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

Well, good morning, ladies and gentlemen. Welcome to the Annual General Meeting of Burgundy Diamond Mines. I think it's close enough to 11:00 now, the nominated time for commencement. For those of you that don't know me, my name is Stephen Dennis, currently Chairman for the last time today, but we'll talk about that later, and I'll chair the meeting today. Register's outside the room. You should have registered and signed the attendance register. A quorum of shareholders is present, and I declare the meeting open. Starting with introductions. Fellow Directors. First of all, on my immediate right, Mr. Peter Ravenscroft. He's our Managing Director. On Peter's right, the -- Mr. Kim Truter, who will be taking over from me at the end of this meeting as Chairman. On Kim's right, Jeremy King, a Non-Executive Director, who, like me is also stepping back today. And opposite me is our Company Secretary and Chief Financial Officer, Mr. David Edwards. Both Michael O'Keeffe and Marc Dorion could not be here today. As most of you are aware, they're on the other side of the world, and they send their apologies. Proxies have been received. And as we put up each resolution today, you can see the proxies for, against and abstaining for each resolution. And where a valid proxy vote has been given to me as Chair without voting instructions, I'll be voting in favor of all of those resolutions today. As is customary now with annual general meetings, there will be a poll conducted for each resolution, and that poll will be undertaken today by Atomic, our share registers, and that will occur after Resolution 4. We won't actually know the outcome of the poll until after the meeting, and that the -- that will be posted on the site later today -- on the ASX platform later today. After the meeting, Peter's going make a presentation. I think as I understand, that presentation has also been released through the ASX, but Peter will be making that presentation. You will have the opportunity to ask questions, should you have any, as we step through the 4 resolutions. And you'll also have the opportunity to ask questions of Peter during and after his presentation. So just put up with me, if you wouldn't mind, we'll get through the formalities. The Notice of Meeting and explanatory statement was released on November 9, and shareholders have seen it. It's been circulated. And I take the notice as read. And as I mentioned, the resolutions will appear on the screen. You have the opportunity to ask questions. Our first item is to receive the financial statements and the reports. Ordinarily, our auditors is/are here and so they're able to answer any questions you have in relation to the accounts and the directors' report. So that's the directors' report, the statements, the independent audit report for the year ended June 30. And are there questions in relation to those statements or reports? If not, I shall move to resolution 1, the first formal resolution, which is the adoption of the remuneration report. And this is actually a nonbinding resolution. You can see on the screen the proxies. I'm sorry for absent and abstaining. Are there any questions pertaining to this resolution? If not, I'll ask shareholders to poll on this resolution, we'll conduct that at the end of the meeting. Resolution #2 is the reelection of Marc Dorion, who, as I mentioned, is not here today. You can see really proxies for and against. Any questions relating to this resolution? If not, we'll conduct a poll on this resolution. Resolution 3 is a special resolution. We utilized our -- both our 15% and 10% shareholder capacity recently. And so this freshens up that placement capacity. You can see resolutions for, against and abstain and discretionary. Any questions on the resolution? If not, we'll conduct a poll in relation to the resolution. Resolution 4 relates to a ratification of prior issue of shares as part payment for tranche 1 when we acquired the Ellendale diamond project. See the proxies for and against. Any questions on the resolutions? If not, we will move to a poll. So I'll ask Atonic now to conduct the poll. If you'd be kind enough, I -- do I need to sign this? Yes.

[indiscernible]

You let me know when... [Voting]

All right. So ladies, if there aren't any online and, gentlemen, that completes all the matters in the Notice of General Meeting. I'll take it that there's no further questions. Just before I close the meeting, as I mentioned before, this is the last meeting that I'll be chairing, and I'm also stepping back, as is Jeremy, from the Board. I know that today here, a couple of words from the past, the present, the former Managing Director and greatly esteemed, Mr. [indiscernible]; former Director, Mr. Dempsey; former Director, Mr. Bradley. So I'd just like to thank all of them, including Jeremy for their support over what I think has been -- if I'm not mistaken, about a 7-year journey from January 1. [indiscernible] sorry, it's just been [ quite a long time ]. So thank you to them. But I'd also like to wish both Peter and Kim, who will be taking over from me after today as Chair, the very best along the way forward with the company. And certainly, I'll be remaining interested on the sidelines as a -- hopefully, a significant shareholder. So all the best with the company. So I'll now declare the meeting closed, and I'll hand over to Peter, and he'll provide us with the company update.

Great. Thanks, Stephen, and good morning to everybody in the room and online. I'm going to give a very quick update. We're trying to keep it to 20 minutes. We did give the market a bit of an update on progress a couple of months ago, so I don't want to cover too much of that again. So today, just a broad review of our progress over the last 12 to 18 months. And then more of a focus on our more recent activities going downstream in the diamond industry and particular focus on the announcement we made yesterday on a collaborative sales agreement that we've signed with a high-end drilling in Paris. And I'll finish off with a brief update of our operation projects and exploration projects. So disclaimer on the screen, normal language there. And I'll move on to a quick snapshot of the company. I won't spend too much time here, but just some highlights. World-class management team and Board focused on Fancy Colour diamonds. And we have, in the last 6 months, been very focused on developing what I'm calling an end-to-end business. Where we have a fairly unique approach in the diamond sector on operating all the way from exploration of diamonds all the way through to polished diamond production and sales. Another key feature of our intention is operational production in 2022, so within the next 12 months. And alongside of that, some activities to continue building a balanced portfolio of the best diamond projects in the world. We completed a $50 million capital raise in July 2021. And on the slide which I'm showing, there are some metrics on where we are on market cap. Yesterday, it's somewhere around $80 million. Important management and director ownership, 17%. And those numbers are pretty healthy. I would like to add some comments there on some of the key people, certainly the remaining Board members. Michael O'Keeffe needs no introduction. Kim Truter, we've welcomed many times before, taking over as Chairman of the company. And my background. But what I wanted to add to that was in recent months, since October, a really important strengthening of our management team. So first off, our CFO, David Edwards, who joined us in October, bringing you a lot of rigor into the management of the company. We've appointed a VP of Sales and Marketing, Drew Farrell, who is currently based in Sydney. But he'll be moving to Perth when we're allowed to bring him into Western Australia. Our VP Operations, appointed fairly recently, Jeremy Taylor, who's a very experienced operator from large companies and smaller companies and a long career in diamonds. Jeremy is currently based in South Africa, but I think he'll again be moving to Perth when we're allowed to make travel arrangements and all that. So we've really strengthened the team. And I'd just like to move on to the next slide and take a bit of review where we've come over the last 12 to 18 months. Again, I'm just going to pick up a couple of highlights here. So we've really positioned ourselves for the next phase of growth. Back in 2020, we've rebranded the company, gave it the name Burgundy Diamond Mines. We've had a couple of capital raises. We have significant financial capability at the moment and expanding the Board and management team. Moving on to the issue of integrated downstream diamond business. We very quickly came to a realization that cash flow was what we needed to get this company moving quickly. We focused on operational opportunities, and that led us very quickly into opportunities of taking the diamonds and doing downstream to work on those diamonds and gaining more value. And I'll spend a bit of time on that in a later slide. We're still very much involved in our exploration and development activities. And I'll give an update of that at the end of the presentation. And we're looking at expanding that portfolio as we speak, and we have done a little bit of expansion on that over time. On the next slide, I just want to talk about the evolution of the strategy. And as I said, we have now made ourselves into an end-to-end diamond business. The old term in MBA speak was vertical integration. And I'm going back in time, but I like that word. And we really are operating from the front-end exploration and project development through the production of rough diamonds, which will be due from operations that I talked about. And we've acquired capabilities for cutting and polishing our own diamonds, which opens the avenue for sale of polished diamonds. And we've introduced very interesting work in the marketing of those diamonds. I think this is a game-changing moment for the company. This is taking us into a space which is very different from any other diamond company in the way that we're doing it. And I think we're looking at even going further downstream, which I'll talk about in the next slide. So why would we make this move and extend the downstream? Well, the graph on this, I talked about before, but I'll go through it again in some detail. This is a recognized breakdown of what happens to revenue generated across the diamond sector on an annual basis. This was 2019 numbers. So 7% of the revenue is generated by producers of rough diamonds and mining companies. A further 11% of revenue is generated from people cutting and polishing diamonds and selling polished diamonds. And that adds up to 18% of the value chain. The other 32% is downstream in the jewelry industry. Jewelry manufacturing accounts for 32% of the value and nearly 50% comes from the retail sales of jewelry. So we made a decision back in the second quarter of this year to take up the first 2 boxes. We said, we are able to acquire the capability to cut and polish our own diamonds and sell polished diamonds. And what that does is it takes our potential value from the normal 7% up to a total of 18%. So I think it increases that. But it's exciting what we've done in the last couple of weeks. We filed our avenues and signed deals that take us into the rest of that space where the value uplift is really quite significant. So I'll talk quite a lot about that in a single slide. Moving on to look at what have we been doing since we made this decision to go downstream. Well, the key there is the bringing onstream our own mining operations. That is the end game. As a fully integrated diamond company, we want to be producing our own diamonds. In the interim, until we can get there -- and I'll talk about timing on that, until we get there, what we've been doing is buying third-party rough diamonds. We purchased some in -- a couple of months ago, which we talked about and announced to the market. And we have now signed a deal on the sale of those diamonds. And we're busy planning the cutting and polishing of that right now. Subsequent to that, we've actually purchased some more diamonds recently, which we haven't announced yet. Once we have those diamonds in our offices in Perth, I'll be in a position to tell the market what we've done there. So we're moving pretty rapidly down that pathway of building inventory and allowing our cutting and polishing capability to produce the value that we intend. So in cutting and polishing, we acquired in Perth some facilities, secured premises, machinery equipment and a very experienced team of people which is now up and running. They're waiting for diamonds to be cut and polished. I spent the morning in that office, a lot of enthusiasm to be able to demonstrate this and get value back on those diamonds. So we're moving on that as fast as we can. We may need to expand that in-house capability as we build inventory at higher volumes. On the marketing front, we've been looking at a number of ways of taking our polished goods to market and we've been focusing our discussions on partnerships and relationships with selected jewelry houses. And we're working in a fairly small space in Fancy Colour diamonds. We're working with people focused on that sector. And that is all coming through our activities on developing a luxury brand. That brand development is advancing well. We're looking at the launch of that brand sometime in the first half of next year. It will be based in Paris. We have very recently set up a French subsidiary for Burgundy Diamonds, which will be looking after that aspect of things offshore for us. And through our deal, which I'm about to speak about with Bäumer Vendôme, we've actually been able to pass that subsidiary in the Place Vendôme in Paris. This is a really significant move for a company going into luxury diamond sales. The Place Vendôme is the heart of luxury goods in Paris. And Paris is recognized as the center of the world for ultra-luxury brands. So it's a very significant position to be in the heart of Paris and we'll soon be right on the heart of that, and that's coming from the deal we've done, which I'll be talking about now. Now moving on to the next slide. This is the arrangement we announced yesterday. And I think just to give a little bit of color around this. The important part of this was finding a partner who had a special interest in Fancy Colour diamonds, who was a world-leading design jeweler. And Lorenz Bäumer, who's the principal of this firm, has an incredible track record of success and is recognized as one of the leaders in the field. Beyond that, he's a charismatic figure, wonderful gentleman, very involved with what we're trying to do at Burgundy. And the 2 companies hit it off very quickly. And we were very pleased yesterday to sign this partnership agreement with them. The partnership is actually -- it's a framework. It's an operating principle of how we're going to work together. But what it has allowed is the signing the concurrently of a sale agreement over Fancy Yellow diamonds. It's also a couple of months ago -- or a month ago, we purchased -- after the market, we purchased one of the Argyle diamond hero stones from the last auction with those stones -- or the last tender, and we were able to secure one of those stones after the tender. One of the last 5 hero stones ever produced by Argyle. And what we're intending to do with that stone is use that as the centerpiece of our branding, use it in a promotional sense, and we will sell that stone at some point. But at the moment, its value to us is actually representing what we are as a brand and the linkage there is quite interesting because that stone is a cut stone, and we won't necessarily ever be buying any more polished stones because we're polishing them ourselves. But for the people who polish that stone, work for Burgundy. So it's really come up and sitting as I speak, in our secure premises in Perth, where it was cut and polished only months ago. So it's a nice linkage back to the past. It's a beautiful stone, and no doubt about that, and a huge value. And our intention is to add to the value of that stone by the activities that we will engage with that. And the first people who are going to be using that stone in a promotional sense are Burgundy and Bäumer. Just to get a bit of color around the collaborative sale agreement. So what we've done here is we've set up -- and I obviously won't share the details of that at the moment. We've set up an arrangement whereby each party manages its own cost cutting. To this, we provide the diamonds. We provide the work around the diamonds. They provide the design, the manufacture, the marketing and their networks. And we pull together what we put in and we split the proceeds in the equitable fashion. So what it does in a nutshell is if you look at the graph on the bottom right-hand corner of that slide, it allows us access into that last 2 blocks and significant access into those last 2 blocks. So it's really taking us beyond where we were a while ago, we're not talking about going all the way to retail sale of jewelry and that is the real source of value in this industry. So I think that's all I wanted to say about downstream activities. As I've said at the outset, I'll just give a brief update on some of our project activities. And the most important of those is the Ellendale diamond project in Western Australia. We did an auction deal over this in March of this year. We've been working hard with some technical work and some work on the ground since then. Our intention there -- the project is basically split into 2 pieces. If you look at the map on the slide, there is -- to the Northwest, there are 2 long stripes. That is the Blina alluvial deposit. And the other blocks on the right-hand side of that map are the old Ellendale leases. The Ellendale leases are still mining leases under application, and we are in discussion with the other people over native title agreements on those leases. That's progressing well on the tender meeting next week in order to advance those discussions. And we hope to be able to bring those into our production plan at some point. But at the moment, we're focused on the Blina deposit, which we have full access to. And we are bringing in the bulk sampling plant, which we've already constructed, will be arriving in Western Australia in January. And we'll have that on site as soon as weather permits at the end of the wet season, going into a bulk sampling program, and then transforming that into mining production by the end of the year. So that new project, our stated intent is to be producing rough diamonds from Ellendale by the end of 2022, and we're still on track to do that. Our other key project is in Canada, the Naujaat project. This one, we -- one of our first transactions we did in 2020. We entered into an earning arrangement with the owners of that project, North Arrow Minerals, they're a TSX-listed company. The first step on that was to do a large bulk sample from that project, which we'll funded and return CAD 6.5 million. And that allows us, once we've completed that, we cross the 40% ownership of the project. So that bulk sample was started in June this year. We had a bit of a delay last year due to COVID. But we got back on the ground in June '21. The sample extraction was completed ahead of time, ahead of budget. And the bulk sample was then transported to Saskatchewan in Canada where it's currently being processed. The pictures on that slide are quite interesting. Just the sheer magnitude of that sampling exercise. The picture there showing all of those 2,500 sample bags which were extracted and helicoptered to the port load, both taken to Montreal -- loaded them on to trucks and taken to Saskatchewan. 2,500 bags of samples and those, more feed. They've all arrived at Saskatchewan safely, and we're now some way through processing those. We've started seeing diamonds already. We'll be able to start announcing results on those to through to January. So that's going well. The intention there is to demonstrate the size distribution of the colored population in those, which is a fancy yellow, fancy orangey yellow population of diamonds, which we believe will add significant value to the economics of the project. And the intent of this bulk sample was to establish that we're able to make further investment. The last project update I'd like to give is in Botswana. In Botswana, we're looking at greenfields, grassroots exploration. On the map, you can see there, we have a significant ground holding, more access to ground in the diamond area of Botswana. We've done that through an agreement we have with a local private company called Diamond Exploration Strategies. And they, in turn, have done some commercial arrangements with Botswana Diamond, which is a Botswana-listed public company. And another relation that's showing in the red squares with a company called Kang Diamonds which is a TSX-listed exploration company. So we have access to large amounts of ground. We have a significant program of work, which we've talked about before. We started in March on a program of 58 targets. We're working our way through those. No discoveries yet. But as I've said before, this is exploration. This is what we do in exploration. We set ourselves up for success. We do the work, and exploration is a difficult game. But we are confident that our portfolio still has significant value. We're working our way through that. And as we come to something that's significant on that, we'll be sure to be announcing that to the market. Things are looking confident. Botswana, to me, is the country in which to be doing this kind of work, explorations at low cost. And the prices were huge. Botswana boasts the best diamond deposits on the planet. So just to finish off our presentation, ladies and gentlemen, we have an outlook into what will be happening. Reaching cash flow in financial year 2022 is still our stated aim, and we will be doing that through the sale of polished diamonds through the arrangements which we've talked about. The brand that we're launching in Paris will accelerate some of that, and we should be able to be selling some of those diamonds within that period. The cutting and polishing, moving ahead, as I said at the moment, on third-party stones. Once we get Ellendale into production, we will be cutting and polishing our own goods, in addition to further third-party production. Production of rough, which is really the name of the game. As I said, starting at Blina in the fourth quarter of 2022. And in parallel, that continuing our exploration and project development. So the work at Ellendale will continue into the other leases beyond Blina. We still have a lot of geological work and planning work to be done there. The bulk sampling results have not yet -- as I say, will define our next steps on that project. And we should have the full answers to that in the first quarter next year. And obviously, the Botswana project evaluation will continue. On top of that, we're not giving up on looking at other opportunities, and we're continuing to look at ways of adding balance to this company. So that's all I really wanted to say today. I'm quite happy to take questions from shareholders in the room. I think online, that will be difficult. If anybody has questions, you know where to find us, and please submit them. I'd be happy to talk to anybody about that. But for the moment, Stephen, thank you very much for the opportunity to update everyone.

Thanks, Peter. Any questions on the floor? And as Peter mentioned, I don't think the facility is available online, and that's really clever for them. Do we have any questions? Maybe one, it's very complete to see the breakdown of the value chain. And it's greatly priming the pump service speed with getting their bulk in. Can that supply continue. It's a lower value struggle perhaps of the other sourcing. Can you continue to keep that as part [ of Fancy Colour ]?

Yes. The short answer is yes. There are many sources of Fancy Colour diamonds. We've done a lot of work on understanding where the production is coming from, where the best grade is. We see clearly the possibility there. The important thing to me is to establish that the model works. I've had discussions with other producers and they say, well, we like your story. We'd love to sell some rough [indiscernible]. So we will get to that state very quickly and demonstrate the output we're getting. And what we're looking at there is to be able to have arrangements with other producers where we will involve them in the profit share. So we're not looking to take this all for ourselves in the same business. There's a win-win. There's a win for the jewelry company, there's a win for us and it's a win for the [ seller of the diamonds ]. So there's ways of [indiscernible], we think, in a very different model.

Maybe following on that. On the other end of the diamond retail sales. Sounds really, really exciting. You've gone on your talks of luxury, and actually going into Paris. Longer term, and it's like a 1-year range, where do you see ultimately -- if you have a supply and building a brand, would you be in sort of selling in retail diamonds [ free market ] and more and more to Paris and luxury diamonds?

Yes. I think there's a number of different angles in that. Our mind was not to open retail stores. We will always be working in partnership with infrastructure that's in place or marketing arrangements as people do their business. So we're looking at this collaborative relationships with them. The one we've done with Bäumer Vendôme is an exclusive arrangement for 12 months. But at the same time, we'll be talking to other jewelry makers and they're all pointing -- and effectively even during the 12-month exclusivity, we may be producing more volume than Bäumer Vendôme wants. And they have first right of refusal agreement in production. And we can take it elsewhere if they don't wish to have it. We have discussions of going between London, other companies in Paris. Also I enjoyed working with New York talking to -- so we're looking ahead on that. And I think obviously covering -- as I said during my speech, Bäumer Vendôme probably won't be able to manage the volume that it really wants. We will be extending that. But the model we need to establish, and this is a very good step to get that underway.

All right. Well, if there's no further questions, the meeting is already closed. Thanks, everybody, for coming along. And if anyone's got subsequent questions, you know where to find Peter.

Thank you, Mr. Chair.

Thank you.

Thank you, Stephen.