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spk05: Good morning, ladies and gentlemen, and welcome to the Mountain Province Diamonds Incorporated third quarter 2021 earnings call 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 Wednesday, November 10th, 2021. I would like to turn the conference over to Jonathan Comerford. Please go ahead.
spk00: Good day to everyone who has dialed in to listen to our Q3 results call. My name is Jonathan Comerford, and I am the chairman of the company, and I've been acting as interim CEO since Stuart Brown's departure last month. I would like to take this opportunity to again thank Stuart for his contribution to the company over what was a challenging time. You will hopefully have seen yesterday's announcement of a new appointment. I am delighted that Mark Wall will be starting from next Monday as president and CEO. Delighted not just because it brings an end to my short role as interim CEO, but also because I think Mark will do an excellent job. Mark brings an enormous amount of operational and joint venture experience, and I'm looking forward to working with him as the company enters a very exciting chapter in its history. I would also like to welcome Dan Johnson to the board. Dan is hugely experienced in Arctic diamond mining and will add enormous value and support to Mark and the entire board. As ever, before I start, I would like to draw your attention to the legal language covering forward-looking information and reporting information. I would like to start by identifying some of the key highlights from the quarter. I will then pass over to our CFO, Perry Ying, to discuss the financial performance, then our VP of Diamond Marketing, Ray Mackey, to discuss the diamond market, and then I will close with some comments on what our focus will be for the coming months. The team will then be available for any questions that you may have. A year is a very long time in the diamond industry. 2020 was a tumultuous year. COVID hit the sector hard. Mountain Province's operations at its very basic levels can be kind of simplified as follows. It has a 49% interest in a mine in the Northwest Territories in Canada. Our share of production from this mine is cleaned and sorted in India, and then it is sold at approximately 10 sales a year in Antwerp. At one point or another over the last 18 months, COVID impacted each of these operations. Initially, Antwerp was shut down for sales, then India sorting centers had their challenges, and finally in February of this year, the mine, which did so well to stay operational throughout 2020 when many of our peers could not, was forced to shut down for over a month. Health and safety is of paramount importance to us, and I would like to thank all of our partners and staff along that chain for the measures and protocols that they put in place to minimize the risk that COVID has on our staff and our operations. I would also like to thank our major shareholder, Dermot Desmond, whose support allowed the company to get through these very challenging times. Now onto a more positive news. While COVID still represents a significant risk and we cannot let our guard down, Gaucho Kwe is the jewel in the crown of the Anglo operations in terms of vaccinations. with close to 100% of the staff fully vaccinated. It also has very stringent protocols and measures to minimize the risks. Being so isolated in the Northwest Territories has actually its advantages. Mountain Province has also hit a number of other milestones in the period with over, period ending Q3, with over $1 billion in sales and something we are equally proud of with over 1,100 days without a lost time injury. In terms of mining, that is exceptional, and the team at GK deserve a lot of credit for that. As traumatic as 2020 was, the recovery of the diamond sector has been equally dramatic. I have been involved with Mountain Province for over 20 years, and over that entire time, there has been talk about supply and demand imbalance and the rough sector and the diamond prices breaking out. It has been talked about for so long, I was nearly beginning to doubt myself. This year, the stars seem to align, and it appears that the long-awaited inflection point has finally occurred. Like many things, this breakout was driven by both supply and demand. On the supply side, Argyle shutting down certainly helped. It took out the biggest diamond mine in terms of carrots in the world. This disproportionately helped mountain provinces. Our production was quite similar to Argyle. It is worth noting, that with Argyle gone, the GK mine is now the third biggest diamond mine in the world in terms of carrots produced and by far the newest. We celebrated just our fifth year in production this year. Just turning to the general diamond market, in total diamond production has fallen from 176 million carrots in 2006 and 144 million carrots in 2019 to just 116 million carats this year, a drop of approximately 35% over the last 15 years. Diamond production in the medium to long term is only heading in one direction. In terms of demand, I believe the strength of the recovery in diamond demand has taken a lot of commentators by surprise. Figures that have been absolutely exceptional. According to MasterCard jewelry sales in September in the US, we're up 57% compared to the same period in 2019, which is pre-COVID. It is not just the U.S. either. China's Chow Chow Fuchs, the largest jewelry chain in the world, saw retail sales in the quarter ending September 2001 of 56% year-on-year. Instead of jumping on a plane to celebrate a birthday or an anniversary, many are instead buying their loved one's jewelry. We've also seen a substantial rise in self-purchasing. There are strong reasons also to believe that these are not temporary factors and will continue in the medium to long term. With demand outstripping supply, the gap has been filled to date by the big sellers selling down their inventory. De Beers and Elrosa combined sold 65 million carats in the first nine months of 2021 and produced just 48 million carats. That means they reduced their inventories by over 17 million carats. According to Paul Dominski, the two major players now have less, have little excess inventory left to sell. This bodes very well for diamond prices going forward as his inventory is no longer there to plug the gap. Like for like, we are seeing prices for our goods up over 40% from pre-COVID levels. And we have seen this strength continue in recent sales that we just closed. This price growth is now feeding through to our results. We have adjusted EBITDA in this quarter of $41 million. This is the second highest EBITDA figure we have announced since our inception and compares to just 15.3 million in the corresponding period last year. Year-to-date, EBITDA is close to 100 million compared to just 14 million in the nine months ending 2020. Moving on to the production results, If you look at slide five, you'll see our high-level production stats for the quarter. Compared to the same quarter last year, we've improved on total tonnage mined, ore tons mined, and ore tons treated. However, due to mine sequencing, that part of the ore body, we had access to this quarter. Grade was slightly lower than Q3 2020 at 1.88 carats per ton. This resulted in quarterly mine production of 1.56 million carats. We were quite pleased to see the strong mining performance in the quarter, the best we've seen since 2019. We have had a number of record days in recent weeks in terms of mining that is very encouraging. These good mining rates have allowed the mine to generate a sizable stockpile ahead of the plant, which bodes well for car production for the remainder of the year and provides a good buffer should any disruption to mining occur. The process plant continues to run well at approximately 9,000 tonnes per day, during the quarter resulting in 832,000 tonnes treated. As I mentioned previously, recovered grade came in sequentially lower than the previous quarter at 1.88 carats per tonne. Moving ahead to slide 6, you can see our quarterly stats on a sequential basis over the prior six quarters. You can see that GK has emerged from the difficulties seen during the challenging period during the COVID pandemic. High rates of vaccination at site, along with improved labor ability, has allowed the mine to improve overall mining performance quarter on quarter. I will now pass over the presentation to Perry, who will cover the financial performance. Perry.
spk06: Thanks, Jonathan, and good morning, everyone. As Jonathan mentioned, I'll cover the financial highlights for the third quarter, which has continued the trend of strong results that we saw in the second quarter. As per normal, all financial figures I quote will be in Canadian dollars unless otherwise noted. Turning over to the next slide, first in terms of top line revenue, it was one of our strongest quarters in the company's history with reported revenue of $94 million, which is the third highest revenue reported in a quarter. The two other quarters where we had higher revenue were both three sale quarters, whereas we only completed two diamond sales in this quarter. The next highest quarter where we reported two sales was the fourth quarter of last year where we reported $80 million in total sales. So over $14 million more than that on a comparative basis. So our quarter's results comprise of 1.03 million carats sold at US $72 a carat, which is nearly double that compared to 956,000 carats sold at US $37 per carat in the prior year. Note that in the prior year third quarter results, those excluded the sale of fancies and special diamonds. Overall, in terms of net income, this translated into net income of $8.8 million or $0.04 a share, which is inclusive of a $9.9 million foreign exchange loss, which is primarily unrealized and related to the fluctuations in the Canadian dollar, which happened to weaken relative to the U.S. dollar at the end of the third quarter. So basically on the translation of our U.S. dollar denominated debt. Another metric to measure our performance is, as Jonathan mentioned, is through our EBITDA generated, which was over 41 million for the quarter and nearly 100 million to date. This is reflected in our EBITDA margin. If we turn to the next slide, sorry, yeah, the prior slide, yeah, reflected our EBITDA margin at 44%. And on the following slide, you see our earnings from mine operations were $30 million for the quarter. Sticking with this slide, I'll cover a couple of other metrics which are included, which include our production costs. Our cost per tonne treated was $101 per tonne for the quarter and $110 per tonne on a year-to-date basis. Significant operating improvements have been realized in the quarter despite continued pressure from COVID-19 in the community in the Northwest Territories. Our costs are slightly higher both on a per tonne and per carat basis compared to our 2020 figures. which can be attributed to the benefits of Canadian government support programs relating to COVID-19, which were received in 2020, but not in the current year. The impact of the COVID-related shutdown of the mine in the first quarter of 2021 and slightly higher diesel costs also contributed to slightly higher costs. We believe that given the strong performance of the mine and process plant since early summer, we are currently on track to come in below our low end of cash cost guidance, including capitalized stripping for 2021, which was set at $125 to $135 per tonne treated and $58 to $63 per carat recovered. On the CAFAC front, we spent $1.3 million for the quarter, and $9.7 million year-to-date compared to our guidance amount of $21 million for the full year. At this point, we do expect to come in below that $21 million figure, although I can't give you specific numbers because there are some timing variances in December that we'll have to true out for. Turning to the balance sheet, you see that we ended the quarter with a healthy cash balance of $42.5 million. We are pleased to report that we have fully repaid and retired the term loan facility provided by DuneBridge, which helped us weather the missed June diamond sale. In the end, we drew just over $30 million from the term loan and repaid it in full between the end of June and September. Additionally, we made a further $5 million repayment on our revolving credit facility to reduce our current outstanding balance to US$20 million. Looking ahead to the remainder of the year, we'll continue to work with De Beers to focus on operational efficiencies to mitigate cost pressures we see in the Canadian mining industry. The stronger Canadian dollar, higher diesel prices, and tight labor market are all challenges facing the industry. Fortunately, we are seeing top-line diamond price growth well ahead of these inflationary pressures. So with that, I'll turn the presentation over to Reid Mackey to give you more color on that and our sales and marketing in particular. Thanks, Barry.
spk02: Overall, the Q3 diamond market was buoyant with rough supplies low and demand high in anticipation of the strong holiday retail season. While last year's COVID challenges made rough diamond sales undeniably difficult, Mountain Province managed to maintain a marketing strategy based on the confidence that diamonds have historically done well after crises, and we've certainly seen that in our sales this year. In terms of rough diamond supply and demand fundamentals, we've seen reduced supply from the major diamond producers reflect here in the NISQI's inventory analysis, which has balanced inventories through the diamond pipeline and created a healthier midstream. Further, as discussed by Jonathan, the closure of Argyle has permanently removed considerable carrots from the market, which has created some shortages in smaller sizes, browns, and more commercial quality diamonds, categories which are closely aligned to Mountain Province's production profile. Encouragingly, in recent sales, we've noted rising demand for these commercial qualities, which is translating into considerable price growth. 45% year-to-date and 47% up on pre-COVID prices, indexed on a like-for-like basis. Further downstream on the demand side, holiday retail sales in the U.S. are forecasted to be particularly strong, and in China, despite recent uncertainties, jewelry demand there remains steady with major local and international retailers continuing to report solid results. This has brought renewed confidence to the rough buyers regarding the sustainability of these recent price gains, for the short and medium term. Lastly, on to product at GK, the size frequency distribution of the ore bodies being mined at depth appear to be trending towards a course profile, which has delivered positives in terms of overall average run of mine price. We're looking forward to our planned mining areas continuing to deliver this higher production profile in the medium to long future. And with that, I'll pass it back to you, Jonathan.
spk00: Thank you, Reid. In summary, overall, we have seen a very strong third quarter, which allows us to enter the final months of 2020 and the start of 2022 on a much stronger footing. Optimization of the life of mine plan, combined with increased diamond prices, are allowing us to have a much improved financial outlook and a good level of cash heading into the end of the year. As we enter 2022, we believe that we're in a very good place in terms of the market. with a new CEO who the board are very excited about working with. With Mark leading the team, the focus over the next few months will be on four main items. One, we are continuing to work with our partner De Beers to maximize the efficiencies of the mine and continually improving the life of mine plan. We've made good progress here, but a lot more work needs to be done with De Beers. Two, We're going to put much more of a focus on investor relations as we feel we have a good story to tell now and a good ESG story to tell too. And as a source of much concern to us that despite the improved performance of the company and the strong diamond market that this has not been reflected at all in the share price of the company. Our shareholders have had a horrible time with the stock and we are very conscious about that and we're trying to do something about that. Kennedy and the two main items in which we're going to be focusing on, I'm going to take most of our attention to the next two items. And number three is Kennedy. The JK joint venture covers just 5,000 hectares over four mining leases. There are a couple of additional targets to drill at GK, and there is the potential by including probable resources to extend the mine by a year or two beyond 2030, but probably a little beyond that without going underground. In contrast, the Kennedy North project, which is 100% owned by Mountain Province, incorporates 22 federal licenses and 97 claims covering over 106,000 hectares surrounding the GK mine on all sides. That is 20 times the size of the land fortune owned by GK. It has five known kimberlites with three having resources. Financial constraints in the last few years have meant that we haven't been able to do the work at Kennedy that we would have liked to have done. Our current improved financial position means that we are now in a position to put more of a focus on Kennedy. Kennedy is the future of this company, and we are conducting aggressive exploration to add resources to the project. We have identified two new geophysical targets immediately adjacent and identical to the Faraday kimberlites, though we plan to test in winter 2022 with up to 2,000 meters of drilling. This past summer, we collected over 600 till samples, with half of those collected on new claims staked in 2022. We haven't done a till sample program like this in over 20 years on the project. We have the best team in place for exploration at Kennedy, and we expect positive results to come very soon. Four, on the bonds, finally, A lot of our attention over the coming months will be on the $300 million U.S. dollar bonds that expire in December 2022. I can't say much on this call, but the issue is very much in focus. Our bonds are very tightly held by very friendly parties. All are very supportive of the company and the sector and want to stay involved. Improvement in the diamond prices is certainly helping. We would hope to be in a position to give an update on this in the coming months. I'm sorry, I can't say more at this juncture. We are very conscious about giving some clarity to the market as soon as possible on this issue as we're very aware that the uncertainty that it is creating, in particular creating an overhang on the equity side. That is it for me. So, operator, I would like if you could now open the lines for any questions that anyone may have.
spk05: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order that they are received. Should you wish to decline from the polling process, please press the star, followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Ladies and gentlemen, as a reminder, should you have a question, please press the star, followed by the one. Your first question comes from Daniel McConvey from Rossport. Please go ahead.
spk01: Hi. Good day, everyone. Jonathan.
spk05: Hi, Don.
spk01: Hi. Two questions. One, just the last comment there about mining deeper into the pit now, and I'm not sure if I heard the comments right, that you're getting into a richer part of the ore body.
spk03: Is that what was said? Reid, do you want to take that?
spk04: I think Reid had mentioned, this is Matt McPhail, VP Tech Services. The SFD is coarsening slightly, so the mix of product has become coarser. Richness, the grade is the grade, but the skewed to the larger size classes is becoming a little bit more apparent. Reid, do you have any more color on that?
spk02: No, that's correct, Matt. So we're seeing a coarsening of that size frequency distribution, which obviously feeds into a larger average carat size, which is a considerable factor when averaging up your dollar per carat for the production as a run of mine.
spk01: Okay, and you're getting into that now, and how long will you be – is this something that's going to last several quarters?
spk02: in the plan i i i can't i can't speak to that from where we're where we will be mining but um from what we've seen um and and we'll be mining in similar areas uh to to what we mine today um we have seen this coarsening uh size frequency distribution so um i would expect uh we'll see that into the next year okay thank you jonathan this week yes sure
spk01: Kennedy, there's a lot of exploration, well, a lot of things outside of Kennedy you're hoping to get into reserves over the course of the next year or two, as I understand it, as you do the mine plan. But Kennedy, you raised my ears when you said that's the future. I realize it is. How do you approach De Beers in terms of having them buy into the plan? Would the plan be to drill this all out over the next year or two and convince your partner that this is the way to go, or how would you think about that process?
spk00: Well, I think where we are, I suppose, is a couple of figures to bear in mind that I mentioned. First, we have 20 times more land for exploration purposes than GK. And GK, you know, is based on, you know, the current life in my opinion. I think we can probably extend that a little bit, probably to probable and might get lucky in some other stuff. But the reality is that the future is Kennedy. You know, we have both partners have spent over a billion dollars building a processing plant and surrounding infrastructure at GK. We've invested heavily in the region. Neither of us will want to walk away from an investment in 2030 when there's so much potential to extend the mine life at Kennedy. So, you know, what the plan will be, obviously, you know, the plant has a life of mine plan out to 2030 at 3.6 million tons per annum. So that's a full capacity. We would obviously have liked for, you know, some of the higher grade zones in Kennedy to be incorporated in that mine plan earlier. But, you know, what we are doing at the moment is looking at how we can extend the resource beyond the 10 million or so tons that we have already proven at Kennedy. And, you know, through Greenfield exploration, we're looking at trying to identify a lot of unexplained kimberlite trails that we need to kind of get to the bottom of. And we want to drill these two new targets. And I don't think, you know, I think that basically if we hit I think we have some excellent pipes already at Kennedy and discovered some additional pipes, and I think it would make some very interesting discussions with De Beers or a third party after that.
spk01: Okay.
spk00: Great. Does that answer your question?
spk03: Yes. Thank you.
spk05: Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the 1. There are no further questions at this time. Please proceed.
spk04: Operator, we have a few webcast questions that I'd like to read out that came in online, and then we can answer them. So I have a question here from Kieran Hodgson at Panmure Gordon. The question is, with the diamond market set to remain balanced with limited incremental sources of goods available, will the company seek to maximize returns per carat as previously indicated? Jonathan?
spk00: Look, as I pointed out, there is an imbalance going forward. That gap has been built by Alrosa and Tabeers, effectively selling down nearly 19 million of inventory this year to date. What we want to do, and maybe we can talk more about this, we want to maximize the value of the cards we get out of the ground. And we're looking at various initiatives on how we can actually do that. I think we've got a very good product. And, you know, I think the Canadian diamonds have an awful lot of advantages over what I'd see many of our peers in terms of sustainability and in terms of the, you know, the jurisdiction in which they come from. And I think that's certainly an area in which we're hoping to do that. But yes, I think the supply and demand, as I pointed out, we're the third biggest diamond mine in the world at the moment. And certainly there are opportunities for us and we're really trying to get an extra couple of dollars a car. That's really what we want to have to try to do. Reid, do you want to add to that? Yeah, certainly.
spk02: Yeah, I think you hit the nail on the head. The supply-demand imbalance has kind of created a nice platform from which to, in terms of price, to launch kind of value-added activities from. And Origin seems to be a trend. It's been more than a trend. It's been ongoing for several years now where the major retailers are starting to market based on Origin. And obviously, with our product coming from Canada, we kind of hit a couple of points in terms of Origin, especially on the... on social responsibility and the environment. So more people want to know where the diamonds are from. And I think there are plenty of opportunities that we can build on here with this fundamental price increases that we've seen over the past year.
spk04: And then the second part of that question from Kieran or a separate question was when considering 2024, do you envision a plan being communicated within the next 12 months? I, as a technical representative, I can comment on that if you don't mind, Jonathan.
spk01: Yeah, yeah.
spk04: The plan is, the company, we will be working on an NI 43-101 report to be published before the end of the first quarter of 2022. that will have a revised mine plan with new information available.
spk03: And that's about all we can say about it right now.
spk04: I will move on to... Yeah, there's some questions from Scott McDonald at Scotiabank. It's a multi-parter. Um, 1st question would be on an updated life of mine plan. When do you expect to be able to update the market on this? I think I just answered that before the end of the 1st quarter 2022. Can you comment on the scope of the changes to the plan reserves under consideration, including the potential impact on the revised for 2 though? And the recent exploration exploration results on site. Not at this time. The work is being done right now. We don't want to speak to things that aren't complete yet, so the answers to those questions will be in that technical report. Any changes to your US $48 per carat price assumption for Tuzo? Formally, at this time, there are no changes to that assumption, but I think we can all appreciate that the recent buoyancy in the diamond market may lead us to revisit that number when we start looking at our forecast in this technical report. So that's the three questions.
spk00: Yeah, just to add to that, look, I think it's fair to say that the categories that we've seen in TUSO have been disproportionately going up kind of more than many of the other pipes. So I would be expecting to see an improvement in that based on the last a couple of sales. But Reid, again, do you want to talk about that?
spk02: Because I think it's a pretty big point. Yeah. The bifurcation, I think it was referred to, that's occurred since 2017 between smalls and large seems to be narrowing and coming back to more normal, sustainable levels in terms of price relativities between smaller goods and larger goods. And And we'd expect the recent price increases that have happened with smalls and more commercial qualities would feed in very positively to some of the bodies like Tuzo.
spk03: Okay, great. If there's nothing further, I have another question on the webcast.
spk04: This is from Victor Consoli at Avenue Capital Group. The question is, the grade has declined from 2.19 last year to 1.88 this quarter. Is this declining trend that will continue? I can take this one. No, it's a feature of mine sequencing. We mine different parts of the pit at different times of the year and some kind of variate along the mean and we don't expect this declining trend to continue that those are all the questions I have from the webcast operator operator are there any other questions no more questions on the conference
spk03: Okay. Sorry, keep going.
spk00: Sorry, if there's no more questions.
spk04: Sorry, we've just got one more come in right under the line here. I'll read the question. It's a question that Jonathan can handle. The question, with regard to the bond refinancing, would you give us an idea of the size of the new bond offering being sought? From Stephen Monison of Monison Capital Partners.
spk00: Sorry, could you repeat that? The size of the new bond?
spk04: Yeah, with regard to the bond refinancing, would you give us an idea of the size of the new bond offering being sought?
spk00: Well, I'm not really sure what that means, but I think what the reality is is that, you know, we have $300 million of a bond repayment that needs to be repaid by December of next year. And, you know, I think what we are doing at the moment is that, like last year, we were obviously in a very challenging position. And I'm glad that I wasn't being asked this question about the bonds last year. But we are in a different position than what Petro faced when they did a substantial debt for equity swap. We do face challenges, but the improved financial situation and the diamond prices have certainly helped It gives us a lot more options than we would have had last year. So there is, you know, we expect the bonds are trading at 90. We'd expect to make them hold.
spk03: If that answers the question. Okay.
spk04: That's the end of all of the webcast questions that I have.
spk03: Operator. Ladies and gentlemen.
spk00: Okay. If there are no more questions, again, I would like to close by thanking all of our long-suffering shareholders and bondholders for their patience and support. It has been a very long and tough journey with more downs than ups. It just feels like we have now turned a corner, and I'm really quite excited about the future. So, again, I'd like to thank you all and wish you the best.
spk05: Ladies and gentlemen, this concludes... This is your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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