Mountain Province finds diamond buyer
Needing cash, miner looks inside to market Gahcho Kué gems
Last updated 6/11/2020 at 12:59pm
Mountain Province Diamonds Inc. June 8 announced it has found a buyer of US$50 million of diamonds in a market otherwise closed to the sale of the gems due to COVID-19.
Mountain Province owns a 49% joint venture interest in the Gahcho Kué diamond mine in Canada's Northwest Territories – De Beers Canada Inc. owns the remaining 51%. As its sole producing asset, Mountain Province relies on the sale of its share of Gahcho Kué diamonds to fund its portion of the operation, as well as corporate expenses.
In mid-March, however, the diamond trading floors in Belgium and Israel were closed due to the coronavirus pandemic. This, along with the closure of retail outlets and cancelling of gem shows around the globe, has essentially shut down the traditional markets for diamonds.
As a result, Mountain Province has been seeking alternative avenues to sell its share of diamonds from continued operations at Gahcho Kué. This led to an agreement with Dunebridge Worldwide Ltd., which has agreed to buy Mountain Province's run-of-mine diamonds, under 10.8 carats, at the prevailing market price at the time of each sale.
The first sale of roughly US$22 million of Gahcho Kué diamonds took place on June 11.
This transaction provides Mountain Province an outlet for its run-of-mine diamonds at current prices and allow it to also share in additional gains when diamond markets recover.
Dunebridge is charging Mountain Province a fee of 10% of the value of each sale for the first year and 10% per year pro-rated for years two and three. After the fees, plus an expense for future sales, any surplus realized from future sales will be shared equally between Dunebridge and Mountain Province.
This transaction is expected to provide Mountain Province the short-term liquidity it requires as it awaits the gradual re-opening of the global economy and traditional selling methods.
Dunebridge is controlled by Dermot Desmond, a company insider that owns slightly more than 32% of Mountain Province's stock.
A committee of Mountain Province directors, all of whom are independent of management and Desmond, concluded that the sale is reasonable and represents the best alternative for Mountain Province in the circumstances.
After reviewing the findings of the committee, the terms of the sale were unanimously approved by the independent members of Mountain Province's board, which did not include Desmond or Mountain Province Diamonds Chairman Jonathan Comerford, due to their conflicts of interest.
Due to serious financial difficulty, Mountain Province was not in a position to file a material change report 21 days prior to closing of the sale because the terms and insider participation were not yet established by that time, and Mountain Province elected to expedite closing of the sale for sound business reasons.
The sale has received conditional approval of the Toronto Stock Exchange and Mountain Province's lenders.