Operator: Good morning. My name is Pam, and I will be the conference operator for today. At this time, I would like to welcome everyone to the Lucara Diamond 2021 Q2 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer session.

[Operator Instructions] Ms. Eira Thomas, you may begin your conference.

Eira Thomas: Thank you very much, Pam. Hello and thank you for joining Lucara's second quarter results call. Joining me from management today is Zara Boldt, CFO; Dr.

John Armstrong, VP, Technical Services; and Ayesha Hira, VP, Corporate Development and Strategy. In addition, we are pleased to be welcoming Gord Doerksen, President of JDS Energies Engineering division and our newly appointed EPC Manager, he was on hand to address any specific enquiries related to our underground expansion project. We will begin with a brief review of our quarterly performance followed by a more wholesome update on our underground project which we are pleased to report is now ramping up to full-speed following the completion of project financing in Q2. I will be making forward-looking statements, so I do encourage you to review this cautionary statements at your ledger on our website. Lucara is certainly pleased to be reporting a solid strong quarter reflecting a better business environment and market fundamentals that continue to improve quarter-over-quarter and year-over-year as we've started to recover from the ravages of COVID.

It should be noted however, that the impact of the COVID variants in Botswana are being felt deeply still and limited vaccine availability continues to be a major concern for our workforce and our local communities. Lucara continues to be vigilant and implementing stringent protocols at the mine site and our office in Gaborone to manage the spread and to help support those impacted by the disease. Vaccines are slowly being rolled out now across the country and we are working closely with the government to support this effort. For the quarter, with all COVID operating protocols in place, the result was continued takes reliable production and all cyclical metrics achieved against plan. Key highlights for the period include full project funding to the Karowe underground expansion following the successful completion of debt and equity financings in July and the record production period for the recovery of specials or diamonds greater than 10.8 carats which accounted for 10.28% of total direct milling recovered carets compared to approximately 6.5% in the comparable period last year.

Other records of note, the quarter delivered our third diamond greater than 1000 carets and Botswana's largest pink diamond weighing in just over 62 carats in size. Zara will shortly take us through some additional financial and operating highlights but I would like to set the stage with a brief comments on the diamond market which has continued to be stable and even buoyant and has helped deliver strong results in an average price for carat approaching pre-pandemic levels at $671 per carat. Strength was observed throughout the value chain and Lucara also enjoyed strong sales results with increasing volumes and customer participation. As a final summary comment, the recently completed debt and equity financings continue to support a healthy cash position and good available liquidity as we look forward to the first drawdowns on the senior secured project financing in support of our underground expansion activities which as I said are in the process of ramping up on for the remaining second half of the year. I think I've already spoken to COVID and just to mention that we continue to work very closely with the governments, we've got stringent protocols in effect on site and efforts to keep everyone safe and our operations continue at full steady state capacity.

As mining has progressed deeper in the open pit and is now dominated by South Lobe ore. We have seen strong resource performance and in Q2 a record recovery of specials or diamonds greater than 10.8 carats in size which is now more than 50% higher in Q2 compared to where we were in the same period last year. In addition, the 1174 carat stone our third diamond over 1000 carats was recovered. And we also recovered 16 diamonds greater than 100 carats including two diamond greater than 400 carats, two diamonds greater than 200 carats and a further 12 stones between 100 carats and 200 carats in weight. This slide continues to demonstrate the consistent recovery of these diamonds remains the key value driver for Lucara accounting for close to 70% of our revenues on a regular paces.

Under our novel supply agreement with HB, Lucara is a + 10.8 carat production is being sold at prices based on the estimated polished outcome of each diamond, determined through state-of-the-art scanning and planning technology with a true up amount payable to Lucara on actual achieved polish sales in excess of the initial estimated polish price less the fee and the cost of manufacturing. The +10.8 carat diamonds are poor quality which is it's a large load and the rejection goods are sold as rough parcels and do not enter the polishing pipeline with HP. Sales continued to ramp up during the period and we're beginning to see the benefits of this arrangement which provides a transparent pricing mechanism on committed terms and is continuing to deliver regular cash flow at what we believe will be superior prices at this important segment of our production profile. In Q2, the company reported revenue of $30.7 million from the HB sales agreements including top up values from shipments in 2020 and 2021. Lucara entered into a second strategic collaboration with HB in 2020, this time including Louis Vuitton the world's leading luxury brand for the planning and polishing of the exceptional 549 carat gem white gem diamond we refer to as Sethunya meaning flower in Setswana that we recovered in February of last year.

Sethunya is one of the highest quality exceptional diamonds ever recovered at Karowe and we believe this alliance is a unique opportunity to partner with industry leading participants within the supply change arrays profile of our operations in Botswana to transform this rare and unique rough diamond into an extraordinary bespoke polished diamond collection, catering exclusively to Louis Vuitton's global customer base. Under the terms of this agreement, Lucara will receive payment for diamonds created from Sethunya no later than December of 2021. So more towards our existing supply with HB, Lucara will receive payment based on the final polished outcome or as the commission and the cost of polishing. As I mentioned, at the outside, the diamond market continues to be strong and stable through to mid-year which has delivered prior diamond prices both in terms of rough and polished. And what's consensus estimate are that rough diamond prices are up between 15% and 20% so far in 2021 demonstrating a strong recovery from pandemic pricing observed in 2020.

Compelling to see is the strength across the value chain with polished diamond jewelry sales straining upward as well. Tiffany, which is now owned by our partner Louis Vuitton, recorded another strong quarter in Q2 with good demand coming out of the U.S. and China. Our outlook for the market remains positive as the fundamentals of supply and demand continue to improve globally. Interesting Clara, Lucara's 100% own proprietary secure web-based digital sales platform continues to grow in 2021 owing to continued global restrictions impeding travel for many diamond manufacturers combined with an increasing interest in purchasing rough diamonds in a more efficient innovative way.

That positive momentum continued through the second quarter with fixed sales and total sales volume transaction at $8.3 million which is a 38% increase from the $6 million transacted in the first quarter. Encouragingly, Clara, also observed consistent price increases at each subsequent sale throughout the period, a number of the buyers -- number of buyers on the platform has also increased to 84 in Q2 up from 80 in Q1 and the company is maintaining a waiting list to manage the client demand. A third-party supplier trialed the platform in Q2 and additional third-party goods are planned for sale in Q3 as discussions continue with additional third-party sellers to help us build supply. I'd like now to turn over to Zara to take us through some additional financial and operating highlights.

Zara Boldt: Thanks very much, Eira.

Good morning and good afternoon everyone. Just a quick reminder that I'll be making some forward looking statements, so please refer to Slide 2 of the presentation for our cautionary statement, also certain financial measures that I will refer to during today's call which appear in the presentation are non-IFRS measures. Please refer to our MD&A for details on how these measures are calculated. All amounts are reported in U.S. dollars unless otherwise stated.

Let's begin with the financial highlights from the second quarter, which are very different from where we were at this time last year. Total revenues at $46.3 million were recognized in the second quarter, resulting in an average price per carats sold of $671 a carat. I would remind you that last year we made a deliberate decision due to a very difficult market conditions not to sell any plus 10.8 carat diamonds through tender. As a result, our revenue for the second quarter last year was $7.5 million or $109 a carat. This quarter, the company recorded net income of $6 million or earnings per share of $0.02 as compared to a net loss of $13.9 million off or net loss of $0.04 per share in the comparative quarter from 2020.

Adjusted EBITDA was $22.2 million as compared to negative adjusted EBITDA of $10 million for the same period in 2020. Cash flow from operations was $0.05 per share this quarter while compared to negative $0.02 per share during the three months ended June 30, 2020. The increase in revenue this quarter had a most significant impact on cash flow from operations, adjusted EBITDA and net income. Continuing the trend from the first quarter this year, pricing continue to increase and virtually all side process resulting in a strong financial performance for the first half of 2021. The another quarter was $13.7 million in cash, $50 million drawn on the working capital facility and net debt of $36.3 million.

Our $50 million working capital facility was extended in early May and will be refinanced shortly with funds from the $220 million senior secured project financing. We’re currently working through the conditions precedent to reach financial close for those facilities which will allow us to refinance the existing working capital facility consummate our first utilization request for the underground expansion. Moving on to highlight from the first six months of June 30, of 2021, -- pardon me. Revenues more than doubled from $41.6 million to $99.9 million for the six months ended June 30, 2021. This reflects a much stronger price environment following a significant and sustained increase in demand which began in the latter part of 2020.

Key revenues have the most significant impact on the improvement to adjusted EBITDA which is $44.5 million this year as compared to a negative adjusted EBITDA of $1.8 million last year. And also joined net income of $9.4 million for the six months ended June 30, 2021, as compared to a net loss of $17.1 million for the same six month period in 2020. We achieved an average price per carat sold at $618 from a sale of almost a 161,000 carats in the first half of this year, this compared to an average price per carat sold at $268 from the sale of a 155,000 carats during the same six month period in 2020. Operating expenses increased about 14% to 15% from the same period last year due to combination of higher power, labor, and insurance costs. This is similar to the increase that was observed in the first quarter this year and reflected with cost reductions that we implemented in Q2, 2020 that have subsequently been removed.

The operating cost per ton of ore processed with $28.79 compared to $27.14 for the same period last year. Cash flow, from operations with a $0.11 per share as compared to nil for the same period from 2020. Moving now to our operational highlights for the second quarter. These included ore and waste mined of 1 million tons and 0.7 million tons respectively. 730,000 tons of ore processed resulting in just over a 101,000 carats recovered, achieving a recovered grade of 13.9 carats per 100 tons.

As Eira mentioned earlier, we recovered 261 specials the diamonds greater than 10.8 carats in weight from direct milling during the second quarter representing 10.2 weight percent of total direct million recovered carats. This is one of our highest production quarters to-date in terms of the volume of specials recovered. In comparison, we recovered 6.48% specials in Q2, 2020. In addition to a 1,174 carat stone recovered, 16 diamonds greater than a 100 carats were also were recovered during the quarter, including two diamonds greater than 400 carats, two diamonds greater than 200 carats along with a further 12 stones between 100 carats and 200 carats in weight. Mining and processing were unplanned during the second quarter, although you will note that the split between ore and waste tons mined have been weighted more heavily to ore tons mined.

This was done to enable de-stacking of the benches in the northern part of the pit which will help us maintain operational flexibility through the remainder of the year. The reduced waste mining is not expected to have an impact on our ability to access ore in line with the mine plan. Carats sold totaled just under 69,000 in the quarter which was very close to the same number of carats sold in the second quarter of 2020. The operating cost PER carat sold was $219 was resulting in an operating margin of $450 a carat sold or 67%, which is consistent with our Q1 results and more typical of our high margin operating history which apart from 2020 has been fairly consistent over the life of the mine. Moving now to look briefly at sales channels that we're using.

This slide does show how we sell our diamonds. Revenues from the sale of +10.8 carat diamonds to HB were $30.7 million on the second quarter, representing almost 77% of total revenues a $46.3 million recognized in the second quarter. We've estimated variable consideration of $5.1 million as of June 30 on shipments delivered to HB through the end of June, up slightly from the $4.9 million estimate as of March 31. In the first quarter there was a noticeable increase in the number of larger higher value diamond sold and was continued into the second quarter. We achieved an average price of $6767 per carat for the specials store, almost double from this $3554 a carat from Q1 this year.

Shipmenmts continued to be delivered to HB about twice a month and with improvement made by HB and the manufacturing process were seeing a reduction in the length of time that it takes to analyse and manufacture the less complicated +10.8 carats stones we delivered. As a result, some of you may have noticed that our receivable balance with HB remained at around $23 million as of June 30. This is about the same as it was at March 31 and that from just over $13 million at the year-end. This was all from a combination of the timing of deliveries to HB, improvements in the manufacturing process this and to the higher value of the production delivered following a very strong second quarter for recoveries. Looking now at Clara, which is our proprietary secure web-based digital sales platform for rough diamonds.

The value of our diamonds transacted to Clara was $8.3 million over six sales in the second quarter, a 38% increase from $6 million transaction in the first quarter. Stone price increase is observed in the first quarter continued through the second quarter and the number of buyers on the platform increased to 84 as of June 30. The average price of carat sold through the Clara platform was just over $1600. The balance of our production is sold through a quarterly tender process, due to the ongoing state of emergency in Botswana and pandemic-related travel restriction both the March and May quarterly tenders were having Antwerp rather than Gaborone and our September will pay price from Antwerp as well. The diamonds sold through tender represent the largest volume but lowest value portion of our production.

We achieved an average price of $242 a carat for those diamonds less than 10.8 carats in weight which is up from a $186 a carat and for those same stones in the first quarter this year. We continue to see prices improve which is encouraging. Moving just briefly to our 2021 annual guidance. And you will see that we've adjusted the split between ore and waste mining for the reasons I've noted previously, the balance of our 2021 guidance remains unchanged. I will point out that we expect to spend up to a $120 million on the underground expansion this year, having already spent almost $33 million by the end of June.

On that note, I will hand the floor over to Dr. John Armstrong, our Vice President Technical Services to talk about where we are with the underground expansion projects. John?

John Armstrong: Okay. Thank you, Zara, and thank you Eira. Good morning and afternoon and welcome everyone to the call.

I'm pleased to present an update on the Karowe underground expansion project and talk through some of the changes since 2019 feasibility study and some of the physical programs achieved during 2020 and 2021 and of course the next steps for the project. I would encourage everyone to take note of precautionary statements on Slide 2 of this presentation decks. My remarks will include forward-looking statements. As a reminder, all amounts are referenced are in U.S. dollars unless otherwise indicated.

Next slide, please. The Karowe underground project is now as described previously are fully financed project with operating cash flow from the open pits, a $220 million finance facility and the recently closed Canadian $41.4 million equity financing. The underground project will extend the mine life an additional 13+ years out to 2040, with an estimated $4 billion of additional revenue. Our revenue models use conservative diamond price assumptions with no escalation and excludes exceptional stone revenue. The underground mining method, given its bottom up approach, targets the highest value rock type in the South Lobe in EM/PK(S) which has the coarsest diamond size for easy distribution, highest recoverable grade and is a dominant or all types that we mined in these early stages from the underground.

It is a source of many of the truly exceptional diamond recoveries including the 1109 carat Lesedi La Rona; the 549 carat Sethunya; and the 1758 carat Sewelo to name a few. Next slide, please. The long-hold stopping method has been selected and basically this method is like a fully assisted blockades with the design and the layout of and I'll guess for many blockade mines around the world. This method allows early access to the empty shaft as mentioned, the early saves of underground mine line with minimal delusion and contributes to an approximately three year payback period. We have all necessary requirements in place including a mining license extension to 2046, Lucara has adopted to the IFC performance standards, extending those to the greater principles for the underground project.

We are moving through adopted CIM since toward sustainable mining initiative and global industry standard pertaining managements as part of the ongoing commitment to environmental and social best practises. Much had happened since the conclusion of the feasibility study in the fourth quarter of 2019 and despite the challenges presented over the last 18 months, a significant project has made on a project today. This is a testimony to the tremendous effort put forward by JDS Energy and Mining, Lucara's EPCM for the project are various contractors where we have engaged with and signed contracts with and with strong operational environment of the Karowe mine in South. Although COVID-19 related delays have impacted the original schedule, no material variances between the 2019 feasibility study in the current project is designed have resulted following the completion of detailed designed and engineering work undertaken in 2020 and 2021. COVID-19 has impacted the schedule with delay in the pre-sinking activities for shaft development by one-year.

And now we expect full production in the fourth quarter of 2026, a 1.3 year delay from the original feasibility study and age. Overall for project, CapEx money has increased marginally by 4% a $534 million including contingency. These cost increases are driven mainly by an increase in the diameter of the production shaft and an additional sublevel and more other kind of minor changes that I'll touch on too at the presentation. The end of the second quarter of 2021, a total of $51.4 million has been spent on the project to-date. We need to focus on procurements of long lead time items, engineering design work for the shafts, critical early works and civil works, the also good ultimate goal of this was to ensure minimal additional delays, the project schedule as we went through the financing exercise and to de-risk the start of the project.

And [indiscernible] that re-scoped and optimized throughout for continuous operation into 2026. Overall underground operation parameters with respect to waste and ore times mines it has recovered it so for the main say as a 2019 feasibility study. As a refresher, the underground project is targeting the substantial resources remaining below the economic spends the open pits in the South Lobe, and the 7200 ton per day shaft operation that utilizes the long hole shrink mining method providing this additional 13-years of mine life after a 5-year construction period. And moving to the offsets from the 767 meter deep production shaft and 0.5 meters in diameter driven from surface with the equipment 221 time skips for production hosting in a service cage for an amount of material movement throughout the mine. The shaft walls of the surface beneath fresh air intakes to the mine.

The second shaft six meters in diameter driven from surface to a 733 meters deep, we found a ventilation and the ventilation shaft and the exhaust for the mine workings. Before the certain levels will access the ore body with three connected to the shaft system, the main extraction level on 310 it will be laid out typical of the blockade arrangements and all the other levels were formed drilling platforms, we have to drill from the end the [indiscernible] to do the sequencing on the drill blast up to the stop. And finally to mine about 400 vertical meters in a 310 level up to the base of the open pits. The long hole method is planned systematically drilled and blast the entire lobe on a vertical with three bases. A significant portion of the blast [indiscernible] blasting and is hoping to stabilize the whole [indiscernible] with only this well extracted during the drill and blast phase and that not getting extracted out of the 310 level draw points.

Once the column is fully blasted, the store will be drawn empty, just simply by drawing the mock points down and we will cover what it accumulates in as we as we mine down during the first 200 meter, verticals of mining are contained within granted host rock. With minimal dilution expected there, it's within our payback period. And the dominant rock type to come out of the draw points at that point in time will be the EMPTS. In terms of some additional design changes that took place through the detailed work that was done there's been an addition of additional sub level an undercut level just above 310 level. This will assist in the development of the draw bells and the trough style draw points and some optimizations around raises.

Next slide please. Long hold shrink method brings forth a number of advantages especially early years of the underground operations accruing, namely, one access to the highest value portion of the lower self loan minimal deletion is mining tours and competent granite host rocks. Underground development can be done simultaneously with the open pit operations. Volumetrically the EMPKS uniform is the dominant rock type that will be extracted during the early stages the underground operation with over 90% of the recoverable carats between the 310 and 400 levels attributable to this EMPKS unit, which as we previously mentioned as the demand for the course data size, distribution, and as a significant source of large high value diamonds from the current open pit operations. The graphic that you see on the bottom of the slide displays the recovered cares by source.

This aligns with some of the disclosure around the 2019 feasibility study which obviously takes into account slight modifications due to project delays. Next slide please. Just clicking the slide here is a collection of images from just some of the significant diamond recoveries that have taken place from the so called with the AK six Kimberite. Pro has produced now produce three diamonds in excess of 1,000 carats piece, each of which has been recovered from processing of the EMPKS unit. These include the 1109 carats of the Lesedi la Rona, 1,758 Carat Sewelo, the unnamed 1174 carat diamond recovered just recently, along with a number of other top quality highway gems shown here including the 549 carats Sethunya, the 813 carat.

Production runs of the EMPKS have exceeded the model 3% plus 10.8 carat diamonds that is in 2019 feasibility study, which sits at 7.98% for the EMPKS unit. In 2021 we have had two production runs of the EMPKS that have exceeded 12% plus 10.8 carat diamonds, along with recovery of a number of large high quality diamonds. And not to be outshined by its brother in the south world The MPKS is also a significant producer of large, high quality diamonds shown on the right side of this image you'll see the 393 carat stone recently recovered and press release. 378 carat stone it was recovered earlier this year. And what it's showing here is the 342 carat diamond also recovered earlier this year.

For those of you that are into counting, there are nine diamonds shown on this particular image six of these diamonds recovered since the beginning of 2020. The demand for the core size distributions for both the MPKS and EMPKA continued recovery of these and other high value diamonds coupled with the continued strong overall strongly resource performance important economic drivers for the [Indiscernible] mine accruing. We will spend a little bit of time on this slide. This is dynamic pricing and machine learning and pilot time here. There's a lot for the reader to unpack here.

The main takeaways that I would like to emphasize are in the carats holding same diamond price assumption as a 2019 feasibility study. Those are shown in the small inset table on the lower right image. Those are the feasibility study basically those numbers enter the mine plan in 2023. There is no diamond price escalation post 2023 on the diamond prices. No exceptional stone recoveries are included in the model average prices.

And I would say that if you take those model average prices and do a weighted average price against their production profiles as shown on this diagram, you will see very good reconciliation between the chief price and our model crisis. Next slide please. The next slide will walk through some of the pits and underground metrics. These have been modified to represent depletion since the feasibility study but the main takeaways again here when a process around 47 million tons of ore and then combined by or we're going to pardon me we're going to mine about 47 million tones process, 54 million tones that includes the tail loads 2040 of the large life mined, stockpiles, etc that sit on surface are expected operating class costs for time process line up with our current pricing environment around $30 a ton and we should generate and post tax for $1.2 billion in cash flow. Next slide please.

Next slide here is a table that compares the 2019 feasibility study pre-production CapEx against our 2021 base case. As noted earlier, the overall capital was increased by approximately 4%, $534 million. And this particular diagram allows users to compare back to our feasibility study in our presentations around there. These are broken out into the same buckets that were in that particular material. Next slide please.

Shown on this slide is how the standard that $534 million looks like going forward on an annualized basis. That's the image on the right. The image on the left just provides pretty straightforward, simple waterfall in terms of how the costs move around. There is a few things that I'll note, if you look at the annual I spend on the right to the dip in 2023 and capital costs that relates mainly there only being one activity taking place in the project at that time or one large activity taking place. And that would just be shaft thinking.

The 2021 and 22 bumps in CapEx those represents obviously the establishment of the surface, the camp power lines substation construction, and so forth. So quite a bit of activity in the first two years. Suddenly it's shaft sinking in the third year. 2024, 25 of the ramp up there is related to procurement for the underground infrastructure and the start of the underground mine development. Next slide please.

This looks at the underground operating cost estimates. These are unchanged from the feasibility study as we've not re-sculpt these numbers. So these refer right back to the feasibility numbers. Next slide please. A total of 51.4 million out of the total budget of 534 million has been spent to-date.

Where did that $51.4 million go has been spent mainly on precinct engineering it's complete. The detailed design and engineering around the two main shops is ongoing but fundamentally complete what remains to be done in some shaft bottom equipping engineering which are not critical to the critical path at the moment. Detailed work on ventilation engineering as well advanced winders hoist shaft jumbles have all been procured. All the necessary equipment for the pre-sale is on site. The civil works are well advanced around to shafts and we'll see some images of that coming up with utility buildings and so forth.

We've completed phase one of the two phases for the construction of the 200 person construction camp. And we've initiated work on the temporary power and final volt power supply. Next slide please. This slide has a high level indicative schedule. As mentioned previously, the COVID-19 delays are pushed out and started the PC by one year.

An additional 30 years added after detailed design and engineering related to mainly ground support and seamless visual time around station breakouts and things of that nature. What we're really showing here are the critical items and high level timelines that you can compare back to the feasibility study with ramp up to full production and the fourth quarter of 2026. Next slide please. In terms of design changes I will run through these relatively quickly. As a result of the detailed work and see value engineering, the recommendation was to increase the production shaft to 8.5 meters, slight increase to the depth was ventilation shaft and get some additional approximately 17 meters deep.

The removal of the heavy lift hoist from the design of the ventilation shaft also then eliminates the need for permanent head frame over the vent shaft. And the other design changes increase in ground support for stations and breakouts based on geotechnical work that was done on the large database that we already have and the results from our center line or pilot holes that were drilled down the center of shaft locations. And the precinct will start with mobile cranes and then transitions to their cranes and then ultimately what the precinct is done the permanent sinking infrastructure we put in place. Next slide, please. In terms of hydrogeology relative to the feasibility study, given the COVID delays, the shaft development wouldn't get down deep enough to provide will be needed for dewatering galleries in the 680 level.

So the need for that dewatering gallery system has been removed from the plan. So there's a number of savings there, savings in terms of water development drilling costs, and also, we got some wings back in the shaft development because it would remove any interferences between doing development while you're doing shafts. This means that the focus shifts to dewatering from surface. That plan has been scoped out and active at the moment, which focuses on more intense holes for dewatering, inclined dewatering wells drilled through sand pits, and sub horizontal holes drilled into the walls of the pit to system dewatering and depressurizing of the slopes. I mentioned the shaft pilot holes or centerline holes a lot of people refer to them as water strikes there was no surprises there the water strikes through the main part of the crew sequence in sandstone, the water strikes were expected with expected water inflows.

We also understood a little bit more about the potential for water in the deep granite. We had water straight into deep granite and what we learned there that those particular domains do not recharge. So there are basically perched water sites that we can deal with by pumping and grouting. Previously, we did envision doing from surface around the shops. We have moved away from that and then that will be in shop grouting and drain shaft sinking.

We have engaged with a growth specialist to have a mitigation plan in place and all required equipment on site for the start of the maintenance in 2022. Next slide please. There are two power undertakings as part of this project one being an upgrade power supplies to the mine to support the current infrastructure and infrastructure related to the two shafts and the temporary power to support the shop seeking exercise until the bulk power is hooked up we have through the course of 2020 and 2021 negotiated and signed to self build agreement with Botswana Power Corp for the construction of two substations and a 29 kilometer long trend part of the 32 kV transmission line. Expect to have both power hooked up to site in the fourth quarter of 2020 to work on substations has been awarded work on the transmission lines is about to be awarded. The temporary power will regenerate to diesel gensets in a region with Abreco for that it will come in three stages to build up to its maximum capacity in 2022, thinking and mobilization for stage one getting those gensets on site is actively underway at the moment.

Next slide please. Now quickly just walk through some visuals of words that I've been speaking about. In terms of overall site infrastructure, what we see here is an aerial image of the 200 person camp phase one is active. Phase two is under construction. Other activities around site infrastructure include upgrades and expansion to the wastewater treatment plants.

An expansion and upgrade to a reverse osmosis plants. We have looked at our solid waste landfill capacity. We understand that we have capacity for additional items that will come from the underground we will need additional sell but the permits are in place for that. This is some of the site structure. Next slide please.

This is looking at the underground surfaces infrastructure. So this is on the west side of your pit. So in the distance you'll see the open pits and the plants behind this would be the waste rock, north is to the left on this image so it's to the starting at the right you can see physically where the temporary generator pads hits for the gensets. You can see the ventilation shaft. You can see where the ventilation shaft winders and temporary cable winders will sit and see the location of the main hoist room.

You can see the production shaft and the service liner for the production shaft, and then off on the far to the north of this particular set of infrastructure, the concrete batch plant and testing lab. Next slide please. This is an aerial image, different perspective, the same items that were shown on the previous image are shown here, but we can see here of course, on the left, right side of the image is the lay down area for steel lay down, which will come for fitting shafts and also head frame construction. You can see the location of the production shaft color and ventilation shaft color. And I will point out that since this photo was taken a few weeks ago, that accidentally shot that form work that you see, you see all the cement has been poured around the shaft barrel.

Battery has now been backfield. And it's in the process of being handed over to us to start the precinct. So a lot of activity is taking place that we're on track for the precinct here in the next week or so. A lot of work from mining services to assist into some of the civils. Who did the civil construction.

And now we are taking over this to start the precinct. Next slide please. Like most projects, underground expansion is sensitive to diamond price. Because of the view that the diamond price assumptions the models apply to the project are conservative. I think we've walked through that earlier in the deck.

And as with all projects, there are risks and opportunities. And what we show here are where we see some of the risks sitting now this is a little bit different than they would have been shown back in 2019. Because some risks have been decreased with obviously with an increased level of engineering. And fundamentally, some of the risks have been taken away because we've done the physical construction. However, as mentioned, by IRA, this is a very active process on site, ensuring the safety of our workforce.

Active monitoring of the workforce testing, and now is the vaccination rates ramp up in both South Africa and Botswana, ensuring that the workforce gets vaccinated in a timely manner. Water strikes and dewatering our risk going forward we feel the mitigations we're putting in place with the grouting strategy will assist in the pits. We have a process and a model and a plan for the pit dewatering, which is achieving its goals as we go forward. And it's just mitigation. There's the use to stick to that plan and form the model and continue to update what we need to do there.

And there are opportunities to win back scheduled time using back scheduled time by understanding where the grouting will be required, the duration of the grouting and getting the grouting right. We have the opportunity to draw down that Kimberlite, the possibility and the opportunity around large time recovery. This is just straight up value recovery for the mine and for the company. And I think we've demonstrated over time that there is a real opportunity to see some large high value diamonds come up with the operation. And we also have additional underground mineral resources that remain at this point in time we haven't spent a lot of time looking at the this will be beneath the North and Central loads.

And also at depths within the South load the indicated resource was down to 250 meters above sea level. The underground extraction levels at 310. The base of the inferred is at 60 meters above sea level. And below that and the mining method chosen we have not sterilized anything below about extraction levels. So there are opportunities to add additional mineral resources at depth and we looked at the appropriate time.

Next slide please. The next step so going forward, we talked about it and hit on a couple of times here. The precinct mobilization is currently taking place. The mobilization for the temporary power is currently taking place. We have representatives from Aggreko on site.

U.S. South Africa and Botswana are on site with their crews getting ready to start the precinct and as I indicated that first blast in the ventilation shaft should take place within the next 10 to 14 days are on track with the revised schedule and on budget with the revised schedule to initiate that activity. Going forward over the course of the remainder of the year will be to start substation constructions, start the detailed design and engineering work on the transmission line and discard the start clearing along that transmission line route. To start work on the undergrad mine and the underground mine infrastructure with respect to the crushing phase systems and to start work on engineering the design of the fine tailings pond expansion at Croly. And with that I think that is the end of the presentations material.

Obviously, it's a very busy time on site. It's an exciting time for everybody. We're being absolutely cognizant of COVID-19 and ensuring that everybody works in a safe manner. And this is the beginning of a five year project and we're glad to rent this place with a fully financed project with a site that is ready to accept the precinct crews and to get into the real work of getting those shaft driven down. And with that, thank you very much.

We'll entertain any questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question comes from Daniel McConvey Rossport Investments LLC. Please go ahead.

Daniel McConvey: Good morning, everyone. Thank you for the detailed presentation of the integrated development plan. John just this looking at slide 21 we pushed off the CapEx growth from 2019 is relatively modest. When I look at that slide 21 I am just wondering what was the increment for putting that extra un-reclaimed level in the plant. What does that do for you?

John Armstrong: The main rationale behind that was to, if you look at the two images side by each the one that we're going with the differences that for drilling for the blast holes, as partly decreased quite dramatically.

So de-risks the development of those draw bells. So the blast hole lengths shortens, which means you have more accurate drilling, which means that fundamentally that the setup of those draw bells will be closer to design, than you would have got the with the other way, or the other approach. So it's sort of a it's a trade off there being some excess developments, but you're going to have better certainty around the setup of those draw bells, which will assist in the draw points and the longevity of those and the operation and operability of those draw points. And in a sense, there's sort of a swath of developed meeting meters here, because developing meters at 680 by not having dewatering galleries.

Daniel McConvey: And we're putting it extra into cut leveling and range for that cost?

John Armstrong: I don't have a particular?

Daniel McConvey: Would it be more than 10 million?

John Armstrong: For this one it will be probably less than 10 million, given the leaders drilled.

A full sub level, like one of the ones up but 550 or something that would be in the range of 10 million and this would be less than 10.

Daniel McConvey: You talked about this before but just in what ways is the current design more or less? This is one of them, obviously in what ways? Is it more conservative than the 2019 design? And in what ways is the current design add more risk, if at all?

John Armstrong: So I'd say that the conservatism here is the addition of this undercut. The other design things will come as you do the detailed design around layouts, the detailed layouts for additional sub levels, I don't think we between 2019 and now, I've introduced any additional risks to the design. The idea is to remove the risks. We have added any rescue.

Operator: Our next question comes from Raj Ray with BMO Capital Markets. Please go ahead.

Raj Ray: Thank you, Alberto. And good morning Eira and teams. My first question relates to the field for this quarter.

If you can throw some light as to why the sales were down quarter-over-quarter, and also the rough current inventory that you had at the end of the quarter and how we expect that to unwind for the rest of the year.

Zara Boldt: Sure. So I'll maybe take a second question first. The inventory balance increased due to a combination of more ore mined and carats recovered than previously planned, as we talked earlier in the call about the adjustment that we're making between ore and waste ton of mines. So that's having an impact.

And then combine so that the inventory balances also combined with a lower volume of carat sold in the second quarter. So the carats and inventory increased about 40% from Q1 for those two main reasons. The May tender was also earlier in the quarter, which resulted in a higher number of carats in inventory at June 30 when compared to the March 31, or year end.

Raj Ray: Do you have a number for the carats and inventory diamond carats end of Q2?

Zara Boldt: Not at my fingertips, I can get that for you and send it through.

Raj Ray: And you're expected to on line for…

Zara Boldt: Yes.

We don't carry inventory. So all of our diamonds are either sold through HB or sold at our regular tenders. So just so you're clear on that there has been no hold back of diamonds for any particular reason. They are all sold through. And our Q2 sales really were very strong and based very much on kind of achieved our plan.

Raj Ray: The second question I have is towards the CapEx. With respect to the future procurement, how much of that has already been priced specifically with respect to the additional ground support and then there's with respect to the underground most of the procurement is 2024/ 2025. And what steel prices are you assuming in your updated CapEx number.

John Armstrong: Yes. Sure.

So, with respect to procurement and contracts, the present time you have committed, we are committed to about $100 million of contracts in including procurement. And that includes so we were able to get the steel order for head frames and things of that nature prior to somebody inflationary increases. What we have going forward in terms of that procurement that will take place for underground we are looking, I said, I mean, we were we've started the engineering and design work for the crush conveyor system. So the idea is to get that pin down as soon as possible and get the orders placed. In terms of steel prices, when they do the new costing that the current steel prices will be used, but we haven't made any long term adjustments to our capital estimates in that respect.

Zara Boldt: We've looked hard at that and in anticipation of any material changes, and based on the fact that we had early procurement of the bulk of our steel needs. We are not looking at that as a material risk.

Raj Ray: Thank you, Eira. And then this question is for John again. Look, I'm a metallurgical engineer.

So pardon me if I'm getting this wrong, but I had a question regarding the removal of the ventilation shaft. Was the reason for having the hoist in the first place and why are you expecting now that you don't need it? And if you can touch upon that from a flexibility perspective, in terms of downtown for the main hoist and also from a safety perspective?

John Armstrong: Sure, those are excellent questions. The removal of the initial thinking there was that heavy lift hoist would be used to get equipment into the underground during the early stages of development of the underground. And then periodically over the life of mine will be used again to either bring pieces of equipment out or bring pieces of equipment down. But it wasn't going to be used on a regular basis.

So the value of engineering there was the trade off ends up being ended up with a slightly larger production shaft. And the upside in a way is you don't have to procure that permanent hoist for the ventilation shaft, you don't have to build a head frame and you don't have to have a piece of equipment that requires rigorous ongoing maintenance that you only operate several times a year. It was an expensive piece of equipment, like I said to have sitting there to maintain and only use it frequently. So the decision was made to remove it. With respect to kind of the redundancies the ventilation shaft would never been set up to replace the production shaft.

It doesn't have the right internals setup with the right diameters or loading pockets or such like that it could be used as secondary method of hoisting ore. When it comes to the egress ventilation shaft will still be the emergency egress out of the mine. And what we will have in place is something called the tech edge mobile rescue winder. So it is a mobile emergency rescue winder that will be positioned at the ventilation shaft on a permanent basis. And that will be used as the emergency egress.

So that component is still covered off.

Operator: [Operator Instructions] Your next question comes from Scott Macdonald from Scotiabank. Please go ahead.

Scott Macdonald: Hi, everyone. Thank you for the updates.

A few questions from me just on the sales and few on the underground. Just quickly on the sale, can you give any color as to why the realized prices for your HB sales were so much higher this quarter versus prior quarters?

Eira Thomas: Sure. Well, it's combination of two Scott it's really around, obviously, the type of diamonds that we're delivering. So we've had a very strong quarter in Q1. And that continued into Q2 with the recovery of some very nice high value, rough diamonds.

So that is a contributing factor. And then the second piece really is around the continued strength of the rough diamond market. It has been a very buoyant period and you will have seen other peer group companies kind of reporting similar strong sales. So it's really the combination of the strong resource performance together with an improving overall price environment for rough diamonds and polish for that matter.

Scott Macdonald: So I guess the outlook for pricing to HB is pretty good going into Q3 and Q4.

Eira Thomas: Yes, what I'm most encouraged about is the fact that we are we're seeing strength across the supply chain. So it's not limited in certain pockets or certain segments. We're seeing it in almost all categories of rough diamonds. And then we're also seeing it in terms of polished sales, jewelry sales. So I think it's a fundamental shift something we haven't seen for quite a long time in the diamond market.

So a lot of different courses fueled by the fact that the supply and demand fundamentals really are starting to play out now. So we have a very positive outlook and we're positioned for months and years to come here now.

Scott Macdonald: Just a quick one on your revenue guidance for the year. Are you no longer expecting the seller to be sold this year? I'm not sure if that's going to be material in any case, but.

Eira Thomas: Yes.

That's a great question. I mean, for us is the value in that really has always been around done of the collaboration with Louie Vito and HB. So it's kind of doing its job right now for us. It's being toured around the world, primarily in China with Louie Vito, because of COVID obviously our original scheduled manufacturing dates have come and gone but we see continued merit and moving that diamond around and because it basically got stuck and evolved for the better part of 2020 and we didn't have that opportunity. So we are in discussions with LV and HB about what the next steps will be.

And we'll probably have more to say that towards your end. But you're right. I mean, that was for us not necessarily about the value of the polished produced. Yes, we do expect that there's some nice white material in there. But really the value of that stone as a sort of an ambassador for what we're trying to do with this new partnership.

Scott Macdonald: Got it. Thank you. Just moving on to Clara. So you completed a trial with a third party supplier in Q2, and it sounds like you have got more trials planned in Q3. Just to confirm, are you still in discussions with the third party that did complete the trial? Are they, did they give good feedback? And are you hopeful that they'll wrap up their use of the platform?

Eira Thomas: Yes.

We're in discussions with several potential long term participants. But what I would say is that those that have trial, the platform, so far have been very pleased with the results. And the intention is to continue to deliver some stones for sale. The key thing for us is really trying to land a larger committed supply. And those discussions are continuing.

And we're certainly hopeful that we're going to have more to say on that before year end. But the encouraging thing is, is that the sales are starting, and the results and feedback we're getting is positive. So we expect that we're going to be able to continue with that sort of positive momentum towards year end.

Scott Macdonald: And how many third party suppliers are you in discussions with now? I think you said two last quarter. And I guess I'm just curious, what sort of are the sticking points as to getting someone to commit to a larger supply?

Eira Thomas: It’s really just, we’re beyond two now.

We've got discussions with several potential sellers on the platform right now. The sticking points are simply around we're in a very strong market right now. So some would argue that diamonds are selling themselves. So to make a change to try something new when people are basically able to achieve strong results is I think, probably our biggest challenge. What is encouraging though is that, again, for those that have decided to put some on, and when they can see that Clara is doing as well or better, even in this strong pricing environment, that really becomes the impetus towards putting more volumes on so.

I think it will come, I think for the producers, they've obviously weathered a really challenging period. So they are just really happy to be selling their product at superior prices and getting their balance sheets back in order. And I think to make a big change in the midst of all of that is a big ask, but I think as the market continues to stabilize, that's when we can start to get sort of attention and interest back on Clara. So it's definitely happening. And I think we will have more progress to report here in the next two quarters.

Scott Macdonald: If I may I would like to ask a couple of quick questions on the underground or related, I guess. You resculpt the open pit to extend to 2026. So just John could you give a bit of color on how you're actually able to do that? Or have you added new open pit reserves or just mixing in a bit more stockpile processing or how are you going to achieve that?

John Armstrong: No, we haven't added any additional reserves to the open pit. So it's about scheduling and yes, the use of stockpile material that I think even in the previous plan there was some central material that came through. So it's about sort of slowing the rate of ex-pet ore and it is offset with stockpile ore and so some of that stockpile material is coming out of the pit even now because as you can see we're destocking the benches in the north part of the pits and taking that order stockpile.

So it was just to ensure that we had we'll have continuous ore coming from the pit/stockpiles into 2026. And then really that ramp up starts in earnest through 2026 to get to full production. There will be underground ore augmenting what's coming from the pits in the early parts of 2026?

Scott Macdonald: Does the source of our matter for the purposes, in your presentation today it's showed I think 15.70 for the processing costs for the underground, whereas in your 2021 guidance, I believe it's $11 to $12 a ton if I'm not mistaken.

Raj Ray: I don't have a response to that off the top of my head, we have to come back to you.

Scott Macdonald: That's it for me.

Thanks. Thanks, everyone.

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

Paul Zimnisky: Hi, everyone.

Congrats on an exciting quarter with all the special recoveries. I guess I'm going to be following up on Scott's question and comment. I'm wondering how you're thinking about revenue guidance, looking at the average price per carat in the quarter versus the implied full year guidance for average price. How much of the average price you achieved in Q2 was a result of the product mix and higher market prices, versus maybe larger diamonds that were held back from sale last year due to the pandemic that are maybe being sold now.

Eira Thomas: Thanks, Paul.

Zara do you want to take a crack at that one?

Zara Boldt: Sure. So with respect to the 2021, revenue guidance Paul we're still pretty comfortable that the 182 to 210 number is the right number. We're about halfway through the year. You'll remember having followed us for a number of years now that it can really vary over the course of different quarters. So far this year, we've had mentioned, really strong performance from the resource, really strong pricing and demand from the market.

The diamonds sold to HB in 2020 are now mostly manufactured and sold. So that that uplift from 2020 stones delivered is generally behind us. We're not seeing a lot of additional cash expected from those stones. We are seeing more current periods. So deliveries, shipments that have been delivered in our current production are now being sold.

And we're starting to realize some of the uplift from those deliveries as HB has improved their manufacturing process and shorten some of the cycle times. Eira do you want to add to that?

Eira Thomas: No, I think that what we're trying to do here, Paul is obviously we're feeling optimistic about the market and the outlook, but again, because of the variable nature of any diamond resource we've got eight years of production that we rely on with our resource models. We have really, I think, done well in Q1 and Q2. And we'll see how we do through Q3 but we think it would be imprudent to make any adjustments at this point in time. Because of the experience of these resources and how they can vary from quarter-to-quarter, but at this point, certainly we're feeling good about what's coming out of the ground.

Paul Zimnisky: Very good. Thank you.

Operator: Your final question comes from Oliver Oliver Grewcock from Berenberg. Please go ahead.

Oliver Grewcock: Hi, thanks for taking my question.

Can you give us some color on what the whole mix and grade kind of looks like on the open pit out of 2026. And also, when is the undergrad project due for board approval? Thank you.

Eira Thomas: John do you want to start and then I can take the second piece.

John Armstrong: I will refer you to the mineral reserve statement for the open pit will give you, I will give you the overall average grade that remains in the open pit. And I believe we have a split by [Indiscernible] refer you to that document for what the remainder of the lifeline of open pit looks like with respect to the carats and grades.

Eira Thomas: And Oliver you know we are now essentially are the mine plan from here on and is essentially dominated by the South load so it's all a mix of E&M down to 2026 with the exception of blending that John referred to from existing stock out of surface. So the vast majority of the tons will be coming from either the E or the M and blend therein which accounts for the higher grades and the higher proportion of plus 10.8 carat diamonds as we mine deeper. In terms of full board sanction. Basically we're in the final stages of meeting all of our conditions precedent for the drawdown on the facility. And so that is expected to happen pretty quick here.

But we're all systems go board is entirely supportive and excited to be moving forward with the underground project. But the formal sanction will come once we've met all those conditions precedent.

Operator: There are no further questions at this time. Please proceed.

Eira Thomas: Okay, well, thank you very much, everybody for joining us in the middle of your summer for Q2 results call.

We look forward to speaking with you next quarter.

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.