Partners move Gahcho Kué forward

Mountain Province Diamonds (MPV-T, MDM-X) and De Beers completed ice road deliveries to the Gahcho Kué diamond joint venture, 300 km northeast of Yellowknife in the Northwest Territories, at the end of March.

Deliveries to the project, which is 49% owned by Mountain Province and 51% by operator De Beers, included equipment, fuel and other materials.

In January, the public record for the project’s environmental impact review was closed. The partners are now waiting for a report and recommendation by the Gahcho Kué panel.

An updated resource for the Tuzo kimberlite is due out in the second quarter. De Beers completed geological and grade reports on the deeper portions of the kimberlite to 564 metres depth in January to establish continuity below established resources (which have been outlined to 350 metres depth) and to provide a tonnage and grade estimate. However, it was not completed to CIM guidelines, so Mountain Province is having an updated resource prepared by an independent party. Tuzo is one of three kimberlites (including 5034 and Hearne) that are part of the mine plan at Gahcho Kué.

If permitting goes smoothly, construction of the mine would begin this year.

The partners also conducted exploration drilling on 10 new targets in April.

In a release in April, Mountain Province confirmed that the auditors report for its 2012 financial results contained a “going concern” note. While the company’s ability to maintain operations beyond the next 12 months depends on permitting at Gahcho Kué and the junior’s ability to raise funds for the project, BMO Capital Markets mining analyst Ed Sterck notes that the partners have demonstrated a high level of confidence that permitting will be successful. Sterck, who has an outperform rating on Mountain Province and a target of $5.50, expects Mountain Province to raise $180 million in debt and $133 million in equity this year to meet spending commitments for 2014.

Mountain Province raised $47 million in a rights issue in November. About 10.9 million shares were subscribed for, representing a take-up rate of about 81%. The company’s largest shareholder, Bottin Investments subscribed for the rest under a standby commitment with Mountain Province.

Probable reserves at Gahcho Kué stand at 31.3 million tonnes grading 1.57 carats per tonne for 49 million carats. A feasibility study released in 2010 outlined an open-pit operation producing 4.5 million carats per year for 11 years with a net present value of $277 million ($135.9 million after sunk costs) and an internal rate of return of 33.9% (20.7% including sunk costs).