Investor Update

Sep 29, 2021

Hello, everyone, and welcome to the Burgundy Diamond Mines Webinar. Managing Director, Peter Ravenscroft, will be presenting on the company's recent activities and future strategic direction. There will be a Q and A session following the conclusion of the presentation, and you can submit the question via the text box on this platform, which will be queued up to be answered by Peter during the Q and A session. I hand over to you now, Peter. Good morning, everybody. Thanks, Adrian. Welcome to the next of our regular webinar sessions. I realize it's about 6 months since we actually had one of these, And we've been doing a lot in that period. And I'm hoping today to be able to introduce you to changes we've made to our strategy, enhancements, directions we're heading in and also update you on the work that we've been doing on some of the projects we've been building up in previous webinar presentations. So I hope everybody can see the presentation I have up on the screen in front of me. I'm sharing this to you actually from rural Western Australia. And if there are some noises in the background, such as birds squeaking or sheep bleating, I apologize for that, but that's part of the environment we work in. I am putting up a page of disclaimer. Don't expect anybody to read that, but we will be making some pretty strong forward looking statements, and this disclaimer talks about what those mean and what they don't mean. The outline of the presentation, and I hope this will last maybe 15 minutes. I'm keeping it short and sweet. I would encourage you, as Adrian said, to be preparing some questions. It would be great to have a conversation about some of these things. So I look forward to a discussion at the end of this. But the presentation itself will basically be giving you a very quick overview of the company, talking about the way our strategy has evolved in recent months, and really our focus going forward is going to be in downstream activities. So I'll spend some time talking about that. And then, obviously, an update on the projects that we have been working on and finish up with a bit of an outlook over the next financial year. So a snapshot of the company. We are an ASX listed company, Burgundy Diamond Mines Limited. We now have 337,000,000 shares out, which gives us a market capitalization as of yesterday of around $82,000,000 We have recently issued some convertible notes to the sum of AUD 35,000,000 and a recent capital raise, which I'll talk about briefly, we raised just over $50,000,000 Some of that money has already been allocated to the work I'll be describing, but we have just over $44,000,000 of cash at hand. Importantly, inside ownership, management and directors own 17% of this company. The little list on the right tries to characterize what Burnaby Diamond Mines is. It's an emerging, very fast growing diamond company, and our strategy is nothing if not innovative. We have a fantastic management team and Board, and down below on this slide, I've just highlighted 3 of the key people. Clearly, we have some very strong directors and have a very strong management team, which we're building on as we speak. So the 3 people here are really the key to the Diamond strategy. Michael O'Keefe, who's our Lead Director and major shareholder, has an exceptional record of success in entrepreneurial mining activities. Michael brings to the picture a much more commercial focus, probably from his background at Gencor. And he's led us into this focus on generating value from going downstream, going into trading, going into the sale of polished diamonds. Kim Schroeder joined our Board in 2020. Kim has an incredible track record in the operational side of running diamond businesses from Rio Tinto to De Beers, running Argyle, running diamond mines, a great operator and a great thinker. And what Kim has brought to us is a way to do things in a more innovative way, focus on costs, focus on getting things done quickly and the operation delivery of what we're trying to do. My own background is a long time in the diamond industry from the front end, really. But I bring to it knowledge of the industry, knowledge of the network of people and a real understanding of where the value points are in the diamond value chain. So going back to the bullet points, our focus is very clearly now on fancy color diamonds. We've been, from the outset, looking at focusing on a niche where we can make a difference, where there's value to be had and where burgundy diamonds can take a very strong, if not controlled, position. And we're planning that on an end to end basis. And our business model is evolving, and we're basically going to be focused on selling polished diamonds. And I'll come back to that point several times. As I said, we completed a $50,000,000 capital raise in July this year, very well supported by some large institutional investors and others, high net worth people in Australia, in North America, in Europe. And we're very pleased to be able to raise that much money, and we have a very clear idea of where that money is going to be spent. Moving on to how our strategy has evolved. And on the top of this slide, I'm looking at an end to end diamond business, going from exploration and project development on the left all the way to sales and marketing on the right. And I'll try to pick out here what are the key differentiating points about what we're doing. I'm going to start talking about this backwards. So the sales and marketing end, we're focused on fancy colored diamonds. We're going into a very innovative and visionary branding process, which I'll talk a little bit about, and we're looking at a very innovative sales platform. So we're going to be doing things differently. We use the word disruptive a lot. I don't really like that word. We're just doing things differently. We are going to be cutting and polishing our own diamonds. Now, this opportunity came to us by the acquisition of some facilities in Western Australia, and we'll be looking at putting those to use for polishing our own diamonds from our own production. And as we looked at that and how we can really leverage off the value of that acquisition, we said we can cut and polish 3,000 diamonds as well. And we've already started that process. You would have seen less than a month ago, we acquired a few diamonds from after Canadian Diamond Company as a starting point and the demonstration of the value we can put on those diamonds through our own facility. But that's not the end of the story. We'll be doing a lot more of that. And moving back up, obviously, we will be producing our own rough. And the first project that will be doing that is the Ellendale Diamond project in Western Australia, which I'll talk about on a future slide. Importantly, the key point about what we're going to be doing on an operational sense, we are focused on diamonds 1 carat and larger. We're not even going to recover smaller diamonds. We believe the market is segmenting. Low value diamonds and smaller diamonds are under enormous pressure from supply, from competition, from substitution. The larger diamonds or higher value diamonds, we believe, is a niche where the value is much more enduring. And we're going to be focused very clearly on that. And that gives us this opportunity to be doing cutting and polishing sales and marketing because we're talking about a value gain rather than a volume gain. So we're focused on this very small top end of the diamond production where we're going to be focusing our efforts. And of course, exploration and project development feeds the pipeline for the whole of the business. And our model there is unique and different the way we're doing that, and we've talked about that in the past. On the bottom of that slide, if you look at the way the revenue from diamond the whole of the diamond business gets broken down, The numbers I have here come from the end report. And I look back at 2019, which was the last kind of normal year of diamond production. And the total value of the diamond market all the way through from rough diamonds through retail sales of jewelry was around US180 $1,000,000,000 Of that total US180 $1,000,000,000 7% of that went back to the rough diamond sales. So the mines, the people producing rough diamonds, 7% of the total. Cutting and polishing and sale of polished diamonds are further 11%. Obviously, the bulk of the value comes in jewelry manufacture and downstream jewelry retail sales. We've got some ideas about that too, but that's a story for another day. But moving into cutting and polishing gives us access to an incremental slice of value, which you don't get if you stop at the mine gate. And that's how we identified this value and that's how we started going down the path we're going. So I want to make a point very clear, and it's at the bottom right hand side of this slide. Burgundy is positioning itself as the world's leading producer of polished, fancy colored diamonds. We're no longer a mining company. We're not an exploration company. We're a diamond producing company and we're producing polished diamonds. And the rest of the value chain is supporting the strategic drive. We are producing polished diamonds, and we'll be making money for our shareholders through the sale of polished diamonds. So what are we doing in order to get ourselves into this space? Well, as I said, we've already acquired cutting and polishing capability. We have secure facilities in Perth, including specialized diamond equipment and including a very experienced team who spent many, many years cutting and polishing fancy colored diamonds. Most of the team that we've acquired will be joining us before the end of the year, and we will be starting work on some of the diamonds that we are already acquiring from other producers, which leads us to the top line there. Part of the strategy now is purchasing a 3rd party rough. We've done this, as I said, as an initial step from Arctic Canadian Dining Company, and we did that by participating at their invitation in an auction for diamonds. But the real strategy longer term is to form alliances with diamond producers, be able to talk to them about acquiring RUF from them on a profit share basis, giving them access to the upside that we're generating through our end to end strategy. So we're looking at partnerships, we're looking at alliances, we're looking at ways of basically spreading the value across the diamond industry and making burgundy diamonds the center of fancy colored diamond polished production. On the marketing side, we're looking at a number of innovative channels to market. This is a very fast moving space. All diamond producers are looking at doing this in different ways. We again have some very different ideas about this. Our focus is going to be on very select jewelry houses. It's going to be on collectors and it's going to be on investors. Again, I'll use the term, we're in the value game and not the volume game. We're not looking at producing large volumes of medium priced diamonds. We're looking at producing small volumes of very high value diamonds with a very high value focused market. And the last point of what we're doing, which is really to me one of the most exciting things that's going on, is developing an ultra luxury brand on our diamonds. This is something that hasn't been done completely before. There have been branding. There's been branding done on lines of production. There's been branding done on national production. But to actually brand the diamonds is something that hasn't been done in the way that we're looking at doing that. We've engaged a firm with leading branding experts in Paris, Paris being the epicenter of the ultra luxury market in the globe. Paris is the place where this happens, and we're working with some of the key people in that space, and we're making some amazing progress. I can't talk about it today. It's currently coming along, and we're looking forward to sharing that with you. But at the moment, it's moving really quickly. And every time we meet with our brand new consultants is a new revelation and new opportunities arise. It's visionary. It's something different. And it's a way of selling and branding and marketing diamonds that haven't been done before. And I can't wait to unveil it for you once we have that in place. I am going to turn very briefly to a project update, and the most important of our projects now is the Ellendale Diamond Project. I spent a bit of time in our last webinar 6 months ago talking about that. It was soon after we signed an option agreement to acquire this project. Since then, we spent a lot of time doing work on the project, understanding some of the information, thinking through strategies, thinking of how we're going to bring this into production. And I just want to give you a very brief update on that. Our focus on the strategic objective here was it's a near term producing asset. We, as a company, which is going to be selling diamonds, need to be generating our own diamonds. We need to be generating cash flow to fund what we're doing. So, we're no longer looking at tapping the market for exploration dollars. We're looking at generating our own capital through our own activities and Ellendale fits into that perfectly. It's also a source of fancy yellow diamonds. Ellendale once produced 50% of the world's fancy yellow diamonds. And it's located in Australia, which is one of our target jurisdictions. So where have we got to on Alandale? Well, our initial focus is on the Blaineer alluvial deposits. And on the map, the Blaineer is the extended elongated deposit you can see up to the northwest. So we're really looking at this in 2 pieces. Ghibli River Diamonds from whom we're acquiring the project had tenure over Blaine at the outset and have done some work on Blaine, which have been worked on by previous owners as well. And then we extended in mining lease applications over the old Ellendale mine. And on that map, those mining lease in application are shown as the red areas with a white outline. So those are over the old operating pits, they're over some old stockpiles, some dump material and some alluvial extensions. And we are intending to get there in our second phase, But the process we're in there is trying to bring those mining leases to fruition through negative title negotiation. The negative title negotiations are going well. We're in that process as we speak, and we're looking forward to a successful outcome there. But in the meantime, we have tenure. We have mining lease over at Blyna, and Blyna is where we're focusing our efforts. So in the first instance, we're doing a lot of geological work there. We're doing some trenching. We're doing some pitching. We're doing some resource modeling. We're active on-site. We've constructed a 16 man camp there. We're busy reseating roads, establishing pads for plants and campsites, water infrastructure, everything else. So we're doing a lot of that work on the ground and have been for the last 3 or 4 months. At the same time, we've been constructing in South Africa with a company called Immalinga. We've been constructing a state of the art Bolt Sampling Plant using TOMRA XRT Sorting Technology. That plant is almost 100% complete. We had the opportunity last week, unfortunately, these days virtually, but we participated in the factory acceptance test of that plant, lovely to see it constructed, and we're sending that across to Western Australia in the next month or 2. The wet season is then going to be precluding us doing any work on-site, but as soon as we can get back on-site in the Q1 next year, that plant will be installed, commissioned and go into operation. And we have a comprehensive bulk sampling program laid out on the blinder deposit, which we'll get stuck into straight away. As we go forward, we're looking at taking blinder into production by the end of next year. So by the end of 2022, we're looking at having blinder into production. And in order to position ourselves for that, we've already started the design and some of the early engineering on the production plant. Again, an XRT based state of the art production plant of a larger scale. And we'll be looking at getting that constructed through the calendar 2022 and getting it on-site and operational by the end of next year. So Elendal will be producing diamonds in the Q4 of 2022 and starting to produce cash flow. Our other project in Canada, which was really our first investment, the Noyak project in Nunavut territory in Canada, We, as you would be aware from some of our press releases, great news, we finished the bulk sample, the bulk sample which we had waited over a year to do because of COVID interruptions and because of the difficulty of getting things going. We finally got on-site in July August. The pictures there show the immensity of this task. Our partners, North Arrow Minerals, who have run the whole project, extracted 2,500 sample bays, 2,000 tons of kimberlite from those pits that you can see in the picture there. The logistics of managing 2,000 sample bags in a remote location, helicopter lifting them to the local hamlet, loading onto a boat, incredible operational logistics, but it's been done. And the news we received yesterday was those sample bags have now left Naiyah. They're on a through lift on their way to Montreal, and they'll then be trucked across to Saskatchewan for processing, which will start in October. And we're looking at getting results from that bulk sample before the end of the year, preliminary results. And I'll remind you, the purpose of doing that bulk sample was to establish the population of fancy orange and yellow diamonds at Noyat. We know they're there. There hasn't been adequate sample in the past to fully define the size distribution of those diamonds. So that's been the purpose of this program, and the program is nearing completion and the results will be forthcoming. So we're very excited about that because Naida then becomes the next one in the pipeline. It becomes the next source of an exquisite color fancy diamond. And we will be looking at how we structure our operations with North Arrow Minerals. We have options to go further in the joint venture. And once we get the results from this, we'll be deciding how we're going to take that forward. The last project I'm going to touch on briefly is our operations in Box 1. This is much longer term. This is greenfields. This is exploration. And this is about building the pipeline, looking at future supply. Botswana is a fantastic country. It's elephant country for diamonds. We believe there's still a lot of discoveries to be made in Botswana. And that map there shows the Kenya over which we are able to operate. We've done this through acquisition of properties that our partners, DES, had already made in Botswana. We've also formed alliances and commercial arrangements with a couple of other companies, Botswana Diamonds and Pangolin Diamonds. And that gives us access to a very prospective and quite a wide coverage of area in Botswana. So we have a lot of programs in place. We defined a program with 15 targets that we're going to be looking at over the next 12 months. We're partway through that program. I'd love to be able to tell you we've had success, but it's exploration. We're doing the work and as we go through these things and if they turn out not to be what we wanted, we move on. And we still have a lot to go. And this is what we do as an exploration company focused on exploration. We test these targets and we're convinced in our portfolio we're going to have success. So we're working our way through that, and I would love to be able to announce some positive results, and I'm confident we will at some point. So our outlook for what's going to happen over the next financial year. In the sales and marketing space, we're launching a visionary, ultra luxury, fancy colored diamond brand. As I've said, the work on that is ongoing. We have some incredible ideas coming out of our partners in Paris, and we're looking at getting that in place as soon as we can. We also, in the upcoming period, be cutting and polishing and selling the diamonds that we've already acquired. So we're looking at generating cash flow from cutting and polishing diamonds in 2021 and into 2022. So, cash will be coming back into Burgundy Diamond Mines from the investment we've already made. And as I said, that was our 1st purchase of 3rd party rough, and we will be making more purchase because we see this as a way of generating value for our shareholders and demonstrating the value in the brand and demonstrating the business model of being focused on selling polished diamonds. From a perspective of production of the rough, as I've said, Ellendale, the target is to have that in production by the end of calendar 2022, that would be incremental cash flow in the next year. And from the exploration and project development perspective, Elendal Diamond project is the focus of our work. We have a big program of geological work, bulk sampling, resource estimational studies, and we're fast tracking the construction of the first module of the production plant. At Naya, the bulk sampling results, as I said, will define our next steps. And in Botswana, we will continue that evaluation of the portfolio we have, and we're confident we're going to be able to report results from that in this period. That's really all I wanted to say in terms of where we're at with Burnaby Diamonds. As you can see, it's been an evolution of the strategy. We focus now on where we see enormous value. We're seeing something that other people haven't tried to do, other people haven't been able to do. And the reason we can do it and we're confident in success is that we're not trying to boil the ocean here. We're not going for volume. We're not going to dominate the diamond market. We picked on a very small, very niche, very controllable sector of incredible value and incredible margin. And our belief is in that sector, we can become the dominant player, and that's our intention. So Adrian, I'll pass it back to you to see if anybody would like to ask any questions. Thanks for that, Peter. Moving on to the Q and A. First question is, when you say focusing on high value 1 carat stones, do you mean 1 carat in the rough or 1 carat once cut and polished? So the question is, are we focusing on the 1 carat? Is that 1 carat in the rough or 1 carat in the polished? It's 1 carat in the rough. So, the polishing, obviously, we will be producing polished diamonds smaller than 1 carat. But our key focus in terms of diamonds we're sourcing, either from mining or from purchase, will be dimes larger than 1 carat. The second question we have is, what will be your bottom and top screen size at Ellendale? So the question is bottom and top screen size at Ellendale. Bottom screen size will be 4 millimeters. Top screen size will be 16 millimeters. Those are the questions we have at the moment. I'll give it another 10 or so seconds to see if any others filter through. We've got one that's just coming in. It says, are you looking for other colored diamonds in Aladale, for example, pink? I'd like to find some Argyle style pink diamonds at Ellendale. I think that's unlikely. Historically, Ellendale has produced some gorgeous fancy yellow diamonds. I'm not aware. I may be wrong here, but I'm not aware of other colored diamonds having come out of that deposit. But certainly, in sourcing other diamonds, the focus will be on fancy colors of all shapes and sizes. Our next question is, will you be color and clarity grading the diamonds? The branding so the question is, will there be color and quality brand in the diamonds? The branding, as I said, it's early days in terms of being able to talk about that. But we're looking at a comprehensive kind of branding architecture, which is going to allow us to differentiate ourselves, be able to apply sub brands, be able to talk about collections within brands. Certainly, we'll be differentiating between different colors. We'll be differentiating between different sources. There's going to be a lot of texture to the brand, but the overall overarching part of the brand will be very much focused on high quality, high value, high integrity, ethos, ethics, provenance, all of these kind of things, which are very dear to our heart and which are going to be the core of the brand. Will you be color and clarity grading the diamonds as well, so grading? Yes, absolutely. So the question is, will we be grading color and quality of the diamonds ourselves? Yes, we will. We as part of the team, we're building in Perth. We have some very deep expertise in grading and in color grading, particularly. Some of that has been coming out of the GIA. Some of that has been in parallel with the GIA. I'm obviously referring to production of all the diamonds in Western Australia. People can imagine where that came from, but we're very definitely following the same path and we have now that same expertise in house. Those are all the questions that we have at the moment. Peter, would you we've got one that Justin threw. It says, Halterim, will you be manufacturing jewelry? And are you looking for partners? So the question is Halterim will be manufacturing jewelry and are we looking for partners? We won't be manufacturing jewelry ourselves. We will be forming partnerships and alliances with jewelers, select jewelers. Part of our branding process, we've started talking to some of the potential there. And just to put it in perspective, we're talking to potential jewelry partners in Paris, in New York, in Montreal and in other places. So yes, we will be seeing partners. It's really going to flow out of the launch of the brand. And I think that, as you can imagine, is not something you can do overnight. This is more than developing a logo. This is about building a competitive high end luxury brand that will take its place amongst some of the most prestigious brands you can imagine in the luxury market. So, it's a very different approach. A lot of complexity, as I said, a lot of texture. But yes, in answer to the question, alliances with select dealers, absolutely, that's the foundation of the model. The next question is, with North Arrow Minerals, will you be looking at doing more deals with their portfolio at Ground? We have very close relationship with North Arrow Minerals. We've kept that conversation alive. They have a very interesting portfolio. They have the best climate exploration portfolio in Canada in our view. We're certainly keeping an eye on it. We selected the NIA project as our first investment with North Arrow Minerals with a view that if that worked really well and for the things that were of interest to us in the future, we could develop that. So I'm not saying yes or no. I think we're open to any opportunity. We love them as partners. We're a great company. And if there's something there we can do, we'd certainly consider What size of bulk sampling flush production plant will you be using at Allendale? So the bulk sampling plant will be a nominal 10 tonne an hour plant in terms of capacity. The production plant, we're still looking at a number of different scenarios. Too early to say what that might look like. What I would say is we're taking the technology we're using allows for a kind of modular approach. So, the plan is to start with the 1st module, I think I said that earlier, and then we build on that incrementally as we go. So, ultimately, I can't really say what the ultimate size of that plant would be. But the first margin we're looking at is something 100 to 200 ton an hour. The final two questions we have are, why is so much value andmargin held by marketing and retailers in the diamond industry? I think it's as you get to the final polished product, the value you're getting closer to the customer, you're getting closer to the jewelry end, you're getting to where the real value is. So when we look at the margins that you're getting, the additional margin between rough and polished, they're pretty substantial. I think probably the second part of that question, if I can understand it, might be why doesn't everybody do this. Well, getting from rough to polished is an enormous process if you're dealing with large volumes of diamonds. People in the industry and many of them in the audience would know there are tens, if not hundreds of thousands of people in India involved in cutting and polishing diamonds. It's not something as a mining company you really want to take on. But if you're talking about a very small volume of production, you're talking about larger diamonds and higher value diamonds, then you very definitely do want to take it on. And you very definitely want to keep that in house because what that gives you is complete control of the value chain. It gives you a provenance story that is not at risk. There is no third party involved. From the day you either find or buy the rough diamond, it's completely in your control. So your problem on story and your brand is watertight. We believe there's a great ethical story in there, which we're going to flesh out in our brand. So I'll probably answer 2 questions instead of 1. But the reason that there is the margin there is as you get closer to the end product, the value is going up. The final question we have, will you be marketing Ellendale Diamonds as Ellendale branded or under a different name? Under a different name. There is already a trademarked Ellendale Diamonds brand. There are no more Ellendale Diamonds. There are no more Elendal diamonds going to be mined from our operation. It will be branded something different. Excellent. That's all we have, so thank you. Okay. Well, thank you very much, everybody, and thank you for the suite of interesting questions. I've really enjoyed talking again, and we should do this more often because I think our story is moving fast. It's evolving, as you can tell. There's plenty of news coming. And my challenge as a leader of a public company is to make sure we're only giving you the news when it's validated, when we're ready to tell you about it. And I know it's frustrating sometimes to be unveiling things in lumps as we go, but it's continuous disclosure and we will come to market as we have significant things to talk about. So I certainly look forward to being able to talk about things as we do them.