Lucara Announces Positive Feasibility Study FOR Karowe Underground
NEWS RELEASE
LUCARA ANNOUNCES POSITIVE FEASIBILITY STUDY FOR KAROWE
UNDERGROUND
NOVEMBER 4, 2019 (LUC – TSX, LUC – BSE, LUC – Nasdaq Stockholm) Lucara Diamond Corp. (“Lucara” or
the “Company”) is pleased to announce the results of a positive underground Feasibility Study (“FS”) to expand its
100% owned Karowe diamond mine, one of the world’s most prolific producers of large, high value type IIA diamonds
and the only diamond mine in recorded history to have produced two +1000 carat diamonds. The underground
expansion at Karowe is expected to double the mine life, and generate significant revenue and cashflow out to 2040,
extending benefits to the Company, its employees, shareholders, communities surrounding the mine, and Botswana.
Combined Open Pit / Underground Economic Highlights (all figures in US dollars)
• LOM production of 7.8 million carats out to 2040; resource remains open to depth
• $5.25 billion in Gross Revenue
• Pre-production capital costs of $514 million for the underground project
• After-tax undiscounted net cash flow of $1,220 million, no real diamond price escalation
• After-tax NPV(5%) of $718 million
• Payback Period of 2.8 years extending the mine life 15 years (including stockpiles)
• Average LOM operation costs of $28.43 per tonne of ore processed
Eira Thomas, President and CEO commented: “Lucara is highly encouraged by the results of the Karowe Underground
feasibility study which has outlined a much larger economic opportunity than first envisaged in the 2017 PEA and
represents an exciting, world class growth project for our Company. Diamond deposits are rare and getting rarer. In
this context, we are extending a mine that is in a class of its own, having produced 15 diamonds in excess of 300
carats, including 2 greater than 1000 carats in just seven years of production. Further, we have sold ten diamonds for
in excess of $10 million each, including the record-setting 813 carat Constellation which sold for $63.1 million.
A significant portion of the cost to expand our mine underground can be funded from cash flow, and the investment is
expected to be paid back in under 3 years, as the underground allows us to exploit the highest value part of the orebody
first and generate more than $5 .25 billion in gross revenue. What’s more, margins remain healthy despite the
application of conservative diamond pricing models that reflect the current, difficult market environment. Lucara’s short
term view is that the market is now stabilizing. Longer term, the fundamentals are expected to strengthen in line with
supply shortfalls from mature, depleting mines in Australia and Canada. It is important to note that a return to diamond
prices observed in 2015 would nearly double the NPV(5%) of this project to $1.4 billion.”
Key Findings of the Study:
• The Karowe Mine has produced 2.5 million carats since 2012 and generated $1.5 billion in revenue. The FS
looks to double the mine life from the original mine design of 2010 and add net cash flow of $1.22 billion and
gross revenue of $5.25 billion.
• After-tax NPV (5%) of $718 million for the combined open pit and underground with no real diamond price
escalation
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• Updated Resource confirms increasing value with depth. The combined open pit and underground Indicated
resource now stands at 54.27 million tonnes at 15.3 carats per hundred tonnes (“cpht”) for a contained
diamond resource of 8.3 million carats excluding stockpiles.
• Long hole shrinkage (“LHS”) underground bulk mining method selected will provide early access to higher
value ore and allows for a short pay back period of 2.8 years and low operating costs of $28.43 per tonne
processed.
• On the basis of a construction start in mid-2020, ore from underground mining will seamlessly integrate into
current operations providing mill feed starting in 2023 with a ramp up to 2.7Mtpa to the processing plant by
2026, and the opportunity to increase throughput. Current production rates will be maintained through the
underground ramp up period.
• The Underground is designed to access the South lobe kimberlite resource below the current planned bottom
of the open pit (which is expected to be at approximately 700 meters above sea level (“masl”)), to a depth of
310 masl. Access to the South Lobe underground will be via two vertical shafts (production and ventilation)
of approximately 765 and 715 meters deep respectively.
• Identified key focus areas of hydrogeology, geotechnical constraints of the kimberlite and host rocks have
been addressed through an intensive set of work programs and data collection that commenced during the
Preliminary Economic Assessment completed in November 2017 and were substantially updated and
augmented by the FS study.
Zara Boldt, Chief Financi al Officer commented: “Lucara is weathering the current downturn in the diamond market
better than most of our peers. Karowe’s high value deposit and unique production profile has allowed us to generate
enough cash to operate our business, develop the Clara sales platform and to have been a steady dividend payer.
Based on the strong economics outlined in the feasibility study, we are confident that our external financing requirement
will be modest and that attractive financing options are available to supplement the expected contribution of our cash
flow from operations to fund the underground project. We are optimistic about diamond prices recovering in the short
to medium term as global supply decreases next year and we have also identified a number of optimization
opportunities for the underground that could add additional value to the project in the near term. With this in mind,
Lucara’s Board of Directors has determined that using our available cash flow for detailed engineering and design work,
early procurement initiatives and to investigate project debt financing options in the near-term, rather than the payment
of a dividend, is the best use of the Company’s capital going forward.”
Key Operational Parameters
Parameter Unit
UG
Base
Case
OP UG
Base Case
After-Tax Undiscounted Net Cash Flow US$M $844 $1,220
After-Tax NPV (5%) US$M $388 $718
After-Tax NPV (8%) US$M $226 $536
After-Tax IRR % 16% N/A
Pre-Tax Undiscounted Net Cash Flow US$M $1,447 $2,156
Payback Period (post-tax) years 2.4 2.8
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Key Operational Parameters continued
Tonnage and Grade
UG
Base
Case
OP UG
Base Case
Waste Tonnes mined (millions) 0.751 13.43
Ore Tonnes mined (millions) 33.46 49.97
Processed Tonnes (millions) 33.46 56.03
Diamond grade (cpht) based on a 1.25mm bottom
cut-off size (“BCOS”) and inclusive of estimated mining
dilution 15.1 13.99
Mine Life (Years) 12.9 20.9
Average Annual UG Base
Case
OP UG
Base Case
Production Rough Diamonds (carats) 392,000 374,000
Operating Cost Kimberlite (US$/t treated) $30.57 $28.43
Diamonds (US$/carat recovered) $725.00 $670.00
Feasibility Study Approach
The FS has been prepared following Canadian Institute of Mining Guidelines for the development of an underground
mine. Production from the underground is planned to be coincident with open pit operations coming to completion, at
Lucara’s Karowe Mine (”Karowe Mine”) in Botswana. All dollar amounts in this release are presented in US dollars
unless otherwise stated.
Based on the positive FS results, the Company will commence advancement of detailed engineering immediately, in
parallel with project permitting, arranging project financing and long lead item procurement.
The results of the FS represent forward-looking information that are subject to a number of risks, uncertainties and
other factors that may cause results to differ materially from those presented here. (See “Cautionary Note Regarding
Forward Looking Statements” below.)
The Karowe Underground FS contemp lates both a stand-alone UG scenario and a combined Open Pit Underground
LOM scenario. The FS provides for the development of a Long Hole Shrinkage (“LHS”) operation to mine the South
Lobe of the AK06 kimberlite resource from the base of the planned open pit to the 310 masl elevation. Access to the
South Lobe underground will be via two vertical shafts (production and ventilation). All Underground mined kimberlite
will be processed at the existing Karowe processing plant over a 13-15 year period following the cessation of the current
open pit operations, which is expected to occur in 2025.
As a brownfield operation, the Karowe Mine process plant and other site facilities and equipment are sufficient in many
areas to support the planned underground mining operation. Existing on -site infrastructure includes offices,
warehouses, laydown areas, maintenance facilities, a crushed kimberlite stockpile and reclaim, access and service
roads, an airstrip, explosives magazines, and water and electrical infrastructure. Upgrades to power infrastructure are
required to support shaft services and are costed into the model.
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Capital and Operating Cost Estimates
Capital costs were estimated using a combination of Karowe budget input, first principle cost estimation with vendor
quotes, contractor estimates and guided by benchmarking and experience. The UG pre-production capital cost estimate
is shown in Table 1. The OP sustaining capex adds another $54 million to the UG capital costs. The combined OP and
UG operating cost estimates for the FS LOM are shown in Table 2.
Table 1: Karowe UG Capital Distribution
Capital Costs Pre-Production (US$M) Sustaining/Closure
(US$M) Total (US$M)
Mining 321.5 38.1 359.7
Bulk Earthworks 18.8 - 18.8
Process Plant 0.1 46.5 46.6
Tailings - 22.3 22.3
Onsite Infrastructure 5.9 - 5.9
Buildings & Facilities 1.6 - 1.6
Offsite Infrastructure 19.6 - 19.6
Project Indirects 47.7 - 47.7
Owner’s Costs 46.9 34.0 80.9
Subtotal 462.1 140.9 603.0
Contingency 51.6 12.8 64.4
Total 513.7 153.8 667.5
Table 2: Summary of LOM Operating Costs
OPEX Unit Cost
$/t Milled
Unit Cost
$/carat
Total
$M
OP Mining (per ore tonne mined) 8.25
UG Mining (per ore tonne mined) 8.72
Combined Mining 7.77 56 435
Processing 15.06 108 844
G&A 5.60 40 314
Total 28.43 203 1,593
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Economics
The main assumptions with respect to the economic model are listed in Table 3. Table 4 shows the baseline diamond
prices by zone.
Table 3: Economic Assumptions
Item Unit Value
NPV Discount Rate % 5% & 8%
Annual Escalation % 0
Escalation Start Year Year N/A
Escalation End Year Year N/A
BWP:US$ FX BWP:US$ 10.6
ZAR:US$ FX ZAR:US$ 14
Source: JDS (2019)
Table 4: Baseline Diamond Prices
Unit 2020 2021 2022 FS
North 222 222 222 222
Centre 323 329 349 349
EMPKS 618 705 741 777
MPKS 513 578 604 631
Source: JDS (2019)
Results
The economic results for the Project, based on the assumptions outlined above are presented in Table 5.
Table 5: UG-Only and Combined Economic Results
UG-Only UG and OP Combined
Parameter Unit Pre-tax Results After-tax
Results Pre-tax Results After-tax
Results
NPV5% US$M 710 388 1,266 718
NPV8% US$M 454 226 945 536
IRR % 20.8 16 na na
Payback period Production years 2.3 2.4 2.8 2.8
Source: JDS (2019)
The break-even price for the Project (NPV @ 8% discount rate) is US$4 14/carat after tax for the combined open pit
and underground.
Sensitivities
Sensitivity analyses were performed using diamond prices, mill head grade, CAPEX, and OPEX as variables. The value
of each variable was changed plus and minus 20% independently while all other variables were held constant. The
Project is most sensitive to the diamond price and head grade, followed by the OPEX and least sensitive to the CAPEX.
The results of the UG-only sensitivity analyses are shown in Table 6.
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Table 6: UG Only Sensitivity Results (NPV @ 8%, IRR)
Variable
Pre-tax NPV8% (M$) Pre-tax IRR (%)
-20%
Variance
0%
Variance
20%
Variance
-20%
Variance
0%
Variance
20%
Variance
CAPEX 547 454 360 25.6 20.8 17.1
OPEX 609 454 264 23.9 20.8 16.3
Diamond Price or
Grade 170 454 738 13.6 20.8 26.4
Source: JDS (2019)
Mineral Resources
In support of the FS an updated Mineral Resource Estimate, see Table 7 – Karowe Mine AK06 Updated Mineral
Resource Statement reflecting depletion as of June 30, 2019, was prepared by SRK. The updated resource estimate
is based on historical evaluation data combined with new deep drilling data from the FS study programme. New
sampling results (microdiamond, bulk density, and petrography) have been fully integrated with recent deep drilling and
historical drilling. Separate size distribution and value models have been developed from production data for the two
dominant domains within the South Lobe, the EM/PK(S) and M/PK(S). Grade and tonnage estimates are based on an
updated and revised geological model, an updated recoverable grade model based on Karowe processing plant
recoveries and updated average price per carat values. The 2019 mineral resources for Karowe, as summarized in
Table 7, have been classified as either Indicated or Inferred mineral resources, according to CIM Definition Standards
for Mineral Resources and Mineral Reserves (CIM, 2014). Mineral Resources reported are inclusive of those portions
of the Mineral Resource that have been converted to Mineral Reserves as shown in Table 8 and have an effective date
of July 1, 2019.
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Table 7 – Karowe Mine AK06 Updated Mineral Resource Statement
Classification Domain Volume
(Mm3)
Tonnes
(Mt)
Density
(t/m3)
Carats
(Mcts)
Grade
(cpht)
Average
US$/ct
Indicated
South M/PK(S) 9.40 27.81 2.96 3.01 10.8 $631
South EM/PK(S) 7.62 22.10 2.90 4.68 21.2 $777
Centre 1.28 3.28 2.57 0.50 15.1 $367
North 0.44 1.08 2.45 0.13 11.8 $222
TOTAL INDICATED 18.74 54.27 2.90 8.32 15.3 $690
Inferred
South M/PK(S) 0.10 0.31 3.05 0.03 10.5 $631
South EM/PK(S) 1.40 4.18 2.97 0.87 20.9 $777
South_KIMB3 0.32 0.94 2.94 0.10 10.9 $631
TOTAL INFERRED 1.82 5.42 2.97 1.01 18.6 $750
Notes:
• Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. All numbers have been
rounded to reflect accuracy of the estimate.
• Mineral Resources are in-situ Mineral Resources and are inclusive of in-situ Mineral Reserves.
• Mineral Resources are exclusive of all mine stockpile material.
• Mineral Resources are quoted above a +1.25 mm bottom cut- off and have been factored to account for diamond losses within
the smaller sieve classes expected within a commercial process plant.
• Inferred Mineral Resources are estimated on the basis of limited geological evidence and sampling, sufficient to imply
but not verify geological grade and continuity. They have a lower level of confidence than that applied to an Indicated
Mineral Resource and cannot be directly converted into a Mineral Reserve.
• Average diamond value estimates are based on value models generated from production and sales data from Karowe
operations as provided by Lucara Diamond Corporation.
• Mineral Resources have been estimated with no allowance for mining dilution and mining recovery.
Mineral Reserves
The Karowe Mineral Reserve Estimate for the FS was compiled by QP Gord Doerksen, P.Eng. and has an effective
date of September 26, 2019 and is summarized in Table 8.
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Table 8: Karowe Mine AK06 Mineral Reserve Statement
Lobe - Type Classification Ore
(Mt)
Diluted Grade
(cpht)
Contained
Carats
('000s ct)
Price
(US$/ct)
Open Pit
North Probable 0.6 10.0 56 222
Centre Probable 3.2 15.1 478 349
South – EM/PK(S) Probable 3.6 23.9 850 777
South – M/PK(S) Probable 10.2 10.8 1,098 631
Open Pit Total 17.4 14.2 2,481 618
Underground
South – EM/PK(S) Probable 16.3 19.9 3,246 777
South – M/PK(S) Probable 17.1 10.6 1,807 631
Underground Total 33.5 15.1 5,053 725
Stockpiles
North Probable 0.4 12.7 51 222
Centre Probable 0.4 12.8 54 349
South – M/PK(S) Probable 1.6 9.5 151 631
Mixed Probable 4.0 5.0 198 609
Stockpiles Total 6.4 7.1 454 542
Combined
All Total 57.3 13.9 7,988 681
1. Prepared by Gord Doerksen, P.Eng. JDS Energy & Mining Inc.
2. CIM definitions were followed for Mineral Reserves and the effective date of the Mineral Reserve is September 26 2019.
3. Mineral Reserves are estimated at a cut-off value of US$31/t based on an OP and UG mining cost of US$9/t, a processing cost
of US$16/t and a G&A cost of US$6/t. Process recovery of the diamonds was assumed to be 100% as the recoveries were
included in the mineral resource block model assumptions and therefore have taken recoveries into account. All of the
kimberlite material in the South Lobe is above the cut-off value.
4. Average diamond value estimates are based on value models generated from production and sales data from Karowe
operations as provided by Lucara Diamond Corporation.
5. Tonnages are rounded to the nearest 100,000 tonnes, diamond grades are rounded to one decimal place. Tonnage and grade
measurements are in metric units; contained diamonds are reported as thousands of carats.
Source: JDS (2019)
Geotechnical
An exhaustive 21,000m geotechnical/hydrogeological drilling and data collection program was undertaken in
preparation for the FS. Over 8,000 field rock strength tests and over 2,000 laboratory tests encompassing a full suite
of testing were conducted. Pumping tests from 23 water boreholes, 58 packer tests and 400 hydrochemical tests and
analyses were undertaken.
The unusually high strength (and low weathering susceptibility) of the South Lobe kimberlite eliminates natural caving
as an option but presents a good opportunity for stoping. Kimberlite intact strengths are lower (roughly half) where the
kimberlite is in contact with the country rock. The bulk of the host rock above the basement granite, comprising ~345m
of sedimentary stratigraphy (shales, mudstones and sandstones of the Karoo Supergroup) and ~130m of igneous rock
(basalts of the Stormberg Lava Group) are of good quality and display sparse jointing. There are some weaker layers
within the country rock stratigraphy that exhibit low intact strengths including red mudstone intercalated beds within the
lower sandstone, carbonaceous shale (water-bearing) and weathered granite.
There are no major faults or fault zones evident in the kimberlite or host sediments.