Scotia Bank initiated coverage of MPV May 27th Equity Research Company Report May 27, 2014
Craig Johnston, CPA, CA – (416) 860-1659 Materials – Gold & Precious Minerals
Scotia Capital Inc. – Canada
craig.johnston@scotiabank.com
Mountain Province Diamonds Inc.
Hopping Down the Road to Cash Flow and Dividends
(MPV-T, MDM-A)
May 23, 2014: C$4.99 1-Year Target: C$5.85 Capitalization
Rating: Sector Outperform 1-Year ROR: 17.2% Market Cap (M) $529
Risk: Speculative Div. (Curr.): $0.00 Net Debt + Pref. (M) $-40
IBES EPS 2014E $-0.05 Yield (Curr.): 0.0% Enterprise Value (M) $489
IBES EPS 2015E $-0.13 Shares O/S (M) 106
Float O/S (M) 81
Valuation: 1x NAV
Key Risks to Target: Diamond prices; permitting risk; development risk; technical risk, operating risk
Qtly Adj. EPS (FD) (Next Release: Aug-14)
Y/E DECEMBER-31 Mar Jun Sep Dec Year P/E
2013A $-0.05A $-0.07A $-0.09A $-0.07A $-0.28 n.m.
2014E $-0.01A $-0.01 $-0.01 $-0.01 $-0.04 n.m.
2015E $-0.01 $-0.01 $-0.01 $-0.01 $-0.03 n.m.
2016E $-0.01 $-0.01 $-0.01 $-0.01 $-0.03 n.m.
Industry Specific 2013A 2014E 2015E 2016E
Diamond Prod (ct) (000) 0 0 0 465
Diamond Price (/ct) (US$) $0 $0 $0 $149
Cash Cost ($/ct) $0 $0 $0 $0
All-In Sustaining Cost
($/ct) $0 $0 $0 $0
All values in C$ unless otherwise indicated. Regular Voting
Note: Historical price multiple calculations use FYE price. Source: Reuters; company reports; Scotiabank GBM estimates.
Investment Highlights
• We have initiated coverage on the common shares of Mountain Province Diamonds Inc.
(Mountain Province) with a Sector Outperform rating and one-year target price of $5.85 per share.
The company is a 49% joint-venture partner with De Beers Canada Inc. (DBC) in developing Canada’s
next diamond mine, the Gahcho Kué (GK) project.
• The Gahcho Kué project, located in Canada’s Northwest Territories, is expected to produce an average
of 2.18 million attributable carats per year for Mountain Province over the 12-year life of mine (LOM),
and 2.74 million carats per year in its first three full years of production. The front-end-loaded
production profile of the Gahcho Kué project provides for a prompt payback of upfront capital,
which we estimate to be 2.5 years.
• Mountain Province is a unique single-asset developer, funding its share of capital costs, while
one of the world’s most experienced diamond miners develops a world-class diamond mine.
Mountain Province is currently trading at a 9% discount to our fully funded estimated net asset valuation
(NAV8%) of $5.46 per share, and in our opinion, will rarely trade at a discount to valuation once final
permits, expected in 2H/14, are in place.
• Our recommendation is based on an implied return to target, which we believe warrants an Outperform
rating; however, we would be cautious buyers ahead of a likely upcoming financing, as we believe
investors may be underestimating the degree of capital required, which we estimate at $575 million
(excluding a $50 million assumed cost overrun facility).