A 27% decline in the average price per carat led to an equivalent decline in total Q3 proceeds for Canadian miner Mountain Province Diamonds, as the company sold about the same number of carats as in Q3 last year.
Mountain Province, a 49% participant with De Beers Canada in the Gahcho Kué diamond mine located in Canada's Northwest Territories, sold 791,252 carats at an average value of US$52.5 per carat (C$69 per carat) for total proceeds of US$41.6 million (C$54.8 million), in comparison to 788,842 carats sold at an average value of US$72.5 per carat (C$95 per carat) for total proceeds of US$57.2 million (C$74.9 million) in Q3 2018. The average price per carat as well as total sales represent a 27% decline. "The sentiment in the rough diamond market remains cautious and the most recent sales results reflect this," they explained. "The recent protests in Hong Kong and ongoing trade negotiations between US and China have also affected the mood in the market."
The miner specifically attributes the lower prices realized year-on-year to three factors; the source of the diamonds from varying parts of the orebody (mostly lower grade areas of Hearne and SWC Kimberlites in 2019 versus 5034 in 2018), lower quality and grade material processed during Q2 and Q3 2019, and the overall sentiment in the rough diamond market and associated pressure on prices of lower quality and smaller stones. Their Q3 2019 sales results are based on two full sales (sales #6, and #7) and partial payment received for sale #8, due to timing of the last sale in relation to the close of Q3 2019 financial reporting period. Full payment for sale #8 has been received and the remaining balance will be reflected in the sales results in Q4 2019.
"The Company's medium to long term outlook for rough diamonds remains positive," they add. "The major producers have reported lower levels of sales in recent months, and this is expected to help normalise inventory levels in the cutting centers. In addition, anticipated mine closures over the next 12 – 18 months will also help to establish a better supply and demand balance in the market. More importantly, consumer confidence and spending, particularly in the US, which makes up for 40 – 50% of the overall diamond jewelry market, is still strong."
Despite an increase in ore mined and treated, Mountain Province's carat recovery in Q3 2019 was slightly below the company's expectations but within the revised plan limits for 2019. The miner recovered 1,528,494 carats at an average grade of 1.72 carats per tonne, 16% lower than comparable quarter (Q3 2018: 1,819,000 carats at 2.40 carats per tonne), and 12% lower than the previous quarter (Q2 2019: 1,730,147 carats at 1.96 carats per tonne). The company says "the ongoing plant modifications to change the bottom cut-off and increase daily throughput have progressed well and the plant is performing above expectations." However, they add, "Severe weather conditions encountered during the earlier part of the year caused delays in the mine plan schedule, and access to the planned higher grade blocks of the orebody was limited." They also not that higher plant performance required more ore, "which mostly consisted of lower grade ore tonnes, all of which are reflected in the lower grades and carats recovered in Q2 and Q3 2019 results. The current quarter (Q4 2019) is trending positively." They have reiterated their full year 2019 production guidance of 6.6 – 6.9 million carats.
Stuart Brown, the Company's President and Chief Executive Officer, commented: "From a production perspective I fully expect 2019 will be a successful year. The start to the year was impacted by severe winter weather, restricting access to the planned higher grade ore sources which limited the ability to blend the ore sources. The decision to make changes to the plant has been very successful. The plant is now able to treat different blends of ore at increased feed rates which was never possible at the start of 2019." He adds, "The rough diamond market remains tight. Geopolitical and trade war tensions together with the recent issues in Hong Kong have not been helpful in improving sentiment across the diamond pipeline. Our medium to long-term view of the market remains positive. The major producers have seen reduced levels of sales in their recent rough diamond sales events and this, together with the closure of older mines, should have a positive effect on the supply side of the market in 2020 and beyond and help to restore confidence across the diamond pipeline."