Mountain Province Diamonds raising $47M for Gahcho Kué

To pay its share of initial capital costs at the $550-million Gahcho Kué diamond project, in the Northwest Territories, Mountain Province Diamonds (MPV-T, MDM-X) is planning a $47-million rights issue.

The funds should take the company through the permitting stage at its 49%-owned Gahcho Kué project, which is expected to conclude in 2013. The project, which is 51% owned by De Beers, is nearing the end of a two-year environmental review.

Shareholders will receive one right, expiring on Nov. 28, per share held. Six rights can be exercised for one new common share at a price of $3.50.

The company’s largest shareholder, Bottin Investments, has agreed to participate in the rights issue and subscribe for any rights not exercised by other shareholders.

The funds will cover Mountain Province’s share of the cost of the winter road, construction fleet, and supplies, as well as a $10-million repayment of historic exploration costs to De Beers that will come due when permitting is complete.

Production at Gahcho Kué is expected to start in the first half of 2015.

Evans says the company is working on a debt component of $150-250 million, to be finalized in the second half of 2013 and ready to access in 2014. He also expects to raise between $75 million and $100 million in offtake financing.

An updated feasibility study on Gahcho Kué is due out in March 2013.

While Evans says it’s too early to tell if there will be any major changes, he notes that the only major difference since the last feasibility was completed in April 2010 is in diamond prices.

“I would imagine that diamond prices have probably increased by about 50% over that period,” Evans says, noting that his estimate takes into account the price dip of the past year. “So that will be the key material influence — and of course, it’s a positive influence on the economics.”

The previous study outlined probable reserves of 31.3 million tonnes grading 1.57 carats per tonne for 49 million carats. The study showed an open-pit mine producing 4.5 million carats per year over 11 years would have a net present value of $135.9 million and an internal rate of return of 20.7%.

Kennady Diamonds (KDI-V), a spinoff of Mountain Province that began trading earlier this year, reported encouraging caustic fusion results at its 100%-owned Kennady North project, just northwest of Gahcho Kué, in late October.

A 394.4-kg sample from drilling on the Kelvin-Farraday kimberlite cluster returned a total of 1,889 diamonds (both macro and micro) weighing 0.92 carat.

“The results indicate that the kimberlites have the potential for a grade of over two carats a tonne, so the diamond count was extraordinarily high,” says Evans, who is also president and CEO of the junior. “Just as importantly, the quality of the diamonds from Kennady North is exceptionally good. Over 70% of the diamonds are white and transparent, most of them have no inclusions or only minor inclusions.”

A 5,000-metre drill program, which will focus on infill drilling and testing 20 new targets, is slated to begin in March.

To pay for the program, Kennady announced a $3-million private placement financing in late October. A flow-through component of up to $300,000 is priced at $1.45 per share, with the bulk of the financing ($2.7 million) made up of common shares priced at $1.15.

At presstime, Kennady traded at $1.23 in a 52-week window of 50¢-$1.85, with 16.1 million shares outstanding.

Mountain Province shares traded at $3.80, in a 52-week range of $3.25-5.60. The company has 80.7 million shares outstanding.