Mountain Province Diamonds (OTC:MPVDF) Inc. (MPVD) has released its financial results for the first quarter of 2024 on May 9, 2024. The company reported an adjusted EBITDA of CAD 49.95 million, indicating resilience despite a challenging quarter.
Sales volume dipped slightly with 930,000 carats sold at an average price of $70 per carat, generating $89.4 million in turnover. This is a decrease from the previous year's 961,000 carats at $99 per carat.
Despite lower earnings from operations and net income after tax compared to Q1 2023, Mountain Province emphasized its commitment to safety, operational improvements, and strategic initiatives to enhance the value of its Canadian-source diamonds.
Key Takeaways
- Adjusted EBITDA stood at CAD 49.95 million, with a 56% EBITDA margin.
- Quarterly carat sales reached 930,000 at an average price of $70, totaling $89.4 million in turnover.
- The company reported a year-over-year decrease in quarterly sales and earnings from operations.
- Safety was a highlight, with Gahcho Kue operations being free of lost-time injuries for over a year.
- The U.S. dollar's strength impacted net income negatively due to increased Canadian value of long-term debt.
- Mountain Province is optimistic about improving grade performance and increasing production.
- The company is testing chain of custody technology and developing branding programs for Canadian-source diamonds.
Company Outlook
- Mountain Province is focused on maximizing revenue and controlling costs.
- Plans are in place to add carat production to the existing life of the mine with results expected by the end of Q2 2024.
- The company is confident in its sales platforms and expects to maximize value throughout the year.
Bearish Highlights
- Lower earnings from operations at $30.4 million in Q1 2024 compared to $47.2 million in Q1 2023.
- Net income after tax significantly decreased to $6.9 million in Q1 2024 from $28.2 million in Q1 2023.
- Subdued purchasing and more selective buying in the polished diamond market led to price decreases.
Bullish Highlights
- The company remains confident in the stability of rough diamond prices.
- Lab-grown diamonds are perceived as less competitive to natural diamonds.
- Tighter controls and sanctions on Russian diamonds by G7 countries in the EU could present opportunities.
Misses
- The company experienced challenges in achieving the desired grade performance in March.
- Sales and average prices of diamonds were lower in Q1 2024 compared to Q1 2023.
Q&A Highlights
- There were no questions during the Q&A session of the earnings call.
Mountain Province Diamonds Inc . is navigating through a complex market environment with a focus on operational efficiency and strategic growth.
Despite the headwinds faced in the first quarter, the company is laying down the groundwork for future improvements and leveraging the Canadian provenance of their diamonds to enhance their market position.
With no questions raised during the Q&A session, stakeholders appear to be awaiting the results of the company's initiatives in the upcoming quarters.
InvestingPro Insights
Mountain Province Diamonds Inc. (MPVDF) has shown a dynamic start to the year, with several noteworthy financial metrics and market activities that investors should consider. According to real-time data from InvestingPro, the company's market capitalization stands at $31.71 million. This valuation comes in the context of a challenging market environment, as reflected in the company's recent financial results.
InvestingPro Tips suggest that Mountain Province Diamonds is trading at a low Price / Book multiple, currently at 0.12, which could indicate that the company's stock is undervalued relative to its book value. This aligns with the company's emphasis on strategic initiatives to enhance value, as mentioned in the article. Furthermore, the company's significant return over the last week of 19.59% showcases a short-term positive momentum in its stock price, which may interest investors looking for rapid gains.
While the company has not been profitable over the last twelve months, analysts predict that Mountain Province Diamonds will turn profitable this year. This forecasted shift towards profitability could be a critical factor for long-term investors considering the company's growth trajectory.
For those seeking more in-depth analysis, InvestingPro offers additional tips on Mountain Province Diamonds, with a total of 7 InvestingPro Tips available to subscribers. To access these valuable insights, investors can visit https://www.investing.com/pro/MPVDF. Moreover, for those ready to dive deeper into InvestingPro's comprehensive financial analytics, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Mountain Province Diamonds' focus on maximizing revenue and controlling costs, as highlighted in the article, is reflected in the company's strategic approach to overcoming current market challenges. The InvestingPro data and tips provide a multifaceted view of the company's financial health and market potential, offering investors a richer understanding of its investment profile.
Full transcript - Mountain Province Diamonds Inc (MPVDF) Q1 2024:
Operator: Good morning, ladies and gentlemen. And welcome to the Mountain Province Diamonds Inc, First Quarter 2024 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 9, 2024. I would now like to turn the conference over to Mr. Mark Wall. Please go ahead.
Mark Wall: Thanks, Colin, and good day to everyone who’s dialed in to listen to our Q1 2024 results call. My name is Mark Wall, and I’m the President and CEO of the company. Also present on this call is Steve Thomas, our CFO, Reid Mackie, our Vice President, Diamond Sales and Marketing. At the conclusion of this presentation, the team will then be available for any questions that you may have. Firstly, and as always, I would like to draw your attention to our cautionary statement regarding forward-looking information. This presentation will be posted on our website for anyone who needs additional time to review this statement. Mountain Province Diamonds produces Canadian diamonds to the high standards of corporate social responsibility and that is something that we continue to be very proud of. We own 49% of the Gahcho Kue mine in the Northwest Territories of Canada with De Beers Group, a division of Anglo American (JO:AGLJ) Plc, owning the remaining 51%. In addition to the 5,025 hectares of joint venture ground containing the existing mining operations, Mountain Province is the 100% owner of more than 113,000 hectares of ground that surrounds the Gahcho Kue assets and we refer to these as the Kennady assets. Today, I will speak to our Q1 2024 results and provide some insights into our strategy as we move through 2024. Following that, Steve, our CFO, will discuss the Q1 financial performance of the company, and Reid will comment on the overall diamond market. I will then make some closing remarks to complete the presentation and answer any questions that you may have. As always, I’ll start with safety. The Q1 results for safety at Gahcho Kue operations have continued to go well, and we are lost-time injury free for more than a year, having recently hit 2 million hours LTI free. The performance in proactive hazard reporting continued through the quarter as did the all-important safety training activities. The very challenging winter months are behind us, and the operations are now focused on safely navigating the freshet period, which is now upon us. I’m now going to run through some highlights from our first quarter of 2024. Firstly, during quarter one, the company achieved a quarterly adjusted EBITDA of CAD 49.95 million, which is up on our Q4 2023 EBITDA of CAD 39.8 million and down on our Q1 2023 adjusted EBITDA of $67.5 million. This is a strong start to the quarter. The diamond market delivered a CAD 95 per carat sold in quarter one. Reid will comment on our product mix to market during quarter one and the industry in general. On a macro level, there are 3 things that I would like to mention. Firstly, on macroeconomic factors, we know that the U.S. Federal Reserve System futures market is currently forecasting easier policy later in 2024 into 2025. Last I looked, there were 2 rate decreases priced in, which could be a tailwind for the diamond market. Secondly, we have the G7 sanctions, which are now in place, although additional time is required for the system and processes to become more streamlined. Thirdly, we have Chinese demand. I read in Paul Zimnisky’s latest report, where it highlighted that – at this time, gold is a far more popular investment category in China than diamond. I look forward to China soon replenishing diamond stocks as they find new ways to include natural diamonds alongside their long-held cultural affinity for gold. On factory-made diamonds, we know that China and India are the world’s largest manufacturers and that volumes continue to grow. I will again refer to a comment in Paul Zimnisky’s latest report, which stated as long as man-made diamonds can continue to be distinguished for natural diamonds with certainty, the general price disparity between the two should continue to widen, given that man-made diamonds are a manufactured product and natural diamonds are a non-renewable natural resource. Reid will provide a more detailed assessment in a few minutes. On to production. Quarter 1 2024 saw an increase in tons treated against quarter 1, 2023. The processed tons is a key metric as these operations have a large ore stockpile, and mining generally produces more ore than processing can handle, continuing to optimize the process throughput is a key opportunity. During March, we had a disappointing grade performance, which dragged down the overall grade for the quarter. The work to understand the grade performance is well underway, and that work is leading us towards very localized issues of more internal dilution than expected. The mine has historically experienced a processed grade, which is very close to the model grade. As we worked through these localized areas in March and April, we are anticipating a return to the grade in the mining plan as the year progresses. As highlighted in our press release, we’ve engaged an external engineering firm to review our technical report for the operations. We are targeting adding carat production into the existing life of mine. This work is in progress, and we expect the results at the end of quarter two of this year. We know that 2024 has long been a challenging year for the company. We continue to focus on the operations to make 2024 the best that it can be as we look towards increasing production through in the remaining years of the operations. With that, I’ll hand over to Steve, our CFO.
Steve Thomas: Thank you, Mark, and good morning, everyone. Noting that all numbers discussed will be in Canadian dollars unless otherwise stated. Compared to the complex issues arising at the year end 2023, this quarter is relatively straightforward. The period has seen a relatively high volume of carats sold, consistent with Q1 2023, but at a much lower selling price. The cost of sales in Q1 2024 is notably lower than in Q1 2023, and that results in earnings from operations having a similar margin across the comparative quarters and above that achieved on average for the year 2023. The working capital position of the company has improved over the last 3 and 12 months, with the major movements on the balance sheet, reflecting the impairment of fixed assets booked at the 2023 year-end and the paydown of second lien loan notes during 2023. The quarter has seen a strengthening of the U.S. dollar compared to Canadian and the associated unrealized foreign exchange loss impacting net income. Adjusting for this impact, Q1 2024 has adjusted EBITDA and cash flow from operating activities at healthy levels compared to the prior three quarters of 2023, but below Q1 of 2023, which benefited from the aforementioned high sales price. Q1 2024 saw the successful completion of the winter road campaign with all bulk commodities delivered to site in line with plan, and in respect to fuel at a price slightly below budget. The quarter also saw the process plant operating well above nameplate through what historically is the most challenging quarter of the year given weather conditions and mining operating went well, resulting in a significant growth in the ore stockpile. Turning first to the balance sheet. The cash balance has increased by $24 million over the quarter to end at $53 million. Three sales took place and the settlement of winter road bulk deliveries such as fuel lands more heavily during quarter two. Hence, the similar increase in accounts payable balance over Q1 2024 by $26 million to end at a balance of $93 million, which is comparable to $98 million that was outstanding at the end of Q1 2023. With the company entering into a heavy cash outflow period in Q2 as the accounts payable balance is settled and as we continue to service operational and debt requirements, our continued efforts to maximize revenue and control costs remain critical. The derivative asset, which comprises both the currency derivative contracts for hedges in place at the quarter end valued at $136,000, and the embedded derivative asset representing the early repayment feature within the second lien loan notes valued at $11.8 million. The total balance has reduced by approximately $2 million over the Q1 2024 period due primarily to the reduction in the comparative value of the currency derivative contracts in respect of U.S. dollar hedges as the U.S. dollar has strengthened over the Q1 period. Inventories at $220 million have increased by $33 million over the quarter due to the delivery of the aforementioned bulk materials on the winter road, a large portion of which being 51 million liters of fuel. Conversely, the value of rough diamonds in inventory has reduced by $26 million during the quarter, in line with a volume reduction of 318,000 carats, reflecting 3 sales taking place and the March sale being close to the quarter end. The last component of inventories is the ore stockpile, which has increased by $27 million over the quarter, consistent with the increase in tons held in the stockpile by 1.1 million tons, resulting in a balance of 3.5 million tons in stockpile, which compares to a balance of only 1.4 million tons at the end of Q1 2023. In respect of property, plant and equipment, the Q1 2024 balance at $584 million is similar to the 2023 year-end balance of $591 million but compares to a much larger balance of $690 million at the end of Q1 2023, with that reduction explained by the material impairment charge of $104 million booked in Q4 of 2023. Turning to current liabilities, I’ve discussed the accounts payable balances and the other items of note are income tax payable at $752,000, representing the liability for mining royalty payable irrespective of an accrual for 2024 that will be settled in Q1 of 2025 and the equivalent liability in respect of 2023, which we recently settled in April of this year. These payments are being made in order to efficiently preserve tax pools for greater tax relief in 2025 and beyond. The second item to note is the warrant liability, which has seen its derived fair value reduced by $541,000 over the quarter to $1.9 million, as the applicable risk-free rate has increased slightly since that year end. As a result of the above components of current assets and current liabilities, we have seen the working capital position increased by $21 million over the quarter to end at $192 million. In respect of the long-term liabilities, the strengthening of the U.S. dollar compared to the Canadian with a closing rate for Q1 2024 at $1.354 compared to the opening rate of $1.324 increases the Canadian value of the $237 million denominated long-term debt, and that gives rise to the non-cash unrealized foreign exchange loss. Conversely, the derived value of the decommissioning and restoration liability has reduced by $4.8 million over the quarter to $18.4 million because of the increase in the nominal risk-free interest rate, which itself reflects the Bank of Canada benchmarked 10-year bond yield rate. Turning to earnings. In Q1, the company sold 930,000 carats at an average price of $70 per carat or CAD95 to generate $89.4 million in turnover. This compares to Q1 2023 when approximately 961,000 carats were sold at an average price of $99 per carat or CAD134 for revenues of $128.7 million. And Reid will elaborate on the general market conditions further in his discussion. Production costs at $32.7 million in the quarter are notably lower – notably below the costs in Q1 2023, reflecting in part the lower value of opening inventory, which we wrote down in Q3 of 2024 and factors into that production cost calculation. Depreciation at $22.2 million for Q1 2024 is below the comparative figure of $25.3 million in Q1 2023, reflecting the reduced net book value at year-end 2023 after the aforementioned impairment charge booked in Q4. In a similar vein, for Q1 2024, the cash cost of production of $56 per carat and $88 per ton of ore are markedly below the comparative figures of $90 per carat and $155 per ton of ore for Q1 2023. This reflects the fact that during Q1 2024, there was a substantial increase in the ore stockpile and a proportion of the costs incurred in the period are capitalized into the ore stockpile until the carats are released from there. This resulted in earnings from operations for Q1 2024 of $30.4 million compared to $47.2 million in Q1 2023. The subsequent derivative loss, as explained above, comprises the reduction in the value of the derivative asset comprising the assessed fair value of the embedded derivatives in the second lien loan notes and the currency derivative contracts. Hedging continues to be used to provide assurance in accessing Canadian funds at acceptable rates. And in April 2024, the company took out further U.S. hedges for $45 million in respect of conversions to take place in Q4 2024 and Q1 2025. The next item of note compared across the comparative period is the unrealized foreign exchange loss in Q1 at $6.2 million compared to a foreign exchange gain of $144,000 in Q1 2023, which reflects the aforementioned strengthening of the U.S. dollar closing rate at Q1 2024 compared to the start of the period. Cash flows provided by operating activities, including changes in non-cash working capital for the 3 months ended March 31, 2024, were $39 million compared to cash flows of $83 million for the same period in ‘23, largely reflecting the lower comparative turnover in Q1 of this year compared to Q1 ‘23. Per the analysis in the MD&A, adjusted EBITDA in Q1 2024 was $50 million versus $68.2 million for Q1 2023. The result in EBITDA margin for Q1 2024 based on sales was 56% compared to 53% for Q1 2023 and an average of 50% for the full year 2023, so remains healthy. Net income after tax for Q1 2024 is $6.9 million compared to $28.2 million in Q1 2023. The net income resulted in $0.03 per share on a basic and fully diluted basis for Q1 2024 compared to $0.13 for Q1 2023. In conclusion, Q1 2024 has been a steady quarter with price moving above that achieved in Q4 2023 but notably below that in Q1 of 2023. Whilst we hope for continued stabilization and improvement in price, management focus remains on minimizing costs wherever possible and requiring the operator to deliver safely to plan and capitalize on the throughput rates now being achieved consistently through the process plan. Thank you for listening. And with that, I will turn the presentation over to Reid Mackie, our VP Diamond Sales and Marketing. Reid?
Reid Mackie: Thank you, Steve. Mountain Province held three sales in Q1 that resulted in $2.9 million less revenue than in the record high first quarter of last year. This is driven by lower prices in the rough diamond market, but also a lower priced product mix as diamonds sold during the period from ore sources with a finer diamond size distribution. Also contributed to this was a minor amount of stock in smaller diamonds that had been withdrawn due to low bidding at 2023 sales. These stocks have now all been sold at a profit above their original withdrawn value. During Q1 2024, rough diamond prices were relatively stable compared to last year, which saw prices come off an average of 20%. Industry-wide self-imposed measures appeared to succeed in reducing inventories and restoring confidence through the rough diamond pipeline during this quarter. Sensitive to maintaining a delicate rough diamond supply-demand balance, producers responded by largely continuing to offer flexibility in purchasing and manage their own inventories to avoid oversupply and further discounting. In polished, purchasing was somewhat subdued during the first quarter with buyers being more selective, only filling gaps in their stock instead of taking wider stock positions for the future. This has prompted polished price decreases, which have recently shown signs of leveling off. Meanwhile, lab grown or factory-made diamonds, which were a disruptive force to the natural diamond industry in 2023, continue to price themselves downwards into differentiated categories more reflective of a fashion jewelry and now appear to represent less competition to natural diamonds and bridal jewelry. Tighter controls and sanctions by G7 countries in the EU on Russian diamonds were implemented during the quarter as well, initially causing some bottlenecks. Demonstrating a willingness to comply with Russian sanctions, many buyers in the U.S. and Europe are now seeking clarification of what levels of source certification will be required come September, when sanctions are fully rolled out and will be extended down to the smaller sizes. Mountain Province, for its part, continues to test chain of custody technology via distributed ledger blockchain systems and is supporting its customers to develop branding programs that highlight the positive origin story of Mountain Province’s natural Canadian-source diamonds. To close, although our Q1 results were down year-on-year from an all-time high, we remain confident our competitive and nimble sales platforms will continue to maximize value and leverage Canadian provenance of Gahcho Kue diamonds throughout the year. And with that, I’ll pass you back to Mark for his closing remarks.
Mark Wall: Alright. Thanks a lot, Reid. So to start 2024, we’ve continued to focus on safety performance and achieved 2 million hours lost-time injury free. We’ve continued to deliver strong adjusted EBITDA of $49.95 million and an EBITDA margin of 56%. We’ve continued with processing plant initiatives, which have resulted in the processing plant operating generally above the original nameplate for throughput. We’ve targeted initiatives for production improvement that remain underway. We’ve initiated work by an external engineering firm to review the mine plan changes, which have been undertaken with the objective of adding carats into the current life of mine plan. Again, I plan to be able to update the market on the results of this work by the end of quarter two. And we’re in discussions to identify opportunities to further take advantage of the Canadian provenance of our diamonds that we are delivering into a market where purchases are ever more focused on diamond origin. Thank you for your time. And myself and my team are now available to answer any questions that you may have. Colin?
Operator: Thank you. [Operator Instructions] Okay. So it appears, we have no questions for the audio portion of the Q&A. I’ll turn it back to Steven for any questions that may have come up via the webcast.
Steve Thomas: Thank you, Colin. At this time, there are no questions on the webcast. So Mark, I’ll pass back to you.
Mark Wall: Okay. Thanks, Steve. Again, just to reiterate the headline that we are moving through 2024, which was always a challenging year, we are focusing on improving the rest of the life of mine plan, while really keeping a close eye on our costs in the immediate term. With that, I thank everyone for their attention. I look forward to updating you on a number of things at the end of quarter two. Thank you, Colin.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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