from stockwatch
Diamond & Specialty Minerals Summary for Aug. 5, 2022
2022-08-05 16:26 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Friday was a ho-hum 99-88-123 as the TSX Venture Exchange rose four points to 664. Dwindling supply or not, the trend continues. Rough diamond prices dropped another 0.3 per cent this week, according to Paul Zimnisky's global rough diamond price index. With new tweaks to the most recent data, the downward trend in prices is clearer than ever. Mr. Zimnisky now has rough prices down 6.4 per cent since they reached an all-time high in mid-February.
This chart looks all the world like that of 2011, when a great rally in rough diamond prices peaked with a short-lived bubble that spring. After that bubble burst with a brief but sharp decline, rough prices then stagnated -- or drifted lower -- over the following eight years.
There are other similarities: Diamond promoters and miners, having barely escaped the sector meltdown that came with the Great Recession, cheered the subsequent recovery as one likely to run indefinitely. Accordingly, the dream sheets and feasibility studies in those days gushingly assumed that rough prices would perennially outstrip inflation in the coming decades -- sometimes by more than 2 per cent annually. Now, promoters are bullish anew, but inflation is a far more potent adversary today.
Dermot Desmond and Mark Wall's Mountain Province Diamonds Inc. (MPVD) popped up five cents to 61 cents on 526,000 shares. The company, which nearly failed with the COVID collapse in rough diamond prices in 2020, is back in the high life, thanks to Mr. Desmond, its major shareholder, carrying the company through the darkest days, and now, with high rough diamond prices bolstering profits from its 49-per-cent-owned Gahcho Kue mine in the Northwest Territories.
Accordingly, the company is spending some of its newfound fortune. Mountain Province is repurchasing $26.4-million (U.S.) of its 8-per-cent senior secured second-lien note for a total purchase price of $25.4-million (U.S.). That will dent its debt a bit, although at the end of March, Mountain Province had $372-million in senior secured second-lien notes outstanding -- a bill that comes due in mid-December. Expect more debt rejigging in the coming months.
Meanwhile, Mountain Province says that a summer drill program at its Kennady North project is "imminent." This new drilling follows a successful winter program that saw kimberlite encountered in some new areas of interest. The company will be pursuing its recently identified land-based targets in the new program. These new areas of interest, says Mr. Wall, president and chief executive officer, were generated with new sampling and geophysical data obtained last year.
Kennady North remains perplexingly beyond the current mine plan for Gahcho Kue, despite it being host to just over 20 million carats of diamonds probably comparable in value to those mined at Gahcho Kue. At the Kelvin pipe, Mountain Province has 8.5 million tonnes indicated at 1.6 carats per tonne and at Faraday 2, it lists 2.07 million tonnes inferred at 2.63 carats per tonne. A third kimberlite, Faraday 1-3, hosts 1.87 million tonnes at 1.04 carats per tonne.
The problem with Kennady North is ownership. The company's majority co-venturer, De Beers Canada, transferred Kennady North to Mountain Province nearly 20 years ago after it appeared to be of little economic interest. Mountain Province then poured a lot of cash into developing a credible resource -- just not enough to support a standalone mine.
The company added to its woes by spinning the project off in 2012 as Kennady Diamonds Inc., then buying it back in a 2018 stock deal that valued Kennady North at $176-million, thereby triggering an expectation -- or at least a hope -- that De Beers would agree to pay Mountain Province something approaching $90-million to reacquire a 51-per-cent interest in its gift and then add the project to the Gahcho Kue mine plan.
That was four years ago, and Mountain Province has yet to reach any deal with De Beers on adding Kennady North to the mine plan. Any deal between the two companies likely would involve just a nominal payment at best, assuming Mountain Province can convince De Beers the plan is economically viable. Even then, comes the question of when any Kennady North kimberlite might be slotted into the mine plan, as Gahcho Kue still has kimberlite left to last into the early 2030s if all goes well