from stockwatch by Will Purcell
The diamond and specialty minerals stocks box score on Friday was a positive 108-75-127 as the TSX Venture Exchange rose 10 points to 642. Late-to-arrive data have put a more cheerful look on Paul Zimnisky's global rough diamond price index. His chart now shows a clear bottom in the first week of January, 13.4 per cent below the all-time high reached in mid-February of 2022. Since the January low, Mr. Zimnisky now has rough diamond prices edging steadily higher, such that his index has reclaimed nearly 2.0 per cent, leaving it just 11.6 per cent off its record high.
It is too soon for party hats and kazoos, as Mr. Zimnisky has rough diamond prices just 19 per cent higher than in early 2018 and only 16 per cent higher than a decade ago. In fact, current prices are below the previous record high set in the spring of 2011 during a bubbly overreaction to the slow return of production after the Great Recession. Several years of price stagnation followed the bursting of that bubble, but analysts and promoters all cheer that this time is different.
Perhaps they will at last be right but so far, the curves look much the same now as they did coming off the two-year rally that followed the Great Recession. In fact, while rough diamond prices are about as high as they were in 2011, inflation has boosted exploration, development and operating costs by roughly one-third, and so the stock charts of most diamond explorers are horrid images of what they once were.
A decade ago, Dermot Desmond's Mountain Province Diamonds Inc. (MPVD) was at $4 and was on the march, getting as high as $7.18 in late 2016 just as production was beginning at its 49-per-cent-owned Gahcho Kue mine in the Northwest Territories. The mine, which had once been pegged to cost $600-million to build but which cost over $1.1-billion to complete, otherwise ran close to specs.
Unfortunately, the value of the diamonds fell far short of expectations, running at roughly half the average value projected in the company's cheerful feasibility study -- and that was in the three years before COVID-19 hammered the company, the mine and the entire diamond sector nearly to death. Indeed, were it not for the support -- at a cost -- provided by Mr. Desmond, Mountain Province's major shareholder, Mountain Province might well have succumbed to bankruptcy.
But that was then. Now, Mountain Province is poised to roll out its 2022 financials next week, and investors are expecting the best result in years, if not the best result ever. In mid-January, Mark Wall, president and chief executive officer, applauded his company's great finish to what had been "a very challenging start to the year" in which Gahcho Kue had to contend early on with the triple terrors -- COVID running amok through the miners, declining grades and a breakdown in the primary crusher.
Mountain Province and its majority co-venturer, De Beers Canada, had to outwait the virus, outwit the low-grade areas and repair the crusher, all of which took time and slowed production. Nevertheless, the mine produced 5.52 million carats through 2022, less than the 6.23 million carats it produced in 2021 but falling barely short of its guidance. In fact, the mine processed 3.1 million tonnes of kimberlite last year, a slight increase over what it managed in 2021, so the drop in carats was attributable to the lower grade -- 1.78 carats per tonne compared with 2.02 carats per tonne in 2021.
The good news is that Mountain Province sold its diamonds for considerably more than before. The company's 2.66 million carats fetched $112 (U.S.) per carat, or just shy of $300-million (U.S.). In 2021, while it sold 3.16 million carats, it averaged just $75 (U.S.) per carat, fetching less than $240-million (U.S.) in all.
Investors will be looking to see how Mountain Province and De Beers dealt with the inflationary pressures of 2022, but Mr. Wall and his crew -- again with assistance from Mr. Desmond -- managed to restructure Mountain Province's debt, which will help the bottom line. And so, investors will be expecting some good news from the company when it reveals results in three weeks. Meanwhile, Mountain Province closed unchanged today at 55 cents on 20,000 shares.