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South African investors have little appetite for investments

24 april 2017

james_campbell_xx.jpgA business and technical leader in the diamond exploration and mining industry, James Campbell has spent over thirty years in the diamond industry and is currently Managing Director of Botswana Diamonds plc. His immediate past role was Chief Executive Officer and President of Rockwell Diamonds Inc (‘RDI’) from 1 June 2011 to 30 November 2016.

Preceding this, James was with De Beers for over twenty years, culminating in being General Manager responsible for advanced exploration and resource delivery in the Global Mining and Exploration group. During his career with De Beers he also led a number of diamond exploration and evaluation programmes and small-scale mine development as well as playing key roles in corporate and strategic management and being Nicky Oppenheimer's Personal Assistant.

James holds a degree in Mining & Exploration Geology from the Royal School of Mines (Imperial College, London University) and an MBA with distinction from Durham University. James is a Fellow of the Institute of Mining, Metallurgy & Materials, a Fellow of the South African Institute of Mining & Metallurgy, Chartered Engineer (UK), Chartered Scientist (UK), a Professional Natural Scientist (RSA) and a Fellow of the Institute of Directors of South Africa. 

As part of James’ social commitment to South Africa, he serves as chairman of the Joburg Ballet, chairman of the South African Ballet Theatre Trust (‘SABTT’) and acting chairman of Common Purpose SA.  He is also a licensed Lay Minister in the Anglican Church of South Africa and an accomplished Ballroom and Latin American dancer. James lives in Irene, Gauteng with his wife, who is a ballet and ballroom dancing teacher, and two daughters, both who are teachers.

In an interview with Rough&Polished, the 'multi-faceted' James Campbell gives an insight into the workings of the company, as well as expresses his views on the 'issues' faced by the global diamond industry.

Some excerpts:

The recent Botswana Diamonds' earn-in agreement to fund diamond exploration activities of Vutomi Mining Pty Ltd is being watched with much interest by the markets. Can you explain the intent of the agreement; the total finance raised; and how, where and in which projects will the funds be utilised?

The Vutomi opportunity was presented to the Botswana Diamonds plc (‘BOD’) board as a unique opportunity due to the confluence of several factors.  The first is a portfolio of twenty high interest kimberlites in ten prospecting rights spanning some fifty thousand hectares of prospective ground with the additional potential of further kimberlite discoveries.  These projects span the resource pipeline from exploration properties through to Inferred Resource. 

The flagship project (‘Frischgewaagt’) is near the worked out Marsfontein Mine which was operated by a De Beers / SouthernEra joint venture and ran at grades of 172cpht and with a return on the $25M investment being achieved in four days.  Percussion and core drilling has commenced on this project with a view to proving the commerciality of the kimberlite.

Secondly, BOD and Vutomi believe that South Africa may prove to be the next diamond exploration frontier as there has been very little recent diamond exploration activity, particularly outside of De Beers.  This means that the latest (third generation) exploration technologies have not been applied to the numerous deposits in the country.  Probably the most successful example of the application of modern exploration technology is the proving-up of the AK6 project (now the Karowe Mine operated by Lucara Diamonds Inc) by De Beers and African Diamonds plc (the predecessor of BOD) following the original discovery of the pipe in 1969 by De Beers.

Thirdly, there is a perception of high risk and high barriers for entry to South Africa whilst in reality there exists both a sophisticated fixed and banking infrastructure and a long history of diamond production in the country.  The Vutomi team have strong commercial, financial and technical competencies along with sound local ownership and have identified this opportunity and delivered this package of highly prospective ground.

The deal is structured as an earn-in with BOD offering one hundred million shares and GBP942k in cash (chiefly used to fund exploration work) to acquire 72% of Vutomi.  Funds have recently been raised to commence work on this exciting opportunity.

How are Botswana Diamonds shares faring in the stock market after entering into the earn-in agreement with Vutomi? What is the value addition or take away that this exercise has brought to both Botswana Diamonds and Vutomi Mining?

The shares reacted favourably to the announcement of the agreement and equity was raised to fund the Vutomi venture and BOD’s exploration activities in Botswana.  The share price has drifted a little since the fund raising but we plan a series of regular substantive updates as we progress with the various exploration activities.

For the benefit of the readers, can you walk us down the history of 'Botswana Diamonds', right from the formation of the company to its present status? What is the company's philosophy in terms of CSR activities?

The management team at BOD have a proven ability to identify attractive diamond prospects and develop them into valuable assets. The team was part of the successful discovery and eventual sale of the Karowe diamond mine by African Diamonds for $90 million. Lucara Diamond Corp bought Karowe in 2010.  The mine is now acknowledged as one of the world’s leading producers of high value stones.

The team developed West African Diamonds which later merged into Stellar Diamonds for $6 million value.

BOD was formed when the AK6 project or now Karowe Mine was sold to Lucara Diamond Corporation. BOD took the exploration interests from African Diamonds plc. The Company was admitted to AIM in February 2011 having been spun out of African Diamonds plc, on its sale to Lucara Diamond Corp.

In addition to the Vutomi venture in South Africa, BOD is active in two separate joint ventures in Botswana - with Alrosa and BCL -on a number of both greenfield and advanced kimberlite projects.

The founders of BOD have a long track record in exploration and in Africa having established numerous stock exchange listed companies including: Minquest – acquired by Arcon; Kenmare; African Gold – now Mwana; African Diamonds plc – acquired by Lucara; Pan Andean – acquired by Petrominerales and West African Diamonds plc – acquired by Stellar Diamonds plc. I was previously Managing Director of African Diamonds, Executive Deputy Chairman of West African diamonds and a Non-Executive Director of Stellar Diamonds.

And, in what area of the mining operation did the joint venture with mining giant ALROSA come about? Can you give us a brief explanation as to how the partnership will proceed going forward? Are there more exploration programs to be executed under this joint venture in SA or in other parts of the world in the distant future?

In 2013 BOD created a 50/50 joint venture with Alrosa, the diamond mining giant, to explore in Botswana bringing together Alrosa technology and people and BOD prospecting licences. Alrosa was already active in Angola and subsequently Zimbabwe, and wanted to explore for new mines in Botswana due to its world-leading diamond pedigree. There are a number of both greenfield and brownfield projects under development by the joint venture, but the JV’s focus is Botswana-based.

The global diamond industry has been debating on the many issues including liquidity and other financing matters faced by the industry. What is the scenario in SA and how does SA diamond and jewellery industry fare in this matter? What's your take on the financing banks/financial institutions contribution to the gem and jewellery trade in SA?

Across the global diamond industry, both liquidity and bank finance have been key issues for the trade over the last five years. The so-called middle market of the diamond trade has suffered from declining margins which means that liquidity has been constantly challenged. The lacklustre performance of polished prices have not helped either. The lending banks have subsequently seen the trade as opaque, volatile, high-risk and less appealing; and the trade in South Africa is no different to its international counterparts. It is also fair to say beneficiation has struggled despite great efforts to support it locally as we operate in a highly-competitive international business.

On the exploration side, up until the BOD-Vutomi deal, South Africa has only one junior active in the diamond exploration space.  This is BlueRock Diamonds plc which is listed on the London AIM market.  Typically, diamond exploration in Africa is funded out of Canada and the UK and to some extent Australia.  Sadly, there is little appetite for this kind of investment directly by South African investors despite the sophistication of the local financial markets.

These are challenging times... Some financing banks have left the diamond and jewellery industry; some are in the process of leaving, and some banks are cutting down lending drastically. What do you think is the crucial matter to be addressed at this juncture?

In my opinion, it is all about the financial appeal and confidence for the lending institutions. The banks will not support the industry if they do not have the necessary levels of confidence in the trade and their ability to successfully recover their money. And so, it is actually incumbent on the trade to up its game and give the banks the reason to lend.

Mixing of synthetics with naturals, both in the rough as well as polished stage, has been a major concern to the natural diamond industry worldwide as it erodes consumer confidence. How rampant is this problem in SA; and what steps are being taken to tackle the issue, if any?

I am not aware of any issue specifically in SA, and previously reported stories from other centres regarding the salting of parcels with non-natural/synthetic diamonds have mainly focused on the smaller (melee and down) polished diamonds of which South Africa is not a major producer from a manufacturing perspective. There is a global industry move towards better detection of synthetics in order to protect the integrity of our product in the consumers’ minds.

What are your views on the 'role of diamonds fueling conflicts'? Recently, the KP UAE suggested a methodology on the valuation of rough diamonds and proposed to establish a Permanent Secretariat for the Kimberley Process, as well as to set up a multi-donor trust fund for the civil society. Your take on these suggestions?

Any effort to assist in the transparency of diamond valuation is to be applauded, to my mind. The industry has always had an image of opacity and this is partly due to the difficulty in valuing diamonds, be it for export duties, royalty purposes, or sales and marketing. So, I think this is a worthy exercise although diamond valuation can be a subjective process and therefore difficult to standardise.

Concerning the KP and civil society, I think a Permanent Secretariat is a good idea. Until now the KP has been generally regarded as a success and the industry and participating governments should maintain their efforts collectively. This includes keeping the relevant members of civil society on board. Our industry needs to be overseen correctly to protect that essential consumer confidence and faith and trust in our product.

Aruna Gaitonde, Editor-in-Chief of the Asian Bureau, Rough & Polished