Purcell Dermot Desmond and Stuart Brown's Mountain Province Diamonds Inc. (MPVD) continues its battle to overcome the financial ravages of the COVID-19 pandemic, but the bankers and analysts are increasingly worried about the company's future. Debt rating agency, Moody's Investors Service, has again downgraded its assessment of Mountain Province's ability to repay its debt. It now rates the second-lien secured debt, as well as the company's probability of default, as "Caa-3," a two-category drop from the "Caa-1" rating assigned in March. Mountain Province has been wending its way down Moody's rating scale over the past few years. Prior to March, it had been rated at "B3," its initial rating in the fall of 2017.
Moody's says that the latest drop reflects its view that Mountain Province will be challenged to repay its revolving credit facility as per its revolving credit facility waiver agreement, which it signed in mid-July as a result of a "difficult rough diamond market" further weakened by the COVID-19 pandemic. Moody's also worries about the "increased risk that [Mountain Province] enters into a debt restructuring transaction." Moody's relates that Mountain Province recently said that it was continuing negotiations with its major shareholder and other financial institutions to secure additional debt facilities so that it can repay the current lenders and meet short-term obligations.
That major shareholder is, of course, Mr. Desmond, the Irish-born billionaire who has been putting money into Mountain Province since the 1990s. Mr. Desmond, who owns about 30 per cent of the company's stock, recently agreed to buy $50-million (U.S.) of rough from Mountain Province's 49-per-cent share of production at Gahcho Kue. The arrangement saw the company sell $22.6-million (U.S.) of rough in June to Mr. Desmond's Dunebridge Worldwide Ltd. for about $33 (U.S.) per carat -- less than half of what the company had been averaging for its diamonds over the previous two years.
While a bit more cash could accrue to Mountain Province from those gems should the rough diamond market rebound before Dunebridge sells them, the arrangement is not what the company's bankers and lenders had in mind when they put up the cash to cover Mountain Province's 49-per-cent share of the billion-dollar mine in 2016. (At last report, Mountain Province was carrying nearly $550-million in liabilities, including $470-million in long-term debt.)
While it appears that Mr. Desmond will do whatever he can to protect his equity investment in Mountain Province -- while helping his own bottom line, of course -- the company is headed down the same dark path that has enveloped Canada's other diamond miners. Indeed, former shareholders of Stornoway Diamond Corp. (SWY) need only their brokers, not a rating service, to tell them that Stornoway went bankrupt last year, rendering their shares worthless.
As well, Dominion Diamond Mines ULC, the Dennis Washington-owned private entity that paid $1.2-billion (U.S.) to take the late Bob Gannicott's Dominion Diamond Corp. private in 2017, is also in bankruptcy protection, with Moody's rating the $550-million (U.S.) in bonds at "D" -- the final stage on its ratings ladder. (While the "D" follows "C" in the alphabet of ratings, it not uncoincidentally stands for "default" -- a situation Dominion most assuredly finds itself in.) Mountain Province, a $7 stock four years ago, closed unchanged at 31 cents on 82,000 shares today.
Stornoway's Renard mine in Quebec is now owned by its main creditors, led by Osisko Gold Royalties Ltd. (OR: $15.68), and Mr. Washington, a Montana-based billionaire. He has made a stalking-horse bid to keep Dominion in his control, although that arrangement will leave the bondholders with nothing. Fortunately, Mountain Province had been doing well enough before the COVID crisis that, with Mr. Desmond's help -- for lack of a better word -- the company still expects to get through its debt crisis.