Burgundy Diamond Mines Limited (BDM) Earnings Call Transcript & Summary

Good morning, everybody, or good afternoon or good evening wherever you happen to be, and I know we have a number of participants around the world. So I'd like to welcome you to our first-ever presentation of our new branded company Burgundy Diamond Mines Limited. We were very pleased yesterday to be able to rebrand the company and focus on what is our real business of becoming the world's leading mid-cap diamond mining company. Before I get into just a little bit of a conversation about the name of the company and why we called it that. Now Burgundy, the Dutch [indiscernible] Burgundy historically was one of the most powerful regions of Europe in the middle ages. It's synonymous from power, with stability and with quality of life. And more recently and more recent centuries, it's been synonymous with great wines. Burgundy wines are exclusive small-scale production, focused on high-quality, extraordinary value and unique characteristics. And we thought that name was synonymous with what we're trying to do as a mining company. Actually, the short answer is all great ideas come from a great bottle, and that's where the name really came from. But importantly, we called ourselves Burgundy Diamond Mines, and I think that's a clear signal of our intent. We have no intention to remain a junior exploration company. We've stated from the outset that our aim is to grow into a significant player in the global diamond industry. And what I'd like to do today is to give an update of where we are on the pathway to launch that. We're going to work through an investor presentation, which is available now on our website. I don't intend to go through in great detail on every slide. But I would like to pick out some of the more important things and flesh out some of the things that might be of interest to you. And we do have a question-and-answer session at the end. I see we already have 3 or 4 questions coming in online. And I'll certainly address those. And any more, I encourage you to send in [indiscernible] questions as we go. Last point before we move on, the logo that we've developed, people have asked me where the logo came from? The logo represents a schematic picture of the diamond. And in terms of the diamond, you can see the representation of what we see as the current state of the diamond exploration industry. There's a disconnect, there's an uncoordinated and slightly unstructured approach. And the red part of the logo is Burgundy Diamond's pulling that altogether and moving in forwards and upwards direction. So [indiscernible] those ideas, and I'm hoping we have convinced you that we're going to make it happen. Steve, I think we can move on to the slides from here. So if we look at the forward-looking statements, which I won't read in any detail, we've seen that all in other presentations. So we'll move quickly on to slide, talking about encapsulating more [indiscernible] of our strategy and where we are. What we're seeing is a significant opportunity in a sector, which has very strong long-term fundamentals. But there's a significant underfunding, and we're at the bottom of the cycle at the moment. So it's a great opportunity to come in with the strategy of the type that we're considering. We've put together a very strong management team, and we've added significant strength to our Board in the last few months, which I'll discuss later. In fact, people will say that the team we've put together is way over strength for the size of the company we are. And yes, it is. But that's a clear signal of our intent and what we will be doing. And lastly, our strategy is an innovative strategy. We're targeting primarily later-stage projects that are incomplete but still require significant funding. We're building a portfolio of these projects, but we'll complement the portfolio with earlier-stage projects because it's important to build a longer-term pipeline for the company that we're building. And the third step in our portfolio is the current focus on looking at production, near production opportunities with the recognition that we need to start generating some cash flow to underpin the largest strategy. The question why diamonds? Well, there's quite a lot of information on that slide, which I'll let you look at a little later, but the short answer of why diamonds? I could speak for hours about the fascination of this complex and unique industry. But I won't do that. I'll just give you one simple fact, consider this, the most valuable hole in the ground in the rest of world is a diamond mine, there's [indiscernible] mine in Botswana. More value produced from that operation in any copper line, any gold mine, any iron ore mine, and we believe the story is not finished. There are more of those out there, and that is what this is all about. I'd now look at the slide about our diamond strategy. And again, you can read this in more detail as we go. But there are a number of key components, but one is essentially, what we're doing is an approach, which is unique, we believe, in a small company, but is exactly the way that large companies do it. And there's no secret in that. Our management team all have a large company background, we've all done this most of our lives. So we're talking about rigorous selection process in the entry into project. We're talking like using a highly capable and experienced team with some pretty robust selection processes and pretty robust evaluation and some very careful pipeline management processes. So exactly the way most companies do it. And ultimately, what we're doing is adopting a large company approach. We're taking a patient, long-term outlook. This is not about looking at the value of the share price tomorrow or understanding what's happening next week. This is a 5- to 10-year horizon, and it's a focused determination on the realization -- determination of long-term value realization. So I'd like to just give you a break up there where we've come through in the last few months in 2020. It's been a pretty busy year and in fact, a pretty rapid evolution, focused on 3 aspects of that. In terms of building some projects, we announced some pretty good investments in projects back in the middle of the year, and we'll talk about them a little later. In terms of finance, we were very pleased to be able to put together our capital raise in June, July this year, where we raised $10.6 million, quite an achievement given the state of the market at the time and the general sentiment in the middle of COVID. Clearly, a good start to what we need to do, and we will use that money carefully. We will allocate that in the best way that we can, and it's all about building for the future. And I'll talk a little later about how we're going to complement that. And the big thing we've done is build a team of people. So we brought in some really strong people on to the Board, and I'll come back and talk about them a little bit more in detail. And the management team has now filled out with 2 very capable, highly respected individuals, and I'll talk to you about when we get to that slide. So we've not been sitting on our hands in 2020, but I do need to talk obviously the current times about what the impact has been of COVID-19. In a broad sense, macrosense on the diamond sector, it's had a pretty rapid influence on the retailing. People don't go up and buy diamonds in times of great crisis as we've had. The impact then flow back very quickly to the producers. We saw a number of diamond mines opening or closing, some of them maybe closing forever. We saw cutbacks in production. And then we saw a very careful management of diamond sales to make sure that the low prices weren't what people were going to be stuck with. It has turned in the last month or so, we've seen some encouraging news coming out of the major producers. We've seen prices starting to move in the market, and we believe we're back on the path. From a perspective of what we're looking at in terms of merger and acquisition opportunities, obviously, it has shown up a few more of those. Although I would point out that this, what I would call, a short-term impact on the diamond sector is only an exacerbation of what was happening before. We've seen a long-term structural problem in the diamond sector, which we've talked about many times. It's been about the lack of funding, and it's been about lack of market support. And it really underpins why we're doing what we're doing and why we're doing it now. In terms of our own activities, very briefly corporate. We've obviously been more careful with the way of allocating our capital. In terms of our projects, the Naujaat project in Nunavut in Canada, which I'll talk about a bit later, we've been very careful, very sensitive. That's in a very remote community, and that community has been closed from the offset of COVID. Very sadly in the last couple of days, there's been a news coming out of some COVID cases in the Nunavut region in Canada, none in the hamlets in which we will be working but very close by. So that's something we need to keep a very careful eye on, and we will deal with that sensitively as we need to. In Botswana, where we have our alliance arrangement, we have been impacted in terms of the regulatory authorities access to government departments. And the impact has been on getting environmental permits for a drilling program. We have planned that to be happening in the last quarter. We're not fully expecting that to happen earlier in the first quarter of next year. But it has been difficult, but again in Botswana, the borders are opened, there are some restrictions ongoing at the moment. We're dealing with those as we can, but we think we're coming out of it quite well. So just what is our strategy? What are the major components for our strategy? And we talked about this before, and I'll just put out some of the key ones, which I think are important. Our focus is on a particular sector of the diamond market. We have a view shared by many that the diamond market is segmenting. There is pressure on production of lower-value smaller diamonds. We believe that's subject to great source of supply in Russia and Angola. And we also think that's [indiscernible] synthetic diamonds is at its strongest. So one of our questions is about synthetic diamonds, and I'll come back to that later. But our focus is on larger diamonds, higher-quality diamonds, unique colors, areas where we see there's going to be a sustained market. And we're, in fact, we see it's going to be a growth in that market. So we're carefully selecting our projects on that basis. In terms of where we're looking, we're focusing on low-risk jurisdictions and the top of the list for that at the moment is Canada, Botswana and Australia. Our core focus in terms of the objective of our portfolio is on late-stage projects. These are the ones we've identified where money has been spent in the past, resource definition has been completed. We're waiting for the bulk sample, we're waiting for the high cost end of the exploration to be done. And mostly in the hands of companies that cannot afford to do that. And that's our key target, that's our focus, and that's what we'll be doing. But as I said earlier, around that, we're doing early stage exploration to build the pipeline. And we've really come into focus in the last 3 months on operating lines and near-production opportunities with the purpose of trying to find cash flow generation to be able to support our greater strategy. And we'll be looking forward to be announcing news on that when we're able to do one of those, but we've been extremely busy, as you might imagine. Quickly then on our Board and management, with the 2 new Board members, I would like to introduce, Marc Dorion, who's a highly experienced and well-credentialed corporate lawyer in [indiscernible], Detroit and Montreal. And then Kim Truter who just joined us more recently. Kim is a high-profile diamond executive, most recently CEO of De Beers Canada. Previously COO of Rio Tinto Diamonds. He was Managing Director at Argyle Diamond Mines, President of Diavik Diamond Mines. Wide mining experience with an operational focus. And that's another statement of our intent, bringing people with Kim's caliber onto our Board tells you what we're planning to do. In terms of our management team, you've known about me in the past, I won't say much more. Sean Whiteford who joined us a couple of months ago. Sean is an extremely well-rounded geologists with over 25 years of experience in trading in diamonds. He has a commercial focus, and Sean is a dealmaker. George Read joined us shortly after Sean. George is a household name in diamond exploration. Many of the people listening today would know George as well as I do. He is a man with an encyclopedic diamond knowledge and tremendous extensive networks in the industry. And we're already assuming the impact George is bringing to our company, and I'm expecting a lot more. In all, we think this is a great complement of skills in our team. Everybody has their specialty and everybody holds together. And we think this represents, as I said before, a team that is potentially overqualified, over experienced for what we're doing right now. But as you will see as we go forward, this is the [indiscernible] Just a quick update on our corporate situation. So we have $258 million shares. Market cap on the 1st of November was about AUD 23.5 million. We have about AUD 10 million in the bank. Some of that has been carefully allocated to our existing projects. So we -- based on our budgets, we have around $3 million to deploy in M&A opportunities in the near term. And with our change to an operational focus, we will be looking at how we're going to fund any acquisitions we make, but the whole intent there is to become self-sustaining as going forward. Our management director ownership is up 18.8%, so a pretty healthy ownership from the directors in the site. In overview, our briefly [indiscernible] projects, and I'm not going to go into a lot of detail on this. I'll just give you a brief update on a couple of things we're doing. And I'll talk first about the Naujaat diamond project. As I said, we are impacted slightly by COVID here. We made an immediate decision on the onset of the pandemic to defer any work there until 2021, which was frustrating at the time, but that's how things are. The resource will not go away and the diamonds won't go away. And we will get there when we can. And we make sure we have to work very carefully. But we've not been sitting on our hands. We have had already mobilized fuel and other sampling supplies to the site. We have been looking at optimizing the sampling program. So when we do get on the ground in the end of next year, we will be able to do that to the best of our ability. And I would like to say there has been absolutely fantastic working with our partners. And ensures the importance of choosing right partners and getting the right people. [indiscernible] those people, and we've been very pleased with interaction so far. Moving on to our project in Botswana. As I said to you, access has been limited. What we've done at the time we're getting our partners have been [indiscernible] as things were getting know they were capable to do it. So some really innovative techniques on timing, some fantastic technologies, which I don't understand, using artificial intelligence, machine learning and all sorts of tricks. And through that process, we've identified a whole range of new target areas, which we think are worth looking at. We've gone through a process of prioritizing those and selecting them. And we have applications in process this week in Botswana for 4 new type areas, which we'd like to look at very soon. So that's -- again, we've been using time delay introduced by COVID to do some really productive work. I won't talk about our other projects because I know we'd like to keep our time tight on this. So I'd like to just move on to the slide on our outlook and really just to pull things together. So we focus, as we always have been, on portfolio growth, and we've been doing ongoing evaluation of a number of opportunities across the jurisdictions in which we're looking. We see potential for further incremental transactions. We've looked at the number which on paper look like there'll be wonderful acquisition opportunities. We've done the work and we decided to work through them. So there is a very rigorous process there [indiscernible], and we're not out doing things for the sake of doing. But our focus is clearly, as I've said several times, on cash flow and being able to turn ourselves into the diamond -- mid-cap diamond company that we wish to be. We've given you a quick updates on the project development. So we will be on the ground in Naujaat in Nunavut in the middle of next year, all being well. And in Botswana, all being well on permits, we will be drilling there in the first quarter of January, and we have a lot more exciting things happening after that as well. So that's where we are up to in the short-term outlook. And just to wrap up on the last slide, I'll talk about is that a summary of the investment proposition we have here. That's based on 4 things. It's based on the attractive diamond sector fundamentals. It's based on an observation. There are several unresolved opportunities at waging harvest. We have a proven management team and a strong Board in place to avail ourselves of these opportunities, and we have a very well developed, and I believe a very intriguing, unique and interesting strategy to get to where we need to get. So I think that's all I'd like to talk about at the moment. As I said, we did have a few questions coming in, and if there are any others, I'd be happy to answer them now. But I'll turn it back to Steve to talk about those questions.

Thanks, Peter. For the first question, say, I see a lot of commentary around significant growth of the synthetic diamond industry and how will adversely impact diamond mines [indiscernible] strategy?

That is a very interesting question and the one that I get from most people I talk to. The news headlines in the last, I guess, 2 years have been very much about the growth of synthetics and what that will do to the natural diamond industry. I think, as I said earlier, we see our way past that. We're focused on an area of the market that we think is going to be unaffected by any inroads, no [indiscernible] And I bring it back down to the fundamentals of what a diamond purchase is all about. The value of diamonds, as we all know, is carbon. It's not worth anything. It's all about the market, and it's all about the road maps. It's all about the feeling one gets from purchasing of diamond and making a gift as a diamond if that's what you're doing. And we think that if you're going to be making those kind of commitments, and certainly, if you're investing tons of money in larger, highly valuable diamonds, you're not going to do that for synthetic diamonds.

So our next question is, you aim to be a new tech, how will you define new tech?

So new tech, we're not going be build [indiscernible]. We're not going to grow into a $5 billion company. But there is a niche we see in the industry for a multi-mine producing pure player diamond investment vehicle. There are a number of mid-cap diamond companies there at the moment, most of them are single operation, and we believe that the opportunity there is to build on that as we grow into a slightly bigger company with a strong growth pipeline and a number of operating lines. That's what we define as neutral.

And so our next question is, what is the situation with COVID in Botswana? Are there any restrictions on business and travel?

Yes. So the situation has been moving quite fast. Our partner in Botswana, though, [indiscernible] keeping me up-to-date on a day-to-day basis. The borders were opened about 10 days ago with uncertainty to a restriction for business travel. There are obvious requirements for PCR test going in, coming out. And it's been a little experimental. So that, in particular, has been ready to get into keep our projects moving. We'll be trying to go in next week. We do have -- we have a team in countries. So that's not impacting the process of submitting applications as we have been doing. It's just getting on the ground and influencing that. So in answer to the question, it is opening up, and we think it will not be -- might not be back to normal business as usual, but pretty easy to operate in the short term.

So I'm expecting would shareholders be able to [indiscernible] any time after production?

That's an interesting question. I'd love to be able to have that problem to deal with. It's a fair way away for us at the moment. But diamond producing companies do have arrangements, and we'll be looking at how we can do things to make our shareholders happy, but I [indiscernible] in this business.

Our final question that we have to [indiscernible], why is there a lack of [indiscernible] surely is the forecasted market supply and [indiscernible] is as strong as you suggest [indiscernible]

Yes. I think this goes to the uniqueness of the diamond sector relative to other commodities. So if I contrast it with gold, for example, there's a very healthy flow of investment into gold, project development, exploration coming largely driven by the junior sector and then going to the majors for the operation of those mines. For diamonds that's different, and that's actually the reason why we're doing what we're doing. The structural spread of the diamond or highly develop a diamond project, it's a high cost, long time frame, difficult task. And in my view, it's totally unsuited to funding via -- during a public investor company. I've said this many times in the past, and people have done it and are doing it quite successfully. But I think for it really to work, I think you need to have big pockets, you need to have patience and you need to have the ability to do these projects. So I think the answer is investment doesn't come in, in traditional fashion as it would do in other commodities. And it's left a bit of a hole. And the fact is that the majors and the major operating environment in the western world are effectively [indiscernible], and they have been putting money into diamond project development and spending a lot of money. But it's that kind of second-tier investment selecting, and I think that's where we need to come in.

And we've had another question that is [indiscernible] you anticipate that it will go into production?

Well, that's an interesting question, and I won't look at history, but the history diamond mine development has been well and slow. We had very strong ideas about how that can become better. We think there are not -- there are ways that one can improve the speed at which you evaluate projects, which will be doing mine up, and we're looking closely at how we do that in the Botswana. We think there are innovative plan designs, which we're certainly propping up in the diamond mines all over the place, which become much more simple and much modular. And we believe that operating in an environment such as [indiscernible] very harsh arctic conditions. You need to be looking at small footprint. It has been getting away from huge infrastructure, lots of companies and lots of long-term infrastructure. There's ways of doing that, we think. And all of that comes to be [indiscernible] faster. So I had to put a time frame on it because it will be proven wrong, but all I say here's our targets to do these things as fast as we effectively can.

We have another question. When you say you're looking at larger size signs, what sort of [indiscernible] do you have in mind?

That's hard to say. And if I were a client in the downstream in the diamond industry, I'd answer that more clearly. But I think the focus somewhere around the carats or 2. I think there's a natural state in the way that we look at diamonds, size distribution and it's somewhere around there. And I think if we're talking in a higher-end product and the larger -- higher-price [indiscernible] themselves, we're talking about diamonds that are going to end up being cut to at least a carat. So I think somewhere in that range.

Those are all the questions we had at the moment.

Okay. Well, I think we'll probably wrap it up. I do appreciate your time and investment to us. And I know I've skipped over a lot of detail. That was the intention just to try and make some of the high points. We do have information on our website. And we've our contact information there for anybody who'd like to reach out and talk to me or any of the team, we'll be happy to tell you our story. So thanks very much for your time. And we look forward to doing one deal again soon. Thank you.