With traditional markets for rough diamond sales remaining closed, Canadian diamond miner Mountain Province on Monday unveiled a proposed $50-million transaction that will provide it with short-term liquidity.
The 49% participant in the Gahcho Kue mine, in Northwest Territories, is proposing an agreement to sell diamonds to Dunebridge Worldwide, which is owned by Mountain Province shareholder Dermot Desmond.
The transaction with Dunebridge will permit the company to sell its run-of-mine diamonds (below 10.8 ct) at the prevailing market price at the time of each sale.
The first sale for about $22-million is expected to occur on June 11, following the execution of a binding agreement, Mountain Province said in a statement.
The transaction would allow the company to participate, after fees and expenses in a portion of any increase in the value of the diamonds realised by Dunebridge upon its future sale of the diamonds to a third party.
The fees, calculated per each sale, are fixed at 10% of the value of each sale for the first year and 10% per year pro-rated for years two and three. The expenses relate to any future sale costs. Once all fees and expenses have been deducted any surplus will be shared equally between Dunebridge and the company.
A committee of directors, all of whom are independent of management and the major shareholder of Mountain Province, undertook a full consideration of the sale and various alternatives and financing options available to the company and concluded that the sale was “reasonable” and represented the “best alternative” for Mountain Province, which the board said was in “serious financial difficulty”.
The completion of the sale is subject to approval of the TSX, the company's lenders, and all other necessary regulatory approvals.
Proceeds of the sale will be used for operations and corporate expenses, including the funding of bond interest, all in the ordinary course as having been budgeted by the company prior to Covid-19.
Diamond miners, particularly junior ones, are struggling as the pandemic devastates the industry worldwide.
Newswire Bloomberg reports that the world’s five biggest producers could be sitting on excess inventories worth about $3.5-billion, citing advisory firm Gemdax. By the end of the year, this figure could reach $4.5-billion.