Mountain Province taps Dunebridge for US$33M loan

Citing “serious financial difficulty,” Mountain Province Diamonds (TSX: MPVD) has again tapped its largest shareholder for a loan, this time adding a US$33 million term loan facility to its existing US$25 million revolving credit facility with Dunebridge Worldwide.

Mountain Province owns a 49% interest in the Gahcho Kué mine in the Northwest Territories, operated by 51% owner De Beers. Dunebridge Worldwide is controlled by Dermot Desmond, who owns 32% of Mountain Province’s shares.

While diamond prices have been recovering since the pandemic disrupted the diamond market last year, a Covid-19 outbreak at Gahcho Kué forced a 22-day shutdown in February and the cancellation of Mountain Province’s May diamond sale.

“The impact of the Covid-19 outbreak at the mine, and the subsequent shut down has meant that we have had to cancel our planned May diamond sale in Antwerp,” Mountain Province president and CEO Stuart Brown said in a news release outlining the company’s first quarter financial results. “The cancellation of the sale coincided with our usual high cash spend during the annual winter road supply exercise. This meant that we faced some short-term liquidity challenges.”

Brown said the short-term loan from Dunebridge will address the company’s short-term liquidity needs, and give it time to execute on a revised mine plan that will see the process plant make up most of the lost production by increasing throughput levels and changing 0.8-mm cutoff screens to 1.1-mm screens.

“This plan shows us largely making up the lost production, revenue and cash generation during 2021 and should allow us to repay this loan by the end of 2021,” he added.

The term facility bears interest at a fixed annual rate of 10% (payable monthly), and a flat 5% fee is payable on each advance. Mountain Province can access the first US$23 million on May 17 and US$10 million on June 11.

The transaction was unanimously recommended to the board by a committee of independent directors.

This isn’t the first time Dunebridge has offered support to Mountain Province during the pandemic. In addition to a US$25-million revolving credit facility extended by Dunebridge to Mountain Province last year, the two companies also struck a US$100-million sales agreement for diamonds under 10.8 carats. Under the agreement, Dunebridge buys Mountain Province’s diamond production at market prices, with Mountain Province participating in 50% of future upside when the stones are sold.

Q1 results

Mountain Province reported net income of $7.3 million for the quarter (compared to a net loss of $41 million in last year’s first quarter) on revenue of $54.2 million ($65.4 million last year). For the period, it sold 602,773 carats sold at an average price of $90 per carat (US$71).

The company expects Gahcho Kué to produce 6.3 to 6.5 million carats this year (on a 100% basis) at production costs of $125-135 per tonne or $58-$63 per tonne treated.

With jewelry retailers reporting increasing revenue as economic activity increases, the company says the diamond industry is “bearing up well” through the challenges of the pandemic.

“There will, no doubt, still be issues to deal with in the coming months such as the intense second wave in India,” Brown said. “Hopefully with all the work being done and support we will see a recovery in India and all participants in the industry will benefit from the continued desire for natural diamonds. We believe that the recovery across all sectors of the industry will continue for the remainder of 2021.”