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spk00: Good morning, ladies and gentlemen, and welcome to the Mountain Province Diamonds, Inc. Second Quarter 2022 Earnings Call. At this time, all lines are in a 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, August 10, 2022. I would now like to turn the conference over to Mark Wall, President and CEO. Please go ahead.
spk02: Thanks, Michelle. Good day to everyone who's dialed in to listen to our Q2 results call. My name is Mark Wall, and I'm the President and CEO of the company. Also present on the call is Steve Thomas, our CFO, Reid Mackey, our Vice President and Head of Sales and Marketing, Matt McPhail, our Chief Technical Officer, Dr. April Haywood, our Chief Sustainability Officer, and Dr. Tom McCandless, our Vice President and Head of Exploration. The team will be available for any questions that you may have. Firstly, I'd like to draw your attention to our cautionary and forward-looking statement. This presentation will be posted on our website for anyone who needs additional time to review this statement. Mountain Province is a Canadian diamond producer, mining Canadian diamonds to the high standards of corporate social responsibility. And that is something that we continue to be very proud of. We own 40%, 49% of the Gatcho Clay Mine in the Northwest Territories, with De Beers owning the remaining 51%. We operate with a joint venture agreement with a four-person management committee, two from De Beers and two from Mountain Province. We've appointed De Beers as the operator of the asset and that has resulted in the operating systems of De Beers and Anglo-American being applied to the assets, including the high standards of corporate social responsibility, as I've already mentioned. In addition to the 5,025 hectares of joint venture ground containing the existing mining operations, Mountain Province is the 100% owner of more than 107,000 hectares of highly prospective ground that surrounds the Gatcha Clay assets. We refer to these as the Kennedy North Project, and I'll speak more about that in a few moments. Q2 has been a successful financial quarter for the company, where we saw average sales value per carat sold generally consistent with the prices achieved during the first quarter of this year. We achieved a record quarterly adjusted EBITDA, surpassing the previous record attained in Q1. At the same time, there remains work to do on the operations side, the plans to correct the dilution issues seen earlier in the year have been rolled out by the operator De Beers, as have the improvements around the primary crusher, Grizzly. There remain other areas of the operational performance that do not meet our expectations, and we continue to actively engage with De Beers as the operator around the plan to deliver these improvements. In Q2, there was some improvement from Q1 evidenced in the increases in total tons mined Autumns Mined, Autumns Treated. Myself and our Chief Technical Officer, Matt, were at the site last week with a large De Beers team to review operational performance and improvement plans. On the exploration front, the company reported successful interim drilling results for the Hearn Northwest Extension at Goucho Quay, which has intersections of Kimberlite in 60% of the 14 holes drill, with the longest intersection reaching 114.5 metres or around 375 feet. The Hearn Kimberlite is one of four Kimberlites being mined currently at Goucher Quay. The drilling results fully support the opportunity to consider the underground extraction of diamonds at Goucher Quay in the future. And we look forward to further delineating the Hearn Northwest extension with the goal of increasing the Gatcho Quay mine life. The company also reported a positive start to our 6,000 metre drilling program with three or four target areas returning kimberlite intersections. More detail to follow and work continues on this important exploration program. On the bonds, the Board of Directors is very actively engaged in this process and working with our financial and our legal advisors. At the close of Q2, we repurchased for cancellation approximately US $26.4 million aggregate principal amount of these bonds. This is a progressive step in our financial structure as we progress towards the term of the remaining bonds in mid-December. I will now hand over to our CFO, Steve Thomas, to take you through the financial results. Steve.
spk06: Thank you Mark and good morning everyone Q2 sees similar strong financial performance to that experienced in Q1 driven by consistent selling price and increased carrots sold to confirm in advance that all numbers I discuss are in Canadian dollars unless stated otherwise I will start with an overview of financial highlights for the three and six months ended 30th June 2022 a quarter which saw further financial records set. The financial results reflect significant revenue generated, higher than all previous quarters bar one, with US dollar per carat similar to the record set in Q1, and carats sold up 16%. Autumns treated were up 6% from Q1, and your stockpile grew 28%. Although Q2 did not see a resurgence of COVID cases, as arose in Q1. As Mark mentioned, the operator continues to work on improving several areas of the operation through specific plans. And so Q2 delivered a marginal improvement in operational output compared to the first quarter. The company held three sales during the quarter and sold its goods at US$130 per carat, which allied with a comparatively stronger US dollar than in Q1, saw the same $167 Canadian dollars per carat as per Q1 2022. This pegs the six-month sales per carat average for Q2 2022 at $167 per carat compared to $98 per carat for the first six months of 2021. During Q2, the company sold 587,000 carats 80,000 above Q1 2022, but 132,000 below the comparable quarter in 2021. For the first half of this year, total sales were 1.1 million carats compared to 1.3 in the first half of 2021. The first six months of 2022 saw all tons treated the same as the first half of 2021, an average plant throughput at 8,050 tons per day, just above last year's rate. However, average plant grade at 1.68 compares to 2.2 in H1 of 2021, and hence, Mountain Province's share of diamonds recovered at 1.2 million is 20% below last year's 1.5 million. The increase in cash costs of production per ton of ore produced excluding deferred stripping, from $85 per tonne in Q2 2021 to $103 per tonne in Q2 2022, reflecting the costs incurred in the significant growth in the ore stockpile from 340,000 tonnes to 1,350,000 tonnes in Q2 2022, plus the impact of an 8% lower tonnes produced in a high fixed cost operation. For the six months ended 30th of June 22, the equivalent cash costs per tonne of ore produced is closer at $110 per tonne versus $100 per tonne for H1 of 2021. As the total ore tonnes produced are almost identical over that period, and the total ore in stockpile has the same tonnes as those for Q2 standalone. Turning to an overview of the balance sheet, there have been no significant changes in the major account balances compared to the year end or at the end of Q1 2022. For the senior secured loan notes, although we bought back below par 10 million US dollars in Q2, the increase in the period end closing exchange rate from 125 at the 31st of March to 128 at the 30th of June masks this and leaves the secured note payable balance at 372 million Canadian dollars as per Q1 2021 and close to the 376 million dollars at the 2021 year end. Note that after the quarter end, we brought back a further 16 million US dollars of bonds below par, as Mark mentioned. Q2 results were impacted by interest rates increasing over the period, resulting in a reduction in the recorded warrant liability as the interest-free discount rate increased, and that gain positively impacted income before taxes. Similarly, the increase in the five-year bond yield rate resulted in a reduction in the decommissioning and restoration liability by $6.1 million in the quarter, and by $16.3 million for the first half of the year. These changes flow through the property plant and equipment carrying value in the balance sheet and only into the income statement via inventory, depending on the nature of the restoration activity. The last thing of note is that in the quarter, the company drew $10 million from the Doombridge credit facility to meet the timing of working capital requirements in between sales events. And that balance now appears as a new liability in Q2 2022. After the quarter end, we drew a further US dollars, 5 million US dollars for the same reason. Now diving into operating results. As per Q1 2022, revenue in Q2 includes the sale of additional fancy and special diamonds acquired from De Beers, through the competitive bid process held in Q1 and April. The costs of these diamonds acquired from De Beers are accounted for through the acquired cost line, and for the six months ending June 2021 equal $13.2 million, compared to $7.7 million for H1 2021. Revenue includes also proceeds from De Beers for our share of fancies and specials sold to them in June. As a result, Q2 produced $98 million in revenue and $182 million for the first six months of the year compared to $75 million and $129 million for the same period in 2021. Driven by revenue performance in Q2, the company generated $51.4 million earnings from operations, a new record surpassing the Q1 2022 record of $42.8 million and significantly above $32.8 million for quarter one 2021. This aggregates to earnings of $94.2 million for the first half of the year, double that achieved in the first half of 2021. Moving to income before taxes, the quarter produced $28.3 million, almost identical to Q1 and compares to $22.5 million in Q2 2021. Q2 net income of $22.6 million includes two large impacts mentioned in my introduction. Firstly, a $7.3 million gain in other income as the warrant liability being mark to market reduced. The equivalent reduction in Q1 2022 was $5.9 million, but not applicable in Q1 of 2021, in Q2 of 2021, I beg your pardon. Conversely, Q2 net income suffered a loss of $11.7 million as the Q2 ending exchange rate applied on the US$290 million of bonds outstanding was 1.28 compared to a Q1 2022 closing rate of 1.25 applied to the US$300 million outstanding at that quarter end. The comparative foreign exchange gains in Q1 2022 and Q2 2021 were US$4.3 million and $5.3 million, respectively. Both the foreign exchange and interest rates will continue to generate potentially material changes in net income from period to period, given the scale of the underlying liabilities on which they are calculated. Q2 also saw a derivative loss of $1.4 million compared to $811,000 in Q2 2021 and $77,000 in Q1 of 2022. That derivative calculation is in respect of $78 million of costless collar currency hedge instruments in place and the right to repay against the senior secured notes early. The last material movement in Q2 impacting Q2 net income that I will highlight is the non-cash deferred tax charge of $5.7 million compared to a charge of $4.2 million for Q1 of 2022 and $0 in Q2 2021. This arises given the significant production income earned in the quarter, but for which tax is not payable given the relief from current tax pools and also reflects the impact of the impairment reversal that took place at the year end. Q2 net income of $22.6 million equates to 11 cents per share on a basic and diluted basis. which is the same as that reported in Q1 2021 and the same as Q1 2022 on a basic basis. For the six months ended 30th of June 2022, the company has generated 22 cents per share compared to 14 cents per share for the same period in 2021. In conclusion, quarter two has seen strong financial results enabled by continued strong pricing achieved through our dynamic sales process. These results position the company well to deliver our aim to improve the strength of the balance sheet with reduced debt needs and so attract financing alternatives which are being sought on the best possible terms. Thank you for your attention and I will now pass the presentation back over to Reid VP and Head of Diamond Sales and Marketing.
spk01: Thank you, Steve, and good morning. After the previous record price performance of last year through to February, Russia's invasion of Ukraine had a disruptive impact on the rough market. Despite sporadic reports of Russian rough entering this market, the supply is still considered severely interrupted. Efforts to halt the supply of Russian diamonds to the US widened during Q2, and most major retailers and industry bodies declared buying policies to prohibit the purchase of Russian diamonds. Our Q2 sales results reflect a solid demand environment, particularly in the US, the world's largest market for diamond jewelry, which continues to report good results at retail. Although current macroeconomic conditions are undoubtedly weighing on consumers and the market's confidence, industry consensus is that long-term fundamentals remain strong. The company's rough market sales continue to be well attended with competition levels higher than previous years. At our three most recent sales, we recorded consecutive price increases at each. And with that, thank you for your attention and I will now pass you back to Mark.
spk02: Thanks, Rick. So to close, Looking back to the strategy, there is no change to the strategy that we've previously discussed. Number one, optimize the business. Number two, drive sustainable development. Number three, optimize the capital structure. Number four, extend the mine life. And number five, find new mines through exploration. So on focus area number one, we have some work to do. While the diamond market was very strong in H1, leading to record quarterly EBITDA in Q1 and then again in Q2, operational performance can still improve. We continue to engage with De Beers on operations performance to drive the bottom line, including conducting joint site reviews with De Beers' senior management and technical staff. On Drive Sustainable Development, the team continues to work hard to further its community involvement, following its national award for community engagement excellence received from the Mining Association of Canada recognising the collaborative relationship between the Gatcha Kwe operation and the Indigenous communities. On the capital structure, we continue to review opportunities as we manage our debt position to achieve sustainable long-term debt. We have taken a step towards capital structure improvement, as mentioned, by the recent repurchase for cancellation of approximately US$26.4 million aggregate principal amount of the 8% senior secured second lien notes. The company continues to be actively engaged in evaluating options to address the bonds with a focus on those that are friendly to equity holders. And importantly, I would like to thank our major bondholders for their continued support, including Mr. Dermot Desmond, our largest shareholder and significant bondholder. With regard to extending the life of mine, we've reported successful drilling results for the Hearn Northwest extension, supporting the consideration for future underground extraction of diamonds at the Gatcha Quay operation. In addition, our team is continuing its work on finding additional ore in the Hearn open pit. We are progressing well towards our plan to find new mines. We updated the marketing Q2 with a successful interim result from 3,000 metres of drilling, part of a 6,000 metre 2022 drill program. Three of the four target areas returned kimberlite intersections, with kimberlite intersected in 16 of 20 holes drilled. Further results are pending from the remaining drill program and will be released in due course. Work on this continues. With that, the team will take any questions that you may have.
spk00: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press 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 they are received. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the hands up before pressing any keys.
spk04: One moment please for your first question. Once again, ladies and gentlemen, if you do have a question, please press star 1 at this time. There are no questions at this time. Please continue.
spk03: Hi, everyone. Matt McPhail, Chief Technical Officer. I'm just taking questions from the webcast, and I'm going to read this one out. The question that we have on the webcast is, how do you envision the relationship developing with De Beers on the Kennedy North property?
spk02: Thanks, Matt. I will take that one. I would say that on Kennedy North, we are reviewing the existing Kimberlite deposits in the current price environment, and that work is ongoing. And we continue to discuss with De Beers opportunities that may exist to integrate those deposits into the mine plan. And those discussions are ongoing and there's no particular timeline for them.
spk05: Okay, great. That's the only question I have on the webcast. Okay.
spk02: With that, thanks, team. Thanks, everyone, for dialing in. And we will end this call.
spk00: Thank you. Ladies and gentlemen, this does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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