Purcell on MPVD Dermot Desmond's Mountain Province Diamonds Inc.(MPVD) slid 17 cents to $1.57 on 304,000 shares. The latest drop came on the heels of the company's three-year guidance for the Gahcho Kue mine in the Northwest Territories. The mine has been doing well on a processing basis and it is forecast to continue to do so. The company and its co-venturer, De Beers Canada, expect to recover between 6.6 million and 6.9 million carats next year from just over three million tonnes of kimberlite. Most of that kimberlite will come from the new Hearne pit; the rest will come from the 5034 pit, where the mine began in 2016.
Stuart Brown, president and chief executive officer, says that cash costs of production, including capitalized stripping, will average between $50 and $54 per carat next year. That forecast could be the cause of the market's jitters: Through the first nine months of 2018, Gahcho Kue has been averaging cash costs, including stripping, of just $42 per carat, and it averaged just $33 per carat through all of 2017. Further, those costs are not forecast to diminish materially over the following two years, with the only variations the result of a slight increase in carats produced in the 2021 forecast.
The higher costs will have a negative impact on the company's ability to resume the four-cent quarterly dividend that appeared in the second quarter but disappeared in the third. Mr. Brown says that the company's forecasts for 2019 and beyond show that operating margins remain healthy and the mine will continue to generate positive free cash flow to cover all the company's operating costs and debt service requirements. Some of what is left will be used to pay for potential expansion of the mine and for continued debt reduction, he says. "Any surplus cash available after this," says a less than encouraging Mr. Brown, "will be considered for potential dividend payments."
Much will therefore depend upon the prices paid for the Gahcho Kue diamonds next year and beyond. The mine averaged just $70 (U.S.) per carat in 2017, and through the first nine months of 2018 it has been averaging $77 (U.S.) per carat. Those numbers compare poorly with the 2014 feasibility estimate, which pegged the value of the 5034 diamonds at nearly $140 (U.S.) per carat. That estimate valued the Hearne diamonds at just $107 (U.S.) per carat, so the results of initial sales of Hearne diamonds will warrant scrutiny.