Mountain Province Diamonds Inc. (MPVD) CEO Stuart Brown on Q1 2019 Results - Earnings Call Transcript

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Mountain Province Diamonds Inc. (NASDAQ:MPVD) Q1 2019 Earnings Conference Call May 9, 2019 11:00 AM ET

Company Participants

Stuart Brown - President & Chief Executive Officer

Perry Ing - Chief Financial Officer

Reid Mackie - Vice President, Diamond Marketing

Conference Call Participants

Edward Sterck - BMO Capital Markets

Sam McGovern - Credit Suisse AG

Geordie Mark - Haywood Securities Inc.

Scott Macdonald - Scotia Capital Inc.

Paul Zimnisky - PZDIA

Operator

Good day, ladies and gentlemen, and welcome to the Mountain Province Diamonds First Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded.

I would now like to introduce your host for today’s conference, Mr. Stuart Brown, CEO. You may begin.

Stuart Brown

Thank you very much. Good morning to everybody, if you can all hear me and thanks to those of you dialing in. First purpose of today’s call is to add some more color to our Q1 results, update you with where we’re going for 2019 based on the Q1 performance and give you some updates on the guidance.

I’ll be covering the Board announcement that we recently made on the upcoming pending changes. I’ll be touching on the production for the Q1 and also our guidance for 2019. Perry will then cover our financial results, and Reid will be – is also on hand, Reid Mackie, our VP for Sales and Marketing. He will cover the market and how we did on Q1 and give some more color on that compared to Q4 last year and also Q1 last year.

I’ll do then a general summary of the update and the milestones that we touched on the last call, and we promised you we’d update you on that and keep you updated. And then we’ll have a Q&A session at the end of the call.

So without wasting anymore time, just to remind you all of the cautionary statements at the front of the presentation regarding all our forward-looking information and also remind you to look at the notes to investors where we give guidance on how we’ve constructed some of the numbers and the rules and regulations there.

As you will have seen, we recently announced that we’re suggesting some upcoming Board changes. We think that this is an appropriate time as we’ve transitioned the mine from a developer and we’ve now had – we’re into our full second year of production and the mines transitioning and our new focus.

We felt it appropriate to refresh the Board. And as a result of this, the three directors that are not going to be standing for reelection have agreed to stand down. That’s Carl Verley, Bruce Dresner and Peeyush Varshney. We’re very pleased with their contribution over the past, but we’re equally excited to welcome Tom Peregoodoff, William Lamb and Brett Desmond, and we gave you all the details in the announcement there.

So pending the results of election at the AGM, we’ll have a Board of – chaired by Jonathan Comerford, the remaining David Whittle, Karen Goracke stays with us, myself, and the addition of Tom, William and Brett. And we think that’s a good combination to take the company forward in its next stage of development and that generally links to all of the updates and the milestones that we’ll cover later.

I’d like to move on now quickly to the production highlights. I think Q1 2019 versus Q1 2018 looks good from a perspective of total ore waste and mined and moved where we’re up at 9.5 million tonnes versus the 8.2 million tonnes. However, in reality, we know we’ve got to move about 4 million tonnes more tonnes in 2019, compared to 2018 in total, so about 41 million tonnes to 45 million tonnes.

We always expect Q1 to have a bit of a difficult period because of the weather-related issues, but we did hit more weather – more bad weather, particularly cold weather that restricted our access to planned areas of the mining plan over the first quarter, which meant that we were down slightly on the total ore mined of 605,000 tonnes, which was below the average or the total in Q1 2018.

We are going to catch that up, because we know we’ve got the capability to do that, and we’ve got the better summer months coming now and we did plan to do more volumes. So we’re still comfortable that we’ll meet our total tonnage and our total ore mined targets for the year.

Pleasingly, as we did touch on it the last call, the planned enhancements allowed us to continue treating and we’ve treated more tonnes in this quarter 871,000 compared to last year. The plant is performing very well. We sourced these tonnes, obviously, directly from the pit and we took a substantial byproduct of our adequate stockpile, which is exactly right there. So we were able to supplement the tonnes and keep our treatment rates going.

The difference in the grades has meant that when we have to change the mine plan or we weren’t able to access the planned higher grade areas, as we’ve explained in the announcement, we’ve accessed areas in the Southwest Corridor and some areas in Hearne that we know we have a lower grade. These are always planned to be mined as part of the mine plan anyway, but we just had to move that around. So we had a bit of an impact on Q1.

In addition to this, some of the plant improvements that we’ve been putting through have also meant the under recovery of the bottom end and the volume improvement. So we are seeing a – the start of the better average value per carat recovered. So I think that the changes that we’re doing are making a difference.

So the overall volume of carat is pretty close quarter-on-quarter, and we do expect to make up a considerable amount of carat and volume in the second quarter, third quarter and fourth quarter of the year.

That moves me on to the revised guidance. It may look – not look material, but we’re increasing the tonnes treated by 100,000 tonnes. We comfortably think we should get to between 3.2 and 3.3. It’s about a 100,000 tonnes more and we will continue to do some plant upgrades throughout the year. But that’s our initial indication and we can still set tonnage from the mine and continue to utilize the stockpile.

We’ve kept our carats recovered at the same broad range of 6.6 million to 6.9 million carats. We expect to get to higher-grade areas for the remainder of the year. However, we do see a slight difference in what we planned on the grade versus what we’re going to achieve based on the bottom cutoff exercises that we’ve been doing.

Our cash cost to a tonne of production, we’re keeping that guidance between 110 and 120. Obviously, what we’d like to see is that to come down a little bit, because we know we’re going to push more tonnes through the plant, and that should help us with keeping our cost at the same level and the numerator and the denominator changing in terms of putting an extra few tonnes through the plant will help us lower that. It had, had an impact on the first quarter given the lower volumes.

So we were slightly below. We came in at the bottom end of guidance. We would have hoped to come in a little bit below that, and Perry will touch more on that. So I think that for me sums up where we are. I’ll give you more of the summary at the end of the call, but I’d like to hand over to Perry now to take us through the financial information. Thank you.

Perry Ing

Thanks, Stuart. Good morning, everyone. I’ll take you through the financial results for the first quarter. All the figures I’m going to state are in Canadian dollars, unless otherwise noted.

So Slide 7 here is showing our income statement highlights. Our top line revenue for the quarter was $61 million from the sale of 644,000 carats at an average price of US$71 per carat. This represents roughly a 10% decline from revenue of $67 million in the first quarter of 2018, which saw the sale of 527,000 carats at US$99 per carat.

There were two tender sales hit recorded in each of the periods and the decreased value per carat is attributable to a different mix of goods with fewer, better quality and special stones sold. Also of note, the first quarter sales was predominantly carats from the Hearne pit, which we expected to have a lower value per carat compared to the 5034 pit. This, along with generally weaker rough market conditions on a year-over-year basis contributed to the lower revenue comparative. Reid is going to provide some further color on the diamond market following my presentation.

Our adjusted EBITDA was $20 million for the first quarter, compared to $34 million in the same quarter last year. On a GAAP basis, we reported net income of $2.5 million or $0.01 a share, compared to roughly break-even results Q1 2018.

Included in that figure is a largely unrealized foreign exchange gain of $9 million, primarily related to the translation of our U.S. dollar denominated debt, given the slight strengthening of the Canadian dollar during the first quarter. Sequentially, we reported a loss of $30 million in the fourth quarter of 2018, which again was largely due to unrealized translation effects of the U.S. dollar denominated debt.

If you look at our results at an adjusted EBITDA margin basis, we came in at 33%, compared to 51% in first quarter last year, again, primarily as a result of lower realized values per carat and higher production cost flowing through the first quarter sales. You may recall that we reported relatively high production cost of $126 per tonne in the fourth quarter of 2018, primarily due to an extended maintenance shutdown and the undertaking of the Hearne pit-focused revenue sample, which resulted in higher unit cost in the prior quarter. The resulting carats were primarily sold during the first quarter this year.

Moving ahead to Slide 8. You see the similar picture in terms of earnings from mine operations. Looking at the cost during the quarter, we reported $111 per tonne, as well as $61 per recovered carat, which is largely in line with our expectations on a per tonne basis and still at the lower-end of our guidance range, which Stuart mentioned earlier, despite some harsh winter conditions experienced in the quarter.

The carat costs are somewhat elevated compared to prior periods as a result of the lower grades, which again, Stuart discussed previously. Sustaining CapEx is down significantly to $3.1 million, compared to $8.3 million in the prior period as budget for capital expenditures are below $10 million for our 49% share for 2019.

Lastly, looking at liquidity. We ended the quarter with $11 million in cash, compared to $31 million at the beginning of the year as we funded the season’s purchase of fuel, explosives and other supplies through a successful winter road supply campaign, which ended in March. This required over 1,700 truckloads, including 50 million liters of diesel.

We accomplished this without having to draw on our revolving credit facility and do not expect to do so as we will generate positive free cash for the remainder of the year. We have our next interest payment due on our debt schedule to mid-June, which following, we could hopefully look forward to continuing to deleverage our balance sheet as we did in the second-half of 2018.

Just looking ahead, other comments I’ll make. We are pleased with the progression of our operations despite the challenging winter, and now we obviously have the best months of operating conditions ahead of us.

We’ve been working closely with De Beers on exploration and a number of online projects to increase throughput and will reduce bottlenecks and increase mining efficiencies, which we hope we’ll see more impact of for the remainder of the year. Success from these efforts will certainly lead to – could certainly lead to cost savings on a per tonne processed basis.

And from the revenue side, we’re now through the heaviest months of Hearne-focused production, with the remaining production in 2019 expected to be more balanced between 5034 and Hearne. So we believe that in combination with this and the bottom cutoff changes, once fully implemented, we’ll have a meaningful effect on our overall price frequency distribution and hence a realized value per carat. And, along with these factors, this should all help to expand our operating margins for the remainder of the year.

With that, I’ll turn the presentation over to Reid Mackie, our VP of Diamond Marketing.

Reid Mackie

Thank you, Perry. I’m first going to speak about the medium to long-term supply and demand fundamentals of our industry, and then I’m going to talk briefly about our diamonds and their performance during Q1 sales.

On the supply side, natural diamond supplies peaked with a number of legacy mines reaching depletion. Major mine closures and project capacity changes in the next 10 years are forecast to result in a supply reduction of 1% to 2% per annum to 2030. More immediately, De Beers is closing its Victor mine and reducing output for Venetia by an estimated 50% for 18 months. And by August 2020, the Argyle mine is expected to close. These positive supply demand fundamentals are expected to support price growth.

On the demand side, long-term demand outlook for diamonds is strong, as the purchasing power of an increasing middle-class continues to grow. The world’s largest luxury houses reported strong jewelry and watch sales in 2018, driven by growing demand in China, India, USA and Japan. Millennials, especially in China are driving growth in luxury goods and consumption. Industry marketing programs are also set to strengthen in 2019 with over $250 million in budgeted – as a budgeted spend for natural diamonds promotion.

Looking ahead, the Bain diamond report also has diamonds for demand forecasted to grow to 2030 at an annual average growth rate of 0% to 2% in real value terms. We recognize also that there has been widely reported – it’s widely reported the arrival of lab-grown diamonds productions, but also this positions – or the position that this product will take up in the consumer space is yet to be seen.

And we can look to some of the largest retailers out there who have recently reported that their studies have shown that the position that lab-grown diamonds will play in celebrating the most important events in people’s lives will not be filled by lab-grown diamonds.

Moving on to our production and the details of the diamonds we produce and sell. Though in volume terms, we have an important population of smaller diamonds, i.e., less than one carat, more than 50% of MPVD’s revenue is generated by stones of sufficient size and quality to produce porous diamonds of one carat or larger, that’s highlighted in blue on the pie chart.

During Q1, prices for this category rose 2%, that’s Q1 of 2019. And like all producers, we are also exposed to lower-market prices for small and cheaper diamond categories during Q4 2018.

However, during Q1 2019, we saw price in the smallest category increased on average by 2%. And having said this, fundamentals in the midstream market, such as polished stocks, financing and profitability in polishing are still something that warrant continued monitoring. We have seen in Q1 stabilization return to this product category.

Sales for our larger white gem categories continue to perform well, but there is still discounting for us into the mid-market and it persists. In 2019, we are going to be exploring how targeted promotional initiatives might assist us in mitigating this.

And on that, I will pass you back to Stuart for closing comments.

Stuart Brown

Thanks, Reid and Perry. So in summary, before I get to the milestones, I think it’s been a solid quarter. We’ve certainly got room for improvement over the remaining three quarters of the year. And indeed, we have to up our game to hit our guidance, but we’re confident of doing so. And the diamond market remains challenging, although we are seeing good progress in the way our goods are changing.

So if I look at – just touching on the milestones, we’ve got two areas of winter exploration. We got our own ground, and we promise to come back to you in Q2 on that. We’re still on track to do that. We also have some exploration update on our joint venture ground, which we’ll also touch on when we’ve got the details. We’re busy drilling the last few holes and getting all the information in and that’s still on track for Q2.

The new life of mine plan, we’ve agreed all the input parameters with our partners and that work is ongoing right now. We’re much more confident around the inclusion of the Northeast Extension and we’ll be very shortly in a position to release preliminary ideas around the volume of carats and tonnes that will be included in that plan. So again, that’s on track for probably a formal release in Q3, but a preliminary release pretty early in Q3.

On the mine optimization and the increasing our bottom cutoff, those two areas are jointly linked. We have touched on that in quite a lot of detail through Perry and myself. We are seeing good progress there, but we’re only in the infancy stages of implementing some of the screen cutoffs, new panels going in. We have to have new panels manufactured, the orders placed there and will be delivered towards the end of H1 2019.

But notwithstanding that, we’re definitely seeing our treated tonnes per day averaging around 9,700 tonnes a day, which is well above our planned levels. So we are seeing the benefits of that. And when we turn to the higher-grade material, which we plan to do in the last three quarters of the year, we should see substantial improvement in the volume of carats recovered.

So I think all of those initiatives are working. And as I touched on and Perry mentioned, if we get increased volume through the plant and we stay at the same cost, we’ll definitely see the benefit in the cost per tonne treated.

The resource extension of the Kennady assets, that’s the one we did deliver on. That announcement went out earlier this quarter on the Faraday 2 update, still all in the inferred category, but that was generally very positive for us and we’re moving forward on that.

And lastly, on the Mountain Province branding initiative. As we said to you before, we understand our production now. We’ve been engaging with customers how best to get – maximize our price and then also to maximize the value of being a Canadian producer, we think there’s a lot of upside value to that. And that work is ongoing, but it’s going to take us quite a while to be able to launch that. But I’m pleased that Reid mentioned good progress on that.

So from our side, in summary, I think, it’s been a good quarter. We’ve got a lot of work to do for the remainder of the year. We’re incredibly busy doing that. We’re working well with De Beers where our focus is completely aligned on how to improve productivity and preserve the value of the carats recovered.

So I’d like to turn over, if there’s any questions, we’re more than happy to answer those.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from Edward Sterck with BMO. Your line is open.

Edward Sterck

Good morning. A couple of questions from me today. Firstly, on the – just a clarification on the guidance. The treated, which is up by 100,000 tonnes, as you mentioned, but diamond guidance remains unchanged. So I just wanted to make sure that’s because effectively this is the bus stop, the increase in throughput is compensating for the slight increase in the bottom cutoffs?

Stuart Brown

Yes, on that, exactly. It’s a bit of a moving thing right now, but 100% correct. We think the 100,000-plus tonnes that we’ll do will compensate this for the bottom cutoff – the loss of the very fine lower-value carat, which is not material, it’s sort of less than $2 million.

Edward Sterck

Yes. And then just on the balance sheet, the cash balance at the end of March is perhaps a little bit low. I know you only had two sales during the quarter versus three planned for quarter two. But just looking ahead in terms of working capital movements and available cash, is there any need to tap the – any of the credit facility, or is the movement of working capital going to be sufficient for purposes for the next quarter or so?

Stuart Brown

Ed, I’ll ask Perry to take that.

Perry Ing

Hi, Ed. Yes. I think…

Stuart Brown

Yes.

Perry Ing

Yes, I think we’re in good shape, Ed. I think, we’ve already made the largest payments relating to the winter road, which mainly is fuel. So we’re through that. And like you said, we have three sales this quarter. So we’re managing our cash and liquidity well. And I think we should be able to get through Q2 without drawing. And then obviously, the remainder of the year, we’ll be generating positive, cash flow should be in good shape.

Edward Sterck

Okay, great. And then just a final question, I think this is more confirmatory than anything else. But can you just talk about capital allocation going forward? Obviously, well, certainly, in our forecast, it looks like Mountain Province is going to remain – it’s going to be free cash flow positive over course of the year. What’s the plan for that cash?

Stuart Brown

Do you want me to take that, too?

Perry Ing

Sure.

Stuart Brown

I think, yes, we’d like to get through a couple more months, Ed, as we just come out of the sort of a high cash burn rate. We think if we continue to drive these plants and performance and our average value continues to improve and the market stabilizes, yes, you’re quite correct, we do have a healthy cash margin. I think our first focus is ensuring we would like to reduce our debt appropriately and focus on that as we build up our mine plan. So that’s our immediate focus now.

Edward Sterck

All right. That’s it for me. Thank you very much. Have a good day.

Stuart Brown

Thanks.

Operator

Thank you. And our next question comes from Sam McGovern with Credit Suisse. Your line is open.

Sam McGovern

Hey, guys. I apologize, I joined a little late, so if I might miss something here, I apologize. With regard to the Kennady asset, can you guys provide an update with regards to negotiations to contribute that into the joint venture with De Beers?

Stuart Brown

Yes, I can do that. We’ve got to a stage where we’re comfortable with what we understand in the Kelvin-Faraday information, and De Beers has access to that, and I have had access to that. Where we’re left here is on our 2019 base plan, as I alluded to earlier on the call. And we set the parameters for the 2019 strategic business plan that looks at the life of mine over the remaining life clearly with De Beers without the Kennady assets.

And our strategy and as an agreed strategy with De Beers, we mentioned this to them is, once we have that base plan and we want to look to enhance that, we’re waiting. And the reason we can’t do it right now is, we’re adding the Northeast extension tonnes and carats into the next plan, which clearly De Beers already earned 51%. So that’s the priority.

We will then be in a position to go and do that work and see how we can layer over the Faraday ore body or the Kelvin ore body and work independently and then go and sit with De Beers to say how do we get a better answer out of this. Currently though, we’re extending the life of mine. And we anticipate right now that our life of mine will be 20 – beyond 2030, which is a considerable improvement from where we were when we first started looking at those about a year ago.

So it’s a difficult one. It’s not as simple as putting this in and just kicking the tonnes out. We have to blend this in and we need a solid base to do that. And I’ll only have that really formally at the end of Q3. So that’s work we’re going to be working on over the remainder of the year with that.

But for us, it’s very positive. The mine is going to be high-margin performing, and the Faraday announcement is also very value-adding for us. So I think we’re in a good shape long-term for the company compared to many other companies out there, where we’re mining into the 2030s. That’s the best I can do for you there, Sam.

Sam McGovern

Okay, got it. That’s super helpful. And then in terms of just Kennady and Gahcho Kué, can you remind us how we should we think about synergies between those two?

Stuart Brown

Well, Kennady is – there’s a lot of material between, what we believe, the Gahcho Kué assets and Kennady. Physically, the distance is about eight to nine kilometers. We do think that’s relatively easy to build the road. Obviously, we’d need to do conventional mining, whether it be an open cost strip and then delivery of tonnes to the plant and it’s about sequencing. So that definitely can happen and the permitting for that is relatively straightforward just doing that.

So the trick will be is what else lies between the Faraday-Kelvin ore bodies and GK. We definitely think that there’s potential between. That’s a question of where you put the road. You got to do quite a lot of planning, because you don’t want to build the road on top of any other potential assets. So it’s a nice problem to have.

The economics certainly work. I think the strip ratios in Kelvin and Faraday aren’t as great as they would be further down. But we still got a lot more work to do on that. So again, all positive and it works. We don’t see massive increase cost of having to produce the Kennady tonnes through our plant at the appropriate stage.

Sam McGovern

Okay, got it. But you don’t have a quantified number in terms of how we should…

Stuart Brown

No, that work is still got to be done and we can’t do that until we get our base plan to work that from, because it involves not having to buy more equipment. We’ve got an existing inventory of equipment on the mine. So it’s about scheduling it in without increasing the capital expenditure to buy more kits. Clearly, that’s priority number one. We want to generate revenue just on working cost without having heavy capital investment.

Sam McGovern

Okay, great. Awesome. Thank you very much. I’ll pass it on.

Stuart Brown

Thank you.

Operator

Thank you. Our next question comes from Geordie Mark with Haywood Securities. Your line is open.

Geordie Mark

Hey, good morning. Thanks for the call. Just to follow on from an earlier question there. In terms of the – maybe life of mine plan, you mentioned out beyond 2030. Would that be consistent with operating at rates of around the new guidance range for throughput?

Stuart Brown

I think on the tonnage volume, definitely treated, Geordie. We’re working on that sort of level of tonnage, 3.1 to 3.3. Obviously, the variable will be on grade, on the different parts of the various ore bodies, so the carats will go up and down with that. Bringing any x in, we’ll get a handle on the grade very shortly with that. We’ve got a solid idea. We know the volume and carat.

So the plan, yes, is to try and give stable tonnage treated over the remaining period of the life extending it and obviously fluctuating with the carats, but trying to keep as smooth a profile of carats as possible and fill the gaps in the old plan. And then eventually, we do end up not having to strip anymore, because we’ve reached the stripping and getting that balance right.

So we see waste tonnes sitting at the same kind of level at the moment. We are doing some preliminary work on waste reduction with slope angles. And we’ve got some preliminary thinking there, which could improve by a small amount, but will have quite a good influence on the cash flow.

So that we expect to see. Unfortunately, you have to wait for the 2019 strategic business plan, where all that will be included. But everything so far is indicating that we’ll see an improvement in our strip ratio, and we will see consistent tonnage treated of around 3.1 to 3.3.

Geordie Mark

Okay, great. And in terms of the optimization on the geotech work. Any order of magnitude, sort of some set of numbers through every degree or something that you might say?

Stuart Brown

One degree, I think, is confidence. And if we can do more than that, we still got to get more geotechnical thought processes. So I think it’s going to be a preliminary view on one degree and about a few million tonnes, less than 10, but it’s quite material.

Geordie Mark

Sure, great. And maybe extending on to the sort of Hearne. What are you seeing there in terms of grade reconciliation and asset decharacteristics versus predicted? And I know in earlier calls, there is a discussion on potential normalization of the – I guess, the diamond characteristics to what we see at 5034. Any commentary on those?

Stuart Brown

Reid, can I hand over to you talking about Hearne?

Reid Mackie

Sure. Yes, no problem. Hi, Geordie. At the moment, as discussed earlier on in terms of asset de and diamond quality distribution, it’s still is too early to say, because, as mentioned earlier on, it’s a – we are selling a mixed product of 5034 and Hearne. But it is – from a quality standpoint, it is the same goods that we’ve seen previously in 5034.

So in terms of marketing, assortments, everything is in line with what we’ve seen in 5034, propensity for high white gem, the colors. And so in terms of how we market the production, very similar to what we’ve seen today. But too early to tell any of the nuanced differences that might exist between what we saw to date and what’s coming ahead with Hearne.

Geordie Mark

Okay. I guess, I was speaking also in terms of the population of fancies and specials and obviously the yellow specials other that you sold more recently.

Reid Mackie

Yes, sure. And then, obviously, the 60-carat vivid is the – was an exceptional stone. In my wildest dreams, I wouldn’t have expected to receive another one, anything like that in that immediate future. But I would expect at some point, we’ll be seeing a few fancy colored gemstones that we are at least in a total marketing standpoint compared to accommodate and sell those going forward.

Geordie Mark

Okay, great. And then maybe…

Reid Mackie

But it’s still too early to say. Go ahead.

Geordie Mark

Okay. If I can just sneak in one, my last question there. Maybe on oil prices, I guess, the – all the fuel banks are full now. Just wondering what price you achieved on your fuel and whether that was aligned to your budget or above or below?

Perry Ing

Hey, Geordie. Yes, we had all-in price delivered to site of just over $1.10 per liter, which was about, call it, $0.07 better than budget. So on 15 million liters, a savings of about $3.5 million to $4 million.

Geordie Mark

Okay, that was great. Thank you. I’ll leave it there. Thanks.

Operator

Thank you. Our next question comes from Scott Macdonald with Scotiabank. Your line is open.

Scott Macdonald

Hi, good morning, guys. Thanks for hosting the call. Just a couple of questions from me. Just in terms of the impact of the plant optimization, obviously, you’ve guided on the impact of throughput. You haven’t changed your grade guidance. But could you give us a sense of what you expected this point in terms of how this will impact your average prices and maybe, I guess, more importantly, your revenue per tonne processed?

Stuart Brown

I’ll have a go at that first, Scott. It’s a bit of a moving piece at the moment with that. I mean, the initial crude view of life is if we do a 100,000 tonnes more at a grade of, let’s say, two rather than the budgeted 2.12, we would get 200,000 more carats. And if you sell those, let’s say, at $70 a carat, you got $14 million, of which we get just under half of that. So we’d look at US$7 million. That’s kind of how we’re looking at it, that’s on mining to plan.

As I mentioned in the first quarter, we’ve mining off plan. We’ve been doing a lot lower-grade material. So we haven’t gone on specifically adjusted the grade in all areas, because we just don’t have a handle yet on where all the tonnage are going to come from in each month. We’re getting back to mining on plan as the weather improves and the grounds thawed out.

We’ve always looked at this between, let’s say, CAD$7 million to CAD$10 million improvement, which is why we agreed to do the implementation alongside with De Beers, and they’re looking for a similar amount of money. So that we would hope would translate through. So that, let’s say, 7 million at the bottom-end divided by the 3.3 million carats, so we will get metal transverse into the increased average value as well.

Obviously, if we’re getting rid of some of the bottom-end and we’re getting a better distribution, then we would get a higher value. And our Q1 average value received compared to what we expected was ahead of what we saw. So we see it starting to come through. But it’s not an exact science just yet.

We’ve changed a lot in the plant. We need to run for a considerable period now and put consistent ore through to get more of a solid view on that. But every indication so far is our tonnes per hour going through the plant are a lot better, and our average value is improving.

Scott Macdonald

Okay.

Stuart Brown

…can’t be more specific than that.

Scott Macdonald

Sure. Just to clarify, you said 7 million to 10 million. Was that U.S. dollars or Canadian? And is that on a 100% or…?

Stuart Brown

It’s CAD$7 million to CAD$10 million for us, and that would be our share.

Scott Macdonald

Okay, great. Just another one on your Faraday 2 resource update. Just trying to understand – so obviously, you had – you showed better size, frequency, distribution and grade throughout that deposit. I understand you had new resource drilling on the northwest extension, but it looks like you upgraded the size, frequency, distribution and grade throughout the deposit. So just trying to understand how you made that determination just based on the drilling those only in the northwest extension?

Stuart Brown

Yes. So the drilling had already been completed. We didn’t have enough grade information on that. So what we did is, we did the micro diamond recovery work on that northwest extension of the Faraday 2. And that allowed us to convert that ore into the inferred category, which gave us a lot more grade information.

We updated the price book to current prices, I think, it was February. And then we handed that over to SRK, and then they did the modeling based on the distribution. And that’s what came up with the new average value per carat on that area, which then allowed us to include the northwest extension into the previous – or added to the previous assessment of value of the inferred tonnes at Faraday. It’s as simple as what we’ve done.

So all we did was the additional work. We didn’t do additional drilling, we just did further analysis on the drill core and did the market diamond recovery and interpretation thereof. But that work was – I just want to make it clear, that work was done by SRK.

Scott Macdonald

Right, okay. Sorry, I was sort of under the impression that the new data points were sort of limited to the northwest extension. But then it seems – correct me if I’m wrong, but it seemed as though there were changes made to the assumptions for the entire deposit, not just the northwest extension?

Stuart Brown

Yes, correct. You’re correct. So on the – adding our northwest extension, getting the grade of that and then we handed it over to SRK and then redid the whole ore body based on the analysis and all the required issues that they have to deal with, the issue they report to us. So that was [indiscernible] from the whole of both.

Scott Macdonald

And SRK did – this was their first time looking at this. They didn’t look at the – they didn’t do the initial resource. Is that correct?

Stuart Brown

No, that company that did it previously doesn’t do that work anymore it’s what our belief. So we…

Scott Macdonald

Okay. So SRK may have had a little bit of a different interpretation on – from aspects than the previous, okay?

Stuart Brown

Yes.

Scott Macdonald

Okay, great. And then just one more from me, if I may. Just looking forward over the rest of the quarters, you’ve given some indications on what you’re expecting in terms of grade and so on. Is there anything else notable sort of one-off items we should be looking for like plant shutdowns or any sort of CapEx spikes or in operating costs or anything we should be looking for, or is it kind of pretty steady over the next three quarters?

Stuart Brown

We hope it’s pretty steady, unless you know something I don’t know. So we’ve got the remaining exploration, which we – is ongoing. That’s all budgeted and catered for between us and De Beers. I think plant shutdown is factored into our remaining forecast, which we’ve received from De Beers. So all of that should be there and then it’s weather dependent.

If we have a good run with the weather, our equipment availability therefore should be – we’re hoping to start seeing the improvements as we move into the better grade material. That’s what our last meeting with De Beers, which is just over a week ago left us with, which gave us the ability to talk to you today with this level of confidence.

Scott Macdonald

And when is the plant shutdown and how many days?

Stuart Brown

I actually don’t know the answer to that, Scott. I’ll have to come back to you on that. We can get that information, but it’s generally scheduled in Q3 – early Q3, later in Q3, it was last year.

Scott Macdonald

Okay. so you expected in Q3? That’s fine.

Stuart Brown

Yes.

Scott Macdonald

Okay. That’s it from me.

Stuart Brown

All right. I have to confirm, it’s generally around that, but I’ll come back to you.

Scott Macdonald

Okay, great. All right. Thanks, guys.

Operator

Thank you. And our next question comes from Paul Zimnisky with PZDIA. Your line is open.

Paul Zimnisky

Hi, everyone. I guess, regarding the raising of the cutoffs, how common is this in practice? Is this something that De Beers is doing across operations, or is it something that Mountain Province suggested in a sense? And so I guess I’m just trying to figure out, is there something we’re going to see more widely applied in the industry?

Stuart Brown

I think, Paul, in general, most people have a bottom cutoff in their plants between – depending on obviously the kind of ore body you have. But rule of thumb is about between 1.1 to 1.25 millimeters. Some go higher at 1.5 and others are even higher. We were at the bottom-end of 1 millimeter.

And it was just generally a question that we raised with De Beers to say what is the optimum thing. We obviously design the plant at 1 millimeter, and we were getting a certain answer. And we said if we change the bottom cutoff, was there an ability to increase the tonnage throughput.

And I think, in general, all plants will have a look at that these days. They all got the same ore body that’s in the ground. You’ve got to treat that as best you can and we ran various scenarios. This wasn’t just a – well, let’s try it and see. There was a lot of planning and thinking and – going into that.

So I think if you go around and do all the work of digging up all of the results of all the mines that do publish, you will find it’s generally about 1.25. I know Firestone, in our previous role, we’d look to 1, 1.25, 1.4, and I think settled on 1.25 and then actually were lower than that. And it’s just – it’s about getting your plant balanced and as much tonnage through comfortably without stressing your plant.

I don’t think you see people going much below 1 millimeter. And some people have a bottom cutoff of 3 millimeters. So it’s what suits your ore body and what the most profitable tonnes per hour that you can generate, that’s your guiding principle. And I think De Beers continue to look at this as far as I know. We did, too. So it was a joint decision between the two of us to look at various things, and we pushed quite hard on plant bottom cutoff.

Paul Zimnisky

Okay. And then I think you said you have cut some strings that have been ordered and that will be delivered in the second-half of the year. When do you think the full, I guess, impact of this will be realized? Will it be in calendar 2019?

Stuart Brown

That will be towards the end of Q4, yes, because we’ll get it and we’ll let it run for three months and then we’ll see that. That’s the sort of – we still got a couple of plant modifications we’ll do that will only take effect early 2020, because there’s a little bit of capital to do there and stuff to order and get up on our next winter road. But the majority of the plant balancing and the bottom cutoff work will be done by end of Q2, and we’d like to then run kind of consistently for a whole quarter before assessing and making sure that we’ve done all the right things. So it’s going to be a lot in 2019.

Paul Zimnisky

Okay. And then just one more on the – I think the 60-carat exceptional yellow, I think, that was sold in several way. So Q1 average price per carat is US$71. What do you think the average price per carat figure would have been with or without that diamond? I guess, I’m just trying to figure out how much its skewed the average price per carat for the quarter?

Stuart Brown

Yes. I think we keep that information to ourselves, Paul. So we can’t – if you give you that, you’ll work up other piece and the person buying that stone doesn’t want us to advertise what they paid. But yes, obviously, it had a good effect on our average. But we’ve had more than that 60-carat stone. We’ve had the 90-carat and 95-carat. So as much as Reid said, he’s not expecting to see another one, we do see other stones that are equally valuable and that’s the best we can do on that, on the average.

Paul Zimnisky

Okay. Thank you very much.

Operator

Thank you. And I’m showing no further questions in the queue. I’d like to turn the call back to Stuart for closing remarks.

Stuart Brown

Yes. Well, thanks very much all of those that dialed in and thank you for all the questions. They’re all good. I think as a general theme, are we improving? Yes, we are. We’ve got three quarters to go through this year and we got lot of work. We understand through the questioning what the expectations are.

And I think it has been a good quarter, but we know we got to have a lot of further improvements in performance to get to where we need to be. I think, generally, we’re feeling that we’re delivering on what we said we’d deliver and we continue to update the market on a regular basis. So we look forward to talking to you in about three months’ time. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day.

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