Dermot Desmond-backed diamond miner gets waiver from bank covenants

Mountain Province Diamonds, the listed Canadian miner whose major shareholder is Dermot Desmond, has struck a deal with its lenders to ease rules attached to a $50 million bank facility, as it grapples with the effects of the coronavirus on gemstone markets.

The company says it is also in talks with Mr Desmond, who owns a stake of 32 per cent, and other banks to secure additional debt facilities to allow it pay back its existing facilities in coming months.

The virus pandemic and subsequent lockdowns have affected the Gahcho Kue diamond mine on the edge of the Arctic Circle, in which Mountain Province has a 49 per cent stake. The rest is owned by South African giant De Beers, which also operates the mine. Mountain Province previously said the mine was operating below capacity due to new safety rules and travel restrictions, while traditional markets for rough diamonds were disrupted.

In June, another company controlled by Mr Desmond agreed to buy $50 million worth of Mountain Province's diamonds to give it breathing space. The Toronto-listed company, whose directors include Mr Desmond's son, Brett Desmond, also cut its guidance for the year.

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The latest debt deal involves a $50 million revolving credit facility with the Bank of Nova Scotia and Nedbank. The new agreement gives Mountain Province a waiver from covenants attached to the facility, such as the requirement for the company to maintain certain debt ratios and cash balances.

New covenants

In return, Mountain Province has agreed to cut the revolving facility in half to $25 million. It has also agreed to new covenants, such as a bonus ban for executives and the provision of weekly reports from the company to the banks.

It has also committed to showing progress by the end of August on a plan to pay back the entire facility by the end of September. It said talks continue with Mr Desmond and other banks “to secure additional debt facilities in order to repay the current lenders and meet short-term obligations and will update the market accordingly”.

Mr Desmond has been an investor in the Canadian diamond mining scene for more than two decades. Gahcho Kue is one of the world’s biggest new diamond mines, and would normally sell its share of the gemstones extracted in markets such as Antwerp.

The diamond market is reliant on continued growth in newer markets such as China, to make up for challenges in traditional western markets, where synthetic lab-made diamonds have provided competition.