Mountain Province optimistic about rough diamond market

Diamonds recovered from the Gahcho Kue Mine in the Northwest Territories. Source: Mountain Province Diamonds Inc.

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Mountain Province Diamonds Inc. [MPVD-TSX, NASDAQ] sees reasons for optimism in the rough diamond market after reporting its fourth quarter 2019 production and sales results from the Gahcho Kue Diamond Mine in Canada’s Northwest Territories.

Record quarterly production of 1.98 million carats at an average grade of 2.11 carats per tonne, marked a 28% increase from the fourth quarter of 2018.

Full year production of 6.82 million carats at an average grade of 1.90 carats per tonne beat the previously (upwardly) revised full year guidance of 6.7-6.8 million carats, but was down 2% in comparison to 2018. Mountain Province confirmed that full year cash costs should come in within the previously downwardly revised $95-$105 per tonne.

In the fourth quarter of 2019, 771,799 carats were sold at an average value of US$64 per carat for total proceeds of US$49.2 million. That compared to 822,548 carats sold at an average value of US$65 per carat for total proceeds of US$53.6 million in the fourth quarter of 2018.

During 2019, 3.28 million carats were sold at an average value of US$63 per carat for total proceeds of US$208.2 million. That compared to 3.25 million carats sold at an average value of US$74 per carat for total proceeds of US$240 million in 2018.

“Sentiment in the rough diamond market became slightly more optimistic towards the end of 2019 and has remained relatively positive as the market prepares for the first selling cycle of 2020,” the company said in a press release. Mountain Province also said its medium to long term outlook for rough diamonds remains positive.

“The major producers reported lower levels of sales through 2019 which, together with the stronger retail selling season, will help normalize inventory levels in the cutting centres,” the company said.

“In addition, anticipated mine closures over the next 12-18 months will help to establish a more balanced supply and demand equilibrium in the diamond market,” it said.

“Importantly, consumer confidence and spending remain strong, particularly in the U.S. and Greater China which together account for approximately 65% by value of global retail sales of diamond jewelry.”

However, as mining activity at Gahcho Kue continues to miss expectations, analysts have warned that this could lead to more shortages of high quality ore in the future (as happened in the third quarter of 2019) and longer term planning issues.

On Friday, Mountain Province shares eased 1.7% or $0.02 to $1.17. The shares are currently trading in a 52-week range of 92 cents and $1.65.

Gahcho Kue is a joint venture between De Beers Canada Inc. (51%) and Mountain Province (49). It is a fly-in-fly-out operation located 280 km northeast of Yellowknife.

Gahcho Kue is also the world’s largest new diamond mine and is expected to produce an average of 4.5 million carats per year (100%) over an initial 12-year lifespan.  Production during the first five years (2017 to 2021) is expected to average 5.4 million carats annually.

Back in June, 2019, Mountain Province announced the discovery of the “Wilson” kimberlite on the Gahcho Kue property. The Wilson kimberlite is located roughly 200 metres east of the Tuzo kimberlite and was discovered during drill testing of geophysical and geological anomalies in the area. The company said it lies well within the open pit mine plan for the Tuzo kimberlite.

The new discovery was named after Alice Evelyn Wilson (1881-1964), who is officially recognized as Canada’s first female geologist.

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