Located deep in the Northern Territories of Canada, the Gahcho Kué diamond mine is located in harsh, unfriendly terrain. The mine, discovered in 1995, is connected to the outside world by a 120km ice road, passable only in winter.

The nearest town is Yellowknife, 280km away. Construction of the mine took twenty-one years and cost more than $1 billion. But, based on scientific reports pointing to a lucrative potential to produce CAD$10 billion worth of output over the course of its life, many investors were eager to back the giant diamond mine near the Arctic circle.

One of those was Dermot Desmond, the billionaire Irish financier, dealmaker, and investor. Desmond is a big backer of Mountain Province Diamonds, which owns 49 per cent of the mine. He is also owed tens of millions by the company, and last June, doubled down on his investment when a company he controls called Dunebridge agreed to buy CAD$50 million worth of diamonds from Mountain Province.

The story of the mine has not been straightforward. And that is typified by what occurred last Thursday. The company’s share price was 59c when the market opened. Within an hour, it had fallen to 44c, a drop of around 25 per cent. It slowly regained ground, closing the week at 52c.

So, what happened to drive the decline? In a word: losses.

Largely due to a loss in value of physical assets, Mountain Province Diamonds revealed it lost CAD$263.4 million in 2020.

The figure was double the CAD$129 million loss in 2019, although the majority of the 2020 loss was due to a $217.4 million impairment on property, plant and equipment.

“2020 was a challenging year for the company and Gahcho Kué mine, with pandemic-related personnel shortages and an inability to trade in the rough markets due to global lockdowns driving our underperformance,” according to a statement from the company’s president and chief executive Stuart Brown.

Brown noted the company has already faced challenges in early 2021. Work at Gahcho Kué was suspended for three weeks in February after a Covid-19 outbreak at the mine.

“2020 was certainly a very challenging year and 2021, although positive from a diamond price recovery perspective, has been equally challenging from a planning and production perspective,” Brown told investors.

He added: “In a positive development relative to the production setbacks, rough diamond prices have continued to improve in the opening months of 2021 as demand for rough diamonds remains robust. Overall, our current average diamond values, like for like, are now above pre-Covid levels.”

Mountain Province said it sold a total of 3,329,289 carats for CAD$227 million in 2020 at an average price of CAD$68 per carat. Comparatively, in 2019, the company sold 3,284,520 carats for CAD$276 million.

Supply, demand, quality

Mountain Province is not alone. Industry rivals also suffered in 2020 as a result of the pandemic. However, by December, experts said the diamond market was beginning to recover. And that month, Mountain Province announced it planned to sell its largest diamond recovered to date. At the time, the company said most sales prices in the fourth quarter of 2020 were higher than before the pandemic hit.

While the company’s share price is well below a Canadian dollar now, it was not always so. It was trading at CAD$7.15 in 2016. In euro terms, it had a peak value of €950 million. By close of play on Friday, it was worth around €73 million.

Sean has previously carried out a deep dive into the issues impacting the business. He summed it up as follows:

“Shortly after Gahcho Kue started operating, three major diamond mines opened: Botuobinskaya and Grib in Russia, and Renard in Canada. These three mines, along with Gahcho Kue, boosted global diamond production by 24 per cent. According to Bain & Co, the production increase in 2017 was the biggest single-year increase since 1986.

“What’s more, Gahcho Kue produces a lot of small and off-colour diamonds. It’s precisely this variety of diamonds which were getting produced by the new mines. So just as Gahcho Kue’s diamonds were hitting the market in Antwerp, the world capital of the diamond trade, there was a supply glut.

“The year before the mine opened Mountain Province forecast its diamonds would be worth $163 per carat. In 2017, the mine’s first full year of operation, it got $70 per carat. The following year it got $74 per carat. And last year, in 2019, it got $63 per carat (all are Canadian dollars). At the same time, costs were rising.”

Diamond mining is a slow business. Investors need deep pockets and they need patience. Desmond has both and has been a stalwart backer of Mountain Province. He is the most prominent of a group of Irish shareholders which also includes Des Sharkey, the low-key owner of Romania’s biggest shopping centre. “Without the support of the Irish we would be up the creek,” Mountain Province’s former CEO Patrick Evans once said.

The Artic odyssey continues.