After reaching commercial production on March 1, De Beers’ and Mountain Province Diamonds’ (TSX: MPVD; NASDAQ: MPVD) Gahcho Kué mine pushed into high gear with full production in mid-year.
On a conference call in August, interim president and CEO David Whittle noted that operating costs have been in line with expectations and the plant performance has been “outstanding.”
The 5034 orebody at Gahcho Kué, 280 km northeast of Yellowknife, in the Northwest Territories, has been outperforming in terms of grade.
For the first six months of the year, the mine processed 1.3 million tonnes of ore and recovered nearly 2.5 million carats. The average grade of 1.97 carats per tonne was some 20% higher than expected.
As a result, the JV has raised production guidance for the year to 5.5 million carats from 4.4 million. For Mountain Province’s attributable production (49%), the increase is to 2.7 million carats from 2.2 million carats.
Gahcho Kué is forecast to produce an average of 4.5 million carats per year over a 12-year mine life.
On the pricing side, early Gahcho Kué diamonds have fallen within the US$70-90 per carat guidance the company issued in April for 2017 sales. However, that falls well short of a February 2014 modelled value of US$123 per carat.
On the conference call in August, Whittle said that “price discovery remains somewhat challenging.”
He noted that while prices have strengthened somewhat in recent months and the effects of India’s demonetization had largely dissipated as of July, prices are still about 20% below the levels of 2013/14. Prices for the second half of the year are expected to be stable but flat.
In addition, the diamond distribution in the upper layer of the 5034 kimberlite is highly variable, and the early sales are so far not reflective of bulk sample results — which were taken across the length, breadth and depth of 5034. The kimberlite has six lobes.
“We’re still seeing a lower quality distribution in mine production relative to what we’re expecting when we get further into 5043 orebody,” Whittle said. Whittle was appointed interim president and CEO after Patrick Evans stepped down in June, after 11 years with the company. (Evans will be the new CEO of Dominion Diamonds after the takeover by Washington Companies is completed this fall.)
The company received an average of US$72 per carat in the first quarter (three sales totalling 522,000 carats) and US$91 per carat in the second quarter (two sales totalling 370,000).
In August, the company warned that the average per carat price for its next two sales would be lower because of a change to territorial government procedures regarding royalty valuation for smaller goods, allowing them to be fast-tracked into the sales cycle, and inflating their numbers relative to larger goods.
In its seventh sale, in September, the company sold 463,000 carats for US$27.1 million or US$59 per carat. Adjusting to include fancies and specials at the price paid by De Beers, and to exclude smaller fast-tracked goods, the average value was US$72 per carat, which the company said is consistent with the year-to-date adjusted realized sale value of US$75 per carat.
In the second quarter, the company reported net income of $7.6 million or 5¢ a share on revenues of $27.6 million from two diamond sales (215,000 carats in total).
The Gahcho Kué partners recently reported they will conduct a $2.3-million fall million exploration program in an area between the 5034 and Hearne pipes known as the Southwest Corridor. Stripping activities in the area, which was slated in the mine plan to be mined as waste rock, turned up diamond-bearing kimberlite. Geophysical surveys will be followed up by drilling later in the year.
Loan agreement
Mountain Province is making progress on renegotiating some terms of a US$370 million loan it arranged in 2014 to fund its portion of mine construction. Under the original terms, Mountain Province was required to have a cash call reserve of US$27.9 million as of May 1.
But the company has been in discussions with its lenders to “realign the reserve account funding requirements to reflect current market conditions,” it said this spring.
The creditors have extended the deadline several times in return for Mountain Province providing an updated financial model and life of mine plan, an independently prepared diamond pricing valuation comparison between production sold to date and historic samples, and other information.
In late August, the company reported that some terms had been agreed on: that it would fund a cash call reserve account with at least US$25 million by Sept. 15, that it would not use the full US$370 million available to it under the original agreement, and instead stop at the current outstanding balance of US$357 million, and that quarterly interest payments would be made from cash flow rather than drawing on the loan facility.
–This story originally appeared in the November 2017 issue of Diamonds in Canada.
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