Mountain Province Diamonds Q1 Results: $38M, Strong Grades, Soft Prices

Mining and Exploration
11/05/2017 16:13

Mountain Province has announced its first quarter results (period ended March 31, 2017) from diamonds sold from the new Gahcho Kué mine, of which it owns 49% in a joint venture with De Beers. Mountain Province earned approximately US$37.7 million from three sales in Antwerp of approximately 522,000 carats - for an average price of $72 per carat. The price achieved per carat at this point is well below the modelled value determined in the 2014 feasibility study of $123 per carat, and fell significantly short of the average appraised value of $184 per carat achieved through a series of bulk samples (Stockwatch Daily on January 3 2017 said Mountain Province's stock price at the start of the quarter, "suggests that investors are expecting the sale will approach the higher value", as did President and CEO Patrick Evans, and have clearly overshot the mark to this point). Mountain Province provided a series of mitigating circumstances to account for the disappointing price, foremost among which is the ‘price discovery’ process Evans said all new producers go through as buyers of rough diamonds assess the quality and potential profitability of the new production. 

"This price discovery process usually extends over the first six months of sales as it takes approximately six months before the first rough purchased from a new mine is sold into the polished market," after which prices should increase. And indeed, the average run-of-mine prices increased by approximately 16% in the March sale over the January 2017 sale. Evans also points to demonetization in India, which, "caused severe liquidity challenges in the world’s major diamond cutting and polishing country," negatively impacting sales. He further notes that, the world’s two major diamond producers (ALROSA and De Beers) sold a record combined 28.2 million carats into the rough market during the first quarter, or 58% more han their combined production during the quarter, "making it particularly challenging for a first-time seller introducing new product to the market." Finally, Evans explains that the production sold during the first quarter was sourced from a zone with a comparatively higher population of lower quality diamonds. It should also be noted, as analyst Paul Zimnisky tweeted on May 7, that florescence discovered in higher-quality could have pressured pricdes: "Mountain Province seeing fluorescence in 25% of Gahcho Kué diamonds, selling for 5-30% discount."

Subsequent to quarter end, on May 5, 2017 Mountain Province closed its fourth sale at an average price of US$86 per carat, a 19% increase from the average first quarter realized price per carat. For the three-month period ended March 31, 2017, the Company reported a net loss of $1.6 million C$2.1 million or ($0.01) per share, compared to a profit of $13.7 million (CAD 18.8 million) a year earlier. The company states that gem and near-gem diamonds contributed approx. 96% of the diamond sales proceeds at an average price of US$118 per carat. The remaining 4% of proceeds came from industrial diamonds at an average price of US$7 per carat. Gem and near-gem diamonds represented approx. 57% of the first quarter sales by volume.

Concerning production levels, the statement reads: "The GK Mine treated approximately 492,000 tons of ore through the process plant and recovered approximately 867,000 carats on a 100% basis for an average grade of approximately 1.76 carats/ton. This recovered grade is approximately 17% above budget for the first quarter. It remains unclear at this time whether or to what extent this positive grade variance will be sustainable. Mountain Province’s attributable share of first quarter diamond production was approximately 424,830 carats."