Earnings call transcript: Mountain Province Diamonds Q4 2024 results

Mountain Province Diamonds Inc., with a market capitalization of just $8.92 million, reported its financial results for the fourth quarter of 2024, revealing a challenging year marked by declining diamond prices and increased net losses. Despite operational improvements and cost control measures, the company faced significant revenue and earnings declines compared to the previous year. According to InvestingPro data, the stock has lost 75% of its value over the past year, though analysis suggests the company is currently trading below its Fair Value.

Key Takeaways

• Full-year revenue decreased to C$268 million from C$329 million in 2023.
• Net loss widened to $80.8 million, with an EPS loss of $0.38.
• Diamond prices fell by 20% year-over-year.
• Operational efficiencies achieved with a 60% improvement in safety metrics.
• Market shows signs of recovery despite ongoing challenges.

Company Performance

Mountain Province Diamonds experienced a difficult 2024, with revenues falling to C$268 million from C$329 million in 2023, representing a 14.4% decline. The company sold 2.72 million carats at an average price of US$72 per carat, down from US$90 the previous year. Despite these setbacks, the company maintained a healthy gross margin of 44.87% and achieved record processing plant throughput, focusing on operational efficiencies including a significant improvement in safety metrics. InvestingPro analysis reveals 11 additional key insights about the company’s performance and prospects.

Financial Highlights

• Revenue: C$268 million, down from C$329 million in 2023.
• Net loss: $80.8 million, compared to a $43.7 million loss in 2023.
• Earnings per share: loss of $0.38, compared to a loss of $0.21 in 2023.
• Adjusted EBITDA: $90.7 million, down from $155.3 million in 2023.

Outlook & Guidance

Mountain Province Diamonds is focusing on safety, production efficiency, and cost control in 2025. The company plans to target the high-grade NEX ore body by the end of the second quarter of 2025 and anticipates higher production in 2026. With a strong current ratio of 3.45, the company maintains adequate liquidity to fund operations. Additionally, the company recently completed a refinancing transaction, extending loan notes to December 2027, and is seeking an additional working capital facility. InvestingPro analysts expect net income to grow this year, suggesting potential improvement in financial performance.

Executive Commentary

CEO Mark Wall acknowledged the challenges faced in 2024, stating, "2024 was a challenging year with diamond pricing." Despite these difficulties, he noted, "We are seeing some green shoots in the market," indicating optimism for future market recovery. Reid Mackey, VP of Diamond Sales and Marketing, highlighted the competitive pressure from lab-grown diamonds, noting, "Lab grown diamond wholesale prices have eroded 90% in ten years."

Risks and Challenges

• Declining diamond prices: A 20% drop in prices compared to 2023 impacts revenue.
• Slow Chinese retail market: A sluggish recovery in China affects demand.
• High midstream inventory: Excess inventory could suppress future pricing.
• Competition from lab-grown diamonds: Ongoing price erosion challenges market share.
• Economic uncertainty: Global economic conditions may affect luxury spending.

Q&A

During the earnings call, an analyst, Mr. White, inquired about the company’s efforts to secure additional working capital. Management indicated ongoing negotiations but did not provide specific terms, reflecting a cautious approach to financial planning.

Mountain Province Diamonds continues to navigate a challenging market environment, with strategic initiatives aimed at improving production efficiency and cost management while seeking opportunities for future growth.

Full transcript - Mountain Province Diamonds Inc (MPVD) Q4 2024:

Joanna, Conference Call Operator: This call is being recorded on Thursday, 03/27/2025. I would now like to turn the conference over to Mark Wall, President and CEO.

Please go ahead.

Mark Wall, President and CEO, Mountain Province Diamonds: Thanks, Joanna. Good day to everyone who’s dialed in to our Q4 and full year twenty twenty four 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 and Reid Mackey, our Vice President of Diamond Sales and Marketing. At the conclusion of the presentation, the team will be available for any questions that you may have.

Firstly, I’d like to draw your attention as always to our cautionary and forward looking statement. 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 highest standards of corporate social responsibility and that is something that we continue to be proud of. We own 49% of the Gatcha Okwari mine in the Northwest Territories with the De Beers Group, a division of Anglo American owning the remaining 51%. Today, I will speak to our Q4 and full year 2024 results.

Following that, Steve will discuss the financial performance of the company and Reed will comment on the overall diamond market. I’ll then make some closing remarks to complete the presentation and answer any questions that you may have. As always, I’ll start the review of our safety performance. In 2024, we continue to focus on workplace safety and the operations achieved a 60% improvement year on year in total recordable injury frequency rate. The operations had historically had a TRIFR that was high compared to other mines and I’m pleased to say that with continued focus the safety performance has improved drastically over the past couple of years including during 2024.

The operations now have approximately 3,400,000 hours without a lost time injury, which again is very pleasing. Safety is always a leading indicator of business performance and we will continue to focus on this very important area of the business. I’m now going to run through some highlights from our fourth quarter as well as full year 2024 results. Reed will comment more broadly on the diamond market. I will say that diamond pricing during 2024 was a challenging part of the business.

In 2024, we saw an average diamond price at 20% less than in the full year of 2023. The amount of carats sold was approximately the same year on year, so price created a very direct impact on the business. From an operating perspective, we focused on what we can control, which is production and costs. On production, the work done from late twenty twenty two through to late twenty twenty three to stabilize the processing facility return positive results with all processed at 3,630,000 tons, a record for the operations. On mining, 2024 was a challenging year with pit bottom mining in both the 05/1934 and the Hearne Open Pits taking place concurrently.

These two open pits were successfully completed during the 2024 year with additional law being mined than was in the plan. As previously reported, we saw grade lower than planned early in the year. We know that production is the result of throughput and grade, which meant that the higher achieved throughput helped contribute to the final production number of 4,660,000 carats, which was around 40,000 carats short of the top of our guidance range, which was 4,200,000 carats to 4,700,000 carats. On costs, our cash costs per carat recovered guidance range was $96 to $107 per carat with our result below the bottom of the cost range at $91 per carat. And our cash cost per tonne treated guidance at $124 to $136 per tonne treated.

Our results are again below the guidance range at $117 per ton treated. The resulting adjusted EBITDA for the 2024 year was $90,700,000 which is significantly lower than the $155,000,000 of adjusted EBITDA for 2023 based on a very similar sales volume. In summary, we’ve been focused on safety, which is a leading indicator to overall performance, processing plant stability and optimization or mining and cost control. We will continue our efforts to safely achieve all where possible exceed the plan. The all important piece is the recovery of the diamond market.

I see some green shoots in the market and Reed will discuss this in more detail in a few moments. We will continue to focus on the things we can control, which is safety production and costs. Although they are not twenty twenty four events, I’ll also update you briefly on two things. Firstly, the annual ice road season is drawing to an end. This is a complex activity and I’m pleased to say that we plan to have our annual resupply completed by tomorrow afternoon, which is slightly ahead of plan.

Secondly, and also a subsequent event to the year end, the company recently announced the closing of a significant refinancing transaction, which has addressed a number of material issues for the company, including the bonds that were due to expire at the end of this year. With this refinancing together with other liquidity measures that the company is currently advancing, the company will be much better positioned as we head towards a significantly higher production year in 2026. Once again, I’m grateful to our largest shareholder, Mr. Dermot Desmond for his stalwart support of the company. With that, I’ll turn the call over to Steve, who will take us through the financial results.

Steve? Thank you, Mark, and good morning, everyone.

Steve Thomas, CFO, Mountain Province Diamonds: Noting that all numbers discussed will be in Canadian dollars unless otherwise stated. First, turning to an overview of the business. Continued focus on improving operational efficiency and economy has seen record throughput rates achieved in the process plant. Although more ore tons were mined and treated in 2024 than in 2023, The impact of treated grade being 25% lower resulted in 16% less diamonds recovered in 2024 compared to 2023. Despite this, the company sold the same number of carats in 2024 as 2023 resulting in lower closing diamond inventory.

As such, the reduction in comparative revenues across the two years is entirely down to reduction in unit selling price. Twenty twenty four’s average selling price was approximately 20% below 2023 and six percent lower in Q4 twenty twenty four and during the first nine months of the year. This revenue reduction in 2024 resulted in significantly lower comparative earnings from mine operations compounded by an increase in comparative cost of production, which itself was due in large part to a write down in inventory value. Another major impact on twenty twenty four’s financial results was the strengthening of the U. S.

Dollar, especially in Q4, further lowering net income when compared to 2023. As a result, earnings from operations in Q4 twenty twenty four was a loss of $13,000,000 compared to full year earnings of $18,400,000 For the 2024 year end balance sheet, the most significant change is the recategorization of the US dollar 177,000,000 senior secured loan notes due in December 2025 from a long term liability to a current liability resulting in a negative working capital balance of $120,000,000 Absent this recategorization, the working capital balance would have been plus $140,000,000 compared to $171,000,000 at the end of twenty twenty three. However, as of recently announced, the term date for the loan notes is now extended to December 2027 and the debt will revert to a long term liability in the Q1 twenty twenty five financial statements. The critical refinancing of the loan notes was achieved alongside other significant agreements reached with De Beers to address the reclamation liabilities owed to the mine operator and with our debt providers to defer interest and with our largest shareholder Mr. Desmond to provide an injection of capital to help address the 2025 liquidity challenges faced by the company.

I will now highlight a few key elements of the 2024 balance sheet. Beyond the aforementioned debt reclassification, other items to note are as follows: the embedded derivative asset at twenty twenty four year end $6,000,000 compares to a balance of $12,600,000 at twenty twenty three year end and that represents the fair value calculated for the prepayment and redemption feature in the second lien notes. The declining value is due primarily to an increase in the applicable discount rate along with a marked decrease in interest rate volatility used in the calculation. Inventories at $196,500,000 have decreased by $21,000,000 over the quarter and $9,200,000 compared to the year end 2023. The three distinct components are as follows: Supplies inventory has reduced by $17,000,000 as consumables are used prior to their replenishment on the winter road during Q1 twenty twenty five, which as Mark has mentioned is almost completed for this year.

Secondly, the value of your stockpile $109,000,000 compared to $77,000,000 at twenty twenty three year end reflects the substantial increase in stockpile tonnes from $2,300,000 to $4,100,000 Thirdly, the decline in rough diamond inventory from $50,000,000 at twenty twenty three year end to $23,000,000 now reflects the reduction in tariffs held from $745,000 at the end of 2023 to 319,000 During 2024, there was a $13,700,000 adjustment in value down from cost to net realizable value arising during Q3 and Q4 because of the lower selling price being achieved. In respect of long term assets, the value of property, plant and equipment in 2024 at $588,000,000 is close to the value of $591,000,000 at the end of twenty twenty three. These balances comprise the value of capitalized waste stripping approximately $160,000,000 the carrying value of the Kennedy North project at $169,000,000 for which management concluded there was no evidence of triggers of impairment to consider per IFRS six and lastly $260,000,000 of mining infrastructure assets. The restricted cash balance represents monies deposited with the operator to be used to fund future decommissioning costs. The balance of $34,000,000 at the twenty twenty four year end compares to $32,400,000 at the twenty twenty three year end with the increase being interest on funds deposited.

The agreement reached recently with De Beers confirmed future contributions over 2627 and ’28 to fund the company’s share of decommissioning costs currently estimated at $94,700,000 In respect to current liabilities, the $7,900,000 derivative liability represents the fair value of the US105 million dollars of currency hedges in place at the year end through to October 2025, comparing their respective settlement rates to the forward FX curve derived from this fair value. In 2023, the equivalent $45,000,000 of U. S. Hedges had a fair value of positive $1,400,000 In summary, the change in the value of the current assetscurrent liabilities since the start of the year decreased the working capital position substantially due to the reclassification of the senior notes. But after normalizing for that impact, the residual $31,000,000 reduction reflects the reduction in comparative closing cash balance and the decrease in the derivative asset share value.

In respect of long term liabilities, the strengthening of the U. S. Dollar compared to the Canadian since the end of twenty twenty three has increased the Canadian equivalent value of the Dumbridge Junior credit facility by $5,700,000 Also $23,200,000 of unpaid interest has accrued in accordance with the credit facility terms. Turning now to cash flow and earnings plus. For 2024, ’2 point ’7 ’2 million carats have been sold at an average price of US72 dollars per carat or C0.98 to generate $268,000,000 Canadian revenue, which compares to the same 2,720,000 carats sold at US90 dollars per carat or 121 Canadian to generate $329,000,000 in 2023.

Despite Q4 twenty twenty four seeing a slightly higher selling price than Q4 twenty twenty three, for the first nine months of twenty twenty three, prices averaged $103 per carat compared to $73 per carat over the first nine months of 2024. And Reid will provide more insight into

Mark Wall, President and CEO, Mountain Province Diamonds: the market shortly. Production

Steve Thomas, CFO, Mountain Province Diamonds: costs at $42,500,000 in Q4 twenty twenty four compared to $33,500,000 in Q4 twenty twenty three with the difference largely attributable to the charge for writing down rough diamond inventory from cost to net realizable value. Beyond this impact and after normalizing the carat sold in Q4 twenty twenty four compared to Q4 twenty twenty three, production costs are comparatively higher because there was a larger growth in the ore stockpile in 2023 than 2024. So comparatively, more production costs were capitalized in Q4 ’twenty three than was the case in Q4 ’twenty four. For full year 2024, production costs are $157,000,000 are $19,000,000 above full year 2023 of which $9,000,000 is the non cash diamond inventory write down and the balance of the increase reflects higher opening inventory costs in 2024 than 2023 and lastly general inflation impacts between the years. For 2024, total cash costs of production including capitalized stripping at $2.00 $8,000,000 compared closely to $2.00 $5,000,000 for 2023.

But with 12% more ore treated in 2024 than 2023, there is a consistent 10% reduction in the cost per tonne of ore treated at $117,000,000 1 hundred and 17 dollars in 2024 versus $129 in 2023. However, the cash cost per carat for 2024 at $91 is notably above $75 incurred in 2023 because diamonds recovered were only $4,700,000 in 2024 versus $5,600,000 in 2023. This reflects the higher upgrade achieved in 2023 of 1.71 carats per tonne compared to only 1.21 carats per tonne in 2024. In summary, earnings from operations for 2024 were $18,000,000 compared to $102,000,000 in 2023, which as explained above is due to $61,000,000 lower revenue with lower price achieved, dollars 19,000,000 due to production costs of which half with a non cash inventory adjustment charge and $4,000,000 being an increase in depreciation. Continued efforts to control corporate costs resulted in $1,600,000 or 12% lower costs for the full year 2024 compared to 2023.

And for exploration and evaluation expenses in 2024 of $1,100,000 that was significantly below the $6,600,000 spent in 2023 reflecting reduced activity at the Kennedy project. However, the company continues to ensure all required permits are in good standing and as reported in our MD and A, a targeted program of activity took place during 2024 to support the project’s economic potential. The resultant operating income of $4,500,000 for 2024 compares to a loss of $23,000,000 in 2023 with that loss impacted largely by the $104,000,000 impairment charge that we took in 2023. Below operating income, a significant difference for 2024 compared to 2023 is the foreign exchange loss of $27,500,000 compared to a foreign exchange gain of $6,600,000 in 2023. Dollars ’20 ’6 point ’9 million of the foreign exchange loss arising in 2024 was unrealized largely reflecting the translation of the U.

S. Dollar debt at a higher closing U. S. Dollar rate and was the case for 2023. Per the analysis in the MD and A, adjusted EBITDA in Q4 twenty twenty four was $10,200,000 versus $39,800,000 for Q4 twenty twenty three.

And for the full year 2024, dollars ’90 point ’7 million versus 155,300,000.0 for 2023. The result in EBITDA margin for 2024 at 34%, although healthy, is markedly lower than 47% achieved for 2023. The above performance resulted in a net loss after tax for Q4 twenty twenty four of $62,200,000 compared to a loss of $75,800,000 in Q4 twenty twenty three. And for the full year 2024, a net loss of $80,800,000 compared to a loss of $43,700,000 for 2023. But noting that loss in 2023 was heavily impacted by the aforementioned impairment charge.

For Q4 twenty twenty four, the earnings per share was a net loss of $0.29 compared to a loss of $0.36 for Q4 twenty twenty three. And for the full year 2024, the earnings per share loss is $0.38 compared to a loss of $0.21 for 2023. In conclusion, challenging market conditions suppressing price has impacted financial results and emphasized management focus on driving the efficiency of the operation and minimizing spend wherever possible. As for 2024 year, going forward, we will continue to focus on what we can control, working with the operator to move quickly and safely to the higher grade NEX ore body in 2025, enabling higher production and increased sales and securing a working capital facility that will supplement the financial solutions developed with our Stonewall Partners in 2024 in order to meet our obligations throughout 2025. Thank you for listening.

And with that, I will turn the presentation over to Reid Mackie, our VP, Diamond Sales and Marketing. Reid?

Reid Mackey, VP of Diamond Sales and Marketing, Mountain Province Diamonds: Thanks, Steve. As already mentioned today, 2024 was another challenging year for the industry with both polished and rough prices. Continuing the slide which began in 2023. Key negative drivers included slow Chinese domestic retail, persistently high levels of midstream inventory and uncertainty around higher volumes of cheaper lab grown diamonds. This resulted in upstream market apprehension and more selective purchasing of rough and polished goods.

Through the year, rough diamond producers took steps to defend rough prices by postponing or canceling sales, offering greater purchasing flexibility and reducing overall mine output. As discussed, Mountain Province’s cash flow planning utilized the company’s short working capital cycles to sell 100% of production available and no strategic stocking was employed in 2024. At the end of twenty twenty four, the much anticipated retail holiday period did see some growth in consumer spending year on year, but this did not initially prompt a rebound in rough and polished purchasing nor prices. However, more recently with results from holiday retail season the holiday retail season more widely known, we are seeing some positive signs for recovery. Highlights at retail came from luxury companies like Richemont, who owns Cartier and Van Cleef and Arpels, who reported record holiday sales in their hard luxury jewelry categories.

The continued commitment of most high jewelry houses to exclusively use natural diamonds is notable. Lab grown or factory made diamonds, which increased their share of sales in 2024 appear to be at an inflection point that is creating more separation between them and natural diamonds and reduce their negative impact upon confidence in the natural diamond market. Wholesale pricing for lab grown diamonds have eroded 90% in the past ten years and their factories are experiencing high rates of attrition via bankruptcies or abandonment of the sector. Lastly, and perhaps more importantly, reliable technology that accurately differentiates lab grown from natural diamonds is expected to be more widely rolled out in 2025. This should mitigate further erosion of consumer confidence and support differentiated marketing of natural diamonds.

Upstream, we have recently seen widespread rough diamond price increases and are beginning to see polished price increases as well. Midstream polished inventories are reduced and buyers are reporting scarcity in certain sizes and categories, which supports price growth. This was reflected in our most recent sales, which saw solid rough diamond price increases and some of the most competitive bidding seen in years. As the supply demand balance continues to move in a favorable direction for rough pricing, the major rough diamond producers appear to be carefully managing the release of stock goods into the pipeline to avoid oversupply. In the longer term, rough diamond supply levels are expected to align with reduced production levels from the mines while demand for branded natural diamond jewelry with positive origin stories continues to grow.

I’ll now pass you back to Mark for his concluding remarks.

Mark Wall, President and CEO, Mountain Province Diamonds: Thanks very much, Rick. In summary, during 2024 and into 2025, we’ve continued to focus on safety performance with a very significant improvement year on year. Safety is a leading indicator of production performance and we will keep the focus in this area. We continued with the processing plant initiatives that have now resulted in the plant achieving record throughput in 2024 and this is especially important as we treat low grade stockpiles in the first half of twenty twenty five. We focus on optimizing mining rates which is again especially important to get through the waste stripping period to reach the high grade NEX ore body which we expect to happen at the end of quarter two.

We’ve remained focused on cost control with unit cost for tons treated and carrots produced finishing below the guidance range in both cases. For 2025, we will keep the focus in these areas to best position the company for an improvement in the diamond price environment through 2025. Thank you for your time. The team is now available to take any questions that you may have. Joanna?

Joanna, Conference Call Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. There appear to be no questions. I will turn the call back over to management.

Mark Wall, President and CEO, Mountain Province Diamonds: Okay. Well, Steve, are there any questions on the online? Mark, there is one.

Steve Thomas, CFO, Mountain Province Diamonds: Mr. White from The Sunday Times has asked in filings you’ve stated that the company is still working on negotiations about a further working capital facility. Could you tell us a bit more about the quantum of the working capital required, the current position of those negotiations and then identify possible providers? I’m happy to speak to that, albeit briefly because obviously the conversations around that working capital facility aren’t progressed to a specific stage. We know we have the need.

We’ve been having conversations internal existing debt providers and looking at external alternatives. We have a special committee of the independent directors established to consider those alternatives. But at this time, we don’t have specific terms established. Other than that, we have no questions submitted, Mark.

Mark Wall, President and CEO, Mountain Province Diamonds: Okay. Thanks, Steve. I guess, I would just add to that, that in the press release that we did put out around the bond transaction, we did provide some numbers of the areas we were focused on. And again, we don’t have anything as Steve said further than what we’ve made available in the press release. With that, thank you everyone.

Thank you, Joanna. And I look forward to updating you in the next call.

Joanna, Conference Call Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.

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