from stockwatch 2022-08-18 17:10 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Thursday was a so-so 92-83-135 as the TSX Venture Exchange rose two points to 662 while polished diamond prices inched downward.
Dermot Desmond and Mark Wall's Mountain Province Diamonds Inc. (MPVD) closed unchanged at 56 cents on 21,000 shares. The company is now in its fourth year of talks with De Beers regarding incorporating the Kennady North project into the Gahcho Kue joint venture with seemingly little progress at hand. Mountain Province owns a 49-per-cent interest in the mine but a 100-per-cent stake in Kennady North and its three rich kimberlites that are too small to support a mine of their own, but which could extend the life of Gahcho Kue by at least a few years.
Kennady North was once part of the Gahcho Kue project, but De Beers turned the ground over to its junior partner nearly 20 years ago, after it deemed the modest kimberlites too small to be of interest. Mountain Province invested big into the Kelvin and Faraday deposits, proving them large enough to sustain their own promotion by 2012, when the company, then led by Patrick Evans, spun them off as a new entity, Kennady Diamonds Inc.
Mr. Evans was sent packing -- by mutual decision -- in mid-2017, a decision purportedly influenced heavily by Mr. Desmond, a major shareholder of both companies. Within a year, Mr. Evans's replacement moved to reacquire Kennady Diamonds -- again with the looming presence of Mr. Desmond helping direct the deal in the background. The return leg proved far more costly, as it diluted Mountain Province's shareholders by nearly a quarter. (The 2012 spin-off begat a company with an $8-million market capitalization; the 2018 merger saw Kennady's shareholders get $165-million of Mountain Province's stock.)
At the time, the expectation -- or at least the hope -- was that De Beers would quickly agree to an arrangement that would see the Kelvin and Faraday pipes at Kennady North returned to the Gahcho Kue fold and incorporated into the mine plan. To do so would of course require De Beers to reacquire a 51-per-cent interest in the project, perhaps at the effective 2018 cost of nearly $85-million. Whatever the ask, or the offer, there has been no movement whatsoever on including Kennady North into the Gahcho Kue mine plan.
There are carats galore, as Kelvin is home to 8.5 million tonnes indicated at 1.6 carats per tonne, about 13.6 million carats valued at $63 (U.S.) per carat in 2017. Faraday 1-3 hosts 1.87 million tonnes inferred at 1.04 carats per tonne, another 1.9 million carats valued at $75 (U.S.) per carat. And then there is Faraday 2 and its 2.07 million tonnes inferred at 2.63 carats per tonne, 5.45 million carats valued at $140 (U.S.) per carat in 2019.
The grades have been adequately assessed as have the tonnages, but the smaller sizes of the diamond parcels leave wide margins of error on the diamond values. Even so, it appears likely that the average diamond values at Kennady North are in line with those at Gahcho Kue, and with the grades roughly a match as well, the Kennady North kimberlites might be an easy fit into the Gahcho Kue mine plan given an acceptable deal.
Rough diamond prices are currently 25 per cent higher than when the Kelvin and Faraday estimates were calculated, and Mr. Wall, Mountain Province's president and chief executive officer, now says that "we are reviewing the existing kimberlite deposits in the current price environment, and that work is ongoing." And where are the parties at with their talks now, you ask? Well, Mr. Wall says that "we continue to discuss with De Beers opportunities that might exist to integrate those deposits into the mine plan."
While Mr. Wall says that those discussions are continuing, he concedes that "there is no particular timeline for them." There is, however, always a timeline -- one imposed by the underlying Gahcho Kue project. The current mine plan calls for production to carry on into early 2030, so there would appear to be a hard eight-year limit on coming to an agreement.
There are also a few windows of opportunity. One emerges in 2024, when De Beers and Mountain Province expect to mine and process a lot of low-grade kimberlite from the Tuzo pipe, a body that also sports the weakest rough diamond prices. Perhaps that material could be stockpiled until the end of the plan and the Kennady North kimberlite slotted in to take its place. In any case, there does appear much to talk about and with ever shortening time frames.