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

Good morning. Good morning, one and all. We will commence the Burgundy Diamond Mines Limited webinar in just a moment. First and foremost, thank you for your attendance. In a moment, I'll hand over to Burgundy Diamond Mines Managing Director and CEO, Peter Ravenscroft, to take you through the latest investor presentation for the company. A little bit of housekeeping at the start. [Operator Instructions] We will answer questions at the end of the presentation from Peter. [Operator Instructions] Again, welcome to the investor webinar for Burgundy Diamond Mines in October 2022, wherever you are in the world. Again, please answer your -- submit your questions via the Q&A chat function in your toolbar. It's now my pleasure to welcome Burgundy Diamond Mines, Managing Director and CEO, Peter Ravenscroft.

Thanks very much, Russell, and good morning to everybody or whatever times on you're in, good day to you. Welcome to another update on what we're doing at Burgundy Diamond Mines. I'm looking forward to giving you a little bit of a refresh on some of the things we've said before and really focusing on what we've been doing recently and what we plan to be doing in the near future. Starting off the presentation with a picture of a beautiful diamond, we will be seeing lots of beautiful diamonds in this presentation, and that's what it's all about. Taking lovely rough diamonds like this, fancy vivid yellow that we're showing here, cutting and polishing diamond into beautiful finished diamonds and selling them in retail jewelry. So running past the disclaimer very quickly, and the outline of the talk, as I said, I'm not going to dive into detail on all of this, but I'm going to lead you through a quick snapshot of the company, talk about our business model, our strategy, focusing on the sales and marketing side of things and update you on the launch of our ultra-luxury brand, Maison Mazerea, which we launched in July and finish off with an update on our exploration and development projects. So a quick overview of the company. We're not a diamond mining company. We're a luxury goods company with a mining heritage. We all know we started off as a diamond mining exploration company. We very quickly saw the value chain, which I'll talk about in more detail. And I'd now like to portray us as a luxury goods company. And we're certainly working in that space as you will see when I start talking about the brand. The focus has always been on fancy colored diamonds being a niche area, small, controllable, extremely high-value and some where we see we can make a big difference. Our model, as I've said many times in the past, is a vertically integrated end-to-end diamond company. So we explore for diamonds, we develop diamond projects, we're going to be mining diamonds, we cut and polish diamonds, we sell diamonds, we create jewelry and we sold jewelry. So we cover the whole value chain. And this was unlocked by our ability to have in-house a unique cutting and polishing facility, which I'll talk about more and our unique sales approach via our collaborative agreements with global high-end diamond jewelers. And I will talk a little bit more, as I said, about our brand launch. A quick corporate snapshot. I won't go into the numbers here, but I would draw your attention to the fact we have cash on hand of just over $9 million at the end of October or middle of October. It's important to note the line below that where we talk about inventories of rough and polished diamonds. So we have inventories ready to go valued at around $15 million. That's what we paid for them. In this presentation, I'll allude to the kind of margins and uplift we expect from that, and that really is the value of what's sitting in our vaults in the company at the moment. So we'll come back to those numbers later. Now the people I've talked about many times on this slide, the key people on the Board, Michael O'Keeffe, who's our major shareholder, very, very successful mining entrepreneur; Kim Truter, who is our Chairman, and long background and very wide experience in the diamond operations, companies, sales, marketing and the whole value chain. And myself, 40 years' experience in the diamond industry, technically focused, but really have been bringing this company through this development stage and into the exciting future that now faces us. This is a really key slide, and I'll spend a few minutes talking about it. In the headline there, important to note, figure shows that more than 90% of the margin in the diamond industry comes from cutting and polishing and jewelry sales. So when you look at the total revenue split, the numbers are somewhere from 2019, which was the last reliable numbers we have, somewhere around $150 billion to $200 billion of value globally across the diamond industry. Of that large amount, only 10% goes to the mining companies. So 90% of the value comes downstream. And that's why we have gone down the path that we're going. That is where the value uplift comes, and we started exploring how we could access that. So the business model really is starting with rough diamonds, which we will either be purchasing as third-party rough or as we bring our own operations on mining our own rough fancy colored diamonds. We then go through cutting and polishing, and we have our own cutting and polishing capability facilities in Perth, which we're in the process of expanding as we speak. So we have the physical space, the machines, and just adding some people in there to uplift that capacity, and we are already preparing for that step-up. And then going through into channels to market for the polished diamonds, we've started that with a process of collaborative sales agreements, which I'll talk about, and we're actually now starting to develop our own jewelry designs, our own jewelry manufacturer and working with outlets through which we can get retail value on that jewelry. The numbers in the bottom of those boxes are very indicative. They just give you a scale of the kind of value that we're looking to access through these different steps in the value chain. Our company strategy really is a growth path, and we're growing 2 dimensions at once. One is growing the sales. The second one is growing the supply and of course, growing the internal capability to match that. Just some quick updates on where we are on that. We have now launched our ultra-luxury brand. We have now started selling jewelry through one of our collaborative relationships, and we are expanding our routes to market in a number of different ways. On the supply side, we've continued in the last 6 months to purchase third-party rough diamonds. We are making progress with Ellendale -- towards production from Ellendale, which I'll talk about at the end of this presentation. And we're constantly looking at future sources of supply. M&A, we can do off-take agreements, whatever it may be. Our internal capabilities, they're growing to match the business needs all the way. We'll talk a little bit about our sales and marketing and an update on what we've been doing in that important part of our business. So the collaborative sales agreements, last time we had a webinar which I think was about 5 months ago, we had signed a sales agreement with Baumer Vendome in Paris. Since then, we've signed another one, which we announced locally here in Perth with the company called Solid Gold Diamonds, one of Perth's leading retail jewelers. The partnership there is very much about jewelry manufacture, design and retail sale, and it's basically on 2 levels. One is the lower level of smaller, lower-value stones going into bridal rings smaller jewelry pieces. And Solid Gold have also been manufacturing some very, very high-end high jewelry pieces for us. And I'll talk about them in terms of what our sales look like in the next couple of slides. We did start making our first retail sales with Solid Gold in August, which we reported. That process is continuing, and we will have some numbers on the full quarter at the end of this financial quarter. We are expanding that network and looking for a global reach on these collaborative type of arrangements. The branding side of things, we launched our brand, Maison Mazerea, in Paris in July. The idea of a brand has always been to be able to access premium pricing through placing our product at the pinnacle of the luxury pyramid. And we're doing that with a number of differentiating factors on our brand. We have a complete value chain model, which gives us certified chain of custody. We have no change of ownership. We have total traceability over our diamonds, and that's becoming more and more important in the world we're in at the moment. And we have some really interesting ESG type approaches, which we think give value to communities where we work and allow customers to participate in that for the first time. A little bit about the brand launch. We had a function in Paris in July where we had a number of leading diamond personalities came to our launch. This was about telling the story. And the story very briefly is Maison Mazerea is focused on the luxury diamond centers in Paris in the Place Vendome which lined up with our relationship with Lorenz Baumer in Place Vendome. We went back in history looking for how we could differentiate the brand. What was different about the way that we were producing and bringing diamonds to the market? And we ended up all the way back at the time of a very powerful French personality in history, Cardinal Jules Mazarin, 17th century, he was the godfather of Louis XIV, the famous Sun King person who created Versailles, the person who created luxury in France. So our roots go back as far as that. And our name comes as an inspiration from Cardinal Mazarin. Most of the aspects of our brand are rooted in the stories around Cardinal Mazarin and Louis XIV. And in forthcoming collections of jewelry, we'll be focusing on those aspects of the story and the key components of the brand that will be shown up via that storytelling. Our cutting and polishing in Perth, I think, we've showed this slide before. I just wanted to focus again on this as an example of what we're doing. And this was the first large diamond we had produced, and we've done several since. This diamond was cut and polished from a 17 carat rough stone. Turned out as a fantastic 7.45 carat stone, as you can see. What I wanted to say is a lot of people when I've shown that picture to them say, I've never seen a diamond like that. And my response has been neither have I and I never will see one again. And the point is that every one of our diamonds is absolutely unique. The faceting, the cutting, is -- we call it sculpting, the craftsmen that we have, have the ability to draw out the color from the stone and draw up the hue, the tone and the saturation and the faceting is based on heritage cuts, which have larger facets. Colored diamonds need less reflected light and more bringing out the richness of the color from the interior. And our craftsmen are experts in doing that. That's what they've been doing all of their careers. And every stone that they produce is a masterpiece. It's a completely individualistic representation of the best color that we can get out of that diamond. And every stone that we cut has a different shape and has a different characteristic and forms a really attractive, almost collectible piece in jewelry because nobody else will have one anything like it. I'm going to turn to an update on our exploration and project development. And I'll start with what we've been doing at the Ellendale Diamond Project in Western Australia. So in August, we commissioned the bulk sampling plant, which we had constructed in South Africa. We brought an on-site in the first half of the year, completed the commissioning process in August, and we've been running that plant since then. And the purpose of doing that was threefold, really. It's bulk sampling in the sense we're trying to understand the Blina gravel, the alluvial gravels much better. It's trial mining and we're working out what is the best way with local contractors and local equipment suppliers and logistics, the best way of getting the mining done. And it's a pilot plant, understanding the best flow sheet, looking at the ways different gravels because there are different gravel horizons and different channels, seeing how they run through the plant and really testing XRT recovery for the first time in this kind of environment. So we've been working on that since the commissioning, and we've smoothed out a lot of problems. I mean this was the first time this kind of plant has been used in this way. And yes, admittedly, that we've had a few problems with some flow sheet design, which we sorted out. We're learning how to deal with very fine material -- clay-rich material. And the news is actually very good because the material we're looking at, most of it you can get out of the system very, very early on, and you're left with a much easier recovery process at the end. The XRT process have been working fantastically. So that really has been demonstrated. People said to me how many diamonds we're producing and the answer is not very many. And that's exactly what we expected. So it's important to recognize what we're doing at this project, and we do at most of our other projects, we're focused on recovering only the large diamonds. So at the Blina operations we have, we have a bottom cutoff size of 4 millimeters. So 4 millimeters means that we're not going to be recovering any stones less than about carat. And hence, we are getting very few stones, but they're all very on the large side. And we're getting a much higher proportion of yellow diamonds than we had expected. So we'll continue to run that test program at Blina but the big prize really is what we do next year, which is moving, hopefully, into the E9 part of our leases. We're in close conversation with Native Title parties in terms of getting the Native Title agreement finalized on that, which we have to do really soon. And then we'll be looking at how we can bring value from the E9 side of the fence, which is really the western -- sorry, the eastern side of that map, as you can see it. And that's where we can see value in dump stockpiles, remnant resources, alluvial resources and much larger volumes than we'll be attacking at Blina. And we will use the plant that we currently have with Blina in a new configuration, bringing concentrate initially across from that side and ultimately involving it in the circuit. So that's the outlook at Ellendale. It's all been very successful this year. 2023 is when we launched that into a much larger scale of production. Our other projects, the Naujaat project in the Nunavut region in Canada. We completed the bulk sample on that in the middle of this year. We processed all of the bulk sample, recovered the diamonds. We've analyzed the data that's come back from that in terms of the diamond sizes, the diamond colors, the size frequency distribution, very, very encouraging results. What we're seeing there is a higher proportion of the fancy colors than we had expected from previous sampling and a higher proportion of potentially fancy vivid orange diamonds. So there's a range of colors from yellow through orange, yellow, yellowy orange all the way through to orange, and we're seeing some very interesting deeper orange colors. The step we're at now is getting those diamonds valued. So we understand the size frequency distribution, understand the grade of the deposit, getting the prices on them as where we're at. And we're right in the middle of that process. The diamonds, I believe, are in Antwerp at the moment. After that, they're coming to our facility in Perth. We will be doing some test cutting and polishing and looking inside those diamonds. As you can see from the images, they have the rough. They're not necessarily the prettiest rough in the world. But as we've known from other very successful fancy diamond projects, the rough doesn't actually tell you the story. It's what's inside the stone and the cutting and polishing of those, which we'll be doing in the next couple of months is going to tell us that story. So Naujaat is very much in our focus at the moment. We will be making decisions fairly soon on how we're going to move forward on that. But everything we've done up to now has proven what we were looking to prove. Our Botswana exploration alliance still continues. We have 3 targets that we're going to be addressing in the next couple of months, some drilling programs there. So I look forward to reporting some results from those. And as I said, we're on the continual look out at future projects, we've identified that the key thing we need to be doing is finding sources of fancy colored diamonds. They're not everywhere on the planet. They're not on -- in every diamond deposit, but we're focusing on the ones where they are. So we're moving ahead on that as we can. So that's really the outlook. From the sales and marketing side, we have the brand established. Now we need to be leveraging that. It's really about getting the brand story further and further spread. And I think importantly, what I didn't say earlier on, our next step in that process is happening next week. We have a large launch event in New York City, where we are working in very close combination with the Princess Grace Foundation. We've mentioned that before. The Princess Grace Foundation is essentially a charitable organization focused on sponsorship of performing arts of theater, dance, and it's in tribute to Princess Grace, the former Grace Kelly. And we formed an alliance relationship with them, really leveraging off a number of touch points, one of them being that the original Cardinal Mazarin, who I spoke earlier, his lineage stretches all the way into the current Monacos family. So the Royal family of Monaco are descendants from the Mazarin family. The Princess Grace Foundation gives us access to a very large network of potential clients, customers and interested parties. And they have their own luxury retail brand called Grace de Monaco, and we're in discussion with them on how we can form an alliance and provide fine and high jewelry into that sales platform essentially, which has a global reach. So that the events next week in New York are in combination with them, and that will be the first step in that process. We're cutting and polishing, as I said. We're continuing to purchase third-party rough. We will continue to do that next year. And we are expanding that capability with some new people who we're bringing in fairly soon. In terms of production of rough, we really have a very small-scale production at Ellendale this quarter, which is demonstrated in our model. We have some diamonds from there. It's really in 2023 that we're going to be starting producing commercial quantities which we can feed through our process. And from the exploration and development side, the Naujaat project very close to deciding on the next steps and continued evaluation of further projects. That's pretty much all I wanted to say today. I value the opportunity of talking to you, giving you an update. More importantly, it'd be interesting to have some questions and be able to address any topics that people would like to raise. So Russell, I'd hand back to you to look after that.

Thank you very much, Peter. I appreciate your presentation. We have received a few questions, and we welcome further investor questions at this moment. Again, please write your questions in the Q&A chat box at the bottom toolbar within the Zoom platform. First question, Peter, is in regards to Naujaat, what was the final valuation on the Naujaat bulk sample? And will Burgundy now go on to a pre-feasibility?

Okay. Yes. So as I said a couple of minutes ago, the final valuation is the stage we're at now. So we have a better understanding of the size distribution and the color distribution. Now we need to get the prices on those stones. We've had independent valuations done in Antwerp and elsewhere. We're doing our own internal valuation in November. So we'll have those final numbers by the end of the year. What that means going forward, do we move straight into a pre-feasibility study? We are earning into a joint venture with our partners, North Arrow Minerals. Those decisions are going to have to be made together. So I would suggest early next year, we'll be starting to explore the ways that we can do that.

Similar question or related topic. What value per carat would you use for PFS economics? Would it be basic market value or basic market value plus something that captures the benefits of Burgundy's vertical integration?

That's a really interesting question. That's something that we've been playing with internally. I mean, clearly, from the question people are realizing that our business model allows us to access a lot more value from the diamonds than if we were selling rough at mine gate. So that means how do you value -- how do you put a value on the mining project? Do you put the value at the mine gate? What do you say is contributing to the larger value chain and the larger revenue generation in the company? And I think the way we're looking at it is both. Ideally speaking, because of, I guess, while mining heritage and legacy, ideally speaking, you'd want to be making money at the mine gate or at least breaking even because you never know what's going to happen at the other end of the business. But it does unlock a different way of looking at projects. If you look at the margin that we can get out of those, then that does give you a different dimension in a way of -- or thinking about risk decisions and margins that you might be prepared to accept. We all know from -- certainly from more recent history, many diamond projects fail because they're not getting the right price of the rough diamonds at the mine gate. So the expectations are built up during study phases. Actual market prices may have dropped. The diamond quality or size may not be what was expected. So we're in a way to eliminate that risk or mitigate that risk because we can add the value downstream. So the answer to the question is it's certainly in the back of our minds. I would prefer to say it would not make sense to be running an operation which is losing money at the mine gate because that's a risk at that end of the business. But I think it does give us a much more healthy risk appetite.

Thank you, Peter. Some further questions from our investors. And again, we welcome our ongoing investor questions time permitting. Next question, Peter. Is the company expected to be self-funding into the future? And assuming no other acquisitions are made, is it reasonable to assume no other capital raises will be needed?

That's certainly what we promised to our investors during our last capital raise in July of last year. We raised $50 million. Some of that was convertible notes. And what we promised investors at that point is that would be our last capital raise for what we had on our plate at that time. So Ellendale, building a brand, getting into the cutting and polishing and purchasing rough diamonds to what we said we would do with the money, and that's what we're doing. If we had a larger M&A opportunity that made sense, naturally, we would evaluate that in the way that everybody evaluates that and if that needed the external funding and it made sense, yes, then we might raise money for that. But in terms of what we currently have in our operational strategy, our objective is to be self-funding.

Thank you. Next question. Hello, Peter. Have you had any sales in Europe yet?

Short answer to that, no, we haven't. As I said, we've started in Perth. I think we have some large sales events planned in New York next week. I'm looking forward to being able to report some success on that. Europe will go back to next year via the U.K., which is no longer part of Europe, but we're looking at some events in London in February and back into Europe middle of next year.

Thank you. In the same vein for New York, when and where is your New York event, please?

So it's next week. We have 2 events. One is on Wednesday evening next week. And the other is on Thursday evening. They are discrete invitation-only events. I'm not really going to divulge the venue of those from a security point of view. But anybody is really, really interested and has a reason to and wish to be there. Please reach out to me and we'll see if we can fit you in.

Thank you, Peter. And for that particular investor, [email protected] is the best e-mail address to send that inquiry through to. Is there scope -- another question, Peter, is there scope for another revenue stream from [ rejects ] from Ellendale for industrial diamonds?

That's something we've talked about internally. And I think the answer to that is yes. We're very much focused on our core business model. And our core business model is larger fancy colored diamonds. We all understand that in generating or mining or producing fancy colored diamonds, you are going to be producing some non-fancy colored diamonds and white diamonds. You will be producing some incidental smaller diamonds. They will have a value. Our current strategy is we would sell them as rough through normal market channels. But we're going to look at that as it comes. We've come a long way in the last couple of years. We've built a business from scratch. We focused on what we do. There are many, many opportunities around the edges of that, which we will get to when we get to them. But there is clearly value to be there, and these are sort of upside opportunities that I think we're keeping in the back for a later day.

Thank you, Peter. What is the expected sale value of the current stock on hand?

I'm not sure I'm allowed to divulge that. So I'll just point you back to some numbers I do in the presentation. We have around AUD 15 million worth of inventory. We're looking at markups that range from 2x to 5x in retail, give that range because every piece of jewelry is different. Every -- the size and the value of the jewelry piece drives kind of margin you can attract. But that's a range of numbers, which can give you some idea of the kind of retail value we have in our inventory, and the rest is not to how much of that we sell at what time. And that we will do what we can next week, and we'll be reporting back on that at the end of the year.

Thank you, Peter. Next question relating to mining and exploration. Being ASX registered, I assume Burgundy has to be JORC compliant. If so, what are the implications on this for Canada and Ellendale sampling programs?

Okay. The Canada one is easy. So yes, we are JORC compliant. Every statement update, we put out about the results from the Naujaat project we've done under JORC guidelines. We've published an accompanying Table 1. So we're following exactly what we need to do there. What we're doing at Ellendale, as I said, it's not a classic bulk sampling program where we're going to be announcing bulk sample results. It's more of an operational startup, looking at being a pilot plant, trial mining and some understanding via bulk sampling. So we're not looking in the immediate term at publishing a resource at Ellendale, which would require JORC. Again, if we're funding this internally as we are, we're not looking to raise money. We're not putting out a published resource or a feasibility study or anything like that at this stage. Clearly, if we do go public on some numbers, we will be completely compliant with the requirements of JORC.

Thank you. Pertaining to branding and specifically the recent Perth event, how successful was the Perth launch event for Maison Mazerea?

It's been very successful. I think the objective of doing it in Perth was to get started on getting an understanding out in the public about what the brand was. We did that successfully in an event, which was very well attended. It takes time for people to -- for that to flow through into demand and sales. We had a number of inquiries at the event and subsequent to the event. And we have established in our facility in Perth that we're finalizing a private viewing room, and we are inviting any of the guests who came to that event to come for private viewings of the jewelry. There's no way that you can get a full appreciation for the beauty of the diamonds with like getting really close touching, feeling and wearing them. And that's what we're doing is providing that facility for people by appointment to come in and have a very close look. So in terms of local impact, I think it was the first step. We're looking at boosting the sales through Solid Gold in Perth after that event. Our focus really now is on the New York event and then we'll be back in Perth in November and hopefully, bringing more of that demand that we think we're starting to build up in Perth bringing that to fruition.

Thank you again. Further question. In terms of the growth of the polishing business, how large is the current expansion?

So the numbers we've disclosed before, currently, we're able to cut and polish about 1,200 carats of diamonds a year. We're looking at just doubling that capacity simply by adding on more staff. So the facilities we have, the equipment, the machinery, the layout of the [indiscernible] allows us to do that without any capital expense. So it's very much a people-driven task expertise, obviously, and we've started that process of recruiting. We've got some candidates who we're going to be having a very close look at. So we believe we can essentially double that capacity through next year once we bring those new people up to speed.

Thank you. The final question we have to hand. Can you talk to us briefly about the ESG component of Burgundy's business and including in that, how are your discussions going with key stakeholders, including traditional owners?

Right. So I did mention this earlier, I didn't focus on it. So I'm pleased we got the question. What our business model allows us to do because we're working from the style of the value chain all the way to the retail customer, we can make that connection between customer and community in a way that no other company can because they have a fragmented business. And when you look at it, mining companies do an incredible job around the world, not just diamond mining or mining companies do an amazing job of putting back into the communities, the local traditional communities, the local commercial communities around their operations. And that's done normally through royalty agreements, commercial agreements, contracts, things like that. So that's the way that it normally gets done and it's done to create value to the local communities. When you look at what I said about the diamond business and the 10% of the value is the mining companies and 90% is downstream. There is no way for the downstream 90% to be contributing back to other although the miners are doing a fantastic job, it's only a small piece of the pie. So our model is that we will take from the retail sale of a diamond, we will take a percentage of that retail value and feed that all the way back, unadjusted to local community environmental projects. We're doing that through an independent foundation, which we're in the process of setting up. And the idea would be that the communities will get the normal, call it, normal standard benefits through the normal kind of agreements. And this is on top -- this is in addition on top. And to put some numbers on it roughly, the amount of value we can bring back from the retail side turns out to be about 6x what they would get from the standard royalty agreement. So we've already had that discussion with the local [indiscernible] people around our Ellendale project who are the owners or the traditional owners of that land. And that's part of the agreement we're putting in place. That will be a normal royalty agreement, which we have to have because if something changed, if the retail side didn't work out, they still have to have a guaranteed benefit on mine gate royalties, which is what we are agreeing on. And then on top of that, through a separate arrangement will be this additional component. I'm very excited about this because not only does it bring enormous value back to the communities, it's attractive to customers, too, because when they're buying the stone or the piece of jewelry with the stone, and we're telling them about this ability to contribute back, that's something we all like to do and we do it and we're buying our coffee or whatever it may be. We're looking for ways that we can make a difference. So that's something we're starting off naturally quite slowly and getting ourselves in place to do, but I think it's going to be a really important component of our brand.

Thank you very much, Peter. That's all the questions we've received from our investors. So I think we'll take that as notice of the end of questions coming in. Thank you very much for your time, Peter. Most importantly, to the investors locally in Australia and around the world, we thank you for your time and attention and importantly, your participation. So we appreciate you lodging your questions, and they've now been all completed. So we'll draw this webinar to a close. Peter, thank you.

And thank you very much to everybody and goodbye.