Lucara Diamond Corp.

William Lamb - President and CEO

Christopher Welch - Pareto Securities Richard Hatch - RBC Capital Markets Matthew O'Keefe - Dundee Capital Markets

Thank you, Melanie. Thank you everybody for dialing in to our full year 2014 results presentation.

I’ll just move through the slides. We’ll jump straight to Slide 3, the highlights from 2014.

So through 2014, we actually had diamond sales of $265.5 million at $644 a carat, a significant jump up from where we were in 2013 of being up for the same volume of carats sold. We have included an interesting fact that if we take out the exceptional stone tenders, the regular tender is still sold for $318 a carat.

So for those of you who actually read through the feasibility study, if you go back to that document [Technical Difficulty] of the exceptional stone tenders on top of that show us we’re a very sustainable operation. In terms of our operating and cost discipline, for the full year, operating cost were $27.8 a tonne treated and this compared to our guidance of $31 to $33 a tonne.

Again, focusing on the areas where we actually have control and cost management is one of those areas. Full year operating margin was $529 per carat or 82% compared to 74% in 2013.

In terms of operating performance, this was in line with forecast both mining and production at Karowe were in line with what we had anticipated. Through 2014, we had a total of 815 special stones recovered compared to the 732 in 2013.

Of those, 27 of them were greater than 100 carats and four stones over 200 carats were recovered. If we look at where we were mining in the backend of 2014, most of this coming from the stockpile and the north lobe, we do currently have a collection of exceptional stones available not quite as many as what we would want for a sale.

We are anticipating sort of still having the three tenders of exceptional stones during 2015. In terms of our cash balance, we increased from $49 million to $101 million at the end of 2014.

And when we look at this, it’s important to take into context that during the year, we actually paid out $35 million in terms of the capital expenditure on our plant optimization project, $27 million in dividends and obviously with the profitability of the mine, we are now a tax paying entity in Botswana and we paid $28 million out in taxes, and yet still more than doubled our cash balance for the year. In terms of adjusted earnings per share and return on capital employed, we ended the year with adjusted earnings per share of $0.24 compared to $0.17 in 2013.

And ordinary I’m just – as I go through it, it’s easy to compare it to 2013 that being our very first year of full year of operations. So all of these are actually just our second year of operation, so a return on capital employed of 63% is sort of an exceptional number for us.

2014 was the year we started paying in dividends and through the year we had regular dividends; $0.02 midyear, $0.02 end year, and we also paid a $0.04 special dividend for a total of CA$0.08 and dividend yield was 3.7% based on the year ending share price. Very interesting there as well we have a 3.4x cover ratio.

Again, when we started paying the dividend, one of the key criteria for us was being able to pay it sort of consistently on a regular basis and that cover ratio should show that we are able to do that. Moving on to the next slide, Slide 4, in terms of our exploration.

The two precious stone licenses, which were awarded to us in September of last year, they are in the Orapa Kimberlite field. They cover five known Kimberlite, three of which have historically been sampled.

And when I say historically, we’re talking about in the late '60s, early '70s, very similar to the original exploration, which was done on AK6 and three of those Kimberlite have been confirmed as diamond offers. We do expect to start sampling of those around about midyear.

Our bulk sample plant, which has been ordered, we expect that to be onsite in the third quarter really due to the long-lead items with the crushers. And the way we’ve actually set those up is to enable stage crushing of the samples, which we’ll be processing.

And the reason why we’ve done that is so as not to break stones during the exploration process. Essentially, if we look at the exploration results for AK6 versus what we are actually recovering.

During exploration we’d now like to understand whether there is a core stone distribution before we actually start to mine it. In terms of Mothae and our investments in Mothae is actually going quite well.

We’ve already received from the people that we’re in [indiscernible] indicative non-binding offers. We’ve almost already short-listing there to going to round two.

It is the hope that we’d actually sort of complete that process within the first half of the year. Moving on to Slide 5, our operational review.

I’m not going to go through all the numbers. We have mentioned everything worth sort of in line with guidance and the important numbers there are when people start to look at the increase in cost.

We did move 87% more waste during 2014 versus what we moved during 2013, and over 10 million tonnes. If we look at the guidance number for 2015, we’re expecting to move in excess of 12 million tonnes.

That, as we have mentioned before, happens over the next three years and then the ranking strips or the strip ratio drops very, very rapidly once we’ve finished Cut 2. In terms of carats recovered, slightly less than what we’re measuring 2013.

But again if you look at the value actually gained from the sale of those carats, more of the diamonds actually coming from the south lobe. So just specifically – we can go to the next slide, I’ll do that.

If we look at the material, which was actually processed through the year, not on the slide, in terms of material processed from the center lobe and the stockpile, fairly consistent between 2013 and 2014, but by 40% more material being processed from the south lobe during 2014 compared to the previous year. And I think that’s an indication when we start to relate that back to the revenue of where the high value stone, especially the large very, very white stones are coming from.

In terms of our revenues going from 180 to 265 and the 47% increase, as I mentioned, that is directly related to the volume of material processed from the south lobe, which we’ll actually discuss when we get to the plant optimization. Interesting numbers would be the EBITDA there, an increase of 69% from $102 million to $173 million for the year.

Again, when we look at the EBITDA versus the total revenue and the margins there, it just shows the ability for the guys on the mine site to have very, very strict cost control. In terms of our adjusted earnings, up 41% from $0.17 per share to $0.24.

Again, when we referenced the south lobe and the average carat sold there, increasing in value from $411 a carat to $644. And I think it’s important to point out here if we look at the material which we processed during the north lobe and when we first started mining in 2012, we ended the year there with an average of 254.

So as we get sustainably into the south lobe, we could actually see the numbers in the $600 per carat occur on a regular basis. If we look at our outlook on Slide 7 for 2015, we have come out with sort of slightly lower revenues than what we received during 2014 between $230 to $240 a carat.

Again, with the material coming from the south lobe being processed only once the plant optimization project is complete and the inability to actually accurately predict when we recover 100 carat stone and what the quality of that stone is, I think we will see the target being met but only later in the year versus what we’ve seen in previous years. In terms of the carats sold, very similar to what we’ve done in the past two years between 400,000 and 420,000 carats.

We do expect to process between 2.3 million and 2.5 million tonnes. And as I mentioned, the waste stripped there sitting now between 12 million and 12.5 million tonnes versus just over 10 million we did last year.

Operating costs and this is an area where we obviously put a lot of focus. It is within our control sitting at between $33 and $36 per tonne, again, with reference to the increase in waste stripping but as well as the increased complexity, which we have through the plant optimization project.

I’m talking about that project, the original capital number of $55 million. We are still trending within the $55 million having spent $35 million on that during 2014.

We have up to $20 million total spent this year. In terms of our sustaining capital, a lot of people have questioned why this number is higher than we were last year.

We have included a mill-relining machine with the installation of turbo pulp lifters, we’re talking about 21 tonne sort of segment for the lifters there. And so we are installing a mill-relining machine and it is one of those items, which takes quite a while to actually get onsite.

So the $5 million is actually spent for 2015, 2016 with $3 million of that actually being spent in 2015. So if you take the $3 million off of our sustaining capital, we are still in line with $4 million, $4.5 million, which we had for 2014.

In terms of our exploration costs, these have actually not increased. We had $4.5 million in for the processing plant and some of that money was spent this year but the actual exploration costs for – I’d say it was spent last year, but the actual exploration costs which we’ll actually spend on extracting and processing material for this year just was round about $2.5 million to $3 million.

If we move on to the plant optimization project, so as we’ve most certainly mentioned, the reason for doing the project is really to be able to process the high yielding harder material in the south lobe. We are trending within the budget of up to $55 million.

I will confirm that we’re only one or two weeks behind in certain areas. It’s not going to affect the production guidance for the year or the cost to complete the project, and it’s really being caused by sort of very heavy rains and the steel site, which we had a month’s loss of steel coming during 2014.

But it’s not going to – as I’ve mentioned, it was not going to affect our production guidance for the year and we do expect to have that supply, especially the XRT building commissioned; most of those commissions before the end of the first quarter and then ramping up to sustain production in the second quarter. So as it says on the slide there, 65% of most of the new sections of the process plant have already been integrated with the existing plant.

The way we’ve actually approached it has been sort of very methodical ensuring that the operation staff on the mine understand exactly how each of the new sections integrate with the new one and Bunder is doing it on a stage process. They’ve been through a significant learning sequence, which allows us to ramp [indiscernible] a lot quicker.

One of the systems which was integrated early was the large diamond x-ray transmission circuit. The reason for doing this is not only to protect any large stones even though we were mining from stockpile and the north lobe, but it was a very valuable learning experience for us, understanding exactly what the maintenance requirements are, what the feed preparation requirements are and that is going to sort of hold a lot of water when we actually get to commissioning the full size process plant.

If we go over to the pictures on Slide 9 of the plant optimization, the very first picture on the top left is the XRT building. It is most certainly a fairly substantial structure and in that business we now have five of the new generation x-ray transmission bulk sources [ph].

This will be to replace dense medium separation specifically because of the high-yielding material. Those machines will process all the material above 8 million liters in three different size fractions.

The picture on the top right just shows sort of the construction activity in the far – back of the picture you can actually see the original primary crusher with the mold [ph] and stockpile. All the conveyers in the four-gram of that picture are new and that is to bring materials to the XRT building and then take it back for recycle.

One of the keys, which we have included in the plant optimization is a tertiary crushing circuit. When we recovered the first 239 carat diamond, we changed the top side of material processed.

So we are sending fairly large material anywhere up to 35 millimeters, 40 millimeters out to the tailings dump. Once the tertiary crusher is installed and commissioned, we will actually be treating – or crushing that material down to minus 20 millimeters, therefore, recovering a lot more of the finer diamond.

What this will do is it will have an effect on the overall dollar per tonne, so increase in revenue. And because these diamonds are finer, we do expect a decrease in the dollar per carat recovered.

But at the end of the day, it’s an increase in revenue actually produced by the mine. And then not really on the plant optimization, we had a new mining contract to mobilize that started at the beginning of the year.

With that mining contract, we came or they brought in sort of larger trucks specifically for the waste stripping, and those are 100 tonne trucks which we see with all the material which is being moved since the start of I guess operations in the pit has been done by 30 tonne and 40 tonne trucks. So we do expect to see an over reduction in the cost associated with the mining and with the utilization of the larger trucks.

Moving on to the last side and it’s just a general overview. Yes, the picture does look a little bit gray.

I’ve been quite surprised by how much rain we’ve had on site. I was on site about two weeks ago and we had 61 millimeters overnight, which is kind of surprising for that.

And as I mentioned, it does lead to delays because we can’t get the guys working on the structural steel when it’s all wet and slippery. But I think this diagram does show sort of the extent to what we’re actually doing on site.

There were a number of comparatives, which we were discussing. We’re actually installing more structural steel now for this upgrade than what we did for the original plant.

So I think that’s a good point to put in perspective. And those pictures were also taken a week and a half ago.

Since then, the screen is on. We actually finished the cladding.

We’re returning it back on the recovery building and they are making very good progress for us to actually have XRTs [ph] and most of the process plant commissioned early in the second quarter. Melanie, that concludes the presentation.

Thank you.

Hi, William. Congratulations on good results.

I was wondering if you could give us a bit more color on the slight grade bump you experienced over the year, if there is something we should look forward sort of further grade exceeding expectations going through this year? And also are there any sort of concerns about power supply in the region?

I mean, in South Africa, Petra is having issues and Gem is having issues with power cost increase. Is there anything going on there?

Thanks, Chris, especially with the comments on the results. So what I’ll do is maybe address the power question first.

So far we haven’t – obviously with the rain and sort of blocking [ph] et cetera, we do have sort of power dips, but in terms of any sustainable downtime on power, we haven’t actually seen those. We have had regular meetings with Botswana Power Corporation.

Out of the four 150-megawatt turbines that they have, two of them are sustainably running now. They do believe that the remaining two will be up and running before the end of the year.

If you look at overall Botswana power consumption that’s just round about 750 megawatts to 780 megawatts. Of that, only 180 megawatts comes from South Africa.

And we have been reliably informed that Botswana does pay a lot more for their power than what domestic consumption pays in South Africa. So it can seem [ph] to be sort of fairly hesitant to switch power off to Botswana.

So that is a pro for us. The government has, however, also gone out and secured long-term contracts with suppliers such as Mozambique in the surrounding countries.

So, so far we actually haven’t seen any sort of major disruptions in power expect for some of the weather, et cetera. It is one of the risks which we monitor on a regular basis and hence the regular meetings with Botswana Power Corporation just so we know exactly what’s coming.

In terms of the overall grade, we do actually expect an increasing grade in the backend of the year. That’s going to be associated primarily with the commissioning of the tertiary crusher.

So as we start to liberate more diamonds, we’ll see our mine haul factor sort of start to increase. And while we’re looking at liberation models, these numbers anyway are 5% to 7% additional stones, which as I mentioned is going to have an effect on the overall dollar per carat, but decreasing that the dollar per tonne number should increase quite substantially.

Great. I just have a quick follow up as well, if I may.

Just on the bulk sample, when do you think we might see the first bulk sample initial results?

Sure. As I mentioned, the commission of the bulk sample plant is expected only in the third quarter.

We will obviously go out and sample – we’re starting with BK2, so we’ll go out and have the samples ready to process. I think one of the advantages, which we have because all of the sourcing facilities are on site.

And as soon as we do start to get results, there should be a fairly quick turnaround. So we would hopefully still like to see results out before the end of the third quarter or these preliminary results out before the end of the third quarter.

Great, thanks. And William again congrats.

Thanks. Good morning, William and team, and thanks a lot for the call and a good set of numbers.

Firstly, just wondering whether you’d be able to give a steer [ph] on how the current tender is going and how those processes are comparing to your December tender and I think the January one. And then secondly, I mean you talk about the good process that has been coming out of the south lobe.

What would it take for you to consider reviewing that report on Karowe to see whether you could increase the dollar per carat value from the existing levels?

Okay. Let’s see the first one first.

We’ve actually had very, very good traction. What we are doing is our sales are aligned with when it might be the week before the week-off or the same week as both [indiscernible].

So we actually had very, very good traction. The November sale which we did last year was also solely Botswana as a trial.

I think we had sort of 70-plus clients view the goods. We had about 15% to 20% increase in that for the first January sales.

And if I look at the viewings for the sale which is happening at the moment, client viewings are in line with what we had for January. So one of the things or the comments we get back from the clients is they really like our goods and the people are willing to actually come down.

We do also sort of change the parcel slightly depending on which clients have definitely confirmed and that’s been able to provide, I guess, the assortment of what the clients are definitely looking for. And in terms of the overall pricing, we’ve seen an increase in pricing since the December sales, not significant, but definitely firmer and that’s in line with what both Petra and Gem saw in the first tenders of 2015 for them as well.

So we’re fairly encouraged by the parcels which we have sold in the valley, which we have received for those being sort of marginally higher than what we saw in December last year. In terms of the numbers, if we go back and we have a look at just how much material we processed from the south lobe on a sustainable basis, when we mine for more than a month in the south lobe during 2014, the weight percent plus 10.8 carat diamonds recovered was significantly higher than what we currently have in the resource update, which was produced at the backend of 2013.

But when we look at the overall stats and how much confidence we would have to sort of say yes, the numbers are going to be sustainably higher than the 644, and I think that would be a very difficult call until we’ve actually gotten through a lot more of the material, specifically the harder material, hence the inclusion of the tertiary crusher for liberation. And we’ll have a much better handle on that at the end of the year.

Okay. Thank you.

Thanks, Richard.

Thanks, operator. Good morning.

Great results. Thanks for that.

It’s always good to have some good news. Just a question on the mine plant in the first quarter.

You mentioned you were going to be doing a lot from the north lobe and the stockpile. Will there be any from the south lobe?

And also on the stockpile, which material do you intend to put onto that? Like what characterizes the material that you end up sending to the stockpile in a normal year?

So, let me do the stockpile one first. So the material which is on the stockpile is generally sort of the slightly lower grade.

So we know that the grades in the north lobe are higher than what we see in the center and the south. So the stockpile material is actually just added and so we have an average grade going into the process plant and this allows us to sort of better predict what we’re going to have available for the sales.

If we look at – and then to carry on with that, no sample of material is currently being processed. Where are we going to the south lobe, it’s not the hardness of the material, the mold actually handles that very, very easily.

It’s the increase in density. So because we’re into sort of fresh magnetic power plastic Kimberlite, the overall construction or the components of the Kimberlite cause it to sort of have anywhere up to 5% to 6% yield.

So we can get it through the DMS, but once it gets into the recovery plant, it just blocks that up very, very quickly. Hence the inclusion of the XRT sorters.

Okay, that makes good sense. And as far as mining – just so I’m clear, the mining of the south or the north lobe is really probably the main focus for this quarter given that you need to have that XRT on line for the hard ore that you’ve encountered now in the south?

That is correct. We are pushing very hard on the plant optimization to get that finish.

Because as soon as we have the plant up and running, then the yield problems go away and we can actually sustainably get back into the latter part of the center lobe into the south.

Okay, great. And then I have another question.

This is really, I mean really looking out probably a bit too far out but our model has your mine life going through 2025 as an open pit. When do you have to start thinking about and designing an underground component for Karowe, and is that like still three, four years away before you need to start thinking about that or are you starting to think about that now?

We have already thought about that. During 2014, we had sort of a desktop study done just so that management could understand essentially what the cost would be, what the complexes would be, ensuring that if we put a decline and if we put a shaft that we actually hadn’t cited somewhere where we had a tailings dump.

So we have done sort of preliminary very high level, we’re talking 10,000 feet reviews of what would actually be required there. When we start to look at when work would have to start, that’s obviously a couple of years out.

I think late – DiamondCorp, if you look at sort of their development, they’ve now done twin declines all the way down to I think 470 meters and that’s taken round about a two-year process. If we are going to think of shaft, we’d obviously have to start a lot earlier.

But again, when you start thinking of shafts, you want to be fairly deep in the pit so you just put a tunnel and raise board [ph] from there, so you don’t have to start with much higher costs from surface. So, a lot of sort of thinking heads going into it.

I think if we look at the quality of the diamonds and the fact that the resource has already been drilled all the way down to 750 meters specifically in the south lobe, there’s easy 10 to 15 years worth of additional mine life left there. We would have to go back and do some drilling to get that indicated.

It’s only indicated down to 400 meters at the moment, but there is definitely opportunity for us as far as underground mining is concerned.

That’s great. William, thanks very much and congrats again on a great quarter.

Thanks, Matt.

Thanks, Melanie. Thank you very much everybody.

I think if we look at the overall results as was iterated by some of the analysts on the call, very, very good results, very strong results. We are looking forward to sort of a challenging year for us with the plant optimization being one of our focus areas.

But I think if we look at sort of the history of what we’ve been able to achieve in the past, we are well on top of being able to deliver the project on schedule, on budget. So thank you very much for the call everybody and have a good weekend.

Thank you, Melanie.