from stockwatch by Will Purcell
The diamond and specialty minerals stocks box score for Monday was a positive 102-88-120 as the TSX Venture Exchange fell one point to 621. Dermot Desmond and Mark Wall's Mountain Province Diamonds Inc. (MPVD) fell two cents to 58 cents on 117,000 shares.
Mountain Province had a decent 2022 despite a rough start, as soaring rough diamond prices made up for the company's lowest diamond production since its 49-per-cent-owned Gahcho Kue mine, 250 kilometres northeast of Yellowknife, opened in the fall of 2016. The company is bubbling with optimism for this year, as its woes appear in the past, but sinking rough diamond prices may again be a problem.
Gahcho Kue produced 5.52 million carats in 2022, down from the 6.23 million it yielded the year before, and just below its revised guidance of 5.6 million to 5.8 million carats. That was discouraging, as the predicted range had been lowered from the 6.3-million-to-6.7-million-carat range that Mountain Province revealed at the start of 2022. The decrease was the result of a Pitman bearing failure in the primary crusher, and a temporary halt to production when COVID-19 cases spiked early in the year.
Production did rally after the mine fixed its crusher and the pandemic eased, with fourth quarter production reaching 1.62 million carats. That was up from 1.51 million in the last quarter of 2021, an annualized rate of nearly 6.5 million carats. Three months earlier, the mine produced 1.45 million carats, up from the 1.26 million carats it produced in a tough second quarter. (In the first quarter, Gahcho Kue managed to produce just 1.19 million carats.)
The good news is that while 2022 set a record low for carats produced at the mine, Mountain Province's diamond revenues set a record high, just a few million short of the $300-million (U.S.) mark. That handily beat the roughly $240-million (U.S.) that the company achieved in 2018 -- the year the mine fell just short of producing seven million carats -- and again last year when higher rough diamond prices made up for slowly sagging diamond production.
Mr. Wall, Mountain Province's president and chief executive officer, acknowledged the "very challenging start" to 2022, but he applauded the "detailed recovery plan" developed and executed by his company and De Beers Canada, its majority co-venturer at Gahcho Kue. The record high rough diamond prices allowed his company to pay down about $60-million (U.S.) in debt, leaving it to enter the critical ice road resupply season "with good momentum and a backdrop of a resilient rough diamond market."
Unfortunately, that resiliency may be more wishful thinking than fact. While Mountain Province's financial woes were the result of rough diamond prices averaging barely $70 (U.S.) per carat prior to the pandemic, and about half that through the worst days in spring and summer of 2020, the company certainly made hay while the sun shone over the past two years. Nevertheless, there are again signs of disquiet.
Rough diamond prices peaked in mid-February of 2022, and Mountain Province's sales averaged $132 (U.S.) per carat in the first quarter of the year -- by far a record high and nearly in line with the hyperbolic projections offered several years earlier in the company's uberenthusiastic presentations. Prices were slipping in the spring quarter, but Mountain Province did nearly as well, achieving $130 (U.S.) per carat, but it managed just $103 (U.S.) per carat in the third quarter of 2022. With the latest numbers now in, Mountain Province averaged just $94 (U.S.) per carat in the final quarter of last year.
As to what lies ahead, Mr. Wall and his crew expect Gahcho Kue will yield between 5.6 million and 6.1 million carats from 3.2 million to 3.5 million tonnes of kimberlite processed -- ranges that suggest a grade of just 175 carats per tonne, as production swings away from the now mined-out areas grading above 200 carats per tonne that contributed to the bumper carat crops in 2018 and 2019.
With falling grades and increased mining rates, the cost guidance is also moving higher. Mr. Wall and his crew say production costs are likely to average between $70 and $80 per carat, compared with the first guess for 2022 of between $64 and $68 per carat. (Remember, these costs are in Canadian dollars, so Mountain Province still has a lot of wiggle room before it need fret about its finances again, unless rough prices continue to fall.)
So far, Mr. Wall and his crew appear optimistic. Sentiment in the rough diamond market "remains resilient despite some recent turbulence," they cheer, adding that "major producers are expected to maintain ... stable prices through the first sales of 2023." As for what lies beyond, their outlook for rough diamonds remains positive, although one is best to recall that rarely do diamond miners say otherwise.