6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF ISSUER PURSUANT TO SECTION 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Month Ended	Commission File Number
November 2020	000-27322

MOUNTAIN PROVINCE DIAMONDS INC. 

(Exact name of the registrant as specified in its charter)

ONTARIO 

(Jurisdiction of Incorporation or Organization)

161 Bay Street, Suite 1410, P.O. Box 216

Toronto, Ontario, Canada M5J 2S1 

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20F- or Form 40-F.

FORM 20-F o FORM 40-F x

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No x

If "Yes" is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

EXHIBIT LIST

Exhibit	Description
99.1	Q3 2020 MANAGEMENT’S DISCUSSION AND ANALYSIS
99.2	Q3 2020 FINANCIAL STATEMENTS

MOUNTAIN PROVINCE DIAMONDS INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

	MOUNTAIN PROVINCE DIAMONDS INC.
Date: November 4, 2020	By:	/s/ Perry Ing
		Perry Ing
		Chief Financial Officer

EX-99.1

Exhibit 99.1

 

Management’s Discussion and Analysis

For the Three and Nine Months Ended September 30, 2020

TSX: MPVD

MOUNTAIN PROVINCE DIAMONDS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS	Page
Third Quarter 2020 Highlights	3
Company Overview	4
Gahcho Kué Diamond Mine	5
Gahcho Kué Exploration	10
Kennady North Project Exploration	10
Results of Operations	12
Summary of Quarterly Results	12
Summary of Third Quarter Financial Results	13
Income and Mining Taxes	15
Financial Position and Liquidity	15
Off-Balance Sheet Arrangements	17
Significant Accounting Policies Adopted in the Current Period	17
Significant Accounting Judgments, Estimates and Assumptions	17
Standards and Amendments to Existing Standards	18
Related Party Transactions	18
Contractual Obligations	19
Non-IFRS Measures	20
Other Management Discussion and Analysis Requirements	21
Disclosure of Outstanding Share Data	21
Controls and Procedures	22
Cautionary Note Regarding Forward-Looking Statements	22

This Management’s Discussion and Analysis (“MD&A”) as of November 4, 2020 provides a review of the financial performance of Mountain Province Diamonds Inc. (the “Company” or “Mountain Province” or “MPV”) and should be read in conjunction with the MD&A for the year ended December 31, 2019, the unaudited condensed consolidated interim financial statements and the notes thereto for the three and nine months ended September 30, 2020 and the audited consolidated statements for the year ended December 31, 2019. The following MD&A has been approved by the Board of Directors.

The unaudited condensed consolidated interim financial statements of the Company were prepared in accordance

with IAS 34 - Interim Financial Reporting. Except as disclosed in the statements, the interim financial statements follow the same accounting policies and methods of computation as compared with the most recent annual financial statements for the year ended December 31, 2019, which were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Accordingly, the interim financial statements should be read in conjunction with the Company’s most recent annual financial statements.

All amounts are expressed in thousands of Canadian dollars, except share and per share amounts, unless otherwise noted.

The disclosure in this MD&A of scientific and technical information regarding exploration projects on Mountain Province’s mineral properties has been reviewed and approved by Tom McCandless, Ph.D., P.Geo., while that regarding mine development and operations has been reviewed and approved by Keyvan Salehi, P.Eng., MBA, both of whom are Qualified Persons as defined by National Instrument 43-101 - Standards of Disclosure for Mineral Properties (“NI 43-101”).

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Additional information, related to the Company is available on SEDAR at http://sedar.com/ and on EDGAR at http://www.sec.gov/edgar.shtml.

HIGHLIGHTS

• Cash at September 30, 2020 was $23,435 with a net working capital of $52,056. Cash at December 31, 2019 was $34,751 with net working capital of $99,402.

• On September 29, 2020, the Company held a special meeting at which shareholders provided approval for the Company to enter into a senior secured revolving credit facility with Dunebridge Worldwide Ltd. (“Dunebridge”) for US$25 million and for the Company to amend the existing diamond sales agreement from US$50 million to US$100 million.

• On September 30, 2020, the first lien revolving credit facility with Scotiabank and Nedbank Ltd. (“RCF”) was reassigned to Dunebridge. The amount drawn at the time of US$22.7 million was paid by Dunebridge to Scotiabank and Nedbank Ltd. and the remaining US$2.3 million was advanced to the Company (Please refer to note 10 and 17 of the financial statements).

• Loss from mine operations for the three and nine months ended September 30, 2020, respectively, amounted to $2,175 and $24,308 compared to loss from mine operations of $6,117 and earnings from mine operations of $21,842 for the same periods in 2019.

• Net loss for the three and nine months ended September 30, 2020, respectively, was $6,532 and $74,263 or $0.03 and $0.35 loss per share (basic and diluted) compared to net loss for the three and nine months period ended of September 30, 2019 of $25,785 and $13,033, or $0.12 and $0.06 loss per share (basic and diluted). Adjusted EBITDA for these periods was $15,300 and $14,231 compared to $10,583 and $69,407, respectively (Adjusted EBITDA is not defined under IFRS and therefore may not be comparable to similar measures presented by other issuers; refer to the Non-IFRS Measures section).

• During the nine months ended September 30, 2020, the Company entered into an agreement to sell up to US$50 million of diamonds to Dunebridge. The first sale occurred in June 2020, with three further sales completed in the three-month period ended September 30, 2020. The sales with Dunebridge were US$49.4 million at an average of US$33 per carat. The Company also completed one traditional commercial sale in the three months ended September 30, 2020.

• In the third quarter of 2020, the Company sold 956,000 carats and recognized revenue of $47,337 at an average realized value of $50 per carat (US$37) compared to sales in the third quarter of 2019 totaling 791,000 carats and recognized revenue of $54,832 at an average realized value of $69 per carat (US$53). No diamonds larger than 10.8 carats were sold in the third quarter of 2020.

• On October 30, 2020, the Company held a formal sale in Antwerp, Belgium and realized its largest open market sale to date of $45.7 million (US$34.3 million) resulting in an average realized value of $81 per carat (US$61 per carat).

• Mining of waste and ore in the 5034, Hearne and Tuzo open pits for the nine months ended September 30, 2020 was approximately 18,049,000 tonnes, 7,740,000 tonnes and 285,000 tonnes, respectively, for a total of 26,074,000 tonnes. This represents a 19% decrease in tonnes mined over the comparative period in 2019, mainly due to the COVID-19 safety protocols over mining operations. Ore mined for the first nine months of the year totaled 2,447,000 tonnes, with approximately 165,000 tonnes of ore stockpile available at quarter end on a 100% basis. For the comparative nine months ended September 30, 2019, ore mined totaled 2,356,000 tonnes, with approximately 274,000 tonnes of ore stockpile on a 100% basis.

• For the nine months ended September 30, 2020, the GK Mine treated approximately 2,510,000 tonnes of ore and recovered approximately 4,997,000 carats on a 100% basis for an average recovered grade of approximately 1.99 carats per tonne (“cpt”). For the comparative nine months ended September 30, 2019, the GK Mine treated approximately 2,644,000 tonnes of ore and recovered approximately 4,843,000 carats on a 100% basis for an average recovered grade of approximately 1.83 cpt. The average grade for the nine months ended September 30, 2020, was slightly higher compared with the same period in 2019.

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• Cash costs of production, including capitalized stripping costs, for the three months ended September 30, 2020 were $95 per tonne, and $44 per carat recovered. Cash cost of production, including capitalized stripping costs, for the nine months ended September 30, 2020 were $100 per tonne and $50 per carat recovered. Cash costs of production, including capitalized stripping costs, for the three months ended September 30, 2019 were $90 per tonne, and $53 per carat recovered. Cash cost of production, including capitalized stripping costs, for the nine months ended September 30, 2020 were $103 per tonne and $56 per carat recovered (cash costs of production per tonne and per carat are not defined under IFRS and may not be comparable to similar measures presented by other issuers; refer to the Non-IFRS Measures section). The cost improvements in the nine months period ended September 30, 2020 compared to the same period last year are mainly attributable to volumes of ore treated and stockpile management, lower personnel costs, lower fuel charges and lower maintenance costs.

The following table summarizes key operating highlights for the three and nine months ended September 30, 2020 and 2019.

		Three months ended		Three months ended		Nine months ended		Nine months ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
GK operating data
Mining
*Ore tonnes mined	kilo tonnes		890		1,004		2,447		2,356
*Waste tonnes mined	kilo tonnes		8,991		10,738		23,627		29,779
*Total tonnes mined	kilo tonnes		9,881		11,742		26,074		32,135
*Ore in stockpile	kilo tonnes		165		274		165		274
Processing
*Ore tonnes treated	kilo tonnes		821		891		2,510		2,644
*Average plant throughput	tonnes per day		8,924		9,900		9,061		9,721
*Average plant grade	carats per tonne		2.19		1.71		1.99		1.83
*Diamonds recovered	000's carats		1,795		1,528		4,997		4,843
Approximate diamonds recovered - Mountain Province	000's carats		880		749		2,449		2,373
Cash costs of production per tonne, net of capitalized stripping **	$		73		86		86		89
Cash costs of production per tonne of ore, including capitalized stripping**	$		95		90		100		103
Cash costs of production per carat recovered, net of capitalized stripping**	$		34		50		43		48
Cash costs of production per carat recovered, including capitalized stripping**	$		44		53		50		56
Sales
Approximate diamonds sold - Mountain Province***	000's carats		956		791		2,372		2,512
Average diamond sales price per carat	US	$	37	$	53	$	46	$	63

* at 100% interest in the GK Mine

**See Non-IFRS Measures section

***Includes the sales directly to De Beers for fancies and specials acquired by De Beers through the production split bidding process 

COMPANY OVERVIEW

Mountain Province is a Canadian-based resource company listed on the Toronto Stock Exchange under the symbol ‘MPVD’. The Company’s registered office and its principal place of business is 161 Bay Street, Suite 1410, P.O. Box 216, Toronto, ON, Canada, M5J 2S1. The Company, through its wholly owned subsidiaries 2435572 Ontario Inc. and 2435386 Ontario Inc., holds a 49% interest in the Gahcho Kué diamond mine (the “GK Mine”), located in the Northwest Territories of Canada. De Beers Canada Inc. (“De Beers” or the “Operator”) holds the remaining 51% interest. The Joint Arrangement between the Company and De Beers is governed by the 2009 amended and restated Joint Venture Agreement.

The Company’s primary assets are its aforementioned 49% interest in the GK Mine and 100% owned Kennady North Project (“KNP” or “Kennady North”).

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The Company’s strategy is to mine and sell its 49% share of rough diamonds at the highest price on the day of the close of the sale. Despite the impact of the COVID-19 pandemic, the Company’s long-term view of the rough diamond market remains positive, based on the outlook for a tightening rough diamond supply and growing demand, particularly in developing markets such as China and India, resulting in real, long term price growth. The Company also expects to build value through further exploration and development of the Kennady North Project which covers properties adjacent to the GK Mine.

GAHCHO KUÉ DIAMOND MINE

Gahcho Kué Joint Venture Agreement

The GK Mine is located in the Northwest Territories, approximately 300 kilometers northeast of Yellowknife. The mine covers 10,353 hectares, and encompasses four mining leases (numbers 4341, 4199, 4200, and 4201) held in trust by the Operator. The Project hosts four primary kimberlite bodies - 5034, Hearne, Tuzo and Tesla. The four main kimberlite bodies are within two kilometers of each other.

The GK Mine is an unincorporated Joint Arrangement between De Beers (51%) and Mountain Province (49%) through its wholly owned subsidiaries. The Company accounts for the mine as a joint operation in accordance with International Financial Reporting Standard 11, Joint Arrangements. Mountain Province through its subsidiaries holds an undivided 49% ownership interest in the assets, liabilities and expenses of the GK Mine.

Between 2014 and 2020, the Company and De Beers signed agreements allowing 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, 2020, the Company’s share of the letters of credit issued were $44.1 million (December 31, 2019 - $23.3 million).

During the nine month period ended September 30, 2020, the Company and De Beers signed an agreement to reduce the fee from 3% to 0.3%, annually, for their share of the letters of credit issued. Furthermore, a resolution was passed by the joint venture management committee to establish a decommissioning fund, where the Company will fund $15 million in 2020, and $10 million annually for four years thereafter until the Company’s 49% share totaling $55 million is fully funded. The target funding may change over time, dependent on future changes to the decommissioning and restoration liability. During the three months ended September 30, 2020, the Company funded its first amount of $5 million into the decommissioning fund, and is presented as Restricted cash on the balance sheet of the financial statements.

Mining and Processing

For the three and nine months ended September 30, 2020, on a 100% basis, a total of 9.9 million and 26.1 million tonnes of waste and ore had been extracted from the 5034, Hearne and Tuzo open pits, compared to the original three and nine months ended September 30, 2020 planned production of approximately 11.4 million and 32.7 million tonnes, respectively (86% and 80% of plan respectively). The lower mining efficiency was as a result of the mining changes implemented to reduce costs amid the COVID-19 pandemic as well as personnel shortages as a result of the impact of the COVID-19 pandemic operating policies implemented, although some mitigating action has been possible the impact of reduced manpower has been a factor throughout the period. For the three and nine months ended September 30, 2019, a total of 11.7 million and 32.1 million tonnes of waste and ore had been extracted from the 5034 and Hearne open pits, compared to an original plan of approximately 12.2 million and 34.6 million tonnes, respectively (95% and 92% of plan respectively), as a result of harsher weather conditions than normal and higher waste cycle.

Total ore tonnes mined in the three and nine months ended September 30, 2020 were 890,000 tonnes and 2,447,000 tonnes compared to 1,004,000 tonnes and 2,356,000 tonnes for the same periods in 2019. The total ore tonnes mined were higher than the comparative Q3 period due to revised scheduling and ore availability.

For the three and nine months ended September 30, 2020, 821,000 tonnes and 2,510,000 tonnes of kimberlite ore were treated (compared to an original plan of 814,000 tonnes and 2,526,000 tonnes), with 1,795,000 carats and 4,997,000 carats (100% basis) recovered, at a grade of 2.19 carats per tonne and 1.99 carats per tonne respectively. For the three and nine months ended September 30, 2019, 891,000 tonnes and 2,644,000 tonnes of kimberlite ore were treated, with 1,528,000 carats and 4,843,000 carats recovered, at a grade of 1.71 carats per tonne and 1.83 carats per tonne respectively. The average grade for the three and nine months ended September 30, 2020, was slightly higher compared with the same period in 2019.

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The plant treated 821,000 tonnes and produced over 1,795,000 carats in Q3 2020, 8% lower than the same period last year due mainly to ore availability and planned scheduling due to the COVID-19 pandemic.

At September 30, 2020, there was approximately 165,000 tonnes (100% basis) of stockpiled ore. Sufficient ore is available from the stockpile and 5034 and Hearne pits to meet the planned process throughput rates for 2020.

At September 30, 2020, the GK Mine had 904,032 carats on a 100% basis in rough diamond inventory at the GK Mine and at the sorting facility in Yellowknife. The Company had 821,355 carats within its sale preparation channel plus its share of carats at the GK Mine and sorting facility for a total of 982,909 carats in inventory. For the nine month period ended September 30, 2020, the Company recorded a $17 million write-down to reduce the carrying value of rough diamond inventory and ore stockpile inventory (Note 6 to the financial statements).

Diamond Sales

The Company undertook two sales during the first quarter of 2020 in Antwerp, Belgium and one sale to Dunebridge in the second quarter of 2020. The remaining sales to Dunebridge were in the third quarter (Please refer to note 17 of the financial statements). During the third quarter of 2020, the Company undertook one sale in Antwerp, Belgium. On October 30, 2020, the Company held a formal sale in Antwerp, Belgium and realized its largest open market sale to date of $45.7 million (US$34.3 million) resulting in an average realized value of $81 per carat (US$61 per carat).

The majority of the Company’s revenue prior to COVID-19 was derived from its sales on the open market, with the remainder attributed to sales of fancies and specials directly to De Beers. The average realized value per carat for all sales held in the nine months ended September 30, 2020 was US$46 per carat. The average realized value per carat for all sales held for the nine months ended September 30, 2019 was US$64 per carat. No diamonds larger than 10.8 carats were sold in the second and third quarters of 2020.

The following chart summarizes the sales for the trailing eight quarters:

 

*Although the final sale in this quarter closed on September 27, 2019, the sale of 159,000 carats occurred during October for IFRS purposes. The amount of revenue recognized in October for the 159,000 carats was approximately US$13.0 million or $17.1 million.

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The following table summarizes the results of sales in 2020:

	000's of carats sold		Gross proceeds (US$ 000's)		Revenue/carat (US$)
Q1		659	$	49,220	$	75
Q2		757	$	25,003	$	33
Q3		956	$	35,309	$	37
Total		2,372	$	109,532	$	46

The following table summarizes the results for sales in 2019:

	000's of carats sold		Gross proceeds (US$ 000's)		Revenue/carat (US$)
Q1		644	$	45,810	$	71
Q2		1,077	$	71,712	$	67
Q3(1)		950	$	54,559	$	57
Q4		613	$	36,165	$	59
Total		3,284	$	208,246	$	63

Note: Sales made directly to De Beers are attributed to the closest sale.

(1) Although 950,000 carats were successfully sold, in accordance with IFRS only 791,000 carats could be recognized as sales proceeds in the quarter. The remaining 159,000 carats were recognized in Q4 2019. The amount of revenue recognized for the 159,000 carats was approximately US$13.0 million or $17.1 million.

In June 2020, the Company entered into an agreement to sell up to US$50 million of diamonds to Dunebridge. (Please refer to note 17 of the financial statements). The first sale occurred in June 2020, with three further sales completed in the three-month period ended September 30, 2020.

The transaction with Dunebridge permits the Company to sell its run of mine diamonds (below 10.8 carats) at the estimated prevailing market price at the time of each sale. The transaction also allows the Company to participate, after fees and expenses, in a portion of any increase in the value of the diamonds realized by Dunebridge upon its future sale of the diamonds to a third party.

After three successful years of sales, the Gahcho Kué goods are firmly established in the rough diamond market. The Company held two sales during the first quarter of 2020 which enabled the Company to maximize revenue and sell 100% of its share of Gahcho Kué production prior to the COVID-19 pandemic. After a prolonged market closure, the Company completed one traditional commercial sale in September 2020.

The Gahcho Kué orebodies and product profiles are complex, producing a broad range of white commercial goods together with a consistent supply of exceptional, high value, gem quality diamonds as well as large volumes of small and brown diamonds. The Gahcho Kué product also exhibits varying degrees of fluorescence for which the Company has attracted specialist customers who are developing strategies to market this characteristic.

The Company’s diamonds have established a strong market and customer base. With the exception of some industrials, non-gem quality diamonds, the majority of the Company’s diamonds are sold into market segments that cut and polish the rough, with resultant polished destined for the major diamond jewellery markets of the US, India and China. Having transitioned from an explorer and mine developer into a diamond marketer, the Company is in early stage, somewhat delayed by the COVID-19 pandemic, development of a diamond marketing brand that promotes the unique attributes of our diamonds to support demand through their distribution channels with the potential to reach the consumer level. With formal sales resuming in Antwerp, the Company is planning to sell more fancies and specials in the upcoming quarter, which is likely to raise further interest and awareness of the Company’s product, and will likely cause a positive impact on the fourth quarter sales.

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Given the complexities of the Gahcho Kué rough diamond product profile and the nature of the Joint Venture’s production splitting process, the mix of diamond categories present in an individual sale may differ. Each sale’s results can and do vary.

2020 Production Outlook

The Company withdrew its original guidance for 2020 in March due to the impact of the COVID-19 pandemic. On June 18, 2020, the Company provided revised guidance for 2020.

2020 Revised Guidance: (all figures quoted on a 100% basis)

• 37 - 39 million total tonnes mined (ore and waste), adjusted from previous guidance of 42 - 43 million tonnes

• 3.3 - 3.4 million ore tonnes mined, unchanged from previous guidance

• 3.3 - 3.4 million ore tonnes treated, unchanged from previous guidance

• 6.3 - 6.4 million carats recovered, adjusted from previous guidance of 6.75 - 6.95 million carats

• All in cash costs of $100 - $110 per tonne treated, adjusted from previous guidance of $105 - $115 per tonne treated

• All in cash costs of $50 - $55 per carat recovered, unchanged from previous guidance

• Sustaining Capital Expenditure of $21 million, in comparison to $26.5 million of Capital Expenditure previously forecast.

The revised production guidance reflects the challenges of COVID-19 pandemic and the impact on operations and logistics at the Gahcho Kué Mine, and the necessity to implement changes to operating policies and procedures to minimize the risk of infection. These changes included protecting the workforce by isolating vulnerable employees, implementing travel restrictions to and from the mine, revising health and safety protocols, including on site self-isolation, social distancing, and ongoing testing of all employees. The new operating parameters have impacted the ability to utilize the mining fleet at full capacity, which has had a direct impact on the 2020 mine plan. There was one instance of a positive COVID-19 test confirmed at the GK Mine in October 2020, however the necessary isolation and additional testing procedures were enforced for the group of workers in close contact with the individual. The Company is confident in the containment protocols to minimize the spread of this infection.

The carats recovered forecast for 2020 has been reduced due to lower recovered grades than modelled in small local sections of the Hearne and 5034 kimberlite orebodies, and necessary changes to the mining sequence as a result of COVID-19 related workforce reductions. This has resulted in partial deferral of higher-grade ore blocks into 2021. Despite all these challenges, and considering an ongoing global epidemic, the Company and its JV Partner De Beers Canada Inc. are pleased that the Gahcho Kué Mine continues to operate.

The rapid spread of COVID-19 around the globe, and accompanying restrictions on mobility, pose a potential risk and disruption to mine operations. The Company, along with De Beers Canada Inc, in consultation with the Government of the Northwest Territories, have taken all the necessary precautions to ensure the safest working environment possible for all employees and contractors across all working sites and offices. In addition, work from home policies, where applicable, have been implemented. We have halted all long-term, non-core capital and exploration projects to reduce foot traffic and travel to and from site. We have also changed our crew to further reduce frequency of travel. Furthermore, we continue to follow public health guidelines for COVID-19, such as physical distancing protocols to the best of our abilities.

Diamond Outlook

The rough diamond market opened the year with optimistic sentiment and positive price growth. However, the rapid global spread of COVID-19 swiftly reversed that momentum, coincident with the surge in volatility in global economies and capital markets.

While COVID-19’s impact is still reverberating across the globe, the diamond industry is finding ways to adapt and move forward. The full extent of COVID-19’s impact on 2020 sales remains unknown and the Company believes that, as for many other businesses, the impact will be material.

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The sweeping global public health measures, travel restrictions and resultant economic turmoil of the COVID-19 pandemic impacted the physical and financial flows of the global diamond value chain. Rough diamond production, rough diamond sales, polished diamond manufacturing, jewellery manufacturing and retail sales of diamond jewellery were all severely impacted.

In January, China’s swift implementation of social distancing and self-isolation measures effectively annulled Chinese New Year jewellery sales and Chinese polished diamond manufacturing capacity closed. These events created great uncertainty through the diamond industry as Chinese orders and associated liquidity evaporated overnight.

After the global lockdown started in mid-March, the rough diamond market was at a virtual standstill for over three months. Some rough diamond producers conducted a small number of heavily discounted sales during the second quarter in Antwerp, Belgium. Market reports indicate some of these sales achieved prices on a like-for-like basis as much as 30% below a pre-COVID baseline.

2020 production guidance from the major diamond producers has been revised down. Several smaller producers severely curtailed production or put their mines on indefinite care and maintenance. Customers contracted to purchase from the majors were offered the flexibility to defer their purchases until later in the year. Most independent producers that could afford to, held stock and or opted to temporarily halt production until market conditions and demand levels improved.

A number of small to medium-size producers held sales in Antwerp in June which provided a snapshot of COVID’s impact on rough market prices. While some specific product segments saw small price improvements, overall rough market prices remained depressed through the European summer.

The industry was hopeful of increased demand once rough buyers returned after the summer break and companies sought to fill orders for the approaching holiday season sales. International travel restrictions and physical distancing controls remain in place and despite alternative viewing locations being tested, access to rough diamonds is still limited.

Major producers offered measured sales volumes and revised prices downwards in August and September, which was well received by the market. Furthermore, buyers continue to be offered purchasing flexibility through buybacks, deferrals and rejections. A number of Antwerp tenders were held in late August and September and producers reported healthy demand and some areas of price recovery. While it is certain 2020 rough sales will be significantly down on previous years, it is too early to speculate when normal sales levels will return. On October 30, 2020, the Company held a formal sale in Antwerp, Belgium and realized its largest open market sale to date of $45.7 million (US$34.3 million) resulting in an average realized value of $81 per carat (US$61 per carat).

After a closure of several months, and a period of cautious re-opening, polishing activity in India, the world’s largest manufacturing hub, has slowly resumed. The country’s high incidence of COVID-19 cases and the measures necessary to mitigate the virus’ spread has prevented a complete re-opening of capacity. India’s voluntary rough import ban through June and July also restricted the volume of rough entering the country. At the beginning of the shutdown, polishing factories were believed to have approximately two months of rough stock. These goods have now largely been manufactured and lighter inventory levels are helping to balance the diamond pipeline. It is anticipated that a healthy holiday retail season could continue to pull goods through the pipeline and stimulate demand for rough.

Polished prices rallied in the third quarter on the back of strong demand, with prices in many categories now close to and in some cases above pre-COVID levels. Product shortages have been reported in a number of popular commercial segments. Much of US demand is focused on cheaper polished for lower price-point jewellery distributed through online platforms and retailers are reportedly seeing value in fluorescent goods.

Consumer demand for diamonds is showing encouraging signs despite the pandemic. While revenue will inevitably be down year on year, larger retailers in China and the US are reporting healthy levels of in-store and online sales. The bridal and commitment segments are reported to be performing well, with polished product shortages reported in a number of commercial categories. Despite the ongoing pandemic and the uncertain lead-up to the US presidential election, expectations are rising for a healthy US retail holiday season. Major retailers including Chow Tai Fook and Tiffany have reported business indicators that imply a robust recovery is underway in Mainland China, the first market impacted by COVID-19.

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The Company maintains a positive long-term outlook for its Gahcho Kué diamonds. Rough diamond supply is expected to be significantly curtailed, which has in the past supported strong price recovery. With the expected closure of the Argyle mine at the end of this year, an increase in demand for cheaper goods is anticipated in 2021. Due to lower absolute price points, cheaper goods have historically been used as a cheaper input for opening up factories and could see an associated increase in demand in the medium term. In the past, these demand increases have been accompanied by increases in price.

Gahcho Kué Capital Program

During the nine months ended September 30, 2020, stay in business capital items included process plant upgrades, generator upgrades and repairs, and other general infrastructure. All capital additions in the period are considered sustaining capital expenditure, and were largely on budget. Stay in business capital does not include capital waste stripping.

Gahcho Kué EXPLORATION

The Gahcho Kué Joint Venture with De Beers Canada covers 5,216 hectares of mining leases that includes the Gahcho Kué Mine. Exploration within the GKJV focuses on near-mine and brownfields discoveries that can extend the life of the mine. Exploration for the past nine months included a winter program of geophysical exploration that prioritized 13 targets, of which eight were selected for drill-testing. These are shown on the map below. Only two targets were tested as the program was shortened due to the COVID-19 pandemic. Two drillholes were completed each on targets 8 and 12 for a program total of 549 meters, with no kimberlite encountered. Data for the remaining targets were subsequently reviewed, and targets 1, 3, and 10 are considered as next in priority for drill-testing. Timing for the commencement of this program has not been finalized.

 

KENNADY NORTH PROJECT EXPLORATION

The Kennady North Project includes 22 federal leases and 97 claims covering an area of 106,202 hectares that surround the Gahcho Kué Mine on all sides. Staking conducted in April 2020 over ground east of the property increased the project area by 60%. Kennady North has five known kimberlites; Kelvin, Faraday 2, Faraday 1-3, MZ, and Doyle. Significant diamond sampling and drilling programs between 2014 and 2018, resulted in the estimation of resources for the Kelvin and Faraday bodies. The map below shows the location of the claims, leases, and kimberlites relative to the Gahcho Kué Mine.

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Winter geotechnical drilling at Kennady North was also terminated early due to the COVID-19 pandemic, with only one drillhole completed through the southeast end of Kelvin. Downhole physical data collected along the length of the 200m drillhole will be used to advance the resource model of the Kelvin kimberlite. Related data for the modeling included bathymetry surveys over several of the smaller lakes near the kimberlites. A brief exploration OhmMapper resistivity survey was also completed over a combined indicator-geophysical target located 1.5 kilometers to the east and up-ice of Faraday 2.

In January, the Company engaged Hayward CSR Strategies Inc. (HCSR; Yellowknife, NT) to aid in advancing the Kennady North assets. Dr. April Hayward, Vice President Kennady North Project Sustainable Development, oversaw a program of fish connectivity and hydrology data collection during the June freshet period. Summer open-water activity included two short programs in which environmental baseline data were successfully collected. The 2020 baseline data collection program focused on obtaining hydrological and fisheries connectivity information throughout the Kennady North watershed. The baseline data collected in 2020 will be used for mine planning, permitting, and community engagement activities, including the development of a conceptual mine water management plan for the project.

Strategic till sampling was also conducted down-ice of Faraday 2. The indicator minerals from these samples will be used to assess their morphology relative to transport distance from the kimberlite. The morphology results will help to prioritize target areas elsewhere on the Kennady North Project.

The Kennady assets include both an Indicated Resource for the Kelvin kimberlite and Inferred Resources for the Faraday kimberlites. Geological model domains for the Kelvin, Faraday 2 and Faraday 1-3 kimberlites were adopted as the resource domains for the estimation of Mineral Resources. The volumes of these domains were combined with estimates of bulk density to derive tonnage estimates. Bulk sampling programs using large diameter RC drilling were conducted to obtain grade and value information. Microdiamond data from drill core were used to forecast grades for the different kimberlite lithologies. Details of the modeling are available in NI 43-101 Compliant Technical Reports (filed in 2016 and 2017 under Kennady Diamonds Inc.) and the NI43-101 Compliant Technical Report filed April 11, 2019 under Mountain Province Diamonds. All reports are available at www.sedar.com. Details for the estimated resources are provided in the table below.

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Mineral Resource Estimates for the Kelvin and Faraday Kimberlites (as of February 2019 as referenced in the April 11, 2019 NI43-101 Compliant Technical Report)

Resource	Classification	Tonnes (Mt)	Carats (Mct)	Grade (cpt)	Value (US$/ct)
Kelvin	Indicated	8.50	13.62	1.60	$63
Faraday 2	Inferred	2.07	5.45	2.63	$140
Faraday 1-3	Inferred	1.87	1.90	1.04	$75

(1) Mineral Resources are reported at a bottom cut-off of 1.0mm. Incidental diamonds are not incorporated into grade calculations.

(2) Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.

Results of operations

The Company, as discussed above, held six diamond sales during the nine months ended September 30, 2020.

Quarterly financial information for the past eight quarters is shown in Table 1.

SUMMARY OF QUARTERLY RESULTS

Table 1 - Quarterly Financial Data
Expressed in thousands of Canadian dollars
					Three months ended
		September 30			June 30			March 31			December 31
		2020			2020			2020			2019
Earnings and Cash Flow
Number of sales			3			1			2			2
Sales	$		47,337			34,020			65,430			65,032
Impairment loss on property, plant and equipment	$		–			–			–			(115,753	)
Operating (loss) income	$		(5,712	)		(38,958	)		7,502			(118,104	)
Net loss for the period	$		(6,532	)		(26,762	)		(40,969	)		(115,725	)
Basic and diluted loss per share	$		(0.03	)		(0.13	)		(0.19	)		(0.55	)
Adjusted EBITDA*	$		15,300			(23,894	)		22,825			17,648
Cash flow provided by (used in) operating activities	$		21,117			(21,941	)		1,176			28,307
Cash flow provided by (used in) investing activities	$		(15,766	)		(10,452	)		(5,166	)		(5,327	)
Cash flow provided by (used in) financing activities	$		1,427			17,462			(349	)		(16,388	)
Balance Sheet
Total assets	$		793,919			795,789			842,332			822,695

*Adjusted EBITDA is not defined under IFRS and therefore may not be comparable to similar measures presented by other issuers; refer to the Non-IFRS Measures section.

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					Three months ended
		September 30			June 30			March 31			December 31
		2019			2019			2019			2018
Earnings and Cash Flow
Number of sales			3			3			2			3
Sales	$		54,832			95,774			60,696			70,477
Operating income	$		(11,149	)		12,762			3,639			7,144
Net (loss) income for the period	$		(25,785	)		10,255			2,497			(30,204	)
Basic and diluted (loss) earnings per share	$		(0.12	)		0.05			0.01			(0.15	)
Adjusted EBITDA*	$		10,583			39,096			19,728			26,512
Cash flow provided by (used in) operating activities	$		13,858			46,079			(8,880	)		41,818
Cash flow provided by (used in) investing activities	$		(2,012	)		(9,915	)		(10,320	)		(14,915	)
Cash flow provided by (used in) financing activities	$		(13,839	)		(17,019	)		(233	)		(23,398	)
Balance Sheet
Total assets	$		953,325			973,606			993,390			979,877

*Adjusted EBITDA is not defined under IFRS and therefore may not be comparable to similar measures presented by other issuers; refer to the Non-IFRS Measures section.

The Company typically holds ten sales per year in Antwerp, Belgium, and has typically alternated between two and three sales per quarter over the past two years. During the three months ended September 30, 2020, the Company held sales with Dunebridge, and one formal sale in Antwerp, Belgium, where the lingering effects of COVID-19 continued to put pressure on the diamond industry as a whole. During the three months ended June 30, 2020, the Company was not able to carry out its formal sales process in Antwerp, due to the COVID-19 pandemic, and as a result held one sale to Dunebridge. Due to the pandemic, the demand for diamonds had been significantly reduced in the period, and the Company’s average realized sales price was much lower than previous quarters, resulting in a loss from mine operations, and operating and net loss. For the three months ended March 31, 2020, the Company began to experience the impact of the global pandemic of COVID-19 and in March halted the previously scheduled sale that was in progress. Despite the third sale not being complete, the Company experienced strong sales and operating income for the three months ended March 31, 2020. Typically, quarters with three sales have resulted in higher overall sales and operating income levels. Both the three months ended September 30, 2019 and December 31, 2019 resulted in an operating loss due to lower realized diamond prices. The lower prices realized year-on-year were affected by three factors; the source of the diamonds from varying parts of the orebody (mostly lower value areas of Hearne and SWC Kimberlites in 2019 versus 5034 in 2018), lower quality material processed during Q2 and Q3 2019, and the overall sentiment in the rough diamond market and associated pressure on prices of lower quality and smaller stones. The operating income in the three months ended June 30, 2019 is consistent with the same period in 2018. The operating income of $7,144 in the three months ended December 31, 2018 is lower than a typical three sale quarter as a result of product mix and a lower than expected volume of carats sold due to timing in the sales distribution channel.

summary of THIRD Quarter Financial Results

Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, expressed in thousands of Canadian dollars.

For the three months ended September 30, 2020, the Company recorded a net loss of $6,532 or $0.03 loss per share compared to a net loss of $25,785 or $0.12 loss per share for the same period in 2019. For the nine months ended September 30, 2020, the Company recorded net loss of $74,263 or $0.35 loss per share compared to net loss of $13,033 or $0.06 loss per share for the same period in 2019. The significant increase in the net loss for the nine months ended September 30, 2020 compared to the same period in 2019 can largely be attributed to the loss from mine operations. See below for the explanations for loss from mine operations.

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(Loss) earnings from mine operations

Loss from mine operations for the three and nine months ended September 30, 2020, were $2,175 and $24,308 compared to loss from mine operations of $6,117 and earnings from mine operations of $21,842 for the same periods in 2019. For the three months ended September 30, 2020, the Company sold 956,000 carats for proceeds of $47,337 with diamond sales value per carat of US$37 (2019 - 791,000 carats for $54,832 at US$53 per carat). A significant amount of these diamonds were sold to Dunebridge (Please refer to note 17 of the financial statements). For the nine months ended September 30, 2020, the Company sold 2,372,000 carats for proceeds of $146,787 with diamond sales value per carat of US$46 (2019 - 2,512,000 carats for $211,302 at US$63 per carat). The significantly lower prices realized compared to the same periods in 2019 were affected by the overall sentiment and demand in the rough diamond market as a result of the COVID-19 pandemic.

Production costs (net of capitalized stripping costs) related to diamonds sold for the three and nine months ended September 30, 2020 were $32,494 and $117,127; depreciation and depletion on the GK Mine commissioned assets related to diamonds sold for the three and nine months ended September 30, 2020, were $17,018 and $47,482; and the cost of acquired diamonds for the three and nine months ended September 30, 2020 were $nil and $6,486, which had been previously paid to De Beers when winning the periodic fancies and specials bids. This was primarily due to the pause, from April to August 2020, of the bidding process of fancies and specials with DeBeers during the COVID-19 pandemic. Resultant loss from mine operations for the three and nine months ended September 30, 2020 were $2,175 and $24,308. Production costs (net of capitalized stripping costs) related to diamonds sold for the three and nine months ended September 30, 2019 were $37,699 and $115,191; depreciation and depletion on the GK Mine commissioned assets related to diamonds sold for the three and nine months ended September 30, 2019 were $20,934 and $63,325; and the cost of acquired diamonds for the three and nine months ended September 30, 2019 were $2,316 and $10,944. The production costs for the three and nine months ended September 30, 2020, over the same period in 2019, are consistent.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three and nine months ended September 30, 2020, were $3,392 and $9,679 compared to $2,782 and $8,822 for the same periods in 2019. The main expenses included in these amounts for the three and nine months ended September 30, 2020 were $1,137 and $3,256 relating to selling and marketing, $420 and $1,350 related to consulting fees and payroll, $274 and $841 relating to share-based payment expense, and $950 and $2,494 related to professional fees. The main expenses included in these amounts for the three and nine months ended September 30, 2019 were $1,409 and $4,359 relating to selling and marketing, $365 and $1,430 related to consulting fees and payroll, $149 and $631 relating to share-based payment expense, and $275 and $732 related to professional fees. The increase in overall selling, general and administrative costs can mainly be attributed to an increase in professional fees, offset by a reduction in selling and marketing expenses. The professional fees increase can be attributed to the completion of technical reports for 43-101 purposes, additional diamond valuation engagements, and significantly more legal fees and other professional fees related to the Dunebridge sales agreement, and the revolving credit facility amendments and waivers. The reduction of selling and marketing expenses can be attributed to the pause of the formal sales process in Antwerp from March to August 2020, before resuming again in September.

Exploration and evaluation expenses

Exploration and evaluation expenses for the three and nine months ended September 30, 2020, were $145 and $3,181 compared to $2,250 and $7,768 for the same periods in 2019. Exploration and evaluation expenses have decreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 as targeted exploration was budgeted to be cash flow conscious. Furthermore, at the onset of the COVID-19 pandemic exploration activities were curtailed in order to conserve cash in the near-term. Of the $3,181 total exploration and evaluation expenses incurred in the nine months ended September 30, 2020, $827 is related to the Company’s 49% share of the exploration and evaluation expenses on the GK Mine, while the remaining $2,354 related to those spent on the KNP. Of the $7,768 total exploration and evaluation expenses incurred in the nine months ended September 30, 2019, $3,868 is related to the Company’s 49% share of the exploration and evaluation expenses on the GK Mine, while the remaining $3,900 related to those spent on the KNP.

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Net finance expenses

Net finance expenses for the three and nine months ended September 30, 2020, were $10,430 and $30,700 compared to $9,995 and $29,367 for the same periods in 2019. Included in the amount for the three and nine months ended September 30, 2020, were $10,278 and $29,964 relating to finance costs, $170 and $879 relating to accretion expense on decommissioning liability and $18 and $143 relating to interest income. Included in the amount for the three and nine months ended September 30, 2019, were $9,832 and $28,863, respectively, relating to finance costs, $252 and $850 relating to accretion expense on decommissioning liability and $89 and $346 relating to interest income. Finance costs were slightly higher compared to the same period in 2019 as the majority relates to interest expense over the secured notes payable, as well as the additional interest expense incurred on the US$25 million drawdown from the RCF during the period, before it was reassigned. Although there were no further secured notes repurchases since September 30, 2019, that decrease in interest expense has been offset by a significantly higher foreign exchange rate on the US denominated interest expenses.

Foreign exchange gains (losses)

Foreign exchange gains for the three months ended September 30, 2020 were $11,062 and foreign exchange losses for the nine months ended September 30, 2020 were $6,345 compared to foreign exchange losses of $3,134 and foreign exchange gains of $13,048 for the same periods in 2019. The foreign exchange gains for the three months ended September 30, 2020 were mainly as a result of the Canadian dollar strengthening relative to the US dollar on the translation of the secured notes payable, net of US dollar cash balances. The foreign exchange losses for the nine months ended September 30, 2020 were as a result of the Canadian dollar weakening relative to the US dollar on the translation of the secured notes payable and revolving credit facility, net of US dollar cash balances. The spot rate at September 30, 2020 was $1.3319/US$1 compared to $1.3576/US$1 at June 30, 2020 and to $1.2978/US$1 at December 31, 2019. The Company experienced the Canadian dollar weakening relative to the US dollar on the translation of the secured notes payable, net of US dollar cash balances, in the three months ended September 30, 2019. The Company experienced the Canadian dollar strengthening relative to the US dollar on the translation of the secured notes payable, net of US dollar cash balances, in the nine months ended September 30, 2019.

INCOME AND MINING TAXES

The Company is subject to income and mining taxes in Canada with the statutory income tax rate at 26.5%.

No deferred tax asset has been recorded in the financial statements as a result of the uncertainty associated with the ultimate realization of these tax assets.

The Company is subject to assessment by Canadian authorities, which may interpret tax legislation in a manner different from the Company. These differences may affect the final amount or the timing of the payment of taxes. When such differences arise, the Company makes provision for such items based on management’s best estimate of the final outcome of these matters.

The Company’s current tax expenses are associated with mining royalty taxes in the Northwest Territories. There are no other current tax expenses for income tax purposes, as there are significant losses carried forward that are available to offset current taxable income.

FINANCIAL POSITION AND LIQUIDITY

The Company originally funded its share of the construction and commissioning costs of the GK Mine through a combination of equity and a project lending facility (the previous “Loan Facility”). In December 2017, the Company terminated its previous Loan Facility through the issuance of US$330 million in second lien secured notes payable. Concurrent with the closing of the secured notes payable, the Company entered into a US$50 million first lien revolving credit facility with Scotiabank and Nedbank Ltd. in order to maintain a liquidity cushion for general corporate purposes. During the second quarter of 2020, the Company had drawn US$25 million from the RCF in order to maintain the liquidity of the business during the challenges faced by COVID-19. The RCF was subject to several financial covenants, in order to remain available which were breached and for which a waiver was obtained as at July 3, 2020.

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On September 30, 2020, the RCF with Scotiabank and Nedbank Ltd. was reassigned to Dunebridge. The amount drawn at the time of US$22.7 million was paid by Dunebridge to Scotiabank and Nedbank Ltd. and the remaining available amount of US$2.3 million was advanced to the Company.

On September 30, 2020, the Company entered into a senior secured revolving credit facility with Dunebridge (“Dunebridge RCF”) (Note 10 and 17 of the financial statements) for US$25 million to reassign the previous RCF, with first ranking lien terms. The Dunebridge RCF carries an interest rate of 5% per annum, and is repayable on September 30, 2021, therefore has been classified as short-term on the balance sheet. Interest is payable on a monthly basis. The agreement also required an upfront 1% financing fee, which was paid on September 30, 2020.

The Dunebridge RCF also requires that no further indebtedness be entered into, and no new agreements related to the sale of Diamonds occur without prior written approval from Dunebridge.

Permitted distributions to third parties (which include dividends) are subject to the Company having a net debt to EBITDA ratio of less than or equal to 1.75:1. Net debt is equal to total debt, less cash and cash equivalents. The aggregate amount of all distributions paid during the rolling four quarters up to and including the date of such distribution does not exceed 25% of free cash flows (“FCF”) during such period. FCF is defined as EBITDA minus, without duplication, (a) capital expenditures, (b) cash taxes, (c) any applicable standby fee, other fees or finance costs payable to the finance parties in connection with the Dunebridge RCF, (d) interest expenses and (e) any indebtedness (including mandatory prepayments) permitted under the existing agreement. Also, the available liquidity after payment of a distribution must be greater than or equal to US$60 million for distributions paid during a quarter ending March 31, or US$50 million, where the aggregate amount of the all advances outstanding does not exceed US$10 million.

The Company’s condensed consolidated interim financial statements have been prepared using the going concern basis of preparation which assumes that the Company will realize its assets and settle its liabilities in the normal course of business.

The Company experienced operating losses of $5.7 million and $37.2 million for the three and nine months ended September 30, 2020. As at September 30, 2020, the Company had working capital of $52.1 million (December 31, 2019 - working capital of $99.4 million).

Amid the COVID-19 pandemic, the Company is experiencing liquidity challenges primarily resulting from the deferral of the periodic normal diamond sales carried out in Antwerp, Belgium. While the Company has recently resumed its normal sales in September, the risk of decreased sales volumes and realized prices, particularly in the last quarter of 2020 and through 2021, could significantly reduce remaining 2020 and 2021 revenue. During the nine months ended September 30, 2020, the Company drew US$25 million from its previous revolving credit facility agreement. The Company was subject to certain financial covenants on its outstanding senior secured notes and RCF which each included cross-covenant default terms. In July 2020, the Company obtained an executed waiver agreement to exempt the Company from the default on these covenants on the RCF, which occurred as at June 30, 2020. In exchange, the Company had agreed to a reduction in the size of the revolving credit facility to US$25 million from US$50 million and the imposition of additional covenants to August 31, 2020 which the Company was in compliance with. The Company also agreed to repay or provide alternate financing for the US$25 million by September 30, 2020, rather than the original maturity date of December 15, 2020. During the three-month period ended September 30, 2020, the Company entered into a senior secured revolving credit facility with Dunebridge Worldwide Ltd. (Note 10 and 17 of the financial statements) for US$25 million to reassign its previously drawn RCF. The uncertainty that the COVID-19 pandemic has caused over potential diamond sales in the near-term, particularly in the last quarter of 2020 and in 2021 along with the need to repay the Dunebridge RCF by September 30, 2021, and semi-annual interest payments on the secured notes may result in a future event of default under the terms of these debt instruments.

Management may seek alternative sources of financing; however, such alternative sources of financing may not be available or at terms acceptable to the Company. The above conditions related to the diamond industry, the Company’s operations and the Company’s current financing constraints represent material uncertainties that results in substantial doubt as to the Company’s ability to continue as a going concern. These financial statements do not include the adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern. These adjustments may be material.

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Cash flows provided by operating activities, including changes in non-cash working capital for the three and nine months ended September 30, 2020, were $21,117 and $353 compared cash flows provided of $13,858 and $51,057, for the same periods in 2019. The decrease in cash provided for the nine months ended September 30, 2020 was a result of the loss from mine operations of $24,308 compared to earnings from mine operations of $21,842 for the same period in 2019. The significant loss from mine operations can be attributed to the direct effects of the COVID-19 pandemic over the demand for diamonds, and as a result, realized diamond prices. The increase in cash provided for the three months ended September 30, 2020, compared to the same period in 2019, was a result of the decreased production costs at the mine from cost saving efforts, and a decrease in discretionary exploration and evaluation expenses.

Cash flows used in investing activities for the three and nine months ended September 30, 2020, were $15,766 and $31,384 compared to $2,012 and $22,247 for the same periods in 2019. For the three and nine months ended September 30, 2020, the outflow for the purchase of property, plant and equipment were $10,781 and $26,524 compared to $2,101 and $22,593 for the same periods in 2019. For the three and nine months ended September 30, 2020, the outflow for restricted cash was $5,003, which relates to the decommissioning fund of the GK Mine. For the three and nine months ended September 30, 2020, the amount of cash used in the acquisition of property, plant and equipment was offset by $18 and $143 of interest income, compared to $89 and $346 for the same period in 2019. The increase of cash used in investing activities during the three and nine months ended September 30, 2020, compared to the same period in 2019, can be attributed to the increased stripping activity in the current period, along with lower interest income as a result of reduced interest rates and lower average cash on hand.

Cash flows provided by financing activities for the three months ended September 30, 2020, were $1,427 compared to cash used of $13,839 for the same period in 2019. Cash flows used in financing activities for the three months ended September 30, 2020, related to interest and stand-by charges on the previous RCF, the payment of lease liabilities and the payment of the interest on the secured notes payable. Cash flows provided by financing activities for the nine months ended September 30, 2020, were $18,540 compared to cash used of $31,091 for the same period in 2019. Cash flows provided by financing activities for the nine months ended September 30, 2020, related to the inflow from the US$25 million RCF ($35,093 Canadian dollar equivalent) and proceeds from settlement of currency contracts, offset by interest and stand-by charges on the previous RCF, the payment of lease liabilities and the payment of the interest on the secured notes payable. Under the terms of the secured notes payable, interest payments occur semi-annually, and as such will typically result in the June and December quarters having significantly higher cash outflows under financing activities. As a result of the Dunebridge RCF of US$25 million, the September 30, 2020 period resulted in a cash inflow. Cash flows from financing activities for the three and nine months ended September 30, 2019 related to the repurchase of secured notes, stand-by charges on the RCF, the payment of lease liabilities and the payment of the interest on the secured notes payable.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN THE CURRENT PERIOD

Significant accounting policies adopted in the current year are disclosed in Note 3 of the financial statements.

SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

Significant accounting judgments, estimates and assumptions are disclosed in Note 4 of the financial statements.

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STANDARDS AND AMENDMENTS TO EXISTING STANDARDS

Standards and amendments to existing standards to existing standards are disclosed in Note 3 of the financial statements.

RELATED PARTY TRANSACTIONS

The Company’s related parties include the Operator of the GK Mine, Dermot Desmond, Dunebridge Worldwide Ltd. and Vertigol Unlimited Company (“Vertigol”) (corporations ultimately beneficially owned by Dermot Desmond), key management and their close family members, and the Company’s directors. Dermot Desmond, indirectly through Vertigol, is the ultimate beneficial owner of greater than 10% of the Company’s shares. Underwriting Unlimited (“IIU”) is also a related party since it is ultimately beneficially owned by Dermot Desmond.

Related party transactions are recorded at their exchange amount, being the amount agreed to by the parties.

The Company had the following transactions and balances with its related parties including key management personnel including the Company’s directors, Dermot Desmond, Dunebridge, Vertigol, IIU and the Operator of the GK Mine. The transactions with key management personnel are in the nature of remuneration. The transactions with the Operator of the GK Mine relate to the funding of the Company’s interest in the GK Mine for the current year’s expenditures, capital additions, management fee, and production sales related to the 49% share of fancies and special diamonds. The transactions with IIU are for the director fees of the Chairman of the Company.

During the period ended September 30, 2020, the Company entered into an agreement to sell up to US$50 million of diamonds to Dunebridge. The agreement permits the Company to sell its run of mine diamonds (below 10.8 carats) at the estimated prevailing market price at the time of each sale. The transaction also allows the Company to participate, after fees and expenses in a portion of any increase in the value of diamonds realized by Dunebridge upon its future sale of diamonds to a third party. The fees calculated per each sale are fixed at 10% of the value of each future Dunebridge sale for the first year and 10% per year pro-rated for years 2 and 3. The expenses relate to any future sale costs. Once all fees and expenses have been deducted any surplus will be shared equally between Dunebridge and the Company. The purchase price has been determined using the Company’s price book, adjusted for the estimated current underlying market conditions. As at September 30, 2020, approximately US$49.4 million of run of mine diamonds have been sold under the agreement. On September 29, 2020, the shareholders approved to have this agreement amended to increase the total sales value from US$50 million of diamonds, to US$100 million. Although the potential amendment has been approved, the agreement has not yet been executed as the Company is now selling through its traditional sales channel in Antwerp, Belgium. The approval provides the Company with additional liquidity support, in the event that the traditional sales channel becomes disrupted.

On September 30, 2020, the Company entered into the Dunebridge RCF for US$25 million to reassign the previous RCF, with first ranking lien terms. The Dunebridge RCF carries an interest rate of 5% per annum, and is repayable on September 30, 2021 (Note 10 of the financial statements). The agreement also required an upfront 1% financing fee, which was paid on September 30, 2020.

Between 2014 and 2020, the Company and De Beers signed agreements allowing De Beers 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, 2020, the Company’s share of the letters of credit issued were $44.1 million (December 31, 2019 - $23.3 million).

During the nine month period ended September 30, 2020, the Company and De Beers signed an agreement to reduce the fee from 3% to 0.3%, annually, for their share of the letters of credit issued. Furthermore, a resolution was passed by the joint venture management committee to establish a decommissioning fund, where the Company will fund $15 million in 2020, and $10 million each year for four years thereafter until the Company’s 49% share totaling $55 million is fully funded. The targeting funding over time will increase, dependent on future increases to the decommissioning and restoration liability. During the three months ended September 30, 2020, the Company funded its first amount of $5 million into the decommissioning fund, and is presented as Restricted cash on the balance sheet.

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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.

The balances as at September 30, 2020 and December 31, 2019 were as follows:

	September 30,		December 31,
	2020		2019
Payable De Beers Canada Inc. as the operator of the GK Mine*	$	1,610	$	12,316
Payable to De Beers Canada Inc. for interest on letters of credit		512		353
Revolving credit facility with Dunebridge Worldwide Ltd.		33,298		–
Payable to key management personnel		169		567

*included in accounts payable and accrued liabilities

The transactions for the three and nine months ended September 30, 2020 and 2019 were as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
The total of the transactions:
International Investment and Underwriting	$	–	$	23	$	–	$	48
Remuneration to key management personnel		474		359		1,475		1,525
Diamonds sold to Dunebridge Worldwide Ltd.		36,095		–		66,671		–
Diamonds sold to De Beers Canada Inc.		–		–		5,551		10,152
Diamonds purchased from De Beers Canada Inc.		2,745		7,556		5,482		12,838
Finance costs incurred from De Beers Canada Inc.		17		177		159		524
Finance costs incurred from Dunebridge Worldwide Ltd.		333		–		333		–
Assets purchased from De Beers Canada Inc.		–		42		42		42
Management fee charged by the Operator of the GK Mine		1,092		1,038		3,276		3,114

The remuneration expense of directors and other members of key management personnel for the three and nine months ended September 30, 2020 and 2019 were as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Consulting fees, payroll, director fees, bonus and other short-term benefits	$	320	$	268	$	995	$	1,076
Share-based payments		154		114		480		497
	$	474	$	382	$	1,475	$	1,573

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.

CONTRACTUAL OBLIGATIONS

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	$	2,641	$	—	$	—	$	—	$	2,641
Gahcho Kué Diamond Mine decommissioning fund		20,000		20,000		10,000		—		50,000
Dunebridge revolving credit facility - Principal		33,298		—		—		—		33,298
Dunebridge revolving credit facility - Interest		1,665		—		—		—		1,665
Notes payable - Principal		—		399,490		—		—		399,490
Notes payable - Interest		32,403		48,649		—		—		81,052
	$	90,007	$	468,139	$	10,000	$	—	$	568,146

Page | 19 

NON-IFRS MEASURES

The MD&A refers to the terms “Cash costs of production per tonne of ore processed” and “Cash costs of production per carat recovered”, both including and net of capitalized stripping costs and “Adjusted Earnings Before Interest, Taxes Depreciation and Amortization (Adjusted EBITDA)”. Each of these is a non-IFRS performance measure and is referenced in order to provide investors with information about the measures used by management to monitor performance. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. They do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers.

Cash costs of production per tonne of ore processed and cash costs of production per carat recovered are used by management to analyze the actual cash costs associated with processing the ore, and for each recovered carat. Differences from production costs reported within cost of sales are attributed to the amount of production cost included in ore stockpile and rough diamond inventories.

Adjusted EBITDA is used by management to analyze the operational cash flows of the Company, as compared to the net income for accounting purposes. It is also a measure which is defined in the secured notes payable documents. Adjusted EBITDA margin is used by management to analyze the operational margin % on cash flows of the Company.

The following table provides a reconciliation of the Adjusted EBITDA and Adjusted EBITDA margin with the net income on the consolidated statements of comprehensive loss:

	Three months ended			Three months ended			Nine months ended			Nine months ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Net loss for the period	$	(6,532	)	$	(25,785	)	$	(74,263	)	$	(13,033	)
Add/deduct:
Non-cash depreciation and depletion		17,018			20,934			47,482			63,325
Share-based payment expense		274			149			841			631
Net finance expenses		10,430			9,995			30,700			29,367
Derivative losses		1,452			2,143			50			1,132
Current and deferred income taxes		–			(636	)		–			834
Unrealized foreign exchange (gains) losses		(7,342	)		3,783			9,421			(12,849	)
Adjusted earnings before  interest, taxes, depreciation and depletion (Adjusted EBITDA)	$	15,300		$	10,583		$	14,231		$	69,407
Sales		47,337			54,832			146,787			211,302
Adjusted EBITDA margin		32	%		19	%		10	%		33	%

The following table provides a reconciliation of the cash costs of production per tonne of ore processed and per carat recovered and the production costs reported within cost of sales on the consolidated statements of comprehensive loss:

		Three months ended			Three months ended			Nine months ended			Nine months ended
(in thousands of Canadian dollars, except where otherwise noted)		September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Cost of sales production costs	$		32,494			37,699			117,127			115,191
Timing differences due to inventory and other non-cash adjustments	$		(3,004	)		(95	)		(11,895	)		(141	)
Cash cost of production of ore processed, net of capitalized stripping	$		29,490			37,604			105,232			115,050
Cash costs of production of ore processed, including capitalized stripping	$		38,275			39,475			122,727			132,844
Tonnes processed	kilo tonnes		402			437			1,230			1,296
Carats recovered	000's carats		880			749			2,449			2,373
Cash costs of production per tonne of ore, net of capitalized stripping	$		73			86			86			89
Cash costs of production per tonne of ore, including capitalized stripping	$		95			90			100			103
Cash costs of production per carat recovered, net of capitalized stripping	$		34			50			43			48
Cash costs of production per carat recovered, including capitalized stripping	$		44			53			50			56

Page | 20 

Other Management Discussion and Analysis Requirements

Risks

Mountain Province’s business of developing and operating mineral resources involves a variety of operational, financial and regulatory risks that are typical in the mining industry. The Company attempts to mitigate these risks and minimize their effect on its financial performance, but there is no guarantee that the Company will be profitable in the future, and investing in the Company’s common shares should be considered speculative.

Mountain Province’s business of developing and operating mineral properties is subject to a variety of risks and uncertainties, including, without limitation:

• risk that COVID-19 continues to spread and materially impedes operations and/or the ability of the Company to sell and distribute diamonds;

• risk of COVID-19 affecting commodity prices and demand of diamond inventory, future sales and increased market volatility;

• risk that the production from the mine will not be consistent with the Company’s expectation;

• risk that production and operating costs are not within the Company’s estimates;

• risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits;

• results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with the Company's expectations; mining exploration risks, including risks related to accidents, equipment breakdowns or other unanticipated difficulties with or interruptions in production;

• the potential for delays in exploration activities or the completion of studies;

• risks related to the inherent uncertainty of exploration and cost estimates and the potential for unexpected costs and expenses;

• risks related to foreign exchange fluctuations, prices of diamond, and emergence of laboratory grown diamonds;

• risks related to challenges in the diamond market causing the sale of some or all of the diamond inventory to be sold below cost;

• risks related to commodity price fluctuations;

• risks related to failure of its joint venture partner;

• risks relating to complying with the covenants in our revolver credit facility;

• development and production risks including and particularly risks for weather conducive to the building and use of the Tibbitt to Contwoyto Winter Road;

• risks related to environmental regulation, permitting and liability;

• risks related to legal challenges to operating permits that are approved and/or issued;

• political and regulatory risks associated with mining, exploration and development;

• the ability to operate the Company’s GK Mine on an economic basis;

• aboriginal rights and title;

• failure of plant, equipment, processes and transportation services to operate as anticipated;

• possible variations in ore grade or recovery rates, permitting timelines, capital expenditures, reclamation activities, land titles, and social and political developments, and other risks of the mining industry; and

• other risks and uncertainties related to the Company's prospects, properties and business strategy.

As well, there can be no assurance that any further funding required by the Company will become available to it, and if so, that it will be offered on reasonable terms, or that the Company will be able to secure such funding. Furthermore, there is no assurance that the Company will be able to secure new mineral properties or Projects, or that they can be secured on competitive terms.

Disclosure of Outstanding Share Data

The Company’s common shares are traded on the Toronto Stock Exchange under the symbol MPVD.

At November 4, 2020, there were 210,417,473 shares issued, 2,933,335 stock options and 1,000,000 restricted share units outstanding. There were no warrants outstanding.

Page | 21 

There are an unlimited number of common shares without par value authorized to be issued by the Company.

Controls and Procedures

Disclosure Controls and Procedures and internal control over financial reporting

As of September 30, 2020, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer (CEO) and chief financial officer (CFO), of the effectiveness of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon that evaluation and as of September 30, 2020, the CEO and CFO concluded that:

• the disclosure controls and procedures were designed effectively to provide reasonable assurance that information required to be disclosed in the reports we file and submit under applicable securities laws is recorded, processed, summarized and reported as and when required;

• such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This MD&A contains certain “forward-looking statements” and “forward-looking information” under applicable Canadian and United States securities laws concerning the business, operations and financial performance and condition of Mountain Province Diamonds Inc. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to operational hazards, including possible disruption due to pandemic such as COVID-19, its impact on travel, self-isolation protocols and business and operations, estimated production and mine life of the project of Mountain Province; the realization of mineral reserve estimates; the timing and amount of estimated future production; costs of production; the future price of diamonds; the estimation of mineral reserves and resources; the ability to manage debt; capital expenditures; the ability to obtain permits for operations; liquidity; tax rates; and currency exchange rate fluctuations. Except for statements of historical fact relating to Mountain Province, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be”, “potential” and other similar words, or statements that certain events or conditions “may”, “should” or “will” occur. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Many of these assumptions are based on factors and events that are not within the control of Mountain Province and there is no assurance they will prove to be correct.

Factors that could cause actual results to vary materially from results anticipated by such forward-looking statements include the development of operation hazards which could arise in relation to COVID-19, including, but not limited to protocols which may be adopted to reduce the spread of COVID-19 and any impact of such protocols on Mountain Province's business and operations, variations in ore grade or recovery rates, changes in market conditions, changes in project parameters, mine sequencing; production rates; cash flow; risks relating to the availability and timeliness of permitting and governmental approvals; supply of, and demand for, diamonds; fluctuating commodity prices and currency exchange rates, the possibility of project cost overruns or unanticipated costs and expenses, labour disputes and other risks of the mining industry, failure of plant, equipment or processes to operate as anticipated.

Page | 22 

These factors are discussed in greater detail in this MD&A and in Mountain Province's most recent Annual Information Form filed on SEDAR, which also provide additional general assumptions in connection with these statements. Mountain Province cautions that the foregoing list of important factors is not exhaustive. Investors and others who base themselves on forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. Mountain Province believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this MD&A should not be unduly relied upon. These statements speak only as of the date of this MD&A.

Although Mountain Province has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Mountain Province undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements. Statements concerning mineral reserve and resource estimates may also be deemed to constitute forward-looking statements to the extent they involve estimates of the mineralization that will be encountered as the property is developed.

Further, Mountain Province may make changes to its business plans that could affect its results. The principal assets of Mountain Province are administered pursuant to a joint venture under which Mountain Province is not the operator. Mountain Province is exposed to actions taken or omissions made by the operator within its prerogative and/or determinations made by the joint venture under its terms. Such actions or omissions may impact the future performance of Mountain Province. Under its current note and revolving credit facilities Mountain Province is subject to certain limitations on its ability to pay dividends on common stock. The declaration of dividends is at the discretion of Mountain Province’s Board of Directors, subject to the limitations under the Company’s debt facilities, and will depend on Mountain Province’s financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.

Cautionary Note to US Investors - Information Concerning Preparation of Resource Estimates

This MD&A has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws.  Unless otherwise indicated, all resource and reserve estimates included in this MD&A have been prepared in accordance with NI 43-101 and the Canadian Institute of Mining and Metallurgy Classification System.  NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. 

Canadian standards, including NI 43-101, differ significantly from the requirements of Industry Guide 7 (“Guide 7”) promulgated by the United States Securities and Exchange Commission (“SEC”) under the United States Securities Act of 1933, as amended, and resource and reserve information contained herein may not be comparable to similar information disclosed by US companies pursuant to Guide 7.  In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserves”.  Under Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.  The SEC's disclosure standards under Industry Guide 7 do not define the terms and normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by Guide 7 standards in documents filed with the SEC pursuant to Guide 7.  US Investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility.  It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category.  Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases.  Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable.

Page | 23 

Disclosure of “contained ounces” (or “contained carats”) in a resource is permitted disclosure under Canadian regulations; however, the Guide 7 normally only permits issuers to report mineralization that does not constitute “reserves” by Guide 7 standards as in place tonnage and grade without reference to unit measures.  The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the Guide 7, and reserves reported by the Company in compliance with NI 43-101 may not qualify as “reserves” under Guide 7 standards.  Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with Guide 7.

Page | 24 

EX-99.2

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, 2020

(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		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

 Page |2

MOUNTAIN PROVINCE DIAMONDS INC.

 
Responsibility for condensed consolidated interim Financial Statements

The accompanying unaudited condensed consolidated interim financial statements of Mountain Province Diamonds Inc. (the "Company") are the responsibility of 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, 2019. Where necessary, management has made informed judgments and estimates in accounting for transactions which were not complete at the balance sheet date. The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards 34 – Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) appropriate in the circumstances.

Management has established processes, which are in place to provide sufficient knowledge to support management representations that it has exercised reasonable diligence that the unaudited condensed consolidated interim financial statements fairly present in all material respects the financial condition, financial performance and cash flows of the Company, as of the date of and for the periods presented by the unaudited condensed consolidated interim financial statements.

The Board of Directors is responsible for reviewing and approving the condensed consolidated interim financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. The Audit Committee assists the Board of Directors in fulfilling this responsibility.

The Audit Committee meets with management to review the financial reporting process and the unaudited condensed consolidated interim financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its unaudited condensed consolidated interim financial statements, together with other financial information of the Company for issuance to the shareholders.

Management recognizes its responsibility to ensure the financial reporting is in accordance 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 4, 2020

 Page |3

MOUNTAIN PROVINCE DIAMONDS INC.

Condensed Consolidated Interim Balance Sheets

Expressed in thousands of Canadian dollars

(Unaudited)

			September 30,			December 31,
	Notes		2020			2019
ASSETS
Current assets
Cash			$	23,435		$	34,751
Amounts receivable		5		3,026			1,688
Prepaid expenses and other				847			1,179
Derivative assets		14		—			587
Inventories		6		101,395			111,772
				128,703			149,977
Restricted cash		17		5,003			—
Reclamation deposit				250			250
Derivative assets		14		8			200
Property, plant and equipment		7		659,955			672,268
Total assets			$	793,919		$	822,695
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities		17	$	41,816		$	47,319
Dunebridge revolving credit facility		10 & 17		33,298			—
Decommissioning and restoration liability		8		1,015			2,445
Lease liabilities				518			811
				76,647			50,575
Secured notes payable		9		391,676			378,869
Lease liabilities				890			1,034
Decommissioning and restoration liability		8		61,982			56,071
Shareholders' equity:
Share capital		12		631,321			631,224
Share-based payments reserve		12		6,855			6,111
Deficit				(376,786	)		(302,523	)
Accumulated other comprehensive income				1,334			1,334
Total shareholders' equity				262,724			336,146
Total liabilities and shareholders' equity			$	793,919		$	822,695
Going concern		1
Commitments and contingencies		16 & 17

On behalf of the Board:
“Ken Robertson”	“Jonathan Comerford”
Director	Director

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

 Page |4

MOUNTAIN PROVINCE DIAMONDS INC.

Condensed Consolidated Interim Statements of Comprehensive Loss

Expressed in thousands of Canadian dollars

(Unaudited)

				Three months ended			Three months ended			Nine months ended			Nine months ended
	Notes			September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Sales		17		$	47,337		$	54,832		$	146,787		$	211,302
Cost of sales:
Production costs		6			32,494			37,699			117,127			115,191
Cost of acquired diamonds					—			2,316			6,486			10,944
Depreciation and depletion					17,018			20,934			47,482			63,325
(Loss) earnings from mine operations					(2,175	)		(6,117	)		(24,308	)		21,842
Exploration and evaluation expenses					145			2,250			3,181			7,768
Selling, general and administrative expenses		13			3,392			2,782			9,679			8,822
Operating (loss) income					(5,712	)		(11,149	)		(37,168	)		5,252
Net finance expenses		11			(10,430	)		(9,995	)		(30,700	)		(29,367	)
Derivative losses		14			(1,452	)		(2,143	)		(50	)		(1,132	)
Foreign exchange gains (losses)					11,062			(3,134	)		(6,345	)		13,048
Loss before taxes					(6,532	)		(26,421	)		(74,263	)		(12,199	)
Current income taxes					—			(136	)		—			(413	)
Deferred income taxes					—			772			—			(421	)
Total income taxes					—			636			—			(834	)
Net loss for the period				$	(6,532	)	$	(25,785	)	$	(74,263	)	$	(13,033	)
Total comprehensive loss for the period				$	(6,532	)	$	(25,785	)	$	(74,263	)	$	(13,033	)
Basic and diluted loss per share		12	(iv)	$	(0.03	)	$	(0.12	)	$	(0.35	)	$	(0.06	)
Basic weighted average number of shares outstanding					210,417,473			210,136,859			210,401,323			210,118,312
Diluted weighted average number of shares outstanding					210,417,473			210,136,859			210,401,323			210,118,312

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

 Page |5

MOUNTAIN PROVINCE DIAMONDS INC.

Condensed Consolidated Interim Statements of Equity

Expressed in thousands of Canadian dollars, except for the number of shares

(Unaudited)

	Notes			Number of shares		Share capital		Share-based payments reserve			Deficit			Accumulated other comprehensive income		Total
Balance, January 1, 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					34,999		44		(44	)		—			—		—
Balance, September 30, 2019					210,137,475	$	629,840	$	7,337		$	(186,798	)	$	1,334	$	451,713
Balance, January 1, 2020					210,392,473	$	631,224	$	6,111		$	(302,523	)	$	1,334	$	336,146
Net loss for the period					—		—		—			(74,263	)		—		(74,263	)
Share-based payment		12	(iii)		—		—		841			—			—		841
Issuance of common shares - restricted share units					25,000		97		(97	)		—			—		—
Balance, September 30, 2020					210,417,473	$	631,321	$	6,855		$	(376,786	)	$	1,334	$	262,724

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

 Page |6

MOUNTAIN PROVINCE DIAMONDS INC.

Condensed Consolidated Interim Statements of Cash Flows

Expressed in thousands of Canadian dollars

(Unaudited)

	Three months ended			Three months ended			Nine months ended			Nine months ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Cash provided by (used in):
Operating activities:
Net loss for the period	$	(6,532	)	$	(25,785	)	$	(74,263	)	$	(13,033	)
Adjustments:
Net finance expenses		10,407			9,957			30,630			29,237
Depreciation and depletion		17,073			20,988			47,646			63,489
Inventory impairment		—			—			16,956			—
Share-based payment expense		274			149			841			631
Derivative losses		1,452			2,143			50			1,132
Foreign exchange (gains) losses		(11,062	)		3,134			6,345			(13,048	)
Current income taxes		—			136			—			(154	)
Deferred income taxes		—			(772	)		—			421
		11,612			9,950			28,205			68,675
Changes in non-cash operating working capital:
Amounts receivable		(1,961	)		(2,744	)		(1,338	)		(1,580	)
Prepaid expenses and other		(277	)		110			332			615
Inventories		8,084			1,019			(13,227	)		(9,831	)
Accounts payable and accrued liabilities		3,659			5,523			(13,619	)		(6,822	)
		21,117			13,858			353			51,057
Investing activities:
Restricted cash		(5,003	)		—			(5,003	)		—
Interest income		18			89			143			346
Purchase of property, plant and equipment		(10,781	)		(2,101	)		(26,524	)		(22,593	)
		(15,766	)		(2,012	)		(31,384	)		(22,247	)
Financing activities:
Payment of lease liabilities		(142	)		(219	)		(535	)		(610	)
Repurchase of secured notes		—			(13,158	)		—			(13,158	)
Proceeds from settlement of currency contracts		3,019			—			3,019			—
Provided by (repayment of) revolving credit facility		(3,019	)		—			32,074			—
Provided by Dunebridge revolving credit facility		3,019			—			3,019			—
Financing costs		(1,450	)		(462	)		(19,037	)		(17,323	)
		1,427			(13,839	)		18,540			(31,091	)
Effect of foreign exchange rate changes on cash		(120	)		23			1,175			(162	)
Decrease in cash		6,658			(1,970	)		(11,316	)		(2,443	)
Cash, beginning of period		16,777			30,235			34,751			30,708
Cash, end of period	$	23,435		$	28,265		$	23,435		$	28,265

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

 Page |7

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

1. Nature of Operations and going concern

Mountain Province Diamonds Inc. (“Mountain Province” and together with its subsidiaries collectively, the “Company”) was incorporated on December 2, 1986 under the British Columbia Company Act. The Company amended its articles and continued incorporation under the Ontario Business Corporations Act effective May 8, 2006. The Company holds a 49% interest in the operating Gahcho Kué Project (“Gahcho Kué Diamond Mine” or “GK Mine” or “GK Project”) in Canada’s Northwest Territories. The Company also owns 100% of the mineral rights of the Kennady North Project (“KNP”).

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”) under the symbol ‘MPVD’. As of December 31, 2019, the Company was also listed on the NASDAQ under the same symbol. During the nine months ended September 30, 2020, the Company voluntarily delisted its common shares from the NASDAQ.

These condensed consolidated interim financial statements have been prepared using the going concern basis of preparation which assumes that the Company will realize its assets and settle its liabilities in the normal course of business.

The Company experienced operating losses of $5.7 million and $37.2 million for the three and nine months ended September 30, 2020. As at September 30, 2020, the Company had working capital of $52.1 million (December 31, 2019 – working capital of $99.4 million).

Amid the COVID-19 pandemic, the Company is experiencing liquidity challenges primarily resulting from the deferral of the periodic normal diamond sales carried out in Antwerp, Belgium. While the Company has recently resumed its normal sales in September, the risk of decreased sales volumes and realized prices, particularly in the last quarter of 2020 and through 2021, could significantly reduce remaining 2020 and 2021 revenue. During the nine months ended September 30, 2020, the Company drew US$25 million from its previous revolving credit facility agreement (“RCF”). The Company was subject to certain financial covenants on its outstanding senior secured notes and RCF which each included cross-covenant default terms. In July 2020, the Company obtained an executed waiver agreement to exempt the Company from the default on these covenants on the RCF, which occurred as at June 30, 2020. In exchange, the Company had agreed to a reduction in the size of the revolving credit facility to US$25 million from US$50 million and the imposition of additional covenants to August 31, 2020 which the Company was in compliance with. The Company also agreed to repay or provide alternate financing for the US$25 million by September 30, 2020, rather than the original maturity date of December 15, 2020. During the three-month period ended September 30, 2020, the Company entered into a senior secured revolving credit facility with Dunebridge Worldwide Ltd. (“Dunebridge”) (Note 10 and 17) for US$25 million to reassign its previously drawn RCF. The uncertainty that the COVID-19 pandemic has caused over potential diamond sales in the near-term, particularly in the last quarter of 2020 and in 2021 along with the need to repay the Dunebridge senior secured revolving credit facility (“Dunebridge RCF”) by September 30, 2021, and semi-annual interest payments on the secured notes may result in a future event of default under the terms of these debt instruments.

Management may seek alternative sources of financing; however, such alternative sources of financing may not be available or at terms acceptable to the Company. The above conditions related to the diamond industry, the Company’s operations and the Company’s current financing constraints represent material uncertainties that results in substantial doubt as to the Company’s ability to continue as a going concern. These financial statements do not include the adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern. These adjustments may be material.

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.

 Page |8

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

Authorization of Financial Statements

These condensed consolidated interim financial statements were approved by the Board of Directors on November 4, 2020.

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, 2019.

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, 2019 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 consolidated financial statements include the accounts of Mountain Province and its wholly-owned subsidiaries:

· 2435572 Ontario Inc. (100% owned)

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

· Kennady Diamonds Inc. (100% owned)

The Company’s 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) Standards and amendments issued but not yet effective

IAS 16, Property, Plant and Equipment

The IASB issued an amendment to IAS 16, Property, Plant and Equipment, to prohibit the deducting from property, plant and equipment amounts received from selling items produced while preparing an asset for its intended use. Instead, sales proceeds and their related costs must be recognized in profit or loss. The amendment will require companies to distinguish between costs associated with producing and selling items before the item of property, plant and equipment is available for it’s intended use and costs associated with making the item of property, plant and equipment available for its intended use. The amendment is effective for annual periods beginning on or after January 1, 2022, with earlier application permitted. The Company is currently evaluating the impact of the standard on the Company’s financial statements, and will perform an assessment prior to the effective date of January 1, 2022.

 Page |9

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

IAS 1, Presentation of Financial Statements

The IASB issued an amendment to IAS 1, Presentation of Financial Statements to clarify one of the requirements under the standard for classifying a liability as non-current in nature, specifically the requirement for an entity to have the right to defer settlement of the liability for at least 12 months after the reporting period. The amendment includes:

(i) specifying that an entity’s right to defer settlement must exist at the end of the reporting period;

(ii) clarifying that classification is unaffected by management’s intentions or expectations about whether the entity will exercise its right to defer settlement;

(iii) clarifying how lending conditions affect classification; and

(iv) clarifying requirements for classifying liabilities an entity will or may settle by issuing its own equity instruments.

The company is currently evaluating the impact of the standard on the classification of liabilities on the Company’s financial statements, and will perform an assessment prior to the effective date of January 1, 2022.

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, 2019.

5. AMOUNTS RECEIVABLE

	September 30,		December 31,
	2020		2019
GST/HST receivable	$	995	$	936
Other receivable		2,031		752
Total	$	3,026	$	1,688

 Page |10

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

6.INVENTORIES

	September 30,		December 31,
	2020		2019
Ore stockpile	$	5,915	$	8,592
Rough diamonds		53,441		70,190
Supplies inventory		42,039		32,990
Total	$	101,395	$	111,772

Depreciation and depletion included in inventories at September 30, 2020 is $17,794 (December 31, 2019 - $23,894).

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

Included in inventories, for the three and nine months ended September 30, 2020 are the Company’s 49% share of payroll and employee benefits for staff of the GK Mine of $5,751 and $25,622 (three and nine months ended September 30, 2019 - $8,358 and $25,584, respectively).

7.PROPERTY, PLANT AND EQUIPMENT

The Company’s property, plant and equipment as at September 30, 2020 and December 31, 2019 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, 2019	$	820,106		$	4,894		$	90		$	166,947	$	1,564	$	993,601
Decommissioning and restoration adjustment		(1,604	)		—			—			1,919		—		315
January 1, 2019 IFRS 16 lease additions		2,670			—			—			—		—		2,670
Additions/transfers*		35,162			(4,164	)		—			—		—		30,998
Impairment loss		(115,753	)		—			—			—		—		(115,753	)
At December 31, 2019		740,581			730			90			168,866		1,564		911,831
Decommissioning and restoration adjustment		2,287			—			—			—		—		2,287
Additions/transfers*		25,158			2,840			—			—		—		27,998
At September 30, 2020	$	768,026		$	3,570		$	90		$	168,866	$	1,564	$	942,116
Accumulated depreciation
At January 1, 2019	$	(152,350	)	$	—		$	(10	)	$	—	$	—	$	(152,360	)
Depreciation and depletion		(87,190	)		—			(13	)		—		—		(87,203	)
At December 31, 2019		(239,540	)		—			(23	)		—		—		(239,563	)
Depreciation and depletion**		(42,588	)		—			(10	)		—		—		(42,598	)
At September 30, 2020	$	(282,128	)	$	—		$	(33	)	$	—	$	—	$	(282,161	)
Carrying amounts
At December 31, 2019	$	501,041		$	730		$	67		$	168,866	$	1,564	$	672,268
At September 30, 2020	$	485,898		$	3,570		$	57		$	168,866	$	1,564	$	659,955

*Included in additions of property, plant and equipment for GK is $18,645 (December 31, 2019 - $23,896) related to deferred stripping of which $1,151 relates to the depreciation of earthmoving equipment (December 31, 2019 - $1,778).

**Included in depreciation and depletion is $622 of depreciation on the right-of-use assets capitalized under IFRS 16 (December 31, 2019 - $1,093).

 Page |11

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

8. Decommissioning and restoration liability

The decommissioning and restoration liability represents 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, 2020 and December 31, 2019:

	September 30,			December 31,
	2020			2019
Expected undiscounted cash flows	$	60,626		$	58,965
Discount rate		1.01	%		1.76	%
Inflation rate		1.01	%		1.35	%
Periods		2029			2029

The Kennady North Project decommissioning and restoration liability was calculated using the following assumptions as at September 30, 2020 and December 31, 2019:

	September 30,			December 31,
	2020			2019
Expected undiscounted cash flows	$	2,235		$	2,235
Discount rate		2.21	%		3.71	%
Inflation rate		1.96	%		1.96	%
Periods		2023			2023

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, 2020, and the year ended December 31, 2019, the decommissioning and restoration liability was increased by $3,602 and $2,490, respectively, for an increase in additional disturbance due to ongoing mining activity.

The continuity of the decommissioning and restoration liability at September 30, 2020 and December 31, 2019 is as follows:

	GK Mine		KNP		Total
Balance, at January 1, 2019	$	54,756	$	166	$	54,922
Change in estimate of discounted cash flows		571		1,919		2,490
Accretion recorded during the period		1,102		2		1,104
Balance, at December 31, 2019	$	56,429	$	2,087	$	58,516
Less: current portion of decommissioning and restoration liability		2,445		—		2,445
Non-current decommissioning and restoration liability, at December 31, 2019	$	53,984	$	2,087	$	56,071
Change in estimate of discounted cash flows		3,602		—		3,602
Accretion recorded during the period		820		59		879
Balance, at September 30, 2020	$	60,851	$	2,146	$	62,997
Less: current portion of decommissioning and restoration liability		1,015		—		1,015
Non-current decommissioning and restoration liability, at September 30, 2020	$	59,836	$	2,146	$	61,982

 Page |12

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

9. secured notes payable

On December 11, 2017, the Company completed an offering of US$330 million 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 pay interest in semi-annual instalments on June 15 and December 15 of each year, at a rate of 8.00% per annum, and mature on December 15, 2022. The 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, 2020, the Company has an obligation for US$299.9 million or $399.5 million Canadian dollar equivalent from the secured notes payable (December 31, 2019 -US$299.9 million or $389.3 million).

	September 30,		December 31,
	2020		2019
Total outstanding secured notes payable	$	399,490	$	389,262
Less: unamortized deferred transaction costs and issuance discount		7,814		10,393
Total secured notes payable	$	391,676	$	378,869

During the three and nine months period ended September 30, 2020, no secured notes payable were purchased by the Company from investors. During the year ended December 31, 2019, US$10 million or approximately $13.2 million Canadian dollar equivalent of secured notes were purchased by the Company from investors.

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

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 with the Bank of Nova Scotia (“Scotiabank”) and Nedbank Ltd. in order to maintain a liquidity cushion for general corporate purposes. The RCF had a term of three years and the Company was subject to a quarterly commitment fee 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 would have been charged for the number of days the funds are outstanding, based on certain leverage ratio calculations at the time. During the second quarter of 2020, the Company had drawn US$25 million from the RCF in order to maintain the liquidity of the business during the challenges faced by COVID-19. The RCF was subject to several financial covenants, in order to remain available which were breached and for which a waiver was obtained as at July 3, 2020.

On September 30, 2020, the RCF with Scotiabank and Nedbank Ltd. was reassigned to Dunebridge. The amount drawn at the time of US$22.7 million was paid by Dunebridge to Scotiabank and Nedbank Ltd. and the remaining available amount of US$2.3 million was advanced to the Company. The Dunebridge RCF terms are described in Note 10 below.

 Page |13

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

10. dunebridge revolving credit facility

On September 30, 2020, the Company entered into the Dunebridge RCF (Note 17) for US$25 million, with first ranking lien terms. The Dunebridge RCF carries an interest rate of 5% per annum, and is repayable on September 30, 2021, therefore has been classified as short-term on the balance sheet. Interest is payable on a monthly basis. The agreement also required an upfront 1% financing fee, which was paid on September 30, 2020. The Dunebridge RCF is not subject to any financial covenants to remain available.

The Dunebridge RCF also requires no further indebtedness be entered into, and no new agreements related to the sale of Diamonds occur without prior written approval from Dunebridge.

Permitted distributions to third parties (which include dividends) are subject to the Company having a net debt to EBITDA ratio of less than or equal to 1.75:1. Net debt is equal to total debt, less cash and cash equivalents. The aggregate amount of all distributions paid during the rolling four quarters up to and including the date of such distribution does not exceed 25% of free cash flows (“FCF”) during such period. FCF is defined as EBITDA minus, without duplication, (a) capital expenditures, (b) cash taxes, (c) any applicable standby fee, other fees or finance costs payable to the finance parties in connection with the Dunebridge RCF, (d) interest expenses and (e) any indebtedness (including mandatory prepayments) permitted under the existing agreement. Also, the available liquidity after payment of a distribution must be greater than or equal to US$60 million for distributions paid during a quarter ending March 31, or US$50 million, where the aggregate amount of the all advances outstanding does not exceed US$10 million.

The Dunebridge RCF payable is carried at amortized cost on the condensed consolidated interim balance sheet.

11. net finance expenses

	Three months ended			Three months ended			Nine months ended			Nine months ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Interest income	$	18		$	89		$	143		$	346
Accretion expense on decommissioning and restoration liability		(170	)		(252	)		(879	)		(850	)
Interest expense		(8,214	)		(8,279	)		(25,560	)		(25,001	)
Amortization of deferred financing costs		(868	)		(1,236	)		(2,578	)		(2,900	)
Other finance costs*		(1,196	)		(317	)		(1,826	)		(962	)
	$	(10,430	)	$	(9,995	)	$	(30,700	)	$	(29,367	)

*Included in other finance costs for the three and nine months ended September 30, 2020 is $23 and $70 (three and nine months ended September 30, 2019 - $38 and $130, respectively) related to interest on lease liabilities.

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 September 30, 2020 is 210,417,473.

No dividends were declared and paid in the nine months ended September 30, 2020 and the year ended December 31, 2019.

 Page |14

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

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

The Company has a long-term equity incentive plan (the “Plan”) which, among other things, allows for the maximum number of shares that may be reserved for issuance under the Plan to be 10% of the Company’s issued and outstanding shares at the time of the grant. The Board of Directors has the authority and discretion to grant stock 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, 2020, the aggregate maximum number of shares pursuant to options granted under the Plan will not exceed 21,041,747 shares. 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, 2020					Year ended December 31, 2019
	Number of options			Weighted average exercise price		Number of options			Weighted average exercise price
Balance at beginning of the period		3,518,335		$	3.26		3,130,000		$	4.17
Granted during the period		—			—		1,090,000			1.30
Expired/forfeited during the period		(585,000	)		4.66		(701,665	)		4.24
Balance at end of the period		2,933,335		$	2.99		3,518,335		$	3.26
Options exercisable at the end of the period		1,473,889		$	4.12		1,972,223		$	4.32

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, 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 1,090,000 stock options issued on December 27, 2019 vest 1/3 on December 27, 2020, 1/3 on December 27, 2021 and 1/3 on December 27, 2022.

	December 31,
	2019
Exercise price	$1.30
Expected volatility	43.33%
Expected option life	5 years
Contractual option life	5 years
Expected forfeiture	none
Expected option cancellation	none
Expected dividend yield	0%
Risk-free interest rate	1.64%

The following tables reflect the number of stock options outstanding, the weighted average of stock options outstanding, and the exercise price of stock options outstanding at September 30, 2020. The Black-Scholes values are measured at the grant date.

 Page |15

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

At September 30, 2020
	Black-Scholes		Number of		Number of		Exercise
Expiry Date	Value		Options		Exercisable Options		Price
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		605,556		3.48
June 30, 2023		203		200,000		133,333		3.30
June 30, 2023		41		40,000		40,000		3.30
December 27, 2024		436		1,090,000		—		1.30
	$	2,617		2,933,335		1,473,889	$	2.99

The weighted average remaining contractual life of the options outstanding at September 30, 2020 is 2.64 years (December 31 2019 - 2.86 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.

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

	September 30, 2020					December 31, 2019
RSU	Number of units			Weighted average value		Number of units			Weighted average value
Balance at beginning of period		1,065,000		$	1.31		368,997		$	5.01
Awards and payouts during the period (net):
RSUs awarded		—			—		990,000			1.13
RSUs settled and common shares issued		(25,000	)		3.90		(289,997	)		5.35
RSUs forfeited		(40,000	)		1.13		(4,000	)		6.49
Balance at end of the period*		1,000,000		$	1.25		1,065,000		$	1.31

*As at September 30, 2020, Nil RSUs (December 31, 2019, 16,667 RSUs) have vested and have not yet been settled.

No DSU awards have been granted to date, therefore as at September 30, 2020 there are no DSUs outstanding.

 Page |16

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

The share-based payments recognized as an expense for the three and nine months ended September 30, 2020 and 2019 are as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Expense recognized in the period
for share-based payments	$	274	$	149	$	841	$	631

The share-based payment expense for the three and nine months ended September 30, 2020 and 2019 is included in selling, general and administrative expenses.

iv. Loss per share

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

			Three months ended			Three months ended			Nine months ended			Nine months ended
			September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Numerator
		Net loss for the period	$	(6,532	)	$	(25,785	)	$	(74,263	)	$(13,033)
Denominator
	For basic - weighted average number of shares outstanding			210,417,473			210,136,859			210,401,323		210,118,312
	Effect of dilutive securities			—			—			—		—
	For diluted - adjusted weighted average number of shares outstanding			210,417,473			210,136,859			210,401,323		210,118,312
Loss Per Share
	Basic		$	(0.03	)	$	(0.12	)	$	(0.35	)	$(0.06)
	Diluted		$	(0.03	)	$	(0.12	)	$	(0.35	)	$(0.06)

For the three and nine months ended September 30, 2020, 2,933,335 stock options and 1,000,000 RSUs were not included in the calculation of diluted loss per share since to include them would be anti-dilutive (three and nine months ended September 30, 2019 - 2,428,335 stock options and 333,998 RSUs).

 Page |17

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Selling and marketing	$	1,137	$	1,409	$	3,256	$	4,359
General and administrative:
Consulting fees and payroll		420		365		1,350		1,430
Share-based payment expense		274		149		841		631
Depreciation		55		55		164		164
Office and administration		245		167		629		451
Professional fees		950		275		2,494		732
Promotion and investor relations		143		77		316		215
Director fees		63		71		181		190
Transfer agent and regulatory fees		99		102		337		346
Travel		6		112		111		304
	$	3,392	$	2,782	$	9,679	$	8,822

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:

· 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.

During the first quarter of 2020, 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. During the three months ended September 30, 2020, all foreign currency forward swaps, previously entered into were settled, as a result of the RCF settlement in the quarter (Note 9).

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 |18

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

Foreign Currency Forward Contracts

The following table presents the various derivatives as at September 30, 2020 and December 31, 2019:

	September 30,		December 31
	2020		2019
Prepayment option embedded derivatives	$	8	$	200
Foreign currency contract derivative assets		—		587
		8		787
Current portion of foreign currency contracts assets		—		587
Current portion of derivative assets		—		587
Non-current derivative assets	$	8	$	200

The following table presents amounts recognized in the Consolidated Statement of Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019:

	Three months ended			Three months ended			Nine months ended			Nine months ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
(Loss) gain on derivative contracts - currency contracts	$	(1,456	)	$	(1,902	)	$	158		$	457
Gain (loss) on prepayment option embedded derivative		4			(241	)		(208	)		(1,589	)
Total	$	(1,452	)	$	(2,143	)	$	(50	)	$	(1,132	)

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.

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.

 Page |19

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

	Carrying amount								Fair value
September 30, 2020	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	$	—	$	8	$	—	$	8	$	—	$	8	$	—	$	8
	$	—	$	8	$	—	$	8
Financial assets not measured at fair value
Cash	$	23,435	$	—	$	—	$	23,435		23,435		—		—		23,435
Restricted cash		5,003		—		—		5,003		5,003		—		—		5,003
Amounts receivable		3,026		—		—		3,026		3,026		—		—		3,026
	$	31,464	$	—	$	—	$	31,464
Financial liabilities not measured at fair value
Accounts payable and accrued liabilities	$	—	$	—	$	41,816	$	41,816		41,816		—		—		41,816
Dunebridge revolving credit facility		—		—		33,298		33,298		—		33,298		—		33,298
Secured notes payable		—		—		391,676		391,676		316,856		—		—		316,856
	$	—	$	—	$	466,790	$	466,790

	Carrying amount								Fair value
	Assets at Fair value through				Liabilities at
December 31, 2019	amortized cost		profit and loss		amortized cost		Total		Level 1		Level 2		Level 3		Total
Financial assets measured at fair value
Derivative assets	$	—	$	787	$	—	$	787	$	—	$	787	$	—	$	787
	$	—	$	787	$	—	$	787
Financial assets not measured at fair value
Cash	$	34,751	$	—	$	—	$	34,751		34,751		—		—		34,751
Amounts receivable		1,688		—		—		1,688		1,688		—		—		1,688
	$	36,439	$	—	$	—	$	36,439
Financial liabilities measured at fair value
Derivative liabilities	$	—	$	—	$	—	$	—		—		—		—		—
	$	—	$	—	$	—	$	—
Financial liabilities not measured at fair value
Accounts payable and accrued liabilities	$	—	$	—	$	47,319	$	47,319		47,319		—		—		47,319
Secured notes payable		—		—		378,869		378,869		378,083		—		—		378,083
	$	—	$	—	$	426,188	$	426,188

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 9).

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 |20

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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	$	2,641	$	—	$	—	$	—	$	2,641
Gahcho Kué Diamond Mine decommissioning fund		20,000		20,000		10,000		—		50,000
Dunebridge revolving credit facility - Principal		33,298		—		—		—		33,298
Dunebridge revolving credit facility - Interest		1,665		—		—		—		1,665
Notes payable - Principal		—		399,490		—		—		399,490
Notes payable - Interest		32,403		48,649		—		—		81,052
	$	90,007	$	468,139	$	10,000	$	—	$	568,146

17. RELATED PARTIES

The Company’s related parties include the Operator of the GK Mine, Dermot Desmond, Dunebridge Worldwide Ltd. and Vertigol Unlimited Company (“Vertigol”) (corporations ultimately beneficially owned by Dermot Desmond), key management and their close family members, and the Company’s directors. Dermot Desmond, indirectly through Vertigol, is the ultimate beneficial owner of greater than 10% of the Company’s shares. Underwriting Unlimited (“IIU”) is also a related party since it is ultimately beneficially owned by Dermot Desmond.

Related party transactions are recorded at their exchange amount, being the amount agreed to by the parties.

The Company had the following transactions and balances with its related parties including key management personnel including the Company’s directors, Dermot Desmond, Dunebridge, Vertigol, IIU and the Operator of the GK Mine. The transactions with key management personnel are in the nature of remuneration. The transactions with the Operator of the GK Mine relate to the funding of the Company’s interest in the GK Mine for the current year’s expenditures, capital additions, management fee, and production sales related to the 49% share of fancies and special diamonds. The transactions with IIU are for the director fees of the Chairman of the Company.

During the nine month period ended September 30, 2020, the Company entered into an agreement to sell up to US$50 million of diamonds to Dunebridge. The agreement permits the Company to sell its run of mine diamonds (below 10.8 carats) at the estimated prevailing market price at the time of each sale. The transaction also allows the Company to participate, after fees and expenses in a portion of any increase in the value of diamonds realized by Dunebridge upon its future sale of diamonds to a third party. The fees calculated per each sale are fixed at 10% of the value of each future Dunebridge sale for the first year and 10% per year pro-rated for years 2 and 3. The expenses relate to any future sale costs. Once all fees and expenses have been deducted any surplus will be shared equally between Dunebridge and the Company. The purchase price has been determined using the Company’s price book, adjusted for the estimated current underlying market conditions. As at September 30, 2020, approximately US$49.4 million of run of mine diamonds have been sold under the agreement. On September 29, 2020, the shareholders approved to have this agreement amended to increase the total sales value from US$50 million of diamonds, to US$100 million. Although the potential amendment has been approved, the agreement has not yet been executed as the Company is now selling through its traditional sales channel in Antwerp, Belgium. The approval provides the Company with additional liquidity support, in the event that the traditional sales channel becomes disrupted.

On September 30, 2020, the Company entered into the Dunebridge RCF for US$25 million to reassign the previous RCF, with first ranking lien terms. The Dunebridge RCF carries an interest rate of 5% per annum, and is repayable on September 30, 2021 (Note 10). The agreement also required an upfront 1% financing fee, which was paid on September 30, 2020.

 Page |21

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

Between 2014 and 2020, the Company and De Beers signed agreements allowing De Beers (“the Operator”) to utilize De Beers’ credit facilities to issue reclamation and restoration security deposits to the federal and territorial governments. In accordance with these agreements, the Company agreed to a 3% fee annually for their share of the letters of credit issued. As at September 30, 2020, the Company’s share of the letters of credit issued were $44.1 million (December 31, 2019 - $23.3 million).

During the nine month period ended September 30, 2020, the Company and De Beers signed an agreement to reduce the fee from 3% to 0.3%, annually, for their share of the letters of credit issued. Furthermore, a resolution was passed by the joint venture management committee to establish a decommissioning fund, where the Company will fund $15 million in 2020, and $10 million each year for four years thereafter until the Company’s 49% share totaling $55 million is fully funded. The targeting funding over time will increase, dependent on future increases to the decommissioning and restoration liability. During the three months ended September 30, 2020, the Company funded its first amount of $5 million into the decommissioning fund, and is presented as restricted cash on the balance sheet.

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.

The balances as at September 30, 2020 and December 31, 2019 were as follows:

	September 30,		December 31,
	2020		2019
Payable De Beers Canada Inc. as the operator of the GK Mine*	$	1,610	$	12,316
Payable to De Beers Canada Inc. for interest on letters of credit		512		353
Revolving credit facility with Dunebridge Worldwide Ltd.		33,298		—
Payable to key management personnel		169		567

*included in accounts payable and accrued liabilities

The transactions for the three and nine months ended September 30, 2020 and 2019 were as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
The total of the transactions:
International Investment and Underwriting	$	—	$	23	$	—	$	48
Remuneration to key management personnel		474		359		1,475		1,525
Diamonds sold to Dunebridge Worldwide Ltd.		36,095		—		66,671		—
Diamonds sold to De Beers Canada Inc.		—		—		5,551		10,152
Diamonds purchased from De Beers Canada Inc.		2,745		7,556		5,482		12,838
Finance costs incurred from De Beers Canada Inc.		17		177		159		524
Finance costs incurred from Dunebridge Worldwide Ltd.		333		—		333		—
Assets purchased from De Beers Canada Inc.		—		42		42		42
Management fee charged by the Operator of the GK Mine		1,092		1,038		3,276		3,114

 Page |22

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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

(Unaudited)

The remuneration expense of directors and other members of key management personnel for the three and nine months ended September 30, 2020 and 2019 were as follows:

	Three months ended		Three months ended		Nine months ended		Nine months ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Consulting fees, payroll, director fees, bonus and other short-term benefits	$	320	$	268	$	995	$	1,076
Share-based payments		154		114		480		497
	$	474	$	382	$	1,475	$	1,573

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, 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 Nine Months Ended September 30, 2020

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, 2020
		GK Mine			KNP			Total
Sales	$	47,337		$	—		$	47,337
Cost of sales:
Production costs		32,494			—			32,494
Depreciation and depletion		17,018			—			17,018
Loss from mine operations		(2,175	)		—			(2,175	)
Exploration and evaluation expenses		(85	)		230			145
Selling, general and administrative expenses		3,377			15			3,392
Operating loss		(5,467	)		(245	)		(5,712	)
Net finance expenses		(10,410	)		(20	)		(10,430	)
Derivative losses		(1,452	)		—			(1,452	)
Foreign exchange gains		11,062			—			11,062
Net loss before taxes	$	(6,267	)	$	(265	)	$	(6,532	)
Total assets	$	623,039		$	170,880		$	793,919
Total liabilities	$	528,922		$	2,273		$	531,195

 Page |24

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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, 2020
		GK Mine			KNP			Total
Sales	$	146,787		$	—		$	146,787
Cost of sales:
Production costs		117,127			—			117,127
Cost of acquired diamonds		6,486			—			6,486
Depreciation and depletion		47,482			—			47,482
Loss from mine operations		(24,308	)		—			(24,308	)
Exploration and evaluation expenses		827			2,354			3,181
Selling, general and administrative expenses		9,644			35			9,679
Operating loss		(34,779	)		(2,389	)		(37,168	)
Net finance expenses		(30,642	)		(58	)		(30,700	)
Derivative losses		(50	)		—			(50	)
Foreign exchange losses		(6,345	)		—			(6,345	)
Net loss before taxes	$	(71,816	)	$	(2,447	)	$	(74,263	)
Total assets	$	623,039		$	170,880		$	793,919
Total liabilities	$	528,922		$	2,273		$	531,195

 Page |25

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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		(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

 Page |26

MOUNTAIN PROVINCE DIAMONDS INC.

Notes to the Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2020

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 gains		(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

 Page |27