Lucara Diamond : 2021 Second Quarter Report

Management's Discussion and Analysis

and

Consolidated Interim Financial Statements

Quarter Ended June 30, 2021

LUCARA DIAMOND CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

JUNE 30, 2021

Management's discussion and analysis ("MD&A") focuses on significant factors that have affected the performance of Lucara Diamond Corp. and its subsidiaries (the "Company") and such factors that may affect its future performance. In order to better understand the MD&A, it should be read in conjunction with the unaudited condensed interim consolidated financial statements of the Company for the period ended June 30, 2021, which are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") as applicable to interim financial reporting. All amounts are expressed in U.S. dollars unless otherwise indicated.

Disclosure of a scientific or technical nature in the MD&A was prepared under the supervision of Dr. John P. Armstrong (Ph.D., P.Geol.), Lucara's Vice-President, Technical Services and a Qualified Person, as that term is defined in National Instrument 43-101.

Some of the statements in this MD&A are forward-looking statements that are subject to risk factors set out in the cautionary note contained herein. Additional information about the Company and its business activities is available on SEDAR at www.sedar.com.

The effective date of this MD&A is August 10, 2021.

ABOUT LUCARA

Lucara is a leading independent producer of large exceptional quality Type IIa diamonds from its 100% owned Karowe Diamond Mine in Botswana. The Karowe Mine has been in production since 2012 and is the focus of the Company's operations, development, and exploration activities. Clara Diamond Solutions Limited Partnership ("Clara"), a wholly-owned subsidiary of Lucara, has developed a secure, digital sales platform that uses proprietary analytics together with cloud and blockchain technologies to modernize the existing diamond supply chain, driving efficiencies, unlocking value and ensuring diamond provenance from mine to finger. Lucara has an experienced board and management team with extensive diamond development and operations expertise. Lucara and its subsidiaries operate transparently and in accordance with international best practices in the areas of sustainability, health and safety, environment, and community relations.

The Company's corporate office is in Vancouver, Canada and its common shares trade on the Toronto Stock Exchange, the Nasdaq Stockholm Exchange in Sweden and the Botswana Stock Exchange under the symbol "LUC".

HIGHLIGHTS - Q2 2021

• On April 6, 2021, a 24-month extension was executed to the definitive supply agreement with HB Antwerp ("HB") in respect of all diamonds produced in excess of 10.8 carats in size from the Karowe Mine. The extension will be effective for the period from January 1, 2021 to December 31, 2022.
• On May 5, 2021, Lucara announced that it had received credit approved commitments from a syndicate of five mandated lead arrangers to fund an underground expansion at the Karowe Mine. Definitive documentation for two tranches (collectively, the "Facilities") was subsequently executed on July 12, 2021 for: a project finance facility of $170 million to fund the development of the underground project and a working capital facility of $50 million to support the ongoing operation of the Karowe Mine.
• Also on May 5, 2021, Lucara announced an extension of its current $50 million working capital facility with FirstRand Bank (London Branch).
• On June 7, 2021, Lucara announced the recovery of a 470 carat top light brown clivage diamond from the Karowe Mine, measuring 49x42x26mm.
• On June 22, 2021, Lucara announced the recovery of the third +1,000 carat diamond recovered from the Karowe Mine since 2015. This recovery, a 1,174.76 carat diamond from the Karowe Mine measuring 77x55x33mm is described as a clivage gem of variable quality with significant domains of high-quality white gem material.
• Revenue of $46.3 million during Q2 2021 resulted in an average price per carat sold of $671.
• Operational highlights from the Karowe Mine included:

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1. Ore and waste mined of 1.0 million tonnes and 0.7 million tonnes, respectively

1. 0.73 million tonnes of ore processed resulting in 101,330 carats recovered, achieving a recovered grade of 13.9 carats per hundred tonnes

1. 261 Specials (+10.8 carats) were recovered from direct milling during the second quarter, representing 10.2% weight percentage of total direct milling recovered carats, a record production quarter in terms of volume of specials recovered (Q2 2020: 6.4%).

• 1. In addition to the 1,174 carat stone recovered, 16 diamonds greater than 100 carats were also recovered during the quarter, including two diamonds > 400 carats, two diamonds >200 carats, along with a further 12 stones between 100 and 200 carats in weight.
• Financial highlights for the three months ended June 30, 2021 included:
• 1. Total revenue of $46.3 million was recognized in Q2 2021 (Q2 2020: $7.5 million) or $671
     per carat (Q2 2020: $109 per carat) from the sale of 68,961 carats (Q2 2020: 68,979 carats). During Q2 2020, no diamonds > 10.8 carats in size were sold, as a deliberate decision due to market conditions, in favour of entering into a committed supply agreement for these diamonds with HB Antwerp.

1. Operating cash cost(1) per tonne of ore processed for the six months ended June 30, 2021 was $28.79 per tonne (Q2 2020: $27.14 per tonne), in line with 2021 guidance of between $28 and $32 per tonne.

1. The Company recorded net income of $6.0 million during Q2 2021 (earnings per share of $0.02), as compared to a net loss of $13.9 million for Q2 2020 (loss per share of $0.04).

1. Adjusted EBITDA(1) was $22.2 million as compared to adjusted EBITDA of negative $10.0 million for the same period in 2020.

1. The value of the rough diamonds transacted through the Clara platform in Q2 2021 was $8.3 million over six sales, a 38% increase from the $6.0 million transacted in Q1 2021. Strong price increases observed in the first quarter continued through Q2 2021 and the number of buyers on the platform increased to 84 as of June 30, 2021.

• 1. As at June 30, 2021, the Company had cash and cash equivalents of $13.7 million, an increase of $8.8 million from December 31, 2020 and net debt(1) of $36.6 million.
• Events occurring after June 30, 2021:
• 1. On July 12, 2021, loan documentation was signed in relation to the previously announced Facilities.

1. On July 13, 2021, the Company announced the recovery of four pink diamonds from direct milling from the EM/PK(S) unit of the South Lobe. The largest stone recovered was a 62.7 carat high quality, fancy pink Type IIa gem diamond. A 22.21 carat pink gem of similar quality was also recovered during the same production period along with two additional pink gems of similar colour and purity weighing 11.17, and 5.05 carats.

1. 1. On July 15, 2021, the Company closed two equity financings, generating gross proceeds of C$41.4 million (approximately $33.1 million) from the sale of 55,157,733 common shares at a price of C$0.75 per share. Net proceeds from these financings will be used for working capital to support the development and ongoing operation of the Karowe mine, including the underground expansion project.
2. Non-IFRSmeasure (see pages 13-14 for details)

DIAMOND MARKET

The diamond market continues to be strong and stable in 2021 following a very strong start to the year, where we have seen price increases in virtually all sizes and quality of diamonds. The key dominant retail markets for diamonds in the US and China remain buoyant, and the market continues to be supported from lower supply from producers, and a pick up in capacity in the midstream in India. This follows a challenging year in 2020 as a result of the global COVID-19 pandemic, characterized by global travel restrictions, low sales volumes, pricing pressure and overall, difficult economic conditions for miners, manufacturers, retailers and consumers. The potential challenges created by the COVID-19 pandemic do however remain a key market concern.

HB SUPPLY AGREEMENT FOR +10.8 CARAT DIAMOND PRODUCTION

Karowe's large, high value diamonds have historically accounted for approximately 60% to 70% of Lucara's annual revenues. Though the mine remained fully operational following the declaration of COVID-19 as a global pandemic, Lucara made a decision not to tender any of its +10.8 carat production

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after early March 2020 amidst the uncertainty caused by the global crisis and the significant weakness observed in the rough diamond market. The polished diamond market performed better through this period and subsequently, in July 2020, Lucara announced a partnership agreement with HB, entering into a definitive supply agreement for the remainder of 2020, for all diamonds produced in excess of +10.8 carats from our 100% owned Karowe Diamond mine in Botswana. In April 2021, this agreement was subsequently extended for a 24 month period, effective from January 1, 2021 to December 31, 2022.

Under the amended supply agreement with HB, +10.8 carat production from the Karowe Mine is being sold at prices based on the estimated polished outcome of each diamond, determined through state of the art scanning and planning technology, with an adjusted amount payable on actual achieved polished sales compared to the initial estimated polished price, less a fee and the cost of manufacturing. Changes to the payment profile were also amended in the extended agreement to better reflect the timing of mine production and the manufacturing process. This unique pricing mechanism delivers regular cash flow for this important segment of our production profile.

UPDATE ON COVID-19 RESPONSE

Measures and guidelines implemented by the GRB in late March 2020 have allowed the Karowe Mine to remain fully operational throughout the pandemic. These measures designated mining as an essential service in Botswana and included increased travel restrictions, reduced overall staffing levels and appropriate social distancing. An initial six-month state of emergency has been extended twice and currently the published end date is September 30, 2021. With increasing cases in Botswana and surrounding countries and limited opportunities for vaccination, restrictions on the movement of people within zones in Botswana and curfews have been implemented and are subject to change with limited notice. The Company has been able to continue mining and processing activities during the state of emergency as most of the workforce (+98%) are Botswana Nationals.

Concern remains over how governments across the jurisdictions in which Lucara and many of its customers operate will respond to increasing infection numbers and variants of COVID-19, even as mass vaccination campaigns are in progress in many countries. Due to the ongoing uncertainty resulting from the global pandemic, Lucara's operations could be impacted in a number of 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 during this period. These possible impacts could result from government directives, the need to modify work practices to meet appropriate health and safety standards, a lack of demand for rough and/or polished diamonds, a lack of available liquidity to meet ongoing operational expenses and, due to or by other COVID-19 related impacts on the availability of labour or to the supply chain.

The Company continues to operate under its approved crisis management plan, designed to protect the health and well-being of our employees in Botswana and Canada as well as the financial well-being of the business. The Company has permission to conduct COVID-19 testing at our operations in Botswana which began in January 2021, and regular health screening, temperature checks and the use of infrared measurements are also routine. All contractors and visitors are required to have negative COVID-19 tests and adhere to all COVID-19 protocols while conducting work at company operations in Botswana. A government-sponsored vaccination program commenced in Botswana in July.

EQUITY FINANCINGS - JULY 2021

On July 15, 2021, the Company closed its previously announced bought deal financing (the "Offering") as well as the previously announced concurrent private placement (the "Concurrent Private Placement" and together with the Offering, the "Financing") for aggregate gross proceeds of approximately C$41.4 million (approximately $33.1 million).

Pursuant to the Offering, a total of 33,810,000 common shares of the Company ("Common Shares"), 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 approximately C$25.4 million (approximately $20.3 million). The Common Shares issued pursuant to the Offering were offered by way of a short form prospectus (the "Prospectus") filed in British Columbia, Alberta, Manitoba, Ontario and Quebec. The Offering was conducted through a syndicate of underwriters comprised of BMO Capital Markets and Scotia Capital Inc.

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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 aggregate gross proceeds of approximately C$16 million (approximately $12.8 million), which included an investment by Nemesia S.a.r.l. ("Nemesia"). No commission or other fee was paid to the underwriters in connection with the sale of Common Shares pursuant to the Concurrent Private Placement. The Common Shares issued pursuant to the Concurrent Private Placement are subject to a statutory hold period in Canada expiring on November 16, 2021.

Proceeds from the equity financings will be used to satisfy the requirement under the project loan agreements that a $30 million cash contribution (the "Initial Equity Contribution") be advanced to Lucara Botswana Proprietary Limited ("Lucara Botswana") towards the underground expansion cap-ex requirement in 2021 (see "Karowe Underground Update" below).

PROJECT DEBT FINANCING AND SHAREHOLDER UNDERTAKING - JULY 2021

On July 12, 2021, loan documentation in relation to the previously announced senior secured project financing debt package of $220 million (the "Facilities") between Lucara Botswana as the Borrower and a syndicate of five mandated lead arrangers ("MLAs") was signed. The MLAs are: African Export-Import Bank (Afreximbank), Africa Finance Corp., ING, Natixis, and Societe Generale, London Branch. Afreximbank is acting as Facility Agent in connection with the Facilities.

The Facilities include two tranches: a project finance facility of $170 million to fund the development of the underground project, and a $50 million working capital facility to re-finance the Company's existing debt and to support on-going operations. The Facilities, combined with the Initial Equity Contribution and projected cash flows from the Karowe open pit mine, during the underground construction period, result in the Karowe Underground Expansion Project (the "UGP") being fully financed.

The UGP is expected to extend Karowe's mine life to at least 2040 and is projected to deliver approximately $4 billion in revenues using conservative diamond price assumptions. The arrangement of the Facilities is an important milestone in progressing the UGP, and reflects confidence in the large- stone resource at Karowe.

First drawdown under the Facilities is expected to occur in the third quarter this year, following satisfaction of certain conditions precedent customary to a financing of this nature, including the closing and receipt of the Initial Equity Contribution completed in July 2021 ("Financial Close").

In connection with the Facilities, the Company's largest shareholder, Nemesia agreed to provide a limited standby undertaking in the event of a funding shortfall occurring up to thirty-six (36) months from Financial Close (the "Shareholder Undertaking").

Key terms of the project finance facility:

• Lucara Botswana is the Borrower, with Lucara Diamond Corp. as the Sponsor and Guarantor until the Project Completion Date;
• Up to $170 million provided to fund the development, construction costs and construction phase operating costs of the UGP as well as financing costs in relation to the Facilities;
• 8 year maturity after Financial Close, with quarterly repayments commencing on June 30, 2026;
• Interest rate and Margin: LIBOR (or replacement benchmark) plus margin of 5.5% annually for the period commencing on Financial Close and ending on the Project Completion Date, and 5.0% annually thereafter;
• First ranking security over all assets of the Borrower on a fixed and floating basis, as well as all shares in and shareholder loans into the Borrower and all shares in and shareholder loans into the intermediary companies between the Sponsor and the Borrower;
• The project facility will require interest rate hedging of at least 75% of the Borrower's exposure for a period of at least six (6) years to be arranged as a condition subsequent to Financial Close;
• Positive and negative covenants, including financial ratios, as well as events of default and a cash flow waterfall customary to a financing of this nature are set out in the Facilities agreement.

Key terms of the working capital facility ("WCF"):

• Borrower: Lucara Botswana
• Up to $50 million for a senior, secured WCF to be used initially to re-finance the Sponsor's existing working capital facility and thereafter, for working capital and other corporate purposes of the Borrower;

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