Mountain Province Diamonds Announces Second Quarter and Half Year 2019 Results

Press Release

TORONTO and NEW YORK, Aug. 6, 2019 – Mountain Province Diamonds Inc. (“Mountain Province”, or the “Company”) (TSX and NASDAQ: MPVD) today announces its financial and operating results for the second quarter (“Q2 2019”) and first half 2019 (“H1 2019”) ended June 30, 2019.  All figures are expressed in Canadian dollars unless otherwise noted.

Operational Highlights for Second Quarter 2019 (“Q2 2019”)

• 10,865,263 total tonnes mined in Q2 2019, 6% increase on comparable period (Q2 2018: 10,285,000).
• 882,374 tonnes of ore treated in Q2 2019, 2% decrease from comparable quarter (Q2 2018: 899,000 tonnes).
• 1,730,147 carats recovered at an average grade of 1.96 carats per tonne, 10% lower than comparable quarter (Q2 2018: 1,930,500 carats at 2.15 carats per tonne).  The grade variance year over year is mainly a function of mining lower grade ore tonnes in Q2 2019 from Hearne and SWC Kimberlites in comparison to higher grades from the 5034 Kimberlite in Q2 2018.  In addition, the ongoing plant modifications have, as expected, resulted in the removal of the very small, lowest value diamonds from the recovery process further contributing to fewer carats recovered.

Financial Highlights for Second Quarter 2019 (“Q2 2019”)

• 1,077,730 carats sold at an average value of $89 per carat (US$67 per carat) for total proceeds of $95.8 million (US$71.7 million) in comparison to 1,113,724 carats sold at an average value of $89 per carat (US$69 per carat) for total proceeds of $99.1 million (US$76.8 million) in Q2 2018.  It is important to note that the majority of the carats sold in Q2, 2019 were from the Hearne and SWC kimberlites as per plan, which contain lower average values per carat than the 5034 ore body, that made up most of the production in the previous year. The achievement of similar average values per carat sold year over year is very encouraging and can be attributed to the Company’s ongoing efforts with its JV Partner, De Beers Canada to focus on optimizing the processing facilities recoverable size frequency distribution.
• Adjusted EBITDA¹ for the three months ended June 30, 2019 amounted to $39.1 million ($41.1 million in Q2 2018).
• Q2 2019 Earnings from mine operations amounted to $17.8 million ($18.5 million in Q2 2018).
• Free Cash Flow for the three months ended June 30, 2019 amounted to $18.9 million ($4.8 million in Q2 2018).  Cash balance as of June 30, 2019 was $30.2 million.
• Subsequent to the six months ended June 30, 2019, $9.2 million Canadian dollar equivalent of secured notes payable (US$7 million) was purchased by the Company.
• Q2 Cash costs of $106 per tonne treated and $54 per carat recovered, include capitalized stripping costs¹ ($112 per tonne treated and $52 per carat recovered in Q2 2018).
• Q2 Net income was $10.3 million or $0.05 earnings per share ($6.4 million or $0.03 loss per shared in Q2 2018).  Included in the determination of net income for the three months ended June 30, 2019 are unrealized foreign exchange gains of $7.5 million, on the translation of the Company’s USD-denominated long-term debt. The unrealized foreign exchange gains are a result of the relative strengthening of the Canadian dollar versus US dollar.

Operational Highlights for H1 2019

• 20.4 million total tonnes mined in H1 2019, 10% increase on comparable period (H1 2018: 18.5 million tonnes).
• 1,753,323 tonnes of ore treated in H1 2019, 4% increase from comparable quarter (H1 2018: 1,684,479 tonnes).
• 3,314,699 carats recovered at an average grade of 1.89 carats per tonne, 7% and 10% lower than comparable quarter respectively (H1 2018: 3,571,510 carats and 2.12 carats per tonne).  The grade variance year over year is mainly a function of mining lower grade ore tonnes in H1 2019 from Hearne and SWC Kimberlites in comparison to higher grades from the 5034 Kimberlite in H1 2018.  In addition, the ongoing plant modification and size frequency optimization projects result in the removal of the very small, lowest value diamonds from the recovery process further contributing, as expected, to fewer carats recovered.

Financial Highlights for H1 2019

• Total sales revenue at $156 million (US$118 million) compared to $165 million in 2018 (US$129 million) at an average realised value of $91 per carat (US$68) 2018: $101 per carat, (US$79).
• Half year Adjusted EBITDA² of $58.8 million down 21% (2018: $74.7 million),
• Earnings from mine operations down 35% to $28.0 million (2018: $43.1 million).
• Cash costs of production, including capitalized stripping costs² of $109 per tonne treated (2018: $96 per tonne) and $57 per carat recovered (2018: $45 per carat).
• Net income for half year 2019 at June 30, 2019 was $12.8 million or $0.06 earnings per share (2018: net loss $6.2 million or $0.03 loss per share). Included in the determination of net income for the half year at June 30, 2019 are unrealized foreign exchange gains of $16 million, on the translation of the Company’s USD-denominated long-term debt. The unrealized foreign exchange gains are a result of the strengthening of the Canadian dollar versus US dollar.
• Capital expenditures in H1 2019 were $20.5 million, $15.9 million of which were deferred stripping costs, with the remaining $4.6 million accounting for sustaining capital expenditures related to mine operations.
• Quarter end cash position of $30.2 million (2018: $33.5 million) and net working capital of $107.4 million (2018: $100.4 million), with US$50 million revolving credit facility remaining undrawn.  The Company is well positioned to generate significant positive cash flows for the second half of the year as cash funding commitments for the Gahcho Kué Mine are heavily weighted to the first half of the year for winter road supply and capital commitments.

Market Highlights for H1 2019

• The Company completed five sales during H1 2019 where it saw continued pressure on prices in the smaller, cheaper rough categories.  Prices for the larger, better-quality product categories that contribute the majority of the Company’s sales value remained stable through the second quarter after gains made earlier in the year.
• Broader macro-economic uncertainties are further dampening market sentiment, however long-term industry supply and demand fundamentals are positive. In 2018 the global rough diamonds production declined by 3.1% to 145m carats.  This trend is expected to accelerate with the recently announced closure of the Argyle mine in 2020 expected to remove 14 million carats from global rough supply.  At the same time there continues to be long term growth forecast for global diamond jewellery consumption.

Year to Date Summary

The Company’s first half 2019 production results are slightly ahead of plan with over 20 million total tonnes mined, 10% higher than the same period last year. The total carats recovered and grade in H1 2019 were 7% and 10% lower than the same period last year respectively, but ahead of the Company’s plans for first half 2019. The lower grade and carats recovered year to date, as stated in previous announcements, are driven by the grade and carats associated with the source of ore feed for each period. In H1 2019 the majority of the plant throughput consisted of the Hearne and SWC Kimberlites which contain lower average values per carat than the 5034 Kimberlite, where majority of the production was sourced from in H1 2018. In addition, the plant process modifications have, as planned, resulted in the ability of the plant to treat more ore which has resulted in the removal of the very small, lower value diamonds but increasing the number of larger more valuable diamonds recovered with the increased tonnage. This outcome is expected and lower grades and carats recovered are offset by generating higher average values from the increased production.

The Company’s year to date sales results, and year over year revenue performance demonstrate that the plant process changes are beginning to have a positive impact on the average value of the diamonds recovered. Considering that lower quality ore was being mined during H1 2019 in comparison to H1 2018, and in addition to a softer diamond market year over year, achieving similar revenues is very encouraging.

Year to date, the plant has treated 1,753,323 tonnes, 4% higher than 1,684,479 tonnes treated in the comparable period last year. In H1 2019, the plant produced over 3.3 million carats at an average grade of 1.89 carats per tonne, 7% and 11% lower respectively in comparison to 3.6 million carats at an average grade of 2.12 carats per tonnes in H1 2018, but slightly ahead of the Company’s plans for H1 2019. Lower grades and carats recovered in H1 2019 compared to last year are attributed to mine sequencing and mining of lower grade ore tonnes in the latest period and as per plan. As mining shifts back towards the 5034 Kimberlite in late 2019, and with further plant process changes taking effect now and in early 2020, the Company is well positioned for next year and beyond.

Financial results for first half 2019 are also ahead of the Company’s expectations, with cash costs coming in at $109 per tonne treated and $57 per carat recovered. In comparison to the full year 2019 cost guidance of $110 – $120 per tonne treated and $50 – $54 per carat recovered, H1 2019 results are trending very well, considering that the Company’s first half fiscal year typically sees higher cash burn rates to account for the upfront purchase of fuel and material during the winter months. Therefore, the Company fully expects to achieve the lower end of its cost guidance for full year 2019.

Mountain Province President and CEO Stuart Brown commented: “Despite a very difficult rough diamond market we have had a successful year so far, achieving all of our production targets and have completed the first half of the year slightly ahead of our plan. Our financial results are also slightly ahead of our expectations for the first half supported by the ongoing success of our 2019 strategic milestones and operational initiatives put in place prior to the start of the year. In the Life of Mine Plan, 2019 was always going to be a challenging year for Mountain Province Diamonds considering the lower quality ore in the mining sequence. The plant processing enhancements and modifications, in addition to all other operational optimization initiatives at the Mine have allowed us to mitigate some of those challenges.

The Company’s diamond sales were also marginally ahead of expectations due to a better product mix, and despite lower quality and grade ore feed from SWC and Hearne. The rough diamond market continues to present challenges, and we expect to see continued volatility in the market for rough diamonds in the near term. We will focus our efforts to maintain our production at the lower end of our cost guidance and will continue to improve the cash generated at every opportunity. We remain on track to achieve our 2019 forecast of 3.3 – 3.45 million carats (our 49% share of the full production) recovered.”

Gahcho Kué Mine Operations

The following table summarizes key operating statistics for the Gahcho Kué Mine in the three and six months ended June 30, 2019 and 2018.

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Financial Performance

Conference Call

Full details of the financial and operating results for the quarter ended June 30, 2019 are described in Mountain Province’s unaudited condensed consolidated interim financial statements with accompanying notes and related Management’s Discussion and Analysis.  These documents and additional information on Mountain Province are available on the Company’s website at www.mountainprovince.com and on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml.  Shareholders may contact Mountain Province at 161 Bay Street, PO Box 216, Toronto, ON, M5J 2S1, to request, free of charge, hard copies of the unaudited condensed consolidated interim financial statements and related Management’s Discussion and Analysis.

The Company will host an earnings conference call for analysts and investors on Wednesday, August 7, 2019, at 11:00 a.m. Eastern Time.  The conference call can be accessed using the following details.  A replay of the webcast and audio call will also be available on the Company’s website.

Q2 2019 Conference Call Dial-In Details:

Title: Mountain Province Diamonds Inc Q2 Earnings Conference Call
Conference ID: 2474225
Date of call: 08/07/2019
Time of call: 11:00 Eastern Time
Expected Duration: 60 minutes

Webcast Link: https://edge.media-server.com/mmc/p/ti9o8iag

Participant Toll-Free Dial-In Number: (866) 300-0510
Participant International Dial-In Number:  (636) 812-6656

A replay of the webcast and audio call will be available on the Company’s website

About the Company

Mountain Province Diamonds is a 49% participant with De Beers Canada in the Gahcho Kué diamond mine located in Canada’s Northwest Territories.  Gahcho Kué is the world’s largest new diamond mine, consisting of a cluster of various diamondiferous kimberlites, four of which are being developed and mined under the current mine plan. The Company also controls 67,164 hectares of highly prospective mineral claims and leases immediately adjacent to the Gahcho Kué Mine that include an indicated mineral resource at the Kelvin kimberlite and inferred mineral resources for the Faraday kimberlites.

Qualified Person

The disclosure in this news release of scientific and technical information regarding Mountain Province’s mineral properties has been reviewed and approved by Keyvan Salehi, P.Eng., MBA, and Tom E. McCandless, Ph.D., P.Geo., both Qualified Persons as defined by National Instrument 43-101 Standards of Disclosure for Mineral Projects.

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