Canadian Diamond Explorer Sees Irish Billionaire Backing

Mountain Province Diamonds Inc., a partner with De Beers in the Gahcho Kue project in northern Canada, plans to raise C$125 million ($118 million) in a rights offering backed by Irish billionaire Dermot Desmond.

The Toronto-based company’s biggest shareholder will ensure the offering in the first quarter is fully subscribed by buying rights not taken up by other investors, Chief Executive Officer Patrick Evans said in a telephone interview. Mountain Province, which needs the money for its 49 percent share of the cost of building the proposed diamond mine, raised C$47 million in an offering a year ago.

“He backstopped that one and will backstop the next one as well,” the 58-year-old Evans said, adding that Desmond has owned Mountain Province shares for 17 years. “I don’t know that he is as forthcoming and generous with all his businesses, but he certainly is with ours.”

Mountain Province’s financing and plans for mine construction at Gahcho Kue, 400 kilometers (250 miles) south of the Arctic Circle, come amid renewed investor interest in diamond projects as a recovering global economy boosts demand for engagement rings and other jewelry in the U.S. and emerging-market countries such as China and India.

Core Group

Mountain Province has “a pretty strong core group of shareholders, and that’s put the company on a good footing when it comes to fund-raisings,” Edward Sterck, a London-based analyst at Bank of Montreal who rates the company the equivalent of a buy with a 12-month price target of C$6, said by phone on Nov. 19. “Those core shareholders have stood by the company.”

Jonathan Comerford, a senior executive of Desmond’s closely held International Investment & Underwriting and the non-executive chairman of Mountain Province, declined to comment on whether Desmond plans to backstop the planned rights offering.

“We have a policy about not commenting to the media about our investments,” Comerford said Nov. 20 in an e-mail response to questions.

Mountain Province rose 0.4 percent to C$5.16 at the close in Toronto, giving the company a market value of C$487.7 million. The shares have increased 33 percent this year, while the Standard & Poor’s/TSX Materials Index declined 32 percent. Mountain Province has four buy, no hold and no sell ratings from analysts, with an average price target of C$6.62, according to data compiled by Bloomberg.

‘Strong Support’

The rights offering is part of the company’s plan to raise about C$400 million to cover its part of financing for Gahcho Kue, which means “a place where there are big rabbits or hares” in the local Chipewyan language.

The company said Nov. 18 it raised C$29.1 million from existing shareholders in a private placement of common shares.

Mountain Province also is in the midst of hiring bankers to arrange a C$250 million debt facility that may eventually cover the company’s remaining construction commitments until the start of production at Gahcho Kue, forecast for as early as 2015, Evans said.

Financing may also include an arrangement with diamond retailers such as Tiffany & Co. or Hong Kong’s Chow Tai Fook Jewellery Group Ltd. to help provide funding and commit to buy gems from the mine, Paolo Lostritto, a Toronto-based analyst at National Bank Financial, said in a Nov. 19 phone interview.

Rising Demand

“We’re always in discussions with many diamond producers, but have nothing to say about any potential relationship with Mountain Province,” Mark Aaron, a Tiffany spokesman, said Nov. 21 by phone from Toronto.

Joanne Wong, a spokeswoman for Chow Tai Fook in Hong Kong, declined to comment on speculation about a potential off-take agreement with Mountain Province.

Desmond, a 63-year-old investor in mapping software maker eSpatial Inc. and learning software maker Intuition through International Investment & Underwriting, has a net worth of at least $2 billion, according to data compiled by Bloomberg, including a 24 percent stake in Mountain Province.

Investor interest in diamond equities “has increased markedly,” according to Sterck, who forecasts prices for rough diamonds will rise 5 to 7 percent annually beginning next year, “driven by good demand growth and highly constrained supply.”

In an August study, Bain & Co. predicted global rough-diamond demand will rise at a compound annual rate of 5.1 percent to $26 billion by 2023, while global rough-diamond supply will increase at an annual rate of 2 percent.

Aber ‘Similarities’

De Beers, which is the world’s largest diamond producer and a unit of Anglo American Plc, has a 3.2 percent stake in Mountain Province, according to data compiled by Bloomberg. De Beers also owns 51 percent of Gahcho Kue, which is in the Northwest Territories near Kennady Lake, about 300 kilometers northeast of the capital Yellowknife.

De Beers expects to be in a position to begin full construction at Gahcho Kue next year, Cathie Bolstad, a Yellowknife-based spokeswoman, said yesterday in an e-mailed response to questions.

Gahcho Kue isn’t the only proposed diamond mine in Canada in advanced development. Another is Stornoway Diamond Corp.’s Renard project, about 800 kilometers northeast of Montreal. Stornoway, which is seeking to arrange financing for the C$752 million mine, aims to begin production in 2016, Orin Baranowsky, a spokesman for the Longueuil, Quebec-based company, said by phone on Nov. 19.

Mountain Province shares have the potential to rise more than threefold to as high as C$17 by 2017, mimicking the increase of the former Aber Resources Ltd., now known as Dominion Diamond Corp., which skyrocketed as it helped develop the Diavik mine in the Northwest Territories with Rio Tinto Group in the early 2000s, Lostritto said.

“There are a lot of similarities between Mountain Province and Aber,” he said, citing Mountain Province’s tightly held share structure, its right to market its diamond output from Gahcho Kue and the potential for additional nearby discoveries.

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