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SERVICES OR DISSEMINATION IN THE UNITED
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TSX and OTC: MPVD
TORONTO and NEW
YORK, Feb. 25, 2025 /PRNewswire/ -- Mountain
Province Diamonds Inc. ("Mountain
Province" or the "Company") (TSX: MPVD) and (OTC: MPVD)
today announces that it entered into (i) a payment and security
agreement (the "Payment Agreement") with De Beers Canada Inc. ("De
Beers") and 2435386 Ontario Inc. (the "JV Company"), an indirect
wholly-owned subsidiary of the Company, to recalibrate the
obligations of De Beers and the Company for the decommissioning
costs of the GK Mine (as defined below) and the grant of additional
security to De Beers for the Company's obligations thereunder (the
"Decommissioning Recalibration"); and (ii) a bridge credit facility
agreement (the "Term Loan Agreement") with Dunebridge Worldwide
Ltd. ("Dunebridge") as administrative agent, security trustee and
lender, and the guarantors named therein, for a term loan of up to
USD$40 million term loan (the "Term
Loan").
The GK Mine is located in the Northwest Territories of Canada and is operated as a joint venture
between the Company and De Beers. The Company, through JV Company,
holds a 49% interest in the GK Mine. De Beers holds the remaining
51% interest and is the operator of the GK Mine.
The Payment Agreement and new Term Loan Agreement are part of a
series of transactions (the "Refinancing Transactions")
consisting of (i) the Decommissioning Recalibration; (ii) the Term
Loan; and (iii) an amended and restated indenture to be entered
into among the Company, the guarantors named therein and
Computershare Trust Company N.A. (the "Note Trustee"), as
trustee and collateral agent, in respect of the Company's 9.00%
senior secured notes due December 15,
2025 (the "Second Lien Notes"), of which USD$177 million aggregate principal amount is
outstanding (the "Amended and Restated Indenture"),
extending the maturity of the Second Lien Notes to December 15, 2027 and amending certain terms of
the Second Lien Notes, including an option to pay scheduled coupon
payments on the Second Lien Notes in June and December of 2025 in
kind at the PIK Interest Rate (as defined below) (the "Note
Amendments").
The Company expects 2025 to be a particularly challenging year
for the production and sale of rough diamonds from the Gahcho Kué
diamond mine (the "GK Mine"). The Refinancing Transactions
are designed to support the Company in meeting those challenges
until mid Q2 2025, during which period the operating costs of the
GK Mine are typically higher in the first half of the year due to
the costs associated with the winter road. To manage its working
capital requirements and cash flow fluctuations for the balance of
2025, the Company is seeking, and the definitive documentation for
the Refinancing Transactions contemplates, a revolving capital
facility of up to CAD$33 million. The
Company has had preliminary discussions with a potential lender
that it intends to pursue upon completion of the Refinancing
Transactions.
As discussed in detail below, the completion of the Refinancing
Transactions is subject to receipt of Noteholder Consent (as
defined below) and regulatory approvals, including certain
approvals and exemptions from the Toronto Stock Exchange
("TSX") under the TSX Company Manual. Each of the
Decommissioning Recalibration, Note Amendments and Term Loan are
cross conditional. The Refinancing Transactions are expected to
close as soon as practicable upon satisfaction of all such
conditions precedent.
Mark Wall, the Company's
President and Chief Executive Officer, commented:
"The Refinancing Transactions conclude months of negotiations
with De Beers and the Company's creditors. The primary objectives
of these transactions are to address the reclamation liabilities
owed to De Beers, find a solution to the 2025 near to medium term
cash flow deficit, extend the term of the Second Lien Notes (that
were due to expire at the end of this year), and most importantly,
protect shareholder value. The Payment Agreement with De Beers
addresses the parties' respective obligations under the existing
joint venture agreement to fund the joint venture's obligations to
decommission the GK Mine at the end of its life cycle. The
injection of capital from the proceeds of the Term Loan combined
with the reduction in the Company's debt service obligations in
2025 as a result of the proposed amendments to the Second Lien
Notes is expected to allow the Company to continue to meet its
immediate and near-term obligations under the joint venture
agreement. While a complete financing solution for 2025 is expected
to require additional working capital of approximately C$33 million, the Refinancing Transactions will
stabilize matters in the near term while the Company's operating
costs are especially high. As the Company has indicated in its
interim and annual financial statements and other public
disclosure, the Company is in serious financial difficulty and
without the Refinancing Transactions and additional working capital
facility, its ability to continue as a going concern is in
doubt."
"With regard to shareholder value, there is limited potential
shareholder dilution from the additional warrants and despite the
financial situation of the Company, the coupon and true up payments
on the Second Lien Notes remain unchanged, with only a modest
increase on the deferred interest amount, should the company elect
to defer the coupon payments on the Second Lien Notes in 2025."
"We are grateful to our major stakeholder partners, Mr.
Dermot Desmond in particular, the
independent holders of the Second Lien Notes and De Beers, who have
worked collaboratively and tirelessly with the Company on this key
aspect of a part of the Company's 2025 financing plan."
Background to the Refinancing Transactions
The Company's current financial difficulties are a function of a
number of factors, including a continuation of pressures negatively
affecting the price of rough diamonds since 2022 as detailed in the
Company's annual information form for the financial year ended
December 31, 2023 and the Company's
most recent annual and interim financial statements and related
management discussion and analysis. These market conditions have
been compounded by a delay in accessing the NEX orebody at the GK
Mine, access to which would have resulted in an offsetting increase
in production. As previously reported, access to the higher grade
NEX orebody during 2025 has been delayed to the third quarter of
2025 due to geotechnical and operational constraints.
In addition, market conditions and production levels at the GK
Mine caused management to reduce the proposed number of sales
cycles from the typical nine cycles to seven cycles in 2025, and
most significantly delaying the February
2025 sales cycle to March 2025
in order to optimize sales prices. Owing to the delay in the
February sales cycle and a smaller than usual return from the
January sales cycle, the Company did not have sufficient cash on
hand to satisfy the immediate cash calls in February 2025 by De Beers, as operator of the GK
Mine, under the joint venture agreement and is currently in arrears
of such obligations.
The parties to the Refinancing Transactions worked through a
complex and prolonged negotiation process where they executed a
non-binding letter of intent on December 30,
2024. Since then, the parties have been diligently
negotiating the terms of the definitive documentation.
In the immediate term, the Company requires access to the Term
Loan to satisfy the February 2025
cash calls and further expected cash calls under the joint venture
agreement. Due to the closely held nature of the Company's voting
shares and related party aspects of the Refinancing Transactions,
discussed below, the Company is unable to obtain a written consent
of disinterested shareholders to the Refinancing Transactions and
is unable to convene a meeting of shareholders in the time
available to approve the Refinancing Transactions.
The Payment Agreement
Pursuant to the Payment Agreement, De Beers, the Company and the
JV Company agreed to a schedule for payment of the estimated
decommissioning costs to the decommissioning fund established under
the existing joint venture agreement, which schedule will supersede
previous schedules determined by the joint venture management
committee (the "Remaining Reclamation Payments"). The
Payment Agreement confirms the Remaining Reclamation Payments owing
by each of the JV Company and De Beers as at December 31, 2023 as a gross C$60 million and C$63
million, respectively (excluding accrued interest on
contributions). The first payment to the decommissioning fund,
being approximately one third of the Remaining Reclamation
Payments, is due on or prior to June 30,
2026 and then half of the balance estimated as owing at
December 31, 2026, payable on or
prior to June 30, 2027 and the
balance of what is estimated as owing at December 31, 2027, on or prior to June 30, 2028.
As security for the Company's obligation to make the Remaining
Reclamation Payments, the Company has agreed to grant De Beers
additional security over its assets in priority to the Company's
other secured creditors, being the holders of the Second Lien Notes
(the "Noteholders") and Dunebridge, in connection with both
the Company's existing junior secured credit facility with
Dunebridge (the "Dunebridge JCF") and the Term Loan. Such
grant of security is subject to settlement of an intercreditor
agreement among the Company's creditors.
Concurrently, De Beers, the Company and the JV Company have
agreed to amend and restate the existing joint venture agreement in
order to make consequential changes arising from the terms of the
Payment Agreement and to provide for an in-kind election (the
"In-Kind Election") in favour of De Beers upon (a) a failure
by the Company to pay a cash call when due or (b) upon a breach of
the Payment Agreement resulting in an acceleration and non-payment
of the Remaining Reclamation Payments. Pursuant to the In-Kind
Election, De Beers is entitled to the proceeds from the sale of the
JV Company's share of diamonds until the amount in default
(including interest) is fully paid (with the costs of such sale
being for the account of the JV Company). Any balance remaining
after payment of the amounts owing to De Beers is payable to the JV
Company.
The Term Loan
The Company, as borrower, the guarantors named therein and
Dunebridge as administrative agent, security trustee and lender
entered into the Term Loan Agreement for up to USD$40 million, USD$30
million of which will be readily available to the Company
and the remaining USD$10 million of
which will only be available to the Company at the discretion of
Dunebridge, and upon terms and conditions to be agreed to.
The Term Loan has a one-year term and carries a rate of interest
of 10.50% per annum, capitalized and compounded quarterly on the
principal amount and payable on maturity, to be increased to 12.5%,
if not repaid on maturity of the Term Loan. The Term Loan includes
a facility fee of US$1 million (the
"Facility Fee") which is to be paid in cash, on maturity of
the Term Loan. The Facility Fee is subject to the same terms and
rates of interest as the principal amount of the Term Loan.
In connection with the Term Loan, Dunebridge will be issued 10
million common share purchase warrants with an exercise price of
CAD$0.20 per share and an expiry date
of December 15, 2029 (the "New
Warrants"). The listing of the 10 million common shares of
Mountain Province (the "Common Shares") underlying the New
Warrants on the TSX is subject to the conditional approval of the
TSX. The exercise price for the New Warrants represents a 208%
premium to the 5 day volume weighted average price ("VWAP")
of the Common Shares on the TSX prior to this news release.
The Noteholder Consent and Note Amendments
The Second Lien Notes were issued pursuant to, and are governed
by, the indenture dated December 14,
2022 among the Company, the guarantors named therein and the
Note Trustee (the "Existing Indenture"). The Refinancing
Transactions, including the grant of a first ranking security
interest to De Beers in respect of the Company's obligations to
make the Remaining Reclamation Payments under the Payment
Agreement, require the approval of the holders of 90% aggregate
principal amount of the Second Lien Notes, to be provided in
accordance with the terms of the Existing Indenture (the
"Noteholder Consent").
Provided the Noteholder Consent is obtained, the Company and the
Note Trustee will enter into the Amended and Restated Indenture
pursuant to which the terms of the Second Lien Notes will be
amended to, among other things, permit the first ranking security
interest of De Beers and to extend the maturity date from
December 15, 2025 to December 15, 2027. Further, Mountain Province, shall at its election, have
the option of making the June 15,
2025 and December 15, 2025
coupon payments in cash at the existing interest rate of 9% plus a
true up to 12% (the "Base Interest Rate"), or to make such
payments in kind, at an interest rate not to exceed 13.50% per
annum in aggregate, , on the principal amount outstanding (the
"PIK Interest Rate"). The PIK Interest Rate option will only
be available in respect of coupon payments to be made in 2025.
In addition, the Amended and Restated Indenture will amend
certain covenants and events of default and impose new covenants
and events of default, including: amending the debt incurrence,
restricted payment, asset sale and affiliate transaction covenants;
increasing the default interest penalty and change of control
premium, adding new reporting obligations and adding a new
cross-default for failure to make the Remaining Reclamation
Payments when due.
In consideration for the amendments to the terms of the Second
Lien Notes, the Noteholders will receive a USD$2 million fee to be distributed pro rata
among them (the "Noteholder Fee").
The amendments to the Second Lien Notes were principally
negotiated with Noteholders that are at arm's length to the
Company.
The Company intends to seek Noteholder Consent by solicitation
process upon settlement of the terms of the Amended and Restated
Indenture and an amended and restated intercreditor agreement among
De Beers, the Note Trustee, Dunebridge, the Company and the
guarantors named therein, reflecting the terms of the Refinancing
Transactions.
Amendments to the Existing Warrants
As set forth above, the Refinancing Transactions require the
consent of the Company's junior lender, Dunebridge, as
administrative agent, security trustee and lender under the
Dunebridge JCF. As consideration for this consent, the Company has
agreed that upon and subject to closing of the Refinancing
Transactions, the 41 million share purchase warrants (the
"Existing Warrants"), which we were initially granted to
Dunebridge in connection with the Dunebridge JCF, will be amended
to reduce the exercise price on the Existing Warrants to
C$0.20 per share (from USD$0.60 per share) and to extend the expiry date
of such warrants to December 15, 2029
(from December 15, 2027) (the
"Warrant Repricing and Extension"). The amended exercise
price for the Existing Warrants represents a 208% premium to the 5
day VWAP of the Common Shares on the TSX prior to this news
release.
Insider Involvement in the Refinancing Transactions
As of the date hereof, Vertigol Unlimited Company
("Vertigol"), of which Mr. Dermot
Desmond is ultimate beneficial owner, holds 75,446,071
Common Shares, or approximately 35.5% of the Company's issued and
outstanding Common Shares. Mr. Dermot
Desmond's ultimate beneficial ownership of Vertigol makes
him a control person of the Company. Mr. Desmond is also the
ultimate beneficial owner of Dunebridge and also of
Noteholders holding USD$118 million
of the aggregate principal amount of the Second Lien Notes
outstanding (or 66% of the aggregate principal amount of Second
Lien Notes outstanding).
The Refinancing Transactions, however, will not materially
affect control of Mountain
Province. If the New Warrants and the Existing Warrants are
exercised in full, Mr. Desmond would become the ultimate beneficial
owner of 126,446,071 Common Shares, representing approximately 48%
of the issued and outstanding Common Shares. The increase
in shareholdings resulting from the exercise of the Existing
Warrants and the New Warrants would not provide Mr. Desmond with
the ability to influence the outcome of a vote of security holders
or to block a significant transaction involving the Company beyond
that which he already has given his current and already significant
equity position in Mountain Province.
Value of the Consideration to Insiders
Dunebridge and those Noteholders of which Mr. Desmond is the
ultimate beneficial owner are related parties of Mountain Province, on the basis that they are
all affiliates of Vertigol, each such entity being controlled by
Mr. Desmond. (collectively, the "Related Parties").
The aggregate value of the consideration to be received by the
Related Parties is equal to 229.14% of Mountain's Province's market capitalization as
of February 21, 2025. Such a
percentage reflects the aggregate value of the cash consideration
to be received by the Related Parties in connection with the
Refinancing Transactions as a percentage of its market
capitalization as of February 21,
2025, plus the percentage share dilution which would result
from the exercise of the New Warrants and the Existing Warrants.
The aggregate cash consideration to the Related Parties of
C$30,472,111 includes: (a) interest
on the Term Loan, calculated in accordance with the Term Loan and
assuming the Term Loan is paid out at the end of its one year term;
(b) the Facility Fee; (c) the difference between the Base Interest
Rate and the PIK Interest Rate on the Second Lien Notes (such being
the additional benefit to the Noteholders in the event Mountain
Province defers the June 2025 coupon payment and the December 2025
coupon payments on the Second Lien Notes); (d) the Noteholder
Fee; and (e) the additional interest payable on the Second Lien
Notes during the term extension from December 15, 2025 to December
15, 2027. In all cases, amounts denominated in United States
dollars were converted to Canadian dollars using the Bank of Canada
exchange rate of 1.4207 as published on February 21, 2025.
Multilateral Instrument 61-101 – Protection of Minority
Security Holders in Special Transactions – Exemption for Financial
Difficulty
The amendments to the terms of the Second Lien Notes, the
Warrant Repricing and Extension, the Term Loan and the issue of the
New Warrants constitute "related party transactions" within the
meaning of Multilateral Instrument 61-101 – Protection of
Minority Security Holders in Special Transactions ("MI
61-101").
A special committee of independent directors of Mountain Province (the "Special
Committee"), after determining that the Company is in serious
financial difficulty and
after giving due consideration to the best interests of the Company,
current industry and market conditions and the
impact of entering into the Refinancing Transactions on
shareholders and the Company's other stakeholders, unanimously
concluded that the Refinancing Transactions are in the best
interests of the Company, are designed to improve the financial
position of the Company and that the terms of the Refinancing
Transactions are reasonable in the circumstances and unanimously
recommended the Refinancing Transactions to the board of directors
of the Company (the "Board").
The Board received the recommendations and findings of the
Special Committee and unanimously approved the Refinancing
Transactions. Two members of the Board, Mr. Jonathan Comerford and Mr. Brett
Desmond, having declared conflicts of interest,
abstained from voting on the Refinancing Transactions.
The Company is relying on
the exemption from the formal
valuation and minority shareholder approval requirements
applicable to a related party transaction provided under section
5.5(g) and 5.7(1)(e) of MI 61-101 on the grounds that the Company
is in serious financial difficulty, that the Refinancing
Transactions are designed to improve the financial position of the
Company and that the Board, acting in good faith, and all of the
Company's independent directors, acting in good faith determined
that, the terms of the Refinancing Transactions are reasonable
given the difficulties that the Company is facing.
TSX Financial Hardship Exemption
Because the aggregate value of the consideration to be received
by the Related Entities will exceed 10% of the market
capitalization of Mountain
Province, disinterested security holder approval is required
pursuant to section 604(a)(ii) of the TSX Company Manual.
Similarly, the Warrant Repricing and Extension also requires
disinterested security holder approval under section 608(a)(i) of
the TSX Company Manual as the Existing Warrants are held by an
affiliate of Mr. Dermot Desmond, an
insider.
The Company has applied for an exemption (the "604(e)
Exemption") pursuant to section 604(e) of the TSX Company
Manual from such disinterested security holder requirements of the
TSX on the same basis as the exemptions from the minority
shareholder approval requirements applicable under MI 61-101 – the
Company is in serious financial difficulty and the time to convene
a meeting of the Company's shareholders would be prejudicial to the
ability of the Company to continue as a going concern.
There can be no assurance that the TSX will accept the
application for the 604(e) Exemptions. The Company expects that as
a consequence of its application and intention to rely on the
604(e) Exemptions, the TSX will place the Company's listing of its
Common Shares under delisting review, which is a customary practice
when a listed issuer makes an application under Section 604(e) for
an exemption from the security holder approval requirements of the
TSX. No assurance can be provided as to the outcome of such review
and therefore continued qualification for listing of the Common
Shares on the TSX is not guaranteed.
About Mountain Province Diamonds Inc.
Mountain Province Diamonds is a 49% participant with De Beers in
the GK Mine located in Canada's Northwest
Territories. The Gahcho Kué joint venture property consists
of several kimberlites that are actively being mined, developed,
and explored for future development. The Company also controls more
than 96,000 hectares of highly prospective mineral claims and
leases surrounding the GK Mine that include an indicated mineral
resource for the Kelvin kimberlite and inferred mineral resources
for the Faraday kimberlites.
For further information on Mountain Province Diamonds and to
receive news releases by email, visit the Company's website at
www.mountainprovince.com.
Caution Regarding Forward Looking Information
This news release 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, the terms of the Refinancing Transactions;
the anticipated benefits of the Refinancing Transactions to allow
the Company to continue as a going concern and to meet its
obligations under the joint venture and in respect of its existing
indebtedness; statements with respect to estimated production,
access to certain orebodies and mine life of the project of
Mountain Province; the timing and
amount of estimated future production; costs of production; the
future price of diamonds; recovery in demand in the diamond market;
dividend policy. 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 negotiating stances taking by the parties with respect to the
Refinancing Transactions; the ability to obtain approval of
regulators, parties and shareholders, as may be required, on
conditions acceptable to the parties; the ability to secure an
additional working capital facility, the development of operation
hazards; 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; competition within the mining industry;
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;
and failure of plant, equipment or processes to operate as
anticipated.
These factors are discussed in greater detail in Mountain Province's most recent Annual
Information Form and in the most recent MD&A 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 news release should not be unduly
relied upon. These statements speak only as of the date of this
news release.
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. Mineral
resources are not mineral reserves and do not
have demonstrated economic viability.
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 the Second Lien Notes, the Dunebridge JCF and the Term Loan,
Mountain Province is subject to
certain limitations on its ability to pay dividends on its Common
Shares. 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.
FOR FURTHER INFORMATION, PLEASE CONTACT: Mark Wall, President and CEO 161 Bay Street,
Suite 1410, Toronto, Ontario M5J
2S1 Phone: (416) 361-3562, E-mail: info@mountainprovince.com
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