EX-99.2 3 ex992.htm Q2 INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 2010 ex992.htm
Exhibit 99.2














Interim Consolidated Financial Statements
(Expressed in Canadian Dollars)

MOUNTAIN PROVINCE
DIAMONDS INC.

Three months and six months ended
June 30, 2010 and 2009
(Unaudited)

 
 
 



 
RESPONSIBILITY FOR INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
 
 
The accompanying unaudited interim consolidated financial statements for Mountain Province Diamonds Inc. have been prepared by management in accordance with Canadian generally accepted accounting principles consistently applied.  The most significant of these accounting principles have been set out in the December 31, 2009 audited consolidated financial statements.  Only changes in accounting information have been disclosed in these unaudited interim consolidated financial statements (note 2).  These statements are presented on the accrual basis of accounting.  Accordingly, a precise determination of many assets and liabilities is dependent upon future events.  Therefore, estimates and approximations have been made using careful judgment.  Recognizing that the Company is responsible for both the integrity and objectivity of the unaudited interim consolidated financial statements, management is satisfied that these unaudited interim consolidated financial statements have been fairly presented.
 
These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2009.

 
1
 

MOUNTAIN PROVINCE DIAMONDS INC.
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)
             
   
June 30,
    
December 31,
  
   
2010
    
2009
  
   
(Unaudited)
        
             
Assets
            
Current assets:
            
    Cash and cash equivalents
   $ 3,276,714     $ 208,559  
    Short-term investments (note 4)
     12,438,540       9,733,718  
    Marketable securities (note 3)
     7,700       13,431  
    Amounts receivable
     316,948       269,979  
    Advances and prepaid expenses
     85,193       39,173  
      16,125,095       10,264,860  
                 
Fixed assets
     39,690       44,100  
                 
Interest in Gahcho Kué Joint Venture (note 5)
     79,631,147       73,437,586  
                 
    $ 95,795,932     $ 83,746,546  
                 
Liabilities and Shareholders' Equity
                
                 
Current liabilities:
                
    Accounts payable and accrued liabilities
   $ 3,682,510     $ 1,949,489  
                 
Future income tax liabilities
     4,909,850       5,176,881  
                 
Asset retirement obligation relating to Gahcho Kué Joint Venture (note 5)
     5,301,291       5,103,875  
                 
Shareholders' equity:
                
    Share capital (note 6(b))
     108,445,059       97,312,714  
    Value assigned to warrants (note 6(d))
     1,870,564       1,870,564  
    Contributed surplus (note 6(e))
     1,238,302       1,238,302  
    Accumulated other comprehensive income
     3,068       8,799  
    Deficit
     (29,654,712 )     (28,914,078 )
      81,902,281       71,516,301  
                 
                 
    $ 95,795,932     $ 83,746,546  

Nature of operations and going concern (note 1)
Subsequent event (note 6(d))
 
See accompanying notes to unaudited interim consolidated financial statements.
 
On behalf of the Board:

"Jonathan Comerford”
  
Director
     
"Patrick Evans"
  
 Director
 


 
2
 

MOUNTAIN PROVINCE DIAMONDS INC.
Interim Consolidated Statements of Operations and Deficit
(Expressed in Canadian dollars)
(Unaudited)
             
   
Three months ended
    
Six months ended
  
   
June 30,
    
June 30,
  
   
2010
    
2009
    
2010
    
2009
  
                         
Expenses:
                        
    Accretion on asset retirement obligation
   $ 99,254     $ -     $ 197,416     $ -  
    Consulting fees
     293,876       137,640       406,567       234,003  
    Gahcho Kué Project management fee
     34,126       -       40,774       -  
    Office and administration
     58,362       18,400       95,057       20,355  
    Professional fees
     111,425       101,579       166,679       139,526  
    Promotion and investor relations
     4,137       2,659       6,837       5,209  
    Salary and benefits
     21,460       21,460       21,460       21,460  
    Transfer agent and regulatory fees
     20,404       35,068       71,183       56,709  
    Travel
     33,840       12,590       40,289       28,202  
                                 
Loss before the undernoted
     (676,884 )     (329,396 )     (1,046,262 )     (505,464 )
                                 
Interest income
     22,142       1,146       38,597       3,901  
                                 
Loss before income taxes
     (654,742 )     (328,250 )     (1,007,665 )     (501,563 )
                                 
Future income tax recovery
     (173,506 )     (86,986 )     (267,031 )     (135,288 )
                                 
Loss for the period
     (481,236 )     (241,264 )     (740,634 )     (366,275 )
                                 
Deficit, beginning of period
     (29,173,476 )     (27,455,740 )     (28,914,078 )     (27,330,729 )
                                 
Deficit, end of period
   $ (29,654,712 )   $ (27,697,004 )   $ (29,654,712 )   $ (27,697,004 )
                                 
Basic and diluted loss per share
   $ (0.01 )   $ 0.00     $ (0.01 )   $ (0.01 )
                                 
                                 
Weighted average number of shares outstanding
     69,488,882       59,945,101       68,068,207       59,938,776  

See accompanying notes to unaudited interim consolidated financial statements.


 
3
 

MOUNTAIN PROVINCE DIAMONDS INC.
Interim Consolidated Statements of Comprehensive Income
(Expressed in Canadian dollars)
(Unaudited)
             
   
Three months ended
    
Six months ended
  
   
June 30,
    
June 30,
  
   
2010
    
2009
    
2010
    
2009
  
                         
Loss for the period
   $ (481,236 )   $ (241,264 )   $ (740,634 )   $ (366,275 )
                                 
Other comprehensive income:
                                
    Unrealized gain (loss) on marketable securities
     (2,155 )     1,420       (5,731 )     1,995  
                                 
Comprehensive loss
   $ (483,391 )   $ (239,844 )   $ (746,365 )   $ (364,280 )


Interim Consolidated Statements of Accumulated Other Comprehensive Income
(Expressed in Canadian Dollars)
(Unaudited)
       
   
Six months ended
  
   
June 30,
  
   
2010
    
2009
  
             
Balance, beginning of period
   $ 8,799     $ 751  
                 
Change in fair value of available-for-sale-assets - marketable securities
     (5,731 )     1,995  
                 
Balance, end of the period
   $ 3,068     $ 2,746  
 
 
See accompanying notes to unaudited interim consolidated financial statements.

 
4
 

MOUNTAIN PROVINCE DIAMONDS INC.
Interim Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
(Unaudited)
             
   
Three months ended
    
Six months ended
  
   
June 30,
    
June 30,
  
   
2010
    
2009
    
2010
    
2009
  
                         
Cash provided by (used in):
                        
                         
Operating activities:
                        
    Loss for the period
   $ (481,236 )   $ (241,264 )   $ (740,634 )   $ (366,275 )
    Items not involving cash:
                                
       Accretion on asset retirement obligation
     99,254       -       197,416       -  
       Future income taxes
     (173,506 )     (86,986 )     (267,031 )     (135,288 )
    Changes in non-cash operating working capital:
                                
       Amounts receivable
     83,918       26,071       (40,074 )     38,880  
       Advances and prepaid expenses
     (16,526 )     (13,206 )     (46,020 )     (47,032 )
       Accounts payable and accrued liabilities
     113,006       66,190       (241,968 )     48,364  
      (375,090 )     (249,195 )     (1,138,311 )     (461,351 )
                                 
Investing activities:
                                
    Deferred exploration and development costs
     (2,722,408 )     (21,529 )     (4,221,057 )     (34,330 )
    (Investment in) redemption of short-term investments
     (4,917,938 )     178,854       (2,704,822 )     451,099  
      (7,640,346 )     157,325       (6,925,879 )     416,769  
                                 
Financing activities:
                                
    Shares issued for cash, net of costs
     11,132,345       208,360       11,132,345       208,360  
                                 
Increase in cash and cash equivalents
     3,116,909       116,490       3,068,155       163,778  
                                 
Cash and cash equivalents, beginning of the period
     159,805       65,410       208,559       18,122  
                                 
Cash and cash equivalents, end of period
   $ 3,276,714     $ 181,900     $ 3,276,714     $ 181,900  
                                 
Supplemental disclosure of non-cash investing activities:
                                
    Changes in liabilities of mineral interests
   $ 815,835     $ -     $ 1,974,988     $ -  

 
 
See accompanying notes to unaudited interim consolidated financial statements.

 
5
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
1.
Nature of operations and going concern:
 
Mountain Province Diamonds Inc. (the "Company") is in the process of developing and permitting its mineral properties primarily in conjunction with De Beers Canada Inc. ("De Beers Canada"), and has not yet determined whether these properties contain mineral reserves that are economically recoverable.  The underlying value and recoverability of the amounts shown as interest in Gahcho Kué Joint Venture is dependent upon the ability of the Company and/or its mineral property partner to discover economically recoverable reserves, successful permitting and development, and upon future profitable production or proceeds from disposition of the Company's mineral properties.  Failure to discover economically recoverable reserves will require the Company to write-off costs capitalized to date.
 
The Company changed its year end from March 31 to December 31, effective December 31, 2009, to align its fiscal year end with that of De Beers Canada, the operator of the Gahcho Kué Project (note 5).
 
These unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") for interim financial information.  Accordingly, they do not include all of the disclosures and notes to the consolidated financial statements required by GAAP for annual consolidated financial statements and as such should be read in conjunction with the audited consolidated financial statements and the notes thereto for the Company of the year ended December 31, 2009.
 
The consolidated balance sheet at December 31, 2009 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for annual consolidated financial statements.
 
These interim consolidated financial statements follow the same accounting policies and methods of their application as the Company's most recent annual consolidated financial statements.
 


 
6
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
1.
Nature of operations and going concern (continued):
 
These interim consolidated financial statements have been prepared on a going concern basis in accordance with GAAP.  The Company's ability to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities is dependent on the discovery of economically recoverable mineral reserves, the ability of the Company to obtain necessary financing to fund its operations, and the future production or proceeds from developed properties.  The Company continues to investigate various sources of additional liquidity to increase the cash balances required for ongoing operations over the foreseeable future.  These additional sources include, but are not limited to, share offerings, private placements, credit facilities, and debt, as well as exercises of outstanding options and warrants.  However, there is no certainty that the Company will be able to obtain financing from any of those sources.  As a result, there is substantial doubt as to the Company's ability to continue as a going concern.  These interim consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate.
 
2.
Future accounting policy changes:
 
Business combinations, consolidated financial statements, non-controlling interests and comprehensive revaluation of assets and liabilities:
 
For interim and annual financial statements relating to its fiscal year commencing January 1, 2011, the Company will be required to adopt The Canadian Institute of Chartered Accountants' ("CICA") new Handbook Section 1582, Business Combinations ("Section 1582") (replacing Section 1581 Business Combinations), Section 1601, Consolidated Financial Statements ("Section 1601"), Section 1602, Non-Controlling Interests ("Section 1602") and Section 1625, Comprehensive Revaluation of Assets and Liabilities ("Section 1625").
 
Section 1582 establishes standards for the accounting of a business combination for which the acquisition date is after the Company's fiscal year ended December 31, 2010.
 

 
7
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
2.
Future accounting policy changes (continued):
 
Section 1601, with the new Section 1602, replaces the former Section 1600, Consolidated Financial Statements, and establishes standards for the preparation of consolidated financial statements.  Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination.  Section 1625 is amended as a result of Section 1582, Section 1601 and Section 1602, and applies prospectively.
 
Section 1582, Section 1601, Section 1602, and Section 1625 apply to the Company's interim and annual financial statements relating to the Company's fiscal year commencing January 1, 2011.  Section 1601, Section 1602 and Section 1625 permit early adoption.
 
The Company has not yet determined the effect, if any, that the adoption of these new standards will have on its interim consolidated financial statements.
 
3.
Marketable securities:
 
The quoted market value of the remaining marketable securities at June 30, 2010, was $7,700 (June 30, 2009 - $7,378).  The original cost of these marketable securities at June 30, 2010 was $4,632 (June 30, 2009 - $4,632).
 
The Company has assessed the risk associated with its available-for-sale marketable securities to include market risk, since the market value of the available-for-sale marketable securities is subject to fluctuations.


 
8
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)
 

 
4.
Financial instruments:
 
 
(a)
Financial assets and liabilities:
 
Information regarding the Company's financial assets and liabilities is summarized as follows:
             
   
June 30, 2010
    
December 31, 2009
  
   
Fair
    
Carrying
    
Fair
    
Carrying
  
   
value
    
value
    
value
    
value
  
                         
Held-for-trading:
                        
    Cash and cash equivalents
   $ 3,276,714     $ 3,276,714     $ 208,559     $ 208,559  
    Short-term investments
     12,438,540       12,438,540       9,733,718       9,733,718  
                                 
    $ 15,715,254     $ 15,715,254     $ 9,942,277     $ 9,942,277  
                                 
Available-for-sale:
                                
    Marketable securities
   $ 7,700     $ 7,700     $ 13,431     $ 13,431  
                                 
                                 
Loans and receivables:
                                
    Amounts receivable
   $ 316,948     $ 316,948     $ 269,979     $ 269,979  
                                 
                                 
Other liabilities:
                                
    Accounts payable and accrued liabilities
   $ 3,682,510     $ 3,682,510     $ 1,949,489     $ 1,949,489  
 
The short-term investments at June 30, 2010 are cashable guaranteed investment certificates ("GICs") held with a major Canadian financial institution with maturities between September 2010 and May 2011.  The GICs held at June 30, 2010 are carried at fair market value.  Given the GICs' low risk and the ability to cash them at any time, the fair market value recorded is estimated to be reasonably approximated by the amount of cost plus accrued interest.  There is no restriction on the use of the short-term investments.  The balance of interest income recognized in the Company's interim consolidated financial statements represents interest income from all other sources.


 
9
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
4.
Financial instruments (continued):
 
The Company's financial assets at June 30, 2010, consist of short-term investments and marketable securities which are classified as Level 1.
 
The fair values of the amounts receivable and accounts payable and accrued liabilities approximate their carrying values due to the relatively short-term maturity of these financial instruments.
 
 
(b)
Financial instrument risk exposure:
 
 
(i)
Credit risk:
 
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations.  The Company's maximum exposure to credit risk at the interim consolidated balance sheet dates under its financial instruments is summarized as follows:
             
   
June 30,
    
December 31,
  
   
2010
    
2009
  
             
Amounts receivable:
            
    Currently due
   $ 55,052     $ 269,979  
    Past due by 90 days or less, not impaired
     261,896       -  
                 
    $ 316,948     $ 269,979  
                 
Cash and cash equivalents
   $ 3,276,714     $ 208,559  
Short-term investments
     12,438,540       9,733,718  
                 
    $ 15,715,254     $ 9,942,277  

 

 

 
10
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
4.
Financial instruments (continued):
 
All of the Company's cash and cash equivalents and short-term investments are held with a major Canadian financial institution and thus the exposure to credit risk is considered insignificant.  The short-term investments are cashable in whole or in part with interest at any time to maturity.  Management actively monitors the Company's exposure to credit risk under its financial instruments, including with respect to receivables.  The Company considers the risk of loss to be remote and significantly mitigated due to the financial strength of the party from whom the receivables are due - the Canadian government for goods and services tax refunds receivable in the amount of $231,219 and from the government of Northwest Territories for fuel tax rebate of $85,729.
 
The Company's current policy is to invest excess cash in Canadian bank guaranteed notes.  It periodically monitors the investments it makes and is satisfied with the credit ratings of its bank.
 
 
(ii)
Liquidity risk:
 
Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities.  The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements.  The Company coordinates this planning and budgeting process with its financing activities through its capital management process.  The Company's financial liabilities comprise its accounts payable and accrued liabilities, all of which are due within the next 12 month period.  Other than minimal office space rental commitments, there are no other capital or operating lease commitments.
 
As identified in note 1, the Company's ability to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities is dependent on the discovery of economically recoverable mineral reserves, the ability of the Company to obtain necessary financing to fund its operations and the future production or proceeds from developed properties.
 

 
11
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
4.
Financial instruments (continued):
 
 
 
(iii)
Market risk:
 
The Company's marketable securities are classified as available-for-sale, and are subject to changes in the market.  They are recorded at fair value in the Company's financial statements, based on the closing market value at the end of the period for each security included.  The original cost of the marketable securities is $4,632.  The Company's exposure to market risk is not considered to be material.
 
 
(iv)
Foreign currency risk:
 
The Company is exposed to a very small amount of foreign currency risk at the interim consolidated balance sheet dates through its U.S. denominated accounts payable and cash.  A 10% depreciation or appreciation of the U.S. dollar against the Canadian dollar would result in an approximate $3,700 decrease or increase, respectively, in both net and comprehensive loss.  The Company currently has only limited exposure to fluctuations in exchange rates between the Canadian and U.S. dollar as significantly all of its operations are located in Canada.  Accordingly, the Company has not employed any currency hedging programs during the current period.
 
 
(v)
Interest rate risk:
 
The Company has no significant exposure at June 30, 2010 to interest rate risk through its financial instruments.  The short-term investments are at fixed rates of interest that do not fluctuate during the remaining term.  The Company has no interest-bearing debt.
 

 
12
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
5.
Interest in Gahcho Kué Joint Venture:
             
   
June 30,
    
December 31,
  
   
2010
    
2009
  
             
Balance, beginning of period
   $ 73,437,586     $ 65,161,533  
                 
Changes in the period:
                
    Additional mineral interest resulting from the 2009 Gahcho Kué Joint Venture Agreement
     -       4,971,252  
    Change in proportionate share of Gahcho Kué net liabilities in the period
     521,230       -  
    Technical consulting
     127,410       18,384  
    Mining lease costs
     6,360       9,540  
    Sunk cost repayment
     2,042,560       1,290,838  
    Company portion of feasibility study costs
     2,132,455       1,339,304  
    Company portion of project costs
     1,363,546       646,735  
      6,193,561       8,276,053  
                 
Balance, end of period
   $ 79,631,147     $ 73,437,586  
 
The Company holds a 49% interest in the Gahcho Kué Project located in the District of Mackenzie, Northwest Territories, Canada, and De Beers Canada holds the remaining 51% interest.  The joint venture between the Company and De Beers Canada is governed by an agreement entered into on July 3, 2009 (the "2009 Agreement").  The Company considers that the Gahcho Kué joint venture is a related party under CICA Handbook Section 3840, Related Party Transactions.
 
Under a previous agreement (the "2002 Agreement") in effect until July 3, 2009, De Beers Canada carried all costs incurred by the Gahcho Kué Project, and De Beers Canada had no recourse to the Company for repayment of funds until, and unless, the Gahcho Kué Project is built, in production, and generating net cash flows.
 

 
13
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
5.
Interest in Gahcho Kué Joint Venture (continued):
 
On July 3, 2009, the Company entered the 2009 Agreement with De Beers Canada (jointly, the "Participants") under which:
 
 
(a)
The Participants' continuing interests in the Gahcho Kué Project will be the Company 49% and De Beers Canada 51%, with the Company's interest no longer subject to the dilution provisions in the 2002 Agreement, except for normal dilution provisions which are applicable to each Participant;
 
 
(b)
Each Participant will market their own proportionate share of diamond production in accordance with their participating interest;
 
 
(c)
Each Participant will contribute their proportionate share to the future project development costs;
 
 
(d)
Material strategic and operating decisions will be made by consensus of the Participants as long as each Participant has a participating interest of 40% or more;
 
 
(e)
The Participants have agreed that the sunk historic costs to the period ending on December 31, 2008 will be reduced and limited to $120,000,000;
 
 
(f)
The Company will repay De Beers Canada $59,000,000 (representing 49% of an agreed sum of $120,000,000) in settlement of the Company's share of the agreed historic sunk costs on the following schedule:
 
 
•
$200,000 on execution of the 2009 Agreement (the Company's contribution to the 2009 Joint Venture expenses to date of execution of the 2009 Agreement);
 
•
Up to $5,100,000 million in respect of De Beers Canada's share of the costs of the feasibility study; ($3,333,398 recorded to June 30, 2010);
 
•
$10,000,000 upon the earlier of the completion of a feasibility study with a 15% IRR and/or a decision to build;
 
•
$10,000,000 following the issuance of the construction and operating permits;
 
•
$10,000,000 following the commencement of commercial production; and
 
•
The balance within 18 months following commencement of commercial production.
 

 
14
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
5.
Interest in Gahcho Kué Joint Venture (continued):
 
The Company has agreed that its marketing rights under the 2009 Agreement may be diluted if the Company defaults on certain of the repayments described above if and when such payments become due.
 
The 2009 Agreement's provision for consensus decision-making for material strategic and operating decisions provides the Company with joint control for the Gahcho Kué Project with De Beers Canada, and the Company accounts for the Gahcho Kué Project as a joint venture.  Accordingly, the Company has determined its proportionate share (49%) of the assets, liabilities, revenue and expenses of the joint venture, and recorded them in its interim consolidated financial statements effective July 4, 2009.
 
Summarized below are the results of operations, cash flows and financial position relating to the Company's proportional interest (49%) in the Gahcho Kué joint venture for the three months and six months ended June 30, 2010 and 2009:
             
   
Three months ended
    
Six months ended
  
   
June 30,
    
June 30,
  
   
2010
    
2009
    
2010
    
2009
  
                         
Results of operations:
                        
    Revenue
   $ -     $ -     $ -     $ -  
    Expenses
     133,379       -       238,189       -  
                                 
Proportionate share of net loss
   $ 133,379     $ -     $ 238,189     $ -  
                                 
Cash flows:
                                
    Operating activities
   $ (34,126 )   $ -     $ (40,774 )   $ -  
    Financing activities
     -       -       -       -  
    Investing activities
     34,126       -       40,774       -  
                                 
Proportionate share of change in cash and cash equivalents
   $ -     $ -     $ -     $ -  

 

 

 
15
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
5.
Interest in Gahcho Kué Joint Venture (continued):
             
   
June 30,
    
December 31,
  
   
2010
    
2009
  
             
Financial position:
            
    Current assets
   $ 112,956     $ 106,061  
    Long-term assets
     69,536,474       66,000,782  
    Current liabilities
     (691,625 )     (163,502 )
    Long-term liabilities
     (5,301,291 )     (5,103,875 )
                 
Proportionate share of net assets
   $ 63,656,514     $ 60,839,466  
 
Asset retirement obligation:
 
The fair value of the Gahcho Kué Project asset retirement obligation was calculated using the total undiscounted cash flows required to settle estimated obligations (estimated to be approximately $28,900,000), expected timing of cash flow payments required to settle the obligations between 2011 and 2028, a credit-adjusted risk-free discount rate of 7.8%, and an inflation rate of 2.3%.
 
The balance of the asset retirement obligation is as follows:
             
   
June 30,
    
December 31,
  
   
2010
    
2009
  
             
Balance, beginning of period
   $ 5,103,875     $ -  
Asset retirement obligation recorded as a result of the 2009 Agreement
     -       4,913,811  
Accretion recorded during the period
     197,416       190,064  
                 
Balance, end of period
   $ 5,301,291     $ 5,103,875  

 
 

 
16
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
6.
Share capital and contributed surplus:
 
 
(a)
Authorized:
Unlimited common shares, without par value
 
 
(b)
Issued and fully paid:
             
   
Number of
        
   
shares
    
Amount
  
             
Balance, March 31, 2008
     59,870,881     $ 85,581,729  
Exercise of stock options
     61,500       34,502  
Value of stock options exercised
     -       254,610  
                 
Balance, March 31, 2009
     59,932,381       85,870,841  
Exercise of stock options
     365,365       600,360  
Value of stock options exercised
     -       294,903  
Issuance of shares from financings, net of costs
     6,334,000       10,546,610  
                 
Balance, December 31, 2009
     66,631,746       97,312,714  
Issuance of shares from financing, net of costs
     5,476,177       11,132,345  
                 
Balance, June 30, 2010
     72,107,923     $ 108,445,059  
 
On August 4, 2009, the Company completed a private placement.  An aggregate of 3,000,000 Units of the Company were issued at a price of $1.50 per Unit for aggregate gross proceeds of $4,500,000.  Each Unit comprises one common share of the Company and one-half of one common share purchase warrant.  Each whole warrant entitles the holder to acquire one additional common share at an exercise price of $2.00 for a period of 18 months. Directors and officers of the Company purchased a total of 40,000 Units.
 
On December 8, 2009, the Company announced that it had closed its bought deal financing (the "Offering") under which the Company issued 3,334,000 units ("Units") in consideration for $2.70 per Unit to raise gross proceeds of $9,001,800.  Each Unit comprises one common share and one-half of a common share purchase warrant, with each whole warrant entitling the holder to acquire one additional common share at an exercise price of $3.20 per common share for a period of 18 months.  As well, the underwriters of the Offering subscribed to 50,000 common share purchase warrants for $0.268 each for gross proceeds of $13,400 (See (d) for more information about the common share purchase warrants).
 

 
17
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
6.
Share capital and contributed surplus (continued):
 
On May 17, 2010, the Company completed its non-brokered private placement of 5,476,177 common shares ("Shares") at a price of $2.10 per Share, to raise gross proceeds of $11,499,972.  Proceeds from the private placement are being used to support the feasibility study and permitting for the Gahcho Kué Project, and for general corporate purposes.
 
 
(c)
Stock options:
 
The Company, through its Board of Directors and shareholders, adopted a stock option 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 option awards within the limits identified in the Plan, which includes provisions limiting the issuance of options to insiders and significant shareholders to maximums identified in the Plan.
 
The aggregate maximum number of shares pursuant to options granted under the Plan will not exceed 6,309,774 shares, and as at June 30, 2010, there were 5,075,139 shares available to be issued under the Plan.
 
The following presents the continuity of stock options outstanding:
             
         
Weighted
  
         
average
  
   
Number of
    
exercise
  
   
options
    
price
  
             
Balance, March 31, 2008
     461,500     $ 2.47  
    Granted
     900,000       1.26  
    Exercised
     (61,500 )     0.56  
                 
Balance, March 31, 2009
     1,300,000       1.72  
    Granted
     300,000       1.72  
    Exercised
     (365,365 )     1.64  
                 
Balance, December 31, 2009 and June 30, 2010
     1,234,635     $ 1.75  

 

 

 
18
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
6.
Share capital and contributed surplus (continued):
 
The following are the stock options outstanding and exercisable at June 30, 2010:
                     
             
Weighted
      
   
Black-
        
average
      
   
Scholes
    
Number of
  
remaining
  
Exercise
  
Expiry date
  
value
    
options
  
life
  
price
  
                     
November 1, 2010
   $ 180,100       100,000  
0.34 years
   $ 2.63  
January 30, 2011
     321,100       100,000  
0.59 years
     4.50  
November 23, 2013
     468,697       734,635  
3.41 years
     1.26  
August 25, 2014
     268,405       300,000  
4.16 years
     1.72  
                           
    $ 1,238,302       1,234,635  
3.11 years
        
 
 
(d)
Warrants:
 
The Company's financing, which closed on August 4, 2009, involved an aggregate of 3,000,000 Units of the Company at a price of $1.50 per Unit.  Each Unit comprises one common share of the Company and one-half of one common share purchase warrant.  Each whole warrant entitles the holder to acquire one additional common share at an exercise price of $2.00 per common share for a period of 18 months.
 
The Company's Offering, which closed on December 8, 2009, involved an aggregate of 3,334,000 Units at a price of $2.70 per Unit.  Each Unit comprises of one common share of the Company and one-half of a common share purchase warrant.  Each whole warrant entitles the holder to acquire one additional common share at an exercise price of $3.20 per common share for a period of 18 months.  In addition, the underwriters of the Offering were issued 50,000 common share purchase warrants for consideration of $0.268 each with the same exercise price of $3.20 per common share and the same period of 18 months.
 

 
19
 
MOUNTAIN PROVINCE DIAMONDS INC.
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Three months and six months ended June 30, 2010 and 2009
(Unaudited)

 
6.
Share capital and contributed surplus (continued):
 
The following is a summary of warrants outstanding at June 30, 2010:
               
   
Number of
    
Exercise
    
Date of issue
  
warrants
    
price
  
Expiry date
               
August 4, 2009
     1,500,000     $ 2.00  
February 5, 2011
December 8, 2009
     1,717,000       3.20  
June 8, 2011
                   
      3,217,000            
 
Upon issuance, the warrants were assigned a value of $1,870,564 calculated using the Black-Scholes option pricing model with the following assumptions:
       
         
Dividend yield
     -  
Expected volatility
     79.91% - 87.02 %
Risk-free interest rate
     0.65% - 0.87 %
Expected lives
  
18 months
  
Fair value of warrants
     $0.546 - $0.722  
         
 
Subsequent to June 30, 2010, 173,000 warrants were exercised for proceeds of $346,000.
 
 
(e)
Contributed surplus:
       
         
Balance, March 31, 2008
   $ 945,210  
Recognition of stock-based compensation expense
     574,200  
Value on exercise of stock options transferred to share capital
     (254,610 )
         
Balance, March 31, 2009
     1,264,800  
Recognition of stock-based compensation expense
     268,405  
Value on exercise of stock options transferred to share capital
     (294,903 )
         
Balance, December 31, 2009 and June 30, 2010
   $ 1,238,302  

 
 
 
20