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Good day, ladies and gentlemen, and welcome to the 2018 First Quarter Results Conference Call for Mountain Province Diamonds. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. David Whittle, Interim President and CEO. Sir, you may begin.
Thank you, everyone, for ringing in this morning to Mountain Province's 2018 First Quarter Financial Reporting Conference Call. My name is David Whittle, Interim President and CEO. And joining me is Perry Ing, our Chief Financial Officer; and Reid Mackie, our Vice President, Diamond Marketing. Please note that we'll be discussing forward-looking information and making forward-looking statements during the call. Actual results can vary materially from those anticipated in such statements. Please refer to the cautionary note regarding forward-looking statements in both our press release and our MD&A. Mountain Province's business has gotten off to a good, solid start in 2018. At the risk of front-running Perry with his numbers, we've booked an adjusted EBITDA of $33.2 million, and that's in only a 2-sale quarter. We've entered the quarter with $113.5 million in net working capital, a good solid buildup since the end of 2017. Rough diamond markets, of course, have had a similarly good, solid start to the year. As has been generally reported, fairly significant price increases have been seen by the industry across all categories since last fall. There's good, positive sentiment and demand in the industry, and it's supported by strong results in the retail jewelry segments both in North America and in Asia. That good experience persisted through, April as we saw from the results of our third tender sale of the year. And it appears to be continuing based on what we're seeing currently from our fourth sale, which is currently ongoing right now. With that, I'll turn it over to Perry Ing, our Chief Financial Officer, who will summarize the results for the quarter. Perry?
Thank you, Dave. In terms of a financial review, I'll start with a look at our Q1 income statement. As Dave mentioned, Q1 2018 is off to a very good start. We recorded Q1 2018 earnings from mine operations of $24.6 million, which is the highest quarterly result achieved to date since we commenced operation, even though, as Dave mentioned, it was only a 2-sale quarter. This translated to operating income of approximately $20 million after exploration and G&A costs, and a final net income after tax figure slightly above breakeven and a comprehensive income of $1.5 million.It should be noted that included in this net income figure are foreign exchange losses of approximately $10.4 million for the quarter, nearly all of which related to unrealized losses on our U.S. dollar-denominated bonds, given the weakening of the Canadian dollar during the quarter.Readers should be aware that from a practical standpoint, a weakening of the Canadian dollar is highly beneficial to the company as our revenues from diamond sales are exclusively received at U.S. dollar while over 90% of our operating costs are Canadian dollar-denominated. So even though it may result in reducing our GAAP net income, a depreciating Canadian dollar is to the company's benefit in economic terms.From a revenue standpoint, we reported sales of $66.6 million based on the sale of 527,000 carats at an average realized price of USD 99 per carat. No sales were made to De Beers during the quarter. This was the highest reported quarterly realized price per carat, which was aided by having a significant number of fancies and special available at tender along with a robust market for rough product following a strong 2017 holiday retail season. In terms of costs, diamond sales in the quarter reflect primarily production from the fourth quarter of 2017, which was a strong production period. Cash operating costs were previously reported as $62 per tonne and $26 per carat as the average grade recovered exceeded 2.3 carats per tonne during the fourth quarter of 2017. Total reported production costs were $18.9 million, and the costs of acquired fancies and special diamonds were $10 million. Our G&A expense of $3.6 million was consistent with prior period. And specifically, our diamond marketing and selling expenses were $1.6 million of this amount or approximately 2.4% of diamond sales, which is also in line with prior period.Our 49% share of exploration expenses at the GK mine were $0.9 million. You will note that we recorded a current income tax expense during the quarter of $0.7 million. This represented a voluntary payment of royalty taxes recorded in the first quarter of $574,000, which was actually paid in the second quarter as part of our overall tax planning strategy to mitigate the total amount of Northwest Territory royalty payable in the future by taking advantage of low rate at the bottom end of the sliding scale royalty system. We do not expect any further cash income tax payable for the remainder of the year, and payments in the near-term year should be at a similar quantum. As Dave mentioned, on an EBITDA basis, we reported strong adjusted EBITDA of $33.2 million. Turning to our balance sheet and liquidity. We ended the quarter with cash of $29 million compared to $43 million at the beginning of the year. A drawdown in cash and an increase in accounts payable and accrued liabilities was expected compared to year end given the requirement to fund annually the supply cycle of the winter ice road, which was reflected in our $28 million increase in supplies inventory during the quarter. In addition to that, we also provided $7.5 million in private placement financing to Kennady Diamonds during the first quarter prior to the closing of the acquisition of Kennady in the second quarter of the year. This funding allowed Kennady to complete their 2018 winter exploration program.We have not utilized our USD 50 million revolving credit facility at any point to date. And now just turning in terms of some brief production highlights. From a production standpoint, the GK mine performed very well during the first quarter of 2018. The statistics are provided in the MD&A and press release, so I'm not going to rehash them, but I'll just touch on a couple of brief highlights. Total tonnes mined were 8.2 million tonnes compared to 7.7 million in the corresponding period in 2017 or a 6% increase. Approximately 1/4 of the tonnage mined was in relation to the Hearne pit's overburden removal and pre-strip as that pit began extracting ore recently in the second quarter. Ore and stockpile continues to be robust, with 796,000 tonnes in stockpile at the end of the quarter, representing approximately a full quarter of plant production. Tonnes processed during the quarter were 786,000 tonnes or an average of 8,733 tonnes per day, representing strong production during the worst of the winter months and a tremendous 60% increase from the prior period in 2017, when we experienced conveyor and ice buildup issues, which resulted in significant downtime.The Q1 2018 production rate was achieved even without completion of the enclosures on the 2 main transfer points and plant feed conveyors, which is expected to be completed over the coming weeks. The average grade processed during the period was 2.09 carats per tonne, which yielded total production of 1.64 million carats or just over 800,000 carats as the company share production. From a cost standpoint, cash cost per tonne with deferred strip on 5034 came out at $76 per tonne, and on a per carat basis, $37 per carat. This should allow the company to continue to report strong earnings from mine operations in the second quarter as we sell those diamonds produced in Q1, with sale 3 having already been completed, sale 4 currently underway and sale 5 slated for mid-June. So with that, I'll now turn the call back to David Whittle.
Thanks for that, Perry. Operationally, as Perry has intimated, we had a fairly in-line winter season through this Q1. Winter road conditions were quite good this year and all fuel, explosives and other bulk materials were delivered into site as planned. As Perry noted, cash balances are a bit lower from the year-end because of the spend in the quarter on this coming supply of -- this coming year supply of bulk materials. As well, our third sale wasn't completed until just after quarter end, and that sale generated a further $33 million in cash. However, the overall economic picture can be seen from the increase in our net working capital to $113.5 million, which of course, includes the value of the supplies and rough diamond inventories in which cash is invested.Production-wise, we had a winter-related issue with the conveyor belt, but that was well offset by strong performance from the processing plant. Recovered grade was well in line with expectations at 2.09 carats per tonne, as Perry noted, and that's with us processing through the first half of the quarter some relatively diluted ore that we had in stockpile. We are comfortably on track for meeting our full year production guidance. We're also pleased to report that we've now started mining from our second pit, the Hearne Pipe. First ore was taken from the Hearne pit in late April, and we're beginning to process Hearne ore through the plant during the second quarter. Going forward, plant feed will generally be a blend of ores from both 5034 and Hearne. As you know, in April, we completed the acquisition of Kennady Diamonds, a transaction well supported by shareholder vote at the approving shareholder meeting that was held. An exploration drill program has been ongoing at Kennady through this winter and will likely wrap up this coming week. A focus of the program has been on delineation, extension and geotechnical drilling at the Faraday 2 resource body, and we've had some good success on that front. Further details will be provided in due course following the completion of the field program. An exploration program is also ongoing at the Gahcho Kué mine with particular focus in the area in and around the Hearne Pipe, on a new exploration target between Tuzo and Tesla and on the corridor running between 5034 and Tuzo, which includes the North Pipe. That program will progress at a slightly slower pace given the active mine environment. But again, details on the results will be provided in due course as field analysis is carried out. As you may have noted in our press release, we have again reiterated our commitment to return value to shareholders. We expect to determine and declare an inaugural dividend as part of the issuance of our second quarter results. As you know, our dividend payouts will be governed in part by our long-term debt indenture, which sets the capacity buildup rate at 1/2 of adjusted reported net income. To be clear, one of the main adjustments to net income for this purpose is the exclusion of unrealized foreign exchange gains and losses. The unrealized FX loss in this quarter from the translation of the long-term debt, for example, is not included in that capacity calculation.Lastly, I'll comment on the question of the permanent CEO role. As I think most are aware, I'm still The Interim CEO, and I did not put myself forward for the permanent position. I'll be looking to remain on the board but in my prior capacity as an Independent Director. Under securities regulation, if I'm to revert to my prior role as an Independent, I can't have been in the Interim CEO position for more than 1 year, and that 1 year comes up in early June. I can certainly report that we have been actively engaged in CEO recruitment process for some time now, and I believe we're very close to completing that effort. I'm hopeful we'll be able to make an announcement on that front within the next week or so. With that, I'll turn the call back to the operator, and we'll open up for questions.
[Operator Instructions] And our first question comes from the line of [ Christopher George ], a private investor.
I've got 2 questions. The first one has to do with the Kennady Diamond acquisition. I'm still a little foggy as to how this is going to work with De Beers. I understand that we split our stuff 51%-49% right now and that MPV currently owns 100% of Kennady Diamonds. And so as we get further along with that Kennady Diamond project, and we start having those diamonds come over to our processing plant, I don't really understand how we delineate whose diamonds are whose. So I wouldn't mind just some kind of like an update on what the plan is with De Beers. I presume we would like to cut them in on their share of that. So that's my first question.
Sure. You want me to dive right in on the first question?
Yes, please.
No problem, Christopher. Thanks for calling in. You may have noted in March, I believe it was, we put out an announcement for a memorandum of understanding with De Beers. That memorandum spells our framework, where we would -- effectively, we would incorporate Kennady resources into the Gahcho Kué joint venture as we get close to the point of bringing them into the production plan. De Beers would make a contribution. They would buy -- effectively buy in -- in one form or another, they would buy into their 51% share of the Kennady resources that are coming in. So that's how that would occur. So they would become part of the Gahcho Kué joint venture, with De Beers paying for their appropriate share, their appropriate 51% share of what does come in.
So it seems to me then that we are -- MPV shareholders, I guess, we're holding all the risk on this Kennady Diamond then. I guess if it goes well and we find lots of diamonds that when De Beers buys in, they're going to have to buy in at a higher price. And I guess if it doesn't go well, then it would be the opposite of that.
That's a fair way to put it.
Okay, great. I guess my second question for you guys, was there any consideration -- with this long-term loan that we have, was there any consideration at the time of that -- any kind of financial derivatives to hedge that position? Because I think forecasting U.S. dollar, Canadian dollar is certainly not an exact science. I think most people expected the Bank of Can to put interest rates up. That usually has impacts on the dollar. And I think most people would have expected that the Canadian dollar compared to the U.S. dollar would actually have -- what has occurred was going to occur. And this is creating, I understand, an unrealized loss that actually may become realized as we have to pay it. So I was just interested if the board had discussed using any kind of derivatives so that we didn't have this risk.
Absolutely. No, that's an active point of consideration. Actually, I'll turn that in a certainly different -- a bit of a different direction. There is a risk on the translation of the debt, you're quite right. Now that's unrealized. That crystallization point is 4, 4.5 years down the road, so you're quite distill in that regard. A much more current consideration today from a hedging point of view is that all of our revenue is U.S. dollar-denominated, as Perry has noted, and virtually all of our costs are the Canadian dollar-denominated. So we actually have built into our current operating structure a foreign exchange exposure. Now there's a natural hedge that sits there between the debt and the operating exposure. But nonetheless, the board is heavily focused, in fact, on what we will do from a foreign currency hedging perspective. That's under active consideration. We do not have a foreign currency hedge in place at this particular point in time. It's entirely possible we will pick something up over the course of the year.
Okay. So that's my last question, David. I just wanted to thank you for your good efforts as the Interim President over the last 11 or 12 months.
Thanks, Christopher. I appreciate that.
And our next question comes from the line of Scott Macdonald from Scotiabank.
David, you'll be missed. I appreciate all your hard work over the last 11 months or so.
Thanks, Scott.
A couple of related questions to start here, just on the mining rates. And more specifically, it looks like the stripping and the cash costs during the quarter. It looks like the -- your mining overall was about 20% behind plan. I wonder if you could comment on that and whether that's related to, I guess, your cash costs per tonne were quite a bit below the full year guidance. I'm wondering if you could comment on that and may be related.
Yes. It'll be -- there might be a partial relation, but I think generally, the costs are below guidance, just flat out. We are a little behind in total mining. We do have the additional fleet equipment that came up the road. As we noted in our capital expenditures guidance, we've got a couple of trucks and a shovel that are really holdovers from the fleet deployment from a startup process. Those are being employed through the course of the summer here. So that will increase our mining rate. We expect that will make a contribution for us, making up the shortfall in the total tonnes mined side of things. We still have 800,000 tonnes sitting in ore stockpile. We've got good ore production through the year. We don't see it as a pinchpoint at this point in time.
Yes. When do you think -- I mean, if you couldn't increase the mining rate past where you're at today, when would you feel that pinchpoint?
That would be -- we would feel it in 2019, I would expect. But as I say, with the additional trucks and shovel being employed, we don't expect it to be an issue.
Right. Okay. And then as far as the costs go, so you say -- where are seeing the costs coming in below plan?
Just in -- we're finding our base cost structure has been consistent over the past several months. And the production rates we've been running as, call it, around the CAD 80 per tonne production rate, so it's been a fairly stable production platform. With the additional couple of trucks and shovel, we may see some additional cost increase. We'll be interested -- it will be interesting to see how well we perform against the guidance market has been set.
Okay. And is there -- maybe more for Perry. Is there any noise in there caused by the fact that a lot of the supplies used in the quarter might have been from last year that were acquired sort of before pre-commercial production? Or is that not a factor at this point?
I wouldn't think that's a factor at this point, Scott.
Okay. Just one more, if I may. You may not have an answer to this, but have you gotten a look at all at any of the Hearne diamonds coming out of the plant? Or is it still too early?
No, it's still too early. We've only just started in Hearne.
And our next question comes from the line of Geordie Mark from Haywood Securities.
Perhaps some housekeeping following on from Scott there. Any more language on unit costs? Maybe on a mined tonne basis rather than an overall sort of number there? And on sustaining capital, obviously, budget for sustaining capital for the year is substantially higher on a [ quarterized ] basis versus what we sort of saw in Q1. So with the employment or I guess the additional equipment that you're looking to, should we keep the same sustaining capital number and attribute that sustaining capital over the next 3 quarters? If not, what should we look at there?
I'll just chip in on the second question first. Yes, the sustaining -- the overall capital guidance we've given for the year is still valid, as you can -- what we spent today, you can knock off. They'll be a bit of a front-end load because of the -- with the remaining employment of the trucks and shovel that went up, that'll probably be a Q2 expenditure. But I'll throw it over to Perry to comment on the remainder and just to confirm that point.
Yes, I mean, I think in terms of -- sorry, this is on the second point or the first point, David?
Second point, I think.
Sorry, yes. I believe that's correct. Yes.
And can you kind of repeat on that first point, Geordie?
Just well, the mining unit costs were ultimately on a maybe a per tonne basis or something if you can give us that, if possible.
I don't have the figures in front of me, but I certainly would be able to take that off-line and get back to you on that, Geordie. But from what we're seeing, costs are more or less coming in, in line with expectation. Fuel costs came in a little bit higher on the winter road than perhaps the original budget. But aside from that, we're not seeing any significant overages that would contribute to higher unit costs than planned.
Got you. And perhaps on expected grade profile going forward. Were you looking for any changes in the grade profile given what you've seen at the moment? Any material deviations from the plan there?
I'll say no grade or material deviation we typically would see on a month-to-month. We're still well on track for our full year. Full year guidance is about 2.09 on grade, and we don't see any deviation from that overall. Month-to-month, as we've always had, we do have a degree of variation anywhere from 1.9 to 2.4, for example. But you'll see -- I think the general trend will remain on track.
I guess I'm trying to get some more language around when we look at the technical study and the positive grade reconciliation witnessed in the new sampling versus, I guess, the relative conservative sort of upgrade in the -- or increase in the average grade. Just wondering whether there's room there for positive bias on grade at all.
There may be. I think certainly so far taking out the diluted ore factor -- we processed some diluted ore in the first part of the year. If you take that factor out, we are performing well against grade expectations. But let's stick with our reserve expectations and see how reality plays out over the course of the year.
And our next question comes from the line of Daniel McConvey from Rossport Investments.
Just my question is on Geordie's points on the grade. As we -- and I'm just rusty on this, but where the mining is taking place now, is that -- it's in the periphery of, just a question, in the periphery of what you hoped to be a higher-grade area? And is there a point in time over the next 18 months where you're going to be in a -- what you hope to be a richer zone in the ore body?
Not so much on grade, Dan. Grade, we're -- the grade experience we're seeing right now and have been seeing we expect is the grade experience that we'll see through the 5034 Pipe. We're talking really to the 5034 Pipe here. Where there was something along the lines of what you're describing, it's probably more on the quality distribution of the diamonds. There's a thesis that as we get deeper into the heart of the 5034 ore body, we're hoping we'll see a bit of an improvement on the quality distribution. Quality distribution that we've seen so far in the 5034 has, on average, been below the level that was anticipated by -- under the feasibility study and the original reserve statement. The thesis is predicated on the idea that as we get deeper in the ore body, we'll see some reversion to the general quality average that was observed in the large diameter drill core data. But that's not something that will happen in a magical moment or something. If it does occur, it'll transpire over the course of 2018, for example. So I think we need to be well into the year before we can draw a conclusion on that.
Okay. Would it be -- do you know is there roughly -- I mean, is there a distance? Are you 100 meters or whatever, 50 meters from the upper ends of that deeper zone? Is it -- we look at [indiscernible]
No, no bright line marks. That's why I say that towards the end of the year, we can start to draw a conclusion. That's really going to be mathematically from the fact that you're sufficiently far into the ore body that on averaging basis, you're not going to -- you're either going to get there or you're not. But there's no bright line geological mark that we need to cross.
And our next question comes from the line of [ Daniel Flazer ] from Bay Shore Capital.
I'd like to step back to a little bit of a higher level here because as a shareholder, we're all facing a relatively substantial conundrum here because if I listen to the qualitative discussion of the quarter and the mine operations, very upbeat, very positive tone, improving conditions throughout the industry and really a stellar job of overall operational execution. And yet, we've got a stock that is literally sitting at its historic lows, down 13% since the day you announced the Kennady acquisition after dropping 50% last year. At the time of the acquisition, I heard from a lot of shareholders who were a little confused about the company's willingness to give up 25% dilution on the cash flows and dividends per share for the next 5 years in exchange for an uncertain cash flow cover in 2023. I think the stock price action has kind of maybe vindicated a little bit of the skepticism that was in place at that time, so I guess I'm just a little bit curious if this is kind of what the board expected to see, the stock price to move in the direction of the dilution. And what mechanism you think, you and the board might believe that we shareholders can expect to help to enhance the returns that we might receive. If cash flows are 25% less per share, under what circumstances and mechanisms do you think shareholders might actually benefit from the Kennady acquisition? That's really the basis of the question.
Right. Thanks, Dan. I'll tackle that, I guess, from 2 perspectives or 2 avenues. One would be on the market side. Yes, there's a frustration in the reaction of our share price compared to where we are from a business point of view. You're right, we've been upbeat and positive and I think the numbers and the reality support that. The business is going well, and the industry is on an uptick. So we're comfortable with where we are from a business point of view. We -- there is, we believe, obviously, a disconnect between what's happening in our short-term share market and the fundamentals of the business. On the Kennady transaction specifically, obviously, we put forward in the past what our thesis is for that transaction, the accretive aspect from the integration of Kennady into the mine plan, short-term and long-term extension of mine life, augmentation of the mining grade issue that sits within the middle of the Tuzo Pipe, for example. I won't rehash all that now, but those are the thesis that have been put forward. I think the real test sits with the company's ability to execute. We put forward certain plans. We put forward an expectation of what we will accomplish with the Kennady transaction. That includes the incorporation of Kennady into the Gahcho Kué joint venture and the involvement of our joint venture partner on an economically appropriate basis. It really sits with management and the board to execute on that plan. That execution is going to occur, of course, over the next year or 2. It's not a next-month thing, but we will be pushing that forward and are pushing it forward. But really, it sits with management to deliver on the plan that we put forward to the shareholders.
But is it fair to say that the plan and the execution that you're referring to for the next 3 to 4 years are all with the existing Mountain Province operations, that the Kennady operation really don't factor into any of the fundamental developments over the next, say, 4-year period? So you're kind of doing your old knitting, but you just got a little bit more burden on the back with the extra shares, is that fair in terms of operational execution?
Well, the integration with Kennady coming into the mine plant, it would be 4 years down the road before you're seeing it. But there's -- obviously, there's work that goes in advance to that. It's not an IKEA exercise, where you buy a chair and build it. There's more that's involved, and we've got a 4-year lead time that we need to be grappling with in order to effect that integration. And that's what we will be grappling with. And you'll see evidence of that, I would expect, as the next year and beyond progress.
I can only make a final suggestion. First of all, best of luck to you. I hope we'll continue to be in discussions as your role transitions back to the board. And I'm certainly hoping perhaps that we'll some incremental share purchases made by directors, officers and others at the corporation to maybe perhaps more increasingly align their interest with those of the shareholders who have been patiently awaiting on the activity level. So hopefully, I'd encourage management and others to join us with some purchases at what it seemed to be very, very depressed levels.
I hear you. I think with the passage of our finally issuing our first quarter, we'd been under -- we seem to have been under blackout restrictions forever now. But those are beginning to lift, I think. But I appreciate your comment.
Our next question comes from the line of Edward Sterck from BMO Capital.
A couple of my questions have already been answered. But just returning to the topic of Kennady, and you may have touched on this already. But I just want to get a bit of an update on the negotiations with De Beers and the timing for when you will have an agreement in place. And then also if you could give some -- give a point as to what the exploration budget at Kennady is expected to be over the next few years.
Right. On De Beers, nothing that I can report publicly at this point in time. That's an effort that will progress over the next couple of months, and we'll keep you posted as we get to stages where we're able to make some comment. Otherwise, as far as budget goes, we don't have -- we're still pulling together -- we'll see the results of this current program, for example, and put together a basic plan. I would think for a broad context, my expectations, you'll see the expenditure budget related to Kennady as it pertains to Mountain Province should be $10 million and below, so no more than $10 million in a given year for the next couple of years, if that helps.
Great. And then just on diamond prices. Can you remind me of the expectation -- expected average diamond price for Hearne production?
Perry, do you have that straight at hand? For some reason, I'm drawing a blank.
I don't have that in front of me, but we can certainly send that out to Ed. It was in our 43-101.
Yes. It's about $70 -- I'm going to say $75 or $76. It's fairly consistent with the 5034 and USD 75 to USD 76.
And then a final question would be, and this is probably a little bit of a sort of high level [ indiscernible ] type question to answer. But it seems that Gahcho Kué is getting a discount on a like-for-like basis for fluorescence. And I was wondering if it's possible to kind of roughly quantify how much the discount versus a non-fluorescent [stain] you think the goods are attracting. And also whether that discount would be expected to compress at all in a rising diamond price environment.
That's one I'm going to throw to Reid Mackie, our Vice President, Diamond Marketing, and guru of all things fluorescent.
Thank you, David. Ed, yes, indeed, our diamonds -- well, certain portions of our diamonds are discounted due to fluorescence. That's limited to the white gem portion, large white gem portion. The overall impact, I would say, on an average quality distribution basis is probably 10% to our overall price, and that's based on having a large white gem figuring into about 60% of our overall production, and on that white gem having a 20% average discount. As you point out correctly, in a stronger market, where you have higher competition levels for large white gem, you will see that discount abate to a certain extent, and it's not an across-the-board calculation or quantification. You'll find in some of the larger, more expensive goods of your large white gem component that, that discount abates to a greater degree, whereas down in the smaller sizes, where your overall spend is lower, that discounting or the lessening of the impact of that discount is smaller. I would say the measurement on an overall price per carat basis of our production, what we're talking about in the current market, in the current strong market, that overall lessening of discount is in a very small, like low-single digit in terms of a discount, if that answers your question.
Operator, just with an eye on time, let's probably take 2 more calls, and we'll wrap it up from there.
Our next question comes from the line of [ Mike Nicholson ], a private investor.
Can you hear me okay?
I'm good, Mike.
A couple of my questions got answered regarding your status as Interim President and CEO. And someone else has already dealt with my questions regarding the Kennady deal and De Beers' participation or nonparticipation in that deal. I only have one remaining question on it, and it's, will Mountain Province make available to investors the 2009 amended and restated joint venture agreement with De Beers?
Correct me if I'm wrong, Perry, but I believe it's on SEDAR.
That's correct, Dave. It's available on SEDAR, so [indiscernible].
Okay. I was taking a look yesterday, and I couldn't find it amongst all of the documents, but I'll go through again.
Yes, I sympathize. Having looked at SEDAR, it's not necessarily easy to pick something off once it gets down in the list a bit. But it is down there. If you have trouble finding it, ping us an email on info. We'll help you with it.
And our next question comes from the line of Paul [indiscernible], a private investor.
Dave, I have a few questions to ask. My first question, I touched base with you on this before, is part of the licensing agreement is that 10% of the diamonds were to be kept and sold in the Northwest Territories. What's happening with that? And why are we not seeing that in the financial statements?
I'm going to throw it over to Reid. But just on the financial statement, you won't see it in the financial per se because we don't give it to them for free. It would be -- they buy the diamonds. We make an allocation -- broadly speaking, we'll make an allocation available, but that's not a freebie. That's something that we'll get regular prices. So it would not stick out in the financial statements as a result, if that makes any sense. But I'll turn it to over Reid just to comment on the status of that.
Yes. Thank you, David. Paul, you're correct, there are provisions to make portions in production available to local manufacturers in the Northwest Territories. We're slightly different than other producers in that we tender 100% of our production. So what we've done is we've accommodated within our sales platform measures for manufacturers to participate, and they have been participating and coming to the tenders, becoming acquainted with the production in parallel with the remainder of the market. One of the conditions of, as Dave pointed out, those diamonds aren't handed over. There's no discounts available for that section of the production that's earmarked for local manufacturers. So they pay the same price as the market essentially. So does that make sense?
So [indiscernible] no, well, it does and, it doesn't. So that 10%, is it part of the sales that are at Antwerp? Or is there a separate sale for that? That's why I [indiscernible].
Yes, when we do make sales like that, it would be part of the sales process in Antwerp. It would be something that's integrated into the platform in Antwerp.
Okay. That answers that question. My next question is in regards to the revolving line of credit. It says a quarterly commitment of 1.2375% per annum. So is that 1.2375% per annum per quarter?
We pay that quarterly, so 0.3% would be paid quarterly.
So that's $618,750 -- or 700 -- you show in the books per quarter that we pay for the standby revolving line of credit, which will effectively give you a 4.95% standby rate for the year?
No, no. That 1.3% rate is the annual rate. So that's why on a quarterly basis, it would just be 1 quarter of that, so just over 0.3%.
Okay. Well, in your statement, you show $717,000 for the...
There would be other costs associated with that. That wouldn't be the cost of our standby line of credit.
Okay. Yes, I'll talk to Dave later to get some further clarification on that. In your income statement, your cost of acquiring diamonds, $10,003,000 for acquiring diamonds in the third quarter from De Beers. But then, Item 16 under your related transaction, you only show $7,367,000.
I think that's a difference related to timing. So those costs of diamonds, those would have been applied primarily in prior period. So presumably, Q4 2017 and then [fold-in], in the current quarter. Whereas, the related party disclosures further on in the financial statement just refer to the transactions in the current quarter.
Okay. And there's just one question I have in regards to KDI acquisition. We're trying to integrate that so that we can mine it at the same time as the Tuzo because of the low grade at the beginning of the Tuzo, my understanding is.
In the middle of the Tuzo, yes.
Yes, we're going to be mining the Tuzo sometime at the end of 2019, 2020, I believe, we're going to be starting mining Tuzo.
Yes, Tuzo.
So are we waiting for De Beers to apply for the permitting? Because we've got to get permitting for that from the Mackenzie Valley Conservation Authority, so are our board. Are we starting the permitting process?
No, Paul, it's already permitted. So the current mine plan for Tuzo is already permitted, so there's no permitting required to put Tuzo into production. The permitting that would be required would be to integrate Kelvin-Faraday into the mine plan. So that would require a permitting step, and that would be the next -- one of the chores over the next 4 years. But as far as Tuzo itself is concerned, that's fully permitted.
That's the question I'm asking. Like for the Kennady to be integrated into the Tuzo, it could take several years to get that permitting process from what we've seen from your experience for the Gahcho Kué.
Yes. No, bear in mind that the Kelvin -- the Kennady will not be integrated into Tuzo. It will be integrated into the Gahcho Kué mine process, so it will become part of the plant -- feeding into the plant. But it's got nothing to do with Tuzo specifically in and of itself. So the Tuzo permitting track is unaffected. Tuzo is permitted. But in order to mine at Kelvin-Faraday, for example, in order to open a pit up there and be able to integrate that into our processing plant, there is a permit required, and that is over the next 4 years. That's one of the main chores that needs to be tackled.
So the question I have, are we starting the permitting process now? Or do we have to wait for -- make an agreement with De Beers?
The preliminary work happens now. We're not ready to start the primary permitting aspect. There's still some background information that needs to be gathered and some background work that needs to be done. But the overall integrated process is -- it actually has been -- it was already initiated to a certain extent by Kennady itself, and we'll be furthering that, of course.
Okay. And then a final question is in regards to the dividend that you're saying the board anticipates determining and declaring our inaugural dividend in conjunction with the preparation release of our second quarter -- so are you going to be -- is that the inaugural dividend policy? Or actually, you're anticipating some kind of a dividend in the second quarter?
We'll announce a dividend based on the second quarter. It will be paid out -- the actual payout would come after second quarter results are announced, I would expect, the actual cash in your pocket. But the declaration and what we will be -- and the declaration will be made as part of the second quarter wrap-up.
I would say thank you, too, for all the work you've done in the last 11 months. And looking forward to see who our new CEO is going to be.
Very good. And with that, we will wrap up the call. Thanks all for ringing in. It's been appreciated.
Ladies and gentlemen, thank you for your participation in today's conference call. This does conclude the program, and you may disconnect. Everyone, have a great day.