Mountain Province to acquire Kennady Diamonds in all-share friendly deal

Mountain Province Diamonds (TSX: MPVD; NASDAQ: MPVD), which owns 49% of the Gahcho Kue diamond mine in the Northwest Territories, plans to acquire Kennady Diamonds (TSXV: KDI), whose Kennady North project is adjacent to the mine, in an all-share deal valued at about $176 million.

Kennady Diamonds was spun out of Mountain Province in 2012 with the mandate of exploring the area around Gahcho Kue and has been successful in expanding its high-grade diamond resources along the nearby Kelvin-Faraday kimberlite corridor and identifying new kimberlites outside the corridor.

“Since the Gahcho Kue mine came on stream last year it’s kind of been in the cards that the company would get back together again,” Rory Moore, president and CEO of Kennady Diamonds, says in a telephone interview from Yellowknife. “After a full-year of production all of the mine’s teething problems are sorted out, so I guess Mountain Province was ready to tick the next thing off its list.”

“I think the two companies together make a lot of sense,” he adds. “And our claims essentially surround the Gahcho Kue mine in most directions, so you know, it seems inevitable that rather than building another set of infrastructure to develop our deposits they would go through the Gahcho Kue processing plant.”

Kennady Diamonds’ Kennady North project in the Northwest Territories. Credit: Kennady Diamonds.

Under the all-share deal, Mountain Province shareholders will own about 76% of the combined company and Kennady shareholders about 24%. Both boards have approved the deal.

“From our shareholders’ perspective, they get exposure to a producing, world-class mine, they get exposure to potential dividends down the road, and there’s cash flow to fund exploration and that essentially prevents further dilution of the shareholders in Kennady, so I think it’s a win-win situation,” Moore says.

Gahcho Kue, in which De Beers owns a 51% stake, is the world’s largest new diamond mine, consisting of a cluster of four diamondiferous kimberlites, three of which are being developed and mined under an initial 12-year mine plan.

Kennady’s Kelvin kimberlite has an indicated resource of 13.62 million carats of diamonds contained in 8.50 million tonnes of kimberlite with a grade of 1.60 carats per tonne and an average value of US$63 per carat.

An inferred resource for Kennady’s Faraday kimberlites stands at 5.02 million carats contained in 3.27 million tonnes of kimberlite, with a grade of 1.54 carats per tonne and an average value of US$98 per carat.

David Whittle, interim president and CEO of Mountain Province, notes that Kennady’s assets are a “strong complement” to his company’s interest in Gahcho Kue and add “significantly” to its attributed resource base.

“From our point of view, Kennady has had good success on the exploration work they’ve done,” he tells The Northern Miner. “They’ve de-risked those properties to a point where it makes sense to begin integrating them into our asset base.”

Under the terms of the arrangement, Kennady shareholders will receive 0.975 of a Mountain Province common share for each Kennady common share, representing the equivalent of C$3.46 per Kennady share, based on the closing price of Mountain Province shares on Jan. 26.

The offer represents a 26% premium to Kennady’s closing share price and a 15% premium based on the 20-day volume-weighted-average price of Mountain Province shares on the Toronto Stock Exchange and Kennady shares on the Toronto Venture Exchange, as of Jan. 26.

“Kennady has achieved the mandate that it was set out to do,” Moore says. “Initially Mountain Province was in a joint-venture with De Beers and the focus was very much on getting the Gahcho Kue mine into production, so the exploration assets surrounding the Gahcho Kue within the joint-venture were just being ignored and Mountain Province wasn’t getting any value for it, so they approached De Beers and said, ‘we want to spin out the company’ and De Beers said, ‘okay’.”

“So Kennady focused on exploration and had a lot of success, so both objectives were achieved. The mine got built and the claims got explored, and some significant diamond resources were discovered, and so now, Mountain Province is ready to put the company back together again.”

News of the proposed acquisition sent Kennady’s shares up 16.36%, or 45¢, to finish at $3.20 with 2.4 million shares traded.

Over the last year, the company’s shares have traded in a range of $2.45 (December 2017) and $4.25 (March 2017).