Seven months after turning out its first diamonds last August, De Beers and Mountain Province Diamonds’ (TSX: MPVD; NASDAQ: MPVD) Gahcho Kué mine in the Northwest Territories began commercial production on Mar. 1.
In the first quarter ended Mar. 31, 867,000 carats were recovered from 492,000 tonnes of ore processed for a grade of 1.76 carats per tonne, 49% owner Mountain Province reported in April.
But prices achieved in the quarter suffered from both demonetization in India and the lower-quality diamonds found in the upper levels of the Northeast Lobe of the 5034 kimberlite.
While prices were lower than the expected average for the 5034 kimberlite as a whole, Mountain Province president and CEO Patrick Evans expects prices to improve as market conditions normalize and more production is sourced from the Centre Lobe of the kimberlite.
“The first quarter diamond sales reflect the experience of a new entrant to the market, as buyers develop familiarity with the sell-through value of the company’s production,” Evans said in a release.
“The unexpected headwinds from demonetization in India compounded customary weakness during the price discovery period. Importantly, we have seen a steady improvement in our early sales results and are very encouraged that 72 per cent of the winning bidders at our March sale were repeat buyers.”
Based on performance so far, the company released guidance for 2017 on a 100% basis of 40 million tonnes mined, with 2.7 million tonnes processed to recover 4.4 million carats at a grade of 1.62 carats per tonne. Mountain Province expects to receive US$70 to US$90 per carat for the balance of the year.
In a research note in late April, Haywood Securities analyst Geordie Mark wrote that the new pricing estimates for 2017 are considerably below the original base case scenario, even considering current market conditions and other pricing discounts.
The greater than expected variability in the quality and size frequency distribution in the top part of the Northeast Lobe of the 5034 kimberlite presents a pricing risk, Mark said.
However, earlier size frequency data shows that the Centre Lobe hosts a greater population of larger diamonds.
Mark lowered his target for Mountain Province to $6.30 per share from $7 in late April, when the company traded at $4.53.
Full production at the mine, which is operated by De Beers, is expected mid-year.
This story originally appeared in the June 2017 issue of Diamonds in Canada.