from stockwatch 024-09-23 15:03 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score for Monday was a so-so 73-81-156 as the TSX Venture Exchange rose three points to 588. Dermot Desmond and Mark Wall's Mountain Province Diamonds Inc. (MPVD) lost one cent to 13.5 cents on 245,000 shares. Rough diamond prices appear to have flattened after more than two years of relentless declines, offering a glimmer of hope for miners. And so, with the end of the third quarter but a week away, investors are girding for news of how the summer went for Mountain Province and its 49-per-cent-owned Gahcho Kue mine in the Northwest Territories.
Mountain Province just wrapped up its seventh sale of the year, held through the facilities of Antwerp-based Bonas Group. The company holds 10 sales a year -- in normal years at least -- alternating between two and three auctions per quarter. This latest tender was the second for Mountain Province in its third quarter, so three are planned in the final quarter of 2024, which could augur well for the company if rough prices do manage a rebound.
In the meantime, all eyes will be on the company's third quarter performance, which should be revealed sooner than later. Mountain Province wasted no time a year ago, offering preliminary third quarter production and sales data less than a week into the fourth quarter, but it typically reveals the results in mid-October -- two to three weeks into the final quarter of the year.
What to expect when the new results come is anybody's guess of course, but there are a few key points to watch. First up is the production rate. Summer is the best of times to be working in the Arctic, and Gahcho Kue typically does its best in the third quarter from a mining perspective. (Yes, mosquitoes can be annoying but try properly torquing a nut at 40 below in a howling gale.)
On the other hand, remember that the miners achieved a plant utilization topping 81 per cent through the first two quarters, handily topping the 72 per cent achieved a year earlier. This, said Mr. Wall, president and chief executive officer, was the result of improvements made over the past year, so with luck the improved utilization rate will hold. (Or so one hopes: The adage "anything that can go wrong, will go wrong" was undoubtedly expressed by a miner named Murphy at one Canadian diamond mine or another.)
And then there is the question of grade. As expected, Gahcho Kue had a lower grade through the second quarter as per its mine plan, but there was also a lower-than-expected grade deep in the pits. That cropped up earlier this year, and it continued through the second quarter, Mr. Wall said. In other words, it carried into the third quarter -- the question is for how long.
A steady decrease in grade deep in the pits would be a concerning development, but at last report Mr. Wall cheered that they had been working on identifying and isolating the "small area of grade underperformance." Further, he reiterated a previous conviction that "this will improve as we move through the year." And so, keep an eye of the third quarter grade. An improvement on the 1.37 carats per tonne in the second quarter seems likely given the progression of mining, but getting back to the 1.8-carat-per-tonne average may be a tall order.
And, of course, the average diamond price achieved is perhaps the biggest question of all. Through its first three years of mining, Mountain Province averaged about $70 (U.S.) per carat, barely half the value expected at the feasibility stage. In the post-COVID boom, which peaked in early 2022, the company saw its average price climb to $131 (U.S.) per carat through the first two quarters of that year. That average dropped to about $110 (U.S.) per carat a year ago, and this year Mountain Province averaged just $72 (U.S.) per carat.
While it is unlikely that the company's like-for-like prices increased during the third quarter, it is unclear what mix of diamonds that Mountain Province sent off to its two quarterly auctions. With a typical mix of goods, the company's achieved rough diamond prices probably remained close to the result for its first two quarters, so investors had best keep their revenue expectations low. (Fortunately, Gahcho Kue has done well at cutting operating costs and keeping them low, offering hope for a reasonable third quarter bottom line, as Mr. Wall and his crew "focus on operational efficiency.")