Mountain Province Diamonds Announces Full Year and Fourth Quarter 2018 Results

Canadian Mountain Province its financial and operating results for the full year ended December 31, 2018
Mountain Province Diamonds Announces Full Year and Fourth Quarter 2018 Results

Operational Highlights for Full Year 2018

  • Strong annual production: Gahcho Kué Mine exceeded upper end of FY2018 guidance of tonnes treated, 3,194,000 tonnes (2017: 2,775,000 tonnes) and recovered a record 6,937,000 carats (2017: 5,934,000 carats).
  • Average recovered grade up 4% above the original budget at approximately 2.17 carats per tonne ("cpt") (2017: 2.14 cpt).
  • 3,253,000 carats sold in 2018 (2,656,000 in 2017), included in the 2018 sales were over 500 (2017: 250) gem quality stones exceeding 10.8 carats, including the recovery of an exceptional 95 carat white stone and a 60 carat fancy vivid yellow stone, further validating the mine as a producer of exceptional quality high value diamonds.

Financial Highlights for Full Year 2018

  • Total sales revenue at $311 million (US$240 million) compared to $170 million in 2017 (US$134 million) at an average realised value of $96 per carat (US$74) 2017: $85 per carat, (US$68).
  • Full year Adjusted EBITDA1 of $139.2 million up 33% (2017: $103.4 million), demonstrating the good cash generation of the Gahcho Kué Mine.
  • Earnings from mine operations up 55% to $81.0 million (2017: $52.1 million).
  • During the year, the Company repurchased $26.4 million (US$20.1 million) of outstanding secured notes payable (2017: nil).
  • Cash costs of production, including capitalized stripping costs1,2,3 of $101 per tonne treated (2017: $73 per tonne) and $47 per carat recovered (2017: $33 per carat).
  • Dividend paid of $0.04 per common share totaling $8.4 million (2017: nil). 
  • Net loss for full year 2018 at December 31, 2018 was $18.9 million or $0.10 loss per share (2017: net income $17.2 million or $0.11 earnings per share). Included in the determination of net loss for the full year at December 31, 2018are unrealized foreign exchange losses of $32 million, on the translation of the Company's USD-denominated long-term debt. The unrealized foreign exchange losses are a result of the weakening of the Canadian dollar versus US dollar. It should be noted that the weakening Canadian dollar compared to US dollar is beneficial to the Company as sales are made in US dollars and operating costs are incurred in Canadian dollars.
  • Capital expenditures in 2018 were $35.8 million$29.4 million of which were one-time pre mine construction and development capital costs and the remaining $6.4 million were sustaining capital expenditures related to mine operations.
  • Year end cash position of $30.7 million (2017: $43.1 million) and net working capital of $87.2 million (2017: $96.8 million), with US$50 million revolving credit facility remaining undrawn.

Market Highlights for Full Year 2018

  • Achieved 100% sell through of all diamonds offered for sale, despite the difficult market for smaller lower quality diamonds in the second half of the year.
  • Sustained price pressure widely reported across the sector has been driven by a weakened Indian Rupee against the US dollar, financing constraints in India and the resultant slowdown in Indian manufacturing.
  • Prices for larger and higher quality goods, which comprise 70% of our sales, remained firm throughout 2018.
  • Customer competition at the sales in Antwerp was stronger in 2018 than in 2017, supporting the Company's ability to achieve 100% sell through and not hold excess stock.
  • Overall retail demand for luxury goods in both the US and China was reported to be strong throughout the first three quarters of 2018. Final quarter retail results were impacted by continuing US-China trade tensions, the US Federal shutdown and the decline of the US stock market in December.  US retail sales have reportedly shown signs of improvement in 2019.
  • Prices for lower quality goods stabilised in the last quarter of 2018, with small single digit increases realised in 2019 sales.

Fourth Quarter 2018 Highlights ("Q4")

  • 823,000 carats sold in Q4 2018 (1,006,000 in Q4 2017), with total proceeds of $70.5 million (US$53.6 million) compared to $77.2 million in Q4 2017, (US$60.9 million) at an average realised value of $86 per carat (US$65), Q4 2017: $77 per carat, (US$60).
  • Adjusted EBITDA4 for the three months ended December 31, 2018 amounted to $26.5 million.
  • Q4 Earnings from mine operations amounted to $12.7 million.
  • Gahcho Kué Mine treated 751,000 tonnes of ore and recovered 1,546,000 carats on a 100% basis for an average recovered grade of approximately 2.06 carat per tonne.
  • Q4 Cash costs of $126 per tonne treated and $61 per carat recovered, include capitalized stripping costs4. Unit costs of production in Q4 were abnormally higher as a result of the decision to conduct focussed sampling and testing on Hearne ore. With over 60% of production for 2019 scheduled from the Hearne pit and given the excellent performance during the first 3 quarters of 2018, the Company believed it was prudent to study the effects and identify any potential challenges with the treatment of this new ore. Taking the sampling exercise and additional charges for air freight and mobile equipment maintenance, the costs were generally in line with our expectations. Pleasingly unit costs of production have returned to the 2018 average cost levels early in 2019.
  • Q4 Net loss was $30.2 million or $0.15 loss per share.  Included in the determination of net loss for the three months ended December 31, 2018 are unrealized foreign exchange losses of $21.0 million, on the translation of the Company's USD-denominated long-term debt. The unrealized foreign exchange losses are a result of the relative weakening of the Canadian dollar versus US dollar. It should be noted that the weakening Canadian dollar compared to US dollar is beneficial to the Company as sales are made in US dollars and operating costs are incurred in Canadian dollars.

President and CEO Stuart Brown says, "Financial Year 2018 was Mountain Province's first full year of commercial production at the new Gahcho Kué Mine and we are pleased with its operational performance. The Gahcho Kué Mine has settled down well and has outperformed our initial expectations in terms of throughput and overall diamond production which is an excellent achievement. This trend has continued into 2019 with the mine continuing to perform substantially ahead of expectations. Financial Year 2019 is expected to be another strong year of production. We are confident that we will meet or exceed, our production targets as we have done in the last two years. Along with our Joint Venture Partner, De Beers Canada, we are working on various short and medium-term initiatives which will have a positive impact on the future of the Gahcho Kué Mine. These relate to improvement of production rates and extending the life of mine by including additional JV ore discovered during 2018 and we look forward to updating the market as we complete these tasks later in 2019.

In addition to the JV related improvements we are also focussing on the wholly owned Kennady advanced stage diamondiferous kimberlites and near mine exploration opportunities and will update the market on our progress in due course.

The Company also delivered very good results from its sales process, selling all of its production made available during 2018 which translated into good operating margins, further demonstrating the ability of the ore bodies at the Gahcho Kué Mine to deliver strong free cash flow.

The rough diamond market experienced a relatively difficult finish to the year with price pressure in the smaller and lower quality diamond categories, although we did see a stabilisation of prices towards the end of the year and so far, we have seen a small improvement in the lower quality categories at the start of 2019.

The Company's longer-term view of the fundamentals of the diamond business remain positive and combined with the quality of the Gahcho Kué Mine with its long life and high margins, we believe we are well positioned for the future to benefit even more with improved diamond prices. 2019 is a year of innovation and assessing how to improve the returns to shareholders and I am positive that the work we are doing together with De Beers will deliver on this throughout the year ahead."


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