Earnings call transcript: Burgundy Diamond Mines faces challenges in Q1 2025

Burgundy Diamond Mines (BDM) reported a challenging first quarter of 2025, with revenue declining significantly compared to the previous year, continuing a concerning trend of -14.15% revenue decline over the last twelve months. According to InvestingPro analysis, the stock is currently trading near its 52-week low, though their Fair Value calculations suggest the company may be undervalued at current levels.

Key Takeaways

• Q1 2025 revenue fell to $73 million, down from $118 million in the same quarter last year.
• Adjusted EBITDA saw a significant decline, reflecting operational challenges.
• The company is transitioning its mining operations and expects improved performance in Q2.
• Burgundy Diamond Mines is focusing on extending the life of its Misery mine and exploring new funding avenues.

Company Performance

Burgundy Diamond Mines experienced a tough start to 2025, with revenue dropping to $73 million compared to $118 million in the year-ago quarter. The decline was attributed to the sale of lower-value carats, which affected revenue per carat. While the company reported an 8-10% price improvement in sales during February and March, indicating potential recovery, InvestingPro data shows the company is quickly burning through cash, despite maintaining healthy liquidity with a current ratio of 3.53. InvestingPro subscribers have access to 11 additional key insights about BDM’s financial health and valuation metrics.

Financial Highlights

• Revenue: $73 million, down from $118 million year-over-year.
• Adjusted EBITDA: Just over $6 million, indicating a significant decline.
• Revenue per carat decreased due to the sale of lower-value carats.

Outlook & Guidance

Looking ahead, Burgundy Diamond Mines anticipates a stronger second quarter. The company, currently valued at $34.6 million market cap, is transitioning from the Sable Open Pit to the Point Lake mine, with a bulk sample planned for May. This transition is expected to potentially extend the life of the Point Lake mine by 50%, depending on the results of the bulk sample. Full guidance will be released in June. InvestingPro analysts project the company will return to profitability this year, with detailed forecasts available in their comprehensive Pro Research Report.

Executive Commentary

CEO Kim Truter highlighted the importance of the Point Lake mine, stating, "As long as Point Lake is not detracting, as long as it’s making money, we would keep doing it." CFO Brad Bayless noted the challenges in the natural diamond market, saying, "The natural diamond business has not done a great job of marketing itself."

Risks and Challenges

• Market Uncertainty: US tariffs continue to create uncertainty in the diamond sector, which could impact future sales.
• Competition: The rise of lab-grown diamonds poses a significant threat, especially in lower price segments.
• Operational Challenges: Muddy mining conditions at Point Lake affected Q1 production metrics.
• Financial Flexibility: The company is exploring non-dilutive funding alternatives to maintain financial stability.

Burgundy Diamond Mines remains focused on its strategic initiatives, including extending the Misery mine’s life and exploring the potential of processing the Fox low-grade stockpile. Trading at an EV/EBITDA multiple of just 1.39, the company faces challenges from market conditions and competition, which it must navigate to achieve its long-term goals. For deeper insights into BDM’s valuation metrics and growth potential, investors can access the full suite of financial analysis tools on InvestingPro.

Full transcript - Burgundy Diamond Mines Ltd (BDM) Q1 2025:

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Okay. We’ll kick it off now. Good morning, everybody. On behalf of Burgundy Diamond Mines and Bell Potter Securities, welcome to the Burgundy Diamond Mines q one two thousand and twenty five conference call. My name is Stuart Howe, resources analyst at Bell Potter, and I will host today’s call.

From Burgundy, we have CEO and managing director, Kim Truter, and chief financial officer, Brad Bayless. Format for today’s call is that management will take us through a presentation. This will be followed by a q and a session, which I’ll chair. So please enter your questions in the Zoom platform. After the presentation, I’ll read out your name, affiliation, the question.

Today’s call is being recorded. And before we get started, I wanna draw your attention to important notice and disclaimer on slides two and three of today’s presentation. Kim, Brad, over to you.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Thank you, Stuart. Good morning, afternoon, evening, everyone, wherever you are. Thank thank you for joining us, and thanks, Brad, for for being with me. We’ll do our usual where Brad and I talk to different slides, and then, obviously, at the end, we’ll take as many questions as you’ve got. We have kept it quite quite simple this time around.

And I guess before we launch into it, it’s probably fair to say that this last quarter has been quite a tough quarter for us, and you will and we’ll work you through some of the reasons why the the quarter has been quite tough for us operationally and and as a result, fully financially. So we’ll just go straight through into the operational update, and then we’ll follow-up that with a with a financial update. You can see on the screen the key operating metrics, which we always normally take you through. Obviously, we’re highlighting the this last quarter. And so you can see, generally, every single production metric has been down for the quarter with the exception of the grade, and I’ll explain why that’s the case shortly.

And this is really all to do with the transition from from the Sable Open Pit to Point Lake, which I think, to be frank, hasn’t gone quite as well as we would have liked. The main issue with that transition is that as we shifted the big mining and gear across from Sable to Point Lake and we got down into the bottom of the pit as we were trying to get into the into the the Kimballat ore itself. We really struggled with the the remnants of the lake that had been pumped out, And the ore itself was very, very wet and muddy. And so just generally, the the mining conditions were very, very tough as we had to work through very, very muddy conditions, and the big equipment didn’t like that whatsoever, as you can imagine. So we struggled with, you know, equipment getting stuck and and that kind of thing.

The real breakthrough happened towards the end of the quarter where we managed to bring in some smaller contractor equipment on a sort of a wet hire basis, and that small equipment was the breakthrough. It helped us move some of that muddy material. And then once we could get good running conditions for the big gear, we started hitting our straps again. So the good news is that we we took a lot of pain in the first quarter, but, we’ve turned the corner and we’ve set q two up, quite nicely. So you should see a big recovery in production and carrots heading into q two.

But you can see the metrics on the screen. So if you do a sort of a quarter by quarter comparison, you can see the, you know, obviously, the waste the difference in waste between this quarter and the and the and the prior quarter a year ago. Didn’t move as much wasting in q one compared to q four last year. Some of that is be because of those muddy conditions, but the thing that really suffered was the all delivery. We did try to compensate by bringing more Misery underground ore into the mix, and that’s why the grade jumped up because the Misery pipe is much richer, much higher grade than Point Lake.

So you can see that’s why the grade spiked to 1.4 carats per ton as we were favoring Misery production during the quarter to try and compensate for for Point Lake. Misery itself didn’t didn’t didn’t fire on all cylinders. We did struggle a bit with the ore body freezing up, especially in at the end of the last quarter. And so the ore in misery wasn’t flowing quite as as as nicely as we’d like either. So we had a bit of a double whammy there.

But as I said, just to reassure you, we’ve worked through both of those issues. Misery is now firing on all cylinders, and Point Lake is also firing on all cylinders so the the carrots will be will be flowing into q two. So that’s just a bit of a a bit of an overview of of of how the operation fared in q one. And and you can see, as Brad takes you through these metrics, some of that played straight into these metrics. So over to you, Brad.

Brad Bayless, Chief Financial Officer, Burgundy Diamond Mines: Yeah. Thanks, Kim. Yeah. Like like Kim said, challenging quarter operationally, which which really has carried itself over into the, into the selling and and financial results. Yeah.

So so down on carats sold, you know, quarter to quarter, and the revenue per carat, down quite a bit. And and the big driver for the revenue per carat being down is we had probably between three and four hundred thousand of very low value, low quality carats that that we carry over from twenty twenty four that that sold in the first quarter. And so that really brought down our our revenue per carat. You know? And then, obviously, our our total revenue is down, you know, just for the fact that because we sold the lower quality carats, but we also had, you know, just overall less carats to sell, you know, brought down our our revenue, you know, so 73,000,000 versus, a hundred and 18, a year ago.

So so we are seeing that. You know, the good news, I guess, from a selling perspective is we did see you know, we definitely saw, especially in the February and the and the March sales, we did see some good like for like, price improvements, you know, anywhere from between 810%, across across the board. So that was very good to see. Obviously, now with, you know, as we move into April and into the second quarter, we still we do have some uncertainty given the tariffs, you know, and still trying to get our our hands around what does that all mean and and what’s gonna be the impact. And, hopefully, it kinda sorts itself out here in the short term.

But, but yeah. And then, obviously, that, you know, with lower revenue, you know, translates into into weaker financial results. And so for the quarter, six just over 6,000,000, adjusted EBITDA, so down quite a bit from from a year ago. And if we take a look, quickly at our balance sheet, so, you know, of the big changes, you know, prep, PP and E is up quite a bit, and that’s just due to to the capitalization of the Point Lake, pre strip and a and a little bit of, equipment, but mainly the the Point Lake pre strip. You know, diamond inventories, down again and, you know, again, that’s largely due to the fact that we just haven’t, been recovering the the the carats, that we normally do, and so that’s it’s kinda dragging our our inventory down.

Our kinda normal level would be, you know, between 70 and and 90 million. So so we’re definitely, below where we would where our normal, inventory would be. And so, you know, as as Kim mentioned, as we as our production starts to, stabilize and starts to improve, then we should start to build up that diamond inventory again. And and, hopefully, by late q two or late q three, we get back to where we, where we need to be. You know, on the cash side, you know, we had the one time cash benefit associated with the fuel off take arrangement with Corey Banks.

So so this is a great deal for us, and and, know, we’ll look to to kinda replicate this in the future, but but it allows us to, you know, essentially, instead of pre buying all of our our fuel allows us to kind of purchase fuel as we use it. You know, I you know, one of the big challenges with operating in the Arctic is is the fact that you can only bring in materials one one time a year, and so we have a huge amount of of cash going out the door in q one, q ’2, that we don’t actually use those supplies for, for quite some time. So to be able to to spread that expenditure over the years is, very helpful for us. And then, yeah, obviously, everything kinda translates down into the net debt, you know, not not where we want it to be. You know, when we take our net debt, including diamond inventories, yeah, it’s, you know, a million a million dollars.

So, yeah, we we you know, as we start to to rebuild our inventory and then hopefully that should translate into some into into a better cash position, we should start to see that, kind of reverse its trend, as as we move through the year. Then on the cash side, so just a quick snapshot of where the cash went for the quarter. So, yeah, we started we ended the year at 25,000,000, and and we ended the quarter just under 39,000,000. They’re the big the big drivers for cash. So we we brought in 37,000,000 associated with the fuel offtake arrangement.

We spent quite a bit on Point Lake pre stripping. Like Kim alluded to, yeah, took longer than what we were anticipating, and and so fairly large chunk of capital, 35,000,000 just associated with with the Point Lake pre strip and then the rest the other 8,000,000 of capital is just our regular sustaining capital. And yeah. So those are kind of the main the main changes in in in cash for the quarter.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Thanks, Brad. Let let’s move on to some of the the the the more positive topics, which is what’s happening over at Misery and Point Lake. And if if I start with Misery, I think just just wanna highlight a few really important points here. Misery grade is around about three carats per ton, which in which in diamond parlance is is is very high grade. So the Misery production is basically the cornerstone of our production, and it provides around about 60% of our production comes from from Misery in terms of carats.

So it’s a it’s a such an important little operation. And the we really focus some of the diamond drilling at in during q one to keep going deeper in Misery, which is aimed at, obviously, expanding the life of that Misery mine and and the resource base. I think we’ve told you previously that we we’re trying to extend the Misery mine all the way out to 2030. That’s our that’s our target. Because of that, we shifted a lot of our focus during the quarter from the the Southwest extension, which is the the extension of Misery up at the higher levels.

And we focused a bit more on the the what we call the Misery main part, which extends at depth. And even though we still did a bit of drilling in the Southwest extension, we started doing some more drilling in the main pipe as well. And we’ve also been doing some chip sampling of the draw points at what we call the ninety fifty nineteen fifty level, which is one of our working levels. And and you use micro diamond analysis to enhance your knowledge of the pipe. And and so far, all of all of the work is is showing that misery extends at depth.

It also seems to be showing that the pipe is not narrowing. It’s actually it’s actually extending in sort of, let’s call it, a straight line as it goes down, and the grades are looking pretty good as well. So our confidence in Misery is extremely high, And, obviously, that’ll play into the into the Burgundy mine plan that we’ll be releasing, in a in a few months’ time. And there’s some other kind of reminders there just about some of the the characteristics of Misery, extremely low capital intensity. We really don’t have a lot of capital that we need to spend.

We just basically extend the decline down and keep following the pipe as we go. So fantastic fantastic contributor, Misery Pipe. Point Lake, there’s a quite a nice photograph for you all. So you can actually see quite clearly how we we we now sitting right on top of the Kimballot pipe. You can see clear as day on that photograph, those dark areas where you’re seeing some of the excavators on the diggers located, that’s kimberlite.

So you can see the dark material. And for those of you that might have seen our previous photograph, we showed you all. You can see how how how much deeper that pit is moving, and there’s a it’s a real half of activity. So a very significant progress over the quarter getting rid of that modern, what we call the toll, which is the rock that sits over the top of the Kimballot pipe. Managed to crack that knot during the quarter.

The other thing we will be doing in a few weeks time is we’re gonna be taking a big bulk sample. So, basically, a dedicated sample from from that Point Lake main pipe, and we’ll be feeding that through the process plant for about about a week to ten days. And what that’ll do is it’ll give us a very, very good handle on the not only the grade of the Point Lake part, but more importantly, the the value of the carrots. At at the moment, we have a relatively small sample, and so the bulk sample will give us a a hell of a lot more confidence about the the value of the carats. And the other benefit of doing that is if the value of those carats comes back higher than we we’ve currently got in our model, then there’s potential for that pipe or the other the actual pit size to be made a little bit bigger with very little change in strip ratio, and that could add about 50% to the mine life of Point Lake.

So that bulk sample is a very important piece of work. And as I say, we’ll, we’ll be mining it and processing it in May, and then we’ll have the the numbers, in terms of the the quality and the the value per carat. We’ll have those in June and we’ll probably be able to share it with you in the in the q two update. The other thing we’ve spoken about previously is as we shifted all the people and the equipment across to Point Lake, There’s been a big focus on making sure we capture the productivity gains by having the workforce all co located with misery. And we’ve definitely been achieving that.

We’ve gained over an hour a day of shift effective shift time because we don’t have to travel so far, and the the workforce is located right close to the the pipe. We’ve also improved our payload quite significantly, and a lot of our operating metrics have improved. And as a consequence, our our cost per ton has gone down. So all of those are very good things, and I think that you would have been expecting us to do in as as we’ve shifted across. I mean, just some of those reminders there about the size of the resource and how we’re using the Missouri camp just a couple of k’s away.

So that’s a bit of an overview of of the Point Lake mine. If we shift our focus to talk about the rest of the year and and how ’25 will shape up, I’ll just start at the top there, and Brad has mentioned some of this already. But we kinda cover three topics here. So if we look at the market, as Brad mentioned, we saw some quite nice green shoots emerging in February and March sales, as Brad mentioned. And we we were seeing price per carat for some of our sectors of diamonds up eight to 10%, from for, you know, from prior prior sales.

So we got off to a whopping start. Unfortunately, The US tariffs has brought uncertainty back into the diamond sector. And I think the the diamond sector, like, I think many other industries are still trying to to wrap their heads around exactly what the tariffs will will do. So it has created a bit of uncertainty. And any uncertainty is never good when you when you’re obviously selling diamonds.

So we’ll have to see how that plays out during q two. And just as a reminder, of course, The US store is one of the biggest single markets for diamond jewelry, well, you know, well over 40%. In fact, they’re approaching 50%. So the The US market is very, very important to us. Just a reminder, though, that we still firmly believe in the long term thesis that strong diamond prices will be maintained.

And we sometimes refer you all to a the the report that comes out monthly by Paul Zaminsky, and I’ll see he’s maintained his his positive outlook for diamond prices over the next five years in his latest report, which is good to see. On the operations, I’ve already mentioned some of those efficiencies that we were realizing as we’ve co located the the workforce next to Misery. I’ve spoken about that bulk sample. The other thing is and this is very important. I I mentioned how Misery is the cornerstone of our production.

We’ve started lifting the production rate out of Misery. In fact, in the last week, we’ve achieved two of the highest tonnages we’ve ever ever achieved out of Misery, well over well over 4,000 tons per day. And and the way we’ve achieved that is we’ve introduced, at the moment, two larger underground haul trucks. So these are 45 ton haul trucks, whereas prior to that, we used to run 30 ton haul trucks. So we’ve now got two more trucks and and 50% more capacity in those trucks.

We’ve got a third one that’s coming online at the end of, at the at the May, so then we’ll have three of those bigger trucks. So that’s immediately lifted our underground production capacity. We’ve also got another production drill rig that’s already come up the winter road. It’s sitting on-site. We’re just retrofitting that drill to changing the voltage of the drill to to match our site voltage, and that’ll and that’ll give us more production drilling capacity so we can drill up into the into the the old open pit and increase our our our throughput from from the drill points.

And then just the final point there is that we we’re heading towards our our first mine plan release that’s been in development for quite a while now, and that will come out at the end of q two. So we’re quite we’ll be quite excited to share that with all of you. And then, of course, we’ll follow it up with a longer term mind plan later on in the year. And then finally, obviously, big focus on making sure we’ve got financial flexibility in 2025. We’ve made we’ve shared with you previously the establishment of that environmental trust fund, which gives us tax tax rebate or tax offsetting capability.

We’ve landed the fuel offtake agreement that Brad was talking about, and we’re still focusing on on refinancing our two l loan and making sure that we’ve got enough liquidity. So lots happening in that front. And then, and I’ll just move to some of those liquidity things we’ve been we’ve been talking about. And the way we’ve configured the slide, you can see the the things we’ve already achieved, we’ve ticked. So, obviously, huge focus on making sure that all of our leaders are very focused on cash management and working capital management.

So I can reassure you all that we’ve got a a very focused leadership team on on both of those. We’ve managed to, cement now doubling the real royalty valuations, and that that plays into being able to export diamonds out of Canada twice the number of times. So from moving from 10 times to 20 times, which in theory means that we could hold 20 sales a year if we wanted to. But the real point is it gives us lots of flexibility to sell more often and then shorten that diamond pipeline that Brad spoke about. There’s the Macquarie fuel deal.

You might recall we we actually communicated that we we had landed a $45,000,000 fuel deal That reduced slightly because we with some hedging that we put in place to make sure we had a hedging arrangement. So that’s why the number came down slightly to 39. And then just those last two points, we are still in the process of May making sure we’ve got a non dilutive funding alternatives up our sleeve to ensure liquidity, and we’ve spoken about things like presales and various opportunities to make sure that our liquidity remains strong. And then as we progress through the year, we’re still focused on establishing a refinancing arrangement so we can replace the existing two l loan in a non dilutive way. And then just a reminder that that two l loan matures in June 2026.

So that’s why we’re very focused on making sure we’ve got a we’ve got a a refinancing option to replace that two l loan. So that’s it in a nutshell, everyone. I’ll stop there, Stuart, and then maybe hand back to you for q and a.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Great. Thanks, Kim and Brad. I’ll kick off the questions just around CY ’25 guidance, and there’s obviously been a delay in issuing that. I’m just wondering what the key moving factors are. I guess it’s mostly to do with the bulk sample at Point Lake.

Yeah. Perhaps just just elaborate a little bit on on what you’re looking to see before you can put out some guidance.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Yeah. That’s correct, Stuart. I mean, we we’ve been we we we obviously, as we were moving through q one and we were aware of some of those difficulties, we didn’t wanna put out a guidance when we weren’t a % sure how q one was gonna play out. So now that we’ve moved through some of those issues in Point Lake and we’ve got misery firing, obviously, our confidence was returned. And then secondly, that bulk sample, as you mentioned, is another piece of the puzzle.

So by the by the June, we should have all the pieces of the puzzle, and then we’ll provide guidance.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: And I noticed that some of the feed this quarter has been or the last quarter has been from the Fox stockpile. What have what have you learned from from bleeding that into the into the into the blend?

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Yeah. So thanks for asking that, Stuart. So we we took the opportunity while we were struggling to keep the plant full to feed some of the Fox low grade stockpile directly into the plant. I just wanna just qualify. There are actually two parts to that low grade stockpile.

There’s a there’s a a very low grade portion and then and then a a low grade portion. So so, anyway, we we we feed the the low grade portion directly into the plant and actually recovered some quite nice stones. And they they looked very much like the fox stones that had been recovered previously by by BHP. The those fox stones are very high value stones. They are, about four four times the value of any other of the other pipes and and that so we we did successfully recover those stones.

It confirmed that the the colors and the sizes and the quality look pretty good. So, yeah, so far looking quite nice, Stuart. And as as the year plays out, we’ll more than likely progress the processing solution that allows us to to upgrade that low grade in the field before we send it to the plant. So we’ll we’ll progress it as we go through the year, and we’ll probably we’ll probably provide more information on that low grade processing arrangement when we do the mine plan update.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Great. Question from Mark Milligan online. I know this question I was gonna ask as well, and it relates to, I guess, capital and Point Lake pre stripping. And I noticed that in the in the quarter, you mentioned that the development of ventures and ramps is ongoing there, but obviously, $36,000,000 spent in the first quarter on capital for Point Lake. Can you give us any guide as to how that moves into this quarter?

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Look. I don’t think I mean, obviously, the the the the the pre strip activity will reduce. So in q two, we won’t be moving as much waste. So, obviously, the some of that waste movement was a bit front end loaded in Point Lake. So we’ll see an improvement there.

We’ll start getting some of the benefits of those those productivity and cost reduction things that I spoke about. And then, obviously, as our volumes start picking up, our denominator gets bigger. So our dollar per carat will be going down. So in general terms, our dollar per carat cost in q two will be a hell of a lot better than q one. And and we’re trying to even with Point Lake, we are trying to make sure that we as we drive the cost down in Point Lake, we try to make sure that even if the the the bulk sample comes back with lower a lower grade that we can still make Point Lake work.

So we’re pretty confident that that that under any scenario, Point Lake would still be profitable, Stuart, and that’s our plan then, of course. And with with misery being the court cornerstone, as long as Point Lake is not detracting, as long as it’s making money, we would keep doing it.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: And so I I guess to try and pin you a bit bit more on that, the q two CapEx there is it will be will be lower than in q one?

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Yeah. More than likely. Most of it’s that capitalized waste movement. So yes.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Yep. Great. And just what’s your understanding of those at the point, like, grade at the moment? Another question from Mike. Can you tell us about anticipated value?

You know, any fancy fancy yellows or high quality larger stones anticipated there?

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Yes. It’s little bit early early to answer that question definitively, Mike. It’s, the grade looks okay. So the grade, it looks like it’s consistent with with the model. But I think it’s a bit too early to to to talk about the the value per carat because we haven’t really been able to isolate the Point Lake stones separately.

That and that’s the benefit of that bulk sample. So just as a reminder, the bulk sample, not only are you you doing it, as a as a a totally independent activity in the process plant, but we’ll also be sorting those in India the way we normally sort them as a totally separate sorting arrangement. And then we can value them properly, you know, when they when they once they’ve been sorted. So I don’t think we can fully answer the value, the price per carat question and still until June.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Perhaps perhaps let’s move on to misery, and you noticed going deeper versus the Southwest Extension and and the deeper opportunity to take you out to 2030. Is the is the Southwest extension still an option to to move the life of the the project beyond this?

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Look. I think the I mean, the South some of the drilling we did in the Southwest Extension was a little bit disappointing. We were hoping that the value that that the grade was gonna be similar to the the Misery main part. That was not the case. So I think it’s probably fair to say we’ve deemphasized the Southwest Extension a little bit, and we’ve we’ve prioritized Misery Deep.

Now that doesn’t mean that the South extension won’t play a role. It is always gonna play a role later on in Misery’s life. We never ever intended Misery Southwest extension in the in the to compete with the Misery Deep. Were hoping it would it would, you know, top up some of the production in the later years. So I think it’s probably fair to say that the the Southbridge extension is being a little bit deprioritized.

And we’ve and we’ve shifted some of our focus to Misery Deep, but we’ve also been focusing more closely on Fox and and making sure that we, we start having a really close look at Fox. And, just watch the space because we’ve got some we’ll we’ll be we’ll be talking about Fox when we do the q two update.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: And I guess just looking at at the quarters going forward, is it fair to say that q two, one we’re in at the moment, will be another sort of transition quarter, hopefully, a bit stronger than the one we’ve just been through. And then things will normalize in in the third and fourth quarter.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Yeah. Look. I mean, I think q two will is shaping up when you look at the run rate, especially as we head towards, the May and June. Q two will be a much stronger quarter, certainly much stronger than q one. Probably, probably won’t be at full full capacity because we’re we’re building up that inventory, as Brad said, during the quarter.

But we’ll set ourselves up for success in q q three for sure.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Right. There is a question from anonymous attendee, and you get this all the time. So I’ll ask it I’ll ask it now as well. But any feedback and trends from end users around, I guess, customers preferences between natural and and lab grown diamonds?

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Yeah. I think we’ll tag team on this answer. Brad will have a view, and I’ll have a view. I I think what we’ve said before, and I’ll just repeat what we’ve said before. If you’re talking about high end diamonds, you know, very expensive diamonds, are not in this we’re not even competing.

So if someone’s gonna be buying a $1,000,000 Yellowstone, which Misery regularly produces, they are not in they are not in the market to buy lab grown diamonds. We where where lab grown does compete with natural stones is in in the lower price point diamonds. So it’s in and and we have been talking about, know, one carat engagement ring. Do sometimes go head to head with with with lab grown, but people are not spending big money on lab grown as you can imagine. And just a reminder that lab grown has dropped significantly in value, so you can now buy a five carat lab grown diamond for whatever you could buy it for, $5,000, and and and people are doing that.

So, generally, what if people are buying lab grown, they’re buying much bigger stones so they can show off a bigger stone on their finger. But in the high end, we’re not competing at all. Anyway but I’ll let Brad also chip in.

Brad Bayless, Chief Financial Officer, Burgundy Diamond Mines: Yeah. Well, I think, you know, it it I guess, it depends on what customers are looking for. But but like Kim said, I think there is still a bit of head to head going on in the in the bridal space, but we are starting to see some more separation as as time can continues. You know, the the thing with, you know, I I think customers are starting to get educated if they if they want a manufactured product and they’re fine with that, then they would buy lab grown. If if they want something that’s rare, they’ll they’ll go for the they’ll they’ll go for the the natural diamond.

Right? And I think it’s, unfortunately, for the last number of years, the natural business has not done a great job of kinda marketing itself, and they’ve let the lab grown sell a narrative that actually isn’t true. And, really, the the net the the lab grown business was selling a narrative that it’s it’s a sustainable, it’s a green alternative, which which is complete rubbish. It’s actually the opposite. So so as as I as time goes on, I think that that narrative and and the proper marketing will happen and and that that separation between lab and natural will continue to to to extend and, you know, prices for lab continue to drop and and prices for natural will will continue to to rise as the rare you know, as as they are the rarity is worth something.

So so yeah. It’s just gonna take some time, but but I do see the the trends are changing.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: And do you think the the recent drop in your realized sales price was, I guess, symptomatic of of some of those lower quality stones that were pulled out of inventory sold into those markets which are more competitive with with lab grown diamonds? I’m not

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: sure, to be honest, Stuart. I think the lower quality diamonds I mean, we’re talking about, you know, small quite small stones. I’m I’m not sure that was because of lab grown. That that that’s just a market for those stones.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: And Sure.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: When you look at a dollar per carat basis, with the we the with the they didn’t perform badly. It’s just that we had too many of them.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Yep. Yep. Right. And, obviously, I’ve noted as well that you’re saying, I guess, on a normalized basis, some price recovery in the last couple of months of the quarter, which is positive.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Yeah. I mean, it’s if you do if any of you do look at that Paul Zaminsky report, one one thing that’s quite interesting is that in in his report, he has a graphic which shows the price the index price polished diamonds versus the index price of rough diamonds. And for the first time, the index price of polished diamonds has actually crossed over the rough diamond index price. So in other words, it would suggest that the retail side at at at at the the retail price of of polished diamonds has started increasing, and that’s a really good sign because as that increases, it starts pulling through the rough diamond price, which is very good.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Great. And just pointing to cash flows, know, obviously, in the absence of of the the diesel agreement, things would have been very tough indeed. I’m just yeah. How confident are you around the balance sheet in the absence of of further, I guess, support from from other loans or or other non dilutive forms that you mentioned earlier? You know, do do you do you feel do you have enough confidence in your balance sheet the way it is at the moment?

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Well, look, I think it can be stronger, to be honest. So that’s why we’re very focused on making sure that it that it it’s strong enough. Just as a reminder, when we acquired ECATI, we deliberately loaded up the balance sheet with quite a lot of cash to make sure that we we were always carrying 30 to $40,000,000 of cash on our balance sheet, and that’s still what our target needs to be. So I think the the fair answer is, Stuart, we all make sure that we’ve got enough liquidity to keep that sort of buffer. And this this business does burn cash really quickly because of being in the Arctic Circle.

So it’s important that we do have a buffer. So I think there’s a there’s a very high likelihood that it will have, you know, several several financial solutions to ensure that we we have that sort of cash buff buffer in place.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: And I guess, historically, the, you know, the June and September quarters are, you know, are not a high CapEx quarters or not a high cash outflow quarters with the winter road purchase already already been completed. And, obviously, hopefully, you got most of that point, like, CapEx behind you. So

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: That’s right. Yeah. And the and the summer months are your best always your best month. So as we now come out of wind slowly work our way out of winter, just as a reminder, you know, it’s it’s plus 15, you know, down where we are, and it’s minus 20 up in the Northwest Territory still. So it’s still pretty cold.

And but as we head into the summer months, that’s typically our most productive months, and that’s when we make the most money, typically.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Right. Another question for Mike around how the search is going from your CEO. I guess that’s typically done at a board level, but happy for you to provide some comments, Kim.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Look, I’m not directly involved in it. I as you know, Jeremy King has kindly offered to to to to play the role of interim CEO. Jeremy actually came across to to Calgary about ten days ago already. So he’s already in Calgary, and he’s planning to be in Calgary for for many months ahead. And him and I are working very closely together as he as he comes up to speed.

I have to admit that, you know, Jeremy is a real real real fast learner. So he’s got the benefit of being a director. He’s got a lot of knowledge of Burgundy already. As a reminder, Jeremy has been on the board of Burgundy for a long time, and so he’s very he’s he’s got a lot of background about Burgundy. The only thing we we he’s just learning about and he’s learning really fast is a little bit about how the the Arctic operating environment works.

So so I think what I’m what I’m trying to tell you is at the moment, we’re in a really good shape in terms of the handover between myself and Jeremy. And then as time marches on the board, we’ll keep looking at whether Jeremy continues to play that role or whether we have someone else. We are in very, very strong position there.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Kim, you’re a hard man to replace. So I wish you all the best in in your next steps as well. So that’s pretty much all. I know there’s couple of questions we might as well cover off on.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Yeah. I mean, I’ll see the There’s

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: one from John around tariffs. Perhaps perhaps just talk about we’ll talk about that one, Kim, if you can see that.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Oh, so there’s two there. Yeah. Okay. So the tariff questions that John asks, how how do tariffs work if the diamond goes from Canada to India and then and then comes back out again? Look, as it currently stands, the the the tariff would be 10% on, basically, on India because India would be the, you know, the country exporting it back into The US.

And so that’s that’s as it currently stands. And and that’s what we we try to work out is whether that that 10% is gonna hold true or not. And, obviously, the the big issue is is the the argument against that 10% tariff will be there is no alternative. I mean, it’s not like you can mine and produce diamonds in The US because there are no there are no diamond mines in The US, and there’s no manufacturing in The US, and there’s really no no way around it. It’s not like some of the other industries.

So there is a strong case to be made that diamonds should be exempt. I think a lot of the the retail stores that that operate in The US will put a lot of pressure on the on the political regime that it’s actually a stupid idea to have tariffs on diamonds. I’m I’m still hopeful that it’ll win through as common sense prevails.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Thanks, Adam. And then perhaps just on that marketing my a diamond industry marketing efforts. And I know you previously used the the Canada mark, I guess, trademark. Perhaps talk a little bit about that.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Well, it’s I I think this question’s more about what, you know, just generally, what is the industry doing? And I think it speaks a little bit to to Brad’s point about what is the what is the natural diamond industry doing to promote to promote natural diamonds versus lab grown diamonds. Now some of you might recall that De Beers made a commitment to to spend a lot more money on on the on on that topic. Al Cook from De Beers has spoken about that a lot. I see that the Natural Diamond Council has been putting a lot of media out into The US in particular talking about this.

So I think the push has already started to promote promote natural diamonds differently. I still think there’s a a opportunity to do a little bit of what the the lab grown industry did by using social media and and influences and all that modern stuff and half of those, don’t know really understand. There’s probably still a bigger opportunity there. But I think as the as the natural diamond industry gets behind that, effort of De Beers in particular, I think you’ll see a lot more marketing happening especially in markets like The US.

Brad Bayless, Chief Financial Officer, Burgundy Diamond Mines: And I’ll just I’ll just add to yeah. I’ll just add to that. I you know, as part of the De Beers campaign, they also had a a campaign with a partner in in China. And, actually, for the first time in three years, China’s actually seeing some positive growth in in diamond demand. You know, and if if China as a market can can wake up, that that’s a major boost for the diamond industry.

So we are starting to see some some improvement there, and we just hope to see that that continue. So so I think that the De marketing is starting to have an effect, and and, hopefully, we’ll you know, others will also join the party, and it’s not all of De Beer show, but others will join. And and as an industry, we’ll kinda push forward, and and hopefully, things will improve.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Yeah. And the other the other economy that’s really worth keeping a watch on is obviously the Indian market. In India consumes a lot of diamonds as well. And so if India keeps, you know, in in in increases their diamond consumption, that’s that’s a good thing. And, of course, the Indian economy is doing quite well.

So, yeah, I think the way this is gonna play out, it’s a combination of the Indian economy, China, and, of course, The US, and and and and that’s really the magic formula.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Great. We might leave it there on behalf of Bell Potter. Kim and Brad, thank you very much for your time today, Kim. I’m hoping we see you again on one of these calls, but best best wishes if we don’t. Thanks everyone for joining the call.

Thanks, Mike, Milligan for asking the questions as well. Appreciate that. So thank you, everyone. We’ll catch you next time.

Kim Truter, CEO and Managing Director, Burgundy Diamond Mines: Thanks, Stuart. Thanks, everyone.

Brad Bayless, Chief Financial Officer, Burgundy Diamond Mines: Thanks, Stuart.

Stuart Howe, Resources Analyst, Bell Potter Securities, Bell Potter Securities: Thank you.

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