Purcell on revolving line of credit Dermot Desmond and Stuart Brown's Mountain Province Diamonds Inc. (MPVD), up one-half cent to 28 cents on 221,000 shares, has rejigged its debt structure again, amid the continuing crisis triggered by the COVID-19 pandemic. The company owns a 49-per-cent interest in the Gahcho Kue mine in the Northwest Territories and its majority co-venturer, De Beers Canada has kept the mine running, despite the difficulty of selling rough even at deep discounts.
Mountain Province has negotiated a waiver agreement related to its $50-million (U.S.) senior secured revolving credit facility that it had arranged late in 2017. The facility, provided by Scotiabank and Nedbank Ltd., was set up to maintain a liquidity cushion for general corporate purposes, Mountain Province said at the time. (These days, given what Mr. Brown, president and chief executive officer, downplays as "previously disclosed challenges in the diamond markets," the main corporate purpose is just staying alive.) With the waiver, Mountain Province is exempt from the requirement to remain in compliance with financial covenants, including a total leverage ratio and net worth tests that it would have had to satisfy at the end of June.
As well, the company does not have to maintain a minimum cash balance. In return, Mountain Province had to accept a halving of the facility, to just $25-million (U.S.), and it had to agree to new covenants, not unlike what a parent might impose on a free-spending teenager: Mountain Province must report weekly, accept limitations on the payment of bonuses and agree to limitations on the disposition of assets and incurring of liens.
Further, Mountain Province must show progress by the end of August toward reaching a binding financing agreement, in place by the end of September, which would have the company repay the revolving credit facility. Mr. Brown's options are limited, but he does have a well-heeled major shareholder in Mr. Desmond who might be persuaded to help. Indeed, the company says that it "continues its negotiations" with Mr. Desmond and other financial institutions to improve the company's balance sheet.
Mr. Desmond has already stepped up to offer a hand, but at a price. A month ago, his Dunebridge Worldwide Ltd. agreed to buy $50-million (U.S.) of run-of-mine rough diamonds (not the special gems) from Mountain Province, including a $22-million (U.S.) parcel that Dunebridge acquired in mid-June. Dunebridge agreed to pay the "prevailing market price at the time of each sale" -- at a bargain price, in other words -- although it also agreed to split any profit with Mountain Province on the subsequent sale of the gems, less a hefty deduction for fees and expenses; essentially 10 per cent of the value of the diamonds each year.
Just how badly the COVID-19 crisis has hit Mountain Province's bottom line will become apparent when the company rolls out its second quarter results, which typically occurs in mid-August. The company's first quarter held little sparkle, as it racked up a $41-million loss, although most of the loss was an accounting entry covering the growth in debt because of the shrinking Canadian dollar.
Mountain Province sold $65-million of rough in the first quarter, and it has not held a sale through its regular Antwerp auction since then. Mr. Desmond's first purchase of rough should appear during the quarter, and while it will help keep the wolf from the door, investors are clearly bracing for a tough second quarter.