Four years after spinning off its exploration business, Canadian diamond play Mountain Province wants to buy the company back, Global Mining Observer reports.
Mountain Province is months away from entering production at its Gahcho Kué mine in Canada, which is due to produce a thumping 4.5m carats per annum. The company spun off its surrounding acreage in 2012 as Kennady Diamonds, which has more than tripled since, hitting blind discoveries and mapping out at least four kimberlite bodies.
Both companies are backed by Irish billionaire Dermot Desmond. Until recently, they have also shared boards and management teams, but Patrick Evans, previously chief executive of both, stepped down from Kennady last week.
The move was read by brokers as “a declaration of independence”, but according to insiders, it was more of a legal formality, putting the two companies at arms length, allowing a takeover to go through. Kennady's new chief executive, Dr. Rory Moore, has taken the position on the basis that it is likely to be short term. “This guy fully understands the game plan, so he acknowledges he won't be sitting in the seat for the long term.”
Gahcho Kué, which is due to become Canada's third largest diamond mine, is 51 per cent owned by diamond giant De Beers. Rather than Mountain Province make a move on Kennady outright, a bid is likely to be pitched by the joint-venture, out of cash flow from Gahcho Kué, according to sources working on the
process. After splitting the deal fifty-fifty, “it's not massive.”
Kennady's Kelvin deposit, which is near surface and high grade, would fill a drop-off in Gahcho Kué's mine plan from 2023 to 2028. “Once you get into production, the priorities change and you always change your mine plan. Rather than just trying to prove you can get all your capital back, you're trying to schedule higher grade areas and smooth out the mine plan, so you get consistent grade, consistent cash flow and a sustainable dividend.”
Mountain Province “will require additional ore to improve its product mix”, whilst Kelvin “won't be built as a standalone operation. It's a shallow, low-cost mine 5km trucking distance from an existing plant. It's going to be a satellite mine.”
Three criteria have to be met before a bid can firm up, sources say: Gahcho Kué has to enter production, Kennady has to announce a maiden resource and the two boards have to become fully independent. Patrick Evans' resignation last week means that process is now in motion.
Bruce Ramsden, who is currently finance director of both Kennady and Mountain Province, is expected to follow Evans in stepping down from Kennady shortly, as is director David Whittle, leaving chairman Jon Comerford as the last remaining link between the two companies.
Whilst it seems paradoxical for Mountain Province to buy back Kennady a few years after spinning it off, the move “makes complete sense”, according to sources involved. Kennady has raised over C$100m in private placements since the demerger, money that would otherwise
have come out of Mountain Province; splitting into two has allowed both to advance at once.
A cleanup job on Kennady could be a small part of a much broader consolidation of Canadian diamond miners. In January, Toronto-based Dominion Diamond fended off a group of dissident shareholders pushing for an overhaul of the business. Patrick Evans was one of the signatories to the investor rebellion, as was Vancouver-based investor, John Tognetti.
The public spat led to the appointment of Jim Gowans, previously head of De Beers in Canada, as Dominion's new chairman. Gowans is a longstanding associate of Evans.
“Gowans is not our guy,” one signatory to the process says. “No-one's pulling anyone's leash there. The Canadian diamond consolidation thing has been out there for a while, so it's always in the background, it's just never been pulled off. I think people try to over-predict what's going to happen, but I'm happy with the direction that things are going right now.”
The nearby Snap Lake mine, recently idled by De Beers, could also be brought into the fold, although Stornoway, which is close to bringing its Renard project in Quebec into production, is outside the loop of deals. “I literally have not read the technical report on that project,” one large investor in the consolidation process says.
“Kennady has a bigger picture to it. There's a lot of exploration potential that hasn't been touched there. And some people view Dominion as the key to that consolidation. They'd come after Dominion and they'd keep going from there.”