5. AMS 2020
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. AMS 2020
Luxury market will adapt to new demands
6
⧫ Sales of luxury goods set to
fall by up to 35% in 2020
⧫ Consumption of luxury goods
has weathered past crises
⧫ Online purchases have
continued to increase during
the pandemic
⧫ “Profoundly transformed”
luxury market expected to
emerge from the crisis
⧫ Future market growth will
depend on luxury players’
ability to adapt and
innovate
Source: Bain and co., 2020
7. AMS 2020
Long-term supply and demand outlook is positive
⧫ Rough diamond supply
declining through 2021,
stable to 2030
⧫ Demand expected to
grow as sales rebound
in key markets
⧫ Polished prices stable
during COVID-19
pandemic
⧫ Coordinated marketing
efforts are crucial
⧫ Production cuts will lift
prices in medium term
⧫ New supply depends
on exploration success
7
Source: Bain and co., 2019
9. 9AMS 2020
Global exploration budgets slashed in 2020
⧫ Flat budgets
expectation replaced
by 29% drop for 2020
⧫ Lowest global spend
in 15 years
⧫ Junior debt financing
down 50% since Q4-19
⧫ Continued M & A
activity resulting in
lower budgets as joint
priorities are
reassessed
⧫ Modest rebound
forecast for 2021
Sources: SandP Global
10. 10AMS 2020
Grassroot exploration spend further eroded
⧫ Grassroots exploration budgets in decline
since the 1990’s
⧫ Increased uncertainty prolongs the trend
Source: SandP Global
⧫ Junior exploration down by 42%
⧫ Funding more dependent on mining
revenues than on equity markets
11. AMS 2020
Onerous regulatory and ‘ESG’ compliance
11
⧫ 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
⧫ Mineral reporting requirements vary across jurisdictions
⧫ Frequency is quarterly on TSX and 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
12. AMS 2020 12
Government incentives to exploration
Canada Australia South Africa
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
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
Section 12J of the South African Income
Tax Act (2009) grants venture capital
companies a 100% deduction of the
amount invested in a junior or unlisted
mining company before it can
generate taxable income from
production
⧫ 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
⧫ The Section 12J regime was modelled
on the Venture Capital Trust regime in
the UK
⧫ It was intended to boost exploration
funding in South Africa
⧫ Sadly, it has failed to deliver the
anticipated benefits to exploration
Sources: PwC 2015; PDAC 2015, 2019, Mining weekly; Australia Investing News; Australian Mining; Lexology
14. AMS 2020
Project development: investing in risk reduction
14
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 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
KX36
Sunland
Sekaka
Maibwe
Thorny River*Marange
Botswana
South Africa
Zimbabwe
* Includes Marsfontein
BOD Projects
15. AMS 2020
A dynamic portfolio of projects
15
Botswana
⧫ Sekaka:
⧫ Focused bulk sampling at KX36
⧫ Investigate innovative mining techniques
⧫ Target new discoveries using the Sekaka database
⧫ Sunland: drill high-grade targets in the Kalahari
⧫ Maibwe: resume drilling on kimberlite discovery
South Africa
⧫ Thorny River: drill possible kimberlite targets identified by
technology partner Subterrane
⧫ Marsfontein:
⧫ Further drilling to define kimberlite size
⧫ Bulk sampling of gravels
⧫ Other kimberlite projects at Mooikloof, Palmietgat and Free State
Zimbabwe
⧫ Marange: rapid exploration and trial mining in Vast Resource’s
concession on the diamond fields Thorny River diamonds
Exploration drilling at Maibwe
Exploration drilling at Thorny River
Bulk sampling plant at KX36
(photo courtesy of Petra Diamonds)
16. Value extraction and funding
16AMS 2020
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
17. Share price growth
from one African
Diamonds share on
listing (2005): 25x at
Lucara Diamond
peak share price
AMS 2020 17
⧫ 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
19. AMS 2020
Traditional sources of funding
19
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
20. AMS 2020 20
⧫ 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
and Crypto
tokens
21. AMS 2020 21
Exploration capital markets key facts
TSX / TSXV ASX LSE / AIM BSE / JSE
⧫ 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
⧫ 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
⧫ 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
⧫ 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: PwC 2015; PDAC 2015, 2019, Mining weekly; Australia Investing News; Australian Mining; Lexology
22. AMS 2020 22
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
23. AMS 2020 23
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
25. A highly prospective diamond region
25AMS 2020
Sources: Bain and 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
26. Perceived risk continues to deter investors
26AMS 2020
Source: Mincosa, 2019
Southern Africa is becoming more attractive, however perceptions of hostile investment
environments will continue to deter investors
27. 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
27
(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
AMS 2020
28. AMS 2020
AIM/LSE
50%
ASX
10%
TSX/TSXV
40%
Diamond juniors in southern Africa
by primary listing
Limited competition, limited (local) funding
28
⧫ 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
30. AMS 2020
Conclusion
30
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 certainty are critical
⧫ 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,
debunking misconceptions
Exploration drilling Ontevreden
32. 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 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 from Durham University. He is a Fellow of the Institute of
Mining, Metallurgy and Materials, South African Institute of Mining and Metallurgy and Institute of Directors
of South Africa. He is a Member of the Geological Society 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’). CPSA has just celebrated its twentieth anniversary. He was also a director,
trustee and chairman of the Joburg Ballet for almost fifteen years.
32AMS 2020
https://twitter.com/JAHC1
https://www.linkedin.com/in/jamesahcampbell/
https://www.slideshare.net/JamesAHCampbell1
https://www.youtube.com/JamesCampbell_JAC
Photo: PDAC March 2020