Mountain Province Diamonds Inc.

Good morning, ladies and gentlemen, and welcome to the Mountain Providence Diamonds, Inc. First Quarter 2021 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 13, 2021. I would now like to turn the conference over to Stuart Brown, President and CEO. Please go ahead.

Thank you very much, and good day to everyone, and thank you for those that have dialed in to the call today. Before I carry on, just a reminder of everyone on the forward-looking statement information. If you took note of that, it's your convenience. And then just probably follow the usual format with Perry and I covering the first part of the presentation, and then we'll have Reid talk to us about the market, which, pleasingly to say, is doing very well. As a general comment, taking off from our last call, tough 2020, where we had a big impact on sales, production, obviously that translates into a cash impact. We've moved into 2021, where the sales markets have reopened. We're doing very well on sales when we have diamonds. Prices have all come back, and I think you'll hear a lot more on the price in the market from Reid, so I won't repeat anything he's about to say. But what we obviously had is a very difficult 21 first quarter from the COVID issues with the mine closing. And that's the theme throughout the announcement. So everything's related to that. I think we can deal with a lot of the COVID and I will touch on what's happened on site. But I think we are in a situation now where mine production is going very well in terms of the tonnage through the plant and the carrots are starting to flow and we've got a plan to catch up the deficit as best we can by the year end, and I'll expand more on that later. Before I hand over to Perry, I'd like to touch on the market, and looking through the market headlines over the last three days, I was particularly struck by how positive they were, and there's just five I will touch on briefly, just so that we can have some evidence of confidence, and back that confidence up by sort of third-party data, as it were. First article I was looking at was U.S. sales for April have tripled. I think as we're seeing the general economic activity of the world restart as everyone emerges from the crisis and recognizing some people are still going through the crisis in different levels, but the big markets for diamonds in the U.S. and China are very strong at the moment. We've seen Israel just announce that they've had exports soar over the last quarter. manufacturing equipment of diamond manufacturing equipment sales are taking off. The U.S. diamond trade itself, so the rough imports have reached a 22-month high, highest import level since May 2019. That also augurs well for our industry. Hong Kong, which has obviously gone through some difficulties, imports have risen 47% year-on-year from 2020. is still to get to the 2019 levels there, but it's a really good sign that they're picking up on the rough, I mean, on the polished imports. So when I take all of that into context and I put it into what we're doing with our sales and what we expect on price and how we see the rest of the year flying with cash, a lot more confidence that has been building since, you know, late last year. Anyway, we'll touch more on these points later. And without further ado, if I could hand over, sorry, before I do that, I'll just, Notice I'm going to talk on the COVID issue. So on the safety front on the mine, we've obviously spent 2020 doing very well, but we obviously had a failure in 2021 where we had one positive case that rapidly became two, and that causes an outbreak, and then we had to close the mine. It was all in conjunction with working with the health people in the Northwest Territories, and I think it was the right thing to do. We had no choice. Obviously, the impact on production was severe with a 22-day shutdown, but we've managed to restart. The effects of moving people off and moving people back on is we've revised all the protocols. We went looking at what we could improve. And pleasingly, a lot of things have changed. But still, we need the people that we have working for us to get back to site. And we're nearly back to full steam. We also launched our vaccination program in conjunction with the government. And at this stage, we've got 83% of the workforce has received at least their first dose. Many people have received two doses and as the ships change we'll catch up with that. We've got another session coming towards the end of the month and some people are having their vaccinations while they're off site and having vaccinations on site. So I think we're making good progress there. We're now back up on our feet and at full production levels through the plant as I said earlier. So I think we hope to maintain this for the rest of the year and That's why we've finally been able to put a plan together with De Beers on guidance. Again, we'll touch on that a few slides on. So now I can hand over to Perry to discuss the first quarter production and the financials. Thank you.

Thank you, Stuart. Good morning, everyone. I'll just mention that all production stats I'm going to refer to are on a 100% basis, unless otherwise noted. and financial figures, I quote, will be in Canadian dollars, unless otherwise noted. We have changed the format a bit of our presentation, so if slide five gives us a little production stats, the same information you'll see in our MD&A, so I'm not going to spend a lot of time on that. So we could just move forward to slide six, which basically shows the same information over the trailing five quarters. So just to give you a view of how we performed in the quarter relative to all the quarters last year, most of which were also under COVID conditions. So obviously the big event for the quarter, unfortunately for us, was the 22-day shutdown. Just looking at it from a production standpoint, I mean, we had a 22-day stand down where we had no mining and processing operations. If you look at our total ore and waste tons moved, we were actually down about 40% versus planned about 45% given we moved 5.6 million tons. So, you know, 22 days out of a 91-day quarter is roughly, you know, a quarter of the quarter. But our actual production was, in terms of tonnage moves, was... More effective than that, so in terms of giving you some color for that, the main reasons were reduced workforce availability prior to the outbreak being formally declared. We had a number of people in contact tracing and self-isolation. That started to reduce production. And then just on the restart, it did take time to reassemble our staff and get up to closer to full crew complements. We also had a difficult restart in terms of the mobile equipment. March proved to be exceptionally cold, so we had a number of mechanical breakdowns upon restart and reduced equipment availability. So that's why, if you look at, I guess, more waste tons mined versus tons treated, tons treated processed plant was actually less affected. We processed 626,000 tons, which was only about a 15% drop off from Q4 and about 20% to 25% versus the other quarters in 2020. So I'd say mine production was more affected, processing plant production was less affected. And on a positive note, we did process a relatively high grade of 2.22 carats per ton. CARES were covered were even less affected than the other metrics. So moving ahead from production to our financial highlights, you see on slide seven just again gives a high-level summary. So in terms of revenue, we recorded 54 million Canadian dollars in revenue from the sale of 3,000 carrots at US $71 a carrot. This is slightly lower than the 659,000 carrots sold in the same period in 2020, $75 a carrot. Obviously, the production impact in February didn't have any impact on our Q1 sales. That production was sourced from fourth quarter 2020 and very early 2021. So in terms of financial metrics, our adjusted EBITDA was $19 million, fairly similar to the same period last year. Our adjusted EBITDA margin was 35%, and we did report positive net income of $7.3 million. approximately $5 million of which was a result of unrealized foreign exchange gains on the strengthening Canadian dollar. I did want to touch on the Canadian dollar a little bit. During the quarter, there was a bit of a strengthening from kind of the 127 range to the 126 range. Just since then, you know, in the five weeks since, We've seen a significant strengthening of the Canadian dollar all the way down to the $1.21 level, so a further $0.05 strengthening. I just want to note that this is a bit of a headwind for us, so we do obviously keep a close eye on the Canadian dollar since nearly all of our operating costs are Canadian-dominated. Slipping ahead to slide eight, just touching on our liquidity. We ended the quarter with roughly $14 million cash versus, which obviously reflects the two sales that we conducted. And as well, we had a further sale in April that went well. And you obviously saw, we did announce today an additional $33 million term loan facility as an extension of the existing Doombridge first lien facility standing. So that will provide us the additional liquidity we need given that we've canceled our May diamond sale in Antwerp given the February shutdown. So we expect to... draw down the $33 million from the term loan during the second quarter and repay a portion of that fairly immediately in the third quarter following our June sale. And then we expect to repay the remainder over the course of 2021. I'll touch a little bit on our production costs there in the quarter. Our reported cash costs per ton treated, including capitalized drifting, was $139 per carat. Obviously, that was impacted by the COVID shutdown. Obviously, fewer tons put through the plant. And, you know, we did have some elevated costs. as well from the fourth quarter that kind of flowed through. Obviously, on a per-carat basis, the increase was a little bit less given a higher level of grade during the quarter. So, I think with that, I'll turn the presentation back to Stuart to discuss our forward-looking guidance.