from stockwatch 2021-08-09 17:39 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Monday was a poor 73-116-111 as the TSX Venture Exchange fell seven points to 917 while polished diamond prices were flat.
Dermot Desmond and Stuart Brown's Mountain Province Diamonds Inc. (MPVD) lost one cent to 46 cents on 286,000 shares. Thanks to a steady surge in rough diamond prices following the COVID-19-induced collapse in early 2020, Mountain Province has just reported a $22.5-million profit in its second quarter. The company sold 719,000 carats in the spring quarter for $52.5-million (U.S.), averaging $73 (U.S.) per carat.
In the previous quarter, in which Mountain Province reported a $7.3-million profit, it had sold 603,000 carats for $42.7-million (U.S.). While that worked out to an average of $71 (U.S.) per carat, the range of diamonds sold in that period was superior to the gems offered in the latest quarter. The per-carat revenue is the best that Mountain Province has achieved since it averaged $75 (U.S.) per carat in the first quarter of 2020, just before the COVID-19 pandemic slammed the diamond sector closed for a few months.
Padding the company's second-quarter revenue was a $10.4-million payment from Mr. Desmond's Dunebridge Worldwide Ltd. That sum was Mountain Province's share of the profits when Dunebridge sold the $49.4-million (U.S.) of rough that it had bought from Mountain Province for just $33 (U.S.) per carat a year ago. At the time, Mountain Province was unable to sell its share of rough diamonds from its 49-per-cent-owned Gahcho Kue mine and Mr. Desmond, an Irish billionaire and major Mountain Province shareholder, stepped in with a rescue plan.
Mr. Desmond's Dunebridge bought the diamonds at prevailing market prices -- such as they could be determined -- but with the provision that once it sold the gems, it would share any profit with Mountain Province, less a 10-per-cent fee for its troubles. The numbers suggest that Dunebridge subsequently sold the roughly 1.5 million carats of rough diamonds for nearly $75-million (U.S.), just under $50 (U.S.) per carat.
That calculation appears reasonable, given that rough diamond prices have appreciated about 25 per cent since the time of the Dunebridge buys, and that the diamonds involved did not include any of the plus-10.8-carat specials that account for much of the diamond value. (Most of those held-back special diamonds were sold in the first quarter of 2021, which accounts for Mountain Province's modest profit in that quarter.)
The profits come at a good time, as Mountain Province has been -- by its own estimation -- "in serious financial difficulty" because of the COVID crisis and the resulting $263-million loss that the company recorded in 2020. Last summer, Mr. Desmond's Dunebridge assumed Mountain Province's $25-million (U.S.) senior secured revolving credit facility -- essentially a refinancing of the existing facility without certain covenants in place that Mountain Province could no longer meet.
In May, Mountain Province and Dunebridge agreed to add $33-million (U.S.) to that $25-million (U.S.) credit facility, although the interest rate charged doubled, to 10 per cent annually. As well, Dunebridge was to receive a 5-per-cent fee on each drawdown. (Mr. Desmond may be the company's white knight, but he does like his fees.) Fortunately, the addition was contemplated as a short-term move, as the facility matures at the end of the year, and Mountain Province's mounting cash flow from Gahcho Kue appears to be alleviating its financial woes.
Mr. Brown, president and chief executive officer, was his usual optimistic self. He cheered Gahcho Kue for having "rebounded well" from its three-week COVID shutdown early this year, noting that the mine is on track to meet production guidance. (No pleasant surprise there; as the guidance was not issued until May, well after the shutdown.) As well, he applauds the strong rough diamond prices and expects demand to "drive increases in diamond prices across the size spectrum" -- fortunate, since Gahcho Kue's size spectrum is skewed toward smaller gems.