Will Purcell
by Will Purcell
Dermot Desmond and Patrick Evans's Mountain Province Diamonds Inc. (MPV) lost 11 cents to $6.72 on 60,000 shares. The company is getting set for its first sale of diamonds from the Gahcho Kue mine in the Northwest Territories. (Gahcho Kue, which has been ramping up since midsummer, is expected to reach commercial production early next year. Mountain Province owns 49 per cent of the mine; De Beers Canada holds the rest.)
The first sale will answer many questions about just how profitable the mine might be. Investors have been wondering if the Gahcho Kue gems will fetch $123 (U.S.) per carat, the modelled value determined in the 2014 feasibility study, or if they will average the tonnage-adjusted, average appraised value of $184 (U.S.) per carat, achieved through a series of bulk samples over the past two decades that produced several thousand carats. (Mountain Province's stock price, which is nearly double its January low of $3.84, suggests that investors are expecting the sale will approach the higher value.)
Mr. Evans, president and chief executive officer, is a believer in the higher price, as Mountain Province bases its promotion on a diamond price much higher than the base-case model. The company's most recent presentation once again reaffirmed its "vision" that Gahcho Kue is a five-phase project with over $20-billion (U.S.) worth of diamonds in the ground. The first phase, which covers the feasibility mine plan, is based on a 55-million-carat reserve across the 5034, Hearne and Tuzo pipes, which at $174 (U.S.) per carat carries a gross value of $9.4-billion (U.S.). (Mountain Province says that average price is "based on feasibility diamond prices," although the study reveals that was the result of an appraisal in 2014, not the modelled value used in the economic projections.)
Mountain Province's promotion also ascribes the same appraised price to an additional 18.4 million inferred carats at Gahcho Kue, most of which are in the Tuzo Deep region. Those diamonds add a further gross value of $3.2-billion (U.S.) to the second phase of the company's vision. A third phase, which Mountain Province says contains another 12 million carats deeper within the Tuzo Deep are technically still a target for further exploration. Nevertheless, the company pegs their value at roughly $2-billion (U.S.) based on the same assumed price.
Even using the much higher appraised price, the gross value of Mountain Province's vision is less than $15-billion (U.S.), but the company still has two phases to go. In the fourth, Mr. Evans and his crew ponder the possibility of mining diamonds at the 0.4-carat-per-tonne Tesla pipe, and deep within Hearne and 5034 as well. The gross value of those diamonds is listed only as "TBD" -- an acronym meaning "to be determined." Mountain Province rounds out its five-phase promotion with presumed diamonds in "new targets" that also carry a gross value of "TBD." While the company, perhaps with a furtive eye cast toward the regulators, does not put a value to its acronyms directly, the two TBD phases require a gross value of over $5-billion (U.S.).
Perhaps Mr. Evans will be proven a diamond visionary and the Gahcho Kue diamonds will handily top the often-conservative modelled price projections. He may also be proven right that there are plenty more diamonds to be mined beyond the existing reserve -- and perhaps beyond the resource as well, as Diavik and Ekati are both producing more carats than initially projected. Whether the additional carat count at Gahcho Kue will span the five phases that Mountain Province lays out will depend heavily on what the diamonds are indeed worth, providing a major reason to watch Mountain Province's first sale closely.