Diamond producer Lucara Diamond Corp has applied to the TSX for a financial hardship exemption that would allow it to complete a deeply dilutive C$165-million private placement without shareholder approval, citing serious liquidity constraints and the risk of disruption to its Karowe underground project (UGP), in Botswana.

The company said it had submitted the application in relation to its previously announced non-brokered equity private placement.

Lucara plans to issue more than one-billion new common shares at a price of C$0.16 a share, raising gross proceeds of C$165-million. The offering price represents a discount of about 23.57% to the five-day volume weighted average price (VWAP) ending January 9, and about 22.43% to the five-day VWAP ending January 14, which coincides with the announcement of an upsize to the initially proposed transaction.

The proceeds are intended to address an immediate liquidity shortfall and allow Lucara to continue advancing the UGP while it seeks longer-term project financing. The funds are expected to support shaft equipping, conveyance commissioning, lateral development, extraction and drill horizon development, as well as general working capital and corporate purposes.

The company said the placement was expected to close in late January, subject to final documentation and regulatory approvals.

Without the exemption, the transaction will require approval from a majority of disinterested shareholders, as it breaches several TSX thresholds.

Trusts settled by the late Adolf H Lundin, referred to as the Lundin Family Trusts, are participating in the financing. Nemesia, an entity controlled by those trusts, is currently Lucara’s largest shareholder and is considered both an insider under the TSX rules and a related party.

The Lundin Family Trusts are subscribing for more than C$54-million of the placement, an amount equal to about 56.45% of Lucara’s current market capitalisation, exceeding the TSX threshold that normally triggers shareholder approval for insider participation.

In total, the placement will result in the issuance of shares equal to about 225.51% of Lucara’s currently issued and outstanding shares. Insider participation alone woill exceed 10% of the existing share count within a six-month period.

Following closing, the Lundin Family Trusts would hold more than 458-milllion shares, representing about 30.8% of the company on a post-closing basis. Lucara said the transaction would not create a new control person.

Lucara said it had applied for the hardship exemption on the basis that it was in serious financial difficulty and that the private placement was the only viable financing option available to it in the required timeframe.

The board has established a special committee of independent directors to review the company’s financial position and the exemption application. The committee unanimously recommended that the company proceed, and the board agreed that Lucara is in serious financial difficulty and that the transaction is reasonable in the circumstances.

The company attributed its financial position to rising funding requirements and limited access to new capital as it advances the UGP. On August 8 last year, Lucara announced a review of the project’s ore extraction methodology, costs and schedule to better understand geomechanical conditions and potential caving scenarios.

The review was completed without disrupting development, and on January 5, the company released an updated feasibility study estimating total project costs at $779.2-million.

Lucara said on January 20 that it had historically funded the UGP through cash flow from openpit operations at the Karowe mine and through debt facilities. To maintain development momentum, it had fully drawn its project finance facilities and relied on shareholder guarantees.

However, by December 31, 2025, the company had fully drawn a $190-million project facility, a $30-million working capital facility and a $28-million shareholder standby undertaking.

The company said declining cash flow, as it processes lower-grade stockpiles, combined with fully drawn facilities and exhausted guarantees, has left it unable to fund ongoing development. It also disclosed that it breached several covenants under its project facility, resulting in events of default that were waived by lenders on December 30, 2025.

Lucara warned that insufficient liquidity in the future could lead to similar defaults and affect its ability to continue as a going concern.

The TSX will place Lucara’s shares under delisting review, which the company said was standard practice when an issuer relied on a financial hardship exemption. There was no assurance the exemption would be granted or that the shares would continue to qualify for listing on the TSX. Lucara said it may be required to pursue an alternative listing on the TSX-V instead.

“Lucara's board and management remain fully committed to protecting long-term shareholder value while advancing the UGP, one of the world's most significant high-value diamond developments. The application for the financial hardship exemption is a prudent and temporary step that provides the company with added flexibility as we complete this capital-intensive phase of development.

“Importantly, our underlying asset quality, operating discipline and long-term value proposition remain unchanged, and we continue to work closely with our stakeholders to position Lucara for sustainable cash flow generation and value creation,” Lucara president and CEO William Lamb said.