Mountain Province Diamonds (TSE:MPV) announced this morning the credit approval for its US$370 million debt facility, which Dundee Capital Markets said is an incrementally positive step that should help derisk the company's ownership of the Gahcho Kue diamond project in the Northwest Territories.
Analyst Matthew O'Keefe said that the quick turnaround for approval is a positive step, although drawdown of the facility is still subject to the arrangement of a cost overrun facility.
"We view this as a quick turnaround, given the process was originally announced in June 2014," said O'Keefe in a research note released earlier today.
"This is likely due to Mountain Province’s 51% JV partner De Beers, which is majority owner and operator of Gahcho Kué. Of note, Scotiabank will replace Deutsche Bank in the syndicate; the company stated the change is unrelated to the project."
The syndicate now includes Scotiabank, Natixis and Nedbank.
Dundee said that given Mountain Province's estimated cash balance of less than $100 million, drawdown of the debt will likely be required in March in order to maintain its 49 percent share of the diamond project.
"Mountain Province’s share of the $433MM in planned capital expenditures for 2015 is $212MM. Recall Gahcho Kué is only accessible via winter road for six to eight weeks per year from early February, making the first cash call likely the largest," wrote O'Keefe.
He also highlighted that the cost overrun facility will likely be required before the March drawdown given the short timeline before the next capital call on its joint venture. The Dundee analyst estimates that the cost overrun facility will be in the order of US$50 million, representing about 13 percent of the remaining capex.
Dundee projects that physical construction at Gahcho Kue is about 10 percent complete, with Mountain Province estimating the overall project is now 50 percent finished. As of year-end 2014, the 4.3 million carat per year project was on track and budget for initial production in the second half of 2016.
The brokerage firm reiterated its buy rating and C$7.00 price target on Mountain Province.