing. The +10.8ct diamonds of poorer quality (clivage low, rejection goods) are
sold as rough parcels and do not enter the polishing pipeline at HB. The unique pricing mechanism from
the HB sales agreements has delivered regular cash flow for this important segment of our production
profile, which represents about 60-70% of Lucara’s revenue annually. Regular shipments of +10.8 carat
stones commenced in the third quarter of 2020 with payments for the initial value of these shipments
received 60 days after delivery to HB. A slower than expected ramp-up in both manufacturing and polished
sales resulted in certain amounts, that would otherwise have been recorded as revenue in 2020, now
expected to be realized in 2021.
Price recovery was observed in many size classes in the fourth quarter of 2020 and prices achieved for
goods sold on Clara (under 10.8 carats in size) in January 2021 have now recovered to the level of pricing
achieved early in 2020.
Q4 2020 Sales Results:
Sales Channel
Rough Carats Sold Revenue Recognized Average Price/Carat
HB Agreements1
Clara2
Tender3
Total
13,045
2,831
89,772
105,648
$ 28.2 million
$ 4.0 million
$ 10.2 million
$ 42.4 million
$ 2,160
$ 1,425
$ 113
$ 402
(1) Includes the sale of 2,512 rough carats from Shipment 1.
(2) Five sales were completed on Clara in Q4 2020, with the sale of third-party goods increasing the total volume
transacted to $4.6 million, a 45% increase in volume compared to Q3 2020. Clara’s customer base grew 5%
from 71 to 75 customers by December 31, 2020.
(3) The Q4 2020 tender was held in December in Antwerp; diamonds less than 10.8 carats in size which did not
meet quality characteristics for extraction for sale on Clara were sold through tender.
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Revenue recognized under the new HB supply agreement is inherently more conservative at the time an
initial valuation is determined. This is because while Lucara participates in any upside from the sale of
polished stones, the structure of the agreement requires HB to assume all downside risk arising from the
manufacturing process. Variable consideration, in the form of “top-up” payments owing when the final
polished sales price exceeds the initial payment to Lucara, is estimated when determining the transaction
price recognized for accounting purposes, updated at each period end. Upon the sale of the final polished
diamonds, Lucara recognizes the top-up achieved. As such, in 2020, the timing of revenue recognition was
affected by the change in the sales approach for the Company’s +10.8 carat production and variability
arising from the quantity and quality of the goods produced in any period. The new arrangement also
resulted in delayed cash flows from operations compared to the prior year. The estimate of variable
consideration at December 31, 2020 of $7.2 million was predominantly based on upgrades achieved for
stones polished during the period. As additional stones delivered in 2020 are polished and certainty is
achieved regarding the manufactured stones, additional variable consideration is expected. Further
revenue from stones delivered to HB in 2020, and included above as rough carats sold, is expected to be
realized in 2021 under the HB agreement as those rough diamonds are polished and sold. As certain large,
high value diamonds take longer to plan and manufacture (Shipment 1) there is an impact to overall average
price as smaller, lower total value stones and rejection stones are sold disproportionally earlier in the
process.
Operating expenses were comparable between the two periods, however the operating margin decreased
from $359/carat in Q4 2019 to $196/carat in Q4 2020 from the reduced revenue recognized in Q4 2020
and a 7% decrease in the number of carats sold. Operating margins continue to be strong at 49% (Q4 2019
– 63%).
Sales Results for the Year Ending December 31, 2020
Sales Channel
Rough Carats Sold Revenue Recognized Average Price/Carat
HB Agreements1
Clara
Tender
Total
19,556
7,384
346,808
373,748
$55.2 million
$10.7 million
$59.4 million
$125.3 million
$2,822
$1,452
$171
$335
(1) Includes 12,493 carats of +10.8 carats stones sold as rough at an average price per carat of $271 and 7,063
carats placed into manufacturing with revenue recognized as of December 31, 2020 of $7,334 per carat.
Several, large, high value rough diamonds from Shipment 1 have yet to be sold and planning is incomplete
on several other large diamonds delivered in 2020. The average 2020 price per carat for the HB Agreements
is negatively impacted by the fact that these large, higher value stones have not yet been sold.
The change in sales approach for the +10.8 carat production had the most significant impact on results for
the year ended December 31, 2020. The change had a similar impact to the results for the year ended
December 31, 2020 as described above in the Q4 sales results. This change affected revenue, loss from
mining operations, Adjusted Earnings Before Interest, Tax, Depletion and Amortization (“Adjusted EBITDA”,
a non-IFRS measure, see page 10 for details), net income (loss) and earnings (loss) per share when
compared to results from the year ended December 31, 2019.
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QUARTERLY RESULTS OF OPERATIONS – KAROWE MINE
Table 2:
Sales
Revenues generated from the sale of Karowe
diamonds in the quarter
Carats recovered from Karowe sold for
revenues recognized during the period
Average price per carat for proceeds received
during the period
Production
Tonnes mined (ore)
Tonnes mined (waste)
Tonnes processed
Average grade processed
Carats recovered
Costs
Operating costs per carats sold (see page 10
Non-IFRS measures)
Sustaining capital expenditures
Underground expansion project
(*) carats per hundred tonnes
UNIT
Q4-20
Q3-20
Q2-20(1)
Q1-20
Q4-19
US$M
42.3
41.2
7.3(1)
33.8
56.0
Carats
105,329
112,741
68,861
86,010
98,394
US$
401
366
107(1)
393
568
Tonnes
Tonnes
Tonnes
cpht (*)
Carats
US$
US$M
US$M
748,296
434,082
684,768
14.6
100,059
678,110
436,781
646,447
13.8
88,909
683,282
591,804
705,421
14.3
101,203
878,087
1,199,660
639,430
14.3
91,536
694,591
740,593
647,502
13.3(2)
86,422(2)
205
4.4
8.3
192
4.7
4.8
174
3.7
3.9
201
2.4
1.7
209
13.0
-
(1) During the three months ended June 30, 2020 the Company made a deliberate decision to withhold from sale all +10.8 carat
stones due to market uncertainty arising from the global pandemic. As a result, the quarterly revenue recognized during Q2
2020 and the average price per carat sold are not directly comparable to the other quarterly results presented in the table
above.
(2) Carats recovered during the period included 273 carats recovered from re-processing historic recovery tailings from previous
milling and are excluded from the average grade processed.
FOURTH QUARTER OVERVIEW – OPERATIONS - KAROWE DIAMOND MINE
Safety: Karowe had one lost time injury during the three months ended December 31, 2020 resulting in a
twelve-month rolling Lost Time Injuries Frequency Rate (“LTIFR”) of 0.43 and an All Injury Frequency Rate
of 0.60 (“AIFR”).
Production: Ore and waste mined during the fourth quarter of 2020 totaled 0.7 million tonnes and 0.4
million tonnes respectively. Tonnage processed was on target at 0.7 million tonnes, with a total of 100,059
carats recovered. Ore processed was predominantly from the South Lobe. During Q4 2020, a total of 195
Specials (single diamonds larger than 10.8 carats) were recovered including nine diamonds greater than
100 carats in weight. Included in this total were four diamonds greater than 200 carats, including one 998
carat stone.
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SELECT ANNUAL FINANCIAL INFORMATION
Table 4:
Year ended December 31,
In millions of U.S. dollars unless otherwise noted
Revenues
Operating expenses
Operating earnings (1)
Royalty expenses
Exploration expenditures
Administration
Sales and marketing
Adjusted EBITDA (2)
Depletion and amortization
Finance expenses
Foreign exchange gain (loss)
Loss on disposal of assets
Current income tax expense
Deferred income tax expense (recovery)
Net income (loss) for the year
Earnings (loss) per share (basic)
Earnings (loss) per share (diluted)
Per carat sold:
Sales price
Operating expenses
$
2020
125.3
(72.6)
52.7
(13.5)
(2.0)
(16.3)
(2.5)
18.4
(46.8)
(2.5)
2.2
(2.6)
(0.6)
5.7
(26.3)
(0.07)
(0.07)
$
2019
192.5
(77.7)
114.8
(19.2)
(4.6)
(15.7)
(2.2)
73.1
(51.3)
(3.1)
(2.6)
-
(14.5)
11.0
12.7
0.03
0.03
$
2018
176.2
(75.7)
100.5
(17.6)
(3.4)
(16.4)
(2.6)
60.5
(31.4)
(2.6)
(2.3)
-
(5.9)
(6.7)
11.6
0.03
0.03
$ 335
194
$ 468
189
$ 502
216
Average grade processed (carats per hundred tonnes) (3)
14.3
14.4
13.9
Cash on hand
Total assets
Total non-current financial liabilities
Change in cash during the year
Dividends paid during the year
$ 4.9
333.8
78.1
(6.3)
-
$ 11.2
346.0
87.5
(13.2)
(22.4)
$ 24.4
370.1
93.7
(36.7)
(30.3)
(1) Operating earnings is a non-IFRS measure defined as revenues less operating expenses.
(2) Adjusted EBITDA is a non-IFRS measure defined as earnings before foreign exchange, interest, taxation,
depreciation and amortization.
(3) Average grade processed is from direct milling carats and excludes carats recovered from re-processing historic
recovery tailings from previous milling.
Revenues
While total revenue increased 9.3% from 2018 to 2019, total revenue decreased 35% to $125.3 million in
2020 due to a combination of challenging market conditions, and a longer ramp-up for production and
polished sales in the latter half of 2020. During the year ended December 31, 2020, Lucara sold 373,748
carats at an average price of $335 carat (2019: 411,732 carats at an average price of $468 per carat), a
decrease of 9% by volume and 28% by value.
For most of the year ended December 31, 2020, a majority of stones greater than +10.8 carats in size were
sold through the supply agreement with HB, with -10.8 carat stones sold through tender and stones in the
1 to 10 carat size classes and better qualities sold through Clara. Stones sold under the terms of the HB
sale agreements accounted for approximately 44% of the revenue earned in 2020. Revenue earned under
the supply agreement is recognized on a net basis, after deductions for fees and the cost of manufacturing,
both payable to HB. Royalties to the Government of Botswana are paid based on the final gross sales price
achieved from the sale of all diamonds, rough or polished.
Continued improvements in the process plant including better plant availability, an increasing mine call
factor, and stable operations between 2018 and 2020 have led to an increase in the number of diamonds
recovered year-over-year. During 2020, Specials recovered equated to 6.7% weight percentage of total
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recovered carats, the fourth year to achieve greater than 6% weight percentage of total recovered carats,
in line with expectations and a record year by weight for the mine’s history (2019 – 6.1%). In 2020, thirty-
four stones greater than 100 carats were recovered, of which 10 stones exceeded 200 carats. Of particular
note were the recoveries of the top white, 549 carat “Sethunya” in February 2020 and the 998 carat high
white clivage stone recovered in November 2020.
Proceeds from two unique collaboration agreements with Louis Vuitton and HB Antwerp, both entered into
in 2020, are expected to be realized in 2021. The objective of the collaboration agreements is to create a
high jewellery collection from the historic 1,758 carat “Sewelô”, the largest diamond ever mined in
Botswana, and the 549 carat “Sethunya”.
Operating Earnings and Expenses
Operating earnings for the year ended December 31, 2020 were $52.7 million (2019: $114.8 million) after
operating expenses of $72.6 million or $194 per carat sold (2019: operating expenses of $77.7 million or
$189 per carat sold), which resulted in an operating margin (before royalties, depletion and amortization)
of $141 per carat or 42% (2019: operating margin of $279 per carat or 60%). The 7% decrease in operating
expenses is from consistent continued operations in 2020, including the decision to defer approximately 2
million tonnes of waste mining to 2022/2023 as a cost savings measure in response to the uncertainty
arising from the pandemic. This change, combined with a favourable exchange rate from a weakening of
the Botswana Pula compared to the US dollar and insourcing of the process plant contract completed mid-
year all contributed to a decrease in operating expenses for the year ended December 31, 2020.
During 2020, Lucara achieved an average grade of 14.3 carats per hundred tonnes (“cpht”) during the year
compared to an average grade of 14.4 cpht in the prior year. Carat recoveries of 381,706 carats (2019:
403,070 carats recovered, excluding 29,990 carats recovered from re-processing of historic tailings)
decreased by 5% as compared to 2019 consistent with the 5% decrease in tonnes processed due to
additional planned downtime for the upgrade of XRT technology, a key component of the recovery circuit
at the Karowe Mine. In an uncertain year with additional safety measures in place to curb the spread of
COVID-19, the operations performed consistently and according to plan throughout 2020.
Depletion and amortization
In 2020, the Company recorded depletion and amortization expense of $46.8 million (2019: $51.3 million).
The decrease in this non-cash expense year over year is a direct result of the 5% decrease in carats
recovered. Depletion expense on assets that are amortized on a unit of production basis, including deferred
stripping costs, is affected by the volume of carats recovered in any given year.
Net income
Net loss for the year ended December 31, 2020 was $26.3 million (2019: $12.7 million net income). Net
loss for the year ended December 31, 2020 was materially impacted by decreased revenue due to the
change in timing of revenue recognition and the pricing achieved in 2020.
Adjusted Earnings Before Interest, Tax, Depreciation and Amortization (Adjusted EBITDA)
Adjusted EBITDA for the year ended December 31, 2020 was $18.4 million compared to $73.1 million in
2019. The change year to year is directly attributable to reduced revenue in 2020, offset by a reduction in
operating expense of 7%.
Adjusted EBITDA is a non-IFRS measure and is reconciled in Table 4 above.
Operating Cost Per Tonne of Ore Processed
For the year ended December 31, 2020, operating cost per tonne processed was $27.80 (2019: $31.88),
13% lower than the prior year. Positive impacts were felt from a 6% depreciation of the Botswana Pula
against the U.S. dollar and cost management in a year of uncertainty. Completion of the process plant
9 | P a g e
contract insourcing contributed to the lower cost, partially offset by a 4% decrease in tonnes processed due
to planned XRT upgrades completed in the second and third quarters of 2020.
Operating cost per tonne processed is a non-IFRS measure and is reconciled in Table 6 below to the most
directly comparable measure calculated in accordance with IFRS, which is operating expenses.
NON-IFRS FINANCIAL MEASURES
This MD&A refers to certain financial measures, such as adjusted EBITDA, operating earnings, operating
cash flow per share, operating cost per carat sold, and operating cost per tonne of ore processed, which
are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS.
These measures may differ from those made by other corporations and accordingly may not be comparable
to such measures as reported by other corporations. These measures have been derived from the
Company’s financial statements, and applied on a consistent basis, because the Company believes they
are of assistance in the understanding of the results of operations and financial position.
Adjusted 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. Adjusted EBITDA comprises earnings before deducting interest and
other financial charges, income taxes, depreciation and amortization.
Operating earnings (see “Select Financial Information”) is the term the Company uses as an approximate
measure of the earnings from the operations under an accrual basis of accounting defined as revenues
less operating expenses.
Operating cash flow per share is the term the Company uses to assess its ability to generate cash flow from
operations, while also taking into consideration changes in the number of outstanding common shares of
the Company. Operating cash flow per share is calculated by taking cash flows from operating activities,
less changes in non-cash working capital items, divided by the basic weighted average number of common
shares outstanding. The most directly comparable measure calculated in accordance with IFRS is cash
flows from operating activities. A table reconciling the two measures is presented below.
Table 5: Operating cash flow per share reconciliation:
In millions of U.S. dollars except weighted average
common shares outstanding and operating cash flow per
share
Cash flows from operating activities
Add: Changes in non-cash working capital
Total cash flow from operating activities before
changes in non-cash working capital
Weighted average common shares outstanding
Three months ended
December 31
2019
Twelve months ended
December 31
2019
$ 19,103 $ (1,526) $ 50,092
10,670
60,762
1,677
20,780
18,793
17,267
2020
2020
$ (2,635)
9,969
7,334
396,896,733
396,858,168
396,889,357
396,790,950
Operating cash flow per share(1)
$0.02
$0.05
$0.04
$0.15
(1) Operating cash flow per share for the period is a non-IFRS measure defined as cash flows from operating activities,
less changes in non-cash working capital items, divided by the basic weighted average number of common shares
outstanding for the period.
Operating costs per carat sold (see “Karowe Mine, Botswana”) is the term the Company uses to describe
the mining, processing and site administration costs to produce a single diamond carat. This is calculated
as operating costs per carat of diamonds sold.
Operating cost per tonne of 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 below.
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Table 6: Operating cost per tonne of ore processed reconciliation:
In millions of U.S. dollars with the exception of tonnes processed and operating cost per tonne
processed
Operating expenses
Net change rough diamond inventory, excluding depletion and
amortization (1)
Net change ore stockpile inventory, excluding depletion and
amortization (2)
Total operating costs for ore processed
Tonnes processed
Operating cost per tonne of ore processed(3)
Twelve months ended December 31,
2019
2020
$ 72.6
0.3
$ 77.7
3.8
1.5
74.4
7.9
89.4
2,676,066
2,804,517
$ 27.80
$ 31.88
(1) Net change in rough diamond inventory, excluding depletion and amortization.
(2) Net change in ore stockpile inventory, excluding depletion and amortization.
(3) Operating cost per tonne processed for the period is a non-IFRS measure defined as the sum of operating
expenses, capitalized production stripping costs, and the net changes in rough diamond inventories and ore
stockpiles divided by the tonnes of ore processed for the period.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2020, the Company had cash and cash equivalents of $4.9 million and had drawn
$30.5 million from its $50 million working capital facility. After adjustments for working capital items, cash
flow expended on operations totalled $1.5 million.
Working capital as at December 31, 2020 was $46.7 million as compared to $60.9 million as at December
31, 2019. The 23% decrease in working capital reflects increases in both accounts receivable, mainly from
accrued revenue and taxes receivable, and the credit facility balance. The Company utilized the working
capital facility more in 2020 due to the change in sales approach for the +10.8 carat stones and the effects
of COVID-19 on rough diamond prices, particularly mid-year.
Amounts available to be drawn from the credit facility totaled $19.5 million as of December 31, 2020 ($50.0
million as of December 31, 2019). The facility matures on May 5, 2021. The Company is currently looking
to extend the facility in conjunction with the underground expansion project. If the Company is not able to
extend, amend or replace that facility, it will be required to repay all amounts drawn as at the maturity date.
Capital spending during the year remained focused on the underground expansion project (2020: $18.7
million; 2019: $9.2 million) and sustaining capital expenditures of $15.2 million (2019: $17.6 million)
including improvements to the XRT technology used in the recovery circuit and raising of the slimes dam
walls.
The Company is actively exploring opportunities to arrange debt financing for the underground expansion
for those amounts which are expected to exceed the Company’s cash flow from operations during the
construction period.
Long-term liabilities consist of restoration provisions of $21.2 million (2019: $23.6 million), deferred income
taxes of $55.9 million (2019: $63.0 million), and other non-current liabilities of $1.0 million (2019: $0.8
million) which consist of leases reclassified under IFRS 16: Leases as of January 1, 2020.
Financing activities during 2020 included draw downs from the working capital facility of $30.5 million (2019:
repayment of $10.0 million) to manage fluctuations in working capital. In addition, during 2019, the
Company paid dividends of $22.4 million for which there is no comparable allocation in 2020. The Company
suspended the quarterly dividend payment in November 2019 to allow excess capital to be directed to the
underground expansion program.
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The working capital facility contains financial and non-financial covenants customary for a facility of this
size and nature. In September 2020, this facility was amended to include FirstRand Bank Limited (London
Branch), a division of Rand Merchant Bank, alongside The Bank of Nova Scotia. As at December 31, 2020,
the Company was 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.
Total shareholders’ equity decreased from $236.9 million as at December 31, 2019 to $208.2 million as at
December 31, 2020, mainly due to increases in the deficit and accumulated other comprehensive loss.
Other minor changes to share capital and contributed surplus were related to share units vesting and the
recording of share-based compensation during the year.
RELATED PARTY TRANSACTIONS
A description of key management compensation can be found in Note 16 of the audited consolidated
financial statements for the year ended December 31, 2020.
In relation to the acquisition of Clara in February 2018, certain related parties may receive additional shares
of Lucara if Clara, now a wholly-owned subsidiary of Lucara, achieves certain levels of revenue generated
by sales on the platform (the “Performance Milestones”). The Performance Milestones are detailed in Note
9 of the audited consolidated financial statements for the year ended December 31, 2020. As of December
31, 2020, none of the revenue milestones had been achieved.
Name
Position
Eira Thomas
Catherine McLeod-Seltzer
John Armstrong
Zara Boldt
President, CEO & Director
(Founder of Clara)
Director (Founder of Clara)
VP, Technical Services
CFO & Corporate Secretary
Lucara shares issued as
consideration for
Clara in February
2018
1,192,000
Lucara shares to be issued
if Performance
Milestones are
achieved
1,788,001
400,000
50,000
50,000
600,000
74,999
74,999
A profit sharing mechanism also exists, whereby a total of 3.45% of the EBITDA generated by the platform
has been assigned to Ms. Thomas (Lucara’s CEO and a director) and Ms. McLeod-Seltzer (who was
appointed to the Lucara Board of Directors following the Clara acquisition) as founders of the platform, with
the remaining 3.22% of the EBITDA generated by the platform to be distributed to management, including
Dr. Armstrong (Vice-President, Technical Services) and Ms. Boldt (who was appointed as Lucara’s CFO &
Corporate Secretary after the Clara acquisition) (collectively, “Clara Management”), at the discretion of
Lucara’s Compensation Committee based on key performance targets. In March 2020, the EBITDA sharing
agreement between Clara and Eira Thomas and Clara and the Clara Management was amended. Under
the terms of the amendment, each of Eira Thomas and the Clara Management waived their respective
rights to the EBITDA payment to the extent that such payment relates to net income earned by Clara on
the sale of rough diamonds from Karowe Mine. This waiver was in effect from the date of the share
purchase agreement in February 2019 through to December 31, 2020.
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2021 OUTLOOK
This section of the MD&A provides management's production and cost estimates for 2021. These are
“forward-looking statements” and subject to the cautionary note regarding the risks associated with forward-
looking statements.
Karowe Mine, Botswana
Table 7: 2021 Diamond Sales, Production and Outlook
Karowe Diamond Mine
In millions of U.S. dollars unless otherwise noted
Diamond revenue (millions)
Diamond sales (thousands of carats)
Diamonds recovered (thousands of carats)
Ore tonnes mined (millions)
Waste tonnes mined (millions)
Ore tonnes processed (millions)
Total operating cash costs(1) including waste mined(2) (per tonne processed)
Botswana general & administrative expenses including marketing costs (per tonne
processed)
Tax rate(3)
Average exchange rate – USD/Pula
Full Year – 2021
$180 to $210
350 to 390
340 to 370
2.8 to 3.2
2.8 to 3.4
2.6 to 2.9
$28.00 to $32.00
$3.00 to $4.00
0% or 25%
11.0
(1) Operating cash costs are a non-IFRS measure. See “Non-IFRS Measures” on page 10.
(2) Includes ore and waste mined cash costs of $5.00 to $5.50 (per tonne mined) and processing cash costs of $11.15
to $12.15 (per tonne processed).
(3) The Company is subject to a variable tax rate in Botswana based on a profit and revenue ratio which increases as
profit as a percentage of revenue increases. The lowest variable tax rate is 22% while the highest variable tax rate is
55% (only if taxable income were equal to revenue). Capital expenditures are deductible when incurred. With planned
capital expenditures, a tax rate of 0% is forecasted. Should capital expenditures vary from plan, the tax rate will increase
from 0% to 25%.
In 2021, the Company’s revenue forecast incorporates an increase in the proportion of carats recovered
from the higher value M/PK(S) and EM/PK(S) units within the South Lobe in accordance with the mine plan.
The assumptions for carats recovered and sold are consistent with achieved performance in recent years.
The number of tonnes processed is also consistent with recent achievements, noting that actual tonnes
processed in 2020 was lower than 2019 due to several multi-day shut-downs for upgrades within the XRT
recovery circuit. Waste tonnes that were deferred in 2020 as a cost saving measure are expected to be
caught up in 2022 and 2023. The estimated processing cost per tonne processed is lower than previous
years, reflecting a combination of strong operating performance in the plant and insourcing of the process
plant contract in 2020.
The proposed underground expansion at the Karowe Mine has an estimated capital cost of $514 million
and a five year development period. An investment decision, subject to receipt of all required authorizations
and the arrangement of financing, is expected in H2 2021. The year one capital spend on the expansion
program is expected to be $105 million. Until financing can be arranged and an investment decision is
made, a limited amount of funding has been approved for H1 2021, based on the Company’s ability to fund
the initial capital expenditures from operating cash flow. Similar to the 2020 program, the 2021 program
will focus on early works, including detailed engineering and design work, with the objective of mitigating
key risks related to the development schedule.
Lucara Botswana’s progressive tax rate computation allows for the immediate deduction of operating costs,
including capital expenditures, in the year in which they are incurred. Based on 2021 revenue guidance of
$180 million to $210 million and assuming the underground development expenditures are incurred, the
expected tax rate will be 0% for 2021. Changes to the timing and amount of capital expenditures may result
in a rate of up to 25% for 2021.
Sustaining capital and project expenditures are expected to be up to $21.0 million in 2021, including
expenditures associated with further upgrades to the XRT recovery circuit to create redundancy in the Large
Diamond Recovery circuit and implementation of body scanning technology (to enhance security) which
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had originally been planned for 2020 but was delayed whilst regulatory approval was pending (required
approvals were received in Q4 2020).
FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT
In the normal course of business, the Company is inherently exposed to certain financial risks, including
currency, credit, price and liquidity risks. A discussion of these risks and related assumptions can be found
below and in Note 18 in the Company’s audited consolidated financial statements for the year ending
December 31, 2020. Note 18 includes a discussion of the methods used to value financial instruments, as
well as any significant assumptions made as part of the valuation.
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. A majority of the Company’s cash and cash equivalents are 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 not released until full payment is received when goods are
sold through tender or on Clara.
Under the new supply agreement with HB, a larger proportion of the Company’s goods will be sold through
HB to buyers of polished diamonds. The credit risk associated with these sales will concentrate with one
individual customer and payment terms are longer (60 days) than the Company’s traditional tender sales
(5 days).
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.
Price risk
The Company derives its income from the sale of rough diamonds mined in Botswana, a majority of which
are sold through a quarterly tender process from Botswana. The price and marketability of these diamonds
can be significantly impacted by international economic trends, global or regional consumption, demand
and supply patterns and the availability of capital for diamond manufacturers, all factors that are not within
the Company’s control. Under the supply agreement with the HB Group, the ultimate achieved sales prices
of stones larger than 10.8 carats in size is based on a polished diamond pricing mechanism. This pricing
mechanism results in the Company’s revenue being exposed to a greater extent to the price movements in
the polished diamond market than it is currently through its traditional tender process for rough diamonds.
The COVID-19 pandemic has negatively impacted global demand for luxury commodities, which includes
jewelry containing diamonds. Restrictions on international travel have also disrupted the diamond supply
chain. To the extent that the supply of rough or polished diamonds exceeds demand, this is likely to result
in price deterioration and negatively impact the Company’s revenue, thereby increasing the risk that not
only will operations not be profitable, the Company may not have sufficient liquidity to meet its financial
obligations as they come due.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become
due. To manage liquidity risk, regular cash flow forecasting is performed in the operating entities of the
Company and aggregated in the head office to understand what level of capital is required. Rolling forecasts
of the Company’s liquidity requirements are prepared and monitored to assess whether there is sufficient
cash available to meet the Company’s short and longer-term operational needs. Such forecasting takes
into consideration the Company’s ability to generate cash from the sale of diamonds and additional liquidity
which can be accessed through the revolving term credit facility.
OUTSTANDING SHARE DATA
As at the date of this MD&A, the Company had 396,896,733 common shares outstanding, 2,946,527 share
units, 613,547 deferred share units, and 4,423,000 stock options outstanding under its stock-based
incentive plans.
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RISKS AND UNCERTAINTIES
The operations of the Company are speculative due to the high-risk nature of its business which includes
the acquisition, financing, exploration, development and operation of diamond properties, the potential
construction of an underground mine at Karowe and the continued commercialization of Clara. The material
risk factors and uncertainties, which should be considered 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.
COVID-19 Global pandemic risk
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a global
pandemic and on April 2, 2020 the Government of Botswana declared an initial state of emergency. Mining
was declared an essential service and as a result, the Karowe Mine continued to operate with additional
health and safety protocols implemented. Quarterly diamond tenders were held in Antwerp in June,
September and December due to varying international travel restrictions. The Government of Botswana
has since extended the state of emergency, which is expected to remain in place until March 31, 2021.
Concern remains over how governments across the jurisdictions in which Lucara and many of its customers
operate will respond to increasing infection numbers and variants of COVID-19, even as mass vaccination
campaigns begin in many countries. Due to the ongoing uncertainty resulting from the global pandemic,
Lucara’s operations could be impacted in a number of ways including, but not limited to: a suspension of
operations at the Karowe Mine, disruptions to supply chains, worker absenteeism due to illness, disruption
to the progress of the Karowe Mine underground expansion project and an inability to ship or sell rough
and/or polished diamonds during this period. These possible impacts could result from government
directives, the need to modify work practices to meet appropriate health and safety standards, a lack of
demand for rough and/or polished diamonds, a lack of available liquidity to meet ongoing operational
expenses and, due to or by other COVID-19 related impacts on the availability of labour or to the supply
chain.
COVID-19 negatively impacted both demand and prices for rough and polished diamonds through much of
2020. As an ongoing risk, the duration and full financial effect of the COVID-19 pandemic is unknown at
this time, as is the efficacy of government and central bank interventions in the jurisdictions in which Lucara
and its clients operate, the Company’s business continuity plan and other mitigating measures. While the
impact of COVID-19 is expected to be temporary, the current circumstances are dynamic and the impacts
of COVID-19 on our business operations, including the duration and impact that it may have on our ability
to ship and sell diamonds, on demand for rough and polished diamonds, on our suppliers, on our employees
and on global financial markets, cannot be reasonably estimated at this time. Accordingly, estimates of the
extent to which the COVID-19 pandemic may materially and adversely affect the Company’s operations,
financial results and condition in future periods are also subject to significant uncertainty.
In preparing our consolidated financial statements, we make judgments in applying our accounting policies.
In addition, we make assumptions about the future in deriving estimates used in preparing our condensed
interim consolidated financial statements. As disclosed in Note 3c of the audited, consolidated financial
statements for the year ending December 31, 2020, the most significant sources of estimation uncertainty
include estimated recoverable reserves and resources, valuation of mineral properties and plant and
equipment, estimated variable consideration in determining revenue, the provision for deferred taxes, the
valuation of decommissioning and site restoration provisions, and going concern and liquidity.
Management is required to exercise judgment to ensure that disclosures relating to indicators of
impairment, liquidity and the Company’s ability to continue as a going concern are appropriate. To this
end, the Company manages liquidity risk by maintaining an adequate level of cash and cash equivalents
to meet its short-term ongoing obligations and reviews its actual expenditures and forecast cash flows on
a regular basis. Changes in demand for rough and/or polished diamonds and diamond prices, production
levels and related costs, foreign exchange rates and other factors all impact the Company’s liquidity
position. In addition, the Company’s $50 million working capital facility matures on May 5, 2021. If the
Company is not able to extend, amend or replace that facility, it will be required to repay all amounts drawn
15 | P a g e
as at the maturity date. As of December 31, 2020, the Company had drawn $30.5 million for working
capital.
Uncertainty about judgments, estimates and assumptions made by management during the preparation of
the Company’s consolidated financial statements related to potential impacts of the COVID-19 outbreak on
revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the
carrying value of the asset or liability affected.
OFF-BALANCE SHEET ARRANGEMENTS
With the exception of short-term leases with a term of 12 months or less, the Company is not party to any
off-balance sheet arrangements.
ANNUAL MEETING INFORMATION
The Company’s annual general meeting of shareholders will be held on May 11, 2021 in Vancouver,
Canada.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
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, 2020 includes a
summary of the significant accounting policies adopted by the Company. The following include the use of
significant estimates and judgments:
Estimated Variable Consideration (Revenue)
Revenues include Management’s estimate of variable consideration receivable under the terms of the HB
Antwerp supply agreement. Variable consideration is a component of the transaction price and represents
an area of significant management judgment and estimation. Under the HB Antwerp supply agreement,
rough diamonds are sold to HB Antwerp and the Company receives an initial payment based on an
estimated polished outcome price (less a fee and the cost of manufacturing). If the manufactured diamond
is sold to an end buyer for a price higher than the initial estimated polished price received by Lucara a true
up payment (variable consideration including in the calculation of the transaction price) is payable by HB
Antwerp to the Company once the final sales is made.
Variable consideration is estimated using the most likely approach, as Management considers this
approach to be more predictive. The transaction price is reassessed each reporting period, including any
estimated amount of variable consideration. The revenue recognized as the transaction price, including
any variable consideration, is recognized within the constraint of “highly probable”.
In evaluating the most likely approach, Management takes into consideration market conditions, the current
estimated polished value provided by HB Antwerp (on a stone by stone basis) and the probability that the
variable consideration would be realized through the manufacturing process. Any changes in the estimated
amount of the variable consideration will affect the reported amounts for revenue, net income (loss) and
earnings (loss) per share in a given period as well as other, non-IFRS measures (see page 10) such as
operating earnings, Adjusted EBITDA, average price per carat sold and margin.
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,
16 | P a g e
but will be affected by forecasted diamond prices, commodity prices, inflation rates, exchange rates, capital
and production costs and recoveries amongst other factors.
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.
Estimated recoverable reserves and resources are used to determine the depletion and amortization of
property, plant and equipment at the operating mine site, in accounting for deferred stripping costs and
mineral properties, determining a deferred tax rate and in performing impairment testing. Therefore,
changes in the assumptions used could affect the carrying value of assets, depletion and amortization and
impairment charges recorded in the income statement.
Valuation of Mineral Properties and Plant and Equipment
The Company carries its mineral properties and plant and equipment at depleted cost less any provision
for impairment. The costs of each property will be amortized over the economic life of the property on a unit
of production basis. Costs are charged to operations when a property is abandoned or when impairment in
value, other than temporary, has been determined. Exploration costs are charged to operations as incurred.
The Company assesses at each reporting period whether there is an indication of impairment. Significant
judgment is applied in assessing whether indicators of impairment exist that would necessitate impairment
testing. Internal and external factors, such as i) a significant decline in the market value of the Company’s
share price; ii) changes in the quantity of the recoverable resources and reserves; and iii) changes in
diamond prices, capital and operating costs and recoveries; and iv) changes in inflation, interest and
exchange rates, are evaluated in determining whether there are any indicators of impairment. Estimated
quantities of the recoverable resources and reserves are based on information compiled by qualified
persons Following the release of a new Mineral Resource Estimate for Karowe in mid-2019, the remaining
life-of-mine reserve base was adjusted, resulting in a higher depletion rate than in previous years. 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
The deferred tax provisions are calculated by the Company 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, diamond 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.
Decommissioning and Site Restoration
The Company has obligations for site restoration and decommissioning related to the Karowe Diamond
Mine. 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
Botswana, the requirements could change as a result of amendments in the laws and regulations relating
17 | P a g e
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 amortized 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.
CHANGES IN ACCOUNTING POLICIES
There have been no changes to accounting policies except the additional revenue policy described in Note
3 of the audited consolidated financial statements for the year ended December 31, 2020.
MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
Management is responsible for the preparation of this document along with the audited consolidated
financial statements. Management is responsible for the integrity and objectivity of this document, ensuring
the fair presentation of its financial results. The Audit Committee is responsible for reviewing the contents
of this document along with the audited consolidated financial statements to ensure the reliability and
timeliness of the Company’s disclosure while providing another level of review for accuracy and oversight.
The Board of Directors, based on recommendations from Lucara’s Audit Committee, reviews and approves
the financial information contained in the audited consolidated financial statements and the MD&A.
INTERNAL FINANCIAL REPORTING AND DISCLOSURE CONTROLS
Disclosure controls and procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information
required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted
by it under securities legislation is recorded, processed, summarized and reported within the time periods
specified in the securities legislation and include controls and procedures designed to ensure that
information required to be disclosed by the Company in its annual filings, interim filings or other reports filed
or submitted under securities legislation is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of the Company’s disclosure controls and procedures. As of
December 31, 2020, 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
18 | P a g e
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, 2020, 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 impact
of COVID-19 pandemic on the Company’s operations and cash flows and its plans with respect to the
Karowe underground expansion project; the estimates of the Company’s mineral reserves and
resources; estimates of the Company’s production and sales volumes for the Karowe Diamond Mine;
estimated costs for capital expenditures related to the Karowe Diamond Mine; production costs;
exploration and development expenditures and reclamation costs; expectation of diamond prices and
the potential for the supply agreement with HB Antwerp to achieve both higher prices from the sale of
polished diamonds and to provide more regular cash flow than in previous periods; estimates of variable
consideration receivable pursuant to the HB Antwerp supply agreement; changes to foreign currency
exchange rates; assumptions and expectations related to the possible development of an underground
mining operation at Karowe including associated capital costs, financing strategies and timing;
expectations in respect of the development and functionality of the technology related to the Clara
platform, the intended benefits and performance of the Clara platform, including ability to complete sales
without viewing diamonds, the growth of the Clara platform, the timing and frequency of sales on the
Clara Platform, and the quantum and timing of participation of third parties on the Clara platform;
expectations regarding the need to raise capital and its availability; possible impacts of disputes or
litigation; and other risks and uncertainties described under the heading “Risks and Uncertainties” in the
Company’s most recent Annual Information Form available at http://www.sedar.com (the “AIF”).
Forward-looking statements are based on the opinions, assumptions and estimates of management as
of the date such statements are made, and they are subject to a number of known and unknown risks,
uncertainties and other factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or achievement expressed or
implied by such forward-looking statements. Such assumptions include: the Company’s ability to obtain
necessary financing; the Company’s expectations regarding the economy generally, results of
operations and the extent of future growth and performance; and assumptions that the Company’s
activities will not be adversely disrupted or impeded by development, operating or regulatory risk. The
Company believes that expectations reflected in this forward-looking information are reasonable but no
assurance can be given that these expectations will prove to be correct and such forward-looking
information included in this MD&A should not be unduly relied upon.
There can be no assurance that such statements will prove to be accurate, as the Company’s results
and future events could differ materially from those anticipated in this forward-looking information as a
result of those factors discussed in or referred to under the heading “COVID -19 Global Pandemic” in
19 | P a g e
this MD&A and 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.
20 | P a g e
Consolidated Financial Statements
For the year ended December 31, 2020
Independent auditor’s report
To the Shareholders of Lucara Diamond Corp.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Lucara Diamond Corp. and its subsidiaries (together, the Company) as at
December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
●
●
●
●
●
●
the consolidated balance sheets as at December 31, 2020 and 2019;
the consolidated statements of operations for the years then ended;
the consolidated statements of comprehensive income (loss) for the years then ended;
the consolidated statements of cash flows for the years then ended;
the consolidated statements of changes in equity for the years then ended, and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
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.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2020. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Assessment of impairment indicators of plant
and equipment and mineral properties
Our approach to addressing the matter included the
following procedures, among others:
Refer to note 3 – Summary of significant
accounting policies, note 7 – Plant and equipment
and note 8 – Mineral properties to the consolidated
financial statements.
The Company’s total plant and equipment and
mineral properties as at December 31, 2020
amounted to $211 million. Management assesses
at each reporting period-end whether there is an
indication that an asset or group of assets may be
impaired. Management applies significant judgment
in assessing whether indicators of impairment exist
that would necessitate impairment testing. Internal
and external factors, such as (i) a significant
decline in the market value of the Company’s share
price; (ii) changes in quantity of the recoverable
resources and reserves; (iii) changes in diamond
prices, capital and operating costs and recoveries;
and (iv) changes in inflation, interest and exchange
rates, are evaluated by management in determining
whether there are any indicators of impairment.
We considered this a key audit matter due to (i) the
significance of the plant and equipment and mineral
properties balances and (ii) the significant judgment
made by management in assessing whether there
are any indicators of impairment, which led to
significant audit effort and subjectivity in performing
procedures to test management’s assessment.
● Evaluated management’s assessment of
impairment indicators, which included the
following:
– Assessed the completeness of internal or
external factors that could be considered
as indicators of impairment of the
Company’s plant and equipment and
mineral properties, including consideration
of evidence obtained in other areas of the
audit.
– Assessed significant declines in the market
value of the Company’s share price, which
may indicate a decline in value of the
Company’s plant and equipment and
mineral properties.
– Assessed the changes in diamond prices,
the quantity of recoverable resources and
reserves, capital and operating costs and
recoveries, and inflation, interest and
exchange rates by considering external
market data, current and past performance
of the Company and evidence obtained in
other areas of the audit, as applicable.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
●
●
●
●
●
●
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the
Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Mark Platt.
/s/ “PricewaterhouseCoopers LLP”
Chartered Professional Accountants
Vancouver, British Columbia
February 22, 2021
December 31, 2020
December 31, 2019
LUCARA DIAMOND CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. Dollars)
ASSETS
Current assets
Cash and cash equivalents
Receivables and other (Note 5)
Inventories (Note 6)
Investments
Plant and equipment (Note 7)
Mineral properties (Note 8)
Intangible assets (Note 9)
Other non-current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade payables and accrued liabilities
Credit facility (Note 18)
Tax and royalties payable
Lease liabilities
Restoration provisions (Note 10)
Deferred income taxes (Note 14)
Lease liabilities
TOTAL LIABILITIES
EQUITY
Share capital (unlimited common shares, no par value)
Contributed surplus
Deficit
Accumulated other comprehensive loss
TOTAL EQUITY
$
4,916 $
$
$
20,933
68,374
94,223
1,651
107,224
104,002
21,986
4,763
333,849 $
14,874 $
30,528
1,376
781
47,559
21,229
55,905
963
125,656
314,924
8,646
(57,772)
(57,605)
208,193
TOTAL LIABILITIES AND EQUITY
$
333,849 $
The accompanying notes are an integral part of these consolidated financial statements.
Commitments – Note 19
Approved on Behalf of the Board of Directors:
“Marie Inkster”
Director
“Catherine McLeod-Seltzer”
Director
11,197
6,248
65,052
82,497
241
130,108
105,243
22,774
5,168
346,031
15,880
-
4,397
1,347
21,624
23,629
63,015
828
109,096
314,820
7,679
(31,494)
(54,070)
236,935
346,031
1 | P a g e
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(In thousands of U.S. Dollars, except for share and per share amounts)
Revenues
$
125,263 $
192,541
2020
2019
Cost of goods sold
Operating expenses
Royalty expenses (Note 8)
Depletion and amortization
72,643
13,511
46,841
132,995
77,697
19,194
51,267
148,158
Income (loss) from mining operations
(7,732)
44,383
Other expenses
Administration (Note 13)
Exploration
Finance expenses
Foreign exchange (gain) loss
Loss on disposal of plant and equipment (Note 7)
Sales and marketing
Net income (loss) before tax
Income tax expense (recovery) (Note 14)
Current income tax expense
Deferred income tax recovery
16,316
1,964
2,487
(2,186)
2,620
2,465
23,666
(31,398)
593
(5,713)
(5,120)
15,651
4,572
3,118
2,634
-
2,246
28,221
16,162
14,470
(11,022)
3,448
Net income (loss) for the year
Earnings (loss) per common share (Note 15)
Basic
Diluted
$
$
$
(26,278) $
12,714
(0.07) $
(0.07) $
0.03
0.03
Weighted average common shares outstanding (Note 15)
Basic
Diluted
396,889,357
396,889,357
396,790,950
397,912,814
The accompanying notes are an integral part of these consolidated financial statements.
2 | P a g e
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31
(In thousands of U.S. Dollars)
Net income (loss) for the year
$
(26,278) $
12,714
2020
2019
Other comprehensive income (loss)
Items that will not be reclassified to net income
Change in fair value of marketable securities
Items that may be subsequently reclassified to net income
Currency translation adjustment
1,411
(4,946)
(3,535)
(679)
4,606
3,927
Comprehensive income (loss) for the year
$
(29,813) $
16,641
The accompanying notes are an integral part of these consolidated financial statements.
3 | P a g e
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(In thousands of U.S. Dollars)
Cash flows from (used in):
Operating activities
Net income (loss) for the year
Items not involving cash and cash equivalents:
Depletion and amortization
Unrealized foreign exchange (gain) loss
Share-based compensation
Deferred income taxes
Loss on disposal of plant and equipment
Finance costs
Net changes in working capital items:
Receivables and other
Inventories
Trade payables and other current liabilities
Tax and royalties payable
Financing activities
Dividends paid
Proceeds (repayments) of credit facility
Withholding tax for share units vested
Interest paid
Principal elements of lease payments
Investing activities
Acquisition and disposition of plant and equipment
Mineral property expenditure
Development of intangible assets
Acquisition of other assets
Effect of exchange rate change on cash and cash
equivalents
Decrease in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year(1)
2020
2019
$
(26,278) $
12,714
47,879
(4,136)
1,352
(5,713)
2,620
1,543
17,267
(12,423)
(973)
(2,604)
(2,793)
(1,526)
-
30,500
(8)
(110)
(1,011)
29,371
(15,208)
(18,661)
(83)
-
(33,952)
(174)
(6,281)
11,197
$
4,916 $
52,946
2,634
1,186
(11,022)
-
2,304
60,762
5,538
(12,523)
(4,041)
356
50,092
(22,380)
(10,000)
(427)
(107)
(1,421)
(34,335)
(17,563)
(9,178)
(404)
(1,882)
(29,027)
112
(13,158)
24,355
11,197
Supplemental information
Taxes paid
Changes in trade payables and accrued liabilities related
to plant and equipment
(5,115)
(88)
(9,751)
1,386
(1) Cash and cash equivalents are composed of 100% cash deposits held with accredited financial institutions.
The accompanying notes are an integral part of these consolidated financial statements.
4 | P a g e
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Number of
shares issued
and
outstanding
Share capital
Contributed
surplus
Deficit
Accumulated
other
comprehensive
loss
Total
Balance, January 1, 2019
396,509,387 $
313,913 $
7,766 $
(21,767) $
(57,997) $
241,915
Share-based compensation
Effect of foreign currency
translation
Change in fair value through
other comprehensive income
securities
Shares issued from SUs vested
Withholding tax for SUs vested
Dividends paid(1)
Net income for the year
-
-
-
348,781
-
-
-
-
-
-
907
-
-
-
1,186
-
-
(907)
(427)
61
-
-
-
-
-
-
(22,441)
12,714
-
4,606
(679)
-
-
-
-
1,186
4,606
(679)
-
(427)
(22,380)
12,714
Balance, December 31, 2019
396,858,168 $
314,820 $
7,679 $
(31,494) $
(54,070) $
236,935
Balance, January 1, 2020
396,858,168 $
314,820 $
7,679 $
(31,494) $
(54,070) $
236,935
Share-based compensation
Effect of foreign currency
translation
Change in fair value through
other comprehensive income
securities
Shares issued from SUs vested
Withholding tax for SUs vested
Net loss for the year
-
-
-
38,565
-
-
-
-
-
104
-
-
1,079
-
-
(104)
(8)
-
-
-
-
1,079
(4,946)
(4,946)
-
-
-
(26,278)
1,411
-
-
-
1,411
-
(8)
(26,278)
Balance, December 31, 2020
396,896,733 $
314,924 $
8,646 $
(57,772) $
(57,605) $
208,193
(1) On April 11, June 20, and September 19, 2019 the Company paid a cash dividend of CA$0.025 per share.
The accompanying notes are an integral part of these consolidated financial statements.
5 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
1. NATURE OF OPERATIONS AND LIQUIDITY
Lucara Diamond Corp. together with its subsidiaries (collectively referred to as the “Company” or
“Lucara”) 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 located in Botswana
and a 100% interest in Clara Diamond Solutions Limited Partnership (“Clara”). Clara operates a
secure, digital diamond sales platform that uses proprietary analytics together with cloud and
blockchain technologies.
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 2600
- 595 Burrard Street, Vancouver, British Columbia, V7X 1L3.
COVID-19 Global pandemic
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”)
a global pandemic and on April 2, 2020 the Government of Botswana declared an initial state of
emergency. Mining was declared an essential service and as a result, the Karowe Mine continued
to operate with additional health and safety protocols implemented. Quarterly diamond tenders
were held in Antwerp in June, September and December due to varying international travel
restrictions. The Government of Botswana has since extended the state of emergency, which is
expected to remain in place until March 31, 2021. Concern remains over how governments across
the jurisdictions in which Lucara and many of its customers operate will respond to increasing
infection numbers and variants of COVID-19, even as mass vaccination campaigns begin in many
countries. Due to the ongoing uncertainty resulting from the global pandemic, Lucara’s operations
could be impacted in a number of ways including, but not limited to: a suspension of operations at
the Karowe Mine, disruptions to supply chains, worker absenteeism due to illness, disruption to the
progress of the Karowe Mine underground expansion project and an inability to ship or sell rough
and/or polished diamonds during this period. These possible impacts could result from government
directives, the need to modify work practices to meet appropriate health and safety standards, a
lack of demand for rough and/or polished diamonds, a lack of available liquidity to meet ongoing
operational expenses and, due to or by other COVID-19 related impacts on the availability of labour
or to the supply chain.
COVID-19 negatively impacted both demand and prices for rough and polished diamonds through
much of 2020. As an ongoing risk, the duration and full financial effect of the COVID-19 pandemic
is unknown at this time, as is the efficacy of government and central bank interventions in the
jurisdictions in which Lucara and its clients operate, the Company’s business continuity plan and
other mitigating measures. While the impact of COVID-19 is expected to be temporary, the current
circumstances are dynamic and the impacts of COVID-19 on our business operations, including the
duration and impact that it may have on our ability to ship and sell diamonds, on demand for rough
and polished diamonds, on our suppliers, on our employees and on global financial markets, cannot
be reasonably estimated at this time. Accordingly, estimates of the extent to which the COVID-19
pandemic may materially and adversely affect the Company’s operations, financial results and
condition in future periods are also subject to significant uncertainty.
As at December 31, 2020, the Company had cash and cash equivalents of $4.9 million and had
drawn $30.5 million from its $50 million working capital facility. After adjustments for working capital
items, cash flow expended on operations totaled $1.5 million for the year ended December 31,
2020. Working capital as at December 31, 2020 was $46.7 million as compared to $60.9 million
as at December 31, 2019. The working capital facility matures on May 5, 2021. The Company is
currently in discussions with the lenders with a view to extending the maturity date of the working
6 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
capital facility. If the Company is not able to extend, amend or replace that facility, it will be required
to repay all amounts drawn as at the maturity date.
2. BASIS OF PRESENTATION
The Company prepares 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 22,
2021.
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 recognizes non-controlling interests. All
intercompany balances, transactions, income, expenses, profits and losses, including unrealized gains
and losses have been eliminated on consolidation.
(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 diamond 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, diamond prices, inflation rates, exchange rates, capital and production costs and
recoveries amongst other factors. 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. Estimated recoverable reserves and resources
are used to determine the depletion and amortization of property, plant and equipment at the operating
7 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
mine site, in accounting for deferred stripping costs and mineral properties, determining a deferred tax
rate and in performing impairment testing. Therefore, changes in the assumptions used could affect
the carrying value of assets, depletion and amortization, changes in the deferred tax rate, and
impairment charges recorded in the income statement.
Valuation of mineral properties and plant and equipment – The Company carries its mineral properties
and plant and equipment at depleted cost less any provision for impairment. The Company assesses
at each reporting period whether there is an indication of impairment. Significant judgment is applied
in assessing whether indicators of impairment exist that would necessitate impairment testing. Internal
and external factors, such as i) a significant decline in the market value of the Company’s share price;
ii) changes in the quantity of the recoverable resources and reserves; and iii) changes in diamond
prices, capital and operating costs and recoveries; and iv) changes in inflation, interest and exchange
rates, are evaluated in determining whether there are any indicators of impairment. Estimated
quantities of the recoverable resources and reserves are based on information compiled by qualified
persons. 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.
Estimated variable consideration in determining revenue - Revenues include an estimate of variable
consideration receivable under the terms of the Company’s sales agreement with HB Antwerp.
Variable consideration is a component of the transaction price and represents an area of significant
management estimate and judgment. Under the sales agreement, at the time of sale of a rough
diamond, the Company receives an initial payment based on an estimated polished outcome price
(less a fee and the cost of manufacturing). If the manufactured diamond is sold to an end buyer for a
price higher than the initial estimated polished price a true up payment is payable to the Company.
Variable consideration is estimated using the most likely approach, as the Company considers this
approach to be more predictive. The transaction price is reassessed each reporting period, including
any estimated minimum amount of variable consideration. The revenue recognized as the transaction
price, including any variable consideration, is recognized within the constraint of “highly probable”.
In evaluating the most likely approach, significant judgment includes market conditions, the current
estimated polished value provided by HB Antwerp and the probability that the variable consideration
would be realized.
Deferred Taxes - The deferred tax provisions are calculated by the Company 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, diamond 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.
Decommissioning and site restoration – The Company has obligations for site restoration and
decommissioning related to the Karowe Diamond Mine. 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 activities 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
8 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Going concern and liquidity risk - Management is required to exercise judgment with respect to
evaluating the Company’s ability to continue as a going concern and to ensure that disclosures relating
to liquidity are appropriate. To this end, the Company manages liquidity risk by maintaining an
adequate level of cash and cash equivalents to meet its short-term ongoing obligations, ensuring
access to credit facilities, and reviews its actual expenditures and forecast cash flows on a regular
basis. Changes in demand for rough and/or polished diamonds and diamond prices, production levels
and related costs, foreign exchange rates and other factors all impact the Company’s liquidity position.
Uncertainty about judgments, estimates and assumptions made by management during the
preparation of the Company’s consolidated financial statements related to potential impacts of the
COVID-19 outbreak on revenue, expenses, assets, liabilities, and note disclosures could result in a
material adjustment.
(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 and other. The Corporate office provides support to the Karowe Mine with
respect to sales, treasury and finance, technical support, regulatory reporting and corporate
administration and includes operations of the secure, digital diamond sales platform, Clara.
(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.
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.
9 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Group companies
The functional currency of the most significant subsidiary of the Company, Lucara Botswana (Pty) Ltd.,
is the Botswana Pula. The functional currency of the Company and its other active subsidiary, Clara, is
the Canadian dollar. 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 account, demand deposits and money market
investments with maturities from the date of acquisition of three months or less, which are readily
convertible to known amounts of cash and are subject to insignificant changes in value. Cash and
cash equivalents are recorded at fair value and subsequently measured at amortized cost.
(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. All recognized financial assets are measured
subsequently at amortized cost or fair value through profit or loss or fair value through other
comprehensive income.
At initial recognition, the Company classifies its financial instruments in the following categories:
(i) 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. 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) Fair value through other comprehensive income: The Company has made an irrevocable election
to designate its investments in marketable equity securities as classified at fair value through
other comprehensive income. Investment transactions are recognized on the trade date with
transaction costs included in the underlying balance. Fair values are determined by reference to
quoted market prices at the balance sheet date. When investments in marketable equity securities
are disposed of or impaired, the cumulative gains and losses recognized in other comprehensive
income are not recycled to profit and loss and remain within equity.
(iii) Financial assets and liabilities at amortized cost: Financial assets and liabilities at amortized cost
include cash, trade receivables, credit facility and trade payables and are included in current
classification due to their short-term nature. Trade receivables and payables are non-interest
bearing if paid when due and are recognized at their face amount, less, when material, a discount,
except when fair value is materially different. Amounts drawn on the credit facility are interest-
10 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.
bearing and are recorded at fair value upon inception. These are subsequently measured at
amortized cost.
(h) Inventories
Inventories, which include rough diamonds, ore stockpiles 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 amortization 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.
Amortization 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
Residual values and useful lives of assets 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
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:
• Researching and analyzing historical exploration data;
• Gathering exploration data through topographical, geochemical and geophysical studies;
•
• Determining and examining the volume and grade of the resource; and
•
Surveying, transportation and infrastructure requirements.
Exploratory drilling, trenching and sampling;
Exploration and evaluation expenditures are expensed as incurred on mineral properties not sufficiently
advanced as to identify their development potential.
11 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.
(k) Mineral properties
Costs associated with acquiring a mineral property are capitalized as incurred. 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. Mineral property costs are amortized from the date of commencement
of commercial production of the related mine on a units of production basis.
Capitalized production stripping costs
(l)
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 balance sheet 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.
(m) Intangible assets
Intangible assets with finite lives consist of acquired trademarks, copyrights, patents and
intellectual property that are initially capitalized at the purchase price plus any other directly
attributable costs. These assets are amortized using the straight-line method over their estimated
useful lives. Amortization of intangible assets will be included in the cost of sales, administrative
expenses and/or research and development expenses, as appropriate.
Development expenditures relating to intangible assets are capitalized only if the expenditure can
be measured reliably, the process is technically and commercially feasible, future economic
benefits are probable, and the Company intends to and has sufficient resources to complete
development and to use or sell the asset. Judgment is required in determining the technical and
commercial feasibility and in assessing the probability of future economic benefits. Amortization
related to capitalized development costs is classified within depletion and amortization under
operating expenses.
(n) Contingent consideration
Contingent consideration relating to an asset acquisition is recognized using the cost accumulation
method when: (a) the conditions associated with the contingent payment are met; (b) the Company
has a present legal or constructive obligation that can be estimated reliably; and (c) it is probable
that an outflow of economic benefits will be required to settle the obligation.
(o) Impairment of non-financial assets
Long lived assets are reviewed at each reporting period for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. Intangible assets that are
not yet available for use are reviewed for impairment annually. 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.
(p) 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
12 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
Other provisions
Provisions are recognized when:
•
•
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.
(q) Income taxes
Income taxes are recognized in the statement of operations, 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 the extent that it 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 IFRIC 23, Uncertainty over Income Tax Treatments. 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
13 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
(r) 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.
(s) Revenue recognition
Revenues from diamond sales are recognized when the purchaser obtains control of the diamond. For
diamonds sold through tender or Clara, control is achieved when the Company receives payment for
the diamonds sold and title is transferred to the purchaser according to contract terms.
In 2020, the Company entered into a new sales agreement to sell its large stone production (diamonds
greater than 10.8 carats) to HB Antwerp (“HB”). The purchase price paid for the rough diamonds is
based on the initial estimated polished outcome, less a fee and the cost of manufacturing. The Company
recognizes net revenue from the sale of rough diamonds when the performance obligations of delivery
and analysis of the rough diamond are achieved according to the contract terms. Under the terms of
the supply agreement, rough diamonds are sold to HB based on the initial estimated polished outcome
price (less a fee and the cost of manufacturing), with a true up paid if the actual achieved polished sales
price exceeds the initial price paid. This variable consideration is recognized in determining the
transaction price, within the constraint of the likelihood of realization being highly probable, and a final
payment is received when the manufactured diamond is sold to an end buyer for a price higher than
the initial estimated polished price.
(t) Share-based compensation
The Company has share-based compensation plans, under which the entity receives services from
employees and non-employees as consideration for equity instruments (options or units) of the
Company.
Stock options and equity-settled 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. Share units which do not meet the criteria for equity-settlement are recorded as a liability and
measured at fair value at each reporting period.
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.
14 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(u) Earnings (loss) per share
Income (loss) per share is calculated by dividing the income or loss 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.
(v) Leases
The Company adopted IFRS 16, Leases on January 1, 2019 utilizing the modified retrospective
approach. Comparatives were not restated. The Company utilized the following practical expedients in
its adoption of IFRS 16: applying a single discount rate to similar leases of 5.2%, accounting for leases
for which the term ends within 12 months or fewer of the date of initial application as short-term leases;
and using hindsight in applying the new standard.
Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the
leased asset is available for use. Assets and liabilities arising from a lease are initially measured on a
present value basis. Each lease payment is allocated between the liability and finance cost. The finance
cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest
on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the
shorter of the asset's useful life and the lease term on a straight-line basis.
The Company leases various properties. Lease terms are negotiated on an individual basis and contain
a wide range of different terms and conditions. The lease agreements do not impose any covenants,
but leased assets may not be used as security for borrowing purposes.
Payments associated with short-term leases and leases of low-value assets are recognised on a
straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12
months or less.
(w) 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.
4. ADOPTION OF IFRS PRONOUNCEMENTS
IFRS 3 – Business Combinations
As part of the annual improvements released in October 2018, amendments to the definition of a
business under IFRS 3 were released to clarify and narrow the definition of a business and provide
guidance and illustrative examples to assist in the application of the defined term in a business
combination. The amendments are effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after January 1,
2020 and to asset acquisitions that occur on or after the beginning of that period. While the standard
has no impact on the Company on its adoption of January 1, 2020, future acquisitions under the
revised definition may be viewed differently by the Company.
IFRS pronouncements that have been issued but are not yet effective are listed below.
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16):
These amendments are effective for the Company’s annual reporting period beginning January 1,
2022, with early adoption permitted. The amendments prohibit an entity from deducting from the
cost of an item of property, plant and equipment and proceeds from selling items produced while
bringing that asset to the location and condition necessary for it to be capable of operating in the
15 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
manner intended by management. The Company is in the process of assessing the impact of the
adoption of this amendment.
None of the remaining standards and amendments to standards and interpretations which have
been issued but are not yet effective are expected to have a significant effect on the Company’s
consolidated financial statements.
5. RECEIVABLES AND OTHER
Trade
VAT
Other
Prepayments
2020
$
13,396 $
4,493
594
2,450
$
20,933 $
2019
-
3,932
208
2,108
6,248
Trade receivables at December 31, 2020 were $13.4 million (2019 – $nil) due from one customer,
HB, under the Company’s new sales agreement. The amounts receivable at year-end relate to the
timing difference of revenue recognized under the sales agreement and the receipt of payment.
6.
INVENTORIES
Rough diamonds
Ore stockpile
Parts and supplies
2020
25,956 $
29,572
12,846
68,374 $
2019
24,536
28,354
12,162
65,052
$
$
Inventory expensed during the year ended December 31, 2020 totaled $72.6 million (2019 – $77.7
million). There were no inventory write-downs during the years ended December 31, 2020 and
2019.
16 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
7. PLANT AND EQUIPMENT
Construction
in progress
Mine and
plant
facilities Vehicles
Furniture
and office
equipment
Leased
assets
Total
$ 5,661 $
206,424 $ 2,524 $
-
15,936
(10,331)
-
122
-
226
7,596
-
2,152
-
-
104
-
26
6,729 $ - $ 221,338
3,691
16,179
(300)
(3)
2,431
-
17
2,331
(3)
99
3,691
-
-
-
32
$
11,388 $
216,398 $ 2,654 $
9,173
$3,723 $ 243,336
14,655
(15,790)
-
(235)
43
11,984
(5,750)
(2,713)
-
360
(123)
(24)
138
3,446
82
551
-
(1,784)
(128)
15,387
-
(7,657)
(3,018)
$
10,018 $
219,962 $ 2,867 $
12,839 $ 2,362 $ 248,048
Cost
Balance, January 1, 2019
IFRS 16 adoption1
Additions
Reclassification2
Disposals and other
Translation differences
Balance, December 31,
2019
Additions
Reclassification
Disposals and other3
Translation differences
Balance, December 31,
2020
Accumulated
amortization
Balance, January 1, 2019
$
- $
68,511 $ 1,497 $
4,084 $ - $ 74,092
Depletion and amortization
Disposals and other
Translation differences
Balance, December 31,
2019
Depletion and amortization
Disposals and other3
Translation differences
Balance, December 31,
2020
Net book value
As at December 31, 2019
As at December 31, 2020
$
$
$
$
-
-
-
34,550
-
1,112
355
-
19
1,454
(3)
65
1,565
-
19
37,924
(3)
1,215
- $
104,173 $ 1,871 $
5,600 $ 1,584 $ 113,228
-
-
-
29,269
(3,116)
51
343
(123)
(14)
1,685
-
25
987
(1,460)
(51)
32,284
(4,699)
11
- $
130,377 $ 2,077 $
7,310 $ 1,060 $ 140,824
11,388 $
10,018 $
112,225 $
89,585 $
783 $
790 $
3,573 $ 2,139 $ 130,108
5,529 $ 1,302 $ 107,224
(1) Additions include $3,691 recorded to leased assets upon the adoption of IFRS 16, Leases on January 1, 2019.
(2) Karowe mine related expenditure of $174 was reclassified to mineral properties and $126 was reclassified to
inventory in 2019 from construction in progress.
(3) During the year ended December 31, 2020, a loss on disposal of assets of $2,620 was recorded related to
the replacement of several XRT machines.
17 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
8. MINERAL PROPERTIES
Cost
Balance, January 1, 2019
Additions
Reclassification1
Translation differences
Balance, December 31, 2019
Additions
Adjustment to restoration asset
Translation differences
Balance, December 31, 2020
Accumulated depletion
Balance, January 1, 2019
Depletion
Translation differences
Balance, December 31, 2019
Depletion
Translation differences
Capitalized production
stripping asset
Karowe
Mine
Total
$
72,352 $
73,372 $
145,724
-
-
676
10,320
174
811
10,320
174
1,487
$
73,028 $
84,677 $
157,705
-
-
(1,083)
18,749
(3,199)
(348)
18,749
(3,199)
(1,431)
$
71,945 $
99,879 $
171,824
$
11,584
$ 21,031 $
32,615
12,583
258
6,727
279
19,310
537
$
24,425
$ 28,037 $
52,462
10,250
236
4,998
(124)
15,248
112
Balance, December 31, 2020
$
34,911
$ 32,911 $
67,822
Net book value
As at December 31, 2019
As at December 31, 2020
$
$
48,603
37,034
$ 56,640 $
$ 66,968 $
105,243
104,002
(1) Karowe mine related expenditure of $174 was reclassified from plant and equipment to mineral properties in
2019.
Karowe Mine
A royalty of 10% of the gross sales value of diamonds produced from Karowe is payable to the
government of Botswana, regardless of whether the diamond is sold as rough or polished. During
the year, the Company incurred a royalty expense of $13.5 million (2019: $19.2 million).
18 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
9.
INTANGIBLE ASSETS
Cost
Balance, January 1, 2019
Development expenditures
Translation differences
Balance, December 31, 2019
Development expenditures
Translation differences
Balance, December 31, 2020
Accumulated Depletion
Balance, January 1, 2019
Additions
Balance, December 31, 2019
Additions
Translation differences
Balance, December 31, 2020
Net book value
As at December 31, 2019
As at December 31, 2020
$
$
$
$
$
$
$
$
21,798
404
1,001
23,203
83
512
23,798
-
(429)
(429)
(1,298)
(85)
(1,812)
22,774
21,986
In 2018, the Company acquired the Clara platform, a secure, digital sales platform for rough
diamonds. The consideration paid was allocated entirely to the intangible assets. As part of the
purchase, contingent consideration was agreed to and will be recognized as additional purchase
consideration for the intangible asset, if the obliging events occur. The contingent consideration
consists of a profit-sharing allocation: cash payments based on 3.45% of the annual EBITDA
generated by the sales platform and a pre-existing 13.3% annual EBITDA performance based
contingent payments payable to the founders of the technology, to a maximum of $20.9 million per
year for 10 years and additional Lucara share payments to a combined maximum of 13.4 million
shares if certain revenue triggers are reached beginning at $200 million of cumulative revenue to
$1.6 billion of cumulative revenue.
As of September 1, 2019, management determined that the sales platform was operating as
intended. The definite-lived intangible asset is being amortized over the 20 year life of the patents.
All income and expenses incurred following September 1, 2019 have been recorded to the statement
of operations.
19 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
10. RESTORATION PROVISIONS
The Company’s restoration provisions relate to the rehabilitation of the Karowe Diamond Mine in
Bostwana. 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 5.9% at December 31, 2020 (2019 – 8.9%) and an inflation rate of 4.0% at December 31,
2020 (2019 – 4.0%). Rehabilitation costs at the Karowe Diamond Mine are expected to commence
during 2046 (the end of the current mining license). The estimated liability for reclamation and
remediation costs on an undiscounted basis is approximately $33.7 million (2019 - $27.1 million).
Balance, beginning of year
$
Changes in rates and estimates
Accretion of liability component of obligation
Foreign currency translation adjustment
2020
23,629
(3,800)
1,863
(463)
2019
20,184
$
1,142
2,200
103
Long-term portion of restoration provisions
$
21,229
$
23,629
11. SHARE BASED COMPENSATION
a. Stock options
The Company’s stock option plan (the ‘Option Plan’) was approved by the Company’s shareholders
initially on May 13, 2015, with amendments approved on May 10, 2019. Under the terms of the Option
Plan, a maximum of 20,000,000 shares had been reserved for issuance upon the exercise of stock
options. At the 2020 Shareholder meeting, this maximum was subsequently reduced to 10,000,000
shares reserved for issuance upon the exercise of stock options, with the difference allocated for
issuance under the Company’s share unit plans as described in note 11(b) below. The Option Plan
provides the Board of Directors with discretion to determine the vesting period for each stock option
grant. Options typically vest in thirds over a three-year period beginning on the first anniversary of the
date of grant and expire four years from the date of grant.
Movements in the number of stock options outstanding and their related weighted average exercise
prices are as follows:
Number of shares issuable
pursuant to stock options
Weighted average exercise
price per share (CA$)
Balance at January 1, 2019
Granted
Expired
Forfeited
Balance at December 31, 2019
Granted
Expired
Forfeited
Balance at December 31, 2020
4,278,336
1,437,000
(703,336)
(490,000)
4,522,000
1,604,000
(1,480,000)
(223,000)
4,423,000
$
$
2.40
1.64
2.13
2.54
2.19
0.77
2.45
1.52
1.62
20 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
11. SHARE BASED COMPENSATION (continued)
Options to acquire common shares have been granted and which are outstanding at December 31,
2020 are as follows:
Outstanding Options
Exercisable Options
Range of
exercise
prices CA$
Number of
options
outstanding
$0.50 - $1.00
1,532,000
$1.50 - $2.00
$2.01 - $2.50
$2.51 - $3.00
1,341,000
1,175,000
375,000
4,423,000
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
(CA$)
3.17
2.15
1.29
0.25
2.11 $
0.77
1.64
2.33
2.76
1.62
Number of
options
exercisable
-
447,000
783,333
375,000
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
(CA$)
-
2.15
1.29
0.25
-
1.64
2.33
2.76
2.24
1,605,333
1.29 $
During the year ended December 31, 2020, an amount of $0.3 million (2019 – $0.4 million) was
charged to operations in recognition of share-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 (%)
Expected life (years)
Expected volatility (%)
Expected dividend
Results:
2020
2019
1.33
3.63
35.04
1.82
3.63
38.20
Nil CA$0.025/share
quarterly
Weighted average fair value of options granted (per option)
CA$0.21
CA$0.30
b. Restricted and performance share units
The Company has a share unit (‘SU’) plan that provides for the issuance of SUs as a long-term
incentive for certain members of the management team. Amendments to the SU plan, including a
reallocation of 10,000,000 common shares now reserved for issuance upon the vesting of share units
(from the pool originally allocated for the exercise of stock options) were approved by Shareholders at
the May 8, 2020 annual meeting. SUs vest three years from the date of grant and certain share units
include performance metrics. Each SU entitles the holder to receive one common share and the
cumulative dividend equivalent SU earned during the SU’s vesting period. The value of each SU at
the vesting date is equal to the closing value of one Lucara common share plus the cumulative dividend
equivalent which was earned over the vesting period.
For the year ended December 31, 2020, the Company recognized a share-based payment charge of
$0.7 million (2019: $0.8 million) for the SUs granted during the year.
21 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
11. SHARE BASED COMPENSATION (continued)
Balance at January 1, 2019
1,283,045
$
2.41
Number of share units
Estimated fair value at
date of grant (CA$)
February 25, 2019 grant
February 26, 2019 vesting
April 2, 2019 vesting
April 11, 2019 dividend
April 11, 2019 vesting
June 20, 2019 dividend
September 19, 2019 dividend
Balance at December 31, 2019
February 26, 2020 grant
March 8, 2020 vesting
Balance at December 31, 2020
439,000
(445,567)
(247,393)
19,822
(3,841)
16,641
23,283
1,084,990
1,918,000
(56,463)
2,946,527
1.63
2.57
2.52
1.61
1.61
1.57
1.14
$ 1.95
0.77
2.57
1.17
$
c. Deferred share units
In February 2020, the Company approved a deferred share unit (‘DSU’) plan that provides for the
issuance of up to 4,000,000 DSUs to eligible directors; the DSU plan was subsequently ratified by
Shareholders at the May 8, 2020 annual meeting. Directors can elect to receive up to 100% of their
fees earned in DSUs, awarded quarterly. DSUs vest immediately and are paid out upon retirement
from the Board of Directors of the Company. Each DSU entitles the holder to receive one common
share and the cumulative dividend equivalent DSU earned prior to the payout date. The value of each
DSU at the grant date is equal to the closing value of one Lucara common share. The DSU plan is a
cash-settled share-based compensation plan and is recorded as a liability. Upon payout, the director
can elect to receive the value in cash or common shares of the Company.
For the year ended December 31, 2020, the Company recognized a share-based payment charge of
$0.3 million (2019: $nil) for the DSUs granted during the period.
February 26, 2020 grant
May 7, 2020 vesting
July 2, 2020 grant
September 30, 2020 grant
December 31, 2020 grant
Balance at December 31, 2020
Number of share units Estimated fair value (CA$)
278,000
(74,000)
90,923
159,312
159,312
613,547
$
$
0.77
0.51
0.62
0.50
0.50
0.52
22 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
12. PRINCIPAL SUBSIDIARIES
The Company had the following subsidiaries at December 31, 2020 and 2019:
Name
African Diamonds Ltd.
Clara Diamond Solutions Limited
Partnership (formerly, Clara
Diamond Solutions Corp.)
Clara Diamond Solutions GP
Inc.(2)
Lucara Management Services
Ltd.
Lucara Diamond Holdings Inc.
Mothae Diamond Holdings Inc.
Boteti Diamond Holdings Inc.
Wati Ventures (Pty) Ltd.
Debwat Exploration (Pty) Ltd.
Lucara Botswana (Pty) Ltd.
(formerly, Boteti Mining (Pty) Ltd.)
Country of
incorporation
and place of
business
UK
Canada
Nature of
business
(1)
Diamond sales
platform
Canada
UK
Mauritius
Mauritius
Mauritius
Botswana
Botswana
Botswana
(1)
(1)
(1)
(1)
(1)
(1)
(1)
Mining of
diamonds
(1) Intermediate holding company
(2) Incorporated on July 31, 2019.
Proportion of
shares directly
held by the
parent (%)
Proportion
of shares
held by the
group (%)
100
99.9
100
100
100
-
-
-
-
-
-
0.1
-
-
-
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
Insurance, office and general1
Marketing
Stock exchange, transfer agent, shareholder communication
Travel
Share-based compensation (Note 11)
Management fees
Depreciation
Sustainability and donations1
2020
2019
6,510 $
2,413
2,540
859
300
360
1,352
219
1,039
724
16,316 $
5,943
2,612
1,554
949
369
822
1,186
458
1,679
79
15,651
$
$
(1) Included are amounts incurred for the Company’s COVID-19 response totalling $826 for the year ended
December 31, 2020, including a $298 donation to the Government of Botswana’s COVID-19 Response Fund.
23 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
14. INCOME TAXES
Current
Deferred
Income tax (recovery) expense
2020
2019
$ 593 $ 14,470
(11,022)
3,448
(5,713)
(5,120) $
$
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 (recovery) expense
Differences between Canadian and foreign tax rates
Non-deductible expenses and other permanent differences
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
2020
2019
27.00%
27.00%
(31,398)
16,162
(8,477)
969
1,011
(2,024)
2,837
(293)
857
4,364
(1,257)
1,615
(3,120)
1,783
223
(160)
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 33.59% for deferred income taxes based on current financial
performance and the open pit life of mine plan.
$
(5,120) $
3,448
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,
2020, these earnings amount to $156.9 million (2019: $157.8 million). All of these earnings would be
subject to withholding taxes if they were remitted by the foreign subsidiaries.
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
Foreign currency translation adjustment
$
2020
2019
63,015 $ 73,482
(5,713)
(1,397)
(11,022)
555
Balance, end of year
$
55,905 $ 63,015
24 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
14. INCOME TAXES (continued)
Deferred income tax assets and liabilities recognized
2020
2019
Deferred income tax assets
Non-capital losses
Accounts payable and other
Unrealized foreign exchange loss
Restoration provisions
Total deferred income tax assets
Deferred income tax liabilities
Mineral properties, plant and equipment
Future withholding taxes
Unrealized foreign exchange gains
Other
Deferred income tax liabilities
Deferred income tax liabilities, net
Deferred income tax assets not recognized
Tax losses
Mineral property, plant and equipment
Other deductible temporary differences
$
$
$
$
6,976 $
1,598
-
7,131
180
731
1,003
7,937
15,705
9,851
66,856
625
1,995
2,134
72,422
444
-
-
71,610
72,866
55,905 $
63,015
2020
2019
26,611 $
43
675
27,329 $
22,581
110
273
22,964
As at December 31, 2020, the Company has non-capital losses for income tax purposes which expire
as follows:
2021
2022
2023
Subsequent
to 2023
No expiry
date
Total
15,466
94,317
6,042
Botswana
Canada
United Kingdom
$
$
- $
-
-
- $
- $
-
-
- $
- $
-
-
- $
94,317
-
15,466 $
-
6,042
- $
94,317 $
21,508 $
115,825
No tax benefit has been recorded for the Canadian and United Kingdom non-capital losses.
25 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
15. EARNINGS (LOSS) PER COMMON SHARE
a) Basic
Basic earnings per common share are calculated by dividing the net income or loss attributable to the
shareholders of the Company by the weighted average number of common shares outstanding during
the year:
Income (loss) for the year
$
(26,278) $
12,714
Weighted average number of common shares outstanding
396,889,357
396,790,950
2020
2019
$
(0.07) $
0.03
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. Share units are, by their nature, dilutive and included in the calculation on a weighted average
basis during the year.
2020
2019
Income (loss) for the year
$
(26,278) $
12,714
Weighted average number of common shares outstanding
Adjustment for stock options
Adjustment for share units
Weighted average number of common shares for diluted
396,889,357
-
-
396,790,950
-
1,121,864
earnings (loss) per share
396,889,357
397,912,814
$
(0.07) $
0.03
26 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
16. RELATED PARTY TRANSACTIONS
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 named executive officers and members of its Board of Directors.
The remuneration of key management personnel was as follows:
Salaries and wages, including directors’ fees
Short term benefits
Share-based compensation
2020
2019
2,290 $
32
976
3,298 $
2,499
82
573
3,155
$
$
a) Clara acquisition
At the time of Lucara’s acquisition of Clara, a current director and a current officer of the Company were
also shareholders of Clara and received 1,192,000 common shares and 50,000 common shares,
respectively, of Lucara. If all of the Clara performance milestones (Note 9) are reached, these
individuals will receive an additional 1,788,001 common shares and 74,999 common shares,
respectively, of Lucara. Following the acquisition of Clara, Lucara appointed a new director and a new
officer, each of whom had been a shareholder of Clara at the time of its acquisition by the Company.
If all of the Clara performance milestones are reached, these individuals will be entitled to receive an
additional 600,000 common shares and 74,999 common shares of Lucara.
Pursuant to the profit sharing mechanism described in Note 9, a total of 3.45% of the EBITDA generated
by the platform has been assigned to two directors of Lucara, each of whom was a founder of Clara. A
further 3.22% of the EBITDA generated by the platform may be distributed to members of management,
at the discretion of Lucara’s Compensation Committee, based on the achievement of key performance
targets. In March 2019, the EBITDA sharing agreement was amended such that one of the two founders
and the Clara Management waived their respective rights to the EBITDA payment to the extent that
such payment relates to net income earned by Clara on the sale of rough diamonds from the Karowe
Mine. The waiver is effective from the date of the share purchase agreement in February 2018 through
to December 31, 2020. No amounts have been paid to date under this profit sharing mechanism.
b) Other related parties
For the year ended December 31, 2020, the Company paid $nil (2019: $0.1 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. For the year ended December 31, 2020, the Company paid $0.2 million (2019:
$0.5 million) to a management company directed by certain of the Company’s directors for office space
and office management services.
27 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
17. SEGMENT INFORMATION
The Company’s primary business activity is the development and operation of diamond properties in
Botswana. The Company has two operating segments: Karowe Mine and Corporate and other. The
Company’s assets and operations in Clara are included under Corporate and other.
Revenues(1)
Loss from mining operations
Exploration expenditures
Finance expenses
Foreign exchange gain/(loss)
Loss on disposal of assets
Other
Taxes
Net loss for the year
Capital expenditures
Total assets
2020
Karowe Mine
Corporate
and other
Total
$
124,490
$
773 $
125,263
(5,648)
(1,964)
(2,073)
2,298
(2,620)
(8,883)
5,120
(2,084)
-
(414)
(112)
-
(9,898)
-
(7,732)
(1,964)
(2,487)
2,186
(2,620)
(18,781)
5,120
(13,770)
(12,508)
(26,278)
(33,869)
(83)
(33,952)
307,892
25,957
333,849
Revenues(1)
$
191,937
$
604 $
192,541
2019
Karowe Mine
Corporate
and other
Total
Income (loss) from mining operations
Exploration expenditures
Finance expenses
Foreign exchange loss
Other
Taxes
Net income (loss) for the year
Capital expenditures
Total assets
44,620
(4,572)
(2,595)
(2,290)
(7,867)
(3,448)
23,848
(237)
-
(523)
(344)
(10,030)
-
(11,134)
44,383
(4,572)
(3,118)
(2,634)
(17,897)
(3,448)
12,714
(26,741)
(404)
(27,145)
319,080
26,951
346,031
(1) During the year ended December 31, 2020, one customer generated 44% of the Company’s 2020 revenue.
During the year ended December 31, 2019, one customer generated 12% of the Company’s 2019 revenue.
The geographic distribution of non-current assets is as follows:
Plant and equipment
Mineral properties
2020
2019
2020
2019
Other
2020
$
Canada
Belgium
Botswana
102 $
147
106,975
- $
-
130,108
- $
-
142,002
- $
-
105,243
21,986 $
-
4,764
$
107,224 $
130,108 $
142,002 $
105,243 $
26,750 $
2019
23,015
-
5,168
28,183
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LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
17. SEGMENT INFORMATION (continued)
$1.3 million of depletion expense in 2020 (2019 - $0.4 million) relates to intangible assets located in
Canada. All remaining depletion and amortization expense relates to the assets at the Karowe Mine
located in Botswana.
18. FINANCIAL INSTRUMENTS
a) Measurement categories and fair values
As explained in Note 3, financial assets and liabilities have been classified into categories that
determine their basis of measurement. Those categories are: fair value through profit and loss; fair
value through other comprehensive income and amortized cost.
The value of the Company’s financial instruments at fair value through other comprehensive income
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: Fair value through other comprehensive income
– Investments
$
1,651
$
241
December 31,
2020
December 31,
2019
Level 2: N/A
Level 3: N/A
c) Financial risk management
The Company’s financial instruments are exposed to certain financial risks, including currency, credit,
price and liquidity 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, 2020, 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 $0.4
million in net income for the year.
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LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
18. 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. A majority of the Company’s cash and cash equivalents are 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 not released until full
payment is received when goods are sold through tender or on Clara.
Under the new supply agreement disclosed in Note 3, a larger proportion of the Company’s goods will
be sold through HB to buyers of polished diamonds. The credit risk associated with these sales will
concentrate with one individual customer and payment terms are longer (60 days) than the Company’s
traditional tender sales (5 days).
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.
Price risk
The Company derives its income from the sale of rough diamonds mined in Botswana, a majority of
which are sold through a quarterly tender process from Botswana. The price and marketability of these
diamonds can be significantly impacted by international economic trends, global or regional
consumption, demand and supply patterns and the availability of capital for diamond manufacturers,
all factors that are not within the Company’s control. Under the supply agreement with the HB Group,
the ultimate achieved sales prices of stones larger than 10.8 carats in size is based on a polished
diamond pricing mechanism. This pricing mechanism results in the Company’s revenue being exposed
to a greater extent to the price movements in the polished diamond market than it is currently through
its traditional tender process for rough diamonds. The COVID-19 pandemic has negatively impacted
global demand for luxury commodities, which includes jewelry containing diamonds. Restrictions on
international travel have also disrupted the diamond supply chain. To the extent that the supply of
rough or polished diamonds exceeds demand, this is likely to result in price deterioration and
negatively impact the Company’s revenue, thereby increasing the risk that not only will operations not
be profitable, the Company may not have sufficient liquidity to meet its financial obligations as they
come due.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they
become due. To manage liquidity risk, regular cash flow forecasting is performed in the operating
entities of the Company and aggregated in the head office to understand what level of capital is
required. Rolling forecasts of the Company’s liquidity requirements are prepared and monitored to
assess whether there is sufficient cash available to meet the Company’s short and longer-term
operational needs. Such forecasting takes into consideration the Company’s ability to generate cash
from the sale of diamonds and additional liquidity which can be accessed through the revolving term
credit facility.
30 | P a g e
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
18. FINANCIAL INSTRUMENTS (continued)
Revolving credit facility
The Company has a $50 million revolving term credit facility with a maturity date of May 5, 2021. In
September 2020, this facility was amended to include FirstRand Bank Limited (London Branch), a
division of Rand Merchant Bank alongside The Bank of Nova Scotia. 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 part of the amendment, Lucara agreed to limit capital
expenditures related to the underground expansion project to $22 million during 2020. As at December
31, 2020, the Company was 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 adjusted leverage ratio.
The Company has provided security for the 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.
As at December 31, 2020, $30.5 million was drawn on the facility for working capital purposes
(2019 - $nil). The current interest rate on the amount drawn is LIBOR plus a margin of 3.50%. At
December 31, 2020, $19.5 million was available.
19. COMMITMENTS
As at December 31, 2020, $9.9 million in commitments relates to purchase orders and contracts for
services to be provided related to the underground expansion project. Of the $9.9 million, $9.8 million
relates to expenditures in 2021 and $0.1 million relates to expenditures in 2022. The total of all
commitments can be cancelled at a cost of $1.1 million as of December 31, 2020.
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.
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