Operator: Good morning. My name is Pam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lucara Diamond's 2019 Year-End Results Conference Call and Webcast. [Operator Instructions] Thank you. Ms.

Eira Thomas, you may begin your conference.

Eira Thomas: Thank you very much, Operator, and welcome to Lucara's full-year 2019 results call. Joining me today is Lucara's

executive team: Zara Boldt, our CFO; Ayesha Hira, Vice President, Corporate Development and Strategy; and Dr. John Armstrong, Vice President, Technical Services. So, to begin, I will be making some forward-looking statements.

Please refer to the cautionary statement that has been included on our webcast presentation. In terms of highlights, in response to challenging diamond pricing in 2019, Lucara necessarily focused its efforts on those variables within its control namely, operating performance at the mine, and delivering a positive feasibility study for the underground study on time and on budget. In addition, we continue to successfully ramp up on Clara, albeit with a slightly more conservative approach focused on protecting the top line revenue [technical difficulty] in support of the budget and guidance forecast. The results of these efforts was the strongest performance we have ever experienced in the eight-year history of our mines, delivering record production at lower cost, and achieving more than two years without a loss time injury. We met or exceeded guidance with respect to all of our physical and financial metrics, and delivered $192.5 million in U.S.

revenues versus $176.2 million in revenues in 2018. We also recovered a record-setting 1,758 carat diamond intact and undamaged, which is the second plus 1,000 carat diamond to be recovered at Karowe, and the largest ever recovered in Botswana. It's no surprise then that large high quality diamonds continue to be important value drivers to our revenues, and in 2015, we sold a 241 carat diamond for $8.1 million, a 127 carat diamond for over $5 million, and a 165 carat diamond for almost $4 million. Further, a positive underground feasibility study was delivered under budget and within two weeks of the forecasted delivery date, and Clara exceeded its planned number of sales and the number of customers on-boarded for the year. Lucara paid out $22.4 million in dividend in 2019.

Upon receipt of our positive feasibility study in Q4, however, we made a decision to spend the dividend and focus that cash instead on the early works investment for a proposed underground development. Our balance sheet remains strong with cash and cash equivalents of $112 million, no long-term debt, and our $50 million credit facility remained undrawn at the end of the year. A couple of exciting subsequent events I would like to touch on include the groundbreaking collaboration agreement with Louis Vuitton, the world-leading luxury brand to partner on our record-setting Sewelô diamond. Lucara believes that the true value of this mysterious and complex stone will only be revealed once polished, and as such, we will retain a 50% interest in stone throughout the manufacturing phase. LV will be showcasing this diamond on a global multi-city tour in its rough form, and then later in the year, we will polish windows to help us to see inside and determine its full-polished potential.

All resulting polished diamond will be purchased by Louis Vuitton from the partnership, and crafted into an exclusive jewelry collection to be marketed and sold globally by Louis Vuitton. An important aspect of our agreement is that 5% of all the retail proceeds from this historic collection will be invested back into Lucara's Botswana community-based initiative. The second big news of 2020 was early recovery of a large white diamond of exceptional purity that was recovered unbroken from the Mega Diamond Recovery, XRT Circuit. Like many of our large exceptional diamonds, this beautiful 549 carat diamond was recovered from our EMPKS unit in the South Lobe and important source of large diamond at Karowe that becomes volumetrically more significant as we mine deeper in the ore body. This remains an important economic driver for our underground project.

The final analysis of our large diamond recovery in 2019 demonstrates a consistent profile with Special continuing to contribute 70% by revenue and 5% by volume, and you can see looking out at our cumulative special count for the year that 2019 was one of our best years on record. That translates into high average prices for our [online] [ph] production, which remains at four times the global average. Moving on to the diamond market, in 2019, we did see signs of stabilization, and particularly improvement towards the end of the year. At that time, as you will recall, we felt it was too early to call a trend, and we do continue to budget for volatility in 2020, but we remain optimistic that those supply and demand fundamentals should and will continue to improve. Coronavirus is obviously top of mind for all producers.

However, we feel it's really too early to comment on the implications of Lucara. What I can say is that we have lots of interest in our next tender, which is set to commence shortly, and we have a high number of confirmed clients coming down for viewing as per usual. And now I'd like to turn it over to Zara Boldt, our CFO, to talk about our sales and some of our financial highlights.

Zara Boldt: Thank you, Eira. Good morning, and good afternoon everyone.

Slide nine sets out some highlights from our 2019 sales, where we ended the year on a very positive note with our last tender. During the year, we sold 30 diamonds for more than $1 million each, including seven diamonds, which sold for more than $3 million each. Our highest sales price was $8.1 million from the sale of a 241 carat stone. During 2019, we recovered 786 Specials, representing 6.1% weight percent of total recovered carats from direct milling. In April 2019, we recovered the 1,758 carat Sewelô, which is to date the largest stone recovered in Karowe's history.

We also recovered 31 stones each greater than 100 carats. Moving now to slide 10. Slide 10 presents several financial highlights from the year-ended December 31, 2019. 2019 saw strong overall operational performance with key financial and operational metrics generally meeting or exceeding guidance. These results are consistent with what we observed throughout 2019, and that we have previously spoken about.

Total revenue of $192.5 million or $468 per carat from the sale of almost 412,000 carats was only 4% below the top-end of our original revenue guidance for 2019, despite a very challenging pricing market in 2019. This compares to revenues of $176.2 million or $502 per carat from the sale of almost 351,000 diamonds in 2018. During the fourth quarter of last year, we observed a stabilization of prices in all size classes. This price stabilization combined with a higher value blended or processed in the later part of the year resulted in the achievement of revenue above our revised expectations for the year. Our adjusted earnings before interest, tax, depreciation, and amortization, or EBITDA was $73.1 million for 2019, a 21% increase from adjusted EBITDA of $60.5 million in 2018.

This increase was driven by the year-over-year increase in total gross revenue. Our operating cost per ton of work process was $31.88, slightly below the low-end of our 2019 guidance at $32 to $37 per ton process. This compares to a cost of $39.92 in 2018. The year-over-year decrease is largely attributable to the completion of a significant waste stripping campaign in late 2018, early 2019, which resulted in a lower volume of ore and waste tons mined as well as a 7% increase in total tons processed. This result was also better due to both a favorable exchange rate and a couple of cost optimization initiatives undertaken during the year.

Net income for the year increased from $11.7 million to $12.7 million, and our operating cash flow per share increased from $0.14 to $0.15 per share. As we've spoken about previously, depletion and amortization expense continues to be the largest expense line item after operating cost. This non-cash expense increased from $31.4 million to $51.3 million year-over-year. There are several factors, which have driven that increase, which included change in reserves base following an update to the mineral resource estimate in mid-2018, a significant increase in the number of carats sold during 2019, and a higher asset base following the completion of a substantial waste stripping campaign in 2017, and 2018. Depletion expense of assets that are advertised on a unit of production basis including stripping costs is significantly affected by the volume of carats were covered during the year.

Cash flow from operation before adjustments for non-cash working capital items increased from $56.4 million or $0.14 per share in 2018, to $60.8 million or $0.15 per share in 2019. As we move into 2020, we expect strong cash flow from operations to continue, and we intend to fund our $53 million capital program for the underground development from free cash flow generated by operation. Moving to slide 11, we have a few of our key operational metrics for 2020. As stated previously, our operational performance continues to be very strong. During 2019, we met or exceeded all of our operational targets.

This achievement combined with another very good year for the recovery of plus 10.8 carats stone helped us to achieve the solid financial results that I've just spoken about. In 2019, a lower volume of total tons was mined as compared to 2018, following the completion of the significant waste stripping campaign through '17 and '18. In 2019, we mined a total of 9.8 billion tons, of which ore tons mined totaled $3.3 million and waste tons mined totaled 6.5 million. This compared to total tons mined of 18.1 million in 2018, of which ore tons mined totaled 3.1 million, and waste tons mined totaled 15 million. The increase in ore tons mined during 2019 as compared to guidance results from ore gains, previously classified as waste.

We processed a record 2.8 million tons of ore in 2019, up from 2.6 million tons processed in 2018. We recovered 433,000 carats, an increase of about 10% from 2018, and we sold almost 412,000 carats. The increase in diamond recoveries year-over-year results from improvements in the processing plant, including higher availability, an increase in the mine [call factor] [ph] and stable operations. We achieved an average grade of 14.4 carats per hundred tons as compared to an average grade of 13.9 CPHT in 2018. As we've spoken about previously over the last year, the increase in carat recoveries continues to be in smaller sizes, which reduces the average price per carat sold without materially increasing total revenue.

Our operating costs per carat decreased from $216 to $189, a carat, and we achieved a very healthy operating margin of 60% in 2019, up from 57% in 2018. Moving to slide 12, we have our operating outlook for 2020. Presently, there are no changes to this guidance, which assumes total revenue between $180 million and $210 million from the sale of between 350,000 and 390,000 carats. Our diamond price assumptions are consistent with those from 2019. In the meantime, we continue to sell a portion of the better-quality goods in the one to 10 carat sizes from Karowe through the Clara platform.

We also expect to have third-party production available on the platform this year, which should help us meet increasing demand. We expect to recover between 370,000 410,000 carats from the processing of between 2.5 million to 2.8 million ton of ore at a cost between $32 and $36 per ton of ore processed. We expect to mine between 7.1 million and 8.1 million ton in 2020. Of which 3.5 -- between 3.5 million and 3.9 million ton is expected to be ore and 3.6 million to 4.2 million ton should be waste. The average strip ratio should be about one in 2020.

We have a budget of up to $53 million for early works related to the proposed underground mine at Karowe, which Eira will speak to you in a moment and a further $25 million allocated for sustaining capital and project expenditures related to several multi-year projects, including slimes dam wall raising, upgrades to the XRT recovery circuit, and a provision for the implementation and body scanning technology, if the required approvals are received. Moving to slide 13, Eira will take us through the remainder of the webcast. Thank you very much.

Eira Thomas: Thank you very much, Zara. As I mentioned in my opening remarks, the completion of the underground feasibility study, examining the potential for expanding truly underground was a very important milestone for this company in 2019, and in doing that work, we identified a much larger economic opportunity at depth, and as a result, we now have the potential to extend our mine life out to at least 2040 without sterilizing the resources below that, and essentially, this will double our mine life from the original 2010 feasibility study, this underground would add $4 billion an additional net revenue, and it is important to note that $200 million in revenue from exceptional diamond is not been included in this economic analysis.

We know that these big stones continue, we know that their source from the EMPKS and we know that the EMPKS dominates the mine plant at depth. As Zara has already mentioned, moving on to Slide 14, the Board did approve a $53 million budget to move the underground project forward, and we are now very focused on detailed engineering and early procurement initiative, and we are also working and reviewing financing options with the goal of completing a financing plan in the near-term. The anticipated capital requirements for 2020 do represent less than 10% of the initial CapEx estimate for the entire underground project, and as Zara has already mentioned, the company anticipates funding this from cash flow as other financing opportunities are explored. Moving on to Clara on slide 15, I do want to make a couple of comments here. We are extremely pleased with the developments for Clara in 2019.

We exceeded our plan with the total number of sales and we grew our customer base from four to 27 over the course of the year. We now sit with 32 active customers on the platform and I'm really pleased to see that demand on Clara is now outstripping the supply that we can provide from Karowe. We have initiated some trial sales with third-party production, and we are in discussion with larger producers, and we will be making progress on that agenda throughout the balance of the year as we have been able to demonstrate to our peer group of producers that we are achieving higher margins for the diamonds that we are selling on Clara. So, stay tuned on that one. This is going to be important year for Clara going forward.

So, I think just to conclude on slide 16, Lucara remains a premier mid-tier investible diamond company. Thanks to our strong focus on operational excellence, we believe that we are very well-positioned for long-term sustainable growth. We remain high margin producer. Our main assets are in a safe stable country; the country of Botswana. We have a strong balance sheet, and we have open pit minable reserves to 2026 and the potential to expand our mine out to 2040 or more.

And finally, we have asset diversification and additional revenue through Clara, our secured web-based digital sales platform. The final slide just shows our capital structure. And with that, I would like to thank you for your attention and open it up to participants on the call for any questions. Thank you very much.

Operator:

Operator: Thank you.

[Operator Instructions] Your first question is from Geordie Mark from Haywood Securities. Please go ahead.

Geordie Mark: Hey, good morning all, or afternoon, depending on where you are. Yes, thanks for hosting the call. Couple of questions I guess.

I guess, more forward-looking I guess, in terms of this year's guidance and the viewpoint I guess the recovery of quite an exceptional stone 549 carat stone more recently, just wondering how that fits in, in terms of the guidance, is it included or excluded, or I guess we will wait until later and I guess that [helps with] [ph] Sewelô as well.

Eira Thomas: Yes, I will pass that to Dr. John needs to talk about how large stones are accounted for in our guidance, and then, we can talk about your other questions.

John Armstrong: So that -- that particular stone is not included in our guidance. Basically when we do our pricing for budgetary purposes and in terms of our value models, those exceptional stones aren't included in the value component, so that stone will sit outside of our guidance at the moment, and we are just working through a process to determine how we are going to monetize that diamond, and we are not in a rush to do that at the moment.

Geordie Mark: Of course, of course, and may be an extension to that one, within the current guidance, I guess, last year it was around 6% weight percent Specials, what are looking at there I guess within the guidance as a reporting percentage of weight percent?

John Armstrong: I guess for 2020, our expectations would be that we will continue I mean the blend of material that we are going to put to the plant will be similar to 2019 with a little more emphasis on South Lobe. So, I would expect we should land in excess of 6% to 8% Specials coming end of the year.

Geordie Mark: Appreciate, fabulous. And maybe an extension to that, as you talked about feed supply from South Lobe, I note that the balance between all processed and mined, there is a good surplus this year. Do you expect the stockpiles ultimately to represent the average for the year, so there is no preferential sort of supplying into the process point?

John Armstrong: Well, basically, we'll put the highest value rock through the plants.

So if we have an opportunity to feed higher rate, higher value materials, we won't go to stockpiles, we will do it in the plant as normal operating procedures.

Eira Thomas: Which is consistent with our mining that we are -- we are mining the plant, Geordie, so we are not in their hydrating [indiscernible] this is kind of in the plan going forwarding, as you may recall, we have moved really out of [Northern Center] [ph], and we are now moving into pretty much all South Lobe as we mine deeper, and then, of course, increasingly EMPKS will become important the deeper we go.

Geordie Mark: Yes, exactly, exactly. And I guess, maybe on that note in terms if you can remind me of the percentage of fixed costs for processing, I know obviously, your three-foot last year is very good through the plant, exceeding I guess the range that you have for this year. Just wondering, if there is leverage this year to again emulate what you saw last year, just wondering, how we recaptured on a cost basis, so just wondering about the fix cost basis for the process? Thanks.

Eira Thomas: Well, maybe I'll jump in, and I'll let John answer that. I mean, we are obviously starting to continue, and we are continuing to drive performance in the mill. So, we have seen much better performance, and that has obviously translated into better costs. We are doing some in-sourcing actually around the plant now as well, which we think will have a cost benefit to us. So, we've been going after that low-hanging fruit, and delivering some good savings, but obviously, those incremental savings may not be as big as what we've achieved in the early years, but we continue to drive that agenda.

Geordie Mark: Okay, excellent, and maybe I can extend to something a bit different in terms of the Clara platform of - I see that it's extended beyond the capacity provided organically from Karowe. What's the process by which to verify stone origin, and do the stones have to go through, I guess, a parameterization through your own facility, and then to put on the size, can you walk me through that?

Eira Thomas: Sure. So when we're dealing with other producers, it's obviously very straightforward, Geordie, because those are diamonds coming directly from the mine site, but as with the current -- and they get basically tagged at the point of origin and uploaded into the block chain, but of course those diamonds still travel with their Kimberley certificates as well. So, when we're looking at third-party production coming from other sources, it is a requirement for Clara that those diamonds have full certification before they can be onboarded for sale.

Geordie Mark: Okay.

Eira Thomas: In other words, we have to have evidence of their origin that satisfies our criteria.

Geordie Mark: Sure. Okay, great. I'll leave you there, and I'll circle back. Thank you.

Eira Thomas: Thanks.

Operator: Thank you. The next question comes from Scott Macdonald from Scotiabank. Please go ahead.

Scott Macdonald: Hi, good morning, guys.

Thank you very much for the update, and congrats on a strong finish to last year. Just following up on Geordie's first question on the exceptional stones, I know you're still working on the plan for the 549, but do you think that will be most likely sold within the current year, and also maybe the same question for Sewelô as well?

Eira Thomas: I'll take that one first, Scott. Thank you. I mean, the great thing about where we sit right now is that the 549 was -- as John mentioned was not necessarily expected, these large unusual stones come along once in a while, we don't budget for them, nor is it a requirement that we sell it in order to achieve our revenues that we forecasted for 2020. So, we're feeling very comfortable, and we're going to make sure we identify the right opportunity for the 549.

We're feeling absolutely no pressure to get that stone out the door in the coming days or week. With respect to Sewelô, we're pretty excited about the program that has been planned by Louis Vuitton, and the timelines are moving around a bit obviously with coronavirus traveling through Asia is not straightforward these days. Louis Vuitton remains very excited about taking that diamond on a world tour. So we're working with them to schedule that, and then the goal is to have that diamond go into processing before the end of the year. So, we don't have an exact date on when all the polished will come out into a large extent.

It's going to be determined when we polish the window, and LV and the joint venture makes a decision on what it is that we want to polish from the Sewelô during the latter part of the year, but we expect the polishing to begin, and ultimately those diamonds then to sort of make their way into manufacturer jewelry starting at some point next year.

Scott Macdonald: Okay, got you. And then, just shifting gears a little bit, just on the underground feasibility study, after having completed that, could you give us an update on how your discussions on the license renewal have progressed?

Eira Thomas: Yes, everything is progressing well, but I'll pass it over to John. He can give us details.

John Armstrong: We, basically, Scott, we've engaged with the government of Botswana throughout the development of the feasibility study.

We presented to the Department of Mines in November immediately after the release of the feasibility study, a press release, and event subsequent meetings with them around the mining license extension, number of meetings in January and February, and we're getting ready to make that formal submission to the government in the very near-term, and we don't anticipate any significant issues with that renewal. We have positive conversations with the government all along, and we have the letter of support and comfort that from the government around the middle of the license.

Scott Macdonald: Excellent, and have there been any discussions about changes to the -- to your fiscal terms as compared to our current -- your taxes and royalties and the government, well not owning an equity stake, is any changes on the table there, or should we expect it to be sort of the status quo in terms of fiscal terms?

Eira Thomas: Correct. No changes.

Scott Macdonald: All right.

And then, one last quick one, just for maybe for Zara, just could you remind me why the CapEx was higher in Q4 than in the previous quarters of 2019?

Zara Boldt: Sure, we have a number of multi-year projects and that we're working on, Scott. Those include slimes dam wall raising, XRT recovery machines upgrade, and then the provision for the body scanning, and some of those projects didn't get started until later in the year, and will continue over into 2020, so, which is a timely difference.

Scott Macdonald: Okay, great. All right, thanks a lot.

Zara Boldt: Thank you.

Operator: Thank you. The next question comes from Oliver [indiscernible]. Please go ahead.

Unidentified Analyst: Hi, thank you. Another one on your CapEx $17.5 million for the full-year looks higher than your guidance for '12.

This is due to kind of moving underground CapEx into this line or is there something else going on there?

Zara Boldt: As I just stated, it's basically a timely difference. Our sustaining capital and project expenditures for 2020 are expected to be about $25 million. Our guidance for 2019 was $14 million. So it definitely is higher than guidance. And but it's really a timely difference on some of those big multi-year projects.

Unidentified Analyst: Okay, great. Thank you. And in your 2020 production guidance, you've got 370,000 to 410,000 carats with sales of 350 to 390, what's the main driver of this difference?

Zara Boldt: Our production year runs from November to October. Our sales year one from January to December, so they'll always be about a two in eight to 10-week lag between the time that the diamond is produced and the time it is gold.

Unidentified Analyst: That's very useful.

Thank you. And just a quick one, do you have any guidance for 2024-year DNA charges at all?

Zara Boldt: I would expect them to be similar or less than 20 than what we sell in 2019.

Unidentified Analyst: Great, thank you. And a last one quickly, you guide for a 22% tax rate in 2020, but the underground study costs deductible from this?

Zara Boldt: Yes, they are, which is why we're at the lower end of guidance for the tax rate.

Unidentified Analyst: That's great.

Thank you very much.

Zara Boldt: Thank you.

Operator: Thank you. And the next question is a follow-up from Geordie Mark of Haywood Securities. Please go ahead.

Hi, Geordie. Geordie, your line is open. You may proceed with your question.

Geordie Mark: Yes, just few to ask -- a few more questions. Thanks.

And on looking at the financial options, when if you can, do you approach the conservativism around pricing for the Specials and the much larger stones in the same way for guidance as you do in terms of modeling it for the partners, or can you give us any more detail in terms of how that sort of approached to get an idea of robustness of the models and relative conservative?

Eira Thomas: Yes, listen, Geordie, I'll let John jump in here as well, but we have budgeted assuming the similar pricing environment to what we saw in '19, in other words, difficult pricing environment. So, all of our budgets has been based on that. In the fourth quarter, we did better than we were anticipating, but as I said in my opening statements, it's a bit too early to call a trend on that, and we're also obviously watching the coronavirus impact very carefully, but we're very comfortable with the estimates that we have made for this year, and I think I missed the first part of that question around large stones, are you in particular wondering how the impact of weakening diamond prices in the large stones is impacting our guidance?

Geordie Mark: No, just in terms of whether they're incorporated in a conservative way -- the same way I guess as you approach your modeling for your feasibility, for guidance I guess, whether those -- the financial models around I guess the potential debt arrangements incorporate the same, or look more in terms of integrating historic sort of revenue generation potential from large stones?

Eira Thomas: Yes. No, no, we've been very conservative there, Geordie. So I mean we're obviously with that eight years of production data that is publicly available, we are attempting to forecast and what price is going to do in the short, medium, and long-term.

Our long-term outlook as I've stated before is very positive. We know the diamond market is going to recover. What we're less certain of is, "How quickly?" So what we've really worked hard to do is to be conservative in our outlook for 2020.

Geordie Mark: Okay, that's great. And in terms of -- any more language to talk around diamond pricing, particular for the larger stones, I know last year it was 70% of revenues, just wondering in terms of any highlights that you want to share for revenue directions, pricing for carat direction? Thanks.

Eira Thomas: No. Listen, I mean, last year was a tough year. I mean we saw the prices for some of our largest highest value diamonds come off quite a bit. We saw small stone start out we can get a little stronger. So, it was kind of mixed performance across the value chain, but overall, our fourth quarter sale was very encouraging, because we saw decent price recoveries across all sizes and qualities.

Again, we need to see where that goes as we move through into 2020. We're not at the point to changing our outlook in a really optimistic way, but certainly, the first tender of this year will help guide us, as we go into the latter part of the year. And John, did you have anything you wanted to add to that?

John Armstrong: No, I think you covered it very well [already] [ph]. Our view in the longer term is that pricing in bigger stone should start to recover, but in terms of our modeling, we have that component of recovery built in, but not back to the pricing environment that we saw in 2017 and years like that when the market was quite hard for big stones.

Geordie Mark: Okay, well, thank you.

Eira Thomas: Thanks, Geordie.

Operator: Thank you. [Operator Instructions] There are no further questions at this time. You may proceed.

Eira Thomas: Okay, I want to thank everybody for joining us on our call today, and wish everyone a great day.

Thanks very much.

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