EXHIBIT 99.2
Condensed Consolidated Interim Financial Statements
(Expressed in thousands of Canadian Dollars)
MOUNTAIN PROVINCE
DIAMONDS INC.
Three and six months ended June 30, 2022
(Unaudited)
Page | 1 |
MOUNTAIN PROVINCE DIAMONDS INC.
CONTENTS | Page |
Responsibility for Condensed Consolidated Interim Financial Statements | 3 |
Condensed Consolidated Interim Balance Sheets | 4 |
Condensed Consolidated Interim Statements of Comprehensive Income | 5 |
Condensed Consolidated Interim Statements of Equity | 6 |
Condensed Consolidated Interim Statements of Cash Flows | 7 |
Notes to the Condensed Consolidated Interim Financial Statements | 8 – 28 |
Page | 2 |
MOUNTAIN PROVINCE DIAMONDS INC.
Responsibility for CONDENSED consolidated INTERIM Financial Statements
The accompanying unaudited condensed consolidated interim financial statements of Mountain Province Diamonds Inc. (the "Company") are the responsibility of management and have been approved by the Board of Directors.
The unaudited condensed consolidated interim financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the Company’s audited consolidated financial statements as at December 31, 2021. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the balance sheet date. The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards 34 – Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) appropriate in the circumstances.
Management has established processes, which are in place to provide sufficient knowledge to support management representations that it has exercised reasonable diligence that the unaudited condensed consolidated interim financial statements fairly present in all material respects the financial condition, financial performance and cash flows of the Company, as of the date of and for the periods presented by the unaudited condensed consolidated interim financial statements.
The Board of Directors is responsible for reviewing and approving the condensed consolidated interim financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. The Audit Committee assists the Board of Directors in fulfilling this responsibility.
The Audit Committee meets with management to review the financial reporting process and the unaudited condensed consolidated interim financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its unaudited condensed consolidated interim financial statements together with other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company’s affairs in compliance with IFRS as issued by the IASB, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
“Mark Wall” | “Steven Thomas” | |
Mark Wall | Steven Thomas | |
President and Chief Executive Officer | VP Finance and Chief Financial Officer |
Toronto, Canada
August 9, 2022
Page | 3 |
MOUNTAIN PROVINCE DIAMONDS INC.
Condensed Consolidated Interim Balance Sheets
Expressed in thousands of Canadian dollars
(Unaudited)
June 30, | December 31, | |||||||||||
Notes | 2022 | 2021 | ||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash | $ | 29,433 | $ | 25,000 | ||||||||
Amounts receivable | 5 | 1,141 | 877 | |||||||||
Prepaid expenses and other | 1,082 | 820 | ||||||||||
Derivative assets | 16 | 206 | 775 | |||||||||
Other assets | — | 319 | ||||||||||
Inventories | 6 | 177,383 | 109,832 | |||||||||
209,245 | 137,623 | |||||||||||
Restricted cash | 17 | 25,270 | 25,144 | |||||||||
Reclamation deposit | 250 | 250 | ||||||||||
Other assets | 11, 12 | 11,306 | — | |||||||||
Property, plant and equipment | 7 | 689,946 | 714,480 | |||||||||
Total assets | $ | 936,017 | $ | 877,497 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable and accrued liabilities | $ | 39,883 | $ | 36,893 | ||||||||
Derivative liabilities | 16 | 148 | — | |||||||||
Decommissioning and restoration liability | 8 | 2,436 | 721 | |||||||||
Lease obligations | 305 | 183 | ||||||||||
Warrant liability | 11, 12 | 7,692 | — | |||||||||
Secured notes payable | 9 | 371,553 | 375,517 | |||||||||
422,017 | 413,314 | |||||||||||
Dunebridge junior credit facility | 11 | 10,063 | — | |||||||||
Lease obligations | 279 | 336 | ||||||||||
Decommissioning and restoration liability | 8 | 74,398 | 92,392 | |||||||||
Deferred income tax liabilities | 30,640 | 20,720 | ||||||||||
Shareholders' equity: | ||||||||||||
Share capital | 14 | 631,901 | 631,717 | |||||||||
Share-based payments reserve | 14 | 8,209 | 7,469 | |||||||||
Deficit | (242,824 | ) | (289,785 | ) | ||||||||
Accumulated other comprehensive income | 1,334 | 1,334 | ||||||||||
Total shareholders' equity | 398,620 | 350,735 | ||||||||||
Total liabilities and shareholders' equity | $ | 936,017 | $ | 877,497 |
On behalf of the Board:
“Ken Robertson” | “Jonathan Comerford” | |
Director | Director |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 4 |
MOUNTAIN PROVINCE DIAMONDS INC.
Condensed Consolidated Interim Statements of Comprehensive Income
Expressed in thousands of Canadian dollars
(Unaudited)
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||||||
Notes | June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||
Sales | $ | 97,761 | $ | 75,147 | $ | 182,414 | $ | 129,371 | ||||||||||||
Cost of sales: | ||||||||||||||||||||
Production costs | 26,660 | 30,984 | 53,780 | 58,135 | ||||||||||||||||
Cost of acquired diamonds | 7,373 | 2,860 | 13,197 | 7,734 | ||||||||||||||||
Depreciation and depletion | 12,321 | 8,504 | 21,215 | 16,967 | ||||||||||||||||
Earnings from mine operations | 51,407 | 32,799 | 94,222 | 46,535 | ||||||||||||||||
Exploration and evaluation expenses | 4,557 | 1,367 | 8,360 | 1,962 | ||||||||||||||||
Selling, general and administrative expenses | 15 | 3,803 | 2,676 | 7,797 | 5,285 | |||||||||||||||
Operating income | 43,047 | 28,756 | 78,065 | 39,288 | ||||||||||||||||
Net finance expenses | 13 | (9,054 | ) | (10,690 | ) | (18,206 | ) | (19,746 | ) | |||||||||||
Other income | 12 | 7,322 | — | 5,882 | — | |||||||||||||||
Derivative losses | 16 | (1,361 | ) | (811 | ) | (1,438 | ) | (22 | ) | |||||||||||
Foreign exchange (losses) gains | (11,670 | ) | 5,217 | (7,422 | ) | 10,264 | ||||||||||||||
Income before taxes | 28,284 | 22,472 | 56,881 | 29,784 | ||||||||||||||||
Deferred income taxes | (5,650 | ) | — | (9,920 | ) | — | ||||||||||||||
Net income for the period | $ | 22,634 | $ | 22,472 | $ | 46,961 | $ | 29,784 | ||||||||||||
Total comprehensive income for the period | $ | 22,634 | $ | 22,472 | $ | 46,961 | $ | 29,784 | ||||||||||||
Basic and diluted earnings per share | 14 | (iv) | $ | 0.11 | $ | 0.11 | $ | 0.22 | $ | 0.14 | ||||||||||
Basic weighted average number of shares outstanding | 210,909,141 | 210,490,807 | 210,839,500 | 210,490,807 | ||||||||||||||||
Diluted weighted average number of shares outstanding | 213,639,373 | 212,354,140 | 213,709,102 | 212,354,140 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 5 |
MOUNTAIN PROVINCE DIAMONDS INC.
Condensed Consolidated Interim Statements of Equity
Expressed in thousands of Canadian dollars, except for the number of shares
(Unaudited)
Notes | Number of shares | Share capital | Share-based payments reserve | Deficit | Accumulated other comprehensive income | Total | ||||||||||||||||||||||
Balance, January 1, 2021 | 210,490,807 | $ | 631,498 | $ | 6,820 | $ | (565,952 | ) | $ | 1,334 | $ | 73,700 | ||||||||||||||||
Net income for the period | — | — | — | 29,784 | — | 29,784 | ||||||||||||||||||||||
Share-based payments | 14 | (iii) | — | — | 430 | — | — | 430 | ||||||||||||||||||||
Balance, June 30, 2021 | 210,490,807 | $ | 631,498 | $ | 7,250 | $ | (536,168 | ) | $ | 1,334 | $ | 103,914 | ||||||||||||||||
Balance, January 1, 2022 | 210,697,474 | $ | 631,717 | $ | 7,469 | $ | (289,785 | ) | $ | 1,334 | $ | 350,735 | ||||||||||||||||
Net income for the period | — | — | — | 46,961 | — | 46,961 | ||||||||||||||||||||||
Share-based payments | 14 | (iii) | — | — | 924 | — | — | 924 | ||||||||||||||||||||
Issuance of common shares – restricted share units | 211,667 | 184 | (184 | ) | — | — | — | |||||||||||||||||||||
Balance, June 30, 2022 | 210,909,141 | $ | 631,901 | $ | 8,209 | $ | (242,824 | ) | $ | 1,334 | $ | 398,620 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 6 |
MOUNTAIN PROVINCE DIAMONDS INC.
Condensed Consolidated Interim Statements of Cash Flows
Expressed in thousands of Canadian dollars
(Unaudited)
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||||||
Notes | June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||
Operating activities: | ||||||||||||||||||||
Net income for the period | $ | 22,634 | $ | 22,472 | $ | 46,961 | $ | 29,784 | ||||||||||||
Adjustments: | ||||||||||||||||||||
Net finance expenses | 9,044 | 10,674 | 18,184 | 19,713 | ||||||||||||||||
Depreciation and depletion | 12,378 | 8,558 | 21,326 | 17,076 | ||||||||||||||||
Premium paid on foreign curency put option | — | — | (696 | ) | — | |||||||||||||||
Share-based payment expense | 480 | 251 | 924 | 430 | ||||||||||||||||
Fair value loss of warrants | (7,322 | ) | — | (5,797 | ) | — | ||||||||||||||
Derivative losses | 1,360 | 811 | 1,757 | 22 | ||||||||||||||||
Foreign exchange losses (gains) | 11,792 | (5,217 | ) | 7,650 | (10,264 | ) | ||||||||||||||
Deferred income taxes | 5,650 | — | 9,920 | — | ||||||||||||||||
56,016 | 37,549 | 100,229 | 56,761 | |||||||||||||||||
Changes in non-cash operating working capital: | ||||||||||||||||||||
Amounts receivable | 3,054 | 1,373 | (264 | ) | — | |||||||||||||||
Prepaid expenses and other | (401 | ) | 150 | (262 | ) | 746 | ||||||||||||||
Inventories | (4,078 | ) | (4,633 | ) | (58,145 | ) | (40,706 | ) | ||||||||||||
Accounts payable and accrued liabilities | (17,275 | ) | (11,974 | ) | 2,766 | (4,140 | ) | |||||||||||||
37,316 | 22,465 | 44,324 | 12,661 | |||||||||||||||||
Investing activities: | ||||||||||||||||||||
Restricted cash | (79 | ) | (29 | ) | (126 | ) | (56 | ) | ||||||||||||
Interest income | 158 | 72 | 227 | 109 | ||||||||||||||||
Purchase of property, plant and equipment | (9,815 | ) | (7,846 | ) | (24,224 | ) | (18,471 | ) | ||||||||||||
(9,736 | ) | (7,803 | ) | (24,123 | ) | (18,418 | ) | |||||||||||||
Financing activities: | ||||||||||||||||||||
Payment of lease liabilities | (76 | ) | (119 | ) | (156 | ) | (266 | ) | ||||||||||||
Deferred financing costs | (758 | ) | — | (1,034 | ) | — | ||||||||||||||
Net provided by Dunebridge revolving credit facility | — | — | 81 | — | ||||||||||||||||
Provided by Dunebridge term facility | — | 37,505 | — | 37,505 | ||||||||||||||||
Repayment of Dunebridge term facility | — | (13,638 | ) | — | (13,638 | ) | ||||||||||||||
Repurchase of secured notes | (12,528 | ) | — | (12,528 | ) | — | ||||||||||||||
Provided by Dunebridge junior credit facility | 12,502 | — | 12,502 | — | ||||||||||||||||
Financing costs paid | 13 | (14,814 | ) | (18,277 | ) | (14,933 | ) | (18,836 | ) | |||||||||||
(15,674 | ) | 5,471 | (16,068 | ) | 4,765 | |||||||||||||||
Effect of foreign exchange rate changes on cash | 102 | 91 | 300 | 378 | ||||||||||||||||
Increase (decrease) in cash | 12,008 | 20,224 | 4,433 | (614 | ) | |||||||||||||||
Cash, beginning of period | 17,425 | 14,314 | 25,000 | 35,152 | ||||||||||||||||
Cash, end of period | $ | 29,433 | $ | 34,538 | $ | 29,433 | $ | 34,538 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 7 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
1. | Nature of Operations and going concern |
Mountain Province Diamonds Inc. (“Mountain Province” and together with its subsidiaries collectively, the “Company”) was incorporated on December 2, 1986 under the British Columbia Company Act. The Company amended its articles and continued incorporation under the Ontario Business Corporations Act effective May 8, 2006. The Company holds a 49% interest in the operating Gahcho Kué Project (“Gahcho Kué Diamond Mine” or “GK Mine” or “GK Project”) in Canada’s Northwest Territories. The Company also owns 100% of the mineral rights of the Kennady North Project (“KNP”) in Canada’s Northwest Territories.
The address of the Company’s registered office and its principal place of business is 161 Bay Street, Suite 1410, Toronto, ON, Canada, M5J 2S1. The Company’s shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol ‘MPVD’. During the year ended December 31, 2020, the Company voluntarily delisted its common shares from the NASDAQ.
These condensed consolidated interim financial statements have been prepared using the going concern basis of preparation which assumes that the Company will realize its assets and settle its liabilities in the normal course of business.
As of June 30, 2022, the Company faces liquidity challenges as a result of the Senior Secured Notes maturing on December 15, 2022 with a principal amount outstanding of $373,240. The Company does not currently have sufficient cash flows expected from operations available to discharge the Senior Secured Notes amount when they come due. The Company will need to obtain additional financing in the future and/or seek to renegotiate with the holders of the Senior Secured Notes to extend the maturity dates or amend the underlying payment terms. However, there is no guarantee that such financing will be available, or at terms acceptable to the Company, or that holders of the Senior Secured Notes would be willing to renegotiate the amounts in a manner necessary to enable the Company to satisfy its obligations.
The above conditions related to the Company’s Senior Secured Notes and long-term operational financing needs represent material uncertainties that result in substantial doubt as to the Company’s ability to continue as a going concern. These condensed consolidated interim financial statements do not include the adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern. These adjustments may be material.
Failure to meet the obligations for cash calls to fund the Company’s share of expenditures at the GK Mine may lead to De Beers Canada Inc. enforcing its remedies under the JV Agreement, which could result in, amongst other things the dilution of Mountain Province’s interest in the GK Mine, and at certain dilution levels trigger cross-default clauses within the Senior Secured Notes.
Authorization of Financial Statements
These condensed consolidated interim financial statements were approved by the Board of Directors on August 9, 2022.
2. | BASIS OF PRESENTATION |
These condensed consolidated interim financial statements (the "Interim Financial Statements") have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting ("IAS 34") as issued by the IASB and follow the same accounting policies and methods of application as the annual consolidated financial statements of the Company for the year ended December 31, 2021, except as noted below under Note 3 adoption of new accounting standards.
Page | 8 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
These interim financial statements were prepared under the historical cost convention, as modified by the revaluation of derivative assets and liabilities and are presented in thousands of Canadian dollars.
The consolidated financial statements include the accounts of Mountain Province and its wholly-owned subsidiaries:
· | 2435572 Ontario Inc. (100% owned) |
· | 2435386 Ontario Inc. (100% owned by 2435572 Ontario Inc.) |
· | Kennady Diamonds Inc. (100% owned) |
The Company’s 49% interest in the GK Mine is held through 2435386 Ontario Inc. All intercompany balances, transactions, income, expenses, profits and losses, including unrealized gains and losses have been eliminated on consolidation.
The Company’s interest in the GK Mine through its joint arrangement is a joint operation under IFRS 11, Joint Arrangements, and, accordingly has recorded the assets, liabilities, revenues and expenses in relation to its interest in the joint operation. The Company’s 49% interest in the GK Mine is bound by a contractual arrangement establishing joint control over the mine through required unanimous consent of the Company and De Beers Canada Inc. (“De Beers” or the “Operator”, and together with the Company, the “Participants”) for strategic, financial and operating policies of the GK Mine. The GK Mine management committee has two representatives of each of the Company and De Beers. The Participants have appointed De Beers as the operator of the GK Mine.
3. | ADOPTION OF NEW ACCOUNTING STANDARD |
(a) | New accounting standard and amendments effective in the period |
IAS 16, Property, Plant and Equipment
Effective January 1, 2022, the Company adopted the amendment to IAS 16, Property, Plant and Equipment which prohibits the deducting from property, plant and equipment amounts received from selling items produced while preparing an asset for its intended use. Instead, sales proceeds and its related costs must be recognized in profit or loss. The amendment requires companies to distinguish between costs associated with producing and selling items before the item of property, plant and equipment is available for use and costs associated with making the item of property, plant and equipment available for its intended use. Upon adoption of the IAS 16 amendment, there was no impact to these condensed consolidated interim financial statements.
4. | Significant ACCOUNTING JUDGMENTS, ESTIMATES And assumptions |
The preparation of these interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Judgments, estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ materially from these estimates. The significant judgments, estimates and assumptions made by management in applying the Company’s accounting policies are consistent with those that applied to the audited financial statements as of and for the year ended December 31, 2021.
Page | 9 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
5. | AMOUNTS RECEIVABLE |
June 30, | December 31, | ||||||||
2022 | 2021 | ||||||||
GST/HST receivable | $ | 979 | $ | 722 | |||||
Other receivable | 162 | 155 | |||||||
Total | $ | 1,141 | $ | 877 |
6. INVENTORIES
June 30, | December 31, | ||||||||
2022 | 2021 | ||||||||
Ore stockpile | $ | 44,521 | $ | 26,411 | |||||
Rough diamonds | 59,551 | 44,255 | |||||||
Supplies inventory | 73,311 | 39,166 | |||||||
Total | $ | 177,383 | $ | 109,832 |
Depreciation and depletion included in inventories at June 30, 2022 is $25,509 (December 31, 2021 - $12,203).
Included in inventories and production costs, for the three and six months ended June 30, 2022 are the Company’s 49% share of payroll and employee benefits for staff of the GK Mine of $10,659 and $21,384 (three and six months ended June 30, 2021 - $9,607 and $20,498, respectively).
Supplies inventory includes bulk deliveries such as fuel, which are delivered during Q1 utilizing the ‘winter road’ to truck these amounts in, hence the significant increase in the first half of 2022 compared to the prior period.
Page | 10 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
7. PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment as at June 30, 2022 and December 31, 2021 are as follows:
Property, | Assets under | Property, | Exploration and | |||||||||||||||||
plant and equipment GK | construction GK | plant and equipment KNP | evaluation assets KNP | Total | ||||||||||||||||
Cost | ||||||||||||||||||||
At January 1, 2021 | $ | 902,445 | $ | 6,506 | $ | 1,654 | $ | 169,144 | $ | 1,079,749 | ||||||||||
Decommissioning and restoration adjustment | 12,228 | — | — | 248 | 12,476 | |||||||||||||||
Additions/transfers* | 45,115 | 3,679 | 122 | — | 48,916 | |||||||||||||||
Disposals | — | — | (90 | ) | — | (90 | ) | |||||||||||||
At December 31, 2021 | 959,788 | 10,185 | 1,686 | 169,392 | 1,141,051 | |||||||||||||||
Decommissioning and restoration adjustment | (13,994 | ) | — | — | — | (13,994 | ) | |||||||||||||
Additions/transfers* | 29,614 | (2,628 | ) | — | — | 26,986 | ||||||||||||||
At June 30, 2022 | $ | 975,408 | $ | 7,557 | $ | 1,686 | $ | 169,392 | $ | 1,154,043 | ||||||||||
Accumulated depreciation and impairment | ||||||||||||||||||||
At January 1, 2021 | $ | (628,302 | ) | $ | — | $ | (36 | ) | $ | — | $ | (628,338 | ) | |||||||
Depreciation and depletion** | (38,862 | ) | — | (6 | ) | — | (38,868 | ) | ||||||||||||
Disposals | — | — | 42 | — | 42 | |||||||||||||||
Impairment reversal*** | 240,593 | — | — | — | 240,593 | |||||||||||||||
At December 31, 2021 | (426,571 | ) | — | — | — | (426,571 | ) | |||||||||||||
Depreciation and depletion** | (37,519 | ) | — | (6 | ) | — | (37,525 | ) | ||||||||||||
At June 30, 2022 | $ | (464,090 | ) | $ | — | $ | (6 | ) | $ | — | $ | (464,096 | ) | |||||||
Carrying amounts | ||||||||||||||||||||
At December 31, 2021 | $ | 533,217 | $ | 10,185 | $ | 1,686 | $ | 169,392 | $ | 714,480 | ||||||||||
At June 30, 2022 | $ | 511,317 | $ | 7,557 | $ | 1,680 | $ | 169,392 | $ | 689,946 |
*Included in additions of property, plant and equipment for GK is $21,305 (December 31, 2021 - $34,319) related to deferred stripping of which $2,894 relates to the depreciation of earthmoving equipment (December 31, 2021 - $1,431).
**Included in depreciation and depletion is $97 of depreciation on the right-of-use assets (December 31, 2021 - $134).
***As at December 31, 2021, an impairment reversal of property, plant and equipment was recorded at GK mine.
Page | 11 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
8. | decommissioning and restoration liability |
The decommissioning and restoration liability is comprised of the liabilities for the GK Mine and the Kennady North Project, which are broken down separately below.
The GK Mine decommissioning and restoration liability was calculated using the following assumptions as at June 30, 2022 and December 31, 2021:
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Expected undiscounted cash flows | $ | 86,677 | $ | 84,128 | ||||
Nominal risk-free discount rate | 3.23 | % | 1.42 | % | ||||
Inflation rate | 2.00 | % | 2.00 | % | ||||
Periods | 2030 | 2030 |
The decommissioning and restoration liability has been calculated using expected cash flows that are current dollars, with inflation.
During the six months ended June 30, 2022, the GK Mine decommissioning and restoration liability decreased by $16,924 (December 31, 2021 – $19,471), resulting primarily from the change in nominal risk-free discount rate.
The continuity of the decommissioning and restoration liability at June 30, 2022 and December 31, 2021 is as follows:
GK Mine | KNP | Total | ||||||||||
Balance, at January 1, 2022 | $ | 90,418 | $ | 2,695 | $ | 93,113 | ||||||
Change in estimate of discounted cash flows | (16,924 | ) | — | (16,924 | ) | |||||||
Accretion recorded during the period | 642 | 3 | 645 | |||||||||
Balance, at June 30, 2022 | $ | 74,136 | $ | 2,698 | $ | 76,834 | ||||||
Less: current portion of decommissioning and restoration liability | 2,436 | — | 2,436 | |||||||||
Non-current decommissioning and restoration liability, at June 30, 2022 | $ | 71,700 | $ | 2,698 | $ | 74,398 |
Page | 12 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
9. | secured notes payable |
On December 11, 2017, the Company completed an offering of US$330 million of senior secured notes (“Notes”), secured by a second-ranking lien on all present and future assets, property and undertakings of the Company. The secured notes pay interest in semi-annual instalments on June 15 and December 15 of each year, at a rate of 8.00% per annum, and mature on December 15, 2022. The Company classified the secured notes liability as current liabilities since the notes will mature on December 15, 2022. The indenture governing the secured notes contains certain restrictive covenants that limit the Company’s ability to, among other things, incur additional indebtedness, make certain dividend payments and other restricted payments, and create certain liens, in each case subject to certain exceptions. The restrictive covenant on the Company’s ability to pay potential future dividends relates to a fixed charge coverage ratio of no less than 2:1. The fixed charge coverage ratio is calculated as EBITDA over interest expense. Subject to certain limitations and exceptions, the amount of the restricted payments, which include dividends and share buybacks, is limited to a maximum dollar threshold, which is calculated at an opening basket of US$10 million plus 50% of the historical consolidated net income, subject to certain adjustments, reported from the quarter of issuance and up to the most recently available financial statements at the time of such restricted payment, plus an amount not to exceed the greater of US$15 million and 2% of total assets as defined in the indenture.
As of June 30, 2022, the Company has an obligation of US$289.9 million or $373.2 million Canadian dollar equivalent under the secured notes payable (December 31, 2021 - US$299.9 million or $379.0 million).
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Total outstanding secured notes payable | $ | 373,240 | $ | 379,034 | ||||
Less: unamortized deferred transaction costs and issuance discount | (1,687 | ) | (3,517 | ) | ||||
Total secured notes payable | $ | 371,553 | $ | 375,517 |
During the six months ended June 30, 2022, US$10 million or approximately $12.9 million Canadian dollar equivalent of secured notes payable was purchased.
Subsequent to the quarter ended June 30, 2022, the Company purchased US$16.42 million or approximately $21.1 million Canadian dollar equivalent of secured notes payable.
10. | dunebridge revolving credit facility and dunbridge term facility |
On September 30, 2020, the Company entered into a revolving credit facility with Dunebridge Worldwide Ltd. (“Dunebridge”) (the “Dunebridge RCF”) (Note 19) of up to US$25 million, with first ranking lien terms. The Dunebridge RCF carries an interest rate of 5% per annum, and was initially repayable on September 30, 2021. Interest is payable on a monthly basis. The agreement also required an upfront 1% financing fee, which was paid on September 30, 2020. The Dunebridge RCF is not subject to any financial covenants. A default would occur if the Company is unable to make the monthly interest payments, or the principal repayment.
The Dunebridge RCF includes various restrictive covenants which requires that no additional indebtedness be entered into, and no new agreements related to the sale of diamonds, beyond what currently exists, without prior written approval from Dunebridge.
Page | 13 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
Under the Dunebridge RCF, permitted distributions to third parties (which include dividends) are subject to the Company having a net debt to EBITDA ratio of less than or equal to 1.75:1. Net debt is equal to total debt, less cash and cash equivalents. The aggregate amount of all distributions paid during the rolling four quarters up to and including the date of such distribution does not exceed 25% of free cash flows (“FCF”) during such period. FCF is defined as EBITDA minus, without duplication, (a) capital expenditures, (b) cash taxes, (c) any applicable standby fee, other fees or finance costs payable to the finance parties in connection with the Dunebridge RCF, (d) interest expenses and (e) any indebtedness (including mandatory prepayments) permitted under the existing agreement. Also, the available liquidity after payment of a distribution must be greater than or equal to US$60 million for distributions paid during a quarter ending March 31, or US$50 million for other quarters, where the aggregate amount of the all-advances outstanding does not exceed US$10 million.
On September 24, 2021, the Dunebridge RCF repayment date was extended to March 31, 2022, with the same restrictive covenants described above. An upfront 2% extension fee of US$0.5 million was paid. The Dunebridge RCF had an interest rate of 5% per annum and it has been fully repaid and terminated.
The upfront fee was categorized as deferred financing fee against the loan and amortized over the term of the loan. As at December 31, 2021, $319 unamortized deferred financing fee was remaining and classified as other assets on the consolidated balance sheet and was fully amortized on March 31, 2022.
During the six months ended June 30, 2022, the Company drew and repaid US$5M from the Dunebridge RCF for funding operations. The Dunebridge RCF was terminated prior to the quarter ended March 31, 2022.
11. | Dunebridge junior credit facility |
On March 28, 2022, the Company completed a US$50M credit facility with Dunebridge bearing a cash payment interest rate of 8% per annum or an effective interest rate of 15.8%, paid semi-annually until December 2022. Following this date, the interest rate will be 2% above the margin on the senior secured notes payable then outstanding. The maturity date of this credit facility is December 15, 2027. The Dunebridge Junior Credit Facility (“Dunebridge JCF”) is secured by substantially all of the properties and assets of the Company and its subsidiaries on a junior basis to the Company’s existing senior secured notes payable. The Company is entitled to prepay the Dunebridge JCF at any time prior to the maturity date without penalty.
In order for the Company to request an advance under the Dunebridge JCF, the Company must deliver a utilization request to the administrative agent and confirm that the Company has met the conditions precedent to all borrowings, confirm representation and warranties and confirm that the proceeds requested are to be used as agreed upon in the agreement to (a) repay indebtedness under the senior credit agreement, by way of direction and set-off on the closing date, (b) repay the senior secured notes, and (c) for general corporate purposes, including working capital needs.
The Company issued to Dunebridge 41 million common share purchase warrants (Note 12), exercisable in whole or in part at any time up to December 15, 2027 at an exercise price of US$0.60975 per common share.
Page | 14 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
The Company incurred legal and advisory fees in relation to the Dunebridge Junior Credit Facility (“Dunebridge JCF”) of $1,082 which was capitalized as other assets. In addition, the fair value of the warrants granted on closing of the Dunebridge JCF valued at $0.33 per warrant and totaling $13,489 was also capitalized resulting in a total other asset of $14,571. On April 20, 2022, $2.9 million of total costs capitalized to other assets were accounted for as a deferred financing costs given the $10 million drawn on Dunebridge JCF during the three-month period ended June 30, 2022. The remaining portion of the other assets is being amortized over the life of the credit facility.
As of June 30, 2022, the Company has an obligation of US$10 million or $12.9 million Canadian dollar equivalent under the Dunebridge JCF (December 31, 2021 - $Nil).
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Total outstanding Dunebridge junior credit facility | $ | 12,873 | $ | — | ||||
Less: unamortized deferred transaction costs | (2,810 | ) | — | |||||
Total Dunebridge junior credit facility | $ | 10,063 | $ | — |
Subsequent to the quarter ended June 30, 2022, the Company drew an additional US$5 million or approximately $6.4 million Canadian dollar equivalent from the Dunebridge JCF, which resulted in allocation of approximately $1.5 million of other assets as stated above.
12. | Warrant liability |
As part of the Dunebridge JCF (Note 11), 41 million share warrants were issued at an exercise price of US$0.60975 per common share with an expiry date of December 15, 2027. The warrants have an exercise price denominated in US dollars, which differs from the Company’s Canadian dollar functional currency, and are therefore accounted for as derivative liabilities at fair value, with changes in fair value recorded in earnings as they occur.
The warrants were valued on the date of grant using the following assumptions:
March 28, | |
2022 | |
Exercise price | US$0.60975 ($0.7726) |
Expected volatility | 61.72% |
Expected warrant life | 5.7 years |
Expected forfeiture | none |
Expected dividend yield | 0% |
Risk-free interest rate | 2.42% |
Weighted average fair value per warrant granted | $0.33 |
In valuing the warrants on March 28, 2022, the Company applied a liquidity discount of 32% from the Black-Scholes value.
Page | 15 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
As at June 30, 2022, the warrants were revalued using the following assumptions, resulting in a total value of $7,692:
June 30, | |
2022 | |
Exercise price | US$0.60975 ($0.7996) |
Expected volatility | 63.00% |
Expected warrant life | 5.5 years |
Expected forfeiture | none |
Expected dividend yield | 0% |
Risk-free interest rate | 3.49% |
Weighted average fair value per warrant granted | $0.21 |
In valuing the warrants on June 30, 2022, the Company applied a liquidity discount of 31% from the Black-Scholes value.
13. | net finance expense |
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Interest income | $ | 158 | $ | 72 | $ | 227 | $ | 109 | ||||||||
Accretion expense on decommissioning and restoration liability | (322 | ) | (119 | ) | (645 | ) | (239 | ) | ||||||||
Interest expense | (7,884 | ) | (8,724 | ) | (15,447 | ) | (16,790 | ) | ||||||||
Amortization of deferred financing costs | (989 | ) | (1,867 | ) | (2,184 | ) | (2,710 | ) | ||||||||
Other finance costs* | (17 | ) | (52 | ) | (157 | ) | (116 | ) | ||||||||
$ | (9,054 | ) | $ | (10,690 | ) | $ | (18,206 | ) | $ | (19,746 | ) |
*Included in other finance costs for the three and six months ended June 30, 2022 is $10 and $22 (three and six months ended June 30, 2021 - $16 and $33, respectively) related to interest on lease liabilities.
14. | SHAREHOLDERS’ EQUITY |
i. | Authorized share capital |
Unlimited common shares, without par value.
ii. | Share capital |
The number of common shares issued and outstanding as at June 30, 2022 is 210,909,141 (December 31, 2021 – 210,697,474).
iii. | Stock options, RSUs, DSUs and share-based payments reserve |
The Company has a long-term equity incentive plan (the “Plan”) which, among other things, allows for the maximum number of shares that may be reserved for issuance under the Plan to be 10% of the Company’s issued and outstanding shares at the time of the grant. The Board of Directors has the authority and discretion to grant stock options, restricted share units (“RSU”) and deferred share units (“DSU”) awards within the limits identified in the Plan, which includes provisions limiting the issuance of options to directors and employees of the Company to maximums identified in the Plan.
Page | 16 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
As at June 30, 2022, the aggregate maximum number of shares pursuant to options granted under the Plan will not exceed 21,090,914 shares. All stock options are settled by the issuance of common shares.
The following table summarizes information about the stock options outstanding and exercisable:
Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||
Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | |||||||||||||
Balance at beginning of the period | 4,680,001 | $ | 1.36 | 2,455,002 | $ | 2.89 | ||||||||||
Granted during the period | 3,101,042 | 0.71 | 1,085,000 | 0.65 | ||||||||||||
Expired during the period | (100,000 | ) | 5.86 | (100,000 | ) | 6.35 | ||||||||||
Balance at end of the period | 7,681,043 | $ | 1.04 | 3,440,002 | $ | 2.09 | ||||||||||
Options exercisable at the end of the period | 1,713,334 | $ | 1.55 | 1,678,336 | $ | 3.33 |
The fair value of the stock options granted have been estimated on the date of grant using the Black-Scholes option pricing model. The assumptions are presented below for options granted during the June 30, 2022 and June 30, 2021 period. Expected volatility is calculated by reference to the weekly closing share price for a period that reflects the expected life of the options. A total of 3,101,042 stock options were issued during the three months ended March 31, 2022, with an exercise price of $0.714. The 2,439,668 stock options will vest 1/3 on January 17, 2023, 1/3 on January 17, 2024 and 1/3 on January 17, 2025, the 661,376 stock options will vest 1/3 on February 21, 2023, 1/3 February 21, 2024 and 1/3 February 21, 2025. A total of 1,085,000 stock options were issued during the three months ended March 31, 2021 vesting 1/3 on February 3, 2022, 1/3 on February 3, 2023 and 1/3 on February 3, 2024.
June 30, | June 30, | |
2022 | 2021 | |
Weighted average exercise price per share | $0.71 | $0.65 |
Expected volatility | 64.43% - 64.68% | 59.38% |
Expected option life | 5 years | 5 years |
Contractual option life | 5 years | 5 years |
Expected forfeiture | none | none |
Expected dividend yield | 0% | 0% |
Risk-free interest rate | 1.68% - 1.79% | 0.46% |
Weighted average fair value per option granted | $0.39 | $0.32 |
The following tables reflect the number of stock options outstanding, the grant date fair value, and the exercise price of stock options outstanding at June 30, 2022.
Page | 17 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
At June 30, 2022 | ||||||||||||||||
Grant Date | Number of | Number of | Exercise | |||||||||||||
Expiry Date | Fair Value | Options | Exercisable Options | Price | ||||||||||||
December 21, 2022 | 644 | 605,000 | 605,000 | 3.48 | ||||||||||||
June 30, 2023 | 203 | 200,000 | 200,000 | 3.30 | ||||||||||||
December 27, 2024 | 372 | 930,000 | 626,667 | 1.30 | ||||||||||||
February 2, 2026 | 268 | 845,001 | 281,667 | 0.65 | ||||||||||||
November 15, 2026 | 675 | 2,000,000 | — | 0.62 | ||||||||||||
January 17, 2027 | 958 | 2,439,666 | — | 0.71 | ||||||||||||
February 21, 2027 | 260 | 661,376 | — | 0.71 | ||||||||||||
$ | 3,380 | 7,681,043 | 1,713,334 | $ | 1.04 |
The weighted average remaining contractual life of the options outstanding at June 30, 2022 is 3.76 years (December 31, 2021 - 3.60 years).
The restricted and deferred share unit plans are full value phantom shares that mirror the value of the Company’s publicly traded common shares. Grants under the RSU and DSU plan are made on a discretionary basis to directors and employees of the Company subject to the Board of Directors’ approval. Under the RSU and DSU plan, RSUs and DSUs vest according to the terms set out in the award agreement which are determined on the initial grant date on an individual basis at the discretion of the Board of Directors. Vesting under the RSU and DSU plan is subject to special rules for death, disability and change in control. The awards can be settled through issuance of common shares or paid in cash, at the discretion of the Board of Directors. These awards are accounted for as equity settled RSUs.
The fair value of each RSU issued is determined at the closing share price on the grant date.
The following table shows the RSU awards which have been granted and settled during the period:
June 30, 2022 | June 30, 2021 | ||||||||||||||
RSU | Number of units | Weighted average value grant date fair value | Number of units | Weighted average value grant date fair value | |||||||||||
Balance at beginning of period | 1,426,667 | $ | 0.87 | 863,333 | $ | 1.13 | |||||||||
Awards and payouts during the period (net): | |||||||||||||||
RSUs awarded | 1,196,914 | 0.71 | 1,000,000 | 0.64 | |||||||||||
RSUs settled and common shares issued | (211,667 | ) | 0.87 | — | — | ||||||||||
RSUs forfeited | (76,022 | ) | 0.69 | — | — | ||||||||||
Balance at end of the period* | 2,335,892 | $ | 0.80 | 1,863,333 | $ | 0.87 |
*As at June 30, 2022, 531,671 RSUs (December 31, 2021 – 420,002 RSUs) have vested and have not yet been settled.
No DSU awards have been granted to date, therefore as at June 30, 2022 there are no DSUs outstanding.
Page | 18 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
The share-based payments recognized as an expense for the three and six months ended June 30, 2022 and 2021 are as follows:
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Expense recognized in the period | ||||||||||||||||
for share-based payments | $ | 480 | $ | 251 | $ | 924 | $ | 430 |
The share-based payment expense for the three and six months ended June 30, 2022 and 2021 is included in selling, general and administrative expenses.
iv. | Earnings per share |
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended | Three months ended | Six months ended | Six months ended | ||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||
Numerator | |||||
Net income for the period | $ 22,634 | $ 22,472 | $ 46,961 | $ 29,784 | |
Effect of dilutive securities | 166 | - | 339 | - | |
$ 22,800 | $ 22,472 | $ 47,300 | $ 29,784 | ||
Denominator | |||||
For basic - weighted average number of shares outstanding | 210,909,141 | 210,490,807 | 210,839,500 | 210,490,807 | |
Effect of dilutive securities | 2,730,232 | 1,863,333 | 2,869,602 | 1,863,333 | |
For diluted - adjusted weighted average number of shares outstanding | 213,639,373 | 212,354,140 | 213,709,102 | 212,354,140 | |
Earnings Per Share | |||||
Basic | $ 0.11 | $ 0.11 | $ 0.22 | $ 0.14 | |
Diluted | $ 0.11 | $ 0.11 | $ 0.22 | $ 0.14 |
For the three and six months ended June 30, 2022, 7,286,703 and 7,147,333 stock options, respectively and 41 million warrants were not included in the calculation of diluted earnings per share since to include them would be anti-dilutive (three and six months ended June 30, 2021 - 3,440,002 stock options).
15. | Selling, general and administrative expenses |
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Selling and marketing | $ | 1,369 | $ | 859 | $ | 2,510 | $ | 2,056 | ||||||||
General and administrative: | ||||||||||||||||
Consulting fees and payroll | 674 | 436 | 1,833 | 876 | ||||||||||||
Share-based payment expense | 480 | 251 | 924 | 430 | ||||||||||||
Depreciation | 57 | 54 | 111 | 109 | ||||||||||||
Office and administration | 264 | 257 | 564 | 471 | ||||||||||||
Professional fees | 441 | 585 | 924 | 857 | ||||||||||||
Promotion and investor relations | 91 | 57 | 131 | 57 | ||||||||||||
Director fees | 205 | 117 | 409 | 234 | ||||||||||||
Transfer agent and regulatory fees | 147 | 59 | 265 | 192 | ||||||||||||
Travel | 75 | 1 | 126 | 3 | ||||||||||||
$ | 3,803 | $ | 2,676 | $ | 7,797 | $ | 5,285 |
Page | 19 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
16. | Derivatives Assets and Liabilities |
i) | During the six months ended June 30, 2022 and the year ended December 31, 2021, the Company entered into foreign currency put options to mitigate the foreign currency risk associated with the U.S. dollar sales proceeds and the risk that the Company would not have sufficient Canadian dollar funds to contribute to the operations of the GK Mine. These derivatives have been accounted as non-hedge derivatives and are recorded at fair value. Changes in fair value of the foreign currency put option contracts are recognized in the condensed consolidated interim statements of comprehensive income as gains or losses on derivatives. |
At June 30, 2022, the Company had US$36 million foreign currency collar contracts outstanding at a strike price of 1.26 with settlement dates from July 2022 to December 2022. On settlement date, if the spot rate exceeds 1.33, the Company will settle at a strike price of 1.27, if the spot rate is between 1.26 to 1.33, there is no obligatory settlement. The Company also had a further US$21 million foreign currency collar contracts at a strike price of 1.28 with settlement dates from July 2022 to December 2022. On settlement date, if the spot rate exceeds 1.35, the Company will settle at a strike price of 1.30, if the spot rate is between 1.28 to 1.35, there is no obligatory settlement.
Subsequent to the six months ended June 30, 2022, the Company entered into additional foreign currency collar contracts of US$21 million at a strike price of 1.275 with settlement dates from July 2022 to December 2022. On settlement date, if the spot rate exceeds 1.355, the Company will settle at a strike price of 1.28, if the spot rate is between 1.275 to 1.355, there is no obligatory settlement.
ii) | The notes indentures grant the Company the option to prepay the notes prior to the maturity of the instruments, and specifies a premium during each applicable time period. These prepayment options have been accounted for as embedded derivatives at fair value through profit and loss and are outlined below. The Company may redeem the secured notes in whole or in part at any time during the twelve-month period beginning on December 15, 2021 at a redemption price equal to 100% of the principal amount of the secured notes redeemed, plus accrued and unpaid interest to the date of redemption. |
Page | 20 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
The following table presents the various derivatives assets and liabilities as at June 30, 2022 and December 31, 2021:
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Currency derivative contracts | $ | (148 | ) | $ | 731 | |||
Current portion of embedded derivatives | 206 | 44 | ||||||
Total | $ | 58 | $ | 775 |
The following table presents amounts recognized in the Condensed Consolidated Interim Statement of Comprehensive Income for the three and six months ended June 30, 2022 and 2021:
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Loss on currency derivative contracts | $ | (1,280 | ) | $ | — | $ | (1,591 | ) | $ | — | ||||||
(Loss) gain on prepayment option embedded derivative | (81 | ) | (811 | ) | 153 | (22 | ) | |||||||||
Total | $ | (1,361 | ) | $ | (811 | ) | $ | (1,438 | ) | $ | (22 | ) |
17. | Financial instruments |
Fair value measurement
The Company categorizes each of its fair value measurements in accordance with a fair value hierarchy. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity).
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
The fair values of the accounts receivable and accounts payable and accrued liabilities approximate their carrying values due to the relatively short-term maturity of these financial instruments.
The following table shows the carrying amounts and fair values of the Company’s financial assets and financial liabilities, including their levels in the fair value hierarchy.
Page | 21 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
Carrying amount | Fair value | |||||||||||||||||||||||||||||||
June 30, 2022 | Assets at amortized cost | Fair value through profit and loss | Liabilities at amortized cost | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Financial assets measured at fair value | ||||||||||||||||||||||||||||||||
Derivative assets | $ | — | $ | 206 | $ | — | $ | 206 | $ | — | $ | 206 | $ | — | $ | 206 | ||||||||||||||||
$ | — | $ | 206 | $ | — | $ | 206 | |||||||||||||||||||||||||
Financial assets not measured at fair value | ||||||||||||||||||||||||||||||||
Cash | $ | 29,433 | $ | — | $ | — | $ | 29,433 | 29,433 | — | — | 29,433 | ||||||||||||||||||||
Restricted cash | 25,270 | — | — | 25,270 | 25,270 | — | — | 25,270 | ||||||||||||||||||||||||
Amounts receivable | 1,141 | — | — | 1,141 | 1,141 | — | — | 1,141 | ||||||||||||||||||||||||
$ | 55,844 | $ | — | $ | — | $ | 55,844 | |||||||||||||||||||||||||
Financial liabilities measures at fair value | ||||||||||||||||||||||||||||||||
Derivative liabilities | $ | — | $ | 148 | — | $ | 148 | — | 148 | — | 148 | |||||||||||||||||||||
Warrant liability | — | 7,692 | — | 7,692 | — | — | 7,692 | 7,692 | ||||||||||||||||||||||||
$ | — | $ | 7,840 | $ | — | $ | 7,840 | |||||||||||||||||||||||||
Financial liabilities not measured at fair value | ||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities | $ | — | $ | — | $ | 39,883 | $ | 39,883 | 39,883 | — | — | 39,883 | ||||||||||||||||||||
Dunebridge revolving credit facility | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Dunebridge junior credit facility | — | — | 10,063 | 10,063 | — | 12,873 | — | 12,873 | ||||||||||||||||||||||||
Secured notes payable | — | — | 371,553 | 371,553 | 362,274 | — | — | 362,274 | ||||||||||||||||||||||||
$ | — | $ | — | $ | 421,499 | $ | 421,499 |
Carrying amount | Fair value | |||||||||||||||||||||||||||||||
December 31, 2021 | Assets at amortized cost | Fair value through profit and loss | Liabilities at amortized cost | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Financial assets measured at fair value | ||||||||||||||||||||||||||||||||
Derivative assets | $ | — | $ | 775 | $ | — | $ | 775 | $ | — | $ | 775 | $ | — | $ | 775 | ||||||||||||||||
$ | — | $ | 775 | $ | — | $ | 775 | |||||||||||||||||||||||||
Financial assets not measured at fair value | ||||||||||||||||||||||||||||||||
Cash | $ | 25,000 | $ | — | $ | — | $ | 25,000 | 25,000 | — | — | 25,000 | ||||||||||||||||||||
Restricted cash | 25,144 | — | — | 25,144 | 25,144 | — | — | 25,144 | ||||||||||||||||||||||||
Amounts receivable | 877 | — | — | 877 | 877 | — | — | 877 | ||||||||||||||||||||||||
$ | 51,021 | $ | — | $ | — | $ | 51,021 | |||||||||||||||||||||||||
Financial liabilities not measured at fair value | ||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities | $ | — | $ | — | $ | 36,893 | $ | 36,893 | 36,893 | — | — | 36,893 | ||||||||||||||||||||
Secured notes payable | — | — | 375,517 | 375,517 | 357,607 | — | — | 357,607 | ||||||||||||||||||||||||
$ | — | $ | — | $ | 412,410 | $ | 412,410 |
Fair values of assets and liabilities classified as Level 2 are valued using discounted cash flow (“DCF”) models. These models require a variety of observable inputs including market prices, forward price curves, yield curves and credit spreads. Derivative assets are carried at fair value which is determined based on internal valuation model that reflect the observable currency exchange rates in the markets. These inputs are obtained from or verified with the market where possible. The financial assets relate to the embedded derivative assets, which are prepayment options on the secured notes payable (Note 9) and foreign currency put option contracts (Note 16). The level 3 financial liability relates to warrants which is accounted for as derivative liabilities at fair value, with changes in fair value recorded to earnings as they occur (Note 12).
Page | 22 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
The fair value of the secured notes payable is determined using market quoted prices.
18. | COMMITMENTS |
The following table summarizes the contractual maturities of the Company’s significant financial liabilities and capital commitments, including contractual obligations:
Less than | 1 to 3 | 4 to 5 | After 5 | |||||||||||||||||
1 Year | Years | Years | Years | Total | ||||||||||||||||
Gahcho Kué Diamond Mine commitments | $ | 1,374 | $ | — | $ | — | $ | — | $ | 1,374 | ||||||||||
Gahcho Kué Diamond Mine decommissioning fund | 10,000 | 20,000 | — | — | 30,000 | |||||||||||||||
Revolving Junior Credit facility - Principal | — | — | 12,873 | — | 12,873 | |||||||||||||||
Revolving Junior Credit facility - Interest | 1,170 | 3,862 | 1,877 | — | 6,909 | |||||||||||||||
Notes payable - Principal | 373,240 | — | — | — | 373,240 | |||||||||||||||
Notes payable - Interest | 14,930 | — | — | — | 14,930 | |||||||||||||||
$ | 400,713 | $ | 23,862 | $ | 14,750 | $ | — | $ | 439,326 |
19. | RELATED PARTIES |
The Company’s related parties include Dermot Desmond, Dunebridge and Vertigol Unlimited Company (“Vertigol”) (corporations ultimately beneficially owned by Dermot Desmond), the Operator of the GK Mine, key management and their close family members, and the Company’s directors. Dermot Desmond, indirectly through Vertigol, is the ultimate beneficial owner of greater than 10% of the Company’s shares. International Investment and Underwriting (“IIU”) is also a related party since it is ultimately beneficially owned by Dermot Desmond.
Related party transactions are recorded at their exchange amount, being the amount agreed to by the parties.
The Company had the following transactions and balances with its related parties including key management personnel including the Company’s directors, Dermot Desmond, Dunebridge, Vertigol, IIU and the Operator of the GK Mine. The transactions with key management personnel and directors are in the nature of remuneration. The transactions with the Operator of the GK Mine relate to the funding of the Company’s interest in the GK Mine for the current year’s expenditures, capital additions, management fee, and production sales related to the 49% share of fancies and special diamonds. The transactions with IIU are for the director fees of the Chairman of the Company.
On March 28, 2022, the Company executed a credit facility with Dunebridge, for US$50 million (Note 11).
On September 24, 2021, the Dunebridge RCF was extended to March 31, 2022 (Note 10).
Between 2014 and 2020, the Company and De Beers signed agreements allowing De Beers (“the Operator”) to utilize De Beers’ credit facilities to issue reclamation and restoration security deposits to the federal and territorial governments. In accordance with these agreements, the Company agreed to a 3% fee annually for the Company’s share of the letters of credit issued. In 2020, the Company and De Beers signed an agreement to reduce the fee from 3% to 0.3%, annually, for their share of the letters of credit issued. Furthermore, a resolution was passed by the joint venture management committee to establish a decommissioning fund, where the Company will fund $15 million in 2020, and $10 million each year for four years thereafter until the Company’s 49% share totaling $55 million is fully funded. The target funding can change over time, dependent on future changes to the decommissioning and restoration liability and returns on decommissioning fund investments. During the six months ended June 30, 2022, the Company funded $Nil (year ended December 31, 2021 - $10 million) into the decommissioning fund, which is presented as restricted cash on the balance sheet.
Page | 23 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
As at June 30, 2022, the Company’s share of the letters of credit issued were $44.7 million (December 31, 2021 - $44.1 million).
Failure to meet the obligations for cash calls to fund the Company’s share in the GK Mine may lead to De Beers enforcing its remedies under the JV Agreement, which could result in, amongst other things the dilution of Mountain Province’s interest in the GK Mine, and at certain dilution levels trigger cross-default clauses within the Senior Notes.
The balances as at June 30, 2022 and December 31, 2021 were as follows:
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Payable De Beers Canada Inc. as the operator of the GK Mine* | $ | 6,549 | $ | 2,732 | ||||
Payable to De Beers Canada Inc. for interest on letters of credit | 68 | 99 | ||||||
Payable to Dunebridge Worldwide Ltd. | 13,073 | — | ||||||
Payable to key management personnel | 82 | 67 |
*included in accounts payable and accrued liabilities
The transactions for the three and six months ended June 30, 2022 and 2021 were as follows:
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
The total of the transactions: | ||||||||||||||||
International Investment and Underwriting | $ | 30 | $ | 30 | $ | 60 | $ | 60 | ||||||||
Remuneration to key management personnel | 902 | 514 | 1,846 | 1,004 | ||||||||||||
Upside revenue on diamonds sold to Dunebridge Worldwide Ltd. | — | 10,399 | — | 10,399 | ||||||||||||
Diamonds sold to De Beers Canada Inc. | 5,027 | 2,392 | 5,027 | 4,665 | ||||||||||||
Diamonds purchased from De Beers Canada Inc. | 5,142 | 3,579 | 11,682 | 4,828 | ||||||||||||
Finance costs incurred from De Beers Canada Inc. | 35 | 32 | 68 | 68 | ||||||||||||
Finance costs incurred from Dunebridge Worldwide Ltd. | 200 | 3,339 | 228 | 3,834 | ||||||||||||
Management fee charged by the Operator of the GK Mine | 833 | 1,191 | 1,666 | 2,382 |
The remuneration expense of directors and other members of key management personnel for the three and six months ended June 30, 2022 and 2021 were as follows:
Three months ended | Three months ended | Six months ended | Six months ended | |||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
Consulting fees, payroll, director fees, bonus and other short-term benefits | $ | 637 | $ | 407 | $ | 1,341 | $ | 829 | ||||||||
Share-based payments | 295 | 137 | 565 | 235 | ||||||||||||
$ | 932 | $ | 544 | $ | 1,906 | $ | 1,064 |
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company. In addition to the directors of the Company, key management personnel include the Chief Executive Officer (“CEO”) and Chief Financial Officer.
Page | 24 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
20. | SEGMENTED REPORTING |
The reportable operating segments are those operations for which operating results are reviewed by the CEO who is the chief operating decision maker regarding decisions about resources to be allocated to the segment and to assess performance provided those operations pass certain quantitative thresholds. Operations with revenues, earnings or losses or assets that exceed 10% of total consolidated revenue, earnings or losses or assets are reportable segments.
As a result of the asset acquisition of Kennady, which included all mineral rights of the KNP, the Company now owns multiple diamond projects in the Northwest Territories, Canada. The GK Mine is a diamond mine in operations, while the KNP resource continues to be developed through exploration and evaluation programs.
As at and for the six months ended June 30, 2022 | ||||||||||||
GK Mine | KNP | Total | ||||||||||
Sales | $ | 182,414 | $ | — | $ | 182,414 | ||||||
Cost of sales: | ||||||||||||
Production costs | 53,780 | — | 53,780 | |||||||||
Cost of acquired diamonds | 13,197 | — | 13,197 | |||||||||
Depreciation and depletion | 21,215 | — | 21,215 | |||||||||
Earnings from mine operations | 94,222 | — | 94,222 | |||||||||
Exploration and evaluation expenses | 1,226 | 7,134 | 8,360 | |||||||||
Selling, general and administrative expenses | 7,781 | 16 | 7,797 | |||||||||
Operating income (loss) | 85,215 | (7,150 | ) | 78,065 | ||||||||
Net finance expenses | (18,206 | ) | — | (18,206 | ) | |||||||
Other income | 5,797 | 85 | 5,882 | |||||||||
Derivative losses | (1,438 | ) | — | (1,438 | ) | |||||||
Foreign exchange losses | (7,422 | ) | — | (7,422 | ) | |||||||
Net income (loss) before taxes | $ | 63,946 | $ | (7,065 | ) | $ | 56,881 | |||||
Total assets | $ | 764,174 | $ | 171,843 | $ | 936,017 | ||||||
Total liabilities | $ | 534,086 | $ | 3,311 | $ | 537,397 |
Page | 25 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
As at and for the three months ended June 30, 2022 | ||||||||||||
GK Mine | KNP | Total | ||||||||||
Sales | $ | 97,761 | $ | — | $ | 97,761 | ||||||
Cost of sales: | ||||||||||||
Production costs | 26,660 | — | 26,660 | |||||||||
Cost of acquired diamonds | 7,373 | — | 7,373 | |||||||||
Depreciation and depletion | 12,321 | — | 12,321 | |||||||||
Earnings from mine operations | 51,407 | — | 51,407 | |||||||||
Exploration and evaluation expenses | 863 | 3,694 | 4,557 | |||||||||
Selling, general and administrative expenses | 3,794 | 9 | 3,803 | |||||||||
Operating income (loss) | 46,750 | (3,703 | ) | 43,047 | ||||||||
Net finance expenses | (9,054 | ) | — | (9,054 | ) | |||||||
Other income | 7,322 | — | 7,322 | |||||||||
Derivative losses | (1,361 | ) | — | (1,361 | ) | |||||||
Foreign exchange losses | (11,670 | ) | — | (11,670 | ) | |||||||
Net income (loss) before taxes | $ | 31,987 | $ | (3,703 | ) | $ | 28,284 | |||||
Total assets | $ | 764,174 | $ | 171,843 | $ | 936,017 | ||||||
Total liabilities | $ | 534,086 | $ | 3,311 | $ | 537,397 |
Page | 26 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
As at and for the three months ended June 30, 2021 | ||||||||||||
GK Mine | KNP | Total | ||||||||||
Sales | $ | 75,147 | $ | — | $ | 75,147 | ||||||
Cost of sales: | ||||||||||||
Production costs | 30,984 | — | 30,984 | |||||||||
Cost of acquired diamonds | 2,860 | — | 2,860 | |||||||||
Depreciation and depletion | 8,504 | — | 8,504 | |||||||||
Earnings from mine operations | 32,799 | — | 32,799 | |||||||||
Exploration and evaluation expenses | 77 | 1,290 | 1,367 | |||||||||
Selling, general and administrative expenses | 2,645 | 31 | 2,676 | |||||||||
Operating income (loss) | 30,077 | (1,321 | ) | 28,756 | ||||||||
Net finance expenses | (10,688 | ) | (2 | ) | (10,690 | ) | ||||||
Derivative losses | (811 | ) | — | (811 | ) | |||||||
Foreign exchange gains | 5,217 | — | 5,217 | |||||||||
Net income (loss) before taxes | $ | 23,795 | $ | (1,323 | ) | $ | 22,472 | |||||
Total assets | $ | 461,672 | $ | 171,056 | $ | 632,728 | ||||||
Total liabilities | $ | 525,805 | $ | 3,009 | $ | 528,814 |
Page | 27 |
MOUNTAIN PROVINCE DIAMONDS INC. Notes to the Condensed Consolidated Interim Financial Statements For the Three and Six Months Ended June 30, 2022 Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted (Unaudited) |
As at and for the six months ended June 30, 2021 | ||||||||||||
GK Mine | KNP | Total | ||||||||||
Sales | $ | 129,371 | $ | — | $ | 129,371 | ||||||
Cost of sales: | ||||||||||||
Production costs | 58,135 | — | 58,135 | |||||||||
Cost of acquired diamonds | 7,734 | — | 7,734 | |||||||||
Depreciation and depletion | 16,967 | — | 16,967 | |||||||||
Earnings from mine operations | 46,535 | — | 46,535 | |||||||||
Exploration and evaluation expenses | 258 | 1,704 | 1,962 | |||||||||
Selling, general and administrative expenses | 5,248 | 37 | 5,285 | |||||||||
Operating income (loss) | 41,029 | (1,741 | ) | 39,288 | ||||||||
Net finance expenses | (19,743 | ) | (3 | ) | (19,746 | ) | ||||||
Derivative losses | (22 | ) | — | (22 | ) | |||||||
Foreign exchange gains | 10,264 | — | 10,264 | |||||||||
Net income (loss) before taxes | $ | 31,528 | $ | (1,744 | ) | $ | 29,784 | |||||
Total assets | $ | 461,672 | $ | 171,056 | $ | 632,728 | ||||||
Total liabilities | $ | 525,805 | $ | 3,009 | $ | 528,814 |
Page | 28 |