Operator: Good morning. My name is Anderson and I'll be your conference operator today. At this time, I would like to welcome everyone to Lucara Diamond 2022 Q1 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

If you'd like to ask your question during this time Thank you. Ms. Eira Thomas, you may begin your conference.

Eira Thomas: Thank you very much, Operator, and welcome, everyone, to Lucara's first quarter 2022 results call. We began the year on a very positive trajectory, delivering another strong quarter of operating and financial results in the first quarter, reflecting solid performance of the mine, combined with a healthy sales mix and continuing buoyancy in diamond prices.

I am going to be making some forward-looking statements, and I do encourage you to review this cautionary statement which is available on our website. In Q1, preparation for main sharp thinking is now well underway and is anticipated to begin in Q2. Our multi-channel approach to sale through tenders, Clara and HB, continues to mature, creating alignment along the value chain, delivering efficiencies and higher margins. Despite current geopolitical challenges, Lucara remains optimistic about diamond prices as natural rough diamond supply constraints continue to manifest globally. Zara will now take us through the financial and operating highlights for the quarter.

Zara Boldt: Thanks very much, Eira. Good morning and good afternoon everyone. And thank you for joining our first-quarter earnings call for 2022. Similar to Eira 's remarks, I will be making some forward-looking statements. So please refer to Slide 2 of today's presentation for our cautionary statements.

Also, certain financial measures that I will refer to during today's call, and which appear in the presentation on non-IFRS financial performance measures. These include adjusted EBITDA, adjusted operating earnings, operating cash flow per share, operating margin per carat sold, and operating cost per ton of ore process. Please refer to our interim MD&A for details on how these measures are calculated. And as a quick reminder, all references are to U.S. dollars unless otherwise stated.

So let's begin with the financial highlights from the first-quarter. The company recognized total revenue of $68.2 million during the first quarter, a 28% increase from the $53.1 million earned in Q1 2021. This is a reflection of strong, rough and polished diamond market fundamentals into the first quarter of this year. Sales of carat production represent most of the revenue earned in the quarter at $67.2 million. This amount included top up payments of $11.7 million received pursuant to our agreement with HB, as well as a million dollars from the sale of third-party goods on the Clara platform.

The combination of a strong diamond market combined with the sale of several higher-value rough diamonds in the first quarter generated an average price per carat sold excluding top up payments of $690 per carat for Karowe diamonds. This compares to an average price per carat sold of $480 from Q1 2021. You can see that adjusted EBITDA of $36 million increased by 62% from $22.2 million for the same period in 2021. This is attributed primarily to higher revenues. Net income from the quarter increased to $19 million or $0.04 basic earnings per share up from $3.4 million or $0.01 basic earnings per share in Q1 2021.

As a reminder, the net income achieved in each quarter is most impacted by the revenue earned during that quarter. Non-cash items such as depletion and amortization, foreign exchange gains and losses, gains and losses from derivative financial instruments, as well as income tax expense due introduce volatility to net income. Our operating expenses decreased by about $1.7 million or 9% from $19.7 million in Q1 2021 to $18 million in Q1 2022. This reflects the combination of lower mining activity quarter-to-quarter, inventory buildup, and the benefit of a stronger U.S. dollar partially offset by inflationary pressures related to labor, fuel, and power costs.

Cash flow from operations during the quarter was $0.08 per share, up from $0.06 per share in Q1 2021. The next slide sets out our operational highlights for the first quarter. Overall performance during the first quarter remains consistent with the strong operational results achieved over the past few years, and we're generally in line with our plan for 2022. We mined about 812,000 tons of ore and 482,000 tons of waste during the first quarter. Tonnage process was on target at 7 million tons -- sorry, 0.7 million tons at an average grade of 12.6 carats for 100 tons, with a total volume of 84,000 carats recovered from direct milling.

Ore process was entirely from the South Lobe. We recovered 186 specials including 10 diamonds greater than 100 carats in weight, recovered specials equated to 6.9 weight percent of total recovered carats from ore processed during the first quarter. In the comparative period, it was 6.8%. The recovery of large stem quality diamonds from the EMPKS and MPKS units of the South Lobe was in-line with expectations and historical sell slope recoveries. The consistent recovery of these large diamonds is a testament to the continued strong resource and plant performance at Karowe.

We sold 80,295 carats from Karowe during Q1 2022 at an average price of $690, this compares to the sale of almost 92,000 carats and an average price of $480 per carat sold in Q1 2021. Please note that the average price per carat sold excludes top up payments of $11.7 million in the first quarter of '22 and top-ups of $9.1 million in the first quarter of 2021. Also in the first quarter of this year, operating expenses of $18 million equated to a $224 operating cost per carat sold, or $29.30 per ton of ore processed. While we're seeing inflationary pressures on labor costs, fuel, power, and insurance, we did benefit from a stronger U.S. dollar in the first quarter, as a result, we have not changed our full-year costs guidance, which sits between $29.50 and $33.50 per ton of ore processed.

Slide 6 sets out how we sold our diamonds in the first quarter of 2022. We sold almost 3,000 carats under the HB agreement and recognized revenue of $33.5 million excluding top up payments of $11.7 million. In the first quarter of last year, all plus 10.8 carats stones were sold through HB. Beginning in April of 2021 when the HB agreement was extended, any plus 10.8 carats stones not earmarked for manufacturing by HB were sold through our quarterly tender process. The increase in revenue in Q1 2022 is attributed to higher prices achieved despite lower sales volumes.

This reflects a significant improvement in diamond market fundamentals between the two comparative quarters. Due to natural variability in the quality profile of the plus 10.8 carat production and any production period of fiscal quarter, the recorded revenue and associated top up will fluctuate. This is expected and reflects the combination of current diamond market prices, as well as variability in the quality of our production profile in any given periods. We sold almost 3,000 carats of the Karowe production through Clara in the first quarter, and generated revenues of $6 million. Importantly, we transacted a further million of non-Karowe goods through the Clara platform, and we expect to commence a series of trial sales on the Clara platform with a third-party producer in Q2.

It is our intention to continue to source additional supply in 2022, both from third-party producers and the secondary markets. The first-quarter tender of this year reflects strong performance in rough diamond pricing across all tendered size classes. Almost 75,000 carats were sold in the March 2022 tender, generating revenues of $60 million. This compares to revenues of $9.1 million from the sale of almost 77,000 carats in Q1 2021. As mentioned previously, these tender results are not directly comparable because our 2022 tender includes plus 10.8 carat production not sold to HB.

Let's move quickly now to look at our 2022 guidance, which is set out here on Slide 7. In February this year, based on updated expectations for revenue in 2022 attributed to the expected strength in the rough and polished diamond markets, we adjusted our diamond revenue guidance to between $195 million and $225 million for the current year. Our revenue guidance does not include revenue related to the sale of exceptional stones such as the 549 carat Sethunya. We have made no other changes to guidance following the first quarter. Moving on to look at the underground projects.

Following project sanction in September 2021, progress on the underground expansion has been very good. We've drawn $45 million from the $170 million project loan facility and in the first quarter, we spent just over $31 million on the bills. And I'll go through some of those highlights in just a moment. We expect to spend about $110 million on the expansion projects this year with the starting at the ventilation shaft sinking in the next few weeks, followed by the start of the production shaft sink shortly thereafter. If we move to the next slide, we have some of the highlight of the spend on the underground during the first quarter.

So in the first quarter, most of the work focused on engineering, procurement of long lead items, and ongoing construction activities, these included precinct activities for both the production and ventilation shafts, placement of the ventilation shaft to main sinking stage into the shaft column, along with placement of the ventilation shaft headgear over the shaft column, assembling the production shaft main sink stage without putting plan for Q2 in preparation for its installation in the shaft column. While pre -assembly of the production shaft headgear still continued, called commissioning of the ventilation shaft kibble winder was completed, with progress on the ventilation shaft stage winder in preparation for winder wrap up in April. While installation of the production shaft stage winder commenced. We completed construction of all 88 tower foundations for the 29 kilometer, 132 kilovolt transmission line bulk power upgrade, and we commenced construction at both the Letlhakane and Karowe substations. We have had some questions about the impact of escalation on our construction costs for the Karowe underground project.

As mentioned previously when speaking about our operating costs, we are seeing escalation with respect to labor, fuel, and power. Our budget assumptions for 2022 included a fairly healthy provision for increases and so we're not seeing a significant difference from budget at this point, although it is just the first quarter. With respect to the underground expansion program, the majority of the procurement for the program was conducted in 2020 and 2021. As a result, we're not seeing significant escalation for materials used for the precinct or for the main sink at this point. I think we will turn the floor back to Eira for the next part of the presentation.

Thank you.

Eira Thomas: Thank you very much, Zara, I'm going to talk a little bit more about the diamond market itself. Prices continued strong throughout most of the first quarter. However, we did experience some softening in March and response to geopolitical stresses and including the Russian invasion of Ukraine and the ongoing COVID response in China. Concerns over global inflation are also a factor in weaker demand.

However, medium to longer-term outlook remains strong as global natural rough diamond supply constraints really continue to play out in the market. We have had a number of questions about Russian diamonds as they have become increasingly difficult to transact. As sanctions were more globally. And large luxury retail brands have also become much more proactive in their demand for full transparency in respect of diamond providence. This bodes well for the continued adoption of our digital sales platform Clara, and will likely exacerbate and natural rough diamond supply constraints that we're already beginning to manifest in 2021.

As Zara already talked to you on the next slide demonstrates that we're off to a great start in 2021 with respect to resource performance and recovery of specials or diamonds greater than 10.8 carats in size. We recovered 10 diamonds in excess of 100 carats during the period, including two greater than 200, and one greater than 300 carats inside. The graph in the lower right also clearly demonstrates that the contribution of large diamonds is increasing as we mine deeper in the open pitch and are able to gain greater access to the highest value EMPKS geological unit of the South Lobe, which as a reminder, has been the source of many of our historic diamond recoveries, including all three diamonds recovered in excess of 1,000 carats in size and Karowe is the only diamond mine in reported history to have ever achieved that. On the next slide, we're highlighting Lucara's approach to sales, which has evolved from a single tender-auction style platform to an all multi-channel approach with the aim of creating better alignment along the value chain and increasing margin capture downstream. As a result, we continue to tender our smaller and lower-quality goods and have migrated our better quality, 1 to 10.8 carat diamonds into sale through Clara, our secure web-based digital marketplace, and our higher-quality plus 10.8 carat diamonds are being sold as polished exclusively through our novel committed supply agreement with HB.

In addition, we have forged two collaboration agreements with HB and Louis Vuitton and respective two of our exceptional diamond recoveries. The largest diamond to come out of Botswana, the 1,879 carat Sewelo and the 549 carat Sethunya, those partnerships are aimed at creating May quarter jewelry collections, targeting all these global customer base. In respect of our HB agreement, for the first time in our 10 years’ production history, Lucara has a line of sight as to what becomes of our large, high-value diamonds beyond the mine gate. HB is using state-of-the-art scanning, planning, and manufacturing technologies to maximize the value of each and every rough diamond selling into existing demand, protecting prices for our most valuable polished gems and delivering Lucara a polished price, less a set fee, and the cost of manufacturing. In 2021, we began realizing significant benefits from selling this way.

And our revenues in the first quarter of 2022 continue to reflect this. And as Zara highlighted in the first quarter, we generated $33.5 million in revenues from the sale of 2,870 carats, excluding top up payments. In Q1, Clara, which is Lucara's 100% owned proprietary secure web-based digital sales platform, continued to gain scale and interest. In the first quarter pre -sale took place with total sales volume transacting at $7 million of 17% increase from the $6 million transacted in first quarter of 2021, reflecting a strong upward price trend observed on the platform during the quarter. The number on buyers on the platform has also increased to 92 and the company continues to maintain a waiting list to manage supply and demand.

While most of the stones transacted through the platform have been supplied from the Karowe mine itself, the secondary market stones continue to be offered for sale with good results, and we're excited to be announcing the commencement of a series of trial sales on the Clara platform in Q2 with a third party producer. I have included a slide on Lucara's approach to sustainability because it is foundational to everything that we do. We are shortly intending to publish our 10th consecutive sustainability report. And as a reminder, we are a member of the United Nations Global Compact, and we contribute to 10 of the 17 United Nations sustainable development goals. We're also certified by the Responsible Jewellery Council to find with the Kimberley Process and a member of the Natural Diamond Council.

And I do encourage all of you to look for the latest copy of our sustainability report on our website within the next few weeks. So I think -- I wanted to sum up today and conclude by really highlighting what we believe is a very compelling investment rationale for Lucara. We've come through a major period as de -risking in 2021. We've got an exciting underground expansion projects that is tracking on plan and will extend our mine life out to at least 2040. We have a strong economic engine with the Karowe diamond mine itself, which continues to deliver very strong operating results and really fueled by consistent recovery of large, high-value gem diamonds.

And in addition, we have exposure to a completely independent business, which is a technology business called Clara, which is the first of its kind digital marketplace for the transaction of rough diamonds. And we are at a very important inflection point with Clara adding additional third-party goods in 2022, and we really do believe that Clara will start to generate and make important contributions of cash, which further highlights the compelling investment opportunity for Lucara's shares at the current share price. So with that, I'd just like to say thank you very much for joining us today and we would now like to open up the call for questions. Thank you, operator.

Operator: Thank you.

Ladies and gentlemen, we will now conduct the question-and-answer session. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question. . Your first question comes from Paul Brockington with the Brockington Association.

Please, go ahead.

Paul Brockington: Hi, Eira, I have one question for you specifically with regards to your projections for Clara. You showed really dynamic revenue growth in 2023, perhaps you could expand a little more upon where you see that emanating from?

Eira Thomas: Yeah. Hi, Paul. It's been a while since we've caught up, thanks for calling in.

The business model with Clara is really premised on the idea of adding third party volumes. So we think we've actually got quite a conservative five-year plan, Paul, where we are working to basically transact up to 10% of global production, which again we think is conservative. We do think digital sales platforms like Clara make a lot of sense going forward. So again, we're assuming about 10% adoption over five years. And really 2022 is all about driving those third-party sales upward.

And if you just think about global supply accounting and is about $17 billion, $18 billion of natural rough diamond supply, we're targeting $1.5 billion of that within five years. Does that answer your question?

Paul Brockington: Yes. Thank you, Eira.

Operator: Thank you. Your next question comes from Scott Macdonald with Scotiabank, please go ahead.

Scott Macdonald: Good morning Eira and team. Thanks. Hi, how are you? Thank you for the update and for taking my questions. I just wanted to ask just about the diamond market and how you see yourselves being affected by some of those factors you laid out mainly the sanctions on Russian diamonds, lockdowns in China and inflation concerns for consumers. Just wondering how much the factors are going to impact you relative to maybe your peers.

So I'm just kind of wondering like how much of firstly on sanctions of Russian diamonds, arose those obviously a major global producer overall. But I'm wondering if they compete with you a lot in the larger diamond segments. Were -- are they less above contributor to that market segment?

Eira Thomas: Yeah, listen, it's a good question, Scott. There's a lot of uncertainty around it, what's going to happen with Russia but I think the consensus really is that it's going to put more upward price pressure on diamonds with respect to our own production as we discussed in our year-end call and what we've seen very strong diamond price recovery across all sizes and qualities. It was less pronounced in our largest highest value diamonds.

What we saw with that segment is good stabilization over the last five quarters, and prices really just beginning to recover as we got into the fourth quarter of 2021. So we still feel there's a fair bit of rooms to go with this month down. But similarly, as we've seen, prices pulled back a bit in March and April, which by the way, we see as, actually, a healthy thing because we've had quite a hot market here over the last several -- two quarters in particular. We did not see the same impact on our own production, again, because of the heavy waiting towards large high-value stones. They haven't recovered as quickly and we didn't see a big adjustment downward either.

So I think the theme for us to spend more on one and stabilization but our medium and longer-term view is that the broader market will continue to be supported with good, healthy diamond prices because the global supply constraints are continuing to prevail. And Russia is just making that situation more challenging in my view.

Scott Macdonald: Okay. So that touched on the supply side there. I was just wondering also on the demand side, particularly, as you mentioned, you have much better visibility on the end consumer demand for your products now via the HB agreement.

Compared to global diamond demand, do you think the demand for your products might be less sensitive to consumer inflation concerns and the China lock downs compared to perhaps your peers?

Eira Thomas: Yeah. Listen, I think there is a real rationale for investing in diamonds at this kind of -- in this kind of a global situation. So I think there's definitely as interest in our diamonds for investment purposes, in addition to using our diamonds for diamond jewelry consumption more broadly. But I don't know that it's going to really be a huge differentiator for us.

Scott Macdonald: Okay.

And then just one last one. Have you given any thoughts or are you starting to think about whether to extend the HB Agreement beyond the current term?

Eira Thomas: Yeah. Listen, we're very pleased with the way the agreement is performing for us. So and we are really convinced that creating alignment in the value chain is something that can unlock value for all the participants in the value chain. So we obviously have some time before we have to officially extend that agreement.

But the way things are going, now I would say we would certainly be inclined to do so.

Scott Macdonald: Okay, great. Thank you very much.

Eira Thomas: Thanks, Scott.

Operator: Your next question comes from Paul Zimnisky with PZDA, please go ahead.

Paul Zimnisky: Hi, everyone. I guess with Lucara's involvement with the Natural Diamond counts, I'm just curious if anybody could maybe offer some comments on the potential impacts of Elrosa leaving that organization.

Eira Thomas: Paul, thanks for the question. I think it's really too early to say, obviously, they were our major funding contributor to NDC, but the organization is still in very good shape with its existing members in terms of the budgets and programs that we've laid out for 2022. So I think we're feeling quite comfortable.

As you know, the NDC has gone through a fairly major refresh in the last couple of years and made a lot of good progress, and part of that is broadening the way the programs basically are run and the audience they're reaching. So we still feel very strongly that there is a strong need for the NDC and a strong rationale for it, and the members are very committed.

Paul Zimnisky: Thank you.

Eira Thomas: You're welcome.

Operator: Thank you.

There are no further questions at this time. Ms. Thomas, you may proceed.

Eira Thomas: Well, thank you very much, everybody, for joining us today and please enjoy the rest of your day wherever you are. Thanks so much.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines. Have a great day.