From Will P of Stockhouse Dermot Desmond and Patrick Evans's Mountain Province Diamonds Inc. (MPVD) jumped 43.5 cents to $4.265 on 265,000 shares. The company said after the close Wednesday that its 49-per-cent-owned Gahcho Kue mine produced two big diamonds during April. Mountain Province now owns the gems as it outbid its majority co-venturer, De Beers Canada, for the monthly parcel of fancy coloured and special diamonds recovered that month. The haul included an 84.65-carat diamond, the largest gem-quality stone from the mine so far, as well as a 53.90-carat gem described by Mr. Evans, president and chief executive officer, as "the highest-quality exceptional stone recovered to date," which, he says, "is expected to achieve a record price at tender."
Finding large gems is never bad news, but Mountain Province again leaves some key questions without answers. The company says nothing about the largest diamond other than it meets the broad description of "gem quality." There are usually just three categories of rough: gem quality, industrial diamonds and crushing boart, so the 84.65-carat rock may not be particularly impressive beyond its size. (The lack of a description or any glowing praise from Mr. Evans suggests its value will be limited.) Mr. Evans was far more enthused with the 53.9-carat stone, but Mountain Province said little about its colour or other quality characteristics. Further, while he says to expect "a record price," there is no indication of what the previous record might be. As a result, investors will still have to wait until midsummer to find out much more about the company's revenue from Gahcho Kue -- and its operating costs to generate those revenues.
Meanwhile, the Gahcho Kue capital budget offers a few clues about the teething problems at the mine. De Beers and Mountain Province will spend $19-million (U.S.) to winterize the conveyor systems and install dust mitigation systems. The work will start in the third quarter and it is not expected to be complete until the first quarter of 2018, so there could be more "unscheduled extreme cold weather downtime" events next winter until the improvements are in place.
Mountain Province also got an extension to a previously extended waiver. The company does not have to maintain a cash call reserve account balance of $27.9-million (U.S.) until the end of August. (The original deadline was March 31 and the previous extension was set to expire at the end of May.) Mr. Evans says the company "continues to be in active discussions with its lending group" to defer and realign the reserve account financing requirements to reflect current market conditions. ("Active" is often a synonym for "heated," but Mr. Evans is optimistic that the lenders will agree to a realignment of the reserve account before the new waiver deadline expires.)
The company also says it expects to "provide the lenders," and presumably investors, with an updated life-of-mine plan prepared by De Beers for Gahcho Kue, as well as an updated financial model, further diamond pricing analysis and a fluorescence evaluation. Mountain Province first mentioned a fluorescence concern in its recent first quarter report and the subject came up in the questions during the company's last conference call. About 30 per cent of the better diamonds exhibit fluorescence and the company said they are currently selling at discounts of about 20 per cent. Still, investors love large diamonds, so worries about Gahcho Kue's teething problems and modest diamond values will disappear if the mine produces enough large and valuable diamonds.