Diamond & Specialty Minerals Summary for Nov. 14, 2017
THE DIAMOND and specialty minerals stocks box score for Tuesday was a ble ak 58-108-113. The TSX Venture Exchange fell seven points to 794 while polished diamond prices were flat. Randy Turner’s Canterra Minerals Inc. (CTM) closed unchanged at 2.5 cents on 159,000 shares. The company, again a Howe Street zombie, has had no news in a year.
Dermot Desmond and David Whittle’s Mountain Province Diamonds Inc. (MPVD) fell seven cents to $3.57 on 152,000 shares. The company reported a net income of $27.7-million for its third quarter, an encouraging re sult bu oyed by st rong grades and a stronger Canadian dollar. While, the result was well below the original forecasts laid out in the company’s 2014 feasibility study, the company’s 49-per-cent interest in Gahcho Kue is generating cash flow and is keeping the proverbial wolf away from the door. Nevertheless, the financials show that there are a few hungry wolves still circling.
Mountain Province sold its diamonds for a disappointing $69 (U.S.) per carat but there were 765,000 carats of them, bringing in $65.2-million. Its operating and administrative
costs were $44.6-million, leaving the company with $20.6-million in operating income for the quarter. The company’s interest expenses consumed $11.1-million of that, but the stronger Canadian dollar deflated the value of Mountain Province’s debt denominated in U.S. dollars by a hefty $17.5-million, leaving the company with a profit of 17 cents per share for the quarter.
The 2014 feasibility study had projected Mountain Province’s 49-per-cent share of the revenues for a full quarter this year to be nearly $100-million, based on sales of about 640,000 carats worth $138.50 (U.S.) per carat. With operating and other costs roughly in line with predictions, the numbers suggest the study supported a quarterly operating income of nearly $55-million.
The actual result, although less than half that sum, was a pleasant surprise as the mine’s grade for the quarter was 2.22 carats per tonne, well above the 1.75-carat-per-tonne value laid out in the feasibility study and the 1.62 carats per tonne estimated in the company’s initial guidance for the year. Had the latter figure prevailed, Mountain Province’s revenue would have been 27 per cent lower, wiping out nearly all its profit. Further, had the Canadian dollar remained flat, the company would have been well in the red.
Mountain Province is optimistic that the grades will remain higher than initially thought, at least for a year or two, and that augurs well for the future as while rough prices stumbled in midsummer and have yet to recover, diamantaires are (always) optimistic that better days lie ahead. St ill, it is unclear whether Gahcho Kue’s diamond prices will ever reach the feasibility projection of nearly $140 (U.S.) per carat without a major surge in the diamond sector.
The hungry wolves appear on the company’s balance sheet. Mountain Province ended September with a working capital deficiency of nearly $94-million, although it also had $110-million parked in restricted cash accounts. The company is facing some big payments over the next year. It must pay De Beers Canada nearly $50-million in principal and interest by late next summer and the current portion of its debt is $122.7-million. As well, there are just over $30-million in accounts payable and accrued liabilities. The cash crunch has forced the company to obtain waivers from its lenders regarding its cash reserve accounts and talks between the parties continue ahead of the next deadline at the end of the month. Mr. Whittle, interim president and chief executive officer, says that Gahcho Kue’s “solid cash flow generating capabilities” strongly support his work to resolve the problems with the company’s debt.
Craig Scherba’s NextSource Materials Inc. (NEXT), down one-half cent to 6.5 cents on 219,000 shares, hopes to move its corporate domicile from Minnesota to Canada. (Its head office is already in Toronto, but the chan ge will al low NextSource to cut its administrative, legal and accounting costs.) To make the move, the company needs a majority of its shareholders to agree, so Mr. Scherba is urging them to return their proxies quickly.
NextSource, known as Energizer Resources Inc. until this spring, hopes to mine its big Molo graphite deposit in Madagascar, but a lack of cash has forced it to scale back its plan dramatically. NextSource plans to spend $21.5-million (U.S.) building a mine that would produce 17,000 tonnes of graphite concentrate per year over a 30-year period. The study projects a discounted net present value of $25.5-million (U.S.). The original feasibility study, completed in 2015, proposed a $150-million (U.S.) mine that would produce 53,000 tonnes of concentrate per year over 26 years, resulting in a discounted net present value of $390-million (U.S.). NextSource still hopes to get there, so it is calling its miniaturized plan a “phase 1 modular” mine.
Frank Basa’s Castle Silver Resources Inc. (CSR), up one-half cent to 20.5 cents on 1.2 million shares, has received assays of up to 1.55 per cent cobalt over 0.65 metre near the surface of a hole at its Castle silver mine in Northeastern Ontario. The narrow interval also yielded 0.65 per cent nickel, plus modest amounts of precious metals. Mr. Basa, president and CEO, spun the narrow thread of metals into a promotional suit, saying that once again, he and his crew have shown how historical operators overlooked the potential for cobalt and other metals at Castle while they focused on high-grade silver. He says the company will trench at an array of new near-surface targets while it makes final preparations for trenching and drilling of untested structures on the first level of the old mine.
Boris Kamstra’s Alphamin Resources Corp. (AFM), up 3.5 cents to 43.5 cents on
302,000 shares, has secured an $80-million (U.S.) credit facility to help it build a tin mine near Bisie in the eastern Democratic Republic of the Congo. Mr. Kamstra, CEO, says that the company now has more than 80 per cent of the cash it needs to build the mine, adding that he and his crew will now focus on raising the remaining $31.4-million (U.S.) that it needs. The company updated its feasibility study earlier this year, pegging the capital cost at just over $150-million (U.S.) and the discounted net present value at a pleasing $402-million (U.S.). At last report, Bisie held a reserve of 4.67 million tonnes averaging 3.58 per cent tin, suggesting the mine could be a cash cow, with tin currently worth about $9 (U.S.) per pound, if things remain peaceful in the troubled region.