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Lucara joins De Beers and Alrosa in exploring blockchain technology.

Lucara Diamond Corp. (“Lucara” or the “Company”) wishes to announce the acquisition of Clara Diamond Solutions Corp(“Clara”), a company whose primary asset is a secure, digital sales platform that will transform how rough diamonds are sold, unlocking value for diamond producers and manufacturers alike.

Clara uses proprietary analytics together with cloud and blockchain technologies to modernize the existing diamond supply chain, driving efficiencies and ensuring diamond provenance from mine to finger. Lucara has agreed to purchase Clara for a total up-front consideration of 13.1 million shares of Lucara (approximately $29 million in up-front consideration based on the closing price of Lucara common shares as at February 22, 2018) resulting in approximately 3.7% dilution to its existing share capital.

The Clara Diamond Platform

  • Clara is a commercially scalable, digital platform that applies computing algorithms to match rough diamond production to specific polished manufacturing demand on a stone by stone basis
  • Clara allows buyers to source rough diamonds tailored to specific polished diamond demand resulting in improved margins for both buyers and sellers
  • Efficiently integrates with blockchain technology, ensuring provenance tracking across the entire diamond supply chain
  • Encourages adoption of technology and accelerates innovation across the supply chain
  • Eliminates dependency on a fixed sales cycle, reducing unwanted carrying costs for all stakeholders

Expected Benefits to Lucara

  • Provides an affordable, potentially high value, near term growth platform, compatible with the Company’s core diamond mining business
  • Non-cash transaction with no expected impact on the dividend
  • Expansion of Lucara’s customer base, engaging new participants in the rough diamond supply chain and is expected to result in higher realized prices for its rough
  • Provides stable, continuous cashflow that is no longer tied to a fixed sales cycle
  • Diversifies Lucara’s existing business model with the potential to deliver strong cashflows to supplement revenue from the Karowe diamond mine
  • Supports Lucara’s reputation as an industry-leader in the adoption of new technology having invested in a technologically advanced mine design to optimize revenues and minimizing diamond losses through and building on the successful integration of XRT technology
  • Acquisition of a digital business solution that uses blockchain to unlock value and ensure diamond provenance, integrity and transparency throughout the value chain

Acquisition Terms

Lucara has agreed to purchase Clara for up-front consideration of 13.1 million shares of Lucara (approximately $29 million in up-front consideration based on the closing price of Lucara common shares as at February 22, 2018) resulting in approximately 3.7% dilution to its existing share capital.   Further staged equity payments totaling 13.4 million shares become payable upon the achievement of performance milestones related to total revenues (revenues from rough diamonds bought and sold) generated through the platform. In the event that (i) Lucara’s ownership over the Clara platform decreases below 81% or (ii) a third party acquires greater than 50% of Lucara or Lucara merges with a third party such that the current shareholders of Lucara own less than 50% of the merged entity, all of the milestones set forth above will, subject to certain exceptions, be deemed to be met immediately and the balance of the 13.4 million shares will become issuable.  However, if the acquisition or merger of Lucara occurs more than three years after Lucara’s acquisition of Clara, and the first revenue milestone has not yet been met, the 13.4 million shares will not vest and will only become issuable as and when the milestones are met.

Lucara has also agreed to a profit sharing mechanism whereby the founders of the Clara technology, and management of Clara, will retain 13.33% and 6.67%, respectively, of the annual EBITDA generated by the platform, to a maximum of US$25 million per year, for 10 years.

lucara
Lucara intends to commercialize the Clara platform in the coming months using a selection of the diamond production from the company’s Karowe Diamond Mine.

Eira Thomas, a current director of Lucara, was a shareholder of Clara and was issued a total of 1,192,000 shares of Lucara in consideration for her shares of Clara and, subject to Clara achieving the milestones described above (or upon the occurrence of a change of control event described above), Ms. Thomas will be issued up to an additional 1,788,001 shares of Lucara upon those milestones being achieved or a change of control event occurring. Ms. Thomas is also part of the existing and ongoing management team at Clara and, accordingly, will be a participant in the EBITDA sharing arrangement described above. As a result of the initial payment made by Lucara in respect of the Clara acquisition, based on the current amount of issued and outstanding shares of Lucara and those shares to be issued pursuant to the initial payment for Clara, Ms. Thomas will own 1.36% of the issued and outstanding shares of Lucara immediately after the closing of the acquisition.

As a result of the foregoing, the issuance of Lucara shares to Ms. Thomas is considered to be a “related party transaction” as defined under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”). Lucara is relying on the exemptions from the formal valuation and minority approval requirements found in sections 5.5(a) and 5.7(1)(a) of MI 61-101, as the fair market value of the transaction, insofar as it involves Ms. Thomas, is not more than 25% of Lucara’s market capitalization. The acquisition of Clara was unanimously approved by the independent directors of Lucara (with Ms. Thomas abstaining). The acquisition of Clara may close prior to the expiry of the 21 day period following the filing of the material change report respecting this announcement if management of Lucara determines it to be necessary for sound business reasons.

BMO Capital Markets acted as financial advisors and Blake, Cassels & Graydon LLP were legal counsel to Lucara on the transaction. DuMoulin Black LLP were legal advisors to Clara and Stikeman Elliott LLP were legal advisors to the founders of Clara.

The Company will host a conference call and webcast to discuss this corporate update on Monday, February 26, 2018, at 6:00 a.m. Pacific, 9:00 a.m. Eastern, 3:00 p.m. CET, and 2:00 p.m. GMT.

Conference Call

Please call in 10 minutes before the conference call starts and stay on the line (an operator will be available to assist you).

Conference ID:

3283457 / Lucara Diamond

Dial-In Numbers:

Toll-Free Participant Dial-In North America: +1-844-892-6587

All International Participant Dial-In: +1-661-378-9938

Webcast

To view the live webcast presentation, please log on using this direct link:

https://edge.media-server.com/m6/p/qgn7hogh

The presentation slideshow can be obtained in PDF format by contacting info@lucaradiamond.com at least 10 minutes before the conference call, and a copy will be emailed to you.

Conference Replay

A replay of the telephone conference will be available two hours after the completion of the call until March 5, 2018.

Replay number (Toll Free North America): +1-855-859-2056

Replay number (International): +1-404-537-3406

The pass code for the replay is: 3283457

CLARA_LUC_PR_02252018

Lucara now joins De Beers and Alrosa in exploring blockchain technology.

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