Dermot Desmond’s ‘true up’ debt deal with Mountain Province Diamonds will help claw back slice of losses

Desmond’s equity stake in Canadian miner is underwater but his loan deals are more than washing their face

Dermot Desmond’s equity investment in Canadian mining company Mountain Province Diamonds may be deep underwater. But he appears to be on firmer ground as its effective lender of last resort, if an announcement from the company this week is anything to go by.

Desmond has kept Mountain Province, in which he is a 36 per cent shareholder, afloat since the onset of the pandemic by stumping up repeatedly to fund it with loan facilities and diamond purchases and underwriting its raising of funds.

Lucrative clause

In March, for example, he provided a $50 million junior credit facility for the company at an interest rate of 8 per cent. There was a kicker, however. Desmond agreed with the company that the interest rate on the junior facility from mid-December this year would switch to two percentage points above the yield on a separate tranche of loan notes it planned to issue. That “true up” clause is proving lucrative for him.

The company announced in October that it planned to issue $195.9 million of the loan notes at a rate of 9 per cent, which would suggest that the interest rate on the junior facility obtained from Desmond should rise to a chunky 11 per cent.


But it is actually even higher. Mountain Province confirmed in a note this week that the “effective interest rate” on the new notes is really 12 per cent, as they are to be issued at a value below par. That means Desmond’s $50 million junior facility will, if the loan notes deal goes through, cost the company 14 per cent in interest payments to the Irish businessman, all the way out to 2027.

It won’t make up for his equity losses, however. Desmond is estimated to have spent 220 million Canadian dollars (€158.4 million) on his shares. On Wednesday, his stake was worth less than 50 million Canadian dollars on the current share price. You win some, you lose some.