Coronavirus curbs Mountain Province revenue

Unlike many other mines in Canada and around the world that have been put on care and maintenance because of the global COVID-19 pandemic, the Gahcho Kué mine in the Northwest Territories, owned by De Beers (51%) and Mountain Province Diamonds‘ (TSX: MPVD) (49%), was still operating at press time in early April. However, Mountain Province has been forced to indefinitely postpone diamond sales, making it unclear when the company’s revenue stream will resume.

Mountain Province announced in mid-March that its third sale of the year was postponed indefinitely because of city-wide closures in Antwerp, Belgium, where its diamond sales take place.

“Cancelling our third sale wasn’t ideal, but I think it was practical and realistic,” Mountain Province president and CEO Stuart Brown said in a conference call on March 25. “Does that mean sales have stopped globally? For the normal way the business works, I would say yes, given that manufacturing has stopped.”

At the end of March, De Beers also announced its third sale of the year, which was to take place in early April, was cancelled because of restrictions on movement in Botswana, South Africa and India.

On the conference call, Brown said the Gahcho Kué site had been early movers in implementing preventive measures against the spread of the novel coronavirus, including restricting site access; health screening, including pre-boarding checks; not allowing on site anyone who might have been exposed; and stepped up cleaning and disinfection procedures. The JV also recently sent home 15 employees who live in remote locations in order to limit any possible contagion, and receives guidance from the Anglo American/De Beers’ pandemic response team.

Currently, there are no cases onsite.

The joint venture is considering all options for the mine, including care and maintenance scenarios, Brown said.

The camp at De Beers and Mountain Province Diamonds’ Gahcho Kué diamond mine, 300 km northeast of Yellowknife, Northwest Territories. Credit: Mountain Province Diamonds.

“If we place the mine on care and maintenance, we need to do so in a thoroughly considered way,” Brown said. “At the moment, we don’t consider this is necessary to do, given all the procedures that we’ve implemented.”

Brown noted the mine had just gone through a crew change, following the enhanced safety measures.

While the company’s third sale of the year was cancelled, Brown said it is exploring other sales channels.

“There are people indicating to us that they are willing to buy rough to hold.” He added: “Our strategy is not to sell rough at whatever price we can get – primarily because we have massive confidence in the future.”

Last year was a difficult year for diamonds. Mountain Province saw its average sales price decline15%  to US$63 per carat from US$74 per carat in 2018. The company reported a $128-million net loss for the year on revenue of $276 million from the sale of 3.3 million carats. However, the market had shown signs of recovery in early 2020 until COVID-19 started to disrupt the global economy.

Operationally, Gahcho Kué performed well last year, with the JV increasing throughput capacity in the plant by 12%.

Aside from protecting the health of Gahcho Kué employees, the company’s current focus is on conserving its cash position of $25 million.

Mining trucks at Mountain Province Diamonds and De Beers’ Gahcho Kué diamond mine in the Northwest Territories. Credit: Mountain Province Diamonds.

A debt payment of around US$12 million in June is the company’s next big ticket item.

However, Brown indicated the company was in talks with lenders regarding terms of its debts, and in early April announced changes in terms to an undrawn US$50-million revolving credit facility.

The JV is also cutting spending and costs where possible.

“Many of us worked through the 2008-2009 global financial crisis,” Brown noted. “The world felt like it was coming to an end in the middle of that crisis and there was no future and there was no solution. The key to getting out of that was being calm, making decisions in a considered manner with as much information as you’ve got and talking to all the relevant stakeholders and keeping them informed, which is certainly what we’ve been doing over the last couple of weeks.”

Brown said the “ray of hope” is that China is starting to come out on the other side of the pandemic.

“We’re seeing retail pick up, we’re seeing the economy start up again and restrictions that were in place are slowly being lifted under very, very careful guidelines,” he said.

The effect of the coronavirus on Canada’s diamond mines has so far been uneven. On March 19, Dominion Diamond announced it would be suspending operations at its Ekati mine in the Northwest Territories. The nearby Diavik mine, owned by Rio Tinto (60%) and Dominion (40%) remained in production, with 50 workers from remote communities having also been sent home to prevent transmission of the virus.