2012 Sustainability Report - Lucara Diamond Corp.

Sustainability Report2012

10ABOUT LUCARA DIAMONDLucara Diamond is a new diamond producer. Its two key assets are the KaroweDiamond Mine in Botswana and Mothae Project in Lesotho. The 100% ownedKarowe Mine is a newly constructed state-of-the-art mine. It was commissionedduring the second quarter of 2012. The 75% owned Mothae Project is at trialmining stage. Both Karowe and Mothae are large scale assets with tonnage andthroughput upside and production has consistently yielded large, Type IIA stones.Lucara is a member of the Lundin Group of Companies and is listed on the TSXExchange, NASDAQ OMX First North Exchange and Botswana Stock Exchangeunder the trading symbol “LUC.”Production Statistics (Year 2012)Waste Stripped(tonnes)Ore Mined(tonnes)Ore Processed(tonnes)Recovered Grade(cpht)CaratsProducedIn This Report01 Message from the CEO03 Corporate Responsibility04 Operation and ExplorationAbout Karowe MineAbout Mothae Diamond Project06 Governance and Ethical ConductOur Guiding Principles5,490,5091,653,4861,391,18222.0303,06008 Economic ContributionOur Operations10 Environmental PerformanceWater ManagementEnergy and Carbon EmissionClimate ChangeEnvironmental IncidentsWaste ManagementBiodiversityWaste Rock & Tailings ManagementRelocation PlanDecommissioning & Site RestorationEnvironmental Expenditures14 Labor, Health and Safety16 Stakeholder Engagement18 Community Investments20 Product IntegrityThe Kimberly Process22 About Diamonds24 About This ReportPHOTO-COVER: Karowe mill completed in Q1/2012

MESSAGE FROM THE CEOOverviewIt is my pleasure to introduce Lucara Diamond’s inaugural sustainability report. It is myfirm belief that the company cannot sustain good financial and operational performancewithout simultaneously achieving our objectives in health and safety, environmentalstewardship, human resource development, and community investment.The landmark event of 2012 was the commissioning of our first operating asset – theKarowe Mine-in Botswana. Production commenced in April 2012, and the mine achievedfull design capacity in August 2012, producing 303,060 carats of diamond by year’send, 12% above forecast. There were five sales of Karowe diamonds in 2012, generating$54 million in a challenging market environment. Diamond production at Karowe alsoincluded an exceptional 9.46 carat blue diamond, which sold for $4.5mn ($447,272 percarat). Lucara is proud to contribute to prudent and responsible mineral development inBotswana, which has facilitated the country’s transformation from one of Africa’s poorestto the ranks of upper-middle income countries.With the Trial Mining phase complete, our Mothae development project in Lesothohas fully transitioned to a small care and maintenance team. Initial indications fromthe Preliminary Economic Assessment (PEA) work indicate that the project does notcurrently meet required internal hurdle rates to proceed with further development.This is due both to prevailing economic conditions, which continue to exert downwardpressure on diamond prices, and high infrastructural costs due to the remote nature ofthe site. Project development options will continue to be evaluated throughout 2013.William Lamb, CEO, Lucara Diamond Corp.HighlightsAt each of our operations, we seek to create a sustainable legacy of social and economicimprovement. To ensure alignment with community priorities, Lucara has an extensivestakeholder engagement program. The company has also formed a long-termpartnership with the Lundin Foundation (to which it contributes directly) to leadcommunity investment strategy and implementation.In Botswana, the Lundin Foundation conducted extensive research (both directly andthrough external consultants) on value chains in Boteti Sub-District. Through ongoingconsultations with local stakeholders, two initiatives were identified that we believe willdeliver superior returns to the local population. First, the Lundin Foundation partneredwith Barclay’s Bank (Botswana) and the Local Enterprise Authority (LEA) to deliver aninnovative microenterprise loan facility targeting women- and youth-led business tostimulate job and wealth creation in the Boteti Sub-District. Second, the LundinFoundation has tabled detailed drawings and plans to upgrade and expand theexisting abattoir to increase economic value retained by local livestock owners.In Lesotho, 2012 saw the completion of a multi-year Village Savings and Loans (VSL)program in the highlands. This program, supported in its entirety by the LundinFoundation, enabled over 13,000 families to access finance through group loans,enabling participants to acquire both movable and immovable assets (upgraded houses,furniture, and agriculture equipment amongst many) and send their children to schoolas well as access health care when required. Cumulatively, participants saved morethan USD1,250,000 over the life of the project. During the latter half of 2012, select VSLgraduates were invited to participate in a smallholder poultry production pilot, which willinitially provide local mines with a year-round supply of locally produced eggs.At the Karowe site, outstanding safety performance was recognized in 2012 by theBotswana Chamber of Mines: Karowe tied for first place for Classified Injury FrequencyRate (CIFR), and was awarded first place for Total Recordable Injury Frequency.Complementing this excellent safety record, there were no reportable environmentalincidents in 2012.01LUCARA DIAMOND CORP. Sustainability Report 2012

Looking AheadLooking ahead to 2013, Lucara will work diligently to maintain its reputation as a valuedpartner in the countries and communities in which we operate. Three sustainabilitychallenges are foremost in our strategic planning:The first challenge relates to the availability and efficient use of scarce water resources.We recognize fully the need to review and, where possible, reduce, our water useintensity and consider usage rates and requirements of other water users.Second, as we continue the transition from construction-stage to a growing diamondproducer, we recognize increasingly the critical importance of recruitment and talentretention. Alongside the development of personnel, we will continue to ensure a strongunderstanding of SHE policies to ensure the maintenance of our exceptional health andsafety performance.And third, local communities both expect and deserve tangible benefits from ouroperations We will continue to work alongside civil society and government partnersto make strategic community investments aligned with long-term social and economicdevelopment priorities identified through stakeholder engagement.Karowe produced 303,060 carats ofdiamond in 2012, 12% above the forecastof 271,000 caratsWilliam LambPresident and CEO02LUCARA DIAMOND CORP. Sustainability Report 2012

CORPORATE RESPONSIBILITY2012 Highlights and 2013 ObjectivesCATEGORY2012OBJECTIVES2012ACHIEVEMENTS*2013OBJECTIVESHealth & SafetyNo fatalities,no lost time injuries,no occupational diseasesNo fatalities, no LTIs,no occupational diseasesNo fatalities, no LTIs,no occupational diseasesWater ConservationMove towards 25% recycledwater from slimes return atsteady-stateRecycled water contributedover 22% of water demandExplore conservationopportunities;25% recycled waterReportable SpillNo material orreportable incidentsMinor slime spills (inert),no significant spills of fuels,reagentsDefine risk and reportingclassification; no reportableincidentsRestoration ofDisturbed AreasTop soil storage,reclamation test plotsTop soil stored in designatedareasTest waste rock,set up re-vegetation test plotsCommunity InvestmentIdentify and launch projects atKarowe;Explore Phase II of VSL #initiative in MokhotlongKarowe: Value chain analysis,microcredit; loan guaranteescheme;Completion of MokhotlongVSL # initiative;pilot smallholder poultryproductionRoll-out microcredit loanguarantee scheme inpartnership with Barclay’sBank Botswana and the localEnterprise Authority; exploreupgrade/expansion ofLetlhakane abattoirProduct IntegrityImplement, follow KimberlyprocessComplied with KimberlyprocessContinue to follow Kimberlyprocess*The operation of the Karowe Diamond Mine was started during the second quarter of 2012; # Village Savings & Loans03LUCARA DIAMOND CORP. Sustainability Report 2012

OPERATION AND EXPLORATIONAbout Karowe MineThe Karowe Mine is located innorth-central Botswana and is part ofthe Orapa/Letlhakane Kimberlite district.This area is one of the world’s mostprolific diamond producing areas. Thearea has a history of diamond miningdating to 1971 when operations startedat the nearby Orapa Mine, one of thelargest diamond mines in the world.The Karowe Mine is an open pit minewith a Mine Life of over 15 years. TheKimberlite at the Karowe Mine (the “AK6Kimberlite”) comprises a single, tri-lobateKimberlite pipe, which is “pinched” atsurface. Its sub-outcrop consists of a coreof Kimberlite, covering an area of 4.2 ha,surrounded by an area where theKimberlite is capped by basalt or basaltbreccia. Drilling has shown that theKimberlite bulges to a maximum areaof 7 ha at a depth of 120 m.The area hosting Karowe lies on thenorthern fringe of the Kalahari Desertof central Botswana. This area ischaracterised as flat lying sand savannahwhich supports a natural vegetation oftrees, shrubs and grasses. The naturalvegetation has been modified by manyyears of cattle grazing and limited arablefarming. The climate is hot and semi-arid.The property is accessed by 15 km ofall-weather gravel and sand road fromthe tarred Letlhakane to Orapa road.Letlhakane is the nearest town withan estimated population of 25,000.Electrical power is provided by BotswanaPower Corporation’s national grid.Water requirements for Karowe andother the existing mines are met bygroundwater resources.What’s in a Name?The Karowe Diamond Mine waspreviously known as “AK6 Kimberlite”.This designation had been assignedto it while still an exploration target.To find a more imaginative name,Lucara initiated a contest with cashprizes and invited local schools tocome up with a better name.Loiponeng Mabu from MakgadikgadiCommunity Junior Secondary Schoolin Mosu Village came up with thewinning entry: “Karowe”. It means“precious stone” and proved abefitting name. Karowe’s treasureof precious diamonds producedso far has included exceptionallyrare blue diamonds.About Mothae Diamond ProjectTrial mining at the Mothae Diamond Project in LesothoThe Mothae Diamond Project is locatedat an elevation of 2,900m above mean sealevel in the Maluti Mountains of Lesotho.The project is located approximately 150km northeast of Maseru, the capital, andis characterised by undulating highlandplateau and cool subtropical continentalclimate. The Mothae mining lease coversan area of 20 km2. The Project hostsa large diamondiferous Kimberlite pipewith an estimated surface extent of 8.8hectares and is located adjacent to anddirectly on trend with the world-famousLetseng diamond mine. The MothaeProject area is served by a modestinfrastructure. Surface water is abundantin the area. The high plateau ischaracterised by alpine grassland withsporadic scrub in more sheltered areasand valleys. Boggy swamps are quitecommon in the mountains, especiallyat the heads of valleys and overlyingKimberlite pipes; these usually comprisegravel, a thick soil horizon and surfacepeat.04LUCARA DIAMOND CORP. Sustainability Report 2012PHOTO-RIGHT: Crushed Kimberlite conveyed into Karowe’s mill

GOVERNANCE AND ETHICAL CONDUCTWe believe that good governance and ethical conduct arenecessary both to generate shareholder value and meet ourstakeholders’ expectations.Lucara continues to progress as a responsible corporation through our field practices,management systems in Environment, Health and Safety, contributions to thecommunities where we operate, and our commitment to ongoing stakeholderengagement. Corporate responsibility is increasingly central to our strategic andoperational thinking. We cannot sustain good financial and operational performancewithout simultaneously achieving our objectives in health and safety, environmentalstewardship, human resource development, and community investment. We believe ourtransparent approach to doing business is the only way to fully engage our stakeholdersin a meaningful, mutually beneficial, relationship.Lucara’s vision of Corporate Responsibility is premised upon a set of principles(see next page) which guide our relationships with shareholders, employees, partners,governments, and the communities affected by our operations.Lucara Diamond, which is a publically listed company, has adopted a Code of BusinessConduct and Ethics (“Code”). Our Code sets out key guiding principles that LucaraDiamond Corp. and its subsidiaries expects of its employees, directors and officers.This Code is designed to deter wrongdoing and to promote:Honest and ethical conduct, including the ethical handling of actual or apparentconflicts of interest between personal and professional relationships;Avoidance of conflicts of interest, including disclosure to an appropriate person of anymaterial transaction or relationship that reasonably could be expected to give rise tosuch a conflict;Full, fair, accurate, timely and understandable disclosure in reports and documentsthat the Company files with, or submits to, regulatory authorities and in other publiccommunications made by the Company; Compliance with applicable governmentallaws, rules and regulations;The prompt internal reporting to an appropriate person or persons of violationsof this Code;Accountability for adherence to this Code.In line with the Government of Canada’s Corporate Social Responsibility Strategy forthe Canadian International Extractives Sector, Lucara Diamond is supportive of globalinitiatives that address a wide range of corporate responsibility related issues. Theseinclude the OECD Guidelines on Multinational Enterprises; the Global Reporting Initiative(GRI); the Voluntary Principles on Security and Human Rights; and the IFC PerformanceStandards on Social and Environmental Sustainability. Lucara is also a member of theBotswana Chamber of Mines.There were 5 sales of Karowe goods in 2012generating a total of $54 million in revenue.Our Code, along with our WhistleblowerPolicy, is available in full on our website(http://www.lucaradiamond.com). Wehave also adopted a Corporate SocialResponsibility Charter and related GuidingPrinciples. These are also web-posted anddetailed in subsequent sections of thissustainability report.Lucara’s Board of Directors is comprisedof seven directors who are electedannually. Lucara’s AGM InformationCircular, which is available on ourwebsite, details the background,independence and experience of eachdirector. The Board of Directorsmaintain four board-level Committees.These comprise Audit; Compensation;Corporate Governance and Nominating;and Safety, Health, Environment andCommunity Relations. In addition there isan advisory committee composed of twonon-board members to assist the SHECRCommittee in completing its mandate.06LUCARA DIAMOND CORP. Sustainability Report 2012PHOTO-RIGHT: The Karowe mine treated 1.4 million tonnes of ore, 9% above forecast in 2012

Our Guiding Principles1We consider the health and safety of our employees and adjoining communities in all aspects of our operations.2 We initiate and promote ongoing dialogue and engagement with a broad range of stakeholders, maintained in a spirit oftransparency and good faith.3 We exercise vigilance in protecting the environment and seek ways to minimize our environmental footprint. We strive toalways meet or exceed regulatory requirements in our environmental performance.4 We conduct our activities in accordance with accepted standards in the protection and promotion of human rights.5 We recognize that every community is unique and respect the cultural and historical perspectives and rights of those affectedby our operations.6 We provide a rewarding and meaningful livelihood to our employees. We provide suitable training opportunities and resourcesare made available to employees to assist them in performing their duties.7 We seek to provide employment, business and economic opportunities for local communities from our existing operationsand new projects.8 We seek to provide lasting benefits to the communities where we work by promoting sustainable social and economicinitiatives. We work consultatively with our community partners to ensure that our support matches their needs.9 We maintain high standards of corporate governance, ethics and honesty in all of our dealings, and operate in complianceboth with Canadian stock exchange listing and disclosure requirements and the local laws wherever we work.10 We engage with our industry peers, associations, governments, non-governmental organizations, and civil society to contributeto best practice development and track evolving global standards.

ECONOMIC CONTRIBUTIONKarowe was commissioned and achieved design capacity in August 2012. Trial mining at Mothaewas completed and ongoing evaluation of development opportunities will continue through 2013.Our economic contributions includewages, procurement of goods andservices, taxes and royalties togovernments, and community investmentprograms. Southern Africa’s rich diamondmining heritage has enabled us to drawour workforce primarily from the hostcountries where we operate. The resultsof our economic contributions, primarilydriven by the first nine months ofoperations at Karowe, are summarizedin the following table.Diamonds Boost BotswanaExceptionally rare 9.46 carat blue diamond recovered at Karowe sold for $4.5 millionEconomic Performance 2012 (Karowe)USDRevenues55.1mOperating Costs42.8mBotswana was one of the poorestcountries in Africa with a percapita gross domestic product (GDP)of about US$70 when it gainedindependence from Britain in 1966.Botswana has since joined the ranks ofupper middle-income countries and isone of the fastest growing economiesin the world. Diamonds account forapproximately 76% of Botswana’sexport revenue, 45% of thegovernment revenue and 33% of thegross domestic product (GDP).Employee CompensationLocal Procurement (Southern Africa)Payments to Government (Royalties)Payments to Capital Providers (Lucara cashcalls)Community Investments 1Economic Value Retained5.1m30.2m5.5m7.6m22,00040.80mNote 1: In addition to its direct community investments, Lucara Diamond has contributed $1,320,000to the Lundin Foundation, charged with sourcing and managing its community developmentprograms both in Botswana and LesothoPHOTO-RIGHT: Sorting produced diamonds at Karowe’s mine sort house08LUCARA DIAMOND CORP. Sustainability Report 2012

ENVIRONMENTAL PERFORMANCELucara recognizes that its operations can have significant environmental impacts throughoutthe life cycle of our mining operations. We recorded no significant environmental incidents during thereporting period. We continue to prioritize the efficient use and recycling of water to meet operationalrequirements and mitigate impacts on local communities.Some of the impacts of mining include land use changes, environmental degradation,and cumulative impacts, such as drawdown of groundwater tables, offset by increasedeconomic opportunities and development in the areas of infrastructure, health,education, and micro-enterprise. We operate under the Equator Principles and theguidance of local authorities throughout the life of a mine. This includes use of baselineassessment tools and conducting environmental impact assessments; evaluating howto avoid, mitigate or control potentially significant impacts; implementing appropriatemonitoring and management systems; and addressing the need for mine closure. OurEnvironmental Policy is posted on our website: www.lucaradiamond.com.Water ManagementTo develop the Karowe Diamond Mine,we need to conduct dewatering activitiesaround its open pit mine. This enablesand supports safe mining activities. Thewater obtained through this process isalso required to operate the mill.Additional water volumes are needed tomeet the needs of the mill. This volumeis pumped from aquifers using a seriesof groundwater wells. The water qualityfrom these aquifers is generally notconsidered fit for human consumption.Once the Kimberlite ore is ground inthe mill and rough diamonds have beenseparated, the slurry containing processwater and ground rock is dischargedto the slimes (or tailings) dam area.Supernatant water in the dam iscollected and recycled back intothe milling process. The volume,contribution and primary source of waterused at Karowe is tabulated further below.Given challenges and costs associatedwith groundwater extraction we willexplore additional opportunities to furtheroptimise water use and increase waterrecycling within the milling andprocessing operations.Water supply and its efficient management is an important aspect of mining at KaroweWater Supply Use (m 3 ) % Intensity Source (Aquifer) DischargeGroundwater 1,444,369 78 4.77 Mosolotsane, Ntane No direct dischargeRecycled 404,802 22 1.34Total water 1,849,171 100 6.10Water intensity is defined as volume of water (m 3 ) per carat produced (303,060)The presence of several, large scalediamond mining operations in the region,all involved in dewatering activities andrequiring additional groundwaterresources for production purposes, hasbeen creating cumulative impacts, suchas the reduction of groundwater tables.In some cases, this can adversely impactlocal communities who may be usinggroundwater resources for activities suchas cattle farming.We have started to report our water use to the Local Water Board. This provides anopportunity to all major water users to collate and analyse regional data to improve themanagement of water resources. We have started to engage with other major diamondmining operations in the region directly to better coordinate our cumulative groundwaterabstraction activities.10LUCARA DIAMOND CORP. Sustainability Report 2012

Energy and Carbon EmissionsMining is an energy intensive activity.Diesel fuel consumed by our mining truckfleet accounts for the bulk of our directenergy use. The electricity we source fromthe national power grid to operate ourmill accounts for the bulk of our indirectenergy use. Our energy consumptiondrives our Greenhouse Gas Emissions(GHG) as tabulated further below.A review of our energy consumptionand GHG intensity shows favourablylow numbers when compared to ourpeers.Climate ChangePotential adverse physical impacts fromClimate Change to our operation mayinclude changes in frequency anddistribution of precipitation patterns.These may have storm water run-off,re-vegetation and other closureimplications. It may also furtherincrease competition for groundwaterresources which are the primary watersource we use to operate our mill atKarowe. Any multilateral treaty-imposingcarbon constraints on Botswana, whichrelies materially on coal for its growingenergy generation, may impact energygeneration capabilities or increase costs.Such costs may be passed on to largeindustrial consumers. In the highlandof Lesotho, the impact of Climate Changein terms of changes in frequency anddistribution of precipitation patternsmay have implications in terms of excesswater balance and associated need forits appropriate management.Karowe’s electricity need is supplied by the national gridEnergyConsumed (GJ)% IntensityDirect13,077.0415 0.04Indirect 74,221.20 85 0.24Total 87,298.24 100 0.29Intensity expressed as energy used Gigajoules (GJ) per carats recovered, corporate officesand travel not includedGHGCO 2(tonnes)% IntensityDirect8051.53 2.66Indirect 51,903 98.47 171.26Total 52,708 100.00 173.92Greenhouse Gas (GHG) emissions intensity expressed as CO 2(tonnes) per 1,000 carats recovered;Energy to GHG conversion rate from IEA for Botswana (2012): 2,517.48 g CO 2/kWHEnvironmental IncidentsAs part of our Environmental Management Plan for Karowe, we have also developed anEmergency Preparedness and Response Plan. The most hazardous chemical on our site isHydrofluoric Acid, which is used to clean recovered rough diamonds from any attachedhost rock materials. We record and report significant environmental incidents and spills.We are currently developing a tiered classification and reporting system. No materialincidents were recorded during the reporting period, although some minor spillageof slimes occurred. These were contained on site and did not result in any significantenvironmental impacts. We also track the status of public complaints (such as thosewhich might relate to dust) through a formalized grievance mechanism. This mechanismis detailed further in the Stakeholder Engagement section of this report. In 2012,we recorded no complaints.11LUCARA DIAMOND CORP. Sustainability Report 2012

Waste ManagementOur Environmental Management Plandetails our waste management strategyand approach. It is designed to avoidon-site waste burial. Instead, wastes arecategorized and sorted into three maincategories to enable transport off-sitefor recycling, processing or disposal.The three categories are defined as inert,general, and special wastes. The latterincludes different classes of hazardouswastes. We also collect and transport oursewage waste by tanker to the municipalsewage plant. We are planning to installour own sewage treatment plant at themine site.The following table details the volumesof wastes produced during the reportingperiod. Other waste materialstemporarily stored on site includeconstruction rubble and scrap metals.We plan to expand our reporting ofwaste materials next year.BiodiversityThe broader area hosting the Karowedeposit has been modified through manyyears of cattle grazing and other pastoralactivities. The ecological baselines studies,which were carried out during theEnvironmental Impact Assessment stage,did not identify the presence of protectedflora and fauna at Karowe. However, wehave developed a Biodiversity Action Planto promote and support habitatpreservation. Recommendations includethe protection of the woody vegetationwhere practical, developing a nurseryfor Acacia erioloba (Mogotlho), anddeveloping a weed eradication program.Soil, overburden and waste rock are stored in designated areasCategoryQuantityGeneral Disposal MethodDomestic waste91 tonsMunicipal landfillSewage 1,302 m 3 Municipal sewage plantWaste oil 54,788 L Returned to supplier*Waste grease2,520 LReturned to supplier*Domestic waste and waste oil data from January to December 2012*Waste oil and grease is used as fuel in kilnsWaste Rock & Tailings ManagementThe mining of our deposit requires theremoval of overburden and waste rocksto provide access to the diamond-bearingKimberlite ore. This waste rock isdeposited in designated areas. Aftermilling the ore and extraction ofdiamonds, the remaining tailings/slimesare disposed of in engineered tailings/slimes storage facilities. The tailings/slimes structure is designed to beexpanded in stages. The quantities ofwaste rock generated and ore mined overthe reporting period are tabulated below.PRODUCTION STATISTICS 2012Waste Stripped (tonnes) 5,490,509Ore Mined (tonnes) 1,653,486Ore Processed (tonnes) 1,391,182Recovered Grade (cpht) 22.0Carats Produced 303,06012LUCARA DIAMOND CORP. Sustainability Report 2012

Relocation PlanThe development of Karowe resulted insmall scale resettlement impact relatingto four cattle posts and two farms duringthe main construction phase (2010-2012).The Letlhakane Sub-Land Board, which isresponsible for the tribal land hosting theKarowe mine, determined replacementland for relocation, completed acompensation assessment report, anddefined compensation amounts payableto each claimant. With one exception,project affected people have beensatisfied with the outcomes of theRelocation Plan. As noted also in theStakeholder Engagement section of thisreport, the owner of one cattle post haslodged a grievance with Lucara. Wecontinue to provide interim assistance(supply of water for the cattle post) andwork diligently with local authorities towardsfinding an amicable resolutionto this case.Decommissioning & Site RestorationDetermining environmental expenditureswith precision is difficult. These outlinethe requirements that will be carried outto meet our closure-related obligations.Our rehabilitation costs are expected tobe incurred in the period of 2022 to 2024.As discussed further in Lucara’s FinancialReport, the estimated total liability forreclamation and remediation costs on anundiscounted basis is approximately $16.9million (Karowe: $15.8 million; Mothae:$1.1 million). At this early stage of theoperation at Karowe, we have notcompleted any re-vegetation orreclamation activities.The primary crusher at KaroweKey Environmental Expenditures (2012)Capital (USD)Tailings and slimes management381,221Water recycling1,916Community relations and investments 21,375Environmental monitoring77,326 35,539Waste management323,391 129,736Rehabilitation and mine closure15,385Estimated totalEnvironmental ExpendituresOperating (USD)781,937 203,950Determining environmental expenditures with precision is difficult. This is because manyof our environmental management practices and expenditures are part of developingand operating a mine effectively. The most significant expenditures related to broaderenvironmental aspects and management of our facilities relate to the construction andphased expansion of our tailings and slimes facilities, the activities related togroundwater supply and recycling, and environmental planning and monitoring.13LUCARA DIAMOND CORP. Sustainability Report 2012

LABOR, HEALTH AND SAFETYWe are very pleased with the prize-winning health and safety performance at Karowe.This underlines that, at Lucara, safety is a priority. We believe there is a clear relationshipbetween safe and healthy workplaces and optimal production results.At the end of the reporting period,the workforce running our operationsin Botswana numbered 437 as detailedfurther below. This includes our ownworkforce of 79, recruited exclusively fromthe Southern Africa region. Ourfull-time workforce generally receiveshousing allowance, medical aidsubsidy, gratuity and group life insurance.Although the Karowe operation is notunionised, we do not place any formof restriction on right of association.We continue to maintain open andcollaborative communication channels.We did not record any incident ofdiscrimination or other types of humanright violations. Also, we did notexperience any strikes or lockouts.As not uncommon for this stageof a mining operation, which ischaracterised by a transition fromconstruction to operations, we weresupported by an outsourced contractmining group and process/mill contractor,both recruited from southern Africa.Award WinningSafety Performance at KaroweWorkforceNumberFemaleFixed term contracts (Boteti)79 18 57 22Turnover by age < 30 year1Turnover by age 30-50 years91Turnover by age 50-60 years1Total Boteti turnover (%) 115.8Unionised0Contract Mining (Minopex)82 19Construction Contractor (Kalcon) 276 63Total% of TotalMale437 383 54Note 1: includes two expatriate males (ages not identified); Lucara has a 100% indirect interest inBoteti. Karowe is owned 100% by Boteti.At Lucara, safety is a priority. Our line managers are held accountable for their safetyperformance and management at each site is supported by professional safety staff.All employees are expected to be engaged in maintaining safe work sites throughinvolvement in health and safety committee meetings and through conducting safetyinspections. They are given safety training at commencement of employment andregularly throughout their career. Each site maintains a Joint Health and SafetyCommittee (JHSC) which addresses new regulations, site procedures and actionsto improve health and safety, and an emergency response capability suited to itsworking environment and risks. We record and report our health and safety performance,which is tabulated below. This year, our award winning performance was recognized bythe Botswana Chamber of Mines (see box). Our Occupational Health and Safety Policyis posted on our website: www.lucaradiamond.comKarowe’s outstanding safetyperformance in 2012 was recognizedby the Botswana Chamber of Minesduring its annual safety awards.Karowe tied for first place forClassified Injury Frequency Rate (CIFR),and won the first place each in theTotal Recordable Injury Frequency Rate(TRIFR) and Most improved ClassifiedInjury Frequency Rate.Safety Performance IndicatorFatality IncidentsLost Time IncidentsShift LostOccupational DiseasesMedical Treatment CaseRestricted WorkFirst Aid CaseNear Misses/Near HitExposure HoursLost Time Frequency RateSeverity RatePerformance for 2012 Project to Date0 00 00 20 03 60 023 37889 1,0832,183,980 2,454,2790 0.090 0.16314LUCARA DIAMOND CORP. Sustainability Report 2012PHOTO-RIGHT: Karowe achieved award winning health and safety performance in 2012

STAKEHOLDER ENGAGEMENTWe engage with a broad range of stakeholders in a structured way.This is done in a spirit of transparency and good faith.Our approach at the Karowe DiamondMine exemplifies how we implementLucara’s Corporate Social ResponsibilityCharter (see next page). Following onstakeholder engagement and consultationwhich was conducted during theenvironmental impact assessment stageof Karowe, we opened and staffed aCommunity Liaison Office in Letlhakane,the nearest town. This made us moreaccessible and improved our ability toreach out to our local communities, localgovernment institutions, and traditionalcommunity meetings (known as kgotla)and leadership structures.We developed a formal StakeholderEngagement Plan to provide furtherstructure to our efforts to maintainpositive relationships with ourstakeholders. During the reportingperiod, we conducted 15 planned kgotlameetings to engage with ourstakeholders, share project status updates,and provide opportunities for feedback.Towards the end of 2012, we alsoorganized a dedicated meeting for theleadership of our local communities fromLetlhakane, Mosu, Mmatshumo,Mokobaxane and Mopipi. The purposeof this event was to continue to provideproject updates, invite their feedbackabout our performance, and identifyopportunities for further improvementand collaboration.Our staff also routinely attends andcontributes to a variety of othercommunity meetings and events.Examples include establishing aWomen Empowerment Network,awareness raising about and promotingbehavior change to prevent HIV/AIDS,organizing a volunteer-based villagegarbage cleaning, and contributing toa crime prevention event.16LUCARA DIAMOND CORP. Sustainability Report 2012Karowe addressing traditional community (or kgotla) meetingsKarowe has also introduced a formalized grievance mechanism. This allows us to receive,log and acknowledge grievances which may be associated with our operations fromtime to time. All grievances are assessed, prioritized and forwarded for action to theappropriate department tasked to investigate and resolve issues of concern. Oncegrievances are closed off, they remain subject to monitoring.Stakeholder Preceptions:Commended the Karowe mine for being the first mining company to address Kgotlameetings in the villages with regular updates on mine construction and operationsMicroenterprise facility and proposed abattoir project initiatives widely appreciatedKey Expectations:Karowe Diamond Mine to advertise vacant posts in the various villages and give theresidents of the villages equal opportunities for employmentLivestock owners suggested that an expanded / upgraded abattoir buy cattle directlyfrom them, such that improvements can benefit the community as a whole and notjust middle menWorkshops are needed on how to run a business to ensure community memberscan access the microenterprise loan facilityFollow-ups:The Local Enterprise Authority has generously agreed to conduct workshopson business planningLundin Foundation is working actively with the Botswana Ministry of Agricultureand District Council to ensure benefits are commuted to livestock ownersVacant posts are now communicated and advertised in villages proximateto Letlhakane

Corporate SocialResponsibility CharterLucara Diamond Corp (Lucara) willinitiate and promote ongoing dialoguewith a broad range of stakeholdersacross our operations, maintained ina spirit of transparency and good faith.Lucara recognizes that effectivestakeholder engagement can createvalue and mitigate risk for both thecompany and its stakeholders. Weacknowledge that mining is, bydefinition, finite and therefore willwork to provide lasting benefits in thecommunities where we live and work.Lucara will:Work consultatively with communitypartners to ensure that our supportmatches their needs; Ensure that oursupport is focused on sustainablecommunity development rather thandependency;Impact positively on the quality of lifeof members of the local community;Seek opportunities to maximizeemployment and procurement forlocal communities through the provisionof suitable training opportunities andresources; andConduct our activities to meet orexceed accepted standards in theprotection and promotion ofhuman rights.Opening of Karowe mine by Botswana’s President Lt. General Seretse Khama Ian Khama (center),Ribson Gabonowe, Managing Director of Boteti (left) and William Lamb, President of Lucara (right)The development of Karowe required the implementation of a small relocation planduring 2010-2011 relating to four cattle posts and two farms. With one exception,project affected people have been satisfied with their compensation and otherassistance provided to them by Lucara. The owner of one cattle post has lodged agrievance. We will continue to work with this stakeholder and local authorities, and applyour best efforts to also resolve this case in a fair and amicable way.Our biggest event in 2012 was the official inauguration of the Karowe Diamond Mine byLt. General Seretse Khama Ian Khama, the President of the Republic of Botswana. As partof this event, we invited numerous community leaders and members from nearby villagesto join and help us celebrate this important milestone. We had the opportunity to hosta meeting of the Botswana Chamber of Mines and share the progress of our operationswith the members and officials of the Chamber.StakeholderEmployees &ContractorsGovernmentLocalCommunitiesCustomers &End-usersShareholdersFinancialInstitutionsKey Interests & ConcernsOccupational health and safety,job-security and advancementEconomic impacts, KimberlyProcess, complianceImpacts, local employment,community investmentsEngagement Method & ResponseMeetings, performance reviews,training, newslettersConsultation, permits, inspections,strategic community investmentsEngagement, grievancemechanism, strategic investmentsConflict diamond-free supply chain Tight security, governmentinspections, Kimberly certificationGood corporate governance,financial performance,risk managementConcordance with EquatorPrinciples, risk managementListing-related disclosure, briefingof analyst and investors, mediareleases, Sustainability ReportingEIA and Management Plan, audits,Sustainability ReportingCelebrating Karowe’s opening17LUCARA DIAMOND CORP. Sustainability Report 2012

COMMUNITY INVESTMENTSMining is, by definition, a finite activity, Lucara therefore works diligently to identify and supportinitiatives that will provide benefits both during, and beyond, the life of the mine in the communitiesand countries where we live and work.Lucara provides its strategic community investments through the Lundin Foundation,which is the philanthropic arm of the Lundin Group of Companies. The LundinFoundation invests patient capital (debt, equity, and guarantees) and provides strategicgrants to high potential small and medium sized businesses across Africa with a view togenerating wealth and employment needed to alleviate poverty on a sustained basis.The selected projects and activities related to Karowe and Mothae are detailed below.For Karowe, the Lundin Foundation has developed an innovative partnership withBarclay’s Bank Botswana and the Local Enterprise Authority (an agency of theGovernment of Botswana) to support early stage microenterprise development in BotetiSub-District. Through this program, the Lundin Foundation provides a 75% guaranteeon start-up and asset-based loans issued by Barclay’s to residents or businesses in BotetiSub-District, with a particular focus on youth- and women-led enterprises. The LocalEnterprise Authority will assist potential clients of the loan guarantees scheme withbusiness plan development and customized training/support throughout the durationof the loan. This program will launch officially in March 2013. During 2012, the LundinFoundation also explored investments in three sectors of the local economy:horticulture, ecotourism, and livestock. The results of the work have led to thedevelopment of a detailed proposal to co-finance an expansion and upgrade of theLetlhakane abattoir. We believe this initiative, together with support from Botswana’sMinistry of Agriculture, will provide significant long-term benefits to livestock ownersin the Sub-District.Other examples of contributions relating to Karowe include a computer donationto the Supang Primary School, a donation of reflective vests to promote and improvethe safety of pupils walking to school alongside the main roads, and donation of blanketsto needy families in the Mokobaxane Village.Village Savings and Loan Program in LesothoIn Lesotho, 2012 witnessed thecompletion of a multi-year Savings andLoans initiative supported in full by theLundin Foundation, through which morethan 13,000 families gained access tosavings and loans products in the Lesothohighlands. Over the term of the program,significant wealth and job creationimpacts were observed, and participantscumulatively saved over US$1,300,000.Access to affordable and appropriatefinancial services through VSLs can enableremote communities to realize their basicneeds, build their assets, earn stable andsecure incomes, mitigate unexpectedevents and participate in market-linkedlivelihood enhancement activities. CAREand the Lundin Foundation alsocommenced a pilot project to validatethe commercial viability of establishingfull-scale poultry operations (layers andbroilers) in Mokhotlong District to servelocal mines and formalizing linkagesamong VSL groups and formal financialinstitutions.Launching loan guarantee scheme to support early stage microenterprise development in Botswana18PHOTO-RIGHT: Exploring commercial viability of full-scale poultry operation in Mokhotlong District, LesothoLUCARA DIAMOND CORP. Sustainability Report 2012

PRODUCT INTEGRITYAs a new entrant into the rough diamond producing market, we are conscious about theneed to develop and maintain trust and an impeccable reputation. All of our diamondshipments strictly follow the Kimberly Process, a cross-sectoral certification scheme,which is described on the left.We apply an intelligence-based and cooperative approach to security and theftprevention. This means carefully screening during staff recruitment, using advancedsecurity and surveillance systems, and close collaboration with government intelligenceand security agencies.The Kimberly Process is a jointgovernment, industry and civil societyinitiative. It was developed under theauspices of the United Nations to stemthe flow of “conflict diamonds”. Rebelmovements and their allies were usingthe proceeds from the sale of “conflictdiamonds” to finance armed conflictsin a number of African countries. Thiswas damaging the reputation of thediamond industry.We have developed and implemented a tailored diamond stock flow control system tomonitor the diamonds during each step of the processing life cycle. This starts from themine sort house to point of sale and viewing of sales parcels by customers. Our diamondsorting, sales and marketing offices are based in and are part of the diamond supplychain cluster housed in a centralized and secure manner at the Diamond Technology Parkin Gaborone.The Kimberly Process was developedand established in 2002. It is aninternational certification scheme.It regulates trade in rough diamondswith the aims to prevent the flow ofconflict diamonds, while helping toprotect legitimate trade in roughdiamonds. As of November 2012,there are 54 participantsrepresenting 80 countries (with theEuropean Community counting as asingle participant). The participantsinclude all major rough diamondproducing, exporting and importingcountries.The Kimberley Process imposes certainrequirements on participating memberstates. They must put in place nationallegislation and institutions; provide export,import and internal controls; andalso commit to transparency and theexchange of auditable statistical dataon mining, exports and imports ofdiamonds. All international shipmentsof rough diamonds must be accompaniedby a certificate guaranteeing thatthey are conflict-free. Diamond expertsestimate that conflict diamonds nowrepresent a fraction of one percent ofthe international trade in diamonds,compared to estimates of up to 15% inthe 1990s.Each diamond shipment is accompanied by Kimberly Process certificate20LUCARA DIAMOND CORP. Sustainability Report 2012

ABOUT DIAMONDSFor centuries diamonds have beenassociated with supernatural qualities,including the power to protect theirwearer and confer good health. Somepeople swallowed diamonds in hopesof recovering from sickness. AncientHindus believed diamonds gave off silentvibrations that could heal the humanbrain and heart. Some believed diamondscould reconcile a quarreling husband andwife—hence the reference to the diamondas the “reconciliation stone.”The word diamond comes from the Greekword adámas, meaning adamant orunbreakable, and indeed hardness is oneof the qualities that has always madediamonds so valuable. Measured on theMoh’s hardness scale, diamonds score a10, the highest possible rating. Diamondsare also extremely high in luminescence,the ability to catch the light and sparklewith different colors. Cut and polished toshow off their brilliance, diamonds have avisual appeal like no other stone.Quality control of diamond sorting and valuationDiamonds are transparent crystals of carbon. They are formed under extreme pressureat relatively low temperatures, at depths between 100 and 400 km below the Earth’ssurface. Getting these diamonds to the surface without destroying them takes a specialcombination of magma and volcano. Under the right conditions, they help creatediamondiferous Kimberlite deposits.Finding and establishing if such a diamondiferous Kimberlite is an economically viabledeposit requires a process starting with prospecting, continuing with drilling andsampling, and finishing with bulk sampling and its valuation. The latter may requiresamples of 5,000 to 10,000 carats. Other factors that need to be considered includeaccessibility, ease of mining, milling technology, fiscal considerations, availability ofqualified labor, water, power, and environmental and socioeconomic impacts.Separating diamonds from its host rock is comparatively unique in the mining sectorfor two reasons. First, the physical properties of diamonds, such as hardness, density,hydrophobic nature, and their ability to fluoresce under X-ray, enable unique andefficient recovery processes. Second, Kimberlite – the host rock containing diamonds -rarely features environmentally harmful by-products.Batch of Karowe diamonds22LUCARA DIAMOND CORP. Sustainability Report 2012

Diamonds have historically been graded into hundreds of value categoriesbase on the Four Cs: color, carat weight, cut, clarity. These can be groupedinto the following main categories:1. Investment diamonds: these are the infrequent among the rare. They comprise verylarge (10 carat and above), high quality stones (great clarity, intense color, no flaws).This is not the stone you buy for an engagement ring. These stones are so rare thatthey command very high prices from those who are making an investmentpurchase.2. Jewellery diamonds: rough diamonds cut for use as gemstones in Jewellery, and,3. Industrial diamonds: natural and synthetic diamonds used in a wide range ofmanufacturing processes.Although approximately 80% of rough diamonds produced fall into the third category,the reverse is true for value. More than 80% of the value of rough diamonds producedin the world is contained in Jewellery and investment stones. Polished diamonds havealways been considered among the world’s most precious gemstones. They account forabout 40 percent of all jewelry manufacturing; engagement rings are the largest categoryof diamond jewelry.To promote the trading of diamonds from legitimate sources and to ensure thatconsumers can be confident in their diamond Jewellery purchases, governments, NGOsand the international diamond industry have worked together to implement a “certificateof origin” system, the Kimberley Process, described in the Product Integrity section ofthis report.Only 20% of rough diamond fall in Jewelleryand investment grade but representing 80%of the value of rough diamonds producedSorting and valuing diamonds based on 4 Cs: color, carat weight, cut, clarity23LUCARA DIAMOND CORP. Sustainability Report 2012

ABOUT THIS REPORTThis report is Lucara Diamond’s inaugural sustainability report. We have adopted thereporting framework of the Global Reporting Initiative (GRI). This includes GRI’s ThirdGeneration (G3) Guidelines and the Mining and Metals Sector Supplement.Lucara Diamond’s operating asset is the Karowe Diamond mine in Botswana. Karowewas fully commissioned in the second quarter of 2012. The scope of this report islimited to Lucara Diamond’s operating assets (Karowe), unless noted otherwise.The data presented for Karowe generally covers the period from 01 April 2012 to 31December 2012, unless noted otherwise.In determining the scope, content, and boundaries of this report, Lucara Diamondconsidered: the material risks associated with our activities; operational performance;and management’s judgement of the information needs of our stakeholders.This report was developed with support from Prizma LLC, a CSR advisory practice. Lucarahas self-declared a GRI Application Level B for this report. The GRI Content Index for thisreport is web-posted. This report has not been externally assured. Assurance of futuresustainability reports will be considered taking account of stakeholder interest and otherfactors. Lucara Diamond welcomes your questions and comments, which can besubmitted electronically to csr@lucaradiamond.comConveyor belt and ore stockpile at KaroweGRI Application Level TablePHOTO-RIGHT: Conveyor belt at Karowe at night24LUCARA DIAMOND CORP. Sustainability Report 2012

Contact UsLucara Diamond Corp.Vancouver Corporate Office:Suite 2000885 West Georgia StreetVancouver, BCCanada V6C 3E8T: 604 689 7842E: sophias@namdo.comContact: Sophia Shane, Investor Relations