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, 2021 and 2020, 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, 2021 and 2020;
● the consolidated statements of operations for the years then ended;
● the consolidated statements of comprehensive income (loss) 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, 2021. 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 to the
consolidated financial statements.
The Company’s total plant and equipment and
mineral properties as at December 31, 2021
amounted to $245 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 Craig McMillan.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
February 24, 2022
LUCARA DIAMOND CORP.
CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
(In thousands of U.S. Dollars)
Lucara Diamond Corp.
1
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December 31,
2021
December 31,
2020
ASSETS
Current assets
Cash and cash equivalents
$
$
R
eceivables and other (Note 5)
Inventories (Note 6)
Investments
Inventories (Note 6)
Plant and equipment (Note 7)
Mineral properties (Note 8)
Intangible assets (Note 9)
Deferred
financing charges (Note 10)
Other non
-
current assets
TOTAL ASSETS
$
$
LIABILITIES
Current
liabilities
Trade payables and accrued liabilities
$
$
Credit facilit
ies
(Note
) 10
Tax
and royalties
payableLease liabilities
Credit facilities (Note 1
0)
Derivative
financial liability (Note 10)
Restoration provision (Note 1
1)
Deferred income taxes (Note 1
7)
Other non
-
currentliabilities
TOTAL LIABILITIES
EQUITY
Share capital (unlimited common shares, no par value)
Contributed surplus
Deficit
(33,945 )
(57,772 )
Accumulated other comprehensive loss
(73,705 )
(57,605 )
TOTAL EQUITY
TOTAL
LIABILITIES AND EQUITY
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Commitments
–
Note 22
Approved on
b
ehalf 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
, 2021 AND 2020
(In thousands of U.S. Dollars, except for share and per share amounts)
Lucara Diamond Corp.
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2021
2020
Revenues
(Note 1
5) $
$
Cost of goods sold
Operating expenses
Royalty expenses (Note 8)
Depletion and amortization
Income (loss) from mining operations
(7,732 )
Other expenses
Administration
and other
(Note 1
6)
Sales and marketing
Finance expenses
Foreign exchange
loss
(gain)
(2,186 )
Loss on derivative financial instrument
(Note 10)
Loss on disposal of plant and equipment
Net income
(loss)
before tax
(31,398 )
Income tax expense (recovery)
(Note 1
7) Current
income tax expense
Deferred income tax expense (
recovery
)
(5,713 )
(5,120 )
Net income
(loss)
for the year
$
$
(26,278 )
Earnings
(loss)
per common share
(Note 1
8)
Basic
$
$
(0.07 )
Diluted
$
$
(0.07 )
Weighted average common shares outstanding
(Note 1
8)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
LUCARA DIAMOND CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31
, 2021 AND 2020
(In thousands of U.S. Dollars)
Lucara Diamond Corp.
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2021
2020
Net income
(loss)
for the year
$
$
(26,278 )
Other comprehensive
(loss)
income
Items that will not be reclassified to net income
Change in fair value of marketable securities
Items that may be subsequently reclassified to net income
Currency translation adjustment
(16,705 )
(4,946 )
(16,100 )
(3,535 )
Comprehensive income (loss)
for the year
$
$
(29,813 )
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
, 2021 AND 2020
(In thousands of U.S. Dollars)
Lucara Diamond Corp.
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2021
2020
Cash flows from (used in):
Operating
a
ctivities
Net income
(loss)
for the year
$
$
(26,278 )
Items not involving cash and cash equivalents:
Depletion and amortization
Unrealized foreign exchange loss
(gain)
(4,136 )
S
hare
-based compensation
Unrealized loss on derivative
financial instruments
Deferred income taxes
(5,713 )
Finance costs
Loss on disposal of plant and equipment
Net changes in working capital items:
R
eceivables and other
(18,452 )
(12,423 )
Inventories
(5,730
)
(973 )
Trade payables and other current liabilities
(2,604 )
Tax
and royalties
payable(1,045
)
(2,793 )
(1,526 )
Financing activities
Equity
financing, net
Revolving credit facility (repayment) drawdown
(30,500 )
Net d
rawdown
senior secured project facilitys
on T
ransaction costs related to senior secured project facility
(10,970 )
Withholding tax for share units
vested
(107 )
(8 )
L
ease payments
(936 )
(1,121 )
Investing activities
Acquisition of plant and equipment
(15,252 )
(15,208 )
M
ineral property expenditure
(82,251 )
(18,661 )
D
evelopment of intangible
assets
(38 )
(83 )
(97,541 )
(33,952 )
Effect of exchange rate change on cash and cash
equivalents
(549 )
(174 )
Increase (decrease)
in cash and cash equivalents during
the year
(6,281 )
Cash and cash equivalents,
beginning of year
Cash and cash equivalents, end of year
(1)
$
$
Supplemental
i
nformationTaxes paid
(974 )
(5,115 )
Changes in trade payables and accrued liabilities related
to plant and equipment
(88 )
(1)
Cash and cash equivalents are composed of 100% cash deposits held with accredited financial
institutions.
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
, 2021 AND 2020
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
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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, 20
21
$
$
$
(57,772 )
$
(57,605 )
$
Net income for the
year
–
Other comprehensive
loss
–
(16,100 )
(16,100
)
Total comprehensive income
–
(16,100 )
Shares issued from equity financing, net
Shares issued for project funding standby
undertaking
S
hare
-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
)
$
Balance, January 1, 20
20
$
$
$
(31,494
)$
(54,070
)$
Net loss for the
year
–
(26,278 )
(26,278 )
Other comprehensive
loss
–
(3,535 )
(3,535 )
Total comprehensive
loss
–
(26,278 )
(3,535 )
(29,813 )
S
hare
-based compensation
–
Shares issued from share units
vested
(104 )
Withholding tax for
share units
vested
–
(8 )
(8 )
Balance,
December 31
, 20
20
$
$
$
(57,772 )
$
(57,605 )
$
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,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
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1.
NATURE OF OPERATIONS
or
“Lucara”
) is a diamond mining company focused on the development and operation of diamond
Botswana
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
- 595 Burrard Street, Vancouver, British Columbia, V7X 1L3
, Canada
.
COVID
-
19 Global pandemic
On March 11,
202
, the World Health Organization declared the novel coronavirus (“COVID0
-
19”)
a global pandemic
and on April 2,
202
0
theGovernment of Botswana declared an initial state of
emergency.
Mining was declared an essential service and as a result, the Karowe Mine continued
to operate with additional health and safety protocols implemented. Quarterly diamond tenders for
the balance of 2020 and 2021 were held in Antwerp due to varying international travel restrictions.
The Government of Botswana extended the state of emergency several times before it was lifted
on
September 30, 2021
.
Concern remains over how
governments
across the jurisdictions in which
Lucara and many of its customers to new
operate
will respond
variants of COVID
-19
.
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 directive
s,
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 labor
or to the
supply chain.
COVID
-
19 negatively impacted both demand and prices for rough and polished diamonds through
much
of 2020 but the market recovered to pre
-
pandemic levels
over the course of 2021
.
As an
ongoing
risk, the duration and full financial effect of the COVID
-
19 pandemic is unknown at this time, as is the efficacy of government and central bank interventions in the jurisdictions in which
Lucara and its clients operate, the Company’s business continuity plan and other mitigating
measures.
While the impact of COVID
-
19 is expected to be temporary, the current circumstances are dynamic and the impacts of COVID
-
19
on our business operations, including the duration and impact that it may have on our ability to ship and sell diamonds, on demand for rough and polished diamonds,
on our suppliers, on our employees and on global financial markets, cannot be reasonably est
imated
at this time.
A
ccordingly
, estimates of the extent to which the COVID
-
19 pandemic may materially and adversely affect the Company’s operations, financial results and condition in future periods
are also subject to significant uncertainty
.
A
s at December 31,
2021
, the Company had c
ash and cash equivalents of $
27
.0
million
.
After
adjustments for working capital items, cash flow
generated from
operations totaled $
83
.4
million
for the year ended December
31, (2020
used in operations2021
–
$1.5 million
)
. Working capital as at
December 31, was
2021
$5
0.5
million (2020 – $
and 46.7
million
) the Company
had drawn
$
23
.0 million from its $50
.0
million
working capital facility which refinanced
its
previous revolving
credit facility
.
The
, working capital facility matures on
3September 2, 202
but
the outstanding
balance
must be repaid in full
before September 2, 2022 for at least five
consecutive business
days.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
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2.
BASIS OF
PREPARATION AND NEW
IFRS PRONOUNCEMENTS
(a)
Basis of
measurementThe Company
prepares
financial statements in accordance withits
International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”)
.
Other than
changes
due to new and amended standards and in
terpretations t
he accounting policies adopted are
consistent
applied in all periods presentedly
.
These financial statements were approved by the Board of Directors for issue
on
February
24
, 202
2. (b)
New IFRS Pronouncements
Amendments to IFRS 9
–
Financial Instruments; IAS 39
– Financial Instruments: Recognition
and Measurement; IFRS 7
–
Financial Instruments: Disclosures and IFRS 16 –
Leases –
Interest rate benchmark reform
–
Phase
2
Amendments were issued to these standards as part of Phase 2 of the International Accounting
Standards Board’s Interest Rate Benchmark Reform project. The amendments address issues
arising in connection with reform of benchmark interest rates including the replacement of one
benchmark rate with an alternative one. The amendments were effective January 1, 2021.
These amendments did not affect the Company’s financial statements. The Company is exposed
to finance expenses based on the London Inter
-
bank Offered Rate (LIBOR) on its credit facilities
(Note 10
) and these agr
eements provide for switching to an alternative benchmark interest rate.
While there remains some uncertainty around the timing of adoption, the replacement of the rate
is not expected to result in a significant change in the Company’s interest rate risk m
anagement
strategy or interest rate risk.
Several other amendments and interpretations were applied for the first time in 2021 but did not
have an impact on the consolidated financial statements of the Company, while the standards and
amendments to standa
rds 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.
3.
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.
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
T
he 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 diamond
s 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.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(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)
(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
.
(d)
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 an
d related costs, foreign exchange
rates and other factors all impact the Company’s liquidity position.
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.
Estimated
recoverable reserves are used to determine the
dep
letion
and amortization
of property,
plant and equipment at and mineral
the
operating mine site, in accounting for deferred stripping costsproperties, 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
.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(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)
(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 u
p payment is payable to the Company
ny manufactured . A
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
ecognized r
. 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.
(c)
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 countr future expectations of
y
in which the mine operates
and are based onthe
timing,
extent
and cost
of required decommissioning and site restoration activities. As a result, there
could be significant adjustments to the provisions established
.
(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
r
esources, 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
or charge to profit.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
10
|
Page
4.
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
The significant accounting policies used in the preparation of these consolidated financial
statements are as follows:
(a)
Basis of
measurementThese 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.
(b) Consolidation
These consolidated financial statements include the accounts of the Company and all of its
subsidiaries (
see
Note 1
4 –
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 recognize
s
non
controlling interests. All -
intercompany balances, transactions, income, expenses, profits and losses, including unrealized gains
and loss
es have been eliminated on consolidation.
(c)
Segment reporting
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 reportin
g segments are based on individual
operating segments, being the Karowe Mine
and Corporate and other
. The Corporate office provides support to the
Karowe
with M
ine
respect to
sales,
treasury and finance, technical support, regulatory reporting and corporate
administration
and includes operations of the
. secure, digital diamond sales platform, Clara
(d)
Foreign currency translation
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.
Transactions
and balan
esc
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,
2021 2020
AND
(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 subsidiar
y
of the Company
,
Lucara Botswana
Proprietary
Limited (“Lucara
Botswana”)
is the Botswana ,
Pula.
The functional currency of the Companyand 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
translation adjustments
.
(e) Cash
and cash equivalents
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
cash equivalents are
recorded at fair value and
subsequently measured at amortized cost.
(f)
Financial instruments
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:
(i)
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 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 “other gains and losses” in the
period in which they arise.
(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
and are included in current trade payables
classification due to their short
-
term nature.
Trade receivable
payables are nons
and -
interest
bearing if paid when due and are r
ecognized 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 amo
rtized cost.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
12
|
Page
4.
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
(g) Inventories
Inventories, which include rough diamonds, ore stockpile
s
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
estimated costs to completion and selling expenses.
(h)
Plant and equi
pmentPlant 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.
Amortization
of each asset is calculated using the straight line or unit of production method to allocate
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 10 years
P
lant facilities
based on
recoverable reserves
on a unit of production
basis
Furniture and office equipment 2 to 3 years
R
esidual values and useful lives of assets are reviewed, and adjusted if appropriate, at each
reporting
date.
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
and losses”
in the statement of operations.
(i)
Exp
loration 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
mineral properties not sufficiently advanced as to identify their development potential.
(j)
Mineral properties
Costs associated with acquiring a mineral property are capitalized as incurred. When it has been
esta
blished 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
production of the related mine on a units of production basis.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
13
|
Page
4.
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
(k)
Capitalized production stripping
costs
During the production phase, mining expendit
ures (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 -
reserves or resources that directly benefited from the stripping activity.
(l)
Intangible assets
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 developm
ent 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
costs is classified within depletion and amortization under operating expenses.
(m)
Contingent consideration
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
outflow of economic benefits will be required to settle the obligati
on.
(n)
I
mpairment of non
-
financial assets
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
reversal of the impairment at each reporting date.
(o)
Provisions
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
disch
arge 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 as
set.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
14
|
Page
4.
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
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
is recognized as finance costs.
(p)
Income taxes
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.
Deferred tax
es are
recognized using the balance sheet method, providing for temporary differences 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 reali
z
ed
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
end and are reduced to
the
extent that
it
is no longer probable that the related tax benefit will be reali
z
ed.
Un
certain 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
-
thanlikely
--
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
position.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
15
|
Page
4.
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
(continued)
(q)
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax, from the proceeds.
(r)
Revenue recognition
Revenues from diamond sales are recognized when the purchaser obtains control of the diamond.
For
diamonds sold through tender or Clara, c
ontrol is
transferred
when the Company receives payment for the diamonds sold and title is transferred to the purchaser according to contract terms.
In 202
0
, the Company entered into a sales agreement, amended and extended in 2021, 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
is
agree
d
upon according to the contract terms. Under the terms of the HB sales agreement, rough diamonds are sold
to HB based on the estimated polished outcome price, 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) , after HB’s fees and the cost of
is below the initial price paid
manufacturing arrangement
.
Thus, t
hecontains elements of variable consideration as the
Company’s
final
consideration is contingent on price obtained in the future sale by HB
. V
ariable consideration is recognized
to the extent that its inclusion will not result in a significant revenue
that it is
highly probablereversal when the uncertainty has been subsequently resolved when the manufactured diamond is sold
to an end buyer
.
(s) Sh
are
-based compensation
The Company has
s
hare
based compensation plan-
s
, under which the entity receives services as consideration for equity instruments (
stock
options or share
) of the Company.units
Stock options granted to employees are measured on the grant date.
and equity
share units-
settled Stock options granted to non
-
employees are measured on the date that the goods or services are received.
S
hare 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 granted and the vesting periods. The total expense
stock
options
and share unitsis 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,
net of any directly attributable transaction costs.
(t)
Earnings
(loss) per share
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
the year. Diluted income per share is calculated using the treasury stock method.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
16
|
Page
4.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(u) Leases
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 l
ease 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 months or less.
(v)
Borrowing costs
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
qualifying asset are expensed in the period i
ncurred.
5.
RECEIVABLES AND OTHER
2021
2020
Trade
$
17,467
$
13,396
VAT
11,196
4,493
Deferred financing fees (Note
10
)
2,143
–
Prepayments
5,502
2,450
Other
2,471
594
$
38,779
$
20,933
Trade receivables at
December 31,
2021
were $
17.5 million (
2020
– $
13.4 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 agreement
and the receipt of payment.
6.
INVENTORIES
2021
2020
Rough diamonds
$
18,337
$
25,956
Ore stockpile
3,36
1
29,572
Parts and supplies
14,824
12,846
Total
current inventories
$
3
6,522
$
68,374
Non
-
current inventories
–
ore stockpile$
29,852
$
–
Inventory expensed during the year ended December 31,
2021 80
totaled $
.3
million (
2020 –
$
72.6
million
).
There were no inventory write
-downs during the years
ended De
cember 31, 2021 and 2020.
The portion of the ore stockpile that is expected to be processed more than 12 months from
December
31
, 2021 is classified as non
-
current inventory.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
17
|
Page
7.
PLANT AND EQUIPMENT
Cost
Construction
in progress
Mine and
plant
facilities
Vehicles
Furniture
and office
equipment
Leased
assets
Total
Balance, January 1,
2020
$
11,388
$
216,398
$
2,654
$
9,173
$3,723
$
243,336
Additions
14,655
43
–
138
551
15,387
Reclassification
(15,790)
11,984
360
3,446
–
–
Disposals and other
–
(5,750)
(123)
–
(1,784)
(7,657)
Translation differences
(235)
(2,713)
(24)
82
(128)
(3,018)
Balance, December 31,
2020
$
10,018
$
219,962
$
2,867
$
12,839
$ 2,362
$
248,048
Additions
16,011
382
–
3
2,143
18,539
Reclassification
(
11,297
) 6
,687
1,732
2,878
–
–
Disposals and other
–
(731)
(43)
(288)
–
(1,062)
Translation differences
(1,087)
(
18,021
) (
329
) (1,170)
(
300
) (
20,90
7) Balance, December 31,
2021
$
13,645
$
208,279
$
4,227
$
14,262
$
4,2
05
$
24
8 4,61
Accumulated
amortization
Balance, January 1,
2020
$
–
$
104,173
$
1,871
$
5,600
$
1,584
$
113,228
Depletion and amortization
–
29,269
343
1,685
987
32,284
Disposals and other
–
(3,116)
(123)
–
(1,460)
(4,699)
Translation differences
–
51
(14)
25
(51)
11
Balance, December 31,
2020
$
–
$
130,377
$
2,077
$
7,310
$
1,060
$
140,824
Depletion and amortization
–
26,588
439
2,603
869
30,499
Disposals and other
–
(
731
) (
43)
(
28
8) –
(
1,0
) 62
Translation differences
–
(1
1,
928
) (1
91
) (
71
2) (
133
) (12,9
64
) Balance, December 31,
2021
$
–
$ 144,
306
$
2,282
$
8,913
$
1,796
$
15
7,297
Net book value
As at December 31,
2020
$
10,018
$
89,585
$
790
$
5,529
$
1,302
$
107,224
As at December 31,
2021
$ 1
3,645
$
63
,973
$
1,945
$
5,349
$
2,4
09
8
7,321
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
18
|
Page
8.
MINERAL PROPERTIES
Cost
Capitalized
production
stripping asset
Karowe Mine
Total
Balance, January 1,
2020
$
73,028
$
84,677
$
157,705
Additions
–
18,749
18,749
Adjustment to restoration asset
–
(3,199)
(3,199)
Translation differences
(1,083)
(348)
(1,431)
Balance, December 31,
2020
$
71,945
$
99,879
$
171,824
Additions
–
8
6,339
8
6,339
Adjustment to restoration asset
–
(5,
474
) (5,
474
) Translation differences
(
5,87
2) (1
2,770
) (
18,
) 642
Balance, December 31,
2021
$
66,07
3
$
167,974
$
234,047
Accumulated depletion
Balance, January 1,
2020
$
24,425
$
28,037
$
52,462
Depletion
10,250
4,998
15,248
Translation differences
236
(124)
112
Balance, December 31,
2020
$
34,911
$
32,911
$
67,822
Depletion
12,
00
6 3,037
1
5,04
3 Translation differences
(3,536)
(
2,860
) (6,
39
6) Balance, December 31,
2021
$
43,381
$
33,088
$ 7
6,469
Net book value
As at December 31,
2020
$
37,034
$
66,968
$
104,002
As at December 31,
2021
$ 22,
692
$
134,886
$
157,578
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, the Company incurred a royalty expense of $
24.9 2020
million (
: $
13.5
million).
Karowe Mine
includes
$
12
6.1 million
related to the Karowe underground expansion
which
will
not be depreciated until construction is complete
and the assets are available for their intended use.
Borrowing cost
s of $1.
5
million (2020
–
relating to $ nil)
the Karowe underground expansion
are
capitalized in Karowe Mine.
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,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
19
|
Page
9.
INTANGIBLE ASSETS
Cost
Balance, January 1,
2020
$
23,203
Development expenditures
83
Translation differences
512
Balance, December 31,
2020
$
23,798
Development expenditures
38
Translation differences
80
Balance,
December 31
,
2021
$
23,916
Accumulated
amortization
Balance, January 1,
2020
$
(429)
Amortization
(1,298)
Translation differences
(85)
Balance, December 31,
2020
$
(1,812)
Amortization
(1,
392
) Translation differences
12
Balance, December 31,
2021
$
(
3,192
) Net book value
As at December 31,
2020
$
21,986
As at December 31,
2021
$
20,724
In 2018, the Company acquired the Clara platform, a secure, digital sales platform for rough diamonds.
The consideration paid was allocated entirely to the intangible assets
which will continue to be amortized
over
the remaining useful economic life of
years17
.
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 p
ayments based on 3.45% of the annual 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.
10.
CREDIT FACILITIES
2021
2020
Current
Revolving credit facility, net of fees
$
–
30,528
Working capital facility
$
23,000
–
Deferred financing fees (Note 5)
$
(2,143)
–
Non
-
currentProject finance facility, net of fees
$
23,73
0
–
Deferred financing fees
$
(7,471)
–
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
20
|
Page
10.
CREDIT FACILITIES
(continued)
Revolving credit facility
T
he Company
had a $50 million revolving term credit facility
with
FirstRand Bank Limited (London Branch), a division of Rand Merchant Bank that was refinanced on September 9, 2021 with proceeds
from the new working capital facility. I
nterest
was calculated with reference to LIBOR plus an applicable
margin based on the Company’s adjusted leverage ratio.
Senior secured project facility
On July 12, 2021, the Company’s indirect, wholly
-
owned subsidiaryLucara Botswana
,
with Lucara Diamond Corp. as the sponsor and the guarantor
,
entered into a
senior secured project financing debt package of $220 million with a syndicate of five mandated lead ar
rangers
(the “Lenders”): African
Export
-
Import Bank (Afreximbank), Africa Finance Corp., ING, Natixis, and Société Generale, London
Branch.
The
debt package
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 working capital facility
which
refinance
the Company’s d
revolving
credit facility
and
-will be used to support on
going
operations
(the “Working Capital Facility”).
The f
irst
drawdown under the Facilities occurred on September 9, 2021 following satisfaction of certain
conditions precedent on September 2, 2021 (“Financial Close”).
T
he 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 in relation to
the Facilities. The Project Finance Facility
matures
s after8
yearFinancial Close, with quar
terly
repayments commencing on June 30, 2026
.
As at
December
, 2021, $ 31
25
.0 million
of the $170.0
million facility
was drawn
. On
January
end, an additional amount of $20.0 6
, 2022, subsequent to year
-
million was drawn to fund a portion of the forecast Q1
2022
underground project expenditure. T
he
Project Finance Facility interest at a rate of LIBOR
bears
(or replacement benchmark) plus margin of
5.5% annually for the period commencing on Financial Close 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
, 2021, $
23.0
million
of the $50.0 was drawn
bearsmillion
facility
. T
he
f
acility
interest at
a rate of LIBOR (or replacement benchmark) plus margin of
3
.5% annually
ith commitment fees for w
the undrawn portion of
1.6
. The facility matures on September%
2,
2023 and the outstanding balance must be repaid in full at least once every twelve months for a minimum of five business days
, and is
therefore classified as current on December 31, 2021.
The Company incurred $11.3 million of debt advisory, legal and due diligence fees in conjunction with
arranging the
Facilities
At Financial Close, transaction costs .
of allocated
to the $
were 8.7 million
Project Finance
Facility
. This amount was initially recorded as deferred
financing fees. As
draws are made from the
Working Capital Facility these costs will be recorded as transaction costs proportionally
to the amount drawn under the facility. D
eferred financ
of $1.ing
fees 3
million were allocated to the initial draw
of $25.0 million as transaction costs. Transaction costs
of
to the $
2.6 million
were allocatedWorking Capital Facility
and
are
included in 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 term.
As at
December
31
, 2021, the Company was in compliance with all financial covenants.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
21
|
Page
10.
CREDIT FACILITIES
(continued)
Interest rate swap
Under the terms of the
P
roject
Finance F
acility
,
the
Company was
required to complete an interest rate
swap on 7
5
% of theprincipal amount available
to manage its
exposure
interest rateto floating
s.
O
n
tDecember 14
21, 20
he
Company entered into
interest rate swap agreement
s structured around
the expected Project Finance Facility drawdown schedule,
swapping
a LIBOR variable rate interest payment stream for a
1.
682
% fixed rate interest payment stream on up to $
127.5
million
. Under the terms of the
se
agreement
, the Company receives interest quarterly at the rate equivalent s
to the three rep
-
monthUSD LIBOR
,
ric
edevery three months and pays
quarterly interest at the fixed
rate
starting June 29, 2022
.
The interest rate swaps mature on March 31,
202
As at December 31, 8.
2021 the
interest rate swap
s
had a
negative
unrealized fair value of $
0.8
million.
11.
RESTORATION PROVISIONS
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 ass
essments
. The Company has applied a pre-
tax discount rate of
7.1
% at December 31,
(2021
2020
– 5.9
%)
and an
annual
inflation rate
of
4.
4
% at December
31,
2021
(
2020
– 4.0
%
).
R
ehabilitation 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 $
29
.7
2020million (
- $
33.7
million)
. 2021
2020
Balance, beginning of year
$
21,229
$
23,629
Changes in rates and estimates
(5,
474
) (3,800)
Accretion of liability component of obligation
1,163
1,863
Foreign currency translation adjustment
(
1,572
) (463)
R
estoration provisions
$
15,346
$
21,229
12.
SHARE CAPITAL
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
)
, t
he Company’s largest shareholder, Nemesia S.a.r.l.
(“Nemesia”) provide
d
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
u
ndertaking be called upon. For each $500,000 drawn down under the
s
tandby u
ndertaking, the Company will be required to issue 5,000 common shares per month to
Nemesia until the amounts borrowed are repaid.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
22
|
Page
13.
SHARE BASED COMPENSATION
a.
Stock options
The Company’s stock option plan (the ‘Option Plan’) was approved by the
Company’s shareholders
initially on May 13, 2015, with amendments approved on May
8
,
2020
. Under the terms of the amended
Option Plan, a maximum of 10,000,000 shares
are reserved for issuance upon the exercise
of stock options. The Option Plan provides the Board of Directors with discretion to determine the
vesting period for each stock option grant. Options typically vest in thirds over a three
-
year period
beginning on the first anniversary of the date of grant and expire four years from the date of grant.
Movemen
ts in the number of stock options outstanding and their related weighted average exercise
prices are as follows:
Number of shares issuable
pursuant to stock options
Weighted average exercise
price per share (CA$)
Balance at January 1,
2020
4,522,000
$
2.19
Granted
1,604,000
0.77
Expired
(1,480,000)
2.45
Forfeited
(223,000)
1.52
Balance at December 31, 2020
4,423,000
1.62
Granted
2,357,000
0.7
8
Ex
pired
(
375,000)
2.76
Forfeited
(
156,000)
0.78
Balance at
December 31, 2021
6,249,000
$
1.26
Options to acquire common shares have been granted and
which
are outstanding at December 31, 2021 are
as follow
s:
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
-
$1.003,733,000
2.79
0.78
486,667
2.16
0.77
$1.50
-
$2.001,341,000
1.15
1.64
894,000
1.15
1.64
$2.01
-
$2.501,175,000
0.29
2.33
1,175,000
0.29
2.33
6,249,000
1.97
$
1.26
2,555,667
0.95
$
1.79
During the year ended December 31,
2021 – $0.
, an amount of $
0.4 (
2020million
3
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:
2021
2020
Assumptions:
Risk
-
free interest rate
(%)
0.38
1.3
3
Expected life
(years)
3.63
3.63
Expected volatility
(%)
50.74
3
5.04
Expected dividend
Nil
Nil
Results:
Weighted average fair value of options granted
(per option)
CA$0.2
7
CA$0.2
1
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
23
|
Page
13.
SHARE BASED COMPENSATION
(continued)
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 a
reallocation of 10,000,000 common shares now reserved for issuance upon the vesting of
SUs
(from
the pool originally allocated for the exercise of stock options) were approved by Shareholders at the
May 8,
202
annual meeting. 0
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
, the Company recognized a share 31
2021,
-
based payment charge of $1.1
million
(2020
7 : $
0.million
. ) for the SUs granted during the
year
Number of share units
Estimated fair value at
date of grant (CA$)
Balance at January 1, 2020
1,084,990
$ 1.95
February 2
6
,
2020 grant
1,918,000
0.77
March 8, 2020
vesting
(56,463)
2.57
Balance at December 31,
2020
2,946,527
$
1.17
February 2
5
,
2021 grant
2,854,000
0.75
March 1, 2021
vesting
(276,576)
2.29
April 7, 2021
vesting
(137,195)
2.01
July 6, 2021
vesting
(151,908)
2.06
Balance at
December 31, 2021
5,234,848
$
0.83
c.
Deferred share units
In February
202
, the Company approved a deferred share unit (‘DSU’) plan0
,
ratified by Shareholders at the May 8,
2020
that provides for the issuance of up to 4,000,000 DSUs annual meetin
g,
to
eligible
directors. 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,
2021, the Company recognized a share
of -b
ased payment charge $0.
4
2020million
(: $
0.3 million) for the DSUs granted during the period.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
24
|
Page
13
.
SHARE BASED COMPENSATION
(continued)
Number of share units
Estimated fair value (CA$)
February 2
6
,
2020 grant
278,000
$
0.77
May 7,
2020 vesting
(74,000)
0.51
July 2,
2020 grant
90,923
0.62
September 30,
2020 grant
159,312
0.50
December 31,
2020 grant
159,312
0.50
Balance at
December 31
,
202
0
613,547
$
0.
52
February 25, 2021 grant
251,000
0.75
March 31, 2021 grant
102,738
0.73
June 30, 2021 grant
98,683
0.7
5
September 30, 2021 grant
120,965
0.62
December 31, 2021 grant
47,577
0.5
7
Balance at
December 31, 2021
1,234,510
$
0.59
14
.
PRINCIPAL SUBSIDIARIES
The Company had the following direct and indirect wholly owned subsidiaries at December 31,
2021
and 2020
:
Country of
incorporation and
place of business
Name
Nature of business
UK
(1)
Canada
Diamond sales platform
Canada
(1)
UK
(1)
Mauritius
(1)
Mauritius
(1)
Mauritius
(1)
Botswana
(1)
Botswana
(1)
African
D
iamonds Lt
d.Clara Diamon
d
Solutions L
imited
Partnership Clara Diamon
d
Solutions G
P I
nc. Lucara Management
S
ervices Li
mitedLucara Diamond
H
oldings I
nc.Mothae
D
iamond Holdings Inc.
Boteti
D
iamond H
oldings I
nc.Wati
V
entures P
roprietary Li
mitedDebwat
E
xploration Proprietary Li
mitedLucara Botswana Proprietary Limited
Botswana
Diamond mining
(1)
Intermediate holding company
T
he Company has pledged
the
shares heldin Lucara Botswana Proprietary Limited
, through the various intermediate holding companies, to secure the senior secured project facility (Note 10). The Company is
not allowed to pledge the shares held as security for other borrowings
.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
25
|
Page
15.
REVENUE
Revenue
from diamond sales
includes $
56.4
(2020: $7.2 million
million
in )
invoiced diamond sales to
HB
that
is considered variable
.
T
he Company’s right to consideration is contingent on
the manufactured diamond
being
sold to an end
buyer
, with
market conditions
andthe current estimated polished value provided by HB (on a
stone-
by basis) being
-
stoneconsidered in estimating the amount of variable consideration
that is
highly
probable
as at the reporting date
.
16.
ADMINISTRATION
(1)
Included are amounts incurred for the Company’s COVID
-
19 response totaling
$1.0
2020 million (
–
$0.8
million)
for the year ended December 31,
2021
.
The
amount for the year ended December 31,
2020
also
included a
$0.3 million
donation to the Government of Botswana’s COVID
-
19 Response Fund.
2021
2020
Revenue from diamond sales
$
230,078
$
125,263
2021
2020
Salaries and benefits
$
7,696
$
6,510
Professional fees and exploration
3,818
4,3
77
Insurance, office and general
1
2,512
2,540
Marketing
823
859
Stock exchange, transfer agent, shareholder communication
305
300
Travel
273
360
S
hare
-based compensation (Note
13) 1,852
1,352
Management fees
96
219
Depreciation
1,441
1,039
Sustainability and donations
1
643
724
$
19,459
$
18,280
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
26
|
Page
17.
INCOME TAXES
2021
2020
Current
$
1,518
$
593
Deferred
20,048
(
5,713
) Income tax expense
(recovery)
$ 2
1,566
$
(5,120)
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
:
2021
2020
Statutory tax rate
27.00%
27.00%
Net income
(loss)
before tax45,393
(31,398)
Computed income tax expense
(recovery)
12,256
(8,477)
Differences between Canadian and foreign tax rates
3,726
(1,055)
Non
-
deductible expenses and other permanent differences
2,066
1,011
Change in deferred tax assets not recognized
2,798
2,837
Exchange rate differences
(6)
(293)
Withholding taxes
726
857
$
21,566
$
(5,120)
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%
(
taxable income were equal to revenueonly if
)
. The Company has estimated the variable tax rate to be
33.3
for deferred income taxes%
based on current financial
performance and the which includ
life of min
e plan
es
the Karowe underground expansion.
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,
2021
, these earnings amount to $
251
47
.6 million
(2020
1: $
.3 m
illion
). 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:
2021
2020
Balance, beginning of year
$
55,905
$
63,015
Deferred income tax expense (
recovery
)
2
0,048
(5,713)
Foreign currency translation adjustment
(5
,
668
) (1,397)
Balance, end of year
$
70,
285
$
55,905
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
27
|
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17.
INCOME TAXES (continued)
Deferred income tax assets and liabilities recognized
2021
2020
Deferred income tax assets
Non
-
capital losses
$
2,
342
$
6,976
Accounts payable and other
73
0
1,598
Unrealized foreign exchange loss
234
–
Restoration provisions
3,376
7,131
Total deferred income tax assets
6,682
15,705
Deferred income tax liabilities
Mineral properties, plant and equipment
76,524
66,856
Future withholding taxes
44
3
625
Unrealized foreign exchange gains
–
1,995
Other
–
2,134
Deferred income tax
liabilities
76,967
71,610
Deferred income tax liabilities, net
$
7
0,285
$
55,905
Deferred income tax assets not recognized
2021
2020
Tax losses
$
29,863
$
26,611
Mineral property, plant and equipment
43
43
Other
deductible temporary differences
758
675
$
30,664
$
27,329
As at December 31,
2021
, the Company has non-
capital losses for income tax purposeswhich expire
as follows:
2022
202
3
2024
Subsequent
to 20
24
No expiry
date
Total
Botswana
$ –
$ –
$ –
$ –
$
1,691
$ 1
,691
Canada
–
–
–
107,065
107,065
United Kingdom
–
–
–
–
6,009
6,009
$ –
$ –
$ –
$
107,065
$
7,700
$ 1
14,765
No tax benefit has been recorded for the Canadian
and
United Kingdom
non
-
capital losses.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
28
|
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18.
EARNINGS
(LOSS)
PER COMMON SHARE
a)
Basic
Basic earnings per common share
is
calculated by dividing the net income
or lossattributable 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
.
2021
2020
Income
(loss)
for the year
$
23,
827
$
(
26,278
) Weighted average number of common shares outstanding
422,894,218
396,889,357
Adjustment for share units
5,917,28
8
–
Weighted average number of common shares for diluted
earnings
(loss)
per share
428,811,506
396,889,357
Basic and diluted earnings (loss) per share
$
0.0
6
$
(0.0
7)
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
29
|
Page
19.
RELATED PARTY TRANSACTIONS
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 fo
llows:
2021
2020
Salaries and wages
, including directors’ fees
$
2,642
$
2,290
Short term benefits
34
32
S
hare
-based compensation
1,274
976
$
3,950
$
3,298
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 and received 1,192,000 common shares and 50,000 common shares,
respectively, of Lucara. If all of the Clara performance milestones (Note
9
) 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 of 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.
Purs
uant to the
profit
-
sharing
mechanism 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 of December
31, 2021, no amountshave been paid
to date under this profit mechanism.
-
sharing
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
30
|
Page
20.
SEGMENT INFORMATION
The Company’s primary business activity is the development and operation of diamond properties in
Botswana
.
The Company has
two operating segments: Karowe Mine and Corporate and other
The .
Company’s assets
and operations
in Clara are included under Corporate and other.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 and loss on derivative liability
(
3,577
) (1,020)
(
4,597
) Foreign exchange
(
loss
) gain
(2,98
1)
2
15
(2,766)
Other
(11,129)
(11,2
50
)
(22,37
9)
Taxes
(21,
275
) (291)
(21,
566
) Net
income
(loss)
for the year
3
8,817
(14,9
90
) 23,
827
Capital expenditures
97,503
38
97,541
Total assets
38
2,
793
29,16
2
41
1,
955
2020
Karowe Mine
Corporate
and other
Total
Revenues
(1)
$
124,490
$
773
$
125,263
Loss
from operations
(
5,648
) (2,084)
(
7,732
) Exploration expenditures
(1,964)
-
(1,964)
Finance expenses
(2,073)
(414)
(2,487)
Foreign exchange
gain
(loss
) 2,298
(112)
2,186
Loss on disposal of assets
(2,620)
-
(2,620)
Other
(8,883)
(9,898)
(18,781)
Taxes
5,120
-
5,120
Net loss for the
year
(
13,770
)(12,508)
(
26,278
)Capital expenditures
(33,869)
(83)
(33,952)
Total assets
307,892
25,957
333,849
(1)
During the year ended December 31,
2021
,
one customer generated
65
%
(2020 –
44%)
of the Company’s
2021
revenue
.
The geographic distribution of non
-
current assets is as follows:Plant and equipment
Mineral properties
Other
2021
2020
2021
2020
2021
2020
Canada
$
117
$
102
$ –
$ –
$ 2
2,980
$
21,986
Belgium
78
147
Botswana
87,126
106,975
15
7,
578142,002
41,764
4,764
$
87,321
$
107,224
$
15
7,578
$
142,002
$
64,744
$
26,750
$
1.
4 million of depletion expense
(in 2021
2020
- $1.3
million
) relates to intangible assets located in
Canada
.
All
remaining
depletion and amortization expense relates to the assets at the Karowe Mine
located in Botswana
.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
31
|
Page
21.
FINANCIAL INSTRUMENTS
a)
Measurement categories and fair values
As explained in Note
4
, 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 ins
truments.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:
Le
vel 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).
December 31,
2021
December 31,
2020
Level 1:
Fair value through other
comprehensive income –
Investments
$
2,256
$
1,651
Level 2:
Derivative financial instruments
$
(
842
) –
Level 3
:
N/A
c)
Financial risk management
The Company’s financial instruments are exposed to certain financial risks, including currency, credit,
price and
liquidity risks.
Currency risk
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,
2021
, the Company
was
exposed to currency risk relating to U.S. dollar cash held within
its subsidiaries with Canadian or Pula functional curren
cy
. Based on this exposure, a 10% change in the U.S. dollar exchange rate would give rise to an increase/decrease of approximately
$2.5
million in net income for the year.
Liquidity risk
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.
The contractual maturities of long
-
term debt, and interest rate swaps are disclosed in Note10.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
32
|
Page
21.
FINANCIAL INSTRUMENTS (continued
) Credit risk
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
i
nternational 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
rcustome
,
and payment terms are longer (60 to 120 days) than the Company’s
traditional tender sales (5 days). The Company maintains
legal
title over goods
sold to HB until the initial is paid
determined
estimated polished price
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
losses, represents the Company’s maximum exposure to credit risk.
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
rate
s.
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, )
f
luctuations 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.Price risk
The Company derives its income from the sale of rough diamonds mined in Botswana, a majority of
which are sold through a quarterly tender process from Botswana. In response to
the disruptions
caused by the
COVID
19 pandemic, the Company-
received approval
rom the Government of f
Botswana to conduct quarterly tenders in Antwerp, Belgium
and
each quarterly tender since June 2020
has
been conducted in
Antwerp.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 the 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 result
s
in the Company’s revenue being exposed to a greater extent to the price movements in the polished diamond market than it is currently through its traditional tender process
for rough diamonds. The pricing of
both
polished and rough diamonds demonstrated
significant
improvement market after
during 2021 as a result of
improvedsupply and demand
dynamics t
he COVID
-
19 pandemic negatively impacted global demand for luxury commodities
in 2020
,
including
jewelry containing diamonds extent that the supply of rough or polished diamonds exceeds
.
To thedemand, this is likely to result in price deterioration and negatively impact the Company’s revenue
and
ability to generate positive cash flow from operations.
LUCARA DIAMOND CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2021 2020
AND
(All amounts expressed in thousands of U.S. Dollars, unless otherwise indicated)
Lucara Diamond Corp.
33
|
Page
22.
COMMITMENTS
As a
t
December
31
, 2021, purchase orders
and contracts that give rise to commitments for future
minimum payments
for services to be provided related to the underground expansion projec
t
amounted to (December
$
86.7million
31, 2020 The following table summarizes the
-
$9.9 million).approximate timing
of the
commitments
(
undiscounted)
at December 31
, 2021:
2022
2023
2024
202
5
and
2026
Total
Underground expansion project
$
million
67.4
9.0
4.5
5.8
86.7
The total of all commitments can be cancelled at a
n
estimated
cost of
6.7$
million as of December 31,
2021.
23.
CAPITAL MANAGEMENT
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue
as a going concern in order to pursue the development of its mineral properties and to maintain a
flexib
le 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
its
debt facility to be capital.
The Company manages the
capital structure and makes adjustments to it in light of changes in
economic conditions and the risk characteristics of the Company’s assets. In order 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.
In order to facilitate the management of its capital requirements, the Company prepares annual
expenditures budgets are updated as necessary depending on various
and life
mine plans which-
of
-
factors, including successful capital deployment and general industry conditions. The annual and
updated budgets and life
-
of
-
mine plan are approved by the Board of Directors.