Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The Toronto-quoted equity of Mountain Province Diamonds (TSX: MPVD) has achieved a new 12-month high on March 29 after the company overnight reported record free cash flow in 2021 and a massive impairment reversal attributable to positive changes in market sentiment and diamond prices.
During the year 2021, Mountain Province sold a total of 3.16 million carats at an average price of $75 per carat for total proceeds of C$298.3 million ($237 million). This compared relatively favourably with the year-earlier tally of 3.33 million carats sold at an average value of $51 per carat for total revenue of $227 $171 million in 2020.
The company reported net earnings of C$276.2 million, or C$1.31 per share, as opposed to the net loss of C$263.4 million or C$1.25 per share a year earlier. The company’s financials benefitted from the reversal of an impairment on property, plant and equipment of C$240.6 million (reference the 2020 impairment loss of C$217.4 million) offset by an unrealized foreign exchange gain of C$2.3 million (2020: C$12.3 million) on the translation of the company’s US-dollar-denominated long-term debt.
Mountain Province Diamonds is a 49% participant with De Beers Canada in the Gahcho Kué diamond mine located in Canada’s Northwest Territories.
Mountain Province flagged a recovery in rough diamond prices from late 2020, with final sales of 2020 registering prices close to pre-pandemic levels. This price growth continued through 2021, with the company’s average indicative market price index increasing 37% year-on-year, or 62%, from January through to December 2021.
According to the company, price recovery began in larger, higher-quality diamonds. It accelerated through all product ranges, and by year-end, all segments had recovered their price decline of the last two years, said Mountain Province.
Upstream stock levels were now believed to reflect operating inventories only. This supply scarcity combined with forecast higher demand for diamond jewellery supported the continued stability or further growth in rough diamond prices, the company said in a news release.
Because the company procures all of the Gahcho Kué mine’s diesel in the first quarter during the ice-road supply season, it cautioned that first-quarter financials were impacted by a significant, once-off and unbudgeted diesel price increase.
The company had a difficult 2021, including suffering a covid-19 (Omicron) outbreak at the site and the failure of the pitman bearing in the primary crusher. These factors impacted annual production and costs. Subsequently, more than 95% of the diesel for the year has been purchased, and the site is now said to be free of any covid-19 cases. The crusher has been repaired and is operating at full capacity.
The company expects to recover between 6.2 and 6.4 million carats in 2022.
Mountain Province also reported that mining early this year has encountered additional unmodelled kimberlite carrying a lower grade than planned mining areas.
This material will be incorporated into the strategic stockpile throughout the year, with the net effect of lowering the processed grade but benefiting from a net increase in life-of-mine ore tonnes. More diamond-bearing ore is being mined than what existed in the mine plan.
Mountain Province shares last traded at 91c apiece, up almost 10% for the day and taking the 12-month equity gains to more than 71%. The company has a market capitalization of C$189.59 million ($151.51 million).
