Di­a­mond & Spe­cialty Min­er­als Sum­mary for Nov. 14, 2017

Stockwatch Daily - - MINES & METALS - By Will Pur­cell

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.


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