Mountain Province Diamonds attracts interest

Mountain Province Diamonds (MPV-T, MDM-X) has received “unsolicited expressions of interest from third parties” about its stake in the Gahcho Kué diamond project in Canada’s Northwest Territories.  

But the junior, which is a 49% participating partner with diamond marketing rights in the joint venture with De Beers, says it has “decided to cease discussions and other engagement with those third parties in order to focus management’s attention” to key activities, including permitting the Gahcho Kué project and arranging its share of the financing. 

It also says it wants to focus on its drill program at Tuzo Deep, which is designed to test the depth extension of the Tuzo kimberlite pipe on the Gahcho Kué property.

It laso wants to continue exploration at its 100%-controlled Kennady North project, which lies immediately to the west and north of Gahcho Kué at Kennady Lake. Kennady Lake is 90 km southeast of De Beers’ Snap Lake diamond mine.

“Our two major exploration programs at Kennady Lake – the planned Kennady North airborne gravity survey and the Tuzo Deep drill program – both have the potential to add significantly to Gahcho Kué’s current 49-million-carat reserve,” Patrick Evans, the company’s president and chief executive, said in a statement explaining the decision. “Under the circumstances, the board is of the view that further engagement with third parties might be premature before the results of these exploration programs have been announced.”

The news sent shares of Mountain Province Diamonds up 8.1%, or 37¢, to close at $4.95 per share and stirred reaction among those who follow the stock, including newsletter writer John Kaiser, who noted that it was “the first indication” he had received from management that “major diamond producers apart from De Beers have expressed a serious interest in taking out” the company.

“My assumption was that diamond dealers and wholesalers were bugging the junior about off-take agreements for future production from the Gahcho Kué diamond project,” he wrote in a note to his subscribers on Aug. 25. “But CEO Patrick Evans has indicated that these parties were major diamond producers, which excludes the small AIM-listed diamond producers, and by definition of not being a ‘third party’, De Beers itself. That leaves a small group consisting of BHP Billiton, operator of the Ekati mine, Rio Tinto and Harry Winston, operators of the Diavik mine, and possibly Alrosa, operator of the Russian diamond mines.”

Kaiser also pointed out that the recent weakness in Mountain Province’s stock presents a “buying opportunity in anticipation of exploration results by Q1 of 2012 that could boost the price target well beyond the $6 to $8 per share range, based on the current mining plan and the modelled carat value.”

Mountain Province describes Gahcho Kué as “the world’s largest and highest-grade diamond development project.” The project, about 280 km northeast of Yellowknife, consists of a cluster of four diamond-bearing kimberlites, three of which have a probable reserve of 31.3 million tonnes grading 1.57 carats per tonne for a total diamond content of 49 million carats. A feasibility study released in December 2010 indicates a 33.9% internal rate of return. 

Earlier this month, Mountain Province announced that an environmental review panel confirmed that the 11,000-page Gahcho Kué Environmental Impact Statement, filed in December 2010, “conforms to the terms of reference set by the panel.” That ruling clears the way for the start of the environmental impact review, which is expected to take two years.

At presstime Mountain Province Diamonds traded at $5.05 per share. The company has 80.3 million shares outstanding.