Lucara Diamond Corp. ($LUC)

Welcome to the Lucara Diamond Corp. Q1 2026 Results Webinar. [Operator Instructions] The meeting is being recorded. [Operator Instructions] I would now like to turn the meeting over to William Lamb, President and CEO of Lucara Diamond Corp. Please go ahead.

Thank you very much, and thank you, everybody, for dialing in to Lucara's Q1 2026 results call. On the call with me, I have Glenn Kondo, our CFO; and Hannah Reynish, who looks after and is the Manager of our Investor Relations. As we go through this presentation, there will be customary forward-looking statements. So if you haven't read this, please take a look at it on our website. So jumping into it. In terms of Q1 2026, it was for us a transitional quarter, specifically from a financial perspective, really strengthening our capital structure and our liquidity. We'll go through that a little bit later in detail, then we'll take that through. On the Underground Project, which is the future, we have advanced significantly there. We've now spent more than $472 million of the expected $779 million, and that $779 million comes from an updated feasibility study, 43-101 document, which we put out during the quarter. As we go through the UGP, one of the key aspects which we continue to focus on is safety. And with more than 2,249 days without a lost time injury, that is in excess of 6 years, we can see the dividend starting to be paid in terms of the safe operations at the UGP. One of the things that makes Lucara special is obviously the ongoing recovery of the high and -- or the large and high-value stones. Through the quarter, 100 Specials, of which 6 of them were larger than 100 carats that included a 300 carat stone. That is the same as what we had in terms of 100 carat stones recovered for Q1 2025. And we'll touch on one of the very, very nice stones, not plus 300 carats, a little bit later in the presentation. And then I think from a financial perspective, $21.8 million revenue lower than what we had in Q1 2025, and that's obviously a function of some of the changes, which -- and more shifting around in terms of where we're mining, but we still expect the tonnes processed -- mined and processed through the year to be consistent with what we have in the mine plan.

As William mentioned, a very good first quarter in terms of financing. We did recapitalize our balance sheet. We raised $120 million of equity, and this slide covers the bond financing of $350 million with a coupon rate of 12.5%. We used $220 million of that to repay our previous lender group. So that's been done. And based on the remaining cash flows of the bond and the equity and operating cash flows, that is sufficient for us to complete the mine, the Underground Project with roughly $300 million left of capital to spend. One interesting part of the bond is it does allow us to increase our liquidity if needed. So we can tap for an additional $50 million of bond plus a revolving credit facility of $50 million. So in terms of that, it gives us -- we believe, strong financing for the project.

Okay. Thank you. In terms of an operations update, and this is specific to the ongoing operations, mining in the open pit and processing. I think before I start here, what we have come to realize is that when we talk about processing of stockpile material, there does seem to be a fairly wide belief that it is reprocessing of material. And I just wanted to make it clear that when we talk about processing of stockpile material between now and the start of the underground, this is material which was mined during a period from 2013 through to last year, which has been put on stockpile and has not yet been processed. So this is run-of-mine material, which we are seeing go through the mill. So when we talk about 6 stones recovered from the processing -- 6 stones over 100 carats, recovered from the processing of stockpile, it is fresh mined material, but not as in fresh mined, it was mined, but it hasn't yet been processed. We did have 1 or 2 challenges with weather through the first quarter. It did, however, not change the throughput through the mill. We did continue processing all the way through every single day. There was an excess amount of rain. And you can imagine how much rain is actually collected. As we get down to the bottom of the open pit, we're in a very confined space. And we are -- we do have this collection funnel of 800 by 900 meters on surface. So we do have sufficient pumping capacity within the pit. When we would have expected the rain to come to an end seasonally at the back end of January into February, we would pump the pit empty, but the rains continued. So we kept moving the goalpost as to when we were going to get back into the pit. We did get back into the pit in March, and we have started to see material flow from the pit back into the process plant now. That material, we expect to continue to process, the full volume of the 2026 expected to the end of the life of the open pit before the end of the year. As we will see, and Glenn will touch on this in the next slide, we did see softer revenues because of the processing of the stockpile material, but we are looking at that as just more of a shift in terms of what we process in each of the quarters this year.

Yes. As William mentioned, revenue was $20 million compared to $30 million (sic) [ $21.8 million compared to $30.3 million ] in the previous year. You could see the lower tonnages in terms of ores -- ore mined. We did process stockpile during the Q1 phase. It's also important to note that stockpiles are inherently variable in value. And what we saw through the Q1 period was probably the lower end of our valuations. What was interesting and what was excellent news for us is the recovery of the 37 carat blue stone, and that was from stockpile. So in terms of our feasibility study, we had not forecasted to recover diamonds such as that, of that quality and color. As William said, we're back into the open pit. Our forecast for this year is to have 75,000 tonnes coming from EM/PK(S), our high-quality material and then M/PK(S) of 500,000 with other material following roughly between 200,000 to 300,000 of material. So a good finish to the year going back into the open pit, and we expect revenue and EBITDA to increase. Just one point on the blue stone as well, that has not featured in our revenue. It will be in our revenue and EBITDA as we monetize the stone. So that's something for us to look forward to in terms of future cash flows. In terms of guidance, we're very much maintaining at the $100 million to $300 million (sic) [ $130 million ] level. If I turn to operating costs, if you see there, it's $21 million versus $14 million last year. We did have a couple of one-off costs that we had planned. Demobilization of some of the equipment from the open pit as we start to wind down was planned in the feasibility study in May. We've just advanced that. So $2 million came through in Q1. In terms of accounting, one thing we do have is previously stockpiled material. We did have capitalized cost to that. So that's added $4.4 million in terms of the operating expenses coming through. If you exclude those costs, we're really in line with the $14 million last year, and that's reflected in the slightly marginal higher dollar per tonne ore processed. Again, in terms of guidance, we're very much expecting to be within that. So I guess looking forward for us, the open pit commenced and expecting to improve revenue and inventory. As William said, it's just a shift in time between stockpile and going back to fresh ore. All revenue and cost guidance, we're maintaining. All production metrics are within guidance. And we're starting to look at opportunities to maximize the sale of blue stone. So that's going to be coming news going forward.

When we specifically -- and Glenn has already touched on the blue stone and that is a magnificent stone. It's -- we have historically recovered a couple of blue stones. There was a 9.46 carat blue stone that came from the North Lobe back in 2012. So we do see them on a regular basis, but not of the size and color saturation. So very excited. That stone is currently in Antwerp being analyzed. So we have an idea of what it will produce. But in terms of value, it's going to take a couple of weeks before we understand the true potential of the stone, and then we'll look at the marketing processes around that one. Through the quarter, as I mentioned, the 6 stones over 100 carats, one of them being 300 also from stockpile, those 6 diamonds. We had 4.3% of the stones recovered during the quarter were above 10.8 carats or characterized as Specials, slightly below what we had in Q1 last year. In total of 72,000 carats recovered, also slightly lower, but this, as Glenn mentioned, a function of the stockpile material that we are actually -- or went through in Q1. If I make a statement on the overall, what we've seen from the stockpiles, I think this has been a very valuable quarter for us, understanding what the stockpiles hold, where we potentially could see significant upside value from those as well. So I think that there's been an intangible gain from -- and knowledge from the processing of stockpile material in Q1. I have already touched on the safety record for the UGP. Actually, when we look at the last 3 months for both the operations and for the UGP, the total reportable injury frequency rate was actually 0 for the first quarter, which is very, very good. And that number that you see there, 0.54 is actually the project to date. So a very, very good safety record, and you can see that in the leading and lagging indicators. Lucara has actually received a number of awards over the past year and again, in Q1 of 2026 with 3 awards coming from the Chamber of Mines, those specifically related to safety, winning the AfriSAFE Mining Company of the Year for a second year in a row and very recently being awarded Safety, Health and Environment awards through On Standby in Botswana, and that is facilitated through government agencies. So a very strong track record. And as I go through some of the pictures on the UGP, I'll specifically point to the housekeeping, and you can see the link between housekeeping and the safety record, which we are seeing. So on the project, we had that updated feasibility study or the 43-101 document that confirmed the updated capital number of $779 million, which includes the contingency. At the end of Q1, we had spent $472 million and committed a further $117 million. So total committed on the project to date is more than 75% of the expected capital number. So a lot of the work now is really starting to see dividends as we get into the lateral development. With a lot of what we're doing underground now, there's been a lot of focus on advancing the lateral development. And this is really so that when our lateral development contractor comes on board, there's a lot more working headings, which allows us to actually ramp up to a much higher rate of production from -- development from underground much, much quicker. But as we've been going through that, we did spend $19 million on the underground in Q1 2026. As I mentioned, a lot of that on lateral development. The shaft equipping, the 127 bunton sets and guides from the bottom of the shaft at 767 meters below surface, all of those are now installed. The stage, which is used for the shaft sinking has now been removed. And the real focus is now on the structural steel. I'm going to jump to the slide. So that -- the structural steel that you see under the headframe in the picture on the right, most of that is now removed and it gets replaced with specific guides, cage areas, all of your crash steel for the conveyances, and that's really where the focus is through the back end of Q1 and into Q2. When I talk about the underground development, we have now done more than 1.2 kilometers of lateral development from both the 285 and the 310 level below or above sea level. Actually, as of today, they blasted in the ramp, and this opens up access, so we can now walk from the 285 to the 310 level. And you can imagine if you didn't have that, you would have to have equipment on each of the levels to be able to advance development. So just adding in these certain areas of flexibility where we can start to accelerate the lateral development when the contractor mobilizes and there's a point on that a bit later. We are also running a -- it's called a [ Kemppi ] drill. So we use this to test for water prior to mining into any specific area. There were a couple of isolated pockets of water, which we encountered. This is not the same as what we had when they were doing the shaft sinking where you in the sandstones and the water came in from everywhere. These are isolated structural features, which brings water in within the granite basement. So I think the water has been very, very effectively managed by being proactive and understanding where there is potential for us to hit water, that in conjunction with the updating of the geological models, which happens on an ongoing basis. But when we look at the -- and specifically, I wanted to mention this as well. We are very constrained at this point. As they are doing the equipping of the production shaft, and this is your main conveyances. It's the big man/materials, winder, it's counterweight, the auxiliary winder and then the 2 21-tonne skips. So all the material that comes out from underground has to be excavated and moved up through the vent shaft. And the kibble or the container that we use there can only do a maximum of 500 tonnes a day. So the advancing of 100 -- or 1,245 meters of lateral development does show the quality of the work being done in the pictures as well as the work that the guys are actually doing in a very positive manner. So our lateral development contract has actually started to mobilize people to site. We are now on a regular basis, sitting down with them, updating them on what's actually happening so that they know exactly what the status is going to be of the underground when we do hand over to them. And so that's a very, very strong collaboration there. And then in terms of the surface infrastructure, a lot of work, big civil structures for the ventilation fans and all these long lead items, which are now already on site and prepping for installation. A couple of pictures. The one on the left there is the evaporation pond. This was taken when we were on site about 1.5 weeks ago. It looks like there's a lot of water in there. Most of that is rain, and it's only about knee deep. So we still don't have enough water in there to actually run the evaporators, but it is -- we're talking that dam is more than 300 meters long. So lots of capacity in there. And that's more of the contingency if we do start to see water from underground. And then as I mentioned, that central column underneath the production shaft, a lot of that has now been removed, all of the shoot work, et cetera, which was used for shaft sinking, and we are now installing screens, conveyances and the guides for your main conveyances and the skips. As I mentioned earlier, the image on the right is the 310 level. So I'm standing with my back towards the kimberlite looking straight down to what is called VDR1. This is the main access drive, which we're pushing to get to the kimberlite, so we can actually get to the contact and start to put dewatering processes in. And the key thing that you'll notice here in both that one and the 310 ramp that goes down to the 285, and as I mentioned, that was hold this morning, is the housekeeping. The quality of the work underground, the cleanliness is exceptionally high. And I think that is also what's contributing to this fabulous safety record, which we see being recorded quarter-on-quarter. On the 285 level, picture on the left is the conveyor structure. This is for a side-loading conveyor. This feeds into the production shaft, the 21-tonne skips. So as soon as the conveyances and the skips are commissioned, this will be ready, and we'll start to have much more capacity than that 500 tonnes a day, which I mentioned through the vent shaft. And that's really what gives us the opportunity to accelerate the lateral development underground. And those 2 things, getting the skips up and running and the mobilization of the lateral development are critical to really starting to push the time line forward. And then just again, the bulkheads or the ventilation doors at the 285 level. And again, I just want to point out the cleanliness and the excellent housekeeping, which we are seeing underground. So looking ahead, as we've mentioned, very happy with the updated capital structure. Our ability to now move forward and develop the project without having the continuous concern about the financing hanging over us. We are maintaining our guidance, as Glenn mentioned, for revenue, processing, et cetera, through the year. We have, again, even though we're processing stockpile, we have seen the ongoing recovery of large. And when we look at that blue stone, potentially very high-value stones. And I think that is the history of this asset. And we've actually added in there. A lot of people are asking us specifically how geopolitical challenges are actually affecting the diamond industry. And we have seen for the smaller sales, a lot of the smaller diamonds that flow through the Middle East into India. But when we start to look at the product, again, the one thing that makes Lucara special is these large high-quality stones. And they have remained resilient when it look -- when we look at the impact of both the geopolitical lab-grown stones and the general market environment. And I think when we look at what we have, it is far more appealing as a hard luxury asset than what we are seeing being affected within the diamond sector itself. I won't touch too much on this. We are maintaining this. This is the same as the guidance which we put out at the back end of 2025. So overall, I think Q1 was a very good quarter. It has put Lucara back into a very, very strong position to complete the underground and really start to see the dividend from what we know Lucara has seen in the past when mining EM/PK(S) material. And we're really looking forward to touching the kimberlite so we can actually start to see that go through the process plant and see the true value of what this asset has to offer. I will hand it back at this point to the operator for Q&A, please.

[Operator Instructions] And there appear to be no questions. William, would you like to provide any closing remarks?

I'd just like to again reiterate, thank you to everybody for dialing into our Q1 2026 results call. Hannah will be available if there are any questions, please feed them through the [email protected] e-mail address, and we'll be happy to get hold of you and arrange the call if there are any. But thank you very much, and have a good weekend.

This concludes the [Audio Gap].