from Will Purcell
Patrick Evans's Mountain Province Diamonds Inc. (MPV), down six cents to $5.02 on 176,000 shares, has approvals for a $370-million (U.S.) term loan. Unfortunately, it cannot yet touch the cash, which it will soon need to cover construction costs at Gahcho Kue, 250 kilometres northeast of Yellowknife. Mr. Evans, a shrewd promoter who rarely misses deadlines, was a month late in getting to this stage -- and technically he is not there yet, since he and his bankers are still seeking "agreement on facility documentation and syndication," items he promised for late 2014 and now promises "shortly." ("Shortly" is a vague concept on Howe Street; it spanned nearly a month the last time Mr. Evans used the word.) Further, Mountain Province will not have access to the cash until it arranges a cost-overrun facility, which can be particularly challenging to negotiate. Some of the delay was perhaps the result of Mountain Province having to swap the Bank of Nova Scotia for Deutsche Bank AG as "mandated lead arranger" late last year. Mr. Evans says Deutsche Bank's departure occurred "for reasons unrelated to the specifics of the transaction or the Gahcho Kue project." (In other words, the reason is a secret, but hopefully not a dark one.) Mountain Province is responsible for 49 per cent of the cost of the mine, projected at $858-million in a 2014 feasibility study update, although with working capital and ramp-up costs included, the final tally reaches $1-billion. Further, the lenders' insistence on a cost-overrun facility will require Mountain Province to have access to still more cash, although how much is unclear. The company did raise $100-million at $5 last fall, but its majority co-venturer, De Beers Canada, will be making big cash calls at a frantic pace as the Gahcho Kue build is now in full swing. As a result, if Mr. Evans cannot soon tap into his not-yet-available loan facility, he may be forced into another big equity sale. The Gahcho Kue mine is more than half complete and Mr. Evans says it "remains in budget and schedule." He believes first production will occur in the second half of 2016, with ramp-up to full production expected in early 2017. Gahcho Kue will mine a 35-million-tonne reserve over a 12-year period, recovering 53.4 million carats. The gem value depends on whom you ask. A modelled estimate prepared last year by WWW International Diamond Consultants was $118 (U.S.) per carat. The feasibility study touts an average value of nearly $150 (U.S.) per carat, thanks to a relentless 1.5-per-cent annual escalation above cost inflation over the life of the mine. (Most diamond promoters ride the escalator these days.) Mr. Evans is the most conservative of the lot, but he becomes rather liberal when wowing investors on the dog and pony circuit: Mountain Province's presentations usually put the diamond value at $172 (U.S.) per carat -- the appraised value diamonds from several Gahcho Kue bulk tests.