By the time Gahcho Kué achieves first production in the second half of 2016, more than two decades will have passed since the discovery of the 5034 kimberlite at the project by Mountain Province Diamonds (TSX: MPV; NYSE-MKT: MDM) in 1995.
But time hasn’t eroded the value of the project, now owned by De Beers (51%) and Mountain Province Diamonds (49%).
After Diavik and Jwaneng, Gahcho Kué is expected to rank third in the world in terms of profit margin.
A March feasibility update pegged the project’s post-tax net present value at $1 billion using a 10% discount rate, and its internal rate of return at 32.6%.
And Mountain Province Diamonds postulates that Gahcho Kué could one day qualify as a Tier 1 asset with a mine life of over 20 years and an in situ value of at least $20 billion.
The 5034, Tuzo and Hearne kimberlites at the project are all open at depth, but Tuzo has the greatest volume potential as it widens at depth. Drilling by the partners has shown the kimberlite extends to at least 750 metres.
The dream of achieving Tier 1 asset status is still a ways off, as the partners focus on building the $858.5-million mine, located 300 km northeast of Yellowknife and 90 km east of De Beers’ Snap Lake mine.
Construction began in December 2013 and is expected to continue until the end of 2015. At the end of September, construction at the mine was 43% complete.
With its land-use permit issued in August and final approval of its Type A water licence in September, the partners have all the permits they need to finish the job.
To pay for its portion of construction, Mountain Province completed a $100-million equity raise in October of 20 million shares priced at $5 per share. The company now has enough cash to cover its obligations at Gahcho Kué for 2014, and is expecting a US$370-million senior secured debt package to follow before the end of the year.
Once in production, the open-pit mine will produce 4.5 million carats a year over 12 years for a total of 53.4 million carats. Diamond revenues are estimated at US$149.66 per carat.
Probable reserves in the 5034, Tuzo and Hearne kimberlites stand at 35.4 million tonnes grading 1.57 carats per tonne. Inferred resources add another 18.5 million carats in 11.3 million tonnes grading 1.64 carats per tonne, which could extend Gahcho Kué’s mine life by several years. There’s also another 1.1 million carats in indicated resources.
After the equity financing in mid-October, BMO Capital Markets mining analyst Ed Sterck had an “outperform” (speculative) rating and a $6.15 target price on Mountain Province stock.
At the end of October, Mountain Province shares traded at $5.27 in a 52-week range of $4.90-$6.08. Post-financing, the company has 135.2 million shares outstanding.