Diamond

Lucara Diamond Corp. – A New Diamond Producer

OVERVIEW

Lucara Diamond Corp. (TSX:LUC) is an African-focused diamond production and development company. Lucara’s two key assets are the wholly-owned Karowe Mine in Botswana and the 75 percent-owned Mothae Project in Lesotho, both of which display large-scale tonnage with the ability to produce large, Type IIA stones. The Company began production at Karowe in Q2 2012 and the mine is set to produce over 400,000 carats of diamond a year. Mothae  has completed a trial mining stage and Lucara is currently in the process of completing a Preliminary Economic Assessment (PEA) due in Q4 2012, to gain a further understanding of the economic potential of the Mothae project and to define the capital expenditure and operating costs for mine development.

A team of industry professionals whose experiences include multiple successes in the diamond industry and across the resources sector in general manages Lucara.  The Company is a member of the Lundin Group of Companies; a group that has established a global reputation for creating wealth for its shareholders, by seeking large-scale opportunities with the potential for further growth and development.

The Lundin Group

The Lundin Group comprises of publicly traded natural resource companies. The companies, ranging from exploration-stage to advanced development and production across a variety of commodities, operate in more than 35 countries worldwide. The Lundin Group of Companies, in keeping with its mission to grow shareholder value in a socially responsible manner, created the Lundin Foundation (the “Foundation”) which supports a growing portfolio of impact investments, strategic grants and corporate responsibility initiatives.

The Foundation is committed to reducing poverty through sustained economic growth and investment in entrepreneurs and small business. The Foundation’s grants in developing countries have primarily targeted improvements in food security and agricultural productivity for smallholder farmers, the provision of inclusive financial services, and technical assistance to Foundation investees.

In Botswana, the Foundation supports an innovative loan guarantee arrangement with Barclay’s Bank of Botswana and the Government of Botswana’s Local Enterprise Authority (LEA) to stimulate micro-enterprise development and job creation in Boteti Sub-District. In Lesotho, the Foundation is supporting smallholder poultry production in Mokhotlong Province, anchored by an off-take agreement with an international mine catering firm.

INVESTMENT HIGHLIGHTS

• Lucara joined the exclusive club of Diamond Producers in 2012
• Lucara is a pure diamond play
• Karowe is a wholly-owned diamond mine producing over 400,000 carats of diamond per year, including high value Type IIA stones
• Karowe Mine NI 43-101 Reserve and Resource Estimate: 6.3 million carats of Reserves; Indicated Resources of 8.2 million carats; and 4.0 million carats in the Inferred Category
• Preliminary Economic Assessment on Mothae Project due in Q4 2012;
• Up to Q3 2012, $40 million in combined diamond sales completed from Karowe and Mothae
• Rough diamond demand is forecast to grow at 6.6 percent per year in value terms
• Management well-experienced in the diamond industry, delivered Botswana Karowe project on-time and on-budget
• Member of the Lundin Group of Companies

KEY PROJECTS

Karowe Mine, Republic of Botswana

The Karowe Mine is located in north-central Botswana on the northern fringe of the Kalahari Desert and is part of the Orapa/Letlhakane Kimberlite district, one of the world’s most prolific diamond producing areas. The mine is wholly-owned by Boteti Mining in which Lucara Diamond has a 100-percent indirect interest.

The most recent NI 43-101 Reserve and Resource Estimate on Karowe, dated December 31, 2012, delineates a Probable Reserve of 36.3 million tonnes containing an estimated 6.3 million carats; an Indicated Resource to 400 metres of 51 million tonnes containing 8.4 million carats; and an additional Inferred Resource, from 400 to 750m, of 21 million tonnes containing an estimated 4.0 million carats, all at a +1.5 mm bottom cut-off size.

Production at Karowe Mine

When Lucara Diamond Corp. acquired its stake in the Karowe project past work consisted of of a full evaluation data set including delineation drilling, large diameter grade sampling and two sample trenches. In less than two years, the Company has brought the project into full production, reaching design capacity in Q3 2012. Karowe kimberlites have yielded diamonds with attractive color profiles and high yielding diamond forms. The Karowe Mine is expected to produce approximately 400,000 carats per year over a mine life of 15+ years.

Target production for 2012 is expected to reach an approximate 270,000 carats.

Karowe Diamond Sales

Lucara has conducted three diamond sales from Karowe this year generating revenues of more than $25 million with the highest value stone selling for $460,484 or $28,010 per carat. In June 2012, Lucara made its first diamond sale from Karowe. There were 35 lots totaling 29,339 carats of which 30 lots were sold for gross total proceeds of $5.6 million or $215 per carat. The Company conducted its second sale from Karowe in July 2012. There were 35 individual lots containing 36,842 carats of diamond, of which 32 lots were sold for gross total proceeds of $US 6.5 million or $179 per carat.

In September 2012, Lucara completed a third sale which included 48 lots with a total of 52,231 carats. All the lots were sold, including the three (3) lots withheld from the previous sale, for $13.4 million or an average price of $257 per carat. The Company anticipates two more sales cycles of Karowe diamonds in 2012 with the next sale being held in November.

Mothae Project, Kingdom of Lesotho

The Mothae  Project is located in the Maluti Mountains of the African Kingdom of Lesotho, approximately 150 km northeast of the capital city, Maseru. The project is operated and wholly-owned by Mothae Diamonds (PTY) Ltd., a jointly-held subsidiary of Lucara Diamond (75 percent) and the Government of Lesotho (25 percent).

The mining lease covers an area of 20 square kilometres which hosts a large diamondiferous kimberlite pipe with an estimated surface extent of 8.8 hectares located adjacent to and directly on trend with the Letseng diamond mine. The lease is valid until September 2019 and renewable for a further period of ten years.

Trial Mining Program 

The concentration of Kimberlite pipes and dykes in Lesotho is among the highest in the world. In 2010, Lucara initiated a trial mining program designed to sample and process kimberlite from various kimberlite domains identified within the pipe to confirm the occurrence of high value Type IIA diamonds and to better assess the economic potential of the Mothae kimberlite.

The trial mining process plant processed 30,000 tonnes per month with the mining program focused on the South Lobe of the Mothae pipe, which is interpreted to comprise the largest volume of potentially mineable Kimberlite at Mothae.

Mothae Open Pit

Mothae Trial Mining Process Plant

Lucara completed its trial mining program in September 2012. A summary of the Mothae Bulk Sample and Trial Mining Results as of September 30, 2012 is provided below.

*All diamond recoveries and grades are reported at a bottom cut-off size of 2.0 mm

The low-grade tonnage (i.e. carats/tonne), was consistent throughout the Trial Mining Program, however the presence of large-sized Type IIA gem quality stones afforded for the overall success of the Program.  The sale of high value gem quality diamonds (i.e. $/carat) resulted in significant proceeds of $16.1 M compared to the total diamond bulk sample recovered.

Mothae Diamond Sales 

Production from the trial mining program resulted in three diamond sales with gross revenues of $16.1 million. In March 2011, the first trial mining diamonds sale from Mothae included 42 lots totalling 9,381 carats selling for an average $872 per carat. The three stones with the highest per carat value were a 13.87 carat diamond which sold for $43,000 per carat, a 24.57 carat diamond which sold for $32,351 per carat, and a 20.13 carat diamond which sold for $27,995 per carat.

56.5ct Type IIa @ $37,019/ct

In December 2011, the Company conducted another trial mining sale from Mothae which included 28 lots totaling 7,190 carats. The lots sold for an average price of $893 per carat for gross proceeds of $6.4 million.

 28.9ct Type IIa @ $57,113/ct

In September 2012, Lucara completed a third Mothae Diamond trial mining sale. A total of 26 lots comprising 4,657 carats sold for an average price of $324 per carat to yield gross proceeds o $1.51 million. The highest value stone sold was a 9.74 carat Type IIA diamond which achieved a price of $272,720 or $28,000 per carat.

Mothae Diamond Project—Preliminary Economic Assessment 

The Mothae Project concluded its trial mining phase in September of 2012 and put the processing facilities on care and maintenance. A Preliminary Economic Assessment (PEA) is nearing completion and will assess the economic viability and options for full scale development.

In addition to the Trial Mining program the company, in order to define a resource model for the PEA, completed a delineation drill program which was completed in Q1, 2012. The drill program consisted of 5,630 meters of core drilling in 31 holes. Evaluation and analysis of the core was carried out during the second quarter of 2012 to assess the tonnage potential of the Mothae pipe to a depth of 300 meters and to model the pipe shape and internal geology of the pipe.

An Environmental Impact Assessment report and corresponding Environmental Management Plan required for the PEA have been completed. Both the completed PEA and an updated NI 43-101 Technical Report are expected to follow in Q1 2013.

Diamonds are most often viewed as a luxury good but as can be seen from the above curve, the price index for rough diamonds, normalized to January 2011, tracks a very similar path to other commodities post the financial crisis of 2009. This would further indicate that global market economics which drives the consumption of other commodities can be used to predict possible movements in the rough diamond market.

SUMMARY

Lucara Diamond Corp. is a well-positioned diamond producer. The Company has an experienced board and management team with extensive diamond development and operations expertise. Lucara is a member of the Lundin Group of Companies which has a reputation for wealth creation for their shareholders by seeking value opportunities in the natural resources industry, including exploration-stage, advanced development and production projects.

Lucara’s key operations are located in Africa which boasts 60 percent of the world’s rough diamond production. More than $40 million in combined diamond sales have been completed from the Karowe Mine and the Mothae Project to date. The Company has now begun to show its diamonds outside of Botswana leading to more competition and higher bidding for Lucara stones.

The Company’s wholly-owned Karowe Diamond Mine in Botswana initiated production in Q2 2012, reached design capacity in Q3 2012, will produce 400,000 carats per year over a mine life of 15+ years, and is on target to produce 270,000 carats in fiscal year 2012. A recent NI 43-101 Reserve and Resource Estimate shows 6.3 million carats of Reserves along with Indicated Resources of 8.2 million carats and 4.0 million carats in the Inferred Category.

Lucara’s Mothae Project has completed it’s trial mining phase, along with three subsequent diamond sales, and is awaiting the project’s PEA and an updated NI 43-101 Technical Report; both of which are expected in Q1 2013.

MANAGEMENT

Lukas H. Lundin – Chairman and Director
Mr. Lundin is known for recognizing value and superior global investment opportunities in the natural resource sector. His uninhibited pursuit of highly prospective properties around the world has resulted in numerous resource discoveries, including the multi-million ounce Veladero gold discovery. Mr. Lundin has also led several companies through highly profitable business acquisitions and mergers such as Lundin Mining’s $3.3 billion merger with EuroZinc Mining, the $2 billion sale of Tanganyika Oil Company Ltd. and most recently the $9.2 billion sale of Red Back Mining Inc. Mr. Lundin is a graduate of the New Mexico Institute of Mining and Technology. He currently sits on the Board of a number of publicly traded companies.

William Lamb – President, Chief Executive Officer, and Director
Mr. Lamb has over 16 years experience in the mining operations and project development industry. Having obtained a NHD in Extraction Metallurgy for the Technicon of the Witwatersrand, he worked for Rand Mines, gaining production experience in the gold, platinum, chrome and coal sectors. In 1994 Mr. Lamb joined De Beers working as a research officer in the Johannesburg based research laboratories. Three years later he joined Kvaerner Metals as their lead process design engineer, responsible for all metallurgical design aspects of the non-ferrous division.

After focusing on heavy mineral concentration design, Mr. Lamb returned to De Beers as their Dense Medium Service Specialist. Mr. Lamb transferred to De Beers Canada Inc in 2002 as their Metallurgical Superintendent, responsible for process design and certain project management aspects of the Canadian projects. In 2005 Mr. Lamb took up the role of Process Manager for the Victor mine in Northern Ontario. After completing an MBA through the Edinburgh Business School, Mr. Lamb joined the Lundin Group in May 2008 as the General Manager for Lucara Diamond Corp.

Tony George – Vice President of Development
Mr. George is a mining engineer with over 30 years of experience in operations, design and construction. He commenced his career with De Beers in South Africa and later transferred to Namibia where he was mine manager of the open-pit Auchas mine prior to moving to Canada to take up a senior position with Iron Ore Company of Canada in Labrador. He then moved into consulting where he was project manager for several international projects with Rescan Engineering and MRDI (AMEC).

Mr. George rejoined De Beers in 2003 where he was mine general manager on the team that brought the Victor open pit diamond project through feasibility, engineering and construction. Prior to joining Lucara in 2012 he was COO for Aura Minerals, a company focused on the acquisition, exploration, development and operation of gold and base metal projects in the Americas.

Dr. Lawrence E. Ott – Vice President of Exploration
Dr. Ott holds an MSc in Geology from Montana Tech and a PhD in Geology from the University of Idaho and is a member of the Australian Institute of Mining and Metallurgy. He has over 20 years international experience in mineral exploration and production, including diamond exploration and resource development in Canada, French Guiana and Australia, gold exploration and mining in the United States and west Africa and base metal and coal exploration in the United States.

Paul Day – Chief Operating Officer
Mr. Day is a mining engineer with over 22 years of operations experience in Namibia, Mali, Ghana and South Africa. He has held senior mine and operations management positions with Areva, Anglogold and JCI over his career. Responsibilities have included management of several large-scale open pit operations as well as major new mine start ups, workforce recruitment and development, project design and ramp up, all mining safety and production deliverables and cost drivers and systems control. Over the course of his many years in the industry, Mr. Day has built an impressive track record for himself, achieving production targets and improved mining and cost efficiencies at each operation.

Glenn Kondo – Chief Financial Officer
Mr. Kondo is a highly qualified finance professional with extensive senior executive and corporate board experience in the mining industry, including many years with Anglo American. He has been directly responsible for delivering significant commercial growth internationally by leading mergers and acquisitions, raising capital finance and achieving business transformation through operational performance and project management. Mr. Kondo is a Chartered Accountant and holds a Bachelor of Commerce degree from the University of Toronto.

Paul K. Conibear – Director
Mr. Conibear has over 25 years of experience in mining projects in several African countries, North America, and a number of South American countries. His background includes 18 years of project and construction management across a diverse range of minerals projects encompassing base and precious metal, coal, uranium and potash investments. For the last 10 years he has held public company executive management and director positions with the Lundin Group of Companies, most notably serving for several years as President and CEO of Tenke Mining Corp. where he was instrumental in progressing the world class Tenke Fungurume copper/cobalt project towards its current position as a major mining operation in central Africa.

Richard P. Clark – Director
Mr. Clark is a lawyer who practiced mining and securities law in British Columbia from 1987 to 1993. For the past ten years, Mr. Clark has been a senior executive with the Lundin Group of Companies. In 2004 he became president and CEO of Red Back and under his leadership Red Back grew into one of the top performing gold companies which ultimately resulted in an $9.2 billion takeover by Kinross Gold in 2010.

Dr. John J. Gurney – Director
Dr. Gurney is one of the world’s leading authorities in the field of geochemical exploration for diamondiferous kimberlites. Through his research group at the University of Cape Town and within Mineral Services, Dr. Gurney continues to direct numerous projects to improve diamond exploration techniques. In addition to his expertise in kimberlite exploration, Dr. Gurney has extensive knowledge of marine and alluvial diamond deposits and experience in marketing, diamond valuation, diamond recovery processes and mine development procedures. Over the course of a distinguished 40 year academic career, Dr. Gurney has authored and co-authored more than a hundred research papers on diamonds and associated rocks and minerals.

Brian D. Edgar – Director
Mr. Edgar has been active in public markets for more than 25 years. A graduate of the University of British Columbia law school, Mr. Edgar practiced corporate and securities law in Vancouver for 16 years before retiring in October 1992 to establish Rand Edgar Investment Corp., an investment/banking, venture capital company in the business of providing early stage venture capital to high growth companies and in providing advisory services concerning corporate structuring, finance, business strategies, private and public securities offerings and relations with regulatory authorities, lawyers, accountants and technical consultants. Mr. Edgar serves on the Board of a number of public companies.

Eira Thomas – Director
Ms. Thomas is a respected Canadian geologist with a highly successful career in the mining industry. She served as a geologist with Aber Resources Ltd. (now Harry Winston Diamond Corporation) from 1992 to 1997, leading the field exploration team.