Good morning, everybody. My name is Peter Ravenscroft. I am the CEO and MD of Burgundy Diamond Mines. We're about to get ready for our presentation, our webinar. We'd like to give maybe a minute or so for a few people to join. I'd ask you to just stay on screen, and we'll get back to you as soon as we're ready to go.
Thank you, Peter. Good morning, everyone. Good morning, all. My name is Russell Quinn. I'm from Citadel-MAGNUS . We work with Peter and his executive team at Burgundy Diamond Mines, providing strategic communication and investor relations support. Thank you very much for attending today's investor webinar. We have 30 minutes allocated to this webinar today over Zoom. It's now 9:01 A.M. Without any further ado, Peter, I'll pass over to you to commence the presentation. Thank you.
Thanks very much, Russell. Good morning and welcome to everybody. Good morning in Western Australia. Good afternoon, good evening in other places. Nice to have you join us and look forward to sharing with you some of the updates of what we've been doing at Burgundy Diamond Mines more recently, and what the outlook is like for the future. I'd like to start just by a quick disclaimer. I'm not gonna read all of those words. You've seen those kind of things before. We can move straight into the presentation. By the way, the hard copy of this presentation is available on our website for those of you who'd like to look at it later.
The outline of what we'd like to do is to run through a very quick background on the company and focus really on our core strategy now, which is capturing the margins across the full value chain of the diamond sector. A brief look at how that turns into our company strategy, and then step through. We're gonna step through backwards because this is actually the focus of the way we're running the company. We'll start talking about sales and marketing. We'll then talk about cutting and polishing, and I'll end up with a brief update on our exploration and development projects, and summarize that with a bit of an outlook over the next few months. The corporate snapshot, I won't go through the numbers on the page. You're welcome to look at those in detail. The people are probably important.
I'll pick on the three key people on the board. Michael O'Keeffe, who's our major shareholder, who backed this company from the outset. Michael is a serially successful mining entrepreneur, has a number of amazing projects on his track record and is very, very supportive of what we're doing and sees this as one of his next big things. Kim Truter is our chairman. Kim has a very deep background in the diamond sector, leadership of De Beers Canada, Rio Tinto Diamonds, Argyle Diamond Mine, Diavik Diamonds. Very strong focus on operational delivery of the innovative projects that we're doing. My own background, over 40 years in the diamond industry, specialized in resource evaluation, project evaluation, a long time with Rio Tinto and a very wide diamond network which we've been tapping into.
This is a slide I'd like to spend a little bit of time on. The graph in the top shows a breakdown of the revenue that is generated across the entire diamond sector. For context, the diamond sector is worth somewhere between $150 billion and $200 billion on an annual basis. Of that $150-$200 billion, 7% of the revenue goes back to the diamond miners. 7%. If you cut and polish diamonds and you're selling polished diamonds at wholesale, you get 11% of that sector, and the rest of the 80% is downstream into jewelry.
I would like you just to bear those numbers in your mind, 80% in jewelry, 20% in the upstream, because those are the kind of margins I'll be alluding to later on when I talk about our prospects in jewelry sales. Why would we have extended our focus downstream? Well, because it's an attractive proposition, but mostly because we've unlocked the key to getting there. The way we've done that is to acquire our own capability to cut and polish diamonds, which basically removes part of the midstream and gives us a direct contact and building what we're now calling an end-to-end diamond business. Our company strategy basically is along three fronts. One is we're expanding sales of polished fancy diamonds. We're growing supply of rough fancy diamonds, and we're managing our internal capability to meet that.
The beauty of this strategy is actually incremental growth, low capital, very simple steps. Our job, my job in particular, is to manage the balance between demand, supply, and capability into the future and make sure we're positioned to take advantage of the opportunities we've created. As I said, we're gonna look at this backwards, so I'm gonna start with a look at the sales and marketing and pick on some of the things we've been doing in that particular space. The first thing I'd point out is that our sales and marketing approach is very different from a typical standard way of doing things in the diamond sector.
When we started looking at how we could start tapping into that downstream value in the jewelry sector, we realized we need to be doing this in a collaborative sense, working with existing players and basically sharing in the profits that we can in that particular part of the value chain. The first collaborative sales agreement we set up, we announced some months ago, we went straight to Paris. We went to the Place Vendôme in Paris, which is the epicenter of world luxury. We signed a very interesting alliance agreement with a high-end jeweler called Bäumer Vendôme. Lorenz Bäumer is a world-renowned designer. Very successful independent jeweler in the Place Vendôme. Our agreement with Bäumer is quite simple. We provide the diamonds. We don't sell the diamonds, we provide the diamonds.
He designs the jewelry, he manufactures the jewelry, and he sells the jewelry, and we share in the profits. I'm not able to disclose what that profit share is, but it's pretty significant from our perspective. Now, what it does for an independent jeweler such as Lorenz Bäumer. It gives him a guaranteed supply of some of the most beautiful fancy colored diamonds in the world. We have access to an incredible range of product, and I'll be showing, there are a number of pictures of these as we go through, and I'll be talking about that later. It also provides the independent jeweler with a way of, instead of, investing in purchasing stones and then having to hold that working capital through the process of design, manufacture, and sale, we carry the working capital.
His outlay goes into the design and the manufacture and the sale. We provide the diamonds, and we share the profits. It works for both sides. We're already talking to a number of other prospective jewelers, and we're finding a lot of interest, a lot of appetite for this model. We will expand that. We're expanding it in different directions. One of our focuses is gonna be on North America, particularly the U.S. We see that market as being probably the most stable and the safest and the most lucrative place for us to focus our efforts. We're working hard on that. I'd like to focus on the branding. The branding is a really key part of our strategy.
What we find is, the margins which jewelers are able to extract on high-end products, such as we're gonna be producing, really depends on the marketing, the presentation, and the branding of that product. What we're developing is a brand for polished diamonds. Something that's not been done very much before. Argyle Pink Diamonds is the most recent example we can find. Typically, diamonds are not branded. There are generic brands. We will have the niche brand that in a high-end jeweler, the intention is that customers will be asking, "Do you have any jewelry with XYZ diamonds?" XYZ is a name which we're going to tell you the real name in about two weeks' time.
We're launching the brand at the end of this month at a function in Paris, and there'll be some press and some news coming out in the middle of June. This is a really exciting step for us. We've been talking about it a long time. We've been building up to it. There's an awful lot of work gone into it, and I'm very proud of what we're gonna be presenting to you in a couple of weeks' time. The branding is aimed at the top of the luxury pyramid. It's really important we establish our position amongst the really high-end brands. It's all about the quality of the diamonds. It's all about the quality of the product, the quality of the consumer, and that is where we need to be, is at the top of that pyramid.
Branding is all about differentiation and bringing something different to the market. I think what we're bringing, which is really different, is that we have a complete chain of custody over our diamonds from source to sale. This allows us to have our own certification process, similar to what Argyle Pink Diamonds used to do. Our certification process will be in parallel with the GIA certification, but it'll go beyond. It'll talk about guaranteeing provenance. It'll talk about guaranteeing the fact that we get the diamonds into our hand as rough diamonds. They stay in our hands all the way through to the final piece of jewelry. In terms of provenance and in terms of demonstrating ESG principles, in terms of responding to what the customers are really wanting to.
In the current market, we can do that all in a contained way, in a hand-on-heart guarantee, in a promise, because we have complete control over the diamonds. This end-to-end control over the process also opens up another avenue in the reverse sense. For the first time, we're able to connect ultimate jewelry customers to the source where the diamonds came from. As any diamond mining company, we are doing what we can with the community in terms of contribution via royalties and various other projects that we will do with communities, environmental projects, which we will run through normal funding. What this model allows us to do is bring in funding direct from the customer.
Every piece of jewelry sold that has one of our branded diamonds in that piece of jewelry, a contribution will be taken from the price of the finished jewelry and fed all the way back to the source of the diamonds via an independent foundation which we are setting up. It's the way of modern consumerism. People like to buy fair trade coffee. They like to be contributing to places where the products come from. This is now possible because of our end-to-end model. I think that's a really exciting step in what we can do. I'm gonna move on back up to the cutting and polishing. Before I do that, I'd like to just look at that picture on the screen.
Those are some diamonds we bought on auction at the end of last year from Arctic Canadian Diamond Company, who operate the Ekati Mine in Canada. Absolutely gorgeous yellow diamond product. I personally think the rough diamonds are even prettier than the polished ones. The diamond in the bottom left corner there was 17.8 carats in the rough, and we have spent many months studying that diamond really closely. Our cutting and polishing ability, our expertise, I'll talk about on the next slide, but the process of taking that beautiful rough diamond and turning it into an even more beautiful polished diamond is actually an amazing experience. As late as last week, I was in the office, and we were able to see this product out of that original rough diamond.
The picture there is of the 7.5 or 7.45- carat Fancy Vivid Yellow diamond, which we've cut. Currently classified as a VVS1. We think it might be better than that. We'll wait for the GIA to tell us. We saw that diamond immediately after it had been cut. It was still warm. My wife, Sabrina, was with me and held it in her hand, and it is actually an emotional experience to see a diamond of that value and that beauty coming out of facilities that Burgundy owns. The margins on that stone, I'm not able to disclose, but there's a significant uplift between the value of what we paid for it and what its value is at wholesale in the polished state. Beyond that, there's uplift that we get through the relationship with the jeweler.
Many multiples of value from what we originally paid are already demonstrated in the market value of that stone today. We own this cutting and polishing facility based in Perth. It's the only one in Australia. We acquired it from a company that used to produce pink diamonds in Australia. The master craftsman, the cutting and polishing people we have in there are amongst the world's leading cutters and polishers of colored diamonds. It's a very different process than from cutting white diamonds. Cutting and polishing a diamond is about bringing out the color. It's about bringing out the hue, the saturation. It's not about the reflected light, it's about the internal beauty of the stone.
An example I show on the screen there, what we're doing with this amazing skill that we have in place, we're going back to the way diamonds used to be cut. Colored diamonds need to be seen in candlelight. That's how they look best. They need to have large facets. They need to have a unique style to them. This is our differentiating point. The diamonds we produce are unique pieces, every one of them. Our expertise in that, I believe, is unrivaled because of the experience that our people have had for 30 years cutting pink diamonds from Argyle. It really is the key that we've unlocked. Having acquired this ability to cut and polish, we can now take raw diamonds all the way to jewelry. We don't need to go through third parties. We're not paying any brokerage, any trading fees.
Cutting and polishing is under our control. Yes, doing it in Perth with very experienced cutters is not the cheapest way of doing it, but with diamonds of this value, it's the best way of doing it, and that's our model. I'm gonna finish just with a quick look at our exploration and development projects. To emphasize, I've presented the business to you as sales and marketing, cutting and polishing, and then how do we feed the pipeline. That's very much how I now see Burgundy Diamond Mines. We are a mining company. We do mine, and we do produce diamonds, but we're much more than that. We're actually a diamond sales company. We're a vertically integrated company. We're an end-to-end diamond company. The first project I'd like to talk about is to give you an update on Ellendale.
Briefly, for those who are not familiar, Ellendale is located in the West Kimberley region of Western Australia. It was a mine that operated for many years and used to produce, at its height, over 50% of the world's fancy yellow diamonds. We acquired the access to this through an option agreement. The leases were re-granted by the government after the previous mine closed. We've inherited a pretty much a clean sheet of paper. Ellendale is in two parts. On that plan that I'm showing on the screen, on the left-hand side or the western side, the two long red stripes there are alluvial deposits, which are diamonds which have washed into ancient riverbeds and are now lying, you know, a few meters below surface in those old river channels.
These are the Blina alluvial deposits, and we've actually started working on there already. The pictures at the bottom are from a couple of weeks ago, showing activity on-site. Our intention at Blina is to put in a very small plant, which we've already had constructed in South Africa, which is in Western Australia. We'll be moving to site this month, and we'll be commissioning that next month on-site. The second part of the Ellendale story is the two other lease blocks in rectangular form to the right-hand side or the eastern side of that map. These are mining leases under application. These cover the old mining areas, the old pits, the E9 and the E4 pits at Ellendale and some surrounding alluvial deposits and eluvial deposits. We believe this is a really interesting opportunity.
There are stockpiles available of material that was put on surface and was never processed. There are coarse tailings, where we believe on modern technology, we can get much better recovery than previously was achieved. There's a sort of walk up instant operation there once we can get access. To convert those mining lease applications to mining lease, we're in the process now of native title negotiation over those, which is going very well. I'm confident we will soon have agreement with the Bunuba people and be able to convert that to mining lease. Start sharing the value of that with the community, with the local towns, and with the rest of our shareholders. The outlook at Ellendale is, we're getting going on a geological trenching and pitting program on Blina.
We'll be commissioning and ramping up the sample plant. We will get to small-scale production level by the end of 2022. We'll be producing small commercial quantities of gorgeous yellow diamonds from Ellendale by the end of 2022. We have incremental expansion steps that we're then starting to plan from 2023 onwards. Ellendale, in short, on track, very exciting to see activity on site and people starting to move around. The other project to talk about is our Naujaat project in the Nunavut region in Canada. We've talked about this in the past. Naujaat is a very promising, mid-sized, deposit on the eastern side of the Canadian Arctic. I've spent a long time involved in the Canadian diamond projects, and the big problem on the major diamond projects around Lac de Gras is access. They are very remote.
This project is 7 km from Tidewater. Access to a small town or a hamlet 7 km away. Logistically speaking, it's a dream in northern Canada. The project was originally owned by BHP and has gone through a few hands since then. The issue originally for BHP was certainly the size. It's a moderate-sized deposit, but it's really big enough for the. The current owners of the project, North Arrow Minerals, who are our partners on the project, needed to perform a bulk sample. The bulk sample is something that Burgundy Diamond Mines has funded over the last 12 months or so. We spent CAD 6 and a half million, and in doing so, have earned 40% ownership of the project or will have by the time we finish the processing of the bulk sample.
We've released some initial results from the bulk sample about a month ago, and we're processing the rest of it, which should be completed this month. We'll probably be coming out with the final results sometime in July. All I can say at the moment is that the results we have so far are more than promising. What we're seeing is larger quantities of the orange diamonds than we expected, extending into larger sizes. The color of these diamonds, beforehand, we were talking about fancy yellow, fancy orange yellow. We're getting a larger proportion of fancy orange diamonds, which we believe and we know will be hugely valuable. A very rare color.
As the colored diamond market kind of recovers from the loss of that beautiful source of pink diamonds from Argyle, I see these orange diamonds becoming the next big thing. We are very excited about what's happened at Naujaat. We're still waiting for the end of the results, and then we can tell you what that really means. Everything at the moment is looking very good. Lastly, we've been doing some exploration in Botswana. I'd like to be able to report success. We haven't yet, but that program still has a way to go. We still have some interesting targets in sight. At the same time, we're turning our attention to other opportunities, as we always have. Now we have this business established and understand how we're going to start sourcing diamonds into the long term.
We really are focusing on additional opportunities. To wrap up, I think I'd like to just reiterate we will be reaching cash flow in 2022. That is a really important milestone for us. People spend a lot of time listening to me talking about what this could be. I need to be sitting here telling you what it is. By the end of the year, I'll be doing that. Our cash flow that we'll be reaching in 2022 will be the demonstration of the belief we have in this project. Our cutting and polishing, we are already running that at pretty much full capacity.
What we're seeing in terms of our supply, and I didn't really mention this before, I think longer term, we're gonna be a company that's gonna be both producing our own diamonds and purchasing third-party rough. I think we've demonstrated that, we can add significant value to third-party rough. I think there are profit-sharing agreements in there for producers, and I think we're looking to expand that. I think our company going forward is gonna be a blend of producing our own diamonds, cutting and polishing other diamonds, but adding that value in the final step through to final jewelry. Production of rough, as I've said, start-up of Ellendale to a certain extent by the end of this year. Our exploration and project development, continuing the efforts we have and looking forward to announcing final results from Naujaat.
I've gone through that pretty rapidly. I think the intention was we could have some time at the end to dig into any of those with some questions that we have. I think on that, I would like to pass back to Russell, and Russell can manage any questions that we have received. Thank you very much for your time.
Thank you, Peter. A terrific presentation. I think we can all agree that Burgundy is certainly in an exciting position. The innovative strategy that you, the board, and your executive team are executing certainly sets the business up for success over the short, medium, and long terms. Moving forward, what do you think will be the split between produced diamonds and purchased roughs?
That's a good question. I think the answer is probably 50/50 in a couple of years, I would have expected. The beauty of it is the rough diamond purchase is a pretty variable lever we can pull. If we have adequate supply from our current operations to meet what we need, we don't need to be purchasing rough. If we need to fill a gap, we can purchase rough. It's a kind of an instant balance to our supply system. You know, I really can't forecast what that's going to be, but it will be still a significant portion of what we're doing.
Thank you, Peter. We have another question. Pardon me. What is the impact of the current Russian-Ukraine conflict to the diamond supply chain? And is there any impact to Burgundy? Thank you for your question.
Yeah. I don't think I'm in a position to comment on the global impact. I think there's a lot of material out there which we're obviously reading. I wouldn't like to try and reproduce that for you. Suffice it to say, I think in the longer term, I think for the people producing diamonds from non-Russian parts of the world, I think this is probably good news. It's pure supply/demand economics. I think from a, particularly from a Burgundy perspective, it really emphasizes and validates our focus on this provenance issue and being very selective from where we mine or source our diamonds.
Russia was never on our radar anyway, so it doesn't impact our business in any way, but it certainly will give more force to the whole ethos that we have about, you know, mining our diamonds and sourcing our diamonds in places that we want to work. You know, if there is any impact, I think one of the things I immediately think of, many of the colored diamonds previously or still are coming from Russia, and I think if that tightens in any way, I think that's gonna open up, you know, more demand for product that we're gonna be producing. Personally, I don't take any pleasure in the situation, but I think it's not a negative for us at the moment.
Thanks, Peter. I think we have time for one more question. How many retail partnerships do you envisage, and how do you manage getting global reach versus providing your partners some sort of exclusivity?
Right. The exclusivity, we will provide exclusivity for a period with our partners, and we're segmenting our brand offering into a number of different components, so we can offer exclusivity over certain components. In terms of the global reach and the number of partners we lead, obviously it depends on volume required by each one of those, but I would say that this is probably, you know, between six and a dozen partners over time. We're not gonna get there immediately. You know, as I say, it depends. Our focus is really on the smaller independent high-end jewelers. I think that is the niche we're trying to go. Our whole company structure is about being small, being niche, and being focused and exclusive, and I don't see us supplying into huge jewelry chains.
That wouldn't make any sense. Yeah, the numbers will be of that order, and I think every arrangement will actually be different because these are very personalized contracts and relationships that we're building. I think it's you know, our real aim is to provide value and share value at all ends of the chain, and I think this is one way of doing it.
It's all right, Peter. Thank you. One final question, and I think we'll wrap it up unless somebody submits something as soon as they can. Liam has asked the last report with bulk samples was producing smaller diamonds than what you said you needed to cut and polish. During this presentation, you said it was more promising than expected. Can you clarify how the bulk sample result has turned out?
Yeah. Look, we're gonna come out with the full result of that once we've done the analysis. It's important to note that our focus, certainly from the Burgundy perspective, is on diamonds above a carat in size. We've said that from the outset, and all of our operational plans are based on cutting off at a size that allows us to produce those larger diamonds. The bulk sample has recovered diamonds smaller than that. That's part of the process we went through. It's useful information in terms of understanding that full size distribution, but our focus is on the upper end of that size distribution. I think the concept of cutting off at around a carat. I've examined, you know, countless diamond projects, diamond mines around the world over time.
I can, you know, quite categorically say that in most cases it's the standard 80/20 rule. 80% of the value comes from the top 20% of the diamonds. The bottom end of the size distribution is the volume game. There's plenty of value there, but you're getting 20% of your value from 80% of the diamonds down there. For us, being a small focused company aimed at really high-end diamonds, it makes sense to be cutting off at those sizes. That, I probably answered the question in more ways than you expected, but the idea was the bulk sample was really to find out about that top 20%, and the information we're getting back is very, very promising.
Thank you, Peter. Appreciate that detail. The final question for today's webinar comes from Michael Powell.
Yep.
Do you see the same premium for fancy yellows as Argyle does or did for the pink?
No, I don't. I mean, let's be honest, the pink diamonds, the Argyle Pink Diamonds were an absolutely unique and fabulous product. What I do see is that the way that Argyle diamonds, Argyle Pink Diamonds made those the most valuable and desirable colored diamond was through probably one of the best marketing campaigns, certainly in the diamond sector, but in history, I believe. Diamonds is all about the marketing. I believe with our brand that we're developing and our strategy that we're pulling out, I think we can get full value for Fancy Yellow diamonds beyond what has previously been achieved because they are, as you can see on the screen as we're looking, they are a gorgeous product.
There's no reason why we can't make them as desirable and as sought after as we can. That's what the purpose of the brand is. No, they're never gonna be the same cost as an Argyle Pink Diamond. They will be of higher value than current yellow diamonds.
Very good, Peter. That's a positive and encouraging note to finish on. I'd like to thank you for your detailed presentation today. I'm sure our investor audience enjoyed it thoroughly also. To all investors attending today's webinar, thank you for your time. We really appreciate it. For those who asked questions, thank you very much for submitting those. We will continue to keep our valuable investors informed as the execution of the strategy as Burgundy's vertically integrated business model really takes hold. There's some very exciting times coming up, especially over the next few weeks, as Peter alluded to. Again, we'll keep you informed of that, but the future is certainly very bright for Burgundy Diamond Mines, and we look forward to keeping you informed as the execution of that strategy continues.
Thank you very much for your time today, and we'll speak to you soon.