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

Good morning, everybody. On behalf of Burgundy Diamond Mines and Bell Potter Securities, welcome to the Burgundy Diamond Mines June 2024 Quarterly Conference Call. My name is Stuart Howe, resources analyst at Bell Potter, and I will host today's call. From Burgundy, we have Kim Truter, Managing Director and CEO; and Brad Baylis, Chief Financial Officer. The format for today's call is that Kim and Brad will take us through a presentation. This will be followed by a Q&A session, which I will chair. So please enter your questions on the Zoom platform. After the presentation, I'll read out your name, affiliation, and the question for Kim and Brad to respond to. Today's call is being recorded. Before we get started, I want to draw your attention to the important notice and disclaimer on Slides 2 and 3 of today's presentation. Kim, I will hand over to you to kick off the call. Thank you, Kim.

Thank you, Stuart and good morning, good evening, everyone and as Stuart mentioned, I've got Brad with me today. Look, we'll kick off the presentation today with probably one of the more important slides, which is why diamonds and why Ekati. Now, some of you have seen this slide before, but it's always worth just repeating the rationale for why we're doing this. But the key point here is that the play we are making is a countercyclical play. And as you know, this is a specialty of Michael O'Keeffe in particular and he's most recently done that with his Champion Iron ore. And so going into diamonds is yet again a countercyclical play and let's just pick up cheap, unloved assets. And the hard part was obviously finding the right asset. And as you know, we looked hard to find an asset that ticked all the boxes. And as you can see on the screen, Ekati ticked 5 key boxes, including the location, the infrastructure, the fact that it was a top 10 producer, owner disinterest and a long life mine extension potential, which we'll talk about shortly. So we're very, very happy with that acquisition and Ekati has proven to be a fantastic asset. If I -- just a little bit of an update on the Board and people on this call. Obviously, myself and Brad from the executive and then you've got the Board, which is now quite a full Board. Our most recent addition is our strategic investor, Anshul Gandhi from the Choron Group. So Anshul is officially on the Board from the 2nd of August. And he brings to bear a lot of midstream diamond experience. And he's already added a lot of value in our relationship with Anshul. So very pleased to have Anshul on board. You can see on the right-hand side, our capital structure, and -- which we're very pleased about in terms of our market cap and our cash position. And you can also see our listing there of our major shareholders. You can see the Choron Group #2 through the investment on Kama Capital. And then Schroder Investment Management is the third largest investor, obviously, from Australia and Michael O'Keeffe, #4. And the ex-owners invest through their respective capital vehicles, that's Polen and Brigade Capital, who were the previous owners of the asset. We'll take you through 5 different themes. I wanted to read them out to you, but you can see our progress and a few of the other topics there. I think the thing we're most proud of is the 12-month progress. So we've put a bit of a summary up to compare what the asset looked like prior to the acquisition and then what it's looking like today. So the key thing, as you can see, we've taken the production from around 4.1 million carats, which is sort of the historical number. We're now sitting at 5.1 million carats. We're very pleased with our net debt position. And Brad will unpack that again a bit later and take you through our cash situation and our use of cash. So very, very healthy net debt at USD 63 million. All of the currencies, by the way, we'll quote, will be in U.S. dollars, unless we quote otherwise. As you all know, a big focus of ours has been on adding life extension to this asset. When we acquired the asset, it had a mine life of 4 years, arguably slightly shorter. And we've been working tirelessly to extend the mine life and we are looking at a 2036 or greater objective. And there's 140 million carats on this property that we are aiming to deplete over -- through all our efforts. And probably the other key achievement has been the restructuring of the surety payment arrangement. When we acquired the asset, we would have had to pay out USD 177 million in this calendar year 2024. And under the deal that we are now very, very close to finalizing, we have -- our net payment this year is USD 44 million. So net saving is around about USD 130 million, which we can now pull into the asset. I'm sure some of you will be wondering why that surety arrangement is taking so long to finalize. I will say it's a very, very slow moving process. The sureties themselves are a consortium. It takes quite a lot of toing and froing, but we are literally down to the last few details. And we're talking about minor things like just making sure the wording around how many days it takes to pay them within a quarter and things like that, or just putting it into the agreement. So generally, all the terms have been agreed, and we should be able to sign that in the next few weeks. So we're very pleased with our first 12 months of ownership. If we just have a look at our operational and financial performance, and I'll start off with the operational highlights, and then Brad will go through some of the financial performance. But you can see, generally, if you look at the top graph, very steady performance. One of our key objectives with this asset was to make it a reliable, consistent producer. So you can see pretty much ever since we acquired the asset, every quarter is pretty solid, very repeatable on a quarter-by-quarter basis, which is something that everyone wanted, including our customers that we sell our diamonds to. And then you can see the bottom chart takes you through the tonnes processed and the carats recovered and also the grade. The blue little boxes are actually the grade recovered. So you can see it's relatively consistent on a quarter-by-quarter basis. And the carats recovered this quarter are a function of the tonnes that we processed. And just worth mentioning at this -- this last quarter, we had quite a big shutdown, doing a lot of work on our diamond recovery technology that's called the XRT technology. There's quite a long shutdown, a bit longer than the prior quarter. And so that's why we recovered less carats this quarter. But generally speaking, the asset is very reliable, as you can see, on a quarter-by-quarter basis. So I'll hand it to Brad now and Brad will take us through how all that plays into the financial results and some of our sales. So over to you, Brad.

Yes. So for the -- thanks, Kim -- for the quarter you could see [Audio Gap] lower than the previous quarter on both carats and dollars. Part of this is reflective of kind of the marketplace we're in right now, part of it's seasonality. So typically, in kind of Q2, Q3 sales are a bit more -- a bit slower than they are in Q4 and Q1. So we sold for the quarter, USD 103 million in total [Audio Gap] carats -- revenue per carat, slightly down from a year prior. And that's mainly due to the fact that the diamond price has come off significantly. So if you look at it, it's actually a pretty good result, about 20% since Q2 of last year. So it's been a significant decline. But we have been able to kind of [Audio Gap] have our sales market. During the quarter, we had 2 regular sales and 1 special sale. During the special sale, we sold approximately $12 million worth of goods and the remainder of the sales occurring during the 2 regular -- the 2 regular sales. Dollar per carat for the quarter was $103 per carat. So up quite a bit from Q1. And there's always a lot of noise when you talk about dollar per carat, but largely driven by the special sale that will be held during the quarter that will always drive up your dollar per carat for the quarter. Yes, the other thing I guess I'll point out is the revenue forecast for the year. So we're forecasting to be in the range of $460 million to $500 million for the quarter. On the balance sheet front, fairly strong…

I'd want to quickly go -- this is going back to that slide. Sorry. There you go.

On the balance sheet slide, I'll just point out kind of our priorities going forward. [Audio Gap] on creating a long mine life as we can. So a lot of the funding for all the mine extension work, our plan is at this stage to self-fund all the mine life extensions. And so that's kind of our #1 priority when it comes to cash. Second will be meeting and reducing our debt obligations. So a good example of this is as we have some upcoming convertible debts that's coming due in September. Our plan right now is to pay down that -- to pay out that debt and move forward without those notes. And so that'll again be another cleaning up of our balance sheet to get us in a better position going forward. And then we always need to ensure we have the cash reserves to kind of fund our working capital. We're operating up in the Arctic of Canada. It takes -- when we bring up our supplies on an annual basis, does take a healthy cash reserve in order to build up the inventory required for the upcoming year. And then obviously, our last priority will be to start returning surplus cash to the shareholders as dividends. So [Audio Gap] this will happen immediately, but definitely a priority for us to start giving back to the shareholders. From a -- if I look across the metrics here, pretty good -- pretty good performance all around. And the biggest change from our net cash debt position, we've gone from $44 million last quarter to $63 million. The biggest reason for that is a tax payment, and we'll get into that on the next slide. So just a quick snapshot on the change in cash from the end of March to the end of June. So cash from operations, just over $21 million. We had a regular kind of interest and financing charges, just under $9 million for the quarter. Kind of the 1 unusual item here for the quarter is taxes and royalties. So we always have [Audio Gap] royalty payments. But this quarter, we had our annual tax bill. So this is our federal and provincial tax bill that was in the order of $25 million. This is a one-off. This is related to 2023 taxable income. Unfortunately, when the previous owners purchased the asset, they were not able to purchase the entire company. And so what happened was they lost a lot of the tax, the tax efficiencies they would have had if they would have been able to purchase the whole company. And so we didn't have as many tax offsets as we would like. We are in the process of setting up an environmental trust that will allow us to use that as a tax deduction. So I would estimate that next year's tax would be a fraction of this, if not 0, if we're able to get the trust up and running and working the way we need it to. On the capital side, so we spent $21 million for the quarter. About $10 million of that is related to development capital associated with the Point Lake pit that will start production in early 2025. The remainder is just our regular sustaining capital. I think that's a change in working capital and so we ended the quarter at just under USD 57 million. Pass that back to you, Kim.

Thank you, Brad. Yes, that connection is a little bit shaky, but I think we got the gist of it. So, just to reaffirm our guidance for the year, as you can see, we just put in our sort of our lows and our highs as a sort of a range for each of the key operational metrics. And you can see across the board, we're pretty much on track. So we quite confident in the second half of the year and how we'll do. It's always the second half of the year generally you do better, mainly because it's warmer in Canada. So we do well in Q3 in particular, and then heading into the colder period towards the end year. So very much on track across the range of those metrics. And so our guidance remains the same. Just moving on to sort of growth projects, which is a key focus of ours, as I mentioned earlier on. And this slide, in particular, shows our mine life objectives. And just to remind everyone, in order to publish an extended JORC-compliant plan, we have to complete all the necessary work, so drilling and technical and economic studies before we can publish any new mineral resources and reserves. And that's what we are busy doing as we speak. And I'll take you through that with each of the opportunities shortly. So, as a reminder, there are 5 things we currently focused on, that being Misery underground extension, the Sable underground, the Point Lake open pit that Brad mentioned, the Fox high-value stockpiles, which we're doing a study on and then the Fox underground. Also a reminder that we aim to use the same mining method that we use currently at Misery, which is the sublevel retreat underground mining method. It's a proven low-cost capital development method and it's sort of a pay-as-you-go capital development method where you just have to spend some capital on the initial decline. But then once you hit the kimberlite pipe thereafter, it's self-funding. We'll do a phased mine life update over the next 6 to 12 months as we complete the work for each of those 5 opportunities that I mentioned on the left-hand side there. And we'll be talking more about the Jay pipe or Jay deposit, which has not been mined. And we have not included it in the graphic that you see on the screen there. But just as a reminder Jay pipe is the largest undeveloped pipe in North America. There's about 90 million carats in the pipe itself and about 18 million carats of indicated mineral resources using the mining method that was previously looked at in a previous prefeasibility study. And Jay pipe on its own could be a 13-year mine life depending on what mining method we use. So it's a very, very big pipe and it's something we'll look at in the future. But the graph on the bottom there shows the pathway to get there. So we've got the existing mine plan that was developed by the previous owners. We've got the 5-year plan that we are currently following, which is our sort of optimized plan. And then as we start publishing the new JORC compliant mine plan, we'll be getting into the green box, which is all the mine extension opportunities to take the mine life out to 2040 or thereabouts. So we thought that would be a useful diagram to show the pathway towards the future. We still believe that Ekati has a wealth of options. This is the thing that Brad and I love about this asset and, of course, our Board also love about this asset. It's got lots of options. And I've talked you through many of these previously. But just as a reminder, you can see the layout on the screen there. The main camp right in the middle with the airport next to it, some of the old pipes that were mined by BHP and some of the subsequent owners. And then you can see all the things that we are focused on. If I start in the right-hand corner there, you've got the Misery camp and the Misery underground, which we're currently mining. And then the Misery extension, which I'll talk to you shortly about. Point Lake, which as Brad mentioned, will start in 2025 that you got the Sable put up at the top there, which we're currently mining and looking at the Sable underground, which again, I'll talk about. And then the 2 on the left-hand side there the Fox high-value stockpiles which are arguably worth about $300 million of diamonds in the ground -- on the ground, not in the ground -- on the ground, at those stockpiles. And then the Fox underground, which is a $16.5 million carat reserve. So, if I just take you through some of the more detail on each of those. With the Misery underground mine, we are looking at 2 extension opportunities. The first is going deeper. So you can see on that third bullet point there, the vertical extension which is looking at the ore body which appears to be going both wider and deeper. As a reminder, these kimberlite pipes are shaped like carrots. But they're not always straight or go down vertically. Some of them do widen that depth. And this one does look like it's widening. So we're having a look at that. And then we're also looking sideways as an extension or an offshoot from the main ore body, which we want to test as well. BHP previously identified that extension. But there wasn't much drilling done on it. So we are going to be doing some drilling on that southeast extension and also take a bulk sample from our existing development ends, which are quite close to that extension. We'll have a look in the fourth quarter at what the grade and pricing information for that extension looks like. And both of those 2 programs will be released in the form of an updated mineral resource and ore reserve as I mentioned, probably towards the end of the year. We believe that the positive results will be a value-accretive option to extend that mine life. And Misery, as a reminder, could extend out towards 2030. And you can see the sort of annual production and value of the Misery pipe. So a very valuable resource in Misery. The second one, just to talk about is the Sable underground. On the right-hand side, you can see the picture of the open pit. We do now have the permit in our hands for the commencement of the underground construction, both the portal and the first production level. So that is a new development since we last spoke to you. We -- the permits for the full development and the mining are anticipated in Q1 2025. So that'll be for the balance of the underground mine. We've also completed the high wall rock scaling to make way for the underground portal developments in terms of where the portal will commence the underground mine. And the delineation drilling of that kimberlite pipe is now nearly 50% complete. The aim of that program will be to include the Sable underground in the new mine plan backed by a pre-feasibility study. So that's the Sable progress. And if I switch to Point Lake. This is quite a nice aerial photograph of Point Lake. Where that water in that picture lies is pretty much right over the kimberlite pipe itself. So that shows you the outline of the pipe. Everything around that water is the waste that needs to be moved as we progress that part downward. It will be the 10th project or 10th kimberlite pipe to be into production at Ekati, which is an amazing story -- success story in itself. And you can see the ongoing work there to develop that pipe. So to finish off that dewatering -- there's not a lot of water there, but just get that water out. We've already got the open pit mining approval and then just prepared a waste rock where we have both the construction and the blasting. There's 24 million carats in the indicated resource. And there are some yellow diamonds in this pipe as well, which we're quite excited about. And as we progress this pipe, we'll optimize the pit more and more, either go wider or deeper, so we'll see how we go. And then just as a reminder that the Misery camp infrastructure is only 2 kilometers away. When we talk about a camp, it's a satellite camp, which actually houses the workforce for the Misery underground. And that camp can house extra people to support the Point Lake operation as well. If I switch topics onto ESG, which is obviously very topical and very important for all mining and resource companies. What we decided to show this quarter was the impact that diamond mining has on the north of Canada. Over the last 30 years, diamond mining has contributed billions of dollars to the Northwest Territories' economy. You can see on that graph on the left-hand side how the population of Yellowknife, which is the capital of the Northwest Territories has grown over time. And you can see how each of the diamond mines kicked into production in various times. Ekati kicked it off and then later on some of the other diamond mines followed. And on the right-hand side, these are the numbers published by the Government of the Northwest Territories showing diamond mines contribution to the Northwest Territories. So a very, very sizable contribution. The other way we support the indigenous communities is in the form of socioeconomic agreements. And these are agreements which should spell out economic payments as well as jobs and business creation and many, many other ways we support the local communities. And you can see on this slide, we show 25 years of contributions. So over the last 25 years, we have typically made a payment of $5 million per year in community contributions. That's under each of the socioeconomic agreements that I mentioned. And we've also, in 2023 alone, contributed another $5 million across those 5 or so topics, the impact benefit agreement payments, community donations, we donated some money during the wildfire response, sponsoring various community programs and then, of course, scholarships for schools and so on. So a very, very meaningful contribution. And on the right-hand side, you can see our employment numbers and how many people we employ in the north as well. So a very important and great contribution and we are very proud of that effort. Just to switch topics and to end off today's presentation before we do questions. This is just a look at the market. There's no doubt that supply is tightening. The global annual rough diamond production is heading towards 113 million carats. You can see it on the graphs on the screen. It's probably just worth reminding people that, that's rough production. And if you actually do the calculation of how many polished diamonds emerge out of that rough production, it's about 30 million carats or a little bit under 30 million carats of polished diamonds that emerge from that rough production. So that's what needs to be sold every year to the consumer. Burgundy contributes 4% of that global supply. That's out of the 113 million carats. If you actually separate out the G7 annual production, it's 77 million carats. And we are just under 7% of that 77 million carats. So a very sizable contribution if you just hone in on the G7 producers. And in a few years' time, we'll probably be the only G7 producer with some of those mines due to close. Natural diamonds are a very finite resource. And of course, with what's going on in Russia, it's made even more important. There is a large inventory buildup in the middle market, or the -- as we call it, the middle market. A lot of that came over the COVID period and it has definitely suppressed diamond prices in the short term. And China's economy is yet to recover as well. So there's a combination of factors that are -- that have led to that buildup of inventory in the middle. But as that inventory gets reduced by consumers buying diamonds, that inventory will draw down and prices will only go up. And just to remind people that a 10% increase in diamond prices equates to USD 50 million of annual EBITDA for Burgundy. So we believe we are very, very well poised for a diamond price turnaround, which is due to come. It's just a question of when. The other thing that's quite significant, there's been quite a lot of talk from De Beers recently and we're very pleased to see that they have announced quite a big marketing campaign. I think some of you might have seen some media talking about the engagement with Signet Jewelers in the U.S. and a few others. There is a perfect correlation between money spent on marketing diamond jewelry and in particular, engagement jewelry and wedding jewelry and the sales that then occurred. You can see the various campaigns that we sort of singled out over the last nearly 100 years and what's happened every single time that money has been spent on marketing, there's been a corresponding consumption increase by consumers. So very pleased that De Beers has started that new campaign. And we're also seeing a lot of jewelers, even some that are actually supporting Burgundy also running their own adverts. So fantastic to see some of that marketing happening. And all of that will lead to increased consumer demand and, of course, prices. So this one, just a reminder of the demand, and in particular, just highlighting the luxury goods market, which is a huge industry, around a $400 billion industry at the moment, forecast to increase to $600 billion by 2030. Luxury brands are looking for natural and ethical and conflict-free supply. And with Russia providing 32% of global production as the G7 sanctions come to bear that will almost certainly tighten the supply side on the -- from the G7 countries. And then just a reminder that the laboratory diamonds have no place in the luxury diamond market and the various leaders of the luxury groups have actually come out very vocally and said so. So you can see a quote on the screen. So that's just -- I think that's our last slide. And just to remind people that we are very, very bullish about demand as well. So Stuart, back to you.

Great. Thanks very much, Kim and Brad, for the presentation. Just a reminder to everybody to ask any questions through the Zoom platform. I will read your name, affiliation and the question out for the gents to answer. I'll kick off the question with -- the session with some questions that I have, while everyone's collecting their thoughts. And just starting with the quarterly. Obviously, production and sales were a bit down on the previous quarters. I think there was a maintenance activity on the plant during the quarter. Could you just talk about now how that's ramped up, post that maintenance and expectations for the quarters ahead?

Yes. Thanks, Stuart. I think I did mention that we've got a real head of steam at the moment. In fact, if you look at our day-to-day carat production coming out of that shutdown, we are actually producing some amazing daily results. So some of the work we did in that shutdown and some of the increased focus on production, just generally as we get our teams working effectively, we're getting very good production. So very much on track, Stuart, for a great second half.

Great. We have some questions online here. The first one from [ J H Tan ]. And I believe this was mentioned as well. But perhaps it's worth reiterating. What are the plans for the maturing convertible notes?

Yes. Brad mentioned that during his section. I'll also let Brad go into more detail if it need be. But our plan, and this has been agreed to by the Board is at the moment our plan will be to pay out those convertible notes on the expiration date, which is in September. So we'll just keep looking at -- looking at it. But at the moment that's our current intention, Stuart.

Great. Fantastic. Perhaps moving on to diamond markets. And another question from JH Tan, which is around Russian sanctions and the effects that, that has had on diamond pricing in the market. Obviously, the prices have been relatively weak. You got a boost in realized prices in the last quarter because of that special diamond sale. Perhaps just worth talking about how you see those sanctions impacting the market. And then probably also overlaying the remaining quarters you have left this year. You've got that revenue target, $460 million to $500 million. What does that assume in terms of pricing going forward?

Well, let me start with your last question first. So generally, we -- from an operational point of view, Stuart, we assume flat pricing. So we don't actually assume any price benefits in terms of how we run the organization. So we're very conservative in our pricing assumptions in terms of how we run the business on a day-to-day basis. We do think those sanctions are slowly starting to come to bear. They mainly -- as I've repeatedly said, they mainly affect the G7 countries. And of the G7 countries, the U.S. consumer is 50% of all the world's diamonds. So they remain the biggest consumer of diamond. And under the G7 sanctions, Russian diamonds are banned from entering the U.S. So there are lots of efforts around traceability that are going on. And ultimately, what will happen is that diamonds above a certain size, probably 1 carat in size, will be tracked and traced in terms of their country of origin and using things like blockchain so that the identity of their diamond can be tracked all the way through the system. So that's currently being worked on, and that should come into effect early next year. That will almost certainly make it harder for the Russian diamonds to get out. And then there are also other ways of tracing the diamonds, including scanning them in using some sort of software that's available and you've probably seen some of the other -- the other producers that have made announcements around traceability. So traceability is very important, Stuart, in terms of making sure we know where diamonds come from. Brad, I don't know if you want to add to that answer in any way.

Yes. Look, I think the one thing that's happened since our last call is that the sanctions for 0.5 carat and up were moved from September to March of next year. So slight delay. And I think the industry is still grappling with what that technology solution is going to look like and they need some additional time just to make sure that it's robust. And like Kim said, it'll help to really minimize the amount of Russian stones getting into the G7 countries.

Great. Thanks, guys. We have another question on the line from [ Sam Walters ]. Would you consider doing a small, targeted marketing ad to promote the Ekati asset and the good that comes from it?

I think that's a great question, Sam. I mean, we always do struggle to get the good news out about what we do. And we -- and there's some tremendous work that's going on. So if you've got any ideas about where you think we should be advertising and promoting more, we'd be very interested to know. We are rejuvenating our communications team as we speak, and we'll be -- we're putting a lot of effort into making sure we have more of an outward-looking communication team and process. And so -- but we'll certainly take it on board, Sam, and see what we can do.

Great. Thanks, Kim. And another question online from [ Larry Lee ]. Kim and Brad, may I know more details about the delay of surety payments? Can you explain more? Is there any deadline on this?

Again, I'll answer it backwards, Lee. Larry, there's no deadline. We literally are focused on it every single day. The first part of the delay was just getting a draft agreement. So once we've agreed in principle to a term sheet in terms of what we were trying to achieve, we basically announced that one back at the end of March. And then it took quite a few months before we actually got a typed up document from the surety providers, which we got about a month ago. And then, of course, we've just been arguing about 1 or 2 minor points. But I must stress, Larry, they're mostly just little details. As I mentioned earlier on, the key change, which is the actual payment arrangement shifting from the deadline date of May 2024 to spreading it over 4 years, that's definitely no longer being debated. So it's just minor details like payment terms, as I said, it was 60 days or 90 days and little things like that, but we literally are a few days away. I do apologize that it's taken so long. It has been a source of frustration for Brad and I, but it has been a very slow moving process. So I have to confess.

Great. Thanks, Kim. Question now on expansions opportunities or extension opportunities from [ Cam Stewart ]. We have 5 mine extension options. When do you think we'll fire up the Jay opportunity?

Cam, It's a great question. Again, I'll start with something. At our last Board meeting, our Board generally said we should be trying to accelerate Jay. And so Michael O'Keeffe, in particular, was quite keen that we make sure we've got things moving so that when the time was right, that Jay was sort of ready to go. Now, part of that is -- part of when Jay will be developed will be diamond prices. So we obviously do need the market to recover so that the economics of Jay pipe improve. And then -- and also making sure that we keep doing the 5 mine extension opportunities to keep the cash moving to buy the time so we can get Jay done. The permitting process will take quite a few years as well, things like the prefeasibility study and finding the right mining method. So it is not a quick process. I think Jay pipe even with the best will in the world, is a sort of a 3- to 4-year process. But as I said, the Board wants us to start it as soon as possible so that when everything is ready to go, we are ready to go.

Great. Thanks, Kim. I might ask a few more questions on those mine life extensions. But in the meantime, that's all the questions on the platform. So if anyone has any further questions, please jump on and type them in. Point Lake, you mentioned about Point Lake going through the dewatering phase and kicking off, I guess, next year. The timing around that, though, is from my understanding, all around, when the Sable mining completes. Can you talk a bit more specifically about when that transition is expected to happen from Sable across to Point Lake open pit mining?

Yes. Thanks, Stuart. So, as you rightly picked, the transition is to go from one open pit to the other. So basically, when Sable is finished, then Point Lake needs to take over. Now, what we -- one bit of optimization we did in our own 5-year plan, which is the one I showed on that one slide was the question why Sable needed to go as deep as what the previous owners had planned. So we've actually taken Sable a few more benches deeper. So what that does is it means we could push Point Lake out slightly. And once those benches in Sable are depleted, then Sable will immediately come into play. So that should happen around about Q1 2025 when we shift ore production from Sable to Point Lake.

And then the ramp-up of the Sable underground. And you spoke to the permits to commence the portal and first production level. Is that a pretty quick ramp-up of getting tonnes from that underground operation?

Yes. It is pretty quick, Stuart. Those tonnes would be complementary tonnes, remember, because by then you'd have Misery underground going, you'd have Point Lake going. And then Sable underground basically complements those 2 sources. So you're not under any pressure to ramp up. But it complements the ore coming from both Misery and Point Lake. To bring it into production typically takes about a year because you've got to develop the portal and the decline down to the kimberlite pipe. You've got to install the ventilation system. And then once you intersect the kimberlite pipe and establish your first mining level, then production starts. And that takes about a year -- a year to 18 months. So once we get the green light, for Sable, roughly 18 months, and then we can go into production. And as I said, it will complement both Misery and Point Lake. And then the other thing that will complement Misery and Point Lake, and potentially Sable will be that Fox high-value stockpile we mentioned. And this is a key part of our strategy, is to have multiple mining sources. So we don't just want to rely on 2 mining locations. Ideally, we want multiple mining locations, partly because that also lets us mix and match the quality of diamonds and get the best value out of the -- out of the diamonds. And that's also how we spread our risk around a number of kimberlite pipes. And eventually there'll be 5 of them. So it's actually a very important question you asked, Stuart, because it unravels part of our operating strategy going forward.

My next question was going to be on the Fox stockpile. So perhaps just remind us how that could potentially work. And from my understanding, is that a blending opportunity? And what proportion of the mill feed do you think that could take?

Yes, exactly right. Stuart, it's a wonderful opportunity because the ore is just lying there, ready to pick up and go. The only thing you have to -- it's already broken down and quite small, so you don't even have to put it into the front end of the plant. You can introduce it into the plant sort of halfway through the plant. We do need to spend a bit of money on capital to actually pick up and upgrade the diamonds in that -- or upgrade the ore in that stockpile because if you feed it as it is, it's probably too low value. So we want to upgrade at about 4 or 5x. So we need to spend a bit of money on that equipment that will then come up the winter road and be ready, hopefully, sometime next year to go into production. So that will also be part of our new published plan. In terms of volumes, Stuart, it's quite low volume. We probably spread it out over the next 4 to 5 years as we blend it into the plant. It's not more valuable than other ore. So you would only feed it into the plant opportunistically on top of what you're feeding in from Misery, Sable, Point Lake or elsewhere. So it's complementary ore but it must not supplement other ore.

Great. Thanks, Kim. I have a couple of questions relating to the -- I guess, more to the marketing and financial side. One from [ James Unger ]. Are there any opportunities to accelerate the monetization of diamond inventory? What is the current inventory cycle time from mine site to sale and where could that go to?

Fantastic question. And Brad is all over that one. So I'll let Brad answer that one.

Yes. Like our current inventory cycle is -- it's about 3 months, depending on when the sales are scheduled. But, yes, [Audio Gap] months. A number of trials where we can actually start to unlock some of this. And really, we haven't really taken kind of firm action yet just because the market is a bit soft right now, and there's no point in really forcing more goods into the market. But I think in Q4, we plan to probably look at a 3-week acceleration and sell those goods into the market in Q4. So we're still working through the details, but this is a few bottlenecks along the way. One is our royalty valuation process. So we're not allowed to export any diamonds from Canada until they've been valued. And so we may actually just pay for some extra valuations in order to get our goods out quicker. So that's 1 lever we can pull. We are looking at some options related to our sorting process in India. So we have a great partner in India and they're willing to kind of work with us to look at some optimization of our sorting cycles and that'll get the goods to the market quicker. [Technical Difficulty] whether that's sorting locations, sales locations, viewing locations, there's a number of different balls in the air. And then we're also looking at some technology solutions. So selling diamonds differently. So today, we sell everything via [indiscernible] out there that allow us to actually scan our diamonds and then sell them individually. And so that could be a game changer where we -- where we could actually scan our diamonds either at the site or in Yellowknife before they even leave the country and they could actually be sold before they even get off mine site or before they are exported out of Canada. And so that would cut out a huge amount of the inventory cycle. Now that would only be on a certain subset of goods. You wouldn't be able to do that with all the small goods. But those are some of the things that we're looking at to try to accelerate the pipeline.

Great. And can I press you for any financial, I guess, benefit from shortening that inventory cycle and the working capital release? Or is it too early to ask?

Yes. I estimate it's somewhere between $10 million and $15 million per week that you can shorten it. But yes, it's, probably -- like at this stage, I would say we're kind of aiming for 1 additional sale in Q4. That could be about a 3-week shortening. But again, it will -- we haven't built that into our forecast yet until we get a better sense of the market. We need to make sure that we're selling our goods at the right time and not just pushing goods for the sake of it.

Thanks, Brad. A question now from [ Matthew Smithman ]. Kim and Brad, any comments you can make on the diamond standard ETF and how Burgundy can play a role and what this could do for the overall trading in diamonds?

Yes, Matthew, that's a very insightful question. So I think as a key point here, we think the diamond standard is a very interesting initiative and we would be very supportive of it. I can say we have been in dialogue with the people over at Diamond Standard, and we are discussing a range of opportunities between the 2 of us. But we're very supportive of the concept. We think that anything like that, that can actually consume diamonds out of the midstream, which actually makes the supply-demand fundamentals even better is something that should be supported. And if the diamond standard actually gets up and running and it achieves some of the potential and it does what it's done in other commodities, it could be a real game change in diamond. So we think it's a fantastic initiative and it's something we're very supportive of. So thanks, Matthew, for asking that question.

And I guess, again, on supply chain, another one from Sam Walters. What's the productivity and opportunity from the cutting facility in Perth?

Yes, Sam, another insightful question. The cutting facility is working well. It's steadily pouring out some pretty good diamonds, starting to generate some revenues. We also took an opportunity, Sam, to do an internal staff sale recently where we actually sold some of those diamonds to our own staff. And I can tell you now, we couldn't keep up with demand. In fact, that's still going on. And we are potentially expanding that staff sale to include Champion Iron ore in the future. So that's been a real benefit of the Perth facility. We're also using our key new strategic partners, I mentioned, in collaboration with the Choron Group to help improve our cutting and polishing processes in the Perth facility and also helping us with sales. So lots of initiatives underway with that Perth facility. And so far, it's going pretty well. So thanks, Sam.

Great. Thanks, Kim. Just a question on balance sheet now. This is from [ Richard Jermaine ]. Given your forecast of capital expenditure for various works and investigations, is there any risk of a required capital raising in the near future?

Yes. Richard, I think Brad answered that question early on. You could see when you went through the use of capital slide, we've put a lot of our efforts into making sure we're generating enough cash to cover our capital. So I can tell you now, we have absolutely no intention of doing any capital raise. It's not even in discussion and it's not even on the radar. So our intention is to self-fund all of our capital.

Thanks, Kim. And another one from James Unger. How are you seeing your peer group currently? It feels like the sector is under pressure, which may open up some opportunities for Burgundy.

Yes. Thanks, James. Also a good question. It's always -- I think it's always a bit of a compliment when your competitors want to talk to you. And I can tell you now that all of the Canadian competitors are talking to us, and we're collaborating on a few opportunities together, including how we can sell jointly and a few other things. So, yes -- but I think generally, as you know, James, our balance sheet is 10x stronger than any of our competitors. And it was something we did on purpose when we acquired the Ekati asset. And it's a key way we're running the Burgundy business is to focus on our debt and to make sure our balance sheet is very, very strong. In fact, if you have a look at the latest report that was issued by Paul Zimnisky that came out a few days ago, it actually singles out Burgundy and actually talks about how strong our balance sheet is and that we are the best capitalized diamond company. So we're very, very proud of how we're setting up the business and how it's running. And that goes across the board for both the enlisted and unlisted diamond companies. We are in a very, very strong position. So thanks for raising that question, James.

Great. Thanks, Kim. And just a reminder, if there are any more questions, please type them in. We're running short of time. I'll just go on with one more. I guess, in the 12 months that you've had the asset, aside from the extension opportunities you're looking at now what are some of the, I guess, enhancement opportunities you've been able to pull through? I understand you had a program where employees could put forward suggestions. Perhaps just talk around some of the value you think you've unlocked in that 12 months.

Yes. We -- obviously, cost and efficiency focus is something that if you're a miner, you're always going to go after, Stuart. And so we've been very focused on cost and efficiency. We launched a -- sort of a business improvement process about 6 months ago, which has been very, very successful. We've got hundreds and hundreds of ideas that have emerged from the shop floor and middle management and so on. And all of those ideas are being tracked through the system and are leading to improvements in efficiency and reducing our costs. So that's sort of a bottom-up process. And then on top of that, we've also did a process where we engage partners in performance to do a diagnostic and opportunities. And so those are bigger ideas that we are focused on and we'll continue looking at it. And so that'll be things like reducing our granite elution and a few other opportunities. So we're focused on both the little things and the big things. And so we're hoping that between the 2, we improve our efficiency and ultimately we lower our dollar per carat. And that's something that Brad will keep reporting on as we go forward, is what our dollar per carat performance looks like.

Thanks, Kim. Just one more question online around the Fox stockpile, and we sort of mentioned this earlier, I think, but what capital is required for unlocking that? I think you mentioned, obviously, the stockpile is on the ground. So that's fairly cost-effective. But in terms of changes to the plant that might be required.

Yes, James, good question. So I think the short answer is we don't know yet because we still need to do a bit of design work on exactly what equipment required. But if I had to give you a range, I'd say, between $10 million and $20 million and that's for the Canadian. So in U.S., probably USD 10 million to USD 15 million.

Great. Thanks, Kim. Look, I think we're getting towards the end of the hour. I think it's probably worth just running through the sort of news flow that you're expecting over the remainder of 2024. Obviously, we've got the surety payment extension, definitive agreement coming imminently, but the studies you're expecting to put out on the Sable underground and the Misery extension. Let's just talk about some of those key catalysts that we should see in the next 6 or so months.

Yes. I think you just – I just want to highlight the one you mentioned there. I think the surety one is a big deal, Stuart. So we should be able to announce that, that has been completely finalized in a week or 2. So that'll be the first cab off the rank. As we do some of that work on each of the ore bodies, both Misery and Sable and possibly the Fox stockpile, we'll announce some of those results, whether they are drilling results or feasibility study-type results. So we'll certainly be announcing that. I think the more exciting thing is actually some of the things that Brad mentioned. So we have a long, long list of things that are very market sensitive. So we can't always talk about them publicly while we're working on them. But you will see due course as we start announcing some of those initiatives that are either focused on reducing our inventory and releasing some of that much needed cash or increasing price or different ways of selling. So you'll start hearing some of those initiatives come out over probably the course of this year, Stuart. I think those will be quite a few announce worthy things. And then, of course, we'll culminate in announcing the new mine plan, hopefully, by the end of the -- end of 2024.

Right. And from my understanding, the Misery underground lateral extension, that will hopefully come in, in early 2025 in terms of the additional tonnes that, that could bring in?

That's correct. So I think the Misery deep extension will probably get done first. And the Misery, the lateral extension, will probably get done second. So I think we'll be able to announce in the first mine plan, the Misery deep extension, possibly the low-grade stockpile and something about Sable underground. And then possibly in the second iteration, it'll will be around the Misery lateral extension and possibly the Fox underground and anything else we can add. So I think there'll be a few -- there'll be a few mine plan releases as we get more and more information, Stuart, over the course of the next 6 to 12 months.

Fantastic, Kim and Brad. And there's no more questions online. Today has been fantastic. You've done a really clear run-through of the company, where you're at and what some of the opportunities are, and also an overview of where the market is and obviously, the outlook that looks like it could be improving. So thank you very much. And to everyone on the call and to everyone who asked questions, thank you very much on behalf of Burgundy Diamond Mines and Bell Potter Securities.

Thank you, Stuart, and thank you, everyone, for all the fantastic questions this time around. Thank you.

Wonderful. Thanks. We'll end it there. Have a good day. Cheers.