Lucara Diamond Corp.

William Lamb - President & CEO Glenn Kondo - CFO

Des Kilalea - RBC Edward Sterck - BMO Matthew O'Keefe - Dundee Capital Markets Christopher Welch - Pareto Securities Richard Hatch - RBC Capital Markets

Thank you, Wayne. And thank you everybody for joining us for our first quarter 2015 results presentation.

I'm sure that most of you would have had a chance to read through the press release, but we'll go through the specific first quarter highlights and we'll be on we're starting from Slide 3 with that. I think the most important and most exciting thing for us during the quarter and as we go into Q2 is the Plant Optimization project.

Construction is going very well. We're actually busy with the final stages of commissioning of that plant, and then, obviously, the integration and ramp up into the existing facility.

And we do expect that to be completed within Q2, as will allow us to then sustainably process more material from the south lobe, the specific harder high-yielding material. And we do expect to come in within the $55 million budget which is what we've been sort of mentioning to the market since the project began almost 19 months ago.

If you look at our Exceptional Diamond Recovery, the company has had as we have now been able to access a little bit more material from the south lobe, and in the press release we actually mentioned the number of stones which have been recovered through the XRT technology. But over and above that the recovery of the 342 carat gem quality stone is a significant milestone for us.

It is now the largest diamond to have been recovered from the Orapa Kimberlite field and definitely the largest that we have recovered so far. And we look forward to selling that in our first exceptional stone tender of 2015.

In terms of the regular tenders, we had two tenders one in January, one in February. We sold 106.7 million or 1,000 carats for an average of $277 a carat, grossing $29.6 million.

The diamonds which were sold during those quarters were from the lower quality north lobe, but we still are achieving a higher value for those diamonds than when we started production in 2012. On the operational side, still focused on cost.

We came in at $28.2 per tonne processed. This is lower than our guidance of $33 per tonne to $36 per tonne, which we still expect us to come within for the full year.

And then, obviously, as we continue to ramp up stripping during our cut through and push back in the south lobe, we do expect those cost to increase as we go through the year. Operating margins per carat of $169 a carat or 61% so that actually translates into round about $108 per carat mined.

Looking at the overall performance, the plant performed very well. Targets for mining, stripping, processing all were in line with what we had expected.

And as I mentioned with the commissioning, the final stage that we've actually gotten, the crusher is running at the moment is the integration of the tertiary crusher, and we do expect to see improvements in both diamond liberation and hence diamond recovery once that tertiary crusher is integrated into the process plant. Moving on to Slide 4, on the cash flows, we currently have a cash balance of $87.5 million.

That was at the end of Q1. That is down from the end of the year of $100.8 million, but through the courts we actually paid out an additional $20.3 million in taxes, and then obviously sort of what we paid out from the plant optimization project.

Just on those taxes, $13.5 million of the $20.3 million is sort of taxes from 2014. So we have now finished with 2014 and have already started paying taxes into 2015.

On the exploration side, for the two prospecting licenses which we were awarded last year be covering the actually five known Kimberlite on -- both of those did not complete the ground geophysics and has identified additional areas where we would like to focus some of our exploration. On the bulk sample plant construction, that is actually going extremely well.

They've actually already started civil work onsite. We do expect the plant to be delivered in sort of beginning of August and we're busy with the processing of permits et cetera to extract the 5,000 tonnes of material from each of the three defined Kimberlite AK11, AK12, and BK2, where we will start the exploration and then sort of while we're doing the excavation for that Karowe and the other identified targets.

We also announced on the dividend side, same as last year, our semi-annual dividend of $0.02. We expect that to be paid on the June 18, of this year, and that will be paid to shareholders on record as of the June 5, 2015.

On the Mothae sale, the company has signed a memorandum of understanding with Paragon Diamonds for the sale of Mothae. This is still sort of subject to government approval.

The consideration for this sale is $8.5 million in cash. And sort of one of the things that we did want to sort of have a window into was what is the possibility of the way Paragon are looking at it is looking at the downstream beneficiation and sort of looking at a much more integrated model to actually sort of get to a specific financial solution.

So we do actually have a bit of a window into that. And we've already received 5% of the profits earned on the uplift from the rough to the polished stone.

So additional information, which we will have coming into the company there. And those are the 5% that will be on all diamonds recovered for the first 6.75 million tonnes to round about five years of production according to what Paragon are looking at.

Looking at sort of the specific numbers, during 2015 Q1, we actually processed 603,000 or 604,000 tonnes worth of materials, lower than what we did in Q1 2014. That's specifically, because at the beginning of last year we still have a lot of weighted material, which goes through the plant exceptionally easily as long as you have enough water.

But as we have now gotten into the deeper sections of the pit, we haven't gotten into the harder material which requires a lot more crushing and it takes a bit longer to get through the plant. In terms of ore mined 561,000 tonnes versus 889,000 tonnes last year.

One of the reasons for -- or the primary reason for the lower ore being mined is not just well we have plenty of access to ore, but as we have now been moving the material or the high yield south lobe material which we cannot get through the process plant, we actually haven't moved that out of the pit, it has been blasted, and there is a photograph later to which I'll point out. But the material is available to be fed in the process plant.

The significant jump up in waste mined from 2 million tonnes in 2014 to 3.2 million tonnes in 2015. The integration of our new mining contract Eqstra MCC has gone exceptionally well and they're already exceeding target in terms of the movements of tonnes.

Grades slightly down, but this in line with the overall mine plan. And then carats recovered, specifically again because we are mining in the area where we don't have the liberation, and as I mentioned previously, once the tertiary crusher is up and running, we do expect the liberation of mine core factor to improve over and above what we have seen previously.

Moving over on to the next slide. As I mentioned, just looking at the pictures there, the picture on the top left is of the pit and you can actually see there are three blasted areas that is materially in the south lobe, ready to go through the process plant that is high yielding on south lobe material.

And then below that one, just the overall pit places at the end of March. [Indiscernible] what we try and do going forward is that diagram was just updated every quarter so people can see exactly what the block saw that we moved.

And then of course our plant enjoys at the moment, the 342 carats gem quality stone, which we should be selling fairly shortly. Moving on to Slide 7, the first quarter financial highlights.

I mentioned revenues of $29.6 million. I think a lot of people would have gone over that's a bit low.

But if we compare that to where we were in 2014 its $32.3 million or $32.8 million, not significantly different, and it does come down to sort of when we stop to do the exceptional stone tenders is when the revenue picks up significantly. Royalty is paid at 10% of that.

Operating expenses $11.5 million, slightly down again on what we had in Q4 -- Q1 2014 and that's again sort of evidence of the cost control measures, which we actually have on top. Looking at the EBITDA, $11.9 million for Q1 2015 versus $13.3 million in Q1 last year, but the adjusted earnings per share of $0.02 remain static compared to where we were last year.

In terms of the overall value, $277 per carat sold versus $305 per carat. If I look at the amounts of south lobe material, which we'd actually processed during Q1 last year, we processed 20% of south lobe material; this is stockpile, low grade stockpile material during Q1 2015 versus in excess of 50% last year.

So we did have higher quality stones going into the sales last year and that explains the differential between the $305 per carat and the $277 per carat. As previously mentioned, $108 per carat on cost versus $118 per carat, again evidence of the -- where the cost focus on south.

And so just looking at the carats sold, very similar to what we had last year 106,700 and 107,400 for 2014 Q1. Moving over on Slide 8, our outlook and guidance for 2015 remains unchanged.

We do expect to sell between $230 million, $240 million worth the diamond and that is from the sale of between 400,000 and 420,000 carats. We expect to process between 2.3 million tonnes and 2.5 million tonnes.

And sort of from that, we're going to process in ore mine between 2.5 million tonnes and 2.8 million tonnes. The waste increased significantly from last year by about 2.5 million tonnes and we expect to move 12 million tonnes and 12.5 million tonnes for the 2015 year.

Operating cost guidance still sits at $33 per tonne to $36 per tonne. The plant upgrade, as I mentioned previously, we do expect to come in within the $55 million final cost, and we have the $20 million still to be [indiscernible] that we will be spending during this year, and the majority of that has already been completed.

In terms of sustaining capital, we have the number of $7.5 million to $8.5 million. It is important to just when you look at that we are installing a new mill relining machine with the tipper power lifters and the new discharge grates we have.

We are now manhandling 20 tonne liner plate. So from a safety prospective the installation of the mill relining is something we want to get done this year and we'd actually included a cost for the mill relining $3 million of the $7.5 million to $8.5 million is the mill reline.

So if you look at we had last year $4.5 million of sustaining capital we are still in the same ballpark as that. And then in terms of the exploration costs we have a budget of $7 million to $8 million that does include $5 million for the purchase installation and commissioning of the bulk sample plant.

I'm just moving on in terms of the overall plant modification, just a bit of a reminder, which was part of the original feasibility and the overall objective for completing the Plant Optimization project is to be able to process the harder high-yielding ore. It will allow the plant to maintain its 2.5 million tonnes per annum throughput.

And then obviously this is an opportunity for us now that we understand that the resource is lot better to include the large diamond recovery and that is diamonds anyway from 60 millimeters to 70 millimeters in size. In terms of the overall progress, and it is almost very little to say about this now but the only thing that we've still got to do is that the tertiary crusher.

The XRT machines have been up and running for between two and three weeks now, so we have had the opportunity to process the material from the high-yielding material through that. And I think again for us this is new technology but it is very exciting technology, and for those machines to pop out 19 stones between 20 carats and 50 carats, 3 stones between 50 carats and 100 carats, and then 4 stones over 100 carats within the first two, three weeks of operation indicates that the efficiency of the machines is definitely there and we're actually experiencing yields of sort of many, many zeroes and then may be a five at the end, so allowing us to go straight from sort of the 100 tonne beads that we would normally put through the DMS directly to handle.

So with the integration of the tertiary crusher with only other the part of construction which is still happening onsite is the audit machine; it is not part of the integral process. It’s just one of those areas which gives us comfort in terms of the overall operation of the XRT machine.

And then on the final Slide 10, I guess, we've just had an aerial view of the process plant at the end of Q1, and you can actually see on the top the diagram on the top left, the XRT building that has now been fully clad. We have the enclosed tunnel which feeds where we transport the concentrate from the XRT building, the final recovery, but it is actually a much more exciting plant to look at with lot more conveyors than what we had previously.

The XRT machine on the lower left and the tertiary or the secondary directory crusher an area where we actually haven’t had to run any materials through because the process plant can still sort of actively process the material. This is again when we get deeper into the south lobe to process the harder material, and then sort of the tertiary crusher which is the last part of the puzzle which we are busy integrating into the current process plant.

And that concludes the update presentation. Wayne, if I could hand it back to you please.

Hi, William, could you just a couple of questions. But first is, are there likely to be any problems in time in the Plant Optimization and therefore some delays?

And then secondly, could you comment on the state of the diamond market, I know you were selling goods that were perhaps not representative of what you had sold last year but perhaps on a like-for-like what you're seeing in the markets?

Thanks, Des. I think one of the things that that the guys on the project have done sort of very expeditiously is as they've completed certain sections of which we identified it goes up to circuit G, they've actually been integrating those into the overall process plant pretty much since they started completing them.

So they thought G is the last section, all other sections, the previous four sections already running as part of the overall integrated circuit. Obviously, there is generally a slowdown in production which was actually taken into consideration when looking at the guidance and forecast.

So as we go through the commissioning there are sort of little bumps along the way but the XRT machines actually have run very, very efficiently. It's now just making sure that they run in conjunction with the recovery plant.

The recovery in DMS is still processing the high-yield material, whereas XRT the DM board, the density of the material is not a consideration in terms of the separation criteria. But otherwise we don't expect sort of excessive delays, specifically because most of the process plant has already been up and running for a good couple of months now with the upgraded parts of the Plant Optimization project.

On the diamond market, I guess there's something to be said here where -- where other people are struggling sort of somebody else is gaining. And with sort of an approach which they have actually taken along with our oath and most probably some of the other people who sell their diamond on a contract basis where prices haven't been reduced.

We've actually been able to benefit from it. And I speak specifically because its 7 o'clock as soon as this call is over we actually close our third sale of the year.

And the number of clients and the demand, which we've had for our goods, has not been higher. Actually, I believe that it's most probably higher than what we ever saw when we sold.

We had the jewel viewings in both Botswana and Atwood. And it's specifically, because -- sort of the mechanism by which we sell, if you put up a bid in, and your bid is X, and if you don't make money from that, well then it's only your fault.

So we do allow people to sort of through the tender process, ensure that the margins that they expect can actually still be made versus the contract process where sort of sometimes the margins get squeezed and that's what we've had heard from the market. But for the sale of our goods, the quality of goods which we're selling and we do actually have very, very good traction in the market.

But we haven't seen as great a drop in the parts of rough, which we've experienced versus what other people have. And it's not the mechanism of -- the quality of the diamonds and mechanism by which we sell generally, because we're not putting a lot of diamonds out in the market.

We've seen sort of much great resilience to the processing, which we have received for our diamonds in the first quarter.

Hello, William. So I've got three questions today.

The first is can you comment on the expected timing for your first special diamond tender? And then, I was wondering if you could talk us through the flow sheet because it will start once the plants modifications are complete.

And then finally, just on exploration expenditure. It doesn't look like you spend anything in Q1.

So I guess is the expenditure speaks evenly over the following quarters or is it going to be burst towards any particular quarter?

Okay. So let's start with the timing of the exceptional stone tender.

And I guess that's the question which most people would want us to answer. If I look at the number of stones, which we have, everybody knows that we have the 342; we must only have 13 stones or 14 stones available for an exceptional stone tender.

So the eminence announcement of when that tender will be or should be within the next two or three weeks. It's difficult for us to sort of say, oh, we've got enough and we're going to do a tender.

Well what we found out is that we now had six of these tenders. If we don't have enough stones, we have plant that just sits around from three, four hours at a time waiting to get access to specific goods.

So we want to make sure that we actually have enough stones. In terms of the overall timing, if we cut it off now, and we started to put the brochure together, the marketing which is required for these, the earliest we would be able to have the tender it must only be at the end of June.

So I will certainly speculate that the tender will most probably happen early in July.

Does that mean then you are looking at probably two special diamond tenders for this year rather than the three you've held in previous years?

Yes. And I think it's -- the new corporate presentation where the Q1 results was actually posted on the website yesterday.

And we actually are looking at possibly starting higher value tenders for the tenders which we're going to have. But at least trending towards only having two exceptional stone tenders through the year.

Okay. Thank you.

On the flow sheet, so what we've actually now included in all those plant optimization is, a secondary directed crushing circuit, this is just to assist the Autogenous Mill in breaking the material down. So that's a completely separate section and we can bring that in and out of the process flow sheet as we require.

And -- but the most important changes which we have made is, instead of processing all the material through the DMS, it closes a density profile of the material which is coming from a south lobe. Now we'll only process minus 8 millimeter material through the DMS and that will go through the standard recovery on two stages of magnetic separation, three stages of x-ray into handful.

The larger material or so from 8 millimeters up is separated into three different size fractions, 8 to 14, 14 to 30, and then 30 to 60, 70 millimeter material that gets processed through three different circuits all of XRT machines. The addition which we have now added in is on the recrush.

As the material gets harder we don't see the same level of liberation. So all material anyway from 18 millimeters up, depending on the size of the screen will be processed through the tertiary crusher and that all gets recalculated back into to the process plant.

So when we look at the risk of any efficiencies through the XRT machine, it's really only in the size fraction between 10 millimeters and 20 millimeters, which is going out. All that, about 60% of that will be processed through a secondary machine.

Just to make sure -- and it's really from a risk management process. But otherwise, the XRT is replacing the DMS in the course of size fraction; otherwise everything else remained fairly static as per extended diamond processing flow sheet.

Okay. Thank you.

And then your last question on the exploration. So with me I actually have Glenn Kondo, our CFO.

I'm just going to handover to Glenn. I know that the numbers are in there and he'll just point that exactly where they were captured.

So total exploration cost we're forecasting for the program is $8 million, $5 million is for the bulk sample plant. We spent $2.50 million last year and $200,000 has been spent this year, but it's going to our capital so it's in our balance sheet.

In terms of the exploration cost, the operating side of the program it's forecasted at $3 million and that is going to be spent in last six months of the year. We have done some geophysics work and we had employees after the quarter and that’s roughly $50,000.

Hi, William and team. Some good questions already asked but I do have a question or one on the exploration and one on the current operations.

How much of the south lobe or the higher yielding material do you expect to process during Q2, is my first question?

You can ask them individually. But these are sometimes to think about that one.

Matt, I don’t actually have the numbers exactly with me. I don't think it’s going to be materially different to where we were during the first quarter.

If we look at the first quarter split of material processed, the majority of the material came from the lower grade and whether its stockpile material anywhere up to 60% of material and then a fairly even split 20% across the centre and the south lobe. And if we look at the overall mine plant there is a lot of south lobe material which is actually readily available, once the plant has stabilized specifically the recovery side I think then we surely sustainably start to process material from the south lobe.

So, I must only estimate at this point between 35% and 40% of the material processed during the second quarter will come from the south lobe.

Okay. So similar, looking as you said similarly looking to Q1.

And then on the -- just on the exploration, so you're doing 5,000 $0.10 sample, is that from each of the three pipes or total?

No, that will be from each of them.

Okay.

The beauty of actually having a bulk sample plant located on the mine side, because we got water, power, and management. We will also not press to get material in process and then get it out.

So the overall target is to do 5000 tonnes from each of the three diamondiferous Kimberlites and then obviously because the plant is there we can continue to process to update the resource or any additional materials from the other identified anomalies.

Okay. Can you remind me again or remind us again the size, the relative sizes of those pipes?

So BK2 is sitting at round about 2.4 hectares, AK11 is round about the same size. I think AK12 is only one of the largest one between 4 hectares and 5 hectares.

Okay. Okay, great well and we’ll see results on that when roughly?

If we look at, if you’re looking at results on just the geophysics.

No, the bulk sample, sorry the bulk sample processing.

All right. So the bulk sample plant is only sort of installed and commissioned in August of this year.

We must -- only will be getting permits early in the third quarter to be extracting or to go out and actually extract the material. So we must only expect results only early in the fourth quarter from any of the 5,000 tonne samples process.

Great. Okay, well, thanks very much.

Hi, William. Just wondering if we could interrogate [ph] the operating cost a little bit and see how any currency effects or lower fuel prices might have reduced operating cost saying as you, you sort of maintained the forecast of $33 to $36 a ton.

Is there any sort of positive upside to that?

Again, I’ll pass over to Glenn, the CFO, who's in a slightly better position to give the details of that.

Yes, Chris, we are forecasting $33 to $36 per ton. I agree in terms of overall currency we could see that having a $1 per ton benefit.

In terms of fuel as well that potentially could be equivalent to $0.5 million this year in terms of that target. So I would say we’re still sticking to the target because we have the plant optimization program coming in which we broadcast will increase costs slightly but we are targeting to be on the bottom end of that range.

Great, I understand. And just going back to the tender sort of closing today and I presume you can have another one in Q2, then maybe try to give a sort of a just maybe size of the latest tender in terms of carats sold?

57,000 carats.

Okay.

Now, and sort of I think when we look at the regular tenders, it’s fairly easy to work out. We generally sell between 50,000 and 55,000 carats per regular tender for the two tenders which we have in each of Q1, Q2 and Q4.

We only have one regular tender in Q3 and that’s normally anywhere from 80,000 carats to 90,000 carats, and that’s been consistent over the last two years, and we expect the 2015 to be similar.

Brilliant. Just sort of one final question, I presume this going to go to you, Glenn.

Just in terms of the sale of Mothae, are we going to see withholding tax in the city?

No, not in the city, in terms of the sale?

Of Mothae.

No, that’s coming -- in terms of the $8.5 million recording in terms of the transaction that will come in -- we will get the full proceeds from that. No tax on that.

Brilliant. Thank you very much, guys.

Just one on tax, and firstly just to confirm, so the $8.5 million from Mothae, there is no tax on that? And then, secondly, the $6.8 million you’re prepaying every quarter would I be right in saying for the cash flow statement that you, the cash tax paid will be $6.8 million per quarter and then in Q1 2016, the balance of 2015’s tax if there is any, is that right?

Thanks.

That’s correct. In terms of Mothae, again, there will be no tax around that transaction.

In terms of the $6.8 million we estimated that was based on the forecast guidance revenue and it’s really four equal payment so. At the moment, the way we've done it is there will be no carry over into 2016.

If there is a difference in revenue then we will expect in the first quarter of next year.

Great. Thank you, guys.

Thanks, Wayne. Again, thank you everybody for dialing into the Lucara Q1 2015 results presentation.

Please feel free to visit the website today as the new corporate presentation up and if you have any questions please contact us, otherwise thank you very much and have a good day.