Raising Exploration Capital in Southern Africa: A Diamonds Perspective. Presentation to Diamond Day at PDAC 2020 themed 'The business of diamonds from rock to ring'. Presentation by James AH Campbell, Managing Director of Botswana Diamonds plc.

1. Raising Exploration Capital in Southern Africa:
A Diamonds Perspective
James AH Campbell
Managing Director, Botswana Diamonds plc
Prospectors & Developers Association of Canada
‘PDAC’
4 March 2020

2. PDAC 2020: The business of diamonds from rock to ring
2PDAC 2020
Raising Exploration Capital in Southern Africa:
A Diamonds Perspective
Outline
⧫ Global exploration trends
⧫ Diamond industry fundamentals
⧫ Developing diamond projects
⧫ Funding exploration projects
⧫ Why Southern Africa?
⧫ Accessing exploration capital
⧫ Conclusions
Photos: Lucara Diamond, Rockwell Diamonds

3. 3PDAC 2020
Global Exploration Trends

4. 4PDAC 2020
Global exploration budgets remain below 2014 level
⧫ Anticipated increase in
global exploration spend
has failed to materialise
⧫ Global exploration budgets
down 3% in 2019 (primarily
due to M&A activity)
⧫ Canada behind Australia
⧫ Flat 2020 budgets
expected
⧫ Largest drop in gold; base
metals share increased
⧫ Diamond exploration
budgets increased for the
first time in six years Sources: S&P Global; Stockhead
Sources: miningweekly.com; proactiveinvestors.com

5. 5PDAC 2020
Grassroot exploration spend continues to shrink
⧫ Grassroots exploration
budgets in decline
since the 1990’s
⧫ Upward trend in
minesite budgets
reflects industry risk
aversion
⧫ Majors outspending
juniors on grassroots
exploration, leading
project development
⧫ Will this trend continue
in 2020?
Source: miningweekly.com

6. 6PDAC 2020
Diamond Industry Fundamentals
Photo: John Shelton

7. PDAC 2020
Long-term Supply & Demand outlook is positive
⧫ ‘Moderately optimistic’
long-term outlook despite
short-term decline
⧫ Rough diamond supply
declining through 2021,
stable from to 2030
⧫ Demand expected to grow
at an average 3% p.a.
⧫ Continued growth of
middle class in China and
India underpins growth
forecast
⧫ Increased competition from
electronics and
experiences sectors
7
Source: Bain & co., 2019

8. PDAC 2020
Short-term decline in rough and polished prices
8
⧫ The “2019 crisis”: rough and
polished prices down 7% and
3% respectively
⧫ Prices forecast to rebound
from 2021 on the back of
improved diamond pipeline
performance
⧫ Macroeconomic
fundamentals remain
positive in the longer term,
barring a prolonged US
recession
⧫ Category marketing set to
play a key role in sustaining
long-term demand
Source: Bain & co., 2019

9. 9PDAC 2020
Developing Diamond Projects

10. PDAC 2020
Project development: investing in risk reduction
10
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
ActivityOutcomes
Mineral
Resource
Economic
Studies
Duration: months
Cost: USD 1000’s
Duration: years
Cost: USD 1000 000’s
INCREASING COSTS & TIMEFRAMES
DECREASING UNCERTAINTY & RISK ⧫ Investors’ appetite grows with
confidence, as do costs and
timeframes
⧫ 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

11. 11PDAC 2020
Revenue
Job creation
Beneficiation
Sustainable development
Political stability
Good governance
Security of investment
Transparency
Diamond prospectivity
Track record of economic
production
Security of tenure
Tax incentives
Enabling regulatory
environment
Economic growth
Credit rating
Social licence
to operate
Investors
Explorers
Governments
Commercial
return
Meeting stakeholders' expectations

12. PDAC 2020
Onerous regulatory compliance requirements
12
⧫ Mineral reporting requirements vary across jurisdictions
⧫ Most reporting standards share common codes and guidelines, e.g.
CIM, JORC, SAMREC
⧫ Public reporting by Competent Persons (‘CPs’) must adhere to minimum
standards set by professional Codes of Practice
⧫ TSX, AIM and ASX host the bulk of junior and mid-tier exploration
companies
⧫ Relevance and transparency of reporting is critical to attracting junior
funding, yet onerous
⧫ TSX requires quarterly reporting; AIM and ASX six-monthly
⧫ Investors increasingly value a company’s ability to manage
environmental, social and governance (‘ESG’) factors
Sources: PWC, Stock Exchanges, Mining Journal, Mining Association of Canada

13. 13PDAC 2020
Funding Exploration Projects
Photo: Andreas Stelzer

14. Value creation and risk profile
14PDAC 2020
Sources: Wesizwe, Global Diamond Network

15. Share price growth
from one African
Diamonds share on
listing (2005): 25x at
Lucara Diamond
peak share price
PDAC 2020 15
⧫ Early investors who recognized 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 & Fools’?
Realising potential: the AK6/Karowe story
Source: The AK6 kimberlite- Discovery through to production, learning the
lessons of history, Campbell & Jooste 2017, University of Botswana

16. PDAC 2020
Traditional sources of funding
16
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

17. PDAC 2020 17
⧫ Royalty and stream arrangements are seldom
negotiated at early stage exploration
⧫ Crowdfunding is gaining traction in mining
⧫ Crypto financing is active in Canada and Australia,
albeit at small volumes
⧫ Tokens/coins based on intrinsic value of deposits,
issued via blockchain technology
⧫ Underlying product is far more complex than
competing alternatives (e.g. retail)
⧫ Specialist knowledge required can be daunting to
individual investors
⧫ Regulation of crypto financing is still unclear
⧫ Online vetting and screening platforms are emerging
Alternative sources of funding
Production-
based
financing
Online
financing
Royalties
Streams
Crowdfunding
Cryptocurrencies
& Crypto tokens

18. PDAC 2020 18
Government incentives: Canada
⧫ 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
⧫ FTS has enabled junior explorers 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 play a counter-cyclical role during exploration
downturns: as overall financing for exploration drops,
the proportion of FTS financings increases
Sources: PwC 2015; PDAC 2015, 2019

19. PDAC 2020 19
Government incentives: Australia
Sources: Mining weekly; Australia Investing News; Australian Mining; Lexology
⧫ Explorers have limited time to apply,
raise capital and spend the money,
for investors to be eligible for
capped exploration credits
⧫ Individual states have additional
incentives, e.g. Exploration Incentive
Scheme (‘EIS’) in Western Australia
and Accelerated Discovery Fund
(‘ADF’) in South Australia
⧫ The Junior Mineral Exploration Incentive (‘JMEI’) was launched in 2018 to encourage investment in
junior exploration companies
⧫ Eligible companies give up a portion of their losses from greenfields exploration expenditure to
generate tax credits which are distributed to Australian resident shareholders who buy newly issued
shares

20. PDAC 2020 20
Government incentives: South Africa
⧫ Section 12J of the South African Income Tax Act
(2009) grants venture capital companies a 100%
deduction of the amount invested in a mining
company before it can generate taxable income
from production.
⧫ The mining company must be unlisted, or a junior
listed on the AltX of JSE
⧫ The Section 12J regime was intended to boost
exploration funding in South Africa and was
modelled on the Venture Capital Trust regime in
the UK.
⧫ Sadly, it has failed to deliver the anticipated
benefits to exploration
Sources: engineeringnews.co.za; miningweekly.com

21. 21PDAC 2020
Why Southern Africa?

22. A highly prospective diamond region
22PDAC 2020
Sources: Bain & co., 2019; De Wit et al June 2016
⧫ Archean cratons hosting significant diamond deposits
⧫ Solid track record of economic diamond production
⧫ One third of global carat production in 2019
⧫ Limited competition

23. 0
2
4
6
8
10
12
40 45 50 55 60 65 70 75 80 85
Diamondprospectivityranking*
Mining investment attractiveness**
Cumulative diamond production (2008-2018) for selected countries***
Lesotho
Canada
Australia
An attractive exploration proposition
23PDAC 2020
*Author’s own research, **Adapted from Fraser Institute, 2018, *** Kimberley Process data, 2018
South
Africa
Namibia
DRC
Botswana
Angola
(2015)
Tanzania
Sierra
Leone
Zimbabwe

24. Economic competitiveness analysis
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
24PDAC 2020
(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

25. Perceived risk continues to deter investors
25PDAC 2020
Source: Mincosa, 2019
Southern Africa is becoming more attractive, however perceptions of hostile investment
environments continue to deter investors

26. PDAC 2020
AIM/LSE
50%
ASX
10%
TSX/TSXV
40%
Diamond juniors in southern Africa
by primary listing
Limited competition, limited (local) funding
26
⧫ Predominantly foreign-listed juniors and
mid-tier
⧫ Limited production cashflow to fund
exploration activities
⧫ Primarily funded through equity capital
out of the UK and Canada
⧫ Subject to full extent of onerous
regulatory and reporting obligations
⧫ No significant projects in the pipeline,
besides Alrosa’s Luaxe in Angola
⧫ No evidence of exploration activities
gaining momentum
⧫ Market caps slashed in last 12 months
Source: company websites, Yahoo, Mincosa

27. 27PDAC 2020
Accessing exploration capital

28. PDAC 2020 28
Capital market funding
“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)
201
9
Source: Mincosa, 2019

29. PDAC 2020 29
TSX/TSXV key facts
⧫ 1,138 mining
companies; 32
diamond companies
⧫ CAD 12,5 billion mining
capital raised in 2019
⧫ 1,266 mining financings
⧫ Notable diamond
stocks: Lucara
Diamond, Mountain
Province, Star, Pangolin
Diamonds
Source: TMXmoney.com; Yahoo Finance

30. PDAC 2020 30
ASX key facts
*50 largest listed mining companies with market cap < AUD 5 B
Sources: ASX, PwC, Yahoo Finance
⧫ Over 700 mining
companies listed
⧫ MT50* have AUD 64
billion market cap
⧫ Ability to attract
capital from the
Far East
⧫ One diamond
company: Lucapa
Diamond

31. PDAC 2020 31
LSE/AIM key facts
Sources: LSE, Yahoo Finance
⧫ 300 mining
companies with GBP
861 billion combined
market cap
⧫ GBP 176 million
mining capital raised
⧫ 9 diamond
companies
⧫ Notable diamond
stocks: Petra, Gem
Diamonds, Botswana
Diamonds, Bluerock
Diamonds

32. PDAC 2020 32
JSE and BSE key facts
⧫ No diamond listings on JSE
⧫ Anglo, Lucara Diamond and
Botswana Diamonds have
secondary listing on BSE
⧫ Negligible exploration capital
raised
⧫ Section 12J not working in
South Africa
⧫ No local incentivization in
Botswana
Despite the paucity of junior activity, exploration funding is coming from offshore or licences are
awarded to private firms (including artisanal miners)
Chart: Mincosa 2019

33. PDAC 2020 33
The role of mining incubators
⧫ Funders with expertise
⧫ Applying a mix of
entrepreneurial skills, business
experience and risk appetite in
the resources space to develop
opportunities with potential
⧫ Notable examples are HDI, 162
Group and Lundin Group
⧫ Identify opportunities, create
projects, work with partners and
develop
Source: Greenfields Exploration

34. PDAC 2020 34
Who are the new mining incubators?
Selected examples Strategy
Minexia’s NR Private
Market Platform
Crowdfunding platform concept aiming to disrupt the way mining and
exploration are funded at the junior to mid-cap levels.
Greenfields
Exploration
IP licencing company focused on exploration. Providing upside
exposure through non-dilutable royalties. “[…] mimic the fire-power of
a major mining company while staying lean and agile like a junior”.
Vested Technology
Corp.
Diversified startup crowfunding portal. Junior mining company Kal
Minerals Corp. used this platform to build its portfolio and expand.
Altus Generating prospective geological real estate around the globe
during periods of bear sentiment; project generation and JV business
model.
Burgundy Diamonds Niche project incubator operating within the “gap” between juniors
and majors. Providing risk funding and project development in
partnership with owners of diamond projects.
PCF’s Minesonline Online platform showcasing a portfolio of mining investment
opportunities across commodities and stages of development;
connecting buyers and sellers of mining projects worldwide.
⧫ Entrepreneurial first-
movers with hybrid
funding models, many
financed through equity
crowdfunding
⧫ Flexibility to advance a
portfolio of projects
without the constraints
of junior explorers
⧫ Creating an
environment where
companies can
compete only within
their own sector (e.g.
mining) and on their
own merit

35. 35PDAC 2020
Conclusion

36. PDAC 2020
Conclusion
36
Without exploration there will be no future mines, so what is required
to stimulate exploration which is at a low (but increasing) point?
⧫ 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
⧫ Security of tenure and political certainty is critical
⧫ Dual role of ‘break through’ technology; supporting exploration and enabling
access to funding
Diamond supply-demand gap continues to widen despite a structural
change in diamond pricing
⧫ Southern Africa probably remains one of most attractive investment
destinations due to high diamond prospectivity, relatively low competition and
low unit operating costs, notwithstanding a higher political risk envelope

37. Questions?
37PDAC 2020
Photo: Andreas Stelzer

38. 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 Botswana Stock
Exchange). He has spent over thirty years in the diamond industry in a variety of leadership roles both in
major and junior companies. He is also a Non-Executive Director of Shefa Gems (a precious stones
development company in Israel, listed on the main board of the London Stock Exchange).
⧫ Previous roles include 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 & Resource Delivery and the Executive Chairman Nicky Oppenheimer’s first Personal
Assistant.
⧫ James holds degrees in Mining & Exploration Geology from the Royal School of Mines (Imperial College,
London University) and an MBA with distinction from Durham University. He is a Fellow of the Institute of
Mining, Metallurgy & Materials, South African Institute of Mining & 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 SA (a not-for-profit organization that
develops leaders who can cross boundaries and is synonymous with the terms ‘cultural intelligence’ and
‘leadership beyond authority’). He was also a director, trustee and chairman of the Joburg Ballet for
almost fifteen years.
38PDAC 2020
https://twitter.com/JAHC1
https://www.linkedin.com/in/jamesahcampbell/
https://www.slideshare.net/JamesAHCampbell1
https://www.youtube.com/JamesCampbell_JAC
Photo: Megan Baben

39. 39PDAC 2020
162 Clontarf Road
Clontarf
Dublin 3
Ph: +27 83 457 3724
Web: www.botswanadiamonds.co.uk
Twitter: @BotswanaDiamond
Email: james@botswanadiamonds.co.uk