from stockwatch 2020-07-20 18:07 PT - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Monday was a pleasant 109-70-121 as the TSX Venture Exchange rose 10 points to 685 and polished diamond prices edged lower.
Dermot Desmond and Stuart Brown's Mountain Province Diamonds Inc. (MPVD), unchanged at 28.5 cents on 251,000 shares, kept the wolf from its door during the second quarter -- but did little more -- with its limited rough diamond sales from the Gahcho Kue mine in the Northwest Territories. Still, the result was cheerful news, given that the company's main rival, Dennis Washington's Dominion Diamond Mines, has been forced into bankruptcy protection by the financial challenges of dealing with the virus and a partner unwilling to temporarily suspend production.
The Gahcho Kue mine did well enough despite the inefficiencies imposed by the COVID-19 restrictions, producing 1.55 million carats during the quarter, down from 1.73 million carats achieved a year earlier. The lower production was the result of reduced mining and processing rates, not a lower grade, as the mine averaged 1.97 carats per tonne, essentially unchanged from the 1.96 carats per tonne achieved a year earlier. Mr. Brown, president and chief executive officer, reaffirmed that the lower production does not reflect normal operating conditions at the mine, adding that he is confident that Gahcho Kue will achieve its revised guidance of up to 6.4 million tonnes this year -- a target just 550,000 carats less than the pre-COVID forecast.
The problem, of course, is not production, but sales. Mountain Province sold just $2.4-million (U.S.) of diamonds through its normal channels. Fortunately, it also sold $22.6-million (U.S.) of gems to Dunebridge Worldwide Ltd., a company owned by its major shareholder, Mr. Desmond. In all, Mountain Province sold 757,360 carats for $25-million (U.S.). That averages to barely $33 (U.S.) per carat, less than half of what the company had been getting for its diamonds over the past two years.
Mr. Brown assures investors that the average does not represent normal run-of-mine production, pointing out that Mountain Province had rushed its best diamonds to market late in the first quarter to maximize revenue. Further, the Dunebridge sales did not include any plus-10.8-carat special stones because of "logistics constraints." Nevertheless, Mr. Desmond's and his Dunebridge look to do well as the rough diamond market recovers. (Mountain Province will get a 50-per-cent share of Dunebridge's profits -- once that company deducts a significant fee, essentially 10 per cent of the value of the sale per year for its troubles.)
That agreement includes the sale of another $27.4-million (U.S.) of diamonds in the current quarter, enough to help Mountain Province keep its key creditors at bay a while longer. Further, Mr. Brown is hopeful that "demand for rough diamonds is gradually opening up," especially in certain categories of gems. He expects that the rough market will start improving later in the current quarter and strengthen in the fourth quarter, "with the start of the major retail season." As a result, he aims to "resume our traditional sales methods" during September. (Otherwise, Mr. Brown may be calling on Mr. Desmond again.)