EX-99.2 3 ex992.htm Q3 2019 FINANCIAL STATEMENTS

Exhibit 99.2

Condensed Consolidated Interim Financial Statements

(Expressed in thousands of Canadian Dollars)

MOUNTAIN PROVINCE
DIAMONDS INC.

Three and nine months ended September 30, 2019

(Unaudited)

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 (Loss) Income	5
Condensed Consolidated Interim Statements of Equity	6
Condensed Consolidated Interim Statements of Cash Flows	7
Notes to the Condensed Consolidated Interim Financial Statements	8 - 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

November 5, 2019

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MOUNTAIN PROVINCE DIAMONDS INC.

Condensed Consolidated Interim Balance Sheets

Expressed in thousands of Canadian dollars

(Unaudited)

		September 30,			December 31,
	Notes	2019			2018
ASSETS
Current assets
Cash		$	28,265		$	30,708
Amounts receivable	5		4,058			2,478
Prepaid expenses and other			654			1,269
Derivative assets	14		605			–
Inventories	6		109,991			102,261
			143,573			136,716

Reclamation deposit			250			250
Derivative assets	14		26			1,670
Property, plant and equipment	7		809,476			841,241

Total assets		$	953,325		$	979,877

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	17	$	49,359		$	48,295
Derivative liabilities	14		–			653
Lease liabilities	9		610			–
Income taxes payable			420			574
			50,389			49,522

Secured notes payable	10		385,932			408,144
Lease liabilities	9		1,453			–
Decommissioning and restoration liability	8		60,243			54,922
Deferred income tax liabilities			3,595			3,174

Shareholders' equity:
Share capital	12		629,840			629,796
Share-based payments reserve	12		7,337			6,750
Deficit			(186,798	)		(173,765	)
Accumulated other comprehensive income			1,334			1,334

Total shareholders' equity			451,713			464,115

Total liabilities and shareholders' equity		$	953,325		$	979,877

Commitments and contingencies	16 & 17

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 (Loss) Income

Expressed in thousands of Canadian dollars

(Unaudited)

		Three months ended			Three months ended			Nine months ended			Nine months ended
	Notes	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018

Sales		$	54,832		$	74,852		$	211,302		$	240,492
Cost of sales:
Production costs			37,699			26,231			115,191			86,240
Cost of acquired diamonds			2,316			5,342			10,944			25,559
Depreciation and depletion			20,934			18,040			63,325			60,388

(Loss) earnings from mine operations			(6,117	)		25,239			21,842			68,305
Exploration and evaluation expenses			2,250			2,109			7,768			6,542
Selling, general and administrative expenses	13		2,782			3,178			8,822			10,519

Operating (loss) income			(11,149	)		19,952			5,252			51,244
Net finance expenses	11		(9,995	)		(11,037	)		(29,367	)		(30,626	)
Derivative (losses) gains	14		(2,143	)		3,268			(1,132	)		4,050
Foreign exchange (losses) gains			(3,134	)		6,656			13,048			(11,466	)
Other income			–			–			–			81

(Loss) income before taxes			(26,421	)		18,839			(12,199	)		13,283
Current income taxes			(136	)		(144	)		(413	)		(1,005	)
Deferred income taxes			772			(1,212	)		(421	)		(1,008	)
Total income taxes			636			(1,356	)		(834	)		(2,013	)
Net (loss) income for the period		$	(25,785	)	$	17,483		$	(13,033	)	$	11,270
Other Comprehensive Income
Items that will not be reclassified subsequently to profit and loss:
Change in fair value of equity securities			–			–			–			1,334
Other comprehensive (loss) income			–			–			–			1,334
Total comprehensive (loss) income for the period		$	(25,785	)	$	17,483		$	(13,033	)	$	12,604

Basic and diluted (loss) earnings per share	12(iv)	$	(0.12	)	$	0.08		$	(0.06	)	$	0.06

Basic weighted average number of shares outstanding			210,136,859			210,005,810			210,118,312			191,234,554
Diluted weighted average number of shares outstanding			210,136,859			210,471,473			210,118,312			191,700,217

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 income for the period			–		–		–			11,270			–		11,270
Share-based payment	12(iii)		–		–		1,261			–			–		1,261
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
Dividends delcared and paid			–		–		–			(8,400	)		–		(8,400	)
Other Comprehensive Income:
Financial assets at fair value through other comprehensive income
Gain on equity securities			–		–		–			–			1,334		1,334
Balance, September 30, 2018			210,005,810	$	629,409	$	6,713		$	(143,561	)	$	1,334	$	493,895

Balance, January 1, 2019			210,102,476	$	629,796	$	6,750		$	(173,765	)	$	1,334	$	464,115
Net loss for the period			–		–		–			(13,033	)		–		(13,033	)
Share-based payment	12(iii)		–		–		631			–			–		631
Issuance of common shares - restricted share units	12(iii)		34,999		44		(44	)		–			–		–
Balance, September 30, 2019			210,137,475	$	629,840	$	7,337		$	(186,798	)	$	1,334	$	451,713

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			Nine months ended			Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Cash provided by (used in):
Operating activities:
Net (loss) income for the period	$	(25,785	)	$	17,483		$	(13,033	)	$	11,270

Adjustments:					–
Net finance expenses		9,957			11,037			29,237			30,626
Depreciation and depletion		20,988			18,046			63,489			60,403
Share-based payment expense		149			448			631			1,261
Derivative losses (gains)		2,143			(3,268	)		1,132			(4,050	)
Foreign exchange losses (gains)		3,134			(6,656	)		(13,048	)		11,466
Current income taxes		136			144			(154	)		431
Deferred income taxes		(772	)		1,212			421			1,008
		9,950			38,446			68,675			112,415
Changes in non-cash operating working capital:
Amounts receivable		(2,744	)		872			(1,580	)		701
Prepaid expenses and other		110			8,662			615			3,140
Inventories		1,019			(15,084	)		(9,831	)		(27,590	)
Accounts payable and accrued liabilities		5,523			423			(6,822	)		5,419
		13,858			33,319			51,057			94,085
Investing activities:
Interest income		89			149			346			361
Purchase of property, plant and equipment		(2,101	)		(10,159	)		(22,593	)		(60,926	)
Cash acquired and transaction costs on asset acquisition of Kennady Diamonds Inc.		–			(165	)		–			(4,193	)
		(2,012	)		(10,175	)		(22,247	)		(64,758	)
Financing activities:
Payment of lease liabilities		(219	)		–			(610	)		–
Repurchase of secured notes		(13,158	)		(19,739	)		(13,158	)		(19,739	)
Financing costs		(462	)		(878	)		(17,323	)		(16,602	)
Payment of dividends		–			(8,400	)		–			(8,400	)
		(13,839	)		(29,017	)		(31,091	)		(44,741	)

Effect of foreign exchange rate changes on cash		23			288			(162	)		208
Decrease in cash		(1,970	)		(5,585	)		(2,443	)		(15,206	)
Cash, beginning of period		30,235			33,508			30,708			43,129
Cash, end of period	$	28,265		$	27,923		$	28,265		$	27,923

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 Nine Months Ended September 30, 2019

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

(Unaudited)

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

The address of the Company’s registered office and its principal place of business is 161 Bay Street, Suite 1410, 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. 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 November 5, 2019.

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)

•

2435386 Ontario Inc. (100% owned by 2435572 Ontario Inc.)

•

Kennady Diamonds Inc. (100% owned)

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2019

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

(Unaudited)

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.

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 is comprised 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.

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.

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2019

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

(Unaudited)

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.

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 Nine Months Ended September 30, 2019

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

(Unaudited)

(i)

Significant judgements in accounting policies

One additional area of judgement has arisen relating to 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. This is an area of significant judgement as incremental borrowing rates are not always explicitly stated in the lease agreements being assessed.

AMOUNTS RECEIVABLE

	September 30,		December 31,
	2019		2018
Receivable from sales agent	$	2,184	$	180
GST/HST receivable		942		1,247
Other receivable		932		1,051
Total	$	4,058	$	2,478

6. INVENTORIES

	September 30,		December 31,
	2019		2018
Ore stockpile	$	9,603	$	17,714
Rough diamonds		57,657		56,300
Supplies inventory		42,731		28,247
Total	$	109,991	$	102,261

Depreciation and depletion included in inventories at September 30, 2019 is $20,073 (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, which are included in inventories, for the three and nine months ended September 30, 2019 are the Company’s 49% share of payroll and employee benefits for staff of the GK Mine of $9,569 and $28,910 (three and nine months ended September 30, 2018 - $8,358 and $25,584).

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 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 September 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*		25,676			(692	)		–			–		–		24,984
At September 30, 2019	$	852,668		$	4,202		$	90		$	166,947	$	1,564	$	1,025,471

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**		(63,625	)		–			(10	)		–		–		(63,635	)
At September 30, 2019	$	(215,975	)	$	–		$	(20	)	$	–	$	–	$	(215,995	)

Carrying amounts
At December 31, 2018	$	667,756		$	4,894		$	80		$	166,947	$	1,564	$	841,241
At September 30, 2019	$	636,693		$	4,202		$	70		$	166,947	$	1,564	$	809,476

*Included in additions of property, plant and equipment for GK is $19,382 (December 31, 2018 - $32,776) related to deferred stripping of which $1,588 relates to the depreciation of earthmoving equipment (December 31, 2018 - $2,741).

**Included in depreciation and depletion is $819 of depreciation on the right-of-use assets capitalized under IFRS 16 (December 31, 2018 - $nil)

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.

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.

The GK Mine decommissioning and restoration liability was calculated using the following assumptions as at September 30, 2019 and December 31, 2018:

	September 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 September 30, 2019 and December 31, 2018:

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2019

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

(Unaudited)

	September 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 nine months ended September 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 to minimal construction and exploration work performed at the KNP mine site.

The continuity of the decommissioning and restoration liability at September 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		850		2			852
Balance, at September 30, 2019	$	60,075	$	168		$	60,243

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.

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%.

Page | 13

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2019

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

(Unaudited)

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 September 30, 2019, the Company has an obligation for US$299.94 million or $397.2 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.

	September 30,		December 31,
	2019		2018
Total outstanding secured notes payable	$	397,151	$	422,262
Less: unamortized deferred transaction costs and issuance discount		11,219		14,118
Total secured notes payable	$	385,932	$	408,144

During the nine months ended September 30, 2019, US$10 million or approximately $13.2 million Canadian dollar equivalent of secured notes payable was purchased by the Company from investors.

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;

Page | 14

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2019

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

(Unaudited)

•

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 September 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 September 30, 2019.

Page | 15

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 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			Nine months ended			Nine months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Interest income	$	89		$	149		$	346		$	361
Accretion expense on decommissioning and restoration liability		(252	)		(161	)		(850	)		(492	)
Interest expense		(8,279	)		(8,700	)		(25,001	)		(26,147	)
Amortization of deferred financing costs		(1,236	)		(1,600	)		(2,900	)		(3,142	)
Other finance costs*		(317	)		(725	)		(962	)		(1,206	)
	$	(9,995	)	$	(11,037	)	$	(29,367	)	$	(30,626	)

*Included in other finance costs for the three and nine months ended September 30, 2019, respectively, is $38 and $130 related to interest on lease liabilities (Note 9). The amounts are $nil for the same periods in 2018.

12.

SHAREHOLDERS’ EQUITY

Authorized share capital

Unlimited common shares, without par value.

ii.

Share capital

The number of common shares issued and fully paid as at September 30, 2019 is 210,137,475.

No dividends were declared and paid in the nine months ended September 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 September 30, 2019, the aggregate maximum number of shares pursuant to options granted under the Plan will not exceed 21,013,748 shares, and there were 18,251,415 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:

	Nine months ended September 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		1,703,334		$	4.45		2,183,334		$	4.45

Page | 16

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 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 September 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 September 30, 2019. The Black-Scholes values are measured at the grant date.

At September 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		66,667		3.30
June 30, 2023		41		40,000		20,000		3.30
	$	3,106		2,428,335		1,703,334	$	4.15

The weighted average remaining contractual life of the options outstanding at September 30, 2019 is 2.16 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 Nine Months Ended September 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:

	September 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		(34,999	)		4.77		(111,668	)		4.33
RSUs forfeited		–			–		(8,000	)		6.49
Balance at end of the period*		333,998		$	4.98		368,997		$	5.01

*As at September 30, 2019, 177,334 RSUs (December 31, 2018, 106,668 RSUs) at a weighted average value of $5.57 have vested and have not yet been settled. The 177,334 RSUs includes the acceleration of vesting for departed directors.

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

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

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Expense recognized in the period
for share-based payments	$	149	$	448	$	631	$	1,261

The share-based payment expense for the three and nine months ended September 30, 2019 and 2018 is included in selling, general and administrative expenses.

iv.

(Loss) earnings per share

The following table sets forth the computation of basic and diluted earnings per share:

	Three months ended			Three months ended		Nine months ended			Nine months ended
	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
Numerator
Net (loss) income for the period	$	(25,785	)	$	17,483	$	(13,033	)	$	11,270

Denominator
For basic - weighted average number of shares outstanding		210,136,859			210,005,810		210,118,312			191,234,554
Effect of dilutive securities		–			465,663		–			465,663
For diluted - adjusted weighted average number of shares outstanding		210,136,859			210,471,473		210,118,312			191,700,217

Earnings (Loss) Per Share
Basic	$	(0.12	)	$	0.08	$	(0.06	)	$	0.06
Diluted	$	(0.12	)	$	0.08	$	(0.06	)	$	0.06

For the three and nine months ended September 30, 2019, 2,428,335 stock options and 333,998 RSUs were not included in the calculation of diluted earnings per share since to include them would be anti-dilutive (three and nine months ended September 30, 2018 - 3,130,000 stock options).

Page | 18

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 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		Nine months ended		Nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Selling and marketing	$	1,409	$	1,456	$	4,359	$	4,672
General and administrative:
Consulting fees and payroll		365		436		1,430		1,573
Share-based payment expense		149		448		631		1,261
Depreciation		55		6		164		15
Office and administration		167		234		451		662
Professional fees		275		348		732		1,277
Promotion and investor relations		77		42		215		247
Director fees		71		64		190		264
Transfer agent and regulatory fees		102		96		346		401
Travel		112		48		304		147
	$	2,782	$	3,178	$	8,822	$	10,519

14.

Derivative assets and liabilities

•

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;

•

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 Nine Months Ended September 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 September 30, 2019.

Execution Date of Contracts	Settlement Dates of Contracts	Notional Amount (CAD)		Weighted Average Price (USD)		Notional Amount (USD)
March 7, 2019	October 9, 2019	$	6,698	$	1.3395	$	5,000
April 24, 2019	November 5, 2019 to December 4, 2019	$	13,402	$	1.3402	$	10,000
May 29, 2019	January 7, 2020 to February 6, 2020	$	13,430	$	1.3430	$	10,000
Total		$	33,530	$	1.3412	$	25,000

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

	September 30,		December 31
	2019		2018
Prepayment option embedded derivatives	$	26	$	1,670
Foreign currency contract derivative		605		(653	)
		631		1,017

Current portion of foreign currency contracts		605		(653	)
Current portion of derivative assets (liabilities)		605		(653	)
Non-current derivative assets	$	26	$	1,670

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

	Three months ended			Three months ended		Nine months ended			Nine months ended
	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
(Loss) gain on derivative contracts - currency contracts	$	(1,902	)	$	–	$	457		$	–
(Loss) gain on prepayment option embedded derivative		(241	)		3,268		(1,589	)		4,050
Total	$	(2,143	)	$	3,268	$	(1,132	)	$	4,050

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.

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.

Page | 20

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2019

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

(Unaudited)

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
September 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	$	–	$	631	$	–	$	631	$	–	$	631	$	–	$	631
	$	–	$	631	$	–	$	631
Financial assets not measured at fair value
Cash	$	28,265	$	–	$	–	$	28,265		28,265		–		–		28,265
Amounts receivable		4,058		–		–		4,058		4,058		–		–		4,058
	$	32,323	$	–	$	–	$	32,323
Financial liabilities not measured at fair value
Accounts payable and accrued liabilities	$	–	$	–	$	49,359	$	49,359		49,359		–		–		49,359
Secured notes payable		–		–		385,932		385,932		398,695		–		–		398,695
	$	–	$	–	$	435,291	$	435,291

	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 Nine Months Ended September 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	$	1,163		$	–	$	–	$	–	$	1,163
Revolving credit facility stand by charges		819			171		–		–		990
Notes payable - Principal		–			–		397,151		–		397,151
Notes payable - Interest		32,302			64,427		16,151		–		112,880
Forward Exchange Contracts:
(Inflows)		(33,530	)		–		–		–		(33,530	)
Outflows		33,103			–		–		–		33,103
	$	33,857		$	64,598	$	413,302	$	–	$	511,757

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 and another member of the board of directors, Brett Desmond. Brett Desmond is the son of the indirect majority shareholder Dermot Desmond.

Between 2014 and 2018, 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 September 30, 2019, the Company’s share of the letters of credit issued were $23.3 million (December 31, 2018 - $23.3 million).

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.

Page | 22

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2019

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

(Unaudited)

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

	September 30,		December 31,
	2019		2018
Payable De Beers Canada Inc. as the operator of the GK Mine*	$	2,914	$	1,430
Payable to De Beers Canada Inc. for interest on letters of credit		876		351
Payable to De Beers Canada Inc. for exploration and evaluation		2,998		–
Payable to International Investment and Underwriting		48		–
Payable to key management personnel		76		57

*included in accounts payable and accrued liabilities

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

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
The total of the transactions:
Kennady Diamonds	$	–	$	–	$	–	$	30
International Investment and Underwriting		23		13		48		43
Remuneration to key management personnel		359		648		1,525		2,160
Diamonds sold to De Beers Canada Inc.		–		–		10,152		–
Diamonds purchased from De Beers Canada Inc.		7,556		10,355		12,838		26,212
Finance costs incurred from De Beers Canada Inc.		177		177		524		526
Assets purchased from De Beers Canada Inc.		42		–		42		–
Management fee charged by the Operator of the GK Mine		1,038		1,038		3,114		3,114

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

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Consulting fees, payroll, director fees, bonus and other short-term benefits	$	268	$	300	$	1,076	$	1,166
Share-based payments		114		348		497		994
	$	382	$	648	$	1,573	$	2,160

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.

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 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 September 30, 2019

		GK Mine			KNP			Total

Sales	$	54,832		$	–		$	54,832
Cost of sales:
Production costs		37,699			–			37,699
Cost of acquired diamonds		2,316			–			2,316
Depreciation and depletion		20,934			–			20,934

Loss from mine operations		(6,117	)		–			(6,117	)
Exploration and evaluation expenses		1,814			436			2,250
Selling, general and administrative expenses		2,777			5			2,782

Operating (loss) income		(10,708	)		(441	)		(11,149	)
Net finance expenses		(9,995	)		–			(9,995	)
Derivative losses		(2,143	)		–			(2,143	)
Foreign exchange losses		(3,134	)		–			(3,134	)

Net loss before taxes	$	(25,980	)	$	(441	)	$	(26,421	)

Total assets	$	784,342		$	168,983		$	953,325
Total liabilities	$	501,100		$	512		$	501,612

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2019

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

(Unaudited)

As at and for the nine months ended September 30, 2019

		GK Mine			KNP			Total

Sales	$	211,302		$	–		$	211,302
Cost of sales:
Production costs		115,191			–			115,191
Cost of acquired diamonds		10,944			–			10,944
Depreciation and depletion		63,325			–			63,325

Earnings from mine operations		21,842			–			21,842
Exploration and evaluation expenses		3,868			3,900			7,768
Selling, general and administrative expenses		8,810			12			8,822

Operating income (loss)		9,164			(3,912	)		5,252
Net finance expenses		(29,366	)		(1	)		(29,367	)
Derivative losses		(1,132	)		–			(1,132	)
Foreign exchange gains (losses)		13,049			(1	)		13,048

Net loss before taxes	$	(8,285	)	$	(3,914	)	$	(12,199	)

Total assets	$	784,342		$	168,983		$	953,325
Total liabilities	$	501,100		$	512		$	501,612

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 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 September 30, 2018

		GK Mine			KNP*			Total

Sales	$	74,852		$	–		$	74,852
Cost of sales:
Production costs		26,231			–			26,231
Cost of acquired diamonds		5,342			–			5,342
Depreciation and depletion		18,040			–			18,040

Earnings from mine operations		25,239			–			25,239
Exploration and evaluation expenses		1,037			1,072			2,109
Selling, general and administrative expenses		3,158			20			3,178

Operating income (loss)		21,044			(1,092	)		19,952
Net finance (expenses) income		(11,039	)		2			(11,037	)
Derivative gains		3,268			–			3,268
Foreign exchange gains		6,656			–			6,656

Net loss before taxes	$	19,929		$	(1,090	)	$	18,839

Total assets	$	800,119		$	169,126		$	969,245
Total liabilities	$	474,511		$	838		$	475,349

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MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2019

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

(Unaudited)

As at and for the nine months ended September 30, 2018

		GK Mine			KNP*			Total

Sales	$	240,492		$	–		$	240,492
Cost of sales:
Production costs		86,240			–			86,240
Cost of acquired diamonds		25,559			–			25,559
Depreciation and depletion		60,388			–			60,388

Earnings from mine operations		68,305			–			68,305
Exploration and evaluation expenses		2,967			3,575			6,542
Selling, general and administrative expenses		10,481			38			10,519

Operating income (loss)		54,857			(3,613	)		51,244
Net finance (expenses) income		(30,630	)		4			(30,626	)
Derivative gains		4,050			–			4,050
Foreign exchange losses		(11,466	)		–			(11,466	)
Other income		81			–			81

Net loss before taxes	$	16,892		$	(3,609	)	$	13,283

Total assets	$	800,119		$	169,126		$	969,245
Total liabilities	$	474,512		$	838		$	475,350

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

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