Lucara Diamond Corp.

William Lamb – President, Director & Chief Executive Officer

Geordie Mark – Haywood Securities Inc. Edward Sterck – BMO Capital Markets

Thank you, Andrew. Thank you everybody for taking time to come listen to our Q1 2017 results.

With me today I have Glenn Kondo, our Chief Financial Officer and John Armstrong, our VP Mineral Resources. So if you have any questions later for them please feel free to ask.

I will also apologize because we have one or two issues with the uploading of the presentation and I'm just going to go through. I have a paper copy in front of me, but if there are any questions related to anything that I discuss please note and we can answer those questions later.

So if you have the presentation I'm on Slide 3, just going to the results. So for the first quarter, we only had one regular tender generating $26.1 million or $405 per carat.

Important to note that that $405 a carat is actually our third highest regular tender ever. And if anybody is sort of a favorite in the diamond market and everybody was sort of crying foul based on demonetization in India it is actually an excellent result.

The EBITDA was close to $5 million again with exceptional stone tender coming up in virtually a week's time. A lot of those stones recovered during the first quarter so -- later on we will talk about just how volatile our sales are and if it shows the way we've had the exceptional stone tenders versus the regular tender.

Another activity on the start is going well, new mining contract Aveng Moolmans mobilized on schedule. They have had a lot of rain down there, so it's for maybe one or two weeks of additional time to pump out the dump but they actually have mobilized very, very quickly drilling block is now on schedule.

Waste moving is slightly ahead of where we should be. So everything actually moves very, very much in line with our original expectation.

And you can actually see sort of when we look at the cost, we do expect those costs to increase now that we've really mobilized and with the new mining contract the negotiated price they are talking about -- we just want. So we believe it is going to add significant value to the company going forward.

In terms of our capital project, we've once done recovery this is our Mega Diamond recovery and sub middles taking the XRT technology down to formally because those are on track both in terms of budget and schedule. And then on the resource update drilling inspiration, we haven't bought those and we've got a bit of an update later.

Moving on to the next slide, the two key parameters on Slide 4 are revenues. Again as I mentioned $26.1 million versus the $50.6 million, $50.6 million if we just look at it in context of what we had recovered is the best since 2015.

This was there was a single stone that came out not just with the -- conservation but also through December and those single stones what was added into the regular tender in Q1 2015 hence leading to a much larger number. And then I just think we like that one, I'm going to ask you to flip around.

You got to turn to Slide 5, where actually shows the both even both from the regular tender and also from the exceptional stone. And you can actually see how the exception stone has a very high quarter directly off, we only have a single tender.

I mean what I did was with our mine, sort of lastly both where there was one -- most of which there was no tender to have then. And as we move down, our revenues flatten out.

I think we talked about the volatility which we have in our revenue for the quarters, but when you normalize based on when those recover. We have these very big consistent cost, we intend to have regular revenue operation.

Jumping on to Slide 6, in terms of the overall financials at the end of the quarter, we still have $43.5 million in the bank that compares to $53 million at the end of 2016 and then off course the $134.8 million at the end of 2015 a lot of that being paid out with the special dividend which is paid in 2016. Our credit facility of $50 million that remained undrawn so very probable to be debt free with our cash balance moving up and down when we actually have as told.

On to Slide 7, and I think this is another thing that we are particularly proud of. We are still a asset company, a small company and yet out dividend policy sort of shows where we are actually adding and invest to shareholders but not taking away from the potential due to continue to grow the company.

That's a very, very strong dividend growth, 50% between 2015 and 67% going on from there and this is supposed to be our 10 cents dividend on 3.2% yield based on the start of the year share price and the announcement of second payment of 2.50 cents. For those on record on 2nd of June being cash paid on the 15th of June.

Jumping to Slide 9, I'm just looking at the growing months specifically and the operating performance and I'm starting behind on times and this was sort of mainly based on the rain which had and the ability for the mining contract that actually gets in and start to get -- from the pits. We did mine a lot of stockpile material.

Stockpile material generally had lower grades, but it was something that we actually put into our plan and we do believe that going forward the cash recovered for the year, we will still be on track for the recovery of 290,000 to 305,000 carat. In terms of waste mine really starting to ramp up the amount when you compare that to what we got here is a fairly large amount of waste which we're going to have to move between now and the end of the year.

But if we look at our previous mining contracts where they had 1,200 contracts, the new mining contracts that is moving 2,900 plus and to have big shovel. So our ability to move a lot more waste at a lower cost that's really the key for doing this is opening our flexibility giving us more access to different areas to the south and areas where the contact is now just underneath the waste accessing those and it's really a program inflexibility and optimality which is the reason why we are pushing forward with a much larger waste movement program this year and next year.

It doesn't change anything; I think a lot of people seem to be a bit concerned that we're moving more weight. Over the life of the project we still move the same waste.

The waste which we are moving now actually reduces our overall strip ration significantly in 2019-2020. So it is just bringing forward that the cost now but it gives us a lot more flexibility and optionality in the South Lobe.

In terms of carat sold 64,000 versus the 77,900 last year and if anybody is interested John has some specs on the number of single stones and how those are actually affected with the sales. In terms on health and safety on Slide 10, very -- analysis have lost time injury and then we have a very minor but still lost time injury where somebody hit thumb with a hammer fracturing it which led to lost time injury and very frustrating to the -- with all the vigilance which they pay.

So we had that lost time injury it is back in the much and we are now running a rolling 3 frequency rates that is from 12 months 0.8. Oddly enough looking at the stats for April and much higher level of reporting of potential in the -- but again that focus on safety being bought to the full.

We picked up by all the guidelines. Moving on to our resource extension and expiration time, on the indicative resource at the AK06 kimberlite which is what we are mining at Karowe, the 10,000 meter drill program is now completed.

We're busy doing the thumping of that for market diamond work and geological continuity, we expect that material to most probably be at the Saskatchewan Research Council most probably before the end of the half year with the work then kind of the out of our hands in terms of when we get that information back. But the targeted resource update is most probably for back end of the Q3 EBIT, most probably into Q4 of this year specifically because there are timelines within that which we don't really control.

The overall purpose of that is if you're looking at the slides on Slide 12, that pink area which is the majority of the hill which we have mined between now and the end of life or mine 2026 that is the pink maturity indicated and we are looking to extend that pink area down from the 400 meters where it changes to blue to 650 meters plus or minus below surface, which will give us sufficient indicated resource for a prefeasibility level underground study. And that study is already out, here we are speaking to a number of people and we'll launch that most probably running in parallel with the resource upgrade based on the drilling holes to be completed.

Once the prospecting license, I think this is an area where if we look at the potential for finding a diamond at first kimberlite in the area where we are mining that probability is much higher. But of course it still has to have the legs and to make economic spend before we continue to spend money on it.

So as far as the BK02 kimberlite, this is where we've actually now recovered just over 500 carats worth of diamond. Where we had a course distribution and there were 43 or 46 diamonds over a carat covered and we all were very excited about that.

But the valuation and the extension of that show fairly poor diamond value even though we do have the course of distribution. So the combined parcel they had a value of around $56, $57 per carat, what's the grade which only sort of just goes past the -- per hundred tones having that value per ton in the ground that does not convince us that we are ever going to get up to a point where it will be an economic entity.

We will look to retain the license when it comes up for renewal specifically for optionality, with regards to other things which we're looking at and we're not going to be proceeding with the drill program there just because it would be a waste of money at this point. As the indication which we have based on great value don't indicate an economic kimberlite.

In terms of two AK14, we've done quite a bit of drilling there and again the indication based on the volume shows that we are not going to continue to spend money doing that one. So we get sort of hold any further work they on AK11, the logging and samples are complete market on the work is ongoing and it's going to be interesting to see what the results are for that as though that is the completely new and undrilled kimberlite.

So it's bit of a one of those that we hope and pray, it is the low a fairly large amount of weight. But very interesting geology there anybody is very interested they can ask John those questions later.

And then on AK13, we had drilled 5 holes in sector kimberlite. We are now proceeding with the microdiamond work and they are also for that and 11, 11 we are going ahead with the large diamonds of drill program anyway.

But based on the microdiamond results will then determine what further work is actually going to be done on searching. Moving on to the outlook Slide 14 and then 15, obviously very exciting and obviously as we mentioned earlier, the $26 million sold in Q1 that we could easily beat that up by throwing some of the stones which we actually recovered which we have now put into the Exceptional Stone Tender so very exciting 15 stones average size of 117 carats per stone and we do have the 373 carats done in may which we have held on to quite a while at this point.

But that tender slows in on the 11 May with results being posted at the close of market on the afternoon on the 11. In terms of the overall outlook, we maintain our guidance of revenues of $220 million that excludes the sale of the diamond.

We fully expect this up to 290,000 to 310,000 carat once processed again between $2.4 million to $2.5 million and that's from old mine 2.4 to 2.7. So we will be stockpiling material and I think the most important thing that we have on site at the moment is the management that I'll ask specifically what is high yielding material, not materially high grade which we need to set aside until the sub middles project is up and running.

In terms of our overall operating cost, just in terms of the waste moved 17 million to 20 million tones that is up quite significantly round about sort of 5 million to 8 million tones more than what we have previously. But as I've said we have a great deal of comfort with the mining contract, the rate at which they have mobilized and how they have actually applied themselves we're very comfortable that we will get within that target.

In terms of the overall operating cost as we now thought to ramp up the waste moved, we do expect that the cost to increase and still to average. We would target as Lucara has done year-on-year the bottom end of that guidance but with a large amount of waste which we do want to move we do expect it to still be within the $36 to $40 per ton processed range.

In terms of the installation of our two capital project that I logged on recovery and the sub middle takes on -- those and still within the $15 million to $19 million and the $30 million budget capital still trending with in line and then obviously the expiration budget even though we all looking to reduce the spend that's why we have working it up to $10 million so a little bit of a movement there, but I think it's easier just to work on those numbers. And then I think just in closing a couple of comments on the diamond market, and I think with diamonds you will always hear people say that they remain cautioned.

There is the liquidity available in the market we just had our sales and marketing manager on a quick five day tour through India speaking to clients, trying to understand exactly how the market is behaving. And even though there's been large volumes of rock sold into the market by the major and this is because there was liquidity coming out of sales ahead of the Christmas and holiday season where they weren't buying large volume at the end of last year specifically because of demonetization.

And demonetization from our perspective, we don't believe it had a significant impact on prices and you can see that in the process that we're paid at the major sale. It did have a major impact on demand, so if people didn't want or didn't need diamond in their factories then they didn't buy.

If they couldn't pay their workers and they were sort of they want an after-thought to go out -- either. But what we've seen and this is characteristic of the diamond industry.

Just a very very strong rebound and they come out it where diamond processing and especially for our goods are very much in line if not better than what we've seen previously. Where there was weakness in processing because the below demand for brown and rejection taught good results back anywhere from 10% plus on the rejections.

That's 25% up on the brown. So the market is actually sort of very, very strong even in the poor quality those have definitely come back.

So looking forward as far as our sales are concerned, we've had very very good results both on the regular tenders a demand for the single stone is definitely there if we look at recoveries from other people who generally recover those stones and there hasn't been a large volume of these come to market. So I think we are very optimistic about the outcome of the Exceptional Stone Tender and the continued strong sales of our regular goods and this is really based on demand which we see in the market and increasing appetite for people who generally wouldn't have come down to… So overall, again stay cautious but the market actually seems to be very, very positive at this point with available liquidity and I think just strong growth.

We've seen improving results for the retailers out in the danger area sort of looks to see are getting good results out there and I think we are now starting to see better demand for polished which only translates into better numbers for the rock producers. So with that, Andrew, if I could hand it back to you please for the Q&A session.

Hi, William, Glenn, and John. Just to start with few questions maybe on the operational sense.

Given the ramp up in the mining fleet capacity through Q2, just wondering what sort of percentage of material going through the processing circuit is likely to come from the stockpile? And then perhaps more broadly, any idea or the percentage of material from Q2 through Q4, slightly to be processed from the South Lobe?

Okay. Thanks Geordie, when we look at between now and getting the sub middles plans up and running, even though we can check what the resource model says in terms of density.

When we get into it, there does seem to be sort of a fairly variable amount and all of that that they go to the -- so I will say that it's a bit of a moving target between what goes from stockpile than what goes from that the pit. If we get very, very fresh material as it does to the mill we're liberating the individual grants which are that's called the congested component of the high density material and we may find that we'll get material where the density and the resource model will say that it's relatively low.

But when it hits the protest, go on to block up the back-end specifically because of the DMS yield. We then can default back to the stockpile, but a lot of the material which we are mining from stockpile is going to be South Lobe anyway, so when we look at where the material has come from and what we are going to be mining.

The vast majority of what we put through the plant through Q2, Q3 and Q4 is going to be South Lobe material and I am with it directly from the pit or from the stockpile.

Okay, thank you. Maybe just some color on the diamond pricing, particularly you gave some details in terms of the population of stones that are in the Q1 rough sales around about just under 3,000 carats.

Just wondering what's the proportion of the total revenue is generated from that parcel and any commentary in terms of broad like for like sort of pricing sort of pricing between Q1 this year and Q1 last year?

Okay. So in terms of pricing -- again prices, if we look at the good which are say smaller than 4 carat, the parcel which we are seeing is very very consistent.

There may have been a 3%-4% movement up or down and we actually haven't adjusted our transport significantly compared to where we were through most of last year. So for our goods and the demand which we see for the diamond which we produce, the pricing has been very consistent in the smaller size fractions regardless of the -- and the way we do our assortment, that's fairly consistent.

So if you came and bought a parcel in January last year it will be the same in January this year. And we were getting paid very very similar numbers for those.

In terms of the stones larger than 10.8, 53% of the revenue comes from the stones which are either in basket or single stone in the largest prospect and then that's a pinpoint accurate and about.

Okay. Thank you very much cheers.

Thanks very much. So just wanted to start with a couple of question on the upcoming or the ongoing exceptional auction, just flicking through the stones, the catalog and the stones are on offer.

Do you feel like this could be a pretty good one in terms relative to historical auctions being hand and this was quite a good line of expense?

Yes. So it is --most likely going to be one of the better auction, I don't think that it will get close to -- the best auction we've had averaged $42,000 a carat.

I think for us, we do have the larger stones the 216 carat stones which is locked 5. That one is the brownstone and because of the stars of that stone, it's there because it's a large stone is there, it's most probably worth more than $1 million.

But that one if it comes in hypothetically anyway it's going to be in the $6,000 to $10,000 carat. Because of the size it does lower the average.

So from the Karowe perspective and sort of our internal numbers, we still confirm people to estimate numbers between $30,000 and $32,000 because which is the average which we see. But I think based on the quality the diamonds which you see especially the 373 that is a very nice stone.

You might want to air on this the highest odd, although I have visual of all these scenes.

Okay. Thank you and then just moving on to the 373.

Is that stone associated with the defendant alright?

That is correct.

And so, I mean the decision to sell this state now does that mean that you might have a plan for the --?

Yes and no. Again the -- I hate to say, but an ongoing process.

We have a number of options available to us. We have discussed that extensively at the board.

I think the one thing that plays in the company's favor is that again, we're not forced sellers. I think selling the 373 carat stone gained back into the cutting center and again getting an idea of what the quality of that stone will produce both in terms of color and clarity.

We'll also give us a lot more optionality in terms of what we plan to do with the stone. We do know that there were other stones also sold in Exceptional Stone Tender 9 in the first half of last year, which may have potentially come from those.

We can already confirm what -- but it is, when you are looking for somebody to accept the risk and the value of discovering. The number of people who are potential buyers for that stone is still ready to begin with.

So we still maintain our sort of optionality and I guess the potential different routes which we can go with the stone.

Okay, thank you. Then just last question, on Indian demonetization.

You along with others are saying that it looks like the situation is normalizing there. I'm just curious if you happen to have any insights on to how normalization has occurred has the industry being recapitalized or are we saying the larger sort of more -- I guess kind of industrial strategies and policy such as --evacuating and taking market share?

We definitely haven't seen that. I think the more important aspect of it is that.

The people don't buy diamonds with Indian rupees, they still have very much US dollar denominated acquisition and sale of diamond. The key aspect which affected the industry was that they just didn't have money to pay the cash.

So they didn't have money to pay then the cutters are going I'm not hanging around here so they all left, which means that they weren't going to go up and buy rough because they didn't have anybody to benefit it. So it's really the maker of the -- we've taken now payday cut.

The banks definitely stepped in and I don't know whether everybody now has a bank account, but to pull up on that. But it's really that mechanism of paying the cutters an assuring that they are actually back in the factories working and I think that's what's really been the key driver.

But let me I'll speak to Steve a bit later today and I'll find exactly is and I'll drop you an e-mail.

Great, thanks very much.

Again, thank you very much everybody for attending our Q1 2017 results call. We look forward to putting out the -- a high level excitement for what the exceptional stone tender will generate.

And I think again it will show the robustness of that side more and we look forward to putting that information out within a week. Thank a lot everybody have a good day.

Thank you, Andrew.