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Soft diamond market impacts Gahcho Kué

North of 60 Mining News - April 5, 2024

Mountain Province Diamonds Inc.

Mountain Province saw a steep decline in diamond prices for Q4 2023, an average price of C$87 (US$64) per carat compared to the C$127 (US$94) per carat in 2022.

Gahcho Kué Mine production matched 2022 numbers, but a steep diamond price decline made 2023 more challenging for Mountain Province.

Mountain Province Diamonds Inc. April 1 announced the financial and operating results of 2023 as well as its performance results from the fourth quarter at its Gahcho Kué Mine in Canada's Northwest Territories, ultimately seeing a downturn from its record 2022 due to oversupply in the diamond market.

Mountain Province Diamonds Inc.

Covering 2,965 acres, Gahcho Kué is an open pit operation with three active kimberlite pipes: 5034, Hearne and Tuzo.

Owned under a joint venture between Mountain Province (49%) and De Beers Canada Inc. (51%), Gahcho Kué produced 5.56 million carats of diamonds during 2023. While this was barely a percent difference from the 5.52 million carts produced in 2022, a softening market caused a significant dip in revenue.

The miner sold its portion of the diamonds produced at Gahcho Kué, totaling 2.72 million carats, at an average price of C$121 per carat (US$90) for total proceeds of C$328.6 million (US$243.8 million), while the number did not appear too much lower, diamond prices toward the end of the year caused a net loss of C$75.8 million in the fourth quarter.

A major downturn in diamond prices fell to an average of C$87 per carat (US$64) in Q4, resulting in a loss of C$43.7 million (US$32.2 million) for the overall year.

The company said that after its record-breaking year in 2022 when prices appreciated 44%, 2023 was more challenging for the diamond industry. Retail activity and consumer demand dwindled in the U.S. and Europe amid global inflation concerns as well as the ongoing conflicts in Ukraine and the Middle East. Further, Chinese retail has also remained persistently quiet.

Toward the end of the third quarter, major producers postponed or even canceled sales until more favorable market conditions prevailed. This caused Mountain Province to strategically stock selected categories of its product to maintain price competitiveness.

Additionally, the company added that in October, India's Gem and Jewellry Export Promotion Council, which represents Indian manufacturers, introduced a two-month self-imposed import ban.

This measure reduced manufacturers' inventories and moved polished goods downstream for the retail holiday season, anticipating restocking. However, even though diamond prices steadied by year-end, the company sold most of its strategic stock at a premium to withdrawn prices.

"Coming from record 2022 where multiple company financial records were broken, 2023 saw reduced revenues primarily due to a softening market," said Mountain Province Diamonds President and CEO Mark Wal. "Driven by this softening, the company, along with its JV partner De Beers Group, made the prudent decision to limit discretionary spending, including continuing internal studies on a potential transition to underground mining at Gahcho Kué to extend mine life. The company intends to take all reasonable steps to maintain the underground mining optionality."

However, not all was negative. Despite the challenging market, during 2023, Mountain Province paid down US$18 million (C$23.4 million) in senior secured second lien notes. The company added that while it would have preferred to pay down more, its strategy to pay principal debt as cash flow allows gives it the flexibility to maintain its finances.

Additionally, 2023 saw improvements in key metrics, such as an increase in metric tons treated, resulting in 3.25 million metric tons compared to the 3.1 million metric tons in 2022, driven by improvements made from the planned mid-2023 major plant shutdown that saw repairs and replacement of equipment that was responsible for repeated unplanned downtime.

Moving into 2024, the company said it will most likely face a lower production year due to the effects of mine sequencing and grade profile changes, all normal occurrences in open-pit diamond mining.

This lower production year was anticipated, and the mine remains on track to achieve the previously stated 2024 production guidance of 4.2 to 4.7 million carats at the JV level and 2.3 to 2.6 million carats sold at its share.

"On the rough diamond market, we continue to monitor developments closely as many factors are integrated in the market dynamic," added Wall. "Initial stages of a recent G7 sanction banning imports of Russian-origin rough diamonds have increased efforts through the diamond pipeline to track and promote diamond's origin tracing. This could yield a positive impact on demand for Canadian origin goods, and the company is reviewing opportunities."


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