Attracting Funds to Develop the Diamond Potential of Southern Africa
JAHCampbell
24 Aug 2023
Presentation to the Kimberely International Diamond Conference.
5. Kimberley 2023
Diamonds are not a commodity
⧫ Symbolising lasting values
⧫ Beyond engagements and weddings
⧫ Celebrations, special occasions
⧫ Long-term store of value in volatile times
⧫ Authenticity, traceability, sustainability
⧫ Appealing to millennials
⧫ High and Ultra-High Net Worth Individuals
⧫ Larger and coloured natural diamonds in demand
5
“Life is fleeting and, therefore, you want to make sure that the
people you love know that you love them. And what better way
to say that than with a diamond.”
6. Kimberley 2023
Luxury market has built resilience
6
⧫ Severe contraction in 2020
due to Covid-19 pandemic
⧫ Clawback to €1.15 trillion in
2021
⧫ Surprising further growth of
19%–21%, in 2022
⧫ Impressive growth in
personal luxury goods
⧫ Luxury market better
equipped to cope with
economic turbulence
⧫ Positive prospects for
personal luxury goods
growth to 2030
Source: Bain and co., 2022
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Long-term supply and demand outlook is stable
⧫ Rough diamond supply
rebound in 2021
⧫ Production 120+ million
carats in 2022
⧫ Still below pandemic
levels
⧫ Production growth at
1%-2% pa over next 5
years
⧫ Supply-demand gap
drives rough price
growth
⧫ New supply depends on
exploration success
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Source: Bain and co., 2019
9. 9
Cycles in global exploration spend
⧫ Mining companies
need to develop
options for growth
⧫ Exploration is the only
pathway to organic
growth
⧫ Incipient growth cycle
interrupted by COVID-
19 pandemic
⧫ New growth impetus in
2022, continuing into
2023
Sources: S&P Global; Reuters
Kimberley 2023
10. 10
Global exploration budgets on the rebound
⧫ Budgets down 10% in
2020 due to COVID-19
⧫ 34% rebound in 2021
⧫ 16% rise in 2022
⧫ Gold is most targeted
commodity (53% share)
⧫ Lithium, nickel show
highest % increases on
the back of energy
transition efforts
⧫ Africa exploration
underperformed the
global average for the
second consecutive
year with only 11.6%
Source: S&P Global, 2022
Kimberley 2023
11. 11
Grassroot exploration still out of favour
⧫ The shift away from grassroots exploration towards existing deposits continues
despite poor discovery rate and concerns around long-term supply
⧫ In the late 1990s, grassroots exploration accounted for almost 50% of annual
global exploration budgets. It has recovered since 2020 but remains low
⧫ Finding new, economical deposits that can meet global demand requires
Increased generative spending
Source: S&P Global, 2022
Kimberley 2023
Minesite
Late Stage & Feasibility
Grassroots (Early Stage)
US$ Bn
12. 12
Junior exploration budgets gain ground globally
⧫ In 2022 junior exploration budgets were up 36%
⧫ Juniors’ budgets almost on par with majors’ budgets
⧫ Juniors’ allocation to later stages of exploration has increased over the past decade
⧫ Decreased access to finance to maintain junior programmes expected in 2023
Source: S&P Global, 2022
Kimberley 2023
13. Kimberley 2023 13
Government incentives to exploration
Canada (1,600 juniors) Australia (600 juniors) South Africa (12 juniors)
The Flow-Through Share (‘FTS’) regime is
a tax-based financing incentive
whereby a company agrees to incur
eligible exploration and development
expenses which are “renounced” to the
shareholders who claim an income tax
deduction. It was introduced in 1958.
The Junior Mineral Exploration Incentive
(‘JMEI’) allows eligible companies to
give up a portion of their losses from
greenfields exploration expenditure to
generate tax credits in favour of
Australian resident shareholders who
buy newly issued shares.
Target to attract 5%of global
exploration dollars. How?
JSE’s Junior Mining Accelerator
Programme codirected by Mincosa
Lacking the well-established, well-
entrenched venture capital mindsets of
Canada and Australia.
⧫ FTS has enabled juniors to raise equity
at a premium to their share price,
attracting capital to the riskiest stage
of the mining/exploration cycle
⧫ The FTS regime turned Canadian
capital markets into the destination of
choice for mining companies
⧫ FTS financings play a counter-cyclical
role during exploration downturns
⧫ Explorers have limited time to apply,
raise capital and spend the money,
for investors to be eligible for capped
exploration credits
⧫ Additional incentives exist, e.g.
Exploration Incentive Scheme (‘EIS’) in
Western Australia and Accelerated
Discovery Fund (‘ADF’) in South
Australia
⧫ Section 12J, modelled on the UK
Venture Capital Trust regime to boost
exploration funding in South Africa,
was abolished in February 2021,
having failed to deliver the
anticipated benefits to exploration.
⧫ Flow-through share model first
mooted 10 years ago; presented to
National Treasury in 2020; now being
re-considered
Sources: PwC 2015; PDAC 2015, 2019; Engineering News; Mining weekly; Mincosa;
Mining review; Australia Investing News; Australian Mining; Lexology
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Onerous regulatory and ESG compliance
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⧫ Relevance and transparency of regulatory reporting is critical to
attracting junior funding, yet onerous
⧫ Investors increasingly value a company’s ability to manage
environmental, social and governance (ESG) factors
⧫ Carbon neutrality is high on ESG agenda.
⧫ ESG factors even more prominent since the start of the war in Ukraine
(ethically sourced diamonds/traceability)
⧫ Mineral reporting requirements vary across jurisdictions
⧫ Reporting frequency is quarterly on TSX, six-monthly on AIM and ASX
⧫ Minimum standards for public reporting by Competent Persons
(‘CPs’) are set by professional Codes of Practice
⧫ Most standards share common codes and guidelines, e.g. CIM,
JORC, SAMREC
Sources: PWC, Stock Exchanges, Mining Journal, Mining Association of Canada
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Project development: investing in risk reduction
16
Core drilling or
trenching
(100’s kg)
Initial bulk
sampling
(10-100’s t)
Infill drilling; bulk
sampling
(1000’s t)
Inferred
Resource
Indicated
Resource
Diamond potential;
surface size estimate
Preliminary grade
estimate; prelim.
geological model
Global grade;
preliminary value
estimate
Geological, density,
volume, grade,
revenue models
Technical
Economic
Evaluation
Pre-Feasibility
Study
Bankable
Feasibility Study
Mineralisation
Target /
Anomaly
Activity
Outcomes
Mineral
Resource
Economic
Studies
Duration: months
Cost: USD 1,000’s
Duration: years
Cost: USD 1,000,000’s
INCREASING COSTS and TIMEFRAMES
DECREASING UNCERTAINTY and RISK
⧫ Investors’ appetite grows with
confidence, as do costs and time
frames
⧫ Compressing timeframes without
compromising on quality
⧫ Maximising optionality: phased
approach
⧫ Reliable resource models
⧫ Deep expertise and technology
are key differentiators
⧫ Extract value or cut losses early
Mapping,
sampling,
geophysics
17. Value extraction and funding
17
Source: Wesizwe, Global Diamond Network
TRADITIONAL SOURCES OF FUNDING
⧫ Different types of
investor for different
project stages
⧫ Early stage typically
friends and family
⧫ Some private and
public equity funds
focus on resources
⧫ Debt financing is
only accessible post
Bankable Feasibility
Study
Kimberley 2023
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Share price growth from
one African Diamonds
share on listing (2005):
25x at Lucara Diamond
peak share price
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⧫ Early investors who recognised the potential and took the risk were able to extract substantial
value from African Diamonds plc’s share price growth
⧫ Would AK6 be Karowe Mine today, were it not for the founding ‘Friends, Family and Fools’?
AK6/Karowe: a story of realised potential
Source: The AK6 kimberlite- Discovery through to production, learning the
lessons of history, Campbell and Jooste, University of Botswana
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Traditional sources of funding
20
Chart modified after PwC, 2013
⧫ Public equity was once the chief source of
funding for mining deals
⧫ Many of today’s majors were established
through capital market funding
⧫ Poor confidence in exploration and
competition from new investment
categories have changed the landscape
⧫ Capital markets are not “junior-friendly”
⧫ Private equity funds have less onerous
requirements, but money is more expensive
⧫ Debt financing only becomes accessible at
advanced development or mining stage
⧫ Junior and mid-tier operators need investors
with risk appetite and flexible processes
21. Kimberley 2023 21
Exploration capital markets key facts
TSX / TSXV ASX LSE / AIM BSE / JSE
⧫ 1,157 mining companies;
32 diamond companies
⧫ CAD 7,7 billion mining
capital raised in 2022
⧫ 1,121 mining financings
⧫ CAD 521 billion mining
market cap
⧫ Notable diamond stocks:
Lucara Diamond,
Mountain Province, Star,
Diamcor, Tsodilo,
Pangolin
⧫ 901 mining companies
listed
⧫ MT50 (mid-tier) had
AUD 150 billion market
cap as of September
2022
⧫ Ability to attract capital
from the Far East
⧫ Notable diamond
stocks: Lucapa
Diamond, Newfield
Resources, Burgundy
Diamond Mines
⧫ 369 mining companies
listed
⧫ GBP 700 billion combined
market cap
⧫ British banks and finance
houses known to
understand the African
jurisdictions.
⧫ Notable diamond stocks:
Petra, Gem Diamonds,
Botswana Diamonds
⧫ Anglo, Lucara Diamond
and Botswana Diamonds
have secondary listing on
BSE
⧫ No diamond listings on
JSE
⧫ Negligible exploration
capital raised
⧫ Exploration funded from
offshore
Sources: TSX; LSE; JSE; PwC; PDAC; Mining weekly
22. Kimberley 2023 22
Capital market funding
2019
Source: Stock Exchanges; Listcorp; Mincosa; The Assay
⧫ Total listings on the JSE have
been declining over the last
two decades
⧫ The rate of contraction has
more than doubled since
2000
⧫ There are only 35 actively
trading mining companies on
JSE
⧫ Dearth of exploration/mining
listings attributed to lack of
effective, transparent
cadastral system and
absence of fiscal incentives to
investment in exploration
“Mining companies raising through public
markets are also competing for capital
with thousands of companies across
dozens of industry sectors as well as their
own huge sector” (Minexia CEO)
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A declining junior diamond mining sector in SA
Sources: AEON, Mincosa
Kimberley 2023
⧫ Previously successful,
diamond juniors have
experienced a steady
decline since the MPRDA
was implemented in 2004
⧫ The number of diamond
juniors has dwindled to
10% of the pre-2004 levels
⧫ The ratio of
employees/companies
has declined from 8% to
4%
⧫ Many juniors forced to cut
staff after COVID 19
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⧫ Royalty and stream arrangements are seldom
negotiated at early-stage exploration
⧫ Crowdfunding has gained limited traction in mining
⧫ Crypto financing is active in Canada and Australia,
albeit at small volumes
⧫ Attracting a broader investor base to the minerals
sector
⧫ Regulation of crypto financing has increased
following the "ICO bubble burst” in early 2018
⧫ Tokens based on intrinsic value of asset, issued via
blockchain technology
⧫ Vetting by an exchange and compliance with
securities framework provide comfort to investors
Alternative sources of funding
Production-
based
financing
Online
financing
Royalties
(incl. NPI, NSR)
Streams
Crowdfunding
Crypto / Digital
Token Offerings
Sources: PwC; McKinsey; White & Case
25. Kimberley 2023 25
The important role of mining incubators
Common traits
⧫ Entrepreneurial, skilled, risk takers
⧫ Able to recognise and develop potential
⧫ Flexibility to advance a portfolio of projects
⧫ Fewer constraints than junior explorers
Different guises
⧫ Expert funders, e.g. HDI, 162 Group, Lundin
Group
⧫ Project generators, e.g. Altus, Greenfields
Exploration
⧫ Project incubators, e.g. EHR Resources
⧫ Project marketplaces, e.g. PCF’s Minesonline
⧫ Startup crowdfunding portals, e.g. Vested
Technology
Source: Greenfields Exploration
27. A highly prospective diamond region
27
Sources: Bain and co., 2022; De Wit et al June 2016
⧫ Archean cratons hosting significant diamond deposits
⧫ Solid track record of economic diamond production
⧫ 40% of global carat production in 2021
⧫ Limited competition
Kimberley 2023
28. Perceived risk: a deterrent to investors
28
Source: Fraser Survey, 2023
South Africa ranks among the 10 least attractive investment jurisdictions globally, both from an
investment attractiveness and a policy perception perspective. Botswana is in the top 10 of both
Kimberley 2023
[…] […]
44.76
29.65
97.79
82,75
29. Economic competitiveness analysis: fiscal regimes
A hypothetical primary ‘junior’ diamond resource was tested against five Southern African
diamond mining fiscal regimes: South Africa, Botswana (Kalahari and non-Kalahari),
Zimbabwe, eSwatini (Swaziland) and Lesotho
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(12 000)
(10 000)
(8 000)
(6 000)
(4 000)
(2 000)
0
SA Bots Bots Kalahari Zim Swaziland Lesotho
NPV
18.8%
4.5%
-11.2%
5.51%
7.68%
5.29%
NPV and IRR
⧫ SA ranked best of the five in terms of
IRR (and NPV), mainly due to lower
royalties
⧫ A Canadian scenario could not be
included, due to the high local
$/tonne operating costs
⧫ For reference: Karowe’s opex is
$31/tonne (Botswana), compared to
Gahcho Kue’s $101/tonne
(Canada)
Source: author’s own research, Lucara Diamond website, Mountain Province website
Kimberley 2023
30. Kimberley 2023
Limited competition, limited (local) funding
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⧫ Predominantly foreign-listed juniors:
⧫ Botswana Diamonds (AIM), Gem Diamonds
(LSE), Pangolin Diamonds (TSX-V), Newfield
Resources (ASX) & Lucapa Diamonds (ASX)
⧫ BlueRock Diamonds (shares suspended)
⧫ Primarily funded through foreign equity
capital
⧫ Limited production cashflow to fund
exploration activities
⧫ Subject to full extent of onerous regulatory
and reporting obligations
⧫ No evidence of exploration activities gaining
momentum
Source: company websites, Yahoo, Mincosa, Paul Zimnisky
The only significant projects in the local
pipeline are Luaxe in Angola and Meya
and Tongo in Sierra Leone, which are set to
add a combined 5,5 Mcts.
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Conclusion
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Diamond supply-demand gap continues to widen despite a structural change in
diamond pricing
⧫ Southern Africa remains a highly attractive investment destination due to relatively low
competition, high diamond prospectivity and low unit operating costs, notwithstanding a
higher political risk envelope
Future diamond supply depends on exploration: what is required to stimulate
exploration spend?
⧫ Security of tenure and political stability are critical to attracting a greater share of global
exploration spend
⧫ A transparent mineral cadastral system must be implemented and application processes
accelerated
⧫ Local incentivisation is key. The Canadian market is a stand-out example here with Australia
not far behind
⧫ Emergence of new business incubator models to drive particularly early-stage exploration
⧫ Dual role of ‘break through’ technology; supporting exploration and enabling access to
funding
⧫ Building trust with prospective investors by simplifying the value proposition and debunking
misconceptions
Exploration drilling Ontevreden
34. About the Author
◆ James Campbell is Managing Director of Botswana Diamonds plc (a diamond development company
active in Botswana, South Africa and Zimbabwe and listed on London AIM and the Botswana Stock
Exchange). He has spent over thirty-five years in the diamond industry in a variety of leadership roles both
in major and junior companies.
◆ Previous roles include Non-Executive Director of Shefa Gems (where he is still Technical Advisor); Chief
Executive Officer and President of Rockwell Diamonds Inc; Non-Executive Director of Stellar Diamonds plc;
Vice President - New Business for Lucara Diamond Corp, Managing Director of African Diamonds plc;
Executive Deputy Chairman of West African Diamonds plc and Director of Swala Resources plc and
Bugeco sa.
◆ James also worked at De Beers for over twenty years; his roles included General Manager for Advanced
Exploration and Resource Delivery and the Executive Chairman Nicky Oppenheimer’s first Personal
Assistant.
◆ James holds degrees in Mining and Exploration Geology from the Royal School of Mines (Imperial College,
London University) and an MBA with distinction (and top student prize) from Durham University. He is a
Fellow of the Geological Society of South Africa, Institute of Mining, Metallurgy and Materials, South
African Institute of Mining and Metallurgy and Institute of Directors of South Africa. He is also a Chartered
Engineer (UK), Chartered Scientist (UK) and a Professional Natural Scientist (RSA).
◆ James is also chairman and founding director of Common Purpose South Africa NPC (a not-for-profit
organization that develops leaders who cross boundaries and is synonymous with the terms ‘cultural
intelligence’ and ‘leadership beyond authority’). CPSA celebrated its twentieth anniversary in 2020. He
was also a director, trustee and chairman of the Joburg Ballet for almost fifteen years.
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Photo: PDAC March 2020
Kimberley 2023