Consolidated Financial Statements
For the year ended December 31, 2022
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Independent auditor’s report
To the Shareholders of Lucara Diamond Corp.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Lucara Diamond Corp. and its subsidiaries (together, the Company) as at
December 31, 2022 and 2021, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2022 and 2021;
the consolidated statements of operations for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of cash flows for the years then ended;
the consolidated statements of changes in equity for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of
the consolidated financial statements
section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2022. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Assessment of impairment indicators of plant
and equipment and mineral properties
Refer to note 3 – Significant accounting judgments,
estimates and assumptions, note 4 – Summary of
significant accounting policies, note 7 – Plant and
equipment and note 8 – Mineral properties and
related construction assets to the consolidated
financial statements.
The Company’s total plant and equipment and
mineral properties as at December 31, 2022
amounted to $332 million. Management assesses
at each reporting period-end whether there is an
indication that an asset or group of assets may be
impaired. Management applies significant judgment
in assessing whether indicators of impairment exist
that would necessitate impairment testing. Internal
and external factors, such as (i) a significant
decline in the market value of the Company’s share
price; (ii) changes in quantity of the recoverable
resources and reserves; (iii) changes in diamond
prices, capital and operating costs and recoveries;
and (iv) changes in inflation, interest and exchange
rates are evaluated by management in determining
whether there are any indicators of impairment.
We considered this a key audit matter due to (i) the
significance of the plant and equipment and mineral
properties balances and (ii) the significant judgment
made by management in assessing whether there
are any indicators of impairment, which led to
significant audit effort and subjectivity in performing
procedures to test management’s assessment.
Our approach to addressing the matter included the
following procedures, among others:
Evaluated management’s assessment of
impairment indicators, which included the
following:
–
Assessed the completeness of internal or
external factors that could be considered
as indicators of impairment of the
Company’s plant and equipment and
mineral properties, including consideration
of evidence obtained in other areas of the
audit.
–
Assessed whether there have been
significant declines in the market value of
the Company’s share price, which may
indicate a decline in value of the
Company’s plant and equipment and
mineral properties.
–
Assessed the changes in diamond prices,
the quantity of recoverable resources and
reserves, capital and operating costs and
recoveries, and inflation, interest and
exchange rates by considering external
market data, current and past performance
of the Company and evidence obtained in
other areas of the audit, as applicable.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Dean Larocque.
Chartered Professional Accountants
Vancouver, British Columbia
February 21, 2023
/s/PricewaterhouseCoopers LLP
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of U.S. Dollars)
1
|
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December 31,
2022
x
December 31,
2021
x
ASSETS
Current assets
Cash and cash equivalents
$
$
Receivables and other (Note 5)
Derivative financial instrument (Note 10)
Inventories (Note 6)
Investments
Inventories (Note 6)
Plant and equipment (Note 7)
Mineral properties and related construction assets (Note 8)
Intangible assets (Note 9)
Deferred financing fees (Note 10)
Derivative financial instrument (Note 10)
Other non-current assets
TOTAL ASSETS
$
$
LIABILITIES
Current liabilities
Trade payables and accrued liabilities
$
$
Deferred revenue (Note 15)
Credit facilities (Note 10)
Tax and royalties payable
Lease liabilities
Credit facilities (Note 10)
Derivative financial instrument (Note 10)
Restoration provisions (Note 11)
Deferred income taxes (Note 17)
Other non-current liabilities
TOTAL LIABILITIES
EQUITY
Share capital, unlimited common shares, no par value (Note 12)
Contributed surplus
Retained earnings (deficit)
(33,945 )
Accumulated other comprehensive loss
(94,640 )
(73,705 )
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Commitments – Note 22
Approved on Behalf of the Board of Directors:
“Marie Inkster”
“Catherine McLeod-Seltzer”
Director
Director
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(In thousands of U.S. Dollars, except for share and per share amounts)
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2022
2021
Revenues
(Note 15)
$
$
Cost of goods sold
Operating expenses
Royalty expenses (Note 8)
Depletion and amortization
Income from mining operations
Other expenses
Administration
(Note 16)
Sales and marketing
Finance expenses
Exploration
(Gain) loss on derivative financial instrument (Note 10)
(10,662 )
Foreign exchange loss
Net income before tax
Income tax expense
(Note 17)
Current income tax
Deferred income tax
Net income for the year
$
$
Earnings per common share
(Note 18)
Basic
$
$
Diluted
$
$
Weighted average common shares outstanding
(Note 18)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(In thousands of U.S. Dollars)
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2022
2021
Net income for the year
$
$
Other comprehensive (loss) income
Items that will not be reclassified to net income
Change in fair value of marketable securities
(1,595 )
Items that may be subsequently reclassified to
net income
Currency translation adjustment
(19,340 )
(16,705 )
(20,935 )
(16,100 )
Comprehensive income for the year
$
$
The accompanying notes are an integral part of these consolidated financial statements.
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(In thousands of U.S. Dollars)
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2022
2021
Cash flows from (used in):
Operating activities
Net income for the year
$
$
Items not affecting cash:
Depletion and amortization
Unrealized foreign exchange gain
Share-based compensation
Unrealized (gain) loss on derivative financial instruments
(10,662 )
Deferred income taxes
Finance costs
Net changes in working capital:
Receivables and other
(18,452 )
Inventories
(7,603 )
(5,730 )
Trade payables, deferred revenue and other current liabilities
Tax and royalties payable
(1,045 )
Financing activities
Equity financing, net
Repayment on revolving credit facility
(30,500 )
(Repayment) drawdown on working capital facility, net
(7,662 )
Drawdown on project finance facility, net
Share units vested
(144 )
(107 )
Lease payments
(3,055 )
(936 )
Investing activities
Acquisition of plant and equipment
(18,992 )
(15,252 )
Mineral property expenditure
(106,339 )
(82,251 )
Development of intangible assets
(90 )
(38 )
(125,421 )
(97,541 )
Effect of exchange rate change on cash and cash equivalents
(544 )
(549 )
(Decrease) increase in cash and cash equivalents
(593 )
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
(1)
$
$
Supplemental information
Interest paid
$
(8,539 )
$
(326 )
Taxes paid
(248 )
(974 )
Changes in trade payables and accrued liabilities related
to plant and equipment and mineral properties
(2)
(1)
Cash and cash equivalents consist of 100% cash deposits held with accredited financial institutions.
(2)
Included within accounts payable and accrued liabilities at each period end are additions to property, plant and equipment and
mineral properties, acquired on normal course payment terms, of $11.3 million at December 31, 2022 ($5.4 million at December
31, 2021).
The accompanying notes are an integral part of these consolidated financial statements
.
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(in thousands of U.S. Dollars, unless otherwise indicated)
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Number of
shares
issued and
outstanding
Share capital
Contributed
surplus
Retained
earnings
(deficit)
Accumulated
other
comprehensive
loss
Total
Balance, January 1, 2022
$
$
$
(33,945 )
$
(73,705 )
$
Net income for the year
–
Other comprehensive loss
–
(20,935 )
(20,935 )
Total comprehensive income (loss)
–
(20,935 )
Share-based compensation
–
Shares issued from share units vested
(641 )
Cash-settled share units
–
(144 )
(144 )
Balance, December 31, 2022
$
$
$
$
(94,640 )
$
Balance, January 1, 2021
$
$
$
(57,772 )
$
(57,605 )
$
Net income for the year
–
Other comprehensive loss
–
(16,100 )
(16,100 )
Total comprehensive income (loss)
–
(16,100 )
Shares issued from equity financing, net
Shares issued for project funding standby
undertaking
Share-based compensation
–
Shares issued from share units vested
(845 )
Withholding tax for share units vested
–
(107 )
(107 )
Balance, December 31, 2021
$
$
$
(33,945 )
$
(73,705 )
$
The accompanying notes are an integral part of these consolidated financial statements.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
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NATURE OF OPERATIONS AND LIQUIDITY
“Lucara”) is a diamond mining company focused on the development and operation of diamond
and a 100% interest in Clara Diamond Solutions Limited Partnership (“Clara”).
Clara operates a
secure, digital diamond sales platform that uses proprietary analytics together with cloud and
blockchain technologies.
The Company’s common shares are listed on the TSX, NASDAQ Stockholm and Botswana Stock
Exchanges. The Company was continued into the Province of British Columbia under the Business
COVID-19 Global Pandemic, Economic and Geopolitical Risks
While COVID-19 is less impactful than in recent years, circumstances remain dynamic and other
challenges, including high inflation and the possibility of a global recession, make the impact on our
financial position or operations difficult to reasonably estimate.
It remains possible for Lucara’s
operations to be impacted in several ways including, but not limited to, a suspension of operations
at the Karowe Mine, disruptions to supply chains, worker absenteeism due to illness, disruption to
the progress of the Karowe Mine underground expansion project, and an inability to ship or sell
rough and/or polished diamonds.
In response to the ongoing Russian military invasion of Ukraine, strict economic sanctions were
imposed against Russia and its interests. While the Company does not have any operations in
Ukraine or Russia, its business may be impacted as the conflict and economic sanctions has given
rise to indirect economic impacts, including but not limited to, increased prices for fuel and other
commodities, increased volatility in the prices achieved in the rough and polished diamond
markets, supply chain challenges and disruptions, logistics and transport disruptions and
heightened cybersecurity disruptions and threats. Increased prices for fuel and other commodities
may have adverse impacts on the Company’s cost of doing business.
The continuation or further escalation of this military conflict could aggravate ongoing global
economic challenges and a possible resultant economic downturn could adversely affect the
Company’s business. These conditions may also result in increased volatility in the market for the
Company’s securities and could have other effects which are currently unknown. The Company
cannot accurately predict the impact that ongoing conflict in Ukraine, or the prevailing global
economic uncertainty, will have on its financial position or operations.
Uncertainty about judgments, estimates and assumptions made by management on revenue,
expenses, assets, liabilities, and note disclosures during the preparation of the Company’s
consolidated financial statements related to potential impacts of the COVID-19 pandemic and other
economic and geopolitical risks, including the Ukraine-Russia conflict.
As at December 31, 2022, the Company had cash and cash equivalents of $26.4 million and had
drawn $15.0 million from its $50 million working capital facility. After adjustments for working capital
items, cash flow generated from operations totaled $96.2 million for the year ended December 31,
2022 and the Company had working capital as at December 31, 2022 of $40.5 million.
Prior to September 2023, the Company will be required to place $52.9 million in a cost overrun
facility (the “COF"), pursuant to the terms of a debt package which consists of two facilities (the
“Facilities”), a project finance facility of $170 million to fund the development of an underground
expansion at the Karowe Mine (the “Project Finance Facility”), and a $50 million senior secured
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
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1.
NATURE OF OPERATIONS AND LIQUIDITY (CONTINUED)
working capital facility (the “Working Capital Facility”). The Facilities Agreement includes specific
provisions for how and when these funds may be released. The Company expects to meet this
funding requirement by making regular monthly contributions to the COF during 2023.
The working capital facility matures on September 2, 2023.
It is the Company’s intention to seek a
renewal of this facility from its existing Lenders prior to expiry.
However, there is no guarantee that
this facility will be renewed on the same terms as the maturing facility.
Historically, the Company
has used this facility to manage it short-term working capital requirements. The Company plans to
request to extend the maturity date of the working capital facility in accordance with the terms of
the Facilities. If the Company is not able to extend, amend or replace that facility, it will be required
BASIS OF PREPARATION AND CHANGES TO ACCOUNTING POLICIES
(i)
Basis of presentation
These consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
Other than changes due to new and amended standards and interpretations the accounting policies
adopted are consistently applied in all periods presented.
These financial statements were approved by the Board of Directors for issue on February 21,
2023.
(ii)
New IFRS Pronouncements
Amendments to IAS 16 – Property, Plant and Equipment –
Proceeds before Intended Use
Amendments were issued to IAS 16 to (i) prohibit an entity from deducting from the cost of an item
of PP&E any proceeds received from selling items produced while the entity is preparing the asset
for its intended use, (ii) clarify that an entity is “testing whether the asset is functioning properly”
when it assesses the technical and physical performance of the asset; and (iii) require certain
related disclosures. The amendments were effective January 1, 2022.
These amendments did not affect the Company’s financial statements. The Company will apply the
new guidance during the construction phase of the Karowe Mine underground expansion project.
Several other amendments and interpretations were applied for the first time in 2022 but did not
have an impact on the consolidated financial statements of the Company, while the standards and
amendments to standards and interpretations which have been issued but are not yet effective are
not expected to have a significant effect on the Company’s consolidated financial statements.
The Company has not early adopted any standard, interpretation or amendment that has been
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of consolidated financial statements requires management to use judgment in
applying its accounting policies and make estimates and assumptions about the future. Estimates and
assumptions are continuously evaluated and are based on management’s experience and other
factors, including expectations about future events that are believed to be reasonable under the
circumstances. Uncertainty about these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
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3.
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)
The Company has identified the following areas where significant accounting judgments, estimates
and assumptions has been made in the preparation of the consolidated financial statements:
Areas of judgment
(a) Satisfaction of performance obligations under the HB sales agreement
The Company has determined that, under the terms of the Company’s sales agreement with HB
Trading BV (“HB”), control is transferred when the delivery and analysis of the rough diamonds are
completed. At this point the initial estimated polished outcome price of the rough diamond is
determined and HB assumes responsibility for its manufacturing, polishing and sale to an end buyer.
(b)
Assessment of impairment indicators
The Company carries its mineral properties and plant and equipment at depleted cost less any
provision for impairment. The Company assesses at each reporting period whether there is an
indication of impairment. Significant judgment is applied in assessing whether indicators of impairment
exist that would necessitate impairment testing. Internal and external factors, such as i) a significant
decline in the market value of the Company’s share price; ii) changes in the quantity of the recoverable
resources and reserves; and iii) changes in diamond prices, capital and operating costs and
recoveries; and iv) changes in inflation, interest and exchange rates, are evaluated in determining
whether there are any indicators of impairment.
(c)
Deferred Taxes
Judgment is required in assessing whether deferred tax assets and certain deferred tax liabilities are
recognized and what tax rate is expected to be applied in the year when the related temporary
differences reverse Judgment is also required on the application of income tax legislation. These
judgments are subject to risk and uncertainty and could result in an adjustment to the deferred tax
provision.
Going concern and liquidity risk
Management is required to exercise judgment with respect to evaluating the Company’s ability to
continue as a going concern and to ensure that disclosures relating to liquidity are appropriate.
To this
end, the Company manages liquidity risk by maintaining an adequate level of cash and cash
equivalents to meet its short-term ongoing obligations, ensuring access to credit facilities, and reviews
its actual expenditures and forecast cash flows on a regular basis. Changes in demand for rough
and/or polished diamonds and diamond prices, production levels and related costs, foreign exchange
Sources of estimation uncertainty
(a)
Estimated recoverable reserves and resources
Mineral reserve and resource estimates are based on various assumptions relating to operating
matters. These include production costs, mining and processing recoveries, cut-off grades, long term
diamond prices and, in some cases, exchange rates, inflation rates and capital costs. Cost estimates
are based on feasibility study estimates or operating history. Estimates are prepared by appropriately
qualified persons, but will be affected by forecast commodity prices, diamond prices, inflation rates,
exchange rates, capital and production costs and recoveries amongst other factors. Proven and
probable reserves are determined based on a professional evaluation using accepted international
standards for the assessment of mineral reserves. The assessment involves geological and
geophysical studies and economic data and the reliance on a number of assumptions. The estimates
of the reserves may change based on additional knowledge gained subsequent to the initial
assessment. This may include additional data available from continuing exploration, results from the
reconciliation of actual mining production data against the original reserve estimates, or the impact of
economic factors such as changes in the price of commodities or the cost of components of production.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
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3.
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)
Estimated recoverable reserves are used to determine the depletion and amortization of property,
plant and equipment at the operating mine site, in accounting for deferred stripping costs and mineral
properties, determining a deferred tax rate and in performing impairment testing. Therefore, changes
in the assumptions used could affect the carrying value of assets, depletion and amortization, changes
in the deferred tax rate, and impairment charges recorded in the statement of operations.
(b)
Estimated variable consideration in determining revenue
Revenues include an estimate of variable consideration receivable under the terms of the Company’s
sales agreement with HB. Variable consideration is a component of the transaction price and
represents an area of significant management estimate and judgment. Under the sales agreement, at
the time of sale of a rough diamond, the Company receives an initial payment based on an estimated
polished outcome price.
When the manufactured diamond is sold to an end buyer, HB is entitled to
receive a fee and reimbursement for the cost of manufacturing. If the final sales price is higher than
the initial estimated polished price a true up payment is payable to the Company. Any manufactured
diamonds sold to an end buyer for less than the initial estimated polished price (after deductions for
HB’s fee and the cost of manufacturing) will result in the difference being refunded to HB.
Variable consideration is estimated using the most likely approach, as the Company considers this
approach to be more predictive. The transaction price is reassessed each reporting period, including
any adjustments to the amount of variable consideration recognized. The revenue recognized as the
transaction price, including any variable consideration, is recognized within the constraint of “highly
probable”. In evaluating the most likely approach, significant judgment includes market conditions, the
current estimated polished value provided by HB and the probability that the variable consideration
would be realized.
Decommissioning and site restoration
The Company has obligations for site restoration and decommissioning related to the Karowe Mine.
The restoration provision is based on cost estimates of the future decommissioning and site restoration
activities and are estimated by the Company using mine closure plans or other similar studies which
outline the activities that will be carried out to meet the obligations. The restoration provision requires
significant estimates and assumptions because the obligations are dependent on the laws and
regulations of the country in which the mine operates and are based on future expectations of the
timing, extent and cost of required decommissioning and site restoration activities. As a result, there
(d)
Deferred Taxes
The deferred tax provisions are calculated by the Company whilst the actual amounts of income tax
expense are not final until tax returns are filed and accepted by the relevant authorities. Deferred tax
liabilities arising from temporary differences are recognized unless the reversal of the temporary
differences is not expected to occur in the foreseeable future and can be controlled. Assumptions
about the generation of future taxable profits and repatriation of retained earnings depend on
management’s estimates of future production and sales volumes, diamond prices, reserves and
resources, operating costs, decommissioning and restoration costs, capital expenditures, dividends
and other capital management transactions. These estimates and assumptions are subject to risk and
uncertainty and could result in an adjustment to the deferred tax provision and a corresponding credit
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in the preparation of these consolidated financial
statements are as follows:
(a) Basis of measurement
These consolidated financial statements have been prepared under the historical cost convention,
except for investments in equity securities and derivative financial instruments, which are measured
at fair value.
These consolidated financial statements include the accounts of the Company and all of its
subsidiaries (see
Note 14 – Principal subsidiaries
).
Subsidiaries are entities controlled by the Company. An entity is controlled by the Company when as
a group; it is exposed to, or has rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity. Subsidiaries are included in the
consolidated financial statements from the date control is obtained until the date control ceases. Where
the Company’s interest is less than 100%, the Company recognizes non-controlling interests. All
intercompany balances, transactions, income, expenses, profits and losses, including unrealized gains
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating
resources and assessing performance of the operating segments, has been identified as the person
that makes strategic decisions. The CEO is deemed the chief operating decision-maker of the
Company.
The Company’s primary reporting segments are based on individual operating segments, being the
Karowe Mine and Corporate and other. The Corporate office provides support to the Karowe Mine with
respect to sales, treasury and finance, technical support, regulatory reporting and corporate
Functional and presentation currency
Items included in the financial statements of each of the Company’s entities are measured using the
currency of the primary economic environment in which the entity operates (the “functional currency”).
The consolidated financial statements are presented in U.S. dollars. The functional currency of the
parent company, Lucara Diamond Corp., is the Canadian dollar.
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at exchange rates of monetary assets and
liabilities denominated in currencies other than an entity’s functional currency are recognized in the
statement of operations.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
11 |
Page
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Group companies
The functional currency of the most significant subsidiary of the Company, Lucara Botswana Proprietary
Limited (“Lucara Botswana”), is the Botswana Pula. The functional currency of the Company and its
other active subsidiary, Clara, is the Canadian dollar. The results and financial position of the group
companies, which have a functional currency different from the presentation currency, are translated
into the presentation currency as follows:
(i)
Assets and liabilities for each statement of financial position presented are translated at the closing
rate at the date of that statement.
(ii) Income and expenses are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates,
in which case income and expenses are translated at the rate on the dates of the transactions).
(iii) All resulting exchange differences are recognized in other comprehensive income as cumulative
Cash and cash equivalents include cash on account, demand deposits and money market
investments with maturities from the date of acquisition of three months or less, which are readily
convertible to known amounts of cash and are subject to insignificant changes in value. Cash and
Financial assets and liabilities are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows
from the assets have expired or have been transferred and the Company has transferred substantially
all risks and rewards of ownership. Financial liabilities are derecognized when the obligation specified
in the contract is discharged, cancelled or expires. All recognized financial assets are measured
subsequently at amortized cost or fair value through profit or loss or fair value through other
comprehensive income.
At initial recognition, the Company classifies its financial instruments in the following categories:
Fair value through profit or loss: A financial asset or liability is classified in this category if acquired
principally for the purpose of selling or repurchasing in the short-term. Derivatives, including
interest rate swaps, are also included in this category unless they are designated as hedges.
Financial instruments in this category are recognized initially and subsequently at fair value.
Transaction costs are expensed in the consolidated statement of operations. Gains and losses
arising from changes in fair value are presented in the consolidated statement of operations within
(ii)
Fair value through other comprehensive income
: The Company has made an irrevocable election
to designate its investments in marketable equity securities as classified at fair value through
other comprehensive income. Fair values are determined by reference to quoted market prices
at the reporting date. When investments in marketable equity securities are disposed of or
impaired, the cumulative gains and losses recognized in other comprehensive income are not
recycled to profit and loss and remain within equity.
(iii)
Financial assets and liabilities at amortized cost
: Financial assets and liabilities at amortized cost
include cash, trade receivables, credit facility and trade payables and are included in current
classification due to their short-term nature. Trade receivables and payables are non-interest
bearing if paid when due and are recognized at their face amount, less, when material, a discount,
except when fair value is materially different. Amounts drawn on the credit facility are interest-
bearing and are recorded at fair value upon inception. These are subsequently measured at
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
12 |
Page
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories, which include rough diamonds, ore stockpiles and parts and supplies, are measured at the
lower of cost and net realizable value. The amount of any write-down of inventories to net realizable
value is recognized in the period the write-down occurs. Cost is determined using the weighted average
method. Cost includes directly attributable mining overhead but excludes borrowing costs.
Net realizable value represents the estimated selling price in the ordinary course of business, less all
Plant and equipment are stated at cost less accumulated amortization and impairment losses. The cost
of an asset consists of its purchase price, any directly attributable costs of bringing the asset to its
present working condition and location for its intended use and an initial estimate of the costs of
dismantling and removing the item and restoring the site on which it is located. Subsequent costs are
included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with the item will flow to the Company and the
cost of the item can be measured reliably.
its cost less its residual value over its estimated useful life. The estimated useful lives of plant and
equipment are as follows:
Machinery
5 to 12 years
Plant facilities
based on recoverable reserves on a unit of production basis
Furniture and office equipment
2 to 3 years
Residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount. Gains and losses on disposals are
determined by comparing the proceeds with the carrying amount and are recognized within “other gains
Exploration and evaluation expenditures
Exploration and evaluation expenditures relate to the search for mineral resources, the determination
of technical feasibility and the assessment of commercial viability of an identified resource. Exploration
and evaluation activities include:
•
Researching and analyzing historical exploration data;
•
Gathering exploration data through topographical, geochemical and geophysical studies;
•
Exploratory drilling, trenching and sampling; and
•
Determining and examining the volume and grade of the resource.
Exploration and evaluation expenditures are expensed in the statement of operations as incurred on
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
13 |
Page
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Costs associated with acquiring a mineral property are capitalized as incurred. When it has been
established that a mineral property is considered to be sufficiently advanced and an economic analysis
has been completed, all further expenditures for the current year and subsequent years are capitalized
as incurred. Mineral property costs are amortized from the date of commencement of commercial
During the production phase, mining expenditures (exploration or development costs) incurred either to
develop new ore bodies or to develop mine areas in advance of current production are capitalized to
mineral properties. Stripping costs incurred in the production phase are accounted for as variable
production costs. However, stripping costs are capitalized and recorded as deferred stripping, a
component of mineral properties, when the stripping activity provides access to sources of reserves or
resources that will be produced in future periods that would not have otherwise been accessible in the
absence of this activity. The deferred stripping costs are depleted on a unit-of-production basis over the
Intangible assets with finite lives consist of acquired trademarks, copyrights, patents and intellectual
property that are initially capitalized at the purchase price plus any other directly attributable costs.
These assets are amortized using the straight-line method over their estimated useful lives.
Amortization of intangible assets will be included in the cost of sales, administrative expenses and/or
research and development expenses, as appropriate.
Development expenditures relating to intangible assets are capitalized only if the expenditure can be
measured reliably, the process is technically and commercially feasible, future economic benefits are
probable, and the Company intends to and has sufficient resources to complete development and to
use or sell the asset. Judgment is required in determining the technical and commercial feasibility and
in assessing the probability of future economic benefits. Amortization related to capitalized development
Contingent consideration relating to an asset acquisition is recognized using the cost accumulation
method when: (a) the conditions associated with the contingent payment are met; (b) the Company has
a present legal or constructive obligation that can be estimated reliably; and (c) it is probable that an
Long lived assets are reviewed at each reporting period for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. Intangible assets that are not
yet available for use are reviewed for impairment annually. An impairment loss is recognized for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset’s fair value less costs to sell and its value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
14 |
Page
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Asset retirement obligations
The Company recognizes a liability for an asset retirement obligation on long-lived assets when a
present legal or constructive obligation exists, as a result of past events and the amount of the liability
is reasonably determinable. Asset retirement obligations are initially recognized and recorded as a
liability based on estimated future cash flows discounted at a risk-free rate. This is adjusted at each
reporting period for changes to factors including the expected amount of cash flows required to
discharge the liability, the timing of such cash flows and the risk-free discount rate. Corresponding
amounts and adjustments are added to the carrying value of the related long-lived asset and amortized
or depleted to operations over the life of the related asset.
Other provisions
Provisions are recognized when:
•
the Company has a present legal or constructive obligation as a result of a past event;
•
a reliable estimate can be made of the obligation.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation, using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the obligation. The increase in the provision due to the passage of time
Income taxes are recognized in the statement of operations, except where they relate to items
recognized in other comprehensive income or directly in equity, in which case the related taxes are
recognized in other comprehensive income or equity.
Current taxes receivable or payable are based on estimated taxable income for the current year at the
statutory tax rates enacted or substantively enacted less amounts paid or received on account.
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the
initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable income, and differences relating to investments in subsidiaries
and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable
future.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences
when they reverse, based on the sliding tax rate that is expected at the time of reversal and the laws
that have been enacted or substantively enacted by the year end.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities where there is a legal right to do so, but they intend to settle
current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future tax profits will be available
against which the temporary difference can be utilized. Deferred tax assets are reviewed at each year
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
15 |
Page
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Uncertain tax positions and interest and penalties related to uncertain tax positions are accounted for
under IFRIC 23, Uncertainty over Income Tax Treatments. The Company first determines whether it is
more likely than not that a tax position will be sustained upon examination. If a tax position meets the
more-likely-than-not recognition threshold it is then measured to determine the amount of benefit or
liability to recognize in the financial statements. The tax position is measured as the amount of benefit
or liability that is likely to be realized upon ultimate settlement. The Company assesses the validity of
conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances
have arisen that might cause the Company to change their judgment regarding the likelihood of a tax
Common shares are classified as equity. Incremental costs directly attributable to the issue of new
Revenues from diamond sales are recognized when the purchaser obtains control of the diamond. For
diamonds sold through tender or Clara, control is transferred when the Company receives payment for
the diamonds sold and title is transferred to the purchaser according to contract terms.
In 2020, the Company entered into a sales agreement, amended and extended in 2021 and 2022, to
sell its large stone production (diamonds greater than 10.8 carats) to HB. For diamonds sold to HB,
control is transferred when the stones are delivered and the analysis of the rough diamond are agreed
according to the contract terms. The initial purchase price paid for the rough diamonds is based on an
initial estimated polished outcome with a true up paid to the Company if the actual achieved polished
sales price (less HB’s cost of manufacturing and profit margin) exceeds the initial price paid, or a
repayment to HB if the actual achieved polished sales price (less HB’s cost of manufacturing and profit
margin) is below the initial price paid, after HB’s fees and the cost of manufacturing. Thus, the
arrangement contains elements of variable consideration as the Company’s final consideration is
contingent on price obtained in the future sale by HB. Variable consideration is recognized to the extent
that it is highly probable that its inclusion will not result in a significant revenue reversal when the
The Company has share-based compensation plans, under which the entity receives services as
consideration for equity instruments (stock options or share units) of the Company.
Stock options and equity-settled share units granted to employees are measured on the grant date.
Stock options granted to non-employees are measured on the date that the goods or services are
received. Share units which do not meet the criteria for equity-settlement are recorded as a liability and
measured at fair value at each reporting period.
The fair value of the employee and non-employee services received in exchange for the grant of the
options is recognized as an expense. The total amount to be expensed is determined by reference to
the fair value of the stock options and share units granted and the vesting periods. The total expense
is recognized over the vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied.
The cash subscribed for the shares issued when the options are exercised is credited to share capital,
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
16 |
Page
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (loss) per share is calculated by dividing the income or loss attributable to the shareholders
of the Company by the weighted average number of common shares issued and outstanding during
Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the
leased asset is available for use. Assets and liabilities arising from a lease are initially measured on a
present value basis. Each lease payment is allocated between the liability and finance cost. The finance
cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest
on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the
shorter of the asset's useful life and the lease term on a straight-line basis.
The Company leases various properties. Lease terms are negotiated on an individual basis and contain
a wide range of different terms and conditions. The lease agreements do not impose any covenants
but leased assets may not be used as security for borrowing purposes.
Payments associated with short-term leases and leases of low-value assets are recognized on a
straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset
are capitalized as part of the cost of that asset. Other borrowing costs not directly attributable to a
RECEIVABLES AND OTHER
2022
2021
Trade
$
18,769
$
17,467
Value-added taxes
5,301
11,196
Deferred financing fees (Note 10)
975
2,143
Prepayments
7,078
5,502
Other
979
2,471
$
33,102
$
38,779
Trade receivables at December 31, 2022 were $18.8 million (December 31, 2021 – $17.5 million)
due from HB under the Company’s sales agreement. All amounts receivable from HB are current.
The amounts receivable relate to the timing difference between revenue recognized under the sales
2022
2021
Rough diamonds
$
17,988
$
18,337
Ore stockpile
6,967
3,361
Parts and supplies
13,417
14,824
Total current inventories
$
38,372
$
36,522
Non-current inventories – ore stockpile
$
27,867
$
29,852
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
17 |
Page
6. INVENTORIES (continued)
Inventory expensed during the year ended December 31, 2022 totaled $79.3 million (December
31, 2021 – $80.3 million). There were no inventory write-downs during the years ended December
31, 2022 and 2021.
The portion of the ore stockpile that is expected to be processed more than 12 months from the
PLANT AND EQUIPMENT
Cost
Construction
in progress
Mine and
plant
facilities
Furniture
and office
equipment
Vehicles
Right of
use assets
Total
Balance, January 1, 2021
$
10,018
$
219,962
$
12,839
$
2,867
$
2,362
$
248,048
Additions
16,011
382
3
–
2,143
18,539
Reclassification
(11,297)
6,687
2,878
1,732
–
–
Disposals and other
–
(731)
(288)
(43)
–
(1,062)
Translation differences
(1,087)
(18,021)
(1,170)
(329)
(300)
(20,907)
Balance, December 31, 2021
$
13,645
$
208,279
$
14,262
$
4,227
$
4,205
$
244,618
Additions
18,785
–
–
–
3,145
21,930
Reclassification
(11,937)
9,692
1,955
335
–
45
Translation differences
(1,353)
(17,205)
(1,225)
(355)
(451)
(20,589)
Balance, December 31, 2022
$
19,140
$
200,766
$
14,992
$
4,207
$
6,899
$
246,004
Accumulated amortization
Balance, January 1, 2021
$
–
$
130,377
$
7,310
$
2,077
$
1,060
$
140,824
Depletion and amortization
–
26,588
2,603
439
869
30,499
Disposals and other
–
(731)
(288)
(43)
–
(1,062)
Translation differences
–
(11,928)
(712)
(191)
(133)
(12,964)
Balance, December 31, 2021
$
–
$
144,306
$
8,913
$
2,282
$
1,796
$
157,297
Depletion and amortization
–
7,843
2,469
618
2,854
13,784
Translation differences
–
(12,052)
(809)
(208)
(247)
(13,316)
Balance, December 31, 2022
$
–
$
140,097
$
10,573
$
2,692
$
4,403
$
157,765
Net book value
As at December 31, 2021
$
13,645
$
63,973
$
5,349
$
1,945
$
2,409
$
87,321
As at December 31, 2022
$
19,140
$
60,669
$
4,419
$
1,515
$
2,496
$
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
18 |
Page
8.
MINERAL PROPERTIES AND RELATED CONSTRUCTION ASSETS
Cost
Capitalized
production
stripping asset
Karowe Mine
Karowe
Underground
Construction
Total
Balance, January 1, 2021
$
71,945
$
55,174
$
44,705
$
171,824
Additions
–
–
84,778
84,778
Borrowing cost capitalized
–
–
1,561
1,561
Adjustment to restoration asset
–
(5,474)
–
(5,474)
Translation differences
(5,872)
(7,843)
(4,927)
(18,642)
Balance, December 31, 2021
$
66,073
$
41,857
$
126,117
$
234,047
Additions
–
–
106,389
106,389
Borrowing cost capitalized
–
–
6,676
6,676
Adjustment to restoration asset
–
(1,669)
–
(1,669)
Reclassification
–
–
(45)
(45)
Translation differences
(5,368)
(3,336)
(14,277)
(22,981)
Balance, December 31, 2022
$
60,705
$
36,852
$
224,860
$
322,417
Accumulated depletion
Balance, January 1, 2021
$
34,911
$
32,911
–
$
67,822
Depletion
12,006
3,037
–
15,043
Translation differences
(3,536)
(2,860)
–
(6,396)
Balance, December 31, 2021
$
43,381
$
33,088
–
$
76,469
Depletion
7,042
1,286
–
8,328
Translation differences
(3,776)
(2,734)
–
(6,510)
Balance, December 31, 2022
$
46,647
$
31,640
–
$
78,287
Net book value
As at December 31, 2021
$
22,692
$
8,769
$
126,117
$
157,578
As at December 31, 2022
$
14,058
$
5,212
$
224,860
$
244,130
Karowe Mine
A royalty of 10% of the gross sales value of diamonds produced from Karowe is payable to the
government of Botswana, regardless of whether the diamond is sold as rough or polished. During the
year ended December 31, 2022, the Company incurred a royalty expense of $24.1 million (December
30, 2021: $24.9 million).
The Karowe Underground Construction will not be depreciated until the asset is available for its
intended use.
Total borrowing costs of $7.8 million (December 31, 2021 – $1.5 million) during the period of
construction relating to the Karowe Underground Construction asset have been capitalized to date.
Capitalized borrowing costs include interest and other costs related to the project finance facility (Note
10).
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
19 |
Page
Cost
Balance, January 1, 2021
$
23,798
Development expenditures
38
Translation differences
80
Balance, December 31, 2021
$
23,916
Development expenditures
90
Translation differences
(1,495)
Balance, December 31, 2022
$
22,511
Accumulated amortization
Balance, January 1, 2021
$
1,812
Amortization
1,392
Translation differences
(12)
Balance, December 31, 2021
$
3,192
Amortization
1,348
Translation differences
(253)
Balance, December 31, 2022
$
4,287
Net book value
As at December 31, 2021
$
20,724
As at December 31, 2022
$
18,224
In 2018, the Company acquired the Clara platform, a secure, digital sales platform for rough diamonds.
The consideration paid was allocated to intangible assets which will continue to be amortized over the
remaining estimated useful economic life of 14 years as at December 31, 2022.
As part of the purchase, contingent consideration was agreed to and will be recognized as additional
purchase consideration for the intangible asset, if the obliging events occur. The contingent
consideration consists of a profit-sharing allocation: cash payments based on 3.45% of the annual
Earnings Before Interest, Tax, Depletion and Amortization (“EBITDA”) generated by the sales platform
and a pre-existing 13.3% annual EBITDA performance based contingent payments payable to the
founders of the technology, to a maximum of $20.9 million per year for 10 years and additional Lucara
share payments to a combined maximum of 13.4 million shares if certain revenue triggers are reached
beginning at $200 million of cumulative revenue to $1.6 billion of cumulative revenue. As of December
10. CREDIT FACILITIES
2022
2021
Current
Working capital facility
$
15,000
$
23,000
Revolving credit facility
338
–
Deferred financing fees
$
(975)
$
(2,143)
Non-current
Project finance facility, net of fees
$
62,151
$
23,730
Deferred financing fees
$
(5,410)
$
(7,471)
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
20 |
Page
10. CREDIT FACILITIES (continued)
Senior secured project facility
On July 12, 2021, the Company’s wholly-owned subsidiary, Lucara Botswana, with Lucara Diamond
Corp. as sponsor and guarantor, entered into a senior secured project financing debt package of
$220 million with a syndicate of five mandated lead arrangers (the “Lenders”): African Export-Import
Bank (Afreximbank), Africa Finance Corp., ING, Natixis, and Société Générale, London Branch.
The Facilities are made up of the Project Finance Facility of $170 million to fund the development of an
underground expansion at the Karowe Mine, and a $50 million senior secured Working Capital Facility,
utilized to repay the Company’s previous $50 million revolving credit facility.
The Project Finance Facility may be used to fund the development, construction costs and construction
phase operating costs of the underground expansion project as well as financing costs on the Facilities.
The Project Finance Facility matures on September 2, 2029, with quarterly repayments commencing
on June 30, 2026. As at December 31, 2022, $65.0 million of the $170.0 million facility was drawn. The
Project Finance Facility bears interest at a rate of LIBOR (or replacement benchmark) plus margin of
5.5% annually until the project completion date, and 5.0% annually thereafter with commitment fees for
the undrawn portion of the facility of 2.0%.
The Working Capital Facility may be used for working capital and other corporate purposes. As at
December 31, 2022, $15.0 million of the $50.0 million facility was drawn. The facility bears interest at
a rate of LIBOR (or replacement benchmark) plus margin of 3.5% annually with commitment fees for
the undrawn portion of 1.6%. The facility matures on September 2, 2023.
The Company incurred $11.3 million of debt advisory, legal and due diligence fees in conjunction with
arranging the Facilities. Costs of $8.7 million were allocated to the Project Finance Facility and initially
recorded as deferred financing fees that are subsequently transferred as transaction costs proportional
to the amount drawn under the Project Finance Facility. Costs of $2.6 million were allocated to the
Working Capital Facility as deferred financing fees. Transaction costs under the Project Financing
Facility and deferred financing fees related to the Working Capital Facility are amortized over the
remaining facility terms.
As at December 31, 2022, the Company was in compliance with all covenants under the Facilities.
Interest rate swap agreements
On December 14, 2021, under the terms of the Project Finance Facility, the Company became party to
a series of interest rate swap agreements on 75% of the principal amount available, up to
$127.5 million. Structured around the expected Project Finance Facility drawdown schedule, the
Company receives interest at the rate equivalent to the three-month USD LIBOR and pays interest at
a fixed rate of 1.682% on a quarterly basis. The final interest rate swap matures on March 31, 2028.
As at December 31, 2022 the interest rate swaps had a total unrealized fair value of $9.8 million
(December 31, 2021: $0.8 million negative unrealized fair value), of which $2.4 million has been
classified as a current asset. The fair value of the interest rate swap is based on the difference between
the three-month USD LIBOR forward curve and the fixed rate of 1.682%, with the net interest due in
the next twelve months classified as current.
Clara revolving credit facility
On September 28, 2022, the Company’s wholly-owned subsidiary, Clara, with Lucara Diamond Corp.
as guarantor, entered into a revolving credit facility agreement of $4 million with FirstRand Bank
Limited, acting through its Rand Merchant Bank Division (the “Clara Facility”).
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
21 |
Page
10. CREDIT FACILITIES (continued)
The Clara Facility will be used for inventory and working capital purposes. The facility matures on
September 28, 2023. As at December 31, 2022, $0.3 million of the facility was drawn. The facility bears
interest at the secured overnight financing rate plus a margin of 6.0%.
The Company’s restoration provisions relate to the rehabilitation of the Karowe Mine in Botswana. The
provisions have been calculated based on total estimated rehabilitation costs and discounted back to
their present values. The pre-tax discount rates and inflation rates are adjusted
annually and reflect current market assessments. The Company has applied a pre-tax discount rate of
8.5% at December 31, 2022 (2021 – 7.1%) and an annual inflation rate of 4.6% at December 31, 2022
(2021 – 4.4%). Rehabilitation costs at the Karowe Mine are expected to commence during 2046 (the
end of the current mining license). The estimated liability for reclamation and remediation costs on an
undiscounted basis is approximately $33.0 million (2021 - $29.7 million).
2022
2021
Balance, beginning of year
$
15,346
$
21,229
Changes in rates and estimates
(1,669)
(5,474)
Accretion of liability component of obligation
1,202
1,163
Foreign currency translation adjustment
(1,230)
(1,572)
Restoration provisions
$
13,649
$
On July 15, 2021, the Company closed a bought deal financing and concurrent private placement.
Under the bought deal financing a total of 33,810,000 common shares of the Company, including
4,410,000 common shares issued pursuant to the over-allotment option, which was exercised in full,
were sold at a price of C$0.75 per common share, for aggregate gross proceeds of $20.3 million, less
share issuance costs of $1.8 million. Pursuant to the concurrent private placement, a total of 21,347,733
common shares were sold at a price of C$0.75 per share for additional gross proceeds of $12.8 million.
Under the senior secured project facility (Note 10), the Company’s largest shareholder, Nemesia S.a.r.l.
(“Nemesia”) provided a limited standby undertaking of up to $25.0 million in the event of a funding
shortfall occurring up to September 2, 2024. As consideration pursuant to the undertaking provided,
the Company issued 600,000 common shares to Nemesia on July 15, 2021. A further 600,000 common
shares will be issuable should the undertaking be called upon.
For each $500,000 drawn down under
the standby undertaking, the Company will be required to issue 5,000 common shares per month to
a.
Stock options
The Company’s stock option plan (the ‘Option Plan’) was approved by the Company’s shareholders
initially on May 13, 2015, with amendments most recently approved on May 8, 2020. Under the terms
of the amended Option Plan, a maximum of 10,000,000 shares are reserved for issuance upon the
exercise of stock options.
The Option Plan provides the Board of Directors with discretion to determine
the vesting period for each stock option grant.
Options typically vest in thirds over a three-year period
beginning on the first anniversary of the date of grant and expire four years from the date of grant.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
22 |
Page
13. SHARE BASED COMPENSATION (continued)
Movements in the number of stock options outstanding and their related weighted average exercise
prices are as follows:
Number of shares issuable
pursuant to stock options
Weighted average exercise
price per share (CA$)
Balance at January 1, 2021
4,423,000
1.62
Granted
2,357,000
0.78
Expired
(375,000)
2.76
Forfeited
(156,000)
0.78
Balance at December 31, 2021
6,249,000
$
1.26
Granted
2,332,000
0.66
Expired
(1,065,000)
2.35
Forfeited
(1,102,000)
1.06
Balance at December 31, 2022
6,414,000
$
0.89
Options granted to acquire common shares are outstanding at December 31, 2022 as follows:
Outstanding Options
Exercisable Options
Range of
exercise
prices CA$
Number of
options
outstanding
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
(CA$)
Number of
options
exercisable
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
(CA$)
$0.50 - $1.00
5,280,000
2.35
0.73
1,447,667
1.62
0.78
$1.50 - $2.00
1,134,000
0.15
1.64
1,134,000
0.15
1.64
6,414,000
1.96
$
0.89
2,581,667
0.97
$
1.16
During the year ended December 31, 2022, an amount of $0.4 million (2021 – $0.4 million) was
charged to operations in recognition of share-based compensation expense, based on the vesting
schedule for the options granted.
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option
pricing model with weighted average assumptions and resulting values for grants as follows:
2022
2021
Assumptions:
Risk-free interest rate
(%)
1.59
0.38
Expected life
(years)
3.63
3.63
Expected volatility
(%)
51.56
50.74
Expected dividend
Nil
Nil
Results:
Weighted average fair value of options granted
(per option)
CA$0.25
CA$0.27
b.
Restricted and performance share units
The Company has a share unit (‘SU’) plan that provides for the issuance of SUs as a long-term
incentive for certain members of the management team. Amendments to the SU plan, including an
increase in the common shares reserved for issuance upon the vesting of SUs from 10,000,000 to a
maximum of 10% of the outstanding common shares (minus shares reserved for issuance under the
Option Plan and deferred share unit plan) were approved by Shareholders at the May 6, 2022 annual
meeting.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
23 |
Page
13. SHARE BASED COMPENSATION (continued)
SUs vest three years from the date of grant and certain share units include performance metrics.
Each
SU entitles the holder to receive one common share and the cumulative dividend equivalent SU earned
during the SU’s vesting period.
The value of each SU at the vesting date is equal to the closing value
of one Lucara common share plus the cumulative dividend equivalent which was earned over the
vesting period.
For the year ended December 31, 2022, the Company recognized a share-based payment charge of
$1.3 million (2021 – $1.1 million) for the SUs granted.
Number of share units
Estimated fair value at
date of grant (CA$)
Balance at January 1, 2021
2,946,527
$
1.17
Granted
2,854,000
0.75
Redeemed
(565,679)
2.16
Balance at December 31, 2021
5,234,848
$
0.83
Granted
2,860,000
0.64
Redeemed
(1,038,848)
1.14
Balance at December 31, 2022
7,056,000
$ 0.71
c.
Deferred share units (‘DSUs’)
In February 2020, the Company approved a deferred share unit plan (the ‘DSU Plan’) that provides for
the issuance of up to 4,000,000 DSUs to eligible directors. The DSU Plan was ratified by Shareholders
at the May 8, 2020 annual meeting. Directors can elect to receive up to 100% of their fees earned in
DSUs, awarded quarterly. DSUs vest immediately and are paid out upon retirement from the Board of
Directors of the Company. Each DSU entitles the holder to receive one common share and the
cumulative dividend equivalent DSU earned prior to the payout date.
The value of each DSU at the
grant date is equal to the closing value of one Lucara common share. The DSU Plan is a cash-settled
share-based compensation plan and is recorded as a liability. Upon payout, the director can elect to
receive the value in cash or common shares of the Company.
For the year ended December 31, 2022, the Company recognized a share-based payment charge of
$0.3 million (2021
–
$0.4 million) related to the DSUs granted.
Number of DSUs
Estimated fair value (CA$)
Balance at January 1, 2021
613,547
$
0.52
Granted
620,963
0.71
Balance at December 31, 2021
1,234,510
$
0.59
Granted
881,593
$
0.58
Balance at December 31, 2022
2,116,103
$
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
24 |
Page
The Company had the following direct and indirect wholly owned subsidiaries at December 31, 2022
and 2021:
Country of
incorporation and
place of business
Name
Nature of business
African Diamonds Limited.
UK
(1)
Clara Diamond Solutions BV
(2)
Belgium
(1)
Clara Diamond Solutions Limited Partnership
Canada
Diamond sales platform
Clara Diamond Solutions GP Inc.
Canada
(1)
Lucara Management Services Limited
UK
(1)
Lucara Diamond Holdings Inc.
Mauritius
(1)
Mothae Diamond Holdings Inc.
(3)
Mauritius
(1)
Boteti Diamond Holdings Inc.
Mauritius
(1)
Wati Ventures Proprietary Limited
Botswana
(1)
Debwat Exploration Proprietary Limited
Botswana
(1)
Lucara Botswana Proprietary Limited
Botswana
Diamond mining
(1) Intermediate holding company
(2) Incorporated March 14, 2022
(3) Dissolved September 5, 2022
The Company has pledged the shares held in Lucara Botswana Proprietary Limited, through the various
intermediate holding companies, to secure the Facilities (Note 10). The Company is not allowed to pledge
Revenue from diamond sales includes $36.9 million (2021: $56.4 million) in diamond sales to HB that
is considered variable.
The Company’s right to consideration is contingent on the manufactured diamond being sold to an end
buyer, with market conditions and the current estimated polished value provided by HB (on a stone-
by-stone basis) being considered in estimating the amount of variable consideration that is highly
probable as at the reporting date.
At December 31, 2022, an advance of $12.0 million (December 31, 2021 - $nil) was received from
HB as a prepayment on the 549-carat Sethunya diamond. Revenue will be recognized when the
manufactured diamonds are sold and will be based on the actual sales price less a fee and the cost
of manufacturing.
2022
2021
Revenue from diamond sales
$
212,934
$
230,078
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
25 |
Page
2022
2021
Salaries and benefits
$
7,849
$
7,696
Professional fees
3,070
3,818
Insurance, office and general
2,038
2,608
Promotion
1,136
823
Stock exchange, transfer agent, shareholder communication
306
305
Travel
1,086
273
Share-based compensation (Note 13)
1,977
1,852
Depreciation
446
1,441
Sustainability and donations
(1)
1,211
643
$
19,119
$
19,459
(1)
Included are amounts incurred for the Company’s COVID-19 response totaling $0.4 million for the year ended
2022
2021
Current
$
307
$
1,518
Deferred
24,071
20,048
Income tax expense
$
24,378
$
21,566
Income tax expense differs from the amount that would result from applying the Canadian federal and
provincial income tax rates to net income before tax. These differences result from the following items:
2022
2021
Statutory tax rate
27.00%
27.00%
Net income before tax
64,811
45,393
Computed income tax expense
17,499
12,256
Differences between Canadian and foreign tax rates
3,973
3,726
Non-deductible expenses and other permanent differences
1,179
2,066
Change in deferred tax assets not recognized
1,912
2,798
Exchange rate differences
–
(6)
Withholding taxes
(185)
726
$
24,378
$
21,566
The Company is subject to a variable tax rate in Botswana based on a profit and revenue ratio which
increases as profit as a percentage of revenue increases. The lowest variable tax rate is 22% while
the highest variable tax rate is 55% (only if taxable income were equal to revenue).
The Company
has estimated the variable tax rate to be 33.0% for deferred income taxes based on current financial
performance and the life of mine plan which includes the Karowe underground expansion.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
26 |
Page
17. INCOME TAXES (continued)
The Company has not recognized deferred tax liabilities in respect of historical unremitted earnings
from foreign subsidiaries for which the Company is able to control the timing of the remittance and
which are considered by the Company to be reinvested for the foreseeable future. At December 31,
2022, these earnings amount to $198.3 million (2021: $147.6 million). All of these earnings would be
subject to withholding taxes if they were remitted by the foreign subsidiaries.
The movement in deferred tax liabilities during the year, without taking into consideration the offsetting
balances within the same tax jurisdiction, is as follows:
2022
2021
Balance, beginning of year
$
70,285
$
55,905
Deferred income tax expense
24,071
20,048
Foreign currency translation adjustment
(6,548)
(5,668)
Balance, end of year
$
87,808
$
70,285
Deferred income tax assets and liabilities recognized
2022
2021
Deferred income tax assets
Non-capital losses
$
11,723
$
2,342
Accounts payable and other
–
730
Unrealized foreign exchange loss
1,144
234
Restoration provisions
3,003
3,376
Total deferred income tax assets
15,870
6,682
Deferred income tax liabilities
Mineral properties, plant and equipment
101,268
76,524
Future withholding taxes
–
443
Other
2,410
–
Deferred income tax liabilities
103,678
76,967
Deferred income tax liabilities, net
$
87,808
$
70,285
Deferred income tax assets not recognized
2022
2021
Tax losses
$
29,728
$
29,863
Mineral properties, plant and equipment
59
43
Other deductible temporary differences
445
758
$
30,232
$
30,664
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
27 |
Page
17. INCOME TAXES (continued)
As at December 31, 2022, the Company has non-capital losses for income tax purposes which expire
as follows:
2023
2024
2025
Subsequent
to 2025
No expiry
date
Total
Botswana
$
–
$
–
$
–
$
–
$
44,536
$
44,536
Canada
–
–
–
107,270
–
107,270
United Kingdom
–
–
–
–
5,355
5,355
$
–
$
–
$
–
$
107,270
$
49,891
$
157,161
a)
Basic
Basic earnings per common share is calculated by dividing the net income or loss attributable to the
shareholders of the Company by the weighted average number of common shares outstanding during
the year.
b)
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of common shares
outstanding to assume conversion of all dilutive potential common shares. For stock options, a
calculation is done to determine the number of shares that could have been acquired at fair value
(determined as the average market share price of the Company’s outstanding shares for the year),
based on the exercise prices attached to the stock options. The number of shares calculated below is
compared with the number of shares that would have been issued assuming the exercise of stock
options. Share units are, by their nature, dilutive and included in the calculation on a weighted average
basis during the year.
2022
2021
Income for the year
$
40,434
$
23,827
Weighted average number of common shares outstanding
453,479,480
422,894,218
Adjustment for share units
8,473,773
5,917,289
Weighted average number of common shares for diluted
earnings per share
461,953,253
428,811,506
Basic and diluted earnings per share
$
0.09
$
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
28 |
Page
a)
Key management compensation
Key management personnel are those persons having the authority and responsibility for planning,
directing and controlling the activities of the Company, directly or indirectly. Key management
personnel include the Company’s named executive officers and members of its Board of Directors.
The remuneration of key management personnel was as follows:
2022
2021
Salaries and wages
$
2,256
$
2,642
Short term benefits
27
34
Share based compensation
1,226
1,274
$
3,509
$
3,950
b) Clara acquisition
At the time of Lucara’s acquisition of Clara, a current director and a current officer of the Company were
also shareholders of Clara. If all the Clara performance milestones are reached, these individuals will
receive an additional 1,788,001 common shares and 74,999 common shares, respectively, of Lucara.
Following the acquisition of Clara, Lucara appointed a new director and a new officer, each of whom
had been a shareholder of Clara at the time of its acquisition by the Company.
If all the Clara
performance milestones are reached, these individuals will be entitled to receive an additional 600,000
common shares and 74,999 common shares of Lucara.
Pursuant to the profit sharing described in Note 9, a total of 3.45% of the EBITDA generated by the
platform has been assigned to two directors of Lucara, each of whom was a founder of Clara.
A further
3.22% of the EBITDA generated by the platform may be distributed to members of management, at the
discretion of Lucara’s Compensation Committee, based on the achievement of key performance
targets. As at December 31, 2022, no amounts have been paid under this profit sharing mechanism to
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
29 |
Page
The Company’s primary business activity is the operation of an open-pit diamond mine in Botswana.
The Company has two operating segments: Karowe Mine and Corporate and other.
2022
Karowe Mine
Corporate
and other
Total
Revenues
(1)
$
203,803
$
9,131
$
212,934
Income (loss) from operations
86,722
(2,120)
84,602
Finance expenses
(3,420)
(270)
(3,690)
Gain on derivative financial instrument
10,662
–
10,662
Exploration
(835)
–
(835)
Foreign exchange loss
(3,912)
(20)
(3,932)
Administrative and other
(10,255)
(11,740)
(21,995)
Taxes
(24,089)
(289)
(24,378)
Net income (loss) for the year
$
54,873
$
(14,439)
$
40,434
Capital expenditures
$
125,331
$
90
$
125,421
Total assets
$
470,814
$
25,025
$
495,839
2021
Karowe Mine
Corporate
and other
Total
Revenues
(1)
$
227,977
$
2,101
$
230,078
Income (loss) from operations
77,779
(2,644)
75,135
Finance expenses
(3,577)
(1,020)
(4,597)
Foreign exchange (loss) gain
(2,981)
215
(2,766)
Administrative and other
(11,129)
(11,250)
(22,379)
Taxes
(21,275)
(291)
(21,566)
Net income (loss) for the year
$
38,817
$
(14,990)
$
23,827
Capital expenditures
$
97,503
$
38
$
97,541
Total assets
$
382,793
$
29,162
$
411,955
(1)
During the year ended December 31, 2022, one customer generated 60% (2021 – 65%) of the Company’s
revenue.
The geographic distribution of non-current assets is as follows:
Plant and equipment
Mineral properties
Other
2022
2021
2022
2021
2022
2021
Canada
$
225
$
117
$
–
$
–
$
18,886
$
22,980
Belgium
40
78
–
–
–
–
Botswana
87,974
87,126
244,130
157,578
44,245
41,764
$
88,239
$
87,321
$
244,130
$
157,578
$
63,131
$
64,744
Depletion and amortization expense for Karowe Mine and Corporate and other during the year ended
December 31, 2022 totaled $23.8 million and $1.6 million, respectively (2021 – $49.8 million and $1.4
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
30 |
Page
Measurement categories and fair values
Financial assets and liabilities have been classified into categories that determine their basis of
measurement. Those categories are fair value through profit and loss; fair value through other
comprehensive income and amortized cost.
The value of the Company’s financial instruments at fair value through other comprehensive income
is derived from quoted prices in active markets for identical assets. The fair value of all other financial
instruments of the Company approximates their carrying values because of the demand nature or
short-term maturity of these instruments.
b)
Fair value hierarchy
The following table classifies financial assets and liabilities that are recognized at fair value in a
hierarchy that is based on significance of the inputs used in making the measurements. The levels in
the hierarchy are:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs).
2022
2021
Level 1: Fair value through other comprehensive income
– Investments
$
661
$
2,256
Level 2: Derivative financial instruments
$
9,820
$
(842)
Financial risk management
The Company’s financial instruments are exposed to certain financial risks, including currency, credit,
liquidity and price risks.
The Company is exposed to the financial risk related to fluctuating foreign exchange rates. All sales
revenues are denominated in U.S. dollars, while directly related costs are denominated in Botswana
Pula. At December 31, 2022, the Company was exposed to currency risk relating to U.S. dollar, South
African Rand and British Pound cash held within its subsidiaries with Canadian or Pula functional
currency. Based on this exposure, a 10% change in the U.S. dollar exchange rate would give rise to
are not material.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they
become due. To manage liquidity risk, regular cash flow forecasting is performed in the operating
entities of the Company and aggregated in the head office to understand what level of capital is
required. Rolling forecasts of the Company’s liquidity requirements are prepared and monitored to
assess whether there is sufficient cash available to meet the Company’s short and longer-term
operational needs. Such forecasting takes into consideration the Company’s ability to generate cash
from the sale of diamonds and additional liquidity which can be accessed through the working capital
facility.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
31 |
Page
21. FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT (continued)
The current working capital facility matures on September 2, 2023.
It is the Company’s intention to
seek a renewal of this facility from its existing Lenders prior to expiry.
However, there is no guarantee
that this facility will be renewed on the same terms as the maturing facility.
Historically, the Company
has used this facility to manage its short-term working capital requirements.
Prior to September 2023, the Company will be required to place $52.9 million in a cost overrun facility
(the “COF"), pursuant to the terms of the Facilities Agreement. The Facilities Agreement includes
specific provisions for how and when these funds may be released. The Company expects to meet
this funding requirement by making regular monthly contributions to the COF during 2023.
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to
meet its contractual obligations. The Company limits its credit exposure on cash and cash equivalents
by holding its deposits with international financial institutions with strong investment-grade ratings.
Considering the nature of the Company’s ultimate customers and the relevant terms and conditions
entered into with such customers, the Company believes that credit risk is limited as goods are not
released until full payment is received when goods are sold through tender or on Clara.
Under the sales agreement with HB, a larger proportion of the Company’s goods, by value, are sold
through HB to buyers of polished diamonds. The credit risk associated with these sales is concentrated
with HB, a single customer, and payment terms are longer (60 to 120 days) than the Company’s
traditional tender sales and sales held through Clara (5 days). The Company maintains legal title over
goods sold to HB until the initial determined estimated polished price is paid and monitors outstanding
amounts to ensure they remain current.
The carrying amount of financial assets recorded in the financial statements, net of any allowance for
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows or a financial instrument will fluctuate
because of changes in the market interest rates. The Company’s exposure to the risk of changes in
market interest rates relates primarily to the credit facility obligations that reference floating interest
rates.
The Company mitigates interest rate risk on its Project Finance Facility through interest rate swaps
that exchange the variable rate inherent in the term debt for a fixed rate (see Note 10).
Therefore,
fluctuations in market interest rates should not materially impact future cash flows related to the credit
facilities. Changes in the fair value of the derivative financial instrument will however fluctuate in
response to changing market interest rates that will result in a corresponding credit or charge to profit.
In December 2021, the Company entered into contracts to exchange the variable interest rate (three-
month USD LIBOR) for a fixed interest rate of 1.682% on 75% of its expected borrowings from the
Project Finance Facility (approximately $127.5 million).
Interest rates increased rapidly through 2022.
The Company is exposed to these interest rate increases through 25% of its expected borrowings from
the Project Finance Facility, any amounts drawn from its $50 million working capital facility and from
its $4 million Clara Facility, each of which remain subject to market interest rates (LIBOR or a
replacement benchmark).
Higher interest rates decrease the amount of cash flow available for other
uses.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara
Diamond
Corp.
32 |
Page
21. FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT (continued)
Price risk
The Company derives its income from the sale of rough diamonds mined in Botswana and margin
earned on the sale of rough diamonds sold through Clara. The price and marketability of these
diamonds can be significantly impacted by international economic trends, global or regional
consumption, demand and supply patterns and the availability of capital for diamond manufacturers,
all factors that are not within the Company’s control. Under the supply agreement with HB, the ultimate
achieved sales prices of stones larger than 10.8 carats in size is based on a polished diamond pricing
mechanism. This pricing mechanism results in the Company’s revenue being exposed to a greater
extent to the price movements in the polished diamond market than through its traditional tender
process for rough diamonds. The pricing of both polished and rough diamonds continued to increase
during the first six months of 2022 following significant price improvements in late 2021 and the
beginning of 2022 because of positive market supply and demand dynamics. Pricing softened in the
second half of 2022.
To the extent that the supply of rough or polished diamonds exceeds demand, this is likely to result in
price deterioration and negatively impact the Company’s revenue and ability to generate positive cash
As at December 31, 2022, purchase orders and contracts that give rise to commitments for future
minimum payments for services to be provided related to the underground expansion project amounted
to $111.5 million (December 31, 2021 - $86.7 million). The following table summarizes the approximate
timing of the commitments (undiscounted) at December 31, 2022:
2023
2024
2025
2026 and
2027
Total
Underground expansion
project
$ million
37.2
31.8
31.8
10.7
111.5
The total of all commitments can be cancelled at an estimated cost of $6.2 million as of December 31,
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue
as a going concern to pursue the development of its mineral properties and to maintain a flexible capital
structure which optimizes costs of capital at an acceptable risk.
In the management of capital, the Company considers items included in equity attributable to
shareholders and the Facilities to be capital.
The Company manages the capital structure and adjusts it in light of changes in economic conditions
and the risk characteristics of the Company’s assets. To maintain or adjust the capital structure, the
Company may attempt to issue new shares or debt instruments, acquire or dispose of assets, or to
bring in joint venture partners.
To facilitate the management of its capital requirements, the Company prepares annual expenditures
budgets and life-of-mine plans which are updated as necessary depending on various factors, including
successful capital deployment and general industry conditions. The annual and updated budgets and