from stockwatch 2023-10-10 17:39 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score for Tuesday was a positive 94-84-132 as the TSX Venture Exchange rose fractionally to 534. Dermot Desmond and Mark Wall's Mountain Province Diamonds Inc. (MPVD) tumbled 4.5 cents to 32 cents on 2.89 million shares Friday, a level last seen during the worst days of the COVID-driven diamond sector collapse in 2020. This year's decline, while it is making many a shareholder ill, has nothing to do with COVID and everything to do with a malaise infecting the rough diamond market.
One might think at first glance that Mountain Province's third quarter sales held up well: The company averaged a healthy $95 (U.S.) per carat during the period for diamonds mined at its 49-per-cent-owned Gahcho Kue mine in the Northwest Territories. Yes, this is down appreciably from the $112 (U.S.) per carat that the company averaged in 2022, but it is handily above the $75 (U.S.) per carat that Mountain Province averaged through its first three years of mining in the late 2010s.
Further, the average price seems encouraging given that Mr. Wall, president and chief executive officer, had cautioned that the company's rough diamonds sold in the quarter would have a less favourable array of sizes and qualities than in the previous quarter, since Mountain Province had sent a better selection of goods to market during the spring to offset the softening rough market.
Unfortunately, a closer look at the data reveals the problem. Mountain Province sold just 478,653 carats during the quarter for barely $45-million (U.S.), compared with the 805,000 carats it sold a year earlier for $83.3-million (U.S.). Mr. Wall now says that the company "took the decision to withhold some of the sales" during the third quarter "to defend its prices in the rough market."
While the defense may have held the line on the average price front, Mountain Province's revenues dwindled accordingly. Through the past two quarters, the company averaged just under 420,000 carats sold for $45-million (U.S.), while it sold 961,024 carats for $95-million (U.S.) in the first quarter. Indeed, during 2022, the company sold 2.66 million carats for $297-million (U.S.) -- quarterly rates of 665,000 carats and nearly $75-million (U.S.).
And so, with revenues dwindling and stockpiles of lesser diamonds growing, Mr. Wall says that he and his crew continue to watch the diamond market closely to assess market conditions. Meanwhile, because of "these very challenging markets," they have decided to pause all discretionary spending to focus on maximizing cash generation and repaying debt -- hardly words of good cheer for shareholders who had been expecting Gahcho Kue to be a cash cow.
As for the final quarter of 2023, Mr. Wall and his crew cannot be liking what they are watching. Demand for rough has all but dried up, they say, because of macroeconomic concerns and delays to post-Covid restocking in China that have pushed diamond polishers to restrict buying and reduce inventories. (No kidding: the Indian diamond sector recently "suggested" that its manufacturers halt the import of rough until mid-December.)
Meanwhile, the Gahcho Kue mine is not without problems of its own. Mountain Province's share of third quarter production dropped to just under 650,000 carats, mainly because the average grade fell to 1.51 carats per tonne from 1.78 carats per tonne. While the processing plant handled more kimberlite than a year ago, the mining rate dropped significantly, to 888,000 tonnes from 1.35 million tonnes.
Mr. Wall recited many woes -- wildfires and delays in accessing higher-grade ore among them -- but he cheers that the company expects to hit its 2023 guidance. Nevertheless, the devil is in the details. Mountain Province says that its diamond production "is trending to the lower end" of its guidance range, while production costs are trending to the mid-to-upper end of the range. Combined of course, that spells trouble for expected revenues, especially with many of the mined diamonds being withheld from sale. And so, investors hope for the best but gird for the worst: Mountain Province closed unchanged at 32 cents on 254,000 shares today.