EX-99.2 3 ex992.htm Q2 INTERIM FINANCIAL STATEMENTS

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, 2019

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

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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 (Loss) 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 - 27

 

 

 

 

 

 

 

 

 

 

 

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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 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, 2018, except for changes indicated in Note 3 (i). 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 the 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 ensuring the Company’s financial reporting in compliance with IFRS as issued by the IASB, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.

 

 

 

 

 

 

“Stuart Brown”  “Perry Ing”
Stuart Brown Perry Ing
President and Chief Executive Officer VP Finance and Chief Financial Officer

 

Toronto, Canada

August 6, 2019

 

 

 

 

 

 

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MOUNTAIN PROVINCE DIAMONDS INC.

 

 

Condensed Consolidated Interim Balance Sheets

Expressed in thousands of Canadian dollars

(Unaudited)

 

      June 30,  December 31,
   Notes  2019  2018
   ASSETS         
Current assets               
Cash       $30,235   $30,708 
Amounts receivable   5    1,314    2,478 
Prepaid expenses and other        764    1,269 
Derivative assets   14    1,941    –   
Inventories   6    110,210    102,261 
         144,464    136,716 
                
Reclamation deposit        250    250 
Derivative assets   14    264    1,670 
Property, plant and equipment   7    828,628    841,241 
                
Total assets       $973,606   $979,877 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY               
Current liabilities               
Accounts payable and accrued liabilities   17   $35,950   $48,295 
Derivative liabilities   14    –      653 
Lease liabilities   9    801    –   
Income taxes payable        284    574 
         37,035    49,522 
                
Secured notes payable   10    393,412    408,144 
Lease liabilities   9    1,453    –   
Decommissioning and restoration liability   8    59,991    54,922 
Deferred income tax liabilities        4,366    3,174 
                
Shareholders' equity:               
Share capital   12    629,840    629,796 
Share-based payments reserve   12    7,188    6,750 
Deficit        (161,013)   (173,765)
Accumulated other comprehensive income        1,334    1,334 
                
Total shareholders' equity        477,349    464,115 
                
Total liabilities and shareholders' equity       $973,606   $979,877 
                
Commitments and contingencies   16 & 17           
Subequent event   10           

 

 

 

On behalf of the Board:    

 

“David Whittle”   “Jonathan Comerford”
Director   Director

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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MOUNTAIN PROVINCE DIAMONDS INC.

 

 

Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

Expressed in thousands of Canadian dollars

(Unaudited)

      Three months ended  Three months ended  Six months ended  Six months ended
   Notes  June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018
                
Sales       $95,774   $99,075   $156,470   $165,640 
Cost of sales:                         
 Production costs        48,706    41,095    77,492    60,009 
 Cost of acquired diamonds        2,677    10,214    8,628    20,217 
 Depreciation and depletion        26,592    29,265    42,391    42,348 
                          
Earnings from mine operations        17,799    18,501    27,959    43,066 
Exploration and evaluation expenses        1,896    3,562    5,518    4,433 
Selling, general and administrative expenses   13    3,141    3,752    6,040    7,341 
                          
Operating income        12,762    11,187    16,401    31,292 
Net finance expenses   11    (9,584)   (9,889)   (19,372)   (19,589)
Derivative gains   14    610    267    1,011    782 
Foreign exchange gains (losses)        7,535    (7,746)   16,182    (18,122)
Other income        –      58    –      81 
                          
Income (loss) before taxes        11,323    (6,123)   14,222    (5,556)
Current income taxes        (141)   (142)   (277)   (861)
Deferred income taxes        (927)   (15)   (1,193)   204 
 Total income taxes        (1,068)   (157)   (1,470)   (657)
Net income (loss) for the period       $10,255   $(6,280)  $12,752   $(6,213)
Other Comprehensive Income                         
Items that will not be reclassified subsequently to profit and loss:                         
Change in fair value of equity securities        –      (97)   –      1,334 
Other comprehensive (loss) income        –      (97)   –      1,334 
Total comprehensive income (loss) for the period       $10,255   $(6,377)  $12,752   $(4,879)
                          
Basic and diluted earnings (loss) per share   12(iv)  $0.05   $(0.03)  $0.06   $(0.03)
                          
Basic weighted average number of shares outstanding        210,109,142    202,897,623    210,108,884    181,693,363 
Diluted weighted average number of shares outstanding        210,471,473    202,897,623    210,471,215    181,693,363 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

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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, 2018        160,253,501   $475,624   $5,549   $(146,431)  $–     $334,742 
Net loss for the period        –      –      –      (6,213)   –      (6,213)
Share-based payment   12(iii)   –      –      813    –      –      813 
Issuance of common shares - restricted share unit        15,002    97    (97)   –      –      –   
Share issuance to acquire Kennady Diamonds Inc.        49,737,307    153,688    –      –      –      153,688 
Other Comprehensive Income:                                   
Financial assets at fair value through other comprehensive income                                   
Gain on equity securities        –      –      –      –      1,334    1,334 
Balance, June 30, 2018        210,005,810   $629,409   $6,265   $(152,644)  $1,334   $484,364 
                                    
Balance, January 1, 2019        210,102,476   $629,796   $6,750   $(173,765)  $1,334   $464,115 
Net income for the period        –      –      –      12,752    –      12,752 
Share-based payment   12(iii)   –      –      482    –      –      482 
Issuance of common shares - restricted share units   12(iii)   6,666    44    (44)   –      –      –   
Balance, June 30, 2019        210,109,142   $629,840   $7,188   $(161,013)  $1,334   $477,349 

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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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
   June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018
   Cash provided by (used in):            
Operating activities:                    
Net income (loss) for the period  $10,255   $(6,280)  $12,752   $(6,213)
                     
Adjustments:        –             
Net finance expenses   9,537    9,889    19,280    19,589 
Depreciation and depletion   26,647    29,271    42,501    42,357 
Share-based payment expense   263    389    482    813 
Derivative gains   (610)   (267)   (1,011)   (782)
Foreign exchange (gains) losses   (7,535)   7,746    (16,182)   18,122 
Current income taxes   (426)   (432)   (290)   287 
Deferred income taxes   927    15    1,193    (204)
    39,058    40,331    58,725    73,969 
Changes in non-cash operating working capital:                    
   Amounts receivable   3,193    334    1,164    (171)
   Prepaid expenses and other   (263)   (2,851)   505    (5,522)
   Inventories   23,971    20,678    (10,850)   (12,506)
   Accounts payable and accrued liabilities   (19,880)   515    (12,345)   4,996 
    46,079    59,007    37,199    60,766 
Investing activities:                    
Investment in Kennady Diamonds Inc.   –      7,500    –      –   
Interest income   147    113    257    212 
Purchase of property, plant and equipment   (10,062)   (42,070)   (20,492)   (50,767)
Cash acquired and transaction costs on asset acquisition of Kennady Diamonds Inc.   –      (4,028)   –      (4,028)
    (9,915)   (38,485)   (20,235)   (54,583)
Financing activities:                    
Payment of lease liabilities   (190)   –      (391)   –   
Financing costs   (16,829)   (15,535)   (16,861)   (15,723)
    (17,019)   (15,535)   (17,252)   (15,723)
                     
Effect of foreign exchange rate changes on cash   (216)   (158)   (185)   (81)
Increase (decrease) in cash   18,929    4,829    (473)   (9,621)
Cash, beginning of period   11,306    28,679    30,708    43,129 
Cash, end of period  $30,235   $33,508   $30,235   $33,508 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

1.Nature of Operations

 

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 Gahcho Kué Project (“Gahcho Kué Diamond Mine” or “GK Mine” or “GK Project”) in Canada’s Northwest Territories. On April 13, 2018, the Company completed the asset acquisition of Kennady Diamonds Inc. (formerly KDI.V on the TSX Venture exchange), which included 100% of the mineral rights of the Kennady North Project (“KNP”).

 

The address of the Company’s registered office and its principal place of business is 161 Bay Street, Suite 1410, PO Box 216, Toronto, ON, Canada, M5J 2S1. The Company’s shares are listed on the Toronto Stock Exchange (“TSX”) and NASDAQ under the symbol ‘MPVD’.

 

The underlying value and recoverability of the amounts shown as “Property, Plant and Equipment” (Note 7) are dependent upon future profitable production and proceeds from disposition of the Company’s mineral properties.

 

KNP is involved in the exploration, discovery, evaluation and development of diamond properties in Canada’s Northwest Territories.

 

The underlying value and recoverability of amounts shown as “Mineral Properties” is dependent upon the ability of the Company to discover economically recoverable reserves, to have successful exploration, permitting and development, and upon future profitable production or proceeds from disposition of the Company’s mineral properties. Failure to discover and develop economically recoverable reserves will require the Company to write off costs capitalized to date.

Authorization of Financial Statements

These condensed consolidated interim financial statements were approved by the Board of Directors on August 6, 2019.

 

2.BASIS OF PRESENTATION

 

These unaudited condensed consolidated interim financial statements of the Company were prepared in accordance with International Accounting Standards 34, Interim Financial Reporting (“IAS 34”). The accounting policies used in the preparation of these unaudited condensed consolidated interim financial statements are consistent with those used in the annual consolidated financial statements for the year ended December 31, 2018 except for changes indicated in Note 3 (i).

 

These interim financial statements do not include all disclosures required by International Financial Reporting Standards (“IFRS”) for annual financial statements and, accordingly, should be read in conjunction with the Company’s annual audited consolidated financial statements for the year ended December 31, 2018 prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”).

 

These financial statements were prepared under the historical cost convention, as modified by the revaluation of equity securities and derivative assets and liabilities and are presented in thousands of Canadian dollars.

 

The condensed consolidated interim financial statements include the accounts of Mountain Province and its wholly-owned subsidiaries:

•2435572 Ontario Inc. (100% owned)

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

•2435386 Ontario Inc. (100% owned by 2435572 Ontario Inc.)
•Kennady Diamonds Inc. (100% owned)

 

The Company’s 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 has determined that its 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 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.Significant accounting policies

 

(i)New accounting policies adopted in the current period

 

Leases

 

Effective January 1, 2019, the Company adopted IFRS 16, Leases (“IFRS 16”), using the modified retrospective approach on transition, which specifies how to recognize, measure, present and disclose leases. The comparatives for the 2018 reporting period have not been restated and are accounted for under IAS 17, Leases, as permitted under the specific transitional provisions in the standard. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all major leases. The right-of-use assets and lease liabilities on the date of implementation are shown in Note 9 of these condensed consolidated interim financial statements.

 

At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less, and leases of low-value assets. For these leases, the Company recognizes the lease payments as an expense in net earnings on a straight-line basis over the term of the lease.

 

The Company recognized a right-of-use asset and the associated lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial costs incurred and an estimate of cost to remove the underlying asset, less any lease incentives received. Lease payments included in the measurement of the lease liability comprise of amounts expected to be payable by the Company under residual value guarantees, and the exercise price of a purchase option if the Company is reasonably certain to exercise that option. The right-of-use asset is subsequently measured at cost, less any accumulated depreciation and any accumulated impairment losses, and adjusted for any remeasurement of the lease liability. The assets are depreciated using the lower of the useful life of the right-of-use asset or the lease term, using the straight-line method.

 

The lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if the rate cannot be readily determined, the Company’s incremental borrowing rate.

 

The lease liabilities are subsequently measured at amortized cost using the effective interest rate method.

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

Each lease payment is allocated between the lease liability and finance cost. The finance cost is charged to net income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

 

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate as at January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

 

On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases.

 

The Company used the following practical expedients permitted by IFRS 16 on transition:

•the accounting for operating leases with a remaining least term of less than 12 months as at January 1, 2019 as short-term leases ;
•the exclusion of initial direct costs from the measurement of the right-of-use at the date of initial application; and
•the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

 

Uncertainty over income tax treatments

 

Effective January 1, 2019, the Company adopted issued IFRIC Interpretation 23, Uncertainty over Income Tax Treatments (“IFRIC 23”). IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. Upon adoption of IFRIC 23, there was no material impact to these condensed consolidated interim financial statements.

 

(ii)Standards and amendments to existing standards

 

At the date of authorization of these financial statements, certain new standards and amendments to existing standards have been published but are not yet effective, and have not been adopted early by the Company. The Company anticipates that all of the relevant standards will be adopted by the Company in the first period beginning after the effective date of the standard. Information on new standards and amendments that are expected to be relevant to the Company’s financial statements is provided below.

 

Conceptual Framework

 

On March 29, 2018 the IASB issued amendments to references to conceptual frameworks in IFRS Standards. These amendments are effective January 1, 2020. Management is currently assessing the impact of the modified conceptual framework on the consolidated financial statements.

 

4.SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

 

The preparation of these 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 were the same as those that applied to the audited financial statements as at and for the year ended December 31, 2018, except for the following summarized below:

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

(i)Significant judgements in accounting policies

The areas which require management to make significant judgements in applying the Company’s accounting policies are:

a)Lease liabilities and right-of-use assets

The Company has applied judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognized. Also, the incremental borrowing rate is the rate which the operation would have to pay to borrow, over a similar term and with a similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment.

5.AMOUNTS RECEIVABLE
   June 30,  December 31,
   2019  2018
Sales receivable  $–     $180 
GST/HST receivable   440    1,247 
Other receivable   874    1,051 
Total  $1,314   $2,478 

 

6.       INVENTORIES

   June 30,  December 31,
   2019  2018
Ore stockpile  $5,118   $17,714 
Rough diamonds   52,122    56,300 
Supplies inventory   52,970    28,247 
Total  $110,210   $102,261 

 

 

Depreciation and depletion included in inventories at June 30, 2019 is $19,123 (December 31, 2018 - $21,519).

The amount of inventory expensed approximates cost of sales with respect to production costs incurred, and the cost of acquired diamonds.

 

Included in production costs for the three and six months ended June 30, 2019 are the Company’s 49% share of payroll and employee benefits for staff of the GK Mine of $9,692 and $19,341, respectively (three and six months ended June 30, 2018 - $8,828 and $17,226, respectively).

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

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, 2019 and December 31, 2018 are as follows:

   Property,  Assets under  Property,  Exploration and  Assets under   
   plant and equipment GK  construction
GK		 

plant and

equipment KNP

  evaluation assets  KNP 

construction

KNP

  Total
Cost                              
At January 1, 2018  $707,399   $23,979   $–     $–     $–     $731,378 
Decommissioning and restoration adjustment   23,553    –      –      –      –      23,553 
Additions/transfers*   89,154    (19,085)   90    166,947    1,564    238,670 
At December 31, 2018   820,106    4,894    90    166,947    1,564    993,601 
Decommissioning and restoration adjustment   4,216    –      –      –      –      4,216 
January 1, 2019 IFRS 16 lease additions   2,670    –      –      –      –      2,670 
Additions/transfers*   21,389    683    –      –      –      22,072 
At June 30, 2019  $848,381   $5,577   $90   $166,947   $1,564   $1,022,559 
                               
Accumulated depreciation                              
At January 1, 2018  $(68,720)  $–     $–     $–     $–     $(68,720)
Depreciation and depletion   (83,630)   –      (10)   –      –      (83,640)
At December 31, 2018   (152,350)   –      (10)   –      –      (152,360)
Depreciation and depletion**   (41,564)   –      (7)   –      –      (41,571)
At June 30, 2019  $(193,914)  $–     $(17)  $–     $–     $(193,931)
                               
Carrying amounts                              
At December 31, 2018  $667,756   $4,894   $80   $166,947   $1,564   $841,241 
At June 30, 2019  $654,467   $5,577   $73   $166,947   $1,564   $828,628 

 *Included in additions of property, plant and equipment for GK is $17,385 (December 31, 2018 - $32,776) related to deferred stripping of which $1,463 relates to the depreciation of earthmoving equipment (December 31, 2018 - $2,741).

**Included in depreciation and depletion is $547 of depreciation on the right-of-use assets capitalized under IFRS 16 (December 31, 2018 - $nil)

 

The Company’s primary project, the 49% owned GK Mine, declared commercial production on March 1, 2017. Failure to meet the obligations for cash calls to fund the Company’s share in the GK Mine may lead to dilution of the interest in the GK Mine.

 

On April 13, 2018, KNP mineral asset rights were acquired. Kennady is involved in the exploration, discovery, evaluation and development of diamond properties in Canada’s Northwest Territories.

8.Decommissioning and restoration liability

 

The decommissioning and restoration liability is the addition of the liabilities for both the GK Mine and the Kennady North Project, which are broken down separately below.

Page | 12 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

 

The GK Mine decommissioning and restoration liability was calculated using the following assumptions as at June 30, 2019 and 2018:

 

   June 30,  December 31,
   2019  2018
Expected undiscounted cash flows  $58,119   $56,122 
Discount rate   1.68%   2.18%
Inflation rate   1.95%   1.95%
Periods   2029    2029 

 

 

The Kennady North Project decommissioning and restoration liability was calculated using the following assumptions as at June 30, 2019 and December 31, 2018:

 

   June 30,  December 31,
   2019  2018
Expected undiscounted cash flows  $175   $175 
Discount rate   1.86%   1.86%
Inflation rate   1.95%   1.95%
Periods   2021    2021 

 

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, 2019, the decommissioning and restoration liability was increased by $4,469 for an increase in additional disturbance due to ongoing mining activity. During the year ended December 31, 2018, the decommissioning and restoration liability was increased by $24,892 for a change in estimate, reflecting primarily an increase in estimated reclamation and restoration costs due to the construction work completed at the GK mine site, the mining operations on the property, and a decrease in estimated reclamation and restoration costs due minimal construction and exploration work performed at the KNP mine site.

 

The continuity of the decommissioning and restoration liability at June 30, 2019 and December 31, 2018 is as follows:

 

   GK Mine  KNP  Total
Balance, at January 1, 2018  $29,200   $–     $29,200 
Addition of balance at the time of KDI acquisition   –      173    173 
Change in estimate of discounted cash flows   24,900    (8)   24,892 
Accretion recorded during the year   656    1    657 
Balance, at December 31, 2018  $54,756   $166   $54,922 
Change in estimate of discounted cash flows   4,469    –      4,469 
Accretion recorded during the period   598    2    600 
Balance, at June 30, 2019  $59,823   $168   $59,991 

 

9.lease liabilities

 

On transition to IFRS 16, the Company recognized additional right-of-use assets (Note 7) and additional lease liabilities. The right-of-use assets include the corporate office and various mining related equipment and vehicles.

Page | 13 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

The impact on transition is summarized below:

 

   January 1, 2019
Right-of-use assets presented in property, plant and equipment  $2,670 
Lease liabilities  $2,670 

 

 

When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted average rate applied is approximately 5.4%.

 

Operating lease commitments at December 31, 2018  $3,048 
Discounted using the incremental borrowing rate  at January 1, 2019   2,670 
Lease obligations recognized at January 1, 2019  $2,670 

 

10.secured notes payable

 

On December 11, 2017, the Company completed an offering of US$330 million aggregate principal amount of senior secured notes, secured by a second-ranking lien on all present and future assets, property and undertakings of the Company. The secured notes were sold at 97.992% of par, resulting in total proceeds of US$323.4 million. The secured notes pay interest in semi-annual instalments on June 15 and December 15 of each year, commencing on June 15, 2018, at a rate of 8.00% per annum, and mature on December 15, 2022. The Company incurred transaction costs of approximately $10 million, which have been offset against the carrying amount of the secured notes and are amortized using the effective interest rate method. 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 at June 30, 2019, the Company has an obligation for US$309.9 million or $405.9 million Canadian dollar equivalent from the secured notes payable. As at December 31, 2018, the Company had an obligation for US$309.9 or $422.2 million Canadian dollar equivalent from the secured notes payable.

 

   June 30,  December 31,
   2019  2018
Total outstanding secured notes payable  $405,866   $422,262 
Less: unamortized deferred transaction costs and issuance discount   12,454    14,118 
Total secured notes payable  $393,412   $408,144 

 

 

Subsequent to the six months ended June 30, 2019, US$7 million or approximately $9.2 million Canadian dollar equivalent of secured notes payable was purchased by the Company from arms-length investors.

Page | 14 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

 

The secured notes payable is carried at amortized cost on the condensed consolidated interim balance sheet.

 

The senior secured notes indenture grants 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 and are outlined below. The Company may redeem the secured notes:

•during each of the two twelve-month periods commencing on December 11, 2017, in an amount not to exceed 10% of the aggregate principal amount of the secured notes at a redemption price equal to 103% of the principal amount of the secured notes redeemed, plus accrued and unpaid interest to the date of redemption; 
•at any time and from time to time prior to December 15, 2019, in an aggregate principal amount not to exceed 40% of the aggregate principal amount of the secured notes, with the proceeds of one or more qualifying equity offerings, at a redemption price equal to 108% of the principal amount of the secured notes redeemed, plus accrued and unpaid interest to the date of redemption;
•in whole or in part at any time during the twelve-month period beginning on December 15, 2019 at a redemption price equal to 104% of the principal amount of the secured notes redeemed, plus accrued and unpaid interest to the date of redemption;
•in whole or in part at any time during the twelve-month period beginning on December 15, 2020 at a redemption price equal to 102% of the principal amount of the secured notes redeemed, plus accrued and unpaid interest to the date of redemption; and
•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.

 

Revolving Credit Facility

Concurrent with the closing of the Notes offering, the Company entered into a US$50 million first ranking lien revolving credit facility (the “RCF”) with Scotiabank and Nedbank Ltd. in order to maintain a liquidity cushion for general corporate purposes. The RCF has a term of three years and the Company is subject to a quarterly commitment fees of between 0.9625% and 1.2375%, depending on certain leverage ratio calculations at the time. Upon drawing on the RCF, an interest rate of LIBOR plus 2.5% to 4.5% per annum is charged for the number of days the funds are outstanding, based on certain leverage ratio calculations at the time. As at June 30, 2019, the RCF remained undrawn. The RCF is subject to several financial covenants, in order to remain available. The following financial covenants are calculated on a quarterly basis, of which the first three are required to be met, in order for the RCF to remain available:

•Total leverage ratio of less than or equal to 4.50:1 calculated as total debt divided by EBITDA, up to and including December 31, 2019; and 4:1, thereafter until the maturity date.
•A ratio of EBITDA to interest expense no less than 2.25:1; and
•A tangible net worth that is no less than 75% of the tangible net worth as reflected in the September 30, 2017 financial statements provided to the administrative agent as a condition precedent to closing, plus 50% of the positive net income for each subsequent quarter date.
•Permitted distributions (which include dividends) are subject to the Company having a net debt to EBITDA ratio of less than or equal to 2.75:1 in 2018, 2.25:1 in 2019, and 1.75:1 in 2020. 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 RCF, (d) interest expenses and (e) any indebtedness (including mandatory prepayments) permitted under the existing agreement.

 

The Company is in compliance with all financial covenants in order to remain available as at June 30, 2019.

Page | 15 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

11.net finance expenses
   Three months ended  Three months ended  Six months ended  Six months ended
   June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018
  Interest income  $147   $113   $257   $212 
  Accretion expense on decommissioning and restoration liability   (299)   (165)   (598)   (331)
  Interest expense   (8,275)   (8,887)   (16,722)   (17,447)
  Amortization of deferred financing costs   (835)   (708)   (1,664)   (1,542)
  Other finance costs*   (322)   (242)   (645)   (481)
   $(9,584)  $(9,889)  $(19,372)  $(19,589)

*Included in other finance costs for the three and six months ended June 30, 2019, respectively, is $47 and $92 related to interest on lease liabilities (Note 9). The amounts are $nil for the same periods in 2018.

12.SHAREHOLDERS’ EQUITY
i.Authorized share capital

Unlimited common shares, without par value.

ii.Share capital

The number of common shares issued and fully paid as at June 30, 2019 is 210,109,142.

 

No dividends were declared and paid in the six months ended June 30, 2019. In the year ended December 31, 2018, the Company declared and paid a dividend of $0.04 per common share totalling $8,400.

iii.Stock options, RSUs, DSUs and share-based payments reserve

On June 13, 2019, the Company, through its Board of Directors and shareholders, adopted 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 option, RSU and DSU awards within the limits identified in the Plan, which includes provisions limiting the issuance of options to qualified persons and employees of the Company to maximums identified in the Plan.

 

As at June 30, 2019, the aggregate maximum number of shares pursuant to options granted under the Plan will not exceed 21,010,914 shares, and there were 18,220,248 shares available to be issued under the Plan. 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, 2019  Year ended December 31, 2018
   Number of options  Weighted average exercise price  Number of options  Weighted average exercise price
Balance at beginning of the period   3,130,000   $4.17    3,640,000   $4.40 
Granted during the period   –      –      240,000    3.30 
Expired/forfeited during the period   (701,665)   4.24    (750,000)   5.00 
Balance at end of the period   2,428,335   $4.15    3,130,000   $4.17 
Options exercisable at the end of the period   1,616,667   $4.51    2,183,334   $4.45 

 

Page | 16 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

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 December 31, 2018 period. No options were granted in the June 30, 2019 period. Expected volatility is calculated by reference to the weekly closing share price for a period that reflects the expected life of the options. The 200,000 stock options issued on June 30, 2018 vest 1/3 on July 1, 2019, 1/3 on July 1, 2020 and 1/3 on July 1, 2021. The 40,000 stock options issued on June 30, 2018 vest 1/2 on July 1, 2019 and 1/2 on July 1, 2020.

 

   December 31,
   2018
Exercise price  $3.30
Expected volatility   30.78%
Expected option life   5 years
Contractual option life   5 years
Expected forfeiture    none
Expected dividend yield   0%
Risk-free interest rate   2.06%

 

 

The following tables reflect the number of stock options outstanding, the weighted average of options outstanding, and the exercise price of stock options outstanding at June 30, 2019. The Black-Scholes values are measured at the grant date.

 

At June 30, 2019        
  Black-Scholes Number of Number of Exercise
Expiry Date Value Options Exercisable Options Price
April 13, 2020  925    585,000     585,000 4.66
October 14, 2020  133    100,000     100,000 4.21
December 10, 2020  332    295,000     295,000 3.57
June 30, 2021  120    100,000     100,000 6.35
November 3, 2021  214    100,000     100,000 6.96
February 5, 2022  171    100,000     100,000 5.86
December 21, 2022  967    908,335     336,667 3.48
June 30, 2023  203    200,000  - 3.30
June 30, 2023     41  40,000  - 3.30
   $  3,106     2,428,335 1,616,667  $  4.15

 

The weighted average remaining contractual life of the options outstanding at June 30, 2019 is 2.41 years (December 31, 2018 - 2.63 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 qualified persons and employees of the Company subject to the Board of Directors’ approval. Under the RSU and DSU plan, RSUs vest according to the terms set out in the award agreement which are determined 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.

 

Page | 17 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

The following table shows the RSU awards which have been granted and settled during the period:

 

   June 30, 2019  December 31, 2018
RSU  Number
of units		  Weighted
average value		  Number
of units		  Weighted
average value
Balance at beginning of period   368,997   $5.01    488,665   $4.88 
Awards and payouts during the period (net):                    
RSUs settled and common shares issued   (6,666)   6.49    (111,668)   4.33 
RSUs forfeited   –      –      (8,000)   6.49 
Balance at end of the period*   362,331   $4.98    368,997   $5.01 

*As at June 30, 2019, 205,667 RSUs (December 31, 2018, 106,668 RSUs) at a weighted average value of $5.40 have vested and have not yet been settled. The 205,667 RSUs includes the acceleration of vesting for departed directors.

 

No DSU awards have been granted to date, therefore as at June 30, 2019 there are no DSUs outstanding.

 

The share-based payments recognized as an expense for the three and six months ended June 30, 2019 and 2018 are as follows:

 

   Three months ended  Three months ended  Six months ended  Six months ended
   June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018
Expense recognized in the period                    
for share-based payments  $263   $389   $482   $813 

 

The share-based payment expense for the three and six months ended June 30, 2019 and 2018 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, 2019  June 30, 2018  June 30, 2019  June 30, 2018
Numerator         
 Net income (loss) for the period  $10,255   $(6,280)  $12,752   $(6,213)
                     
Denominator                   
 For basic - weighted average number of shares outstanding   210,109,142    202,897,623    210,108,884   181,693,363
 Effect of dilutive securities   362,331    –      362,331   -
 For diluted - adjusted weighted average number of shares outstanding   210,471,473    202,897,623    210,471,215   181,693,363
                     
Earnings (Loss) Per Share                 
 Basic  $0.05   $(0.03)  $0.06   $(0.03)
 Diluted     $0.05   $(0.03)  $0.06   $(0.03)

 

 

For the three months ended June 30, 2019, 2,428,335 stock options were not included in the calculation of diluted earnings per share since to include them would be anti-dilutive (three months ended June 30, 2018 - 3,630,000 stock options and 465,663 RSUs). For the six months ended June 30, 2019, 2,428,335 stock options were not included in the calculation of diluted earnings per share since to include them would be anti-dilutive (six months ended June 30, 2018 - 3,630,000 stock options and 465,663 RSUs).

Page | 18 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

13.Selling, general and administrative expenses
   Three months ended  Three months ended  Six months ended  Six months ended
   June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018
Selling and marketing  $1,658   $1,650   $2,950   $3,216 
General and administrative:                    
  Consulting fees and payroll   416    702    1,065    1,137 
  Share-based payment expense   263    389    482    813 
  Depreciation   54    6    109    9 
  Office and administration   190    227    284    428 
  Professional fees   237    359    457    929 
  Promotion and investor relations   96    196    138    205 
  Director fees   54    58    119    200 
  Transfer agent and regulatory fees   84    111    244    305 
  Travel   89    54    192    99 
   $3,141   $3,752   $6,040   $7,341 

 

14.Derivative assets and liabilities

 

The senior secured notes indenture grants 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 and are outlined below. The Company may redeem the secured notes:

•during each of the two twelve-month periods commencing on December 11, 2017, in an amount not to exceed 10% of the aggregate principal amount of the secured notes at a redemption price equal to 103% of the principal amount of the secured notes redeemed, plus accrued and unpaid interest to the date of redemption; 
•at any time and from time to time prior to December 15, 2019 in an aggregate principal amount not to exceed 40% of the aggregate principal amount of the secured notes with the proceeds of one or more qualifying equity offerings, at a redemption price equal to 108% of the principal amount of the secured notes redeemed, plus accrued and unpaid interest to the date of redemption;
•in whole or in part at any time during the twelve-month period beginning on December 15, 2019 at a redemption price equal to 104% of the principal amount of the secured notes redeemed, plus accrued and unpaid interest to the date of redemption;
•in whole or in part at any time during the twelve-month period beginning on December 15, 2020 at a redemption price equal to 102% of the principal amount of the secured notes redeemed, plus accrued and unpaid interest to the date of redemption; and
•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.

 

The Company entered into foreign currency forward swap contracts to mitigate the risk that a devaluation of the U.S. dollar against the Canadian dollar would reduce the Canadian dollar equivalent of the U.S. dollar sales proceeds and the Company would not have sufficient Canadian dollar funds to contribute to the operations of the GK Mine.

 

These derivatives have been classified as “non-hedge derivatives”. Changes in fair value of the foreign currency forward swap contracts are recognized in net income or loss as gains or losses on derivatives.

Page | 19 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

Foreign Currency Forward Contracts

The table below provides a summary of currency contracts outstanding as at June 30, 2019.

 

Execution Date of Contracts  Settlement Dates of Contracts  Notional
Amount
(CAD)		  Weighted Average
Price
(USD)		  Notional
Amount
(USD)
December 19, 2018  July 2, 2019  $6,700   $1.3400   $5,000 
March 7, 2019  July 29, 2019 to October 9, 2019  $13,395   $1.3395   $10,000 
April 24, 2019  July 8, 2019 to December 4, 2019  $26,804   $1.3402   $20,000 
May 29, 2019  January 7, 2020 to February 6, 2020  $13,430   $1.3430   $10,000 
Total     $60,329   $1.3407   $45,000 

 

 

The following table presents the various derivatives as at June 30, 2019 and December 31, 2018:

 

   June 30,  December 31
   2019  2018
Prepayment option embedded derivatives  $264   $1,670 
Foreign currency contract derivative   1,941    (653)
    2,205    1,017 
Current portion of foreign currency contracts   1,941    (653)
Current portion of derivative assets (liabilities)   1,941    (653)
Non-current derivative assets  $264   $1,670 

 

 

The following table presents amounts recognized in the Consolidated Statement of Comprehensive Income (Loss) for the three and six months ended June 30, 2019 and 2018:

 

   Three months ended  Three months ended  Six months ended  Six months ended
   June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018
Gain on derivative contracts - currency contracts  $1,594   $–     $2,359   $–   
(Loss) gain on prepayment option embedded derivative   (984)   267    (1,348)   782 
Total  $610   $267   $1,011   $782 

 

15.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.

Page | 20 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

 

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.

 

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. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

   Carrying amount  Fair value
   June 30, 2019  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  $–     $2,205   $–     $2,205   $–     $2,205   $–     $2,205 
   $–     $2,205   $–     $2,205                     
Financial assets not measured at fair value                                        
Cash  $30,235   $–     $–     $30,235    30,235    –      –      30,235 
Amounts receivable   1,314    –      –      1,314    1,314    –      –      1,314 
   $31,549   $–     $–     $31,549                     
Financial liabilities not measured at fair value                                        
Accounts payable and accrued liabilities  $–     $–     $35,950   $35,950    35,950    –      –      35,950 
Secured notes payable   –      –      393,412    393,412    405,810    –      –      405,810 
   $–     $–     $429,362   $429,362                     

 

 

   Carrying amount  Fair value
   December 31, 2018  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  $–     $1,670   $–     $1,670   $–     $1,670   $–     $1,670 
   $–     $1,670   $–     $1,670                     
Financial assets not measured at fair value                                        
Cash  $30,708   $–     $–     $30,708    30,708    –      –      30,708 
Amounts receivable   2,478    –      –      2,478    2,478    –      –      2,478 
   $33,186   $–     $–     $33,186                     
Financial liabilities measured at fair value                                        
Derivative liabilities  $–     $653   $–     $653    –      653    –      653 
   $–     $653   $–     $653                     
Financial liabilities not measured at fair value                                        
Accounts payable and accrued liabilities  $–     $–     $48,295   $48,295    48,295    –      –      48,295 
Secured notes payable   –      –      408,144    408,144    412,976         –      412,976 
   $–     $–     $456,439   $456,439                     

 

 

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. 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 10).

 

Derivative instruments are valued using DCF models. These models require a variety of observable inputs including market prices, forward price curves and yield curves. These inputs are obtained from or verified with the market where possible.

 

The fair value of the secured notes payable is determined using market quoted prices.

Page | 21 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

16.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  $1,530   $–     $–     $–     $1,530 
Revolving credit facility stand by charges   810    371    –      –      1,181 
Notes payable - Principal   –      –      405,866    –      405,866 
Notes payable - Interest   33,010    65,841    16,505    –      115,356 
Forward Exchange Contracts:                         
(Inflows)   (60,329)   –      –      –      (60,329)
Outflows   58,928    –      –      –      58,928 
   $33,949   $66,212   $422,371   $–     $522,532 

 

17.RELATED PARTIES

 

The Company’s related parties include the Operator of the GK Mine, Dermot Desmond, Bottin and Vertigol Unlimited Company (“Vertigol”) (corporations ultimately beneficially owned by Dermot Desmond), key management and their close family members, and the Company’s directors. During the year ended December 31, 2018, Dermot Desmond and Bottin transferred all owned shares of the Company to Vertigol. Dermot Desmond, indirectly through Vertigol, is the ultimate beneficial owner of greater than 10% of the Company’s shares. Kennady Diamonds Inc. (“Kennady Diamonds”) was also a related party since the Company and Kennady Diamonds had a common member of key management, until the date of acquisition on April 13, 2018. International Investment and Underwriting Unlimited (“IIU”) is also a related party since it is ultimately beneficially owned by Mr. 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, Vertigol, IIU, the Operator of the GK Mine, and Kennady Diamonds. The transactions with key management personnel 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 Kennady Diamonds are for a monthly management fee charged by the Company for reimbursement of expenses paid on behalf of Kennady Diamonds. The transactions with IIU are for the director fees and travel expenses of the Chairman of the Company.

 

Between 2014 and 2016, 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 their share of the letters of credit issued. As at June 30, 2019, the Company’s share of the letters of credit issued were $23.4 million (December 31, 2018 - $23.4 million).

Page | 22 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

Amounts in thousands of Canadian Dollars, except share and per share amounts, unless otherwise noted

(Unaudited)

 

 

 

 

The balances as at June 30, 2019 and December 31, 2018 were as follows:

 

   June 30,  December 31,
   2019  2018
Payable De Beers Canada Inc. as the operator of the GK Mine*  $2,703   $1,430 
Payable to De Beers Canada Inc. for interest on letters of credit   352    351 
Payable to International Investment and Underwriting   25    –   
Payable to key management personnel   76    57 

*included in accounts payable and accrued liabilities

 

The transactions for the three and six months ended June 30, 2019 and 2018 were as follows:

 

   Three months ended  Three months ended  Six months ended  Six months ended
   June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018
The total of the transactions:                    
Kennady Diamonds  $–     $7   $–     $30 
International Investment and Underwriting   12    17    25    30 
Remuneration to key management personnel   489    801    1,166    1,482 
Diamonds sold to De Beers Canada Inc.   7,277    –      10,152    –   
Diamonds purchased from De Beers Canada Inc.   124    8,490    5,282    15,857 
Finance costs incurred from De Beers Canada Inc.   175    176    347    349 
Management fee charged by the Operator of the GK Mine   1,038    1,038    2,076    2,076 

 

The remuneration expense of directors and other members of key management personnel for the three and six months ended June 30, 2019 and 2018 were as follows:

 

   Three months ended  Three months ended  Six months ended  Six months ended
   June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018
Consulting fees, payroll, director fees, bonus and other short-term benefits  $290   $497   $808   $866 
Share-based payments   211    321    383    646 
   $501   $818   $1,191   $1,512 

 

In accordance with International Accounting Standard 24 Related Parties, 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 CEO and CFO.

 

18.SEGMENTED REPORTING

 

The reportable operating segments are those operations for which operating results are reviewed by the Chief Executive Officer 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 Diamonds Inc. (formerly KDI.V on the TSX Venture exchange), which included all mineral rights of the KNP, the Company now owns multiple diamond projects in the North West Territories, Canada. The GK Mine is a diamond mine in operations, while the KNP resource continues to be developed through exploration and evaluation programs.

Page | 23 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

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, 2019         
          
    GK Mine    KNP    Total 
                
Sales  $95,774   $–     $95,774 
Cost of sales:               
 Production costs   48,706    –      48,706 
 Cost of acquired diamonds   2,677    –      2,677 
 Depreciation and depletion   26,592    –      26,592 
                
Earnings from mine operations   17,799    –      17,799 
Exploration and evaluation expenses   895    1,001    1,896 
Selling, general and administrative expenses   3,140    1    3,141 
                
Operating income (loss)   13,764    (1,002)   12,762 
Net finance expenses   (9,584)   –      (9,584)
Derivative gains   610    –      610 
Foreign exchange gains   7,535    –      7,535 
                
Net income (loss) before taxes  $12,325   $(1,002)  $11,323 
                
Total assets  $804,644   $168,962   $973,606 
Total liabilities  $495,958   $299   $496,257 

 

 

Page | 24 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

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, 2019         
          
    GK Mine    KNP    Total 
                
Sales  $156,470   $–     $156,470 
Cost of sales:               
 Production costs   77,492    –      77,492 
 Cost of acquired diamonds   8,628    –      8,628 
 Depreciation and depletion   42,391    –      42,391 
                
Earnings from mine operations   27,959    –      27,959 
Exploration and evaluation expenses   2,054    3,464    5,518 
Selling, general and administrative expenses   6,033    7    6,040 
                
Operating income (loss)   19,872    (3,471)   16,401 
Net finance expenses   (19,371)   (1)   (19,372)
Derivative gains   1,011    –      1,011 
Foreign exchange gains (losses)   16,183    (1)   16,182 
                
Net income (loss) before taxes  $17,695   $(3,473)  $14,222 
                
Total assets  $804,644   $168,962   $973,606 
Total liabilities  $495,958   $299   $496,257 

 

 

 

Page | 25 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

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, 2018         
          
    GK Mine    KNP*    Total 
                
Sales  $99,075   $–     $99,075 
Cost of sales:               
 Production costs   41,095    –      41,095 
 Cost of acquired diamonds   10,214    –      10,214 
 Depreciation and depletion   29,265    –      29,265 
                
Earnings from mine operations   18,501    –      18,501 
Exploration and evaluation expenses   1,059    2,503    3,562 
Selling, general and administrative expenses   3,734    18    3,752 
                
Operating income (loss)   13,708    (2,521)   11,187 
Net finance (expenses) income   (9,891)   2    (9,889)
Derivative gains   267    –      267 
Foreign exchange losses   (7,746)   –      (7,746)
Other income   58    –      58 
                
Net loss before taxes  $(3,604)  $(2,519)  $(6,123)
                
Total assets  $805,521   $169,295   $974,816 
Total liabilities  $489,322   $1,130   $490,452 

*The acquisition of KNP occurred on April 13, 2018 therefore the period is from the date of acquisition to June 30, 2018.

Page | 26 

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Six Months Ended June 30, 2019

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, 2018         
          
    GK Mine    KNP*    Total 
                
Sales  $165,640   $–     $165,640 
Cost of sales:               
 Production costs   60,009    –      60,009 
 Cost of acquired diamonds   20,217    –      20,217 
 Depreciation and depletion   42,348    –      42,348 
                
Earnings from mine operations   43,066    –      43,066 
Exploration and evaluation expenses   1,930    2,503    4,433 
Selling, general and administrative expenses   7,323    18    7,341 
                
Operating income (loss)   33,813    (2,521)   31,292 
Net finance (expenses) income   (19,591)   2    (19,589)
Derivative gains   782    –      782 
Foreign exchange losses   (18,122)   –      (18,122)
Other income   81    –      81 
                
Net loss before taxes  $(3,037)  $(2,519)  $(5,556)
                
Total assets  $805,521   $169,295   $974,816 
Total liabilities  $489,322   $1,130   $490,452 

*The acquisition of KNP occurred on April 13, 2018 therefore the period is from the date of acquisition to June 30, 2018.

 

 

Page | 27