2024-04-02 16:00 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score for Tuesday was a positive 100-77-133 as the TSX Venture Exchange added one point to 570. Dermot Desmond's Mountain Province Diamonds Inc. (MPVD) lost one-half cent to 23 cents on 331,000 shares on word it racked up a $43.67-million loss last year mining diamonds at its 49-per-cent-owned Gahcho Kue mine, 250 kilometres northeast of Yellowknife in the Northwest Territories.
That number tells a complex story, however, as on one hand the company showed earnings from mining operations of $102.4-million and would have had a $61-million profit but for a $104.6-million impairment on the mine's assets. On the other hand, Mountain Province had earnings from mining operations of $170.5-million in 2022, enough for a profit of nearly $50-million. Further, the declining profit was the result of falling rough diamond prices, which decreased briskly and steadily from early 2022, hitting a two-year low early this year.
And so, while Mountain Province would have had a profit last year were it not for the impairment hit, that profitability shrank as the year went on. Therefore, all eyes are now upon 2024 and the potential movements in rough diamond prices. On that score, the company's president and chief executive officer, Mark Wall, offers the usual silver lining to what has been a black cloud for most years since mining began in the fall of 2016.
"We continue to monitor developments closely," Mr. Wall says, noting that "many factors are integrated in the market dynamic." Still, he chose just one to applaud -- the "initial stages of a recent G7 sanction banning imports of Russian-origin rough diamonds." (Sanctions -- largely toothless -- have been in place since just after the start of Russia's invasion of Ukraine, but these are different, say diamond miners and analysts alike. Perhaps, but investors are skeptical.) Indeed, even Mr. Wall sounds less than emphatic: "This could yield a positive impact on demand for Canadian origin goods," he muses, adding that the company is "reviewing opportunities."
Unfortunately, the opportunities may be limited, as Gahcho Kue is going through a mid-life metamorphosis, altering its ore sequencing as the mine pushes back one pit, ramps up mining at another and looks to mine underground. Unfortunately, Gahcho Kue is no caterpillar about to turn into a butterfly, as Mountain Province and its majority co-venturer, De Beers Canada, expect the mine will produce between 4.2 million and 4.7 million carats this year -- roughly two million carats less than typical.
These changes are "all normal occurrences in open-pit mining," says Mr. Wall, adding that "this lower production year was anticipated." Still, normality and anticipation aside, the temporary drop in diamond production is coming at an inopportune time. Indeed, De Beers and Mountain Province have put considerable effort into smoothing out the production curve, as the guidance for 2024 is significantly better than when the mine plan was laid out a few years ago.
As a result of the softening diamond market -- softening is a promoter's synonym for slumping -- the Gahcho Kue co-venturers "made the prudent decision to limit discretionary spending." Apparently one of the reductions involved their internal study of "a potential transition to underground mining at Gahcho Kue to extend mine life," but even so, Mr. Wall assures investors that Mountain Province "intends to take all reasonable steps to maintain the underground mining optionality."
Another casualty of the reduced revenue stream was Mountain Province's ability to pay down its debt. Oh, it did pay down $18-million in senior secured second-lien loans last year, although Mr. Wall conceded that "we would have preferred to pay down more." He says that the payments were "aligned with our strategy to pay down debt principal as cash flows allow, to maintain financial flexibility." With 2024 cash flows looking to be less than last year, Mountain Province's debt repayments may slow further. And so, stay tuned, and keep an eye on rough diamond prices.