Lucara Diamond : 2024 First Quarter Report

Management's Discussion and Analysis

and

Consolidated Financial Statements

Quarter Ended March 31, 2024

LUCARA DIAMOND CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

March 31, 2024

Management's discussion and analysis ("MD&A") focuses on significant factors that have affected Lucara Diamond Corp. (the "Company") and its subsidiaries performance and such factors that may affect its future performance. 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 March 31, 2024, which are prepared in accordance with International Financial Reporting Standards ("IFRS") Accounting Standards applicable to the preparation of interim financial statements, under International Accounting Standard 34, 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. Herman Grütter (Ph.D., P.Geol.) of SRK Consulting (Canada) Inc., and a Qualified Person, as that term is defined in National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 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.sedarplus.ca.

The effective date of this MD&A is May 9, 2024.

ABOUT LUCARA

Lucara is a leading independent producer of large exceptional quality Type IIa diamonds from its 100% owned Karowe Diamond Mine in Botswana ("Karowe"). Karowe has been in production since 2012 and is the focus of the Company's operations and development activities. Clara Diamond Solutions Limited Partnership ("Clara"), a wholly- owned subsidiary of Lucara, has developed a secure, digital sales platform which ensures 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. Lucara is certified by the Responsible Jewellery Council, complies with the Kimberley Process, and has adopted the IFC Performance Standards and the World Bank Group's Environmental, Health and Safety Guidelines for Mining (2007). Accordingly, the development of the Karowe underground expansion project (the "Karowe UGP") adheres to the Equator Principles. Lucara is committed to upholding high standards while striving to deliver long-term economic benefits to Botswana and the communities in which the Company operates.

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

HIGHLIGHTS - Q1 2024

• The recovery of a 320-carat top light brown gem quality diamond, a 166-carat Type IIa diamond, followed by the recovery of a 111-carat Type IIa diamond in Q1 2024.
• In January 2024, the successful execution of an amended project financing debt package of $220 million (the "Rebase Amendments") to amend the repayment profile in line with the rebase schedule released in July 2023 for the Karowe UGP.
• On February 18, 2024, the Company announced the signing of a new ten-year diamond sales agreement ("NDSA") with HB Trading BV ("HB") in respect of all qualifying diamonds produced in excess of 10.8 carats from the Karowe Mine.
• Total revenue of $41.1 million (Q1 2023: $42.8 million) was achieved in Q1 2024 which is reflective of a combination of the timing of production and quantity of large goods recovered and delivered to HB.
• During Q1 2024, a total of 93,560 carats of rough diamonds (Q1 2023: 83,374) from Karowe were sold through the Company's three sales channels, generating revenue of $36.2 million before top-up payments of $4.9 million (Q1 2023: $34.7 million before top-up payments of $6.6 million).

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• Operating cost per tonne processed(1) was $26.00, a decrease of 2% over the Q1 2023 cost per tonne processed of $26.65. The continued impact of inflationary pressures, particularly labour, has been well managed by the operation. A strong US dollar (+5%) continues to offset a small increase in costs over the comparable period.
• Operational highlights from the Karowe Mine for Q1 2024 included:

• • Ore and waste mined of 0.8 million tonnes ("Mt") (Q1 2023: 0.5Mt) and 0.2 million tonnes (Q1 2023: 0.8Mt), respectively.
  • 0.7 million tonnes (Q1 2023: 0.7Mt) of ore processed.
  • A total of 89,145 carats recovered, including 7,534 carats from the processing of historic recovery tailings, (Q1 2023: 89,640 carats) at a recovered grade of 11.7 carats per hundred tonnes ("cpht") of direct milled ore (Q1 2023: 12.8 cpht).
    o A total of 160 Specials (defined as stones larger than 10.8 carats) were recovered, with three diamonds greater than 100 carats including one diamond greater than 300 carats.
    o Recovered Specials equated to 5.1% of the total recovered carats from direct milling ore processed during Q1 2024 (Q1 2023: 4%).
  • The Karowe Mine has operated continuously for over three years without a lost time injury.
  • The twelve-month Total Recordable Injury Frequency Rate of 0.30 (Q1 2023: 0.36) at the end of Q1 2024 reflects a continued focus on leading indicators and safe performance.
• Financial highlights for Q1 2024 included:
• • Revenues of $41.1 million (Q1 2023: $42.8 million) were achieved despite a weaker rough diamond market. First quarter pricing stabilized in smaller goods and increases of 4% were observed compared to the fourth quarter of 2023. Revenue reflects the weighting of Lucara's revenue towards larger goods where pricing is heavily impacted by the individual goods delivered in a period. A 33% increase in the average price of larger goods sold was observed from the fourth quarter of 2023 and 18% from the first quarter of 2023. The price of goods in this size category are significantly impacted by the natural variability in quality of the recovered goods in any individual period. Revenue against plan was impacted by the quantity of larger goods delivered in Q1 2024.
  • Operating margins of 51% were achieved (Q1 2023: 57%). A strong operating margin continues to be achieved through cost reduction initiatives assisted by a strong U.S. dollar.
  • Adjusted EBITDA(1) was $12.7 million (Q1 2023: $15.3 million), with the decrease attributable to the changes in revenue and operating expenses.
  • Net loss was $7.9 million (Q1 2023: net income of $1.0 million), resulting in a loss per share of $0.02
    (Q1 2023: earnings of $0.00). The significant change to a net loss is due to the loss on extinguishment of debt of $10.5 million incurred in Q1 2024 in conjunction with recognizing the amendments to the debt package.
  • Cash outflows from operating activities was $4.2 million (Q1 2023: cash flow generated of $20.4 million). Operating cash flow per share(1) generated, before working capital adjustments, was consistent at $0.03 (Q1 2023: $0.03)
• During Q1 2024, the Company invested $17.9 million into the Karowe UGP, excluding capitalized cash borrowing costs:
• 1. • Significant progress was made in shaft sinking in the ventilation and production shafts in Q1 2024 with the critical path ventilation shaft ahead of the July 2023 rebase schedule. At the end of Q1, the production shaft had reached 449 metres below collar ("mbc") or 566 metres above sea level ("masl"). The ventilation shaft was at 426 metres below collar or 589 masl. The first shaft stations progressed and the first lateral connection between the two shafts (670 level, 348mbc) was completed.
  2. Operating cash cost per tonne processed, adjusted EBITDA and operating cash flow per share are non-IFRS measures (See "Use of Non-IFRS Financial Performance Measures").

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• • During Q1 2024, the ventilation shaft sank 78 metres, completed three probe hole covers, completed the 670-level station development and replaced the initial winder kibble ropes. Total lateral development in Q1 2024 was 141 metres. Sinking and lateral development was through the Thlabala mudstones and into Tlapana carbonaceous material in dry conditions.
  • Production shaft activities included sinking a total of 101 metres, completion of four probe hole covers, lateral development on the 670-level station and replacement of the initial winder kibble ropes. A total of 26 metres of lateral development was completed. Sinking and lateral development was through the Thlabala mudstones and into Tlapana carbonaceous material. A mini grout cover was completed in the production shaft and sinking continued. Small quantities of water that were intersected came from Granites.
  • Construction of the permanent bulk air coolers at the production shaft continued with completion expected in Q2 2024. Planning for the engineering of evaporation ponds for water management during production commenced.
  • Detailed engineering and fabrication of the permanent men and materials winder continued during the quarter, representing the last major component for the permanent winders.
• Cash position and liquidity as at March 31, 2024:
• • Cash and cash equivalents of $13.2 million.
  • Working capital deficit (current assets less current liabilities) of $0.3 million.
  • Cost overrun account balance ("CORA") of $37.0 million.
  • $140.0 million drawn on the $190.0 million Project Loan ("Project Loan") for the Karowe UGP.
  • $25.0 million drawn on the $30.0 million working capital facility ("WCF").
  • Total debt drawn at the end of Q1 2024 was $165.0 million compared to $125.0 million at December 31, 2023. The increase in debt drawn during Q1 2024 largely resulted as the Company did not have access to the Project Loan and WCF from June 2023 until January 2024 when the project finance debt package was finalized.

DIAMOND MARKET

The long-term outlook for natural diamond prices remains positive, anchored on improving fundamentals around supply and demand as many of the world's largest mines reach their end of life. In the short-term, De Beers, the largest diamond producer by value reduced their production guidance by up to 3.0 million carats, for 2024, to assist with stabilising the diamond market. During the quarter, the G7 sanctions on the importation of Russian diamonds greater than one carat went into effect at the beginning of March and some trade delays were noted in the industry. The new procedures require all rough diamonds larger than 1.0 carat to be processed through the Antwerp World Diamond Centre for validation of point of origin. The Company sees this as short-term support for diamond pricing as this, together with the reduction in production volumes from De Beers, will result in lower volumes of higher value goods being available in the market.

Sales of lab-grown diamonds increased steadily through 2023 and into Q1 2024 with many smaller retail outlets increasingly adopting these diamonds as a product. In Q1 2024, this market underwent further change with a number of major brands confirming that they would not market lab-grown stones. The overall long-term impact will support the natural diamond market as the Company expects a division between the natural and lab-grown diamond market. The longer-term market fundamentals for natural diamonds remain positive, pointing to continued price growth as demand is expected to outstrip future supply, which is now declining globally.

SALES

Karowe diamonds are sold through three sales channels: through the HB sales agreement (terminated as of September 28, 2023; reinstated in February 2024), on the Clara digital sales platform and through quarterly tenders.

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HB Sales

Karowe's large, high value diamonds have historically accounted for approximately 60% to 70% of Lucara's annual revenues. In February 2024, Lucara entered into a ten-year NDSA with HB in respect of all qualifying diamonds produced in excess of 10.8 carats from the Karowe Mine, following the termination in September 2023 of its November 2022 definitive sales agreement with HB. The Company is currently working with its lenders and the Government of the Republic of Botswana to receive approval of the NDSA.

Under the sales arrangements with HB, +10.8 carat gem and near gem diamonds from the Karowe Mine of qualities that could directly enter the manufacturing stream are sold to HB at prices based on the estimated polished outcome of each diamond. The estimated polished value is determined through the use of state-of-the-art scanning and planning technology, with an adjusted amount payable on actual achieved polished sales, less a fee. The timing of payments varies based on the category of stones being delivered, as determined by the estimated polished value of the diamond. All +10.8 carat non-gem quality diamonds and all diamonds less than 10.8 carats which did not meet the criteria for sale on Clara continue to be sold as rough through a quarterly tender.

Additional consideration, in the form of a "top-up" payment, is payable to the Company if the final sales price of the polished diamond sold is higher than the initial estimated polished price. 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. The rough diamonds delivered to HB prior to the termination of the November 2022 agreement continued to be manufactured and sold as polished diamonds under the terms of the definitive sales agreement.

Top-up payments, net of fees earned by HB, are payable when polished diamonds are sold to an end buyer and the sales prices achieved exceeds the initial purchase price paid to Lucara. Top-up payments primarily relate to carats delivered in previous quarters. The amount and timing of top up payments received is impacted by the complexity of certain rough diamonds and the qualitative assumptions that are part of the initial planning process. At various points during the manufacturing process, the stones are re-assessed, and adjustments may be made to the manufacturing plan, with the objective of maximizing the final sales price.

Payments owing for the final polished sales price and top-up payments received are estimated, after deductions for HB's fee and the cost of manufacturing, when determining the transaction price recognized for accounting purposes. This estimate is updated at each period end until the transaction price is confirmed. Timing of deliveries to HB and polished sales by HB have the most significant impact on the timing of revenue recognition.

Sethunya Diamond

In 2021, amidst strengthening prices for large, high value diamonds, a strategic decision was taken to defer the sale of the Sethunya (549 carats), one of the finest, gem quality diamonds produced from the Karowe Mine to date. In mid-2022, Lucara and HB agreed to a series of prepayments. As at March 31, 2024, the Company had received prepayments of $20.0 million from HB for the Sethunya. These prepayments have been recorded as deferred revenue on the Statement of Financial Position.

Clara Sales Platform

Clara is a secure web-based digital marketplace which is best suited to transact diamonds between 1 and 10 carats, in higher colours and quality. The Clara platform matches buyers to sellers on a stone-by-stone basis based on polished demand and is the only sales platform in the world that uses blockchain technology to provide complete assurance on diamond provenance. Clara continues to gain interest as the financial benefits of purchasing rough diamonds in this innovative way are realized for all participants and, buyers become more focused on transparency and traceability of diamonds from mine to retail.

Total volume transacted on the platform was $4.9 million in Q1 2024 (Q1 2023: $5.3 million), with non-Karowe goods representing 33% of the total sales volume transacted. The number of buyers on the platform reached 106 as of March 31, 2024.

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Quarterly Tenders

All +10.8 carat non-gem quality diamonds and all diamonds less than 10.8 carats which did not meet the criteria for sale on Clara are being sold as rough through quarterly tenders. Viewings take place in both Gaborone, Botswana and Antwerp, Belgium.

KAROWE UNDERGROUND PROJECT UPDATE

The Karowe UGP is designed to access the highest value portion of the Karowe orebody, with initial underground carat production predominantly from the highest value eastern magmatic/pyroclastic kimberlite (south) ("EM/PK(S)") unit. The Karowe UGP is expected to extend mine life to at least 2040.

On July 16, 2023, an update to the Karowe UGP schedule and budget was announced (link to news release). The anticipated commencement of production from the underground is H1 2028. The revised forecast of costs at completion is $683.0 million (including contingency). As at March 31, 2024, capital expenditures of $332.5 million had been incurred and further capital commitments of $64.4 million had been made.

With the update, the Karowe Mine production and cash flow models were updated for the revised project schedule and cost estimate. Open pit mining will continue until mid-2025 and provide mill feed during this time. Stockpiled material (North, Centre, South Lobe) from working stocks and life of mine stockpiles will provide uninterrupted mill feed until late 2026 when Karowe UGP development ore will begin to offset stockpiles with high-grade ore from the underground production feed planned for H1 2028. The long-term outlook for diamond prices, combined with the potential for exceptional stone recoveries and the continued strong performance of the open pit could mitigate the modelled impact on project cash flows due to the changes in schedule. The Company continues to explore opportunities to further mitigate the modelled impact.

During the three months ended March 31, 2024, a total of $17.9 million was spent on the Karowe UGP development, surface infrastructure and ongoing shaft sinking activities. The following activities were completed during Q1 2024, including:

• Main sinking in the production and ventilation shafts:

• • The ventilation shaft reached 426 metres below collar, with a planned final depth of 731 metres. The shaft is approximately 19 days ahead of the July 2023 rebase schedule update (combined vertical and lateral metres).
  • The production shaft reached 449 metres below collar, with a planned final depth of 765 metres. The production shaft is approximately 15 days behind the July 2023 schedule update (combined vertical and lateral), with 9 days gained during the first quarter of 2024. The production shaft is not a critical path schedule item.
  • During Q1 2024, the first shaft stations at the 670-level were engaged in lateral development at 348 metres below collar (666 masl). The first lateral connection between the two shafts (670 level) was completed. Electrical and dewatering sump excavation was completed, and construction of equipment was carried out as a concurrent activity during shaft sinking.
  • During Q1 2024, the ventilation shaft sank 78 metres, completed three probe hole covers, continued the 670-level station development and replaced the initial winder kibble ropes. Total lateral development in Q1 2024 was 141 metres.
  • Production shaft activities included sinking a total of 101 metres, completion of four probe hole covers, lateral development on the 670-level station and replacement of the initial winder kibble ropes. A total of 26 metres of lateral development was completed.
  • Sinking and lateral development during the first quarter took place in the Thalbala mudstone and Tlapana carbonaceous material. Water encountered in the core holes was derived from Granites. A mini grout cover was completed in the production shaft and sinking continued.
• Construction of the permanent bulk air coolers at the production shaft continued with completion expected in Q2 2024. Engineering and planning for a surface evaporation dam for the water during production commenced.

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• Detailed engineering and fabrication of the permanent men and materials winder continued during the quarter, representing the last major component for the permanent winders.
• Preparation of tender documents for the underground lateral development work.
• Mining engineering advanced with a focus on supporting shaft sinking, underground infrastructure engineering and finalizing level plans.
• During Q1 2024, the UGP achieved a twelve-month rolling Total Recordable Injury Frequency Rate of 0.65. Project to date Total Recordable Injury Frequency Rate at March 31, 2024 was 0.56.

The capital cost expenditure for the underground expansion in 2024 is up to $100 million - see "2024 Outlook" below.

Activities planned for the Karowe UGP in Q2 2024 include the following:

• Sinking within the ventilation and production shafts to the 470-level.
• Sink through the Mea formation into Granites and commence 470-level station development and lateral development.
• Planned cover drill campaigns in the ventilation and production shafts. Sinking planned for the second quarter will move through the Mea formation into the Granite lithologies. Probe hole grouting campaigns are planned in each shaft in the period.
• Procurement of underground equipment, including an additional Load, Haul, Dump vehicle for the production shaft station development. Major components of the underground crusher and pumps will be delivered to site.
• Commissioning of the permanent bulk air cooler system.
• Launch of the tender process for the underground lateral development work.
• Continuation of detailed design and engineering of the underground mine infrastructure and layout.
• Finalise engineering of the permanent men and materials winder. Commence earthworks for winder.
  FINANCING

On January 9, 2024, the Company's wholly-owned subsidiary, Lucara Botswana, with Lucara Diamond Corp. as the sponsor and the guarantor, amended its debt package that was originally entered into in 2021. The senior secured project financing debt package of $220 million (the "Facilities") consist of a project finance facility of $190.0 million (previously $170.0 million) to fund the development of an UGP at the Karowe Mine, and a $30.0 million (previously $50.0 million) senior secured working capital facility (the "WCF") which is used to support ongoing operations. While the total quantum of the Facilities has not changed, the repayment profile has been extended in line with the rebase schedule released on July 17, 2023, and the maturity of the WCF has been extended to June 30, 2031.

The Project Loan may be used to fund the development, construction costs and construction phase operating costs of the Karowe UGP as well as financing costs on the Facilities. The Project Loan maturity was extended to June 30, 2031, with quarterly repayments commencing on September 30, 2028.

The Project Loan bears interest at a rate of Term Secured Overnight Financing Rate ("SOFR") plus a margin of 6.5% annually until the project completion date, 6.0% annually from the project completion date to June 30, 2029, and 7.0% annually thereafter. Commitment fees for the undrawn portion of the Project Loan are 35% of the margin per annum.

The WCF may be used for working capital and other corporate purposes. This facility bears interest at a rate of Term SOFR plus margin of 6.5% annually until the project completion date, 6.25% annually from the project completion date to June 30, 2029, and 7.25% annually thereafter. Commitment fees for the undrawn portion of the WCF are 35% of the margin per annum. The WCF now matures on June 30, 2031.

As at March 31, 2024, the Company has drawn $140.0 million from the Project Loan and $25.0 million from the WCF. At financial close of the Rebase Amendments, an amount of $20.0 million outstanding on the WCF was transferred to the Project Loan and $15.0 million was drawn from the Project Loan and contributed to the CORA.

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Following the Rebase Amendments, the Company is required to place $61.7 million in the CORA as a condition of the Facilities prior to June 30, 2025. The Facilities Agreement, meaning the loan documentation signed on July 12, 2021 consisting of the Facilities, as amended and restated on July 19, 2023 and as further amended on January 9, 2024 by the Rebase Amendments, includes specific provisions for how and when these funds may be released from the CORA. The CORA balance was $37.0 million as at March 31, 2024. The Company is required to fund the remaining balance with the proceeds from the sale of exceptional stones and excess cashflow from operations.

Under the terms of the Rebase Amendments to the Project Loan, the Company's largest shareholder, Nemesia S.a.r.l. ("Nemesia") provided a limited standby undertaking of up to $63.0 million. The standby undertaking consists of two components: i) an undertaking to support the requirement to fill the CORA to $61.7 million ($28.1 million at the effectiveness of the Rebase Amendments) by June 30, 2025 and ii) in the event of a funding shortfall, support up to $35.0 million occurring up to project completion. In consideration for the guarantee, a total of 1,900,000 shares were issued to Nemesia.

In connection with the Rebase Amendments, Nemesia also provided a liquidity support guarantee of up to $15.0 million in aggregate in the event the Company's cash balance decreased below $10.0 million which was drawn by the Company in Q4 2023. For each $500,000 drawn down under the Liquidity Guarantee, the Company is required to issue, subject to the receipt of all required regulatory approvals, 7,500 common shares per month to Nemesia until the amounts borrowed are repaid. Following receipt of shareholder and regulatory approval at the Annual and General Special Meeting on May 10, 2024, an additional 1,125,000 common shares currently owed will be paid to Nemesia.

As at March 31, 2024, the Company was in compliance with all covenants under the Facilities.

INTEREST RATE SWAP

In February 2024, the Company amended a series interest rate swaps to the expected Project Loan drawdown schedule under the Rebase Amendments. The total interest rate swaps were amended to amounts up to $142.5 million and the maturity was extended to June 30, 2031. The Company receives interest at the rate equivalent to the three-month USD Term SOFR plus a credit adjustment spread and pays interest at a fixed rate of between 2.421 and 2.447% on a quarterly basis.

As at March 31, 2024, the interest rate swaps had a total unrealized fair value of $8.6 million (December 31, 2023: $8.1 million), of which $2.5 million has been classified as a current asset in the Statement of Financial Position. In Q1 2024, the Company recorded a $0.5 million gain (Q1 2023: loss of $1.4 million) on this derivative financial instrument. Movements in the unrealized fair value are recorded through the Statements of Operations.

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 $4.0 million with FirstRand Bank Limited, acting through its Rand Merchant Bank Division (the "Clara Facility") which matures on September 28, 2024.

The Clara Facility is used for inventory and working capital purposes. As at March 31, 2024, $1.5 million (December 31, 2023: $nil million) of the facility was drawn. The facility bears interest at SOFR plus a margin of 6.0%.

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FINANCIAL HIGHLIGHTS

Table 1
		Three months ended
			March 31,
In millions of U.S. dollars, except carats or otherwise noted		2024	2023
Revenues	$	41.1	42.8
Operating expenses		(20.2)	(18.3)
Net (loss) income for the period		(7.9)	1.0
(Loss) earnings per share (basic and diluted)		(0.02)	0.00
Operating cash flow per share(1)		0.03	0.03
Cash on hand		13.2	31.2
Cost overrun facility (restricted cash)		37.0	18.0
Amounts drawn on WCF(2)		25.0	23.0
Amounts drawn on Project Loan		140.0	90.0
Revenue from the sale of Karowe diamonds		39.5	41.2
Carats sold from Karowe		93,560	83,374

1. Operating cash flow per share before working capital adjustments is a non-IFRS measure. See "Use of Non-IFRS Performance Measures" below.
2. Excludes amounts drawn from the Clara Facility.

Q1 2024 Analysis

The Company recognized total revenues of $41.1 million in Q1 2024. This included $39.5 million from the sale of 93,560 carats from Karowe (including top-up payments of $4.9 million) as well as $1.6 million from the sale of third- party goods on the Clara platform. In comparison, the Company achieved total revenues of $42.8 million in Q1 2023 which included $41.3 million from the sale of 83,374 carats from Karowe and top-up payments of $6.6 million, and $1.5 million in revenue from third party goods sold through the Clara platform. The 4% decrease in quarterly revenue was predominantly driven by a decrease in the recovery of stones greater than 10.8 carats in the first quarter due to the natural variability of the resource and the timing of the delivery of stones greater than 10.8 carats to HB. Under the sales agreement with HB, Karowe's +10.8 production accounted for 57% (Q1 2023: 57%) of total revenues recognized in Q1 2024.

The Company had expected higher diamond recoveries and diamond quality during Q4 2023 and Q1 2024. This decrease in both recovery and diamond quality contributed to the Company's additional working capital facility draw during the quarter. Under the HB agreement, payment for diamonds delivered under a value of $2.0 million per stone is 60 days and for diamonds of value greater than $2.0 million per stone is 120 days. The Company has seen diamond recoveries and quality improve during Q2 2024, however due to the payment terms of the HB agreement these funds will not be received until Q3 2024 which has strained cash flows during Q2. As a result, the Company drew $25.0 million from the project loan to fund its underground development in April 2024.

A softer diamond market in 2023 resulted in lower achieved prices for the goods less than 10.8 carats, when compared to the fourth quarter of 2023, increasing prices were observed in the first quarter. On a like-for-like comparison, prices increased 4% from realized prices in the fourth quarter of 2023. The average price for goods less than 10.8 carats was $170 per carat, a decrease of 16% from the average price of $203 per carat in Q1 2023. The Company's product mix (which is weighted to larger, high value goods of sizes greater than 10.8 carats) is impacted less by price movements in the smaller goods. Recoveries were lower than planned in the first quarter in all size categories.

Total operating expenses were higher in Q1 2024 ($20.2 million) compared to Q1 2023 ($18.3 million) predominantly due to inventory movements with a larger volume of carats sold in the first quarter of 2024 (+12%) versus the comparable quarter in 2023. Operating expenses are recorded on a per carat basis and recognized as the carat is sold. The timing of the sale of carats can affect when amounts are recognised between inventory and operating expenses. Inventory costs were 2% lower on a per carat basis after accounting for inflationary pressures and a stronger USD (+5%). Please see Table 4: "Select Financial Information" below for details on the expense line

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items which had the most significant impact on net loss of $7.9 million (Q1 2023: net income $1.0 million) in the quarter.

QUARTERLY SALES RESULTS

Table 2

Q1 2024 - Sales Channel	Rough Carats Sold	Revenue
US$	M
HB Arrangements	2,482	$	18.3
Clara(1)	2,803		3.3
Tender(2)	88,275		13.0
Subtotal - Karowe diamonds sold	93,560	$	34.6
HB top-up payments			4.9
Total Revenue - Karowe Diamonds		$	39.5
3rd party goods (Clara)(1)			1.6
Total Revenue - Q1 2024		$	41.1
Q1 2023 - Sales Channel	Rough Carats Sold	Revenue
US$	M
HB Arrangements	2,971	$	18.0
Clara(1)	2,653		3.8
Tender(2)	77,750		12.9
Subtotal - Karowe diamonds sold	83,374	$	34.7
HB top-up payments			6.6
Total Revenue - Karowe Diamonds		$	41.3
3rd party goods (Clara)(1)			1.5
Total Revenue - Q1 2023		$	42.8

1. Four sales were completed on Clara in Q1 2024 (Q1 2023: four), with the sale of third-party goods continuing to supplement the total volume transacted from Karowe.
2. Non-gem+10.8 carat diamonds and diamonds less than 10.8 carats which did not meet characteristics for sale on Clara were sold through tender.

HB Arrangements - Q1 2024

For the three months ended March 31, 2024, the Company recorded revenue of $23.2 million from the HB arrangements (inclusive of top-up payments of $4.9 million), as compared to revenue of $24.5 million (inclusive of top-up payments of $6.6 million) for the three months ended March 31, 2023. The volume of carats delivered to HB was lower in the first quarter of 2024 than planned. The volume recognized as revenue in Q1 2024 was impacted by the timing of goods delivered as well as the number and the quality of stones greater than +10.8 carats recovered in the period. The plant performance remained strong with a 97% recovery factor achieved in Q1 2024; however, the weight percentage of recovered specials was lower than plan.

Recovered Specials for the quarter equated to 5.1% by weight of total recovered carats from mined ore processed during Q1 2024, with 89% of carats recovered coming from the South Lobe, 7% recovered from the Centre Lobe, and 4% recovered from mixed ore (Q1 2023: 4.0%; 64% Centre and North, 36% South Lobe ore). Natural variability in the quality profile of the +10.8ct stones in any production period or fiscal quarter results in fluctuations in recorded revenue and associated top-ups.

The average price of goods delivered in the first quarter of 2024 remained strong and is directly comparable to the value delivered in the first quarter of 2023. Top-ups in the first quarter continue to be received from goods delivered in prior periods under the November 2022 diamond sales agreement with HB. As a result of these factors, revenue to HB was consistent at 57% of total revenue recognized in the first quarter of 2024 (Q1 2023: 57%). The product mix in Q1 2024 was predominantly from the South Lobe ore body, with some contribution from the Centre Lobe.

The large stone diamond market fundamentals continued to support healthy prices from the multi-year highs observed at the peak in Q1 2022, despite an overall softening of demand in the market.

L u c a r a D i a m o n d C o r p .

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