Mountain Province Diamonds Inc

TSX:MPVD

Earnings Call Transcript 2019-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the Mountain Province Diamonds Inc. Q2 2019 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference call, Mr. Stuart Brown, President and CEO. You may begin.

[Stuart Michael Brown, President, CEO & Director]

Thank you very much, and good morning and afternoon to those of you dialing in from other parts of the world. Welcome to our second quarter half year call update. I believe most of you would have digested the announcement we sent out and also the prerelease of our production numbers about a week ago.Just a reminder on the forward-looking statements and the notes to investors, please make sure you have a thorough read of this and understand it fully.And then without further ado, I'll jump into what we're going to be discovering today. I'll give you general updates on how Q2 and -- Q1 and Q2 and half year has gone on the production side, also reiterate our guidance. I'll then hand over to Perry, who'll take us through our numbers. And then Reid will touch on the markets and give you some explanation of what we're doing and how we're responding to this market and how we see the market. And then I'll give you a bit of a conclusion on what work we're doing over the next 6 months as we get to the end of 2019 and we face 2020 and our plans for that. So -- and we will allow some questions at the end of that.I think if I could turn to Slide 4. For those of you who got the webcast in front of you, this is on our Q2 and H1 production highlights. I can see the trend. We did acknowledge that we had a very difficult first quarter, weather and equipment availability issues related to weather issues. We've seen better improvement in all of the metrics in the second quarter from our ore and waste mined to the ore mined, tonnes treated marginally better, grade is improving. The only area we're a little bit again [ very close ] is the carats produced has also come up on volume there.So half year position is, I'm comfortable where we are. We would like to be better. We're seeing improvements. We're getting the equipment availability better. We've got mobile maintenance crews up and running, and we've put in all of the sort of the work programs to improve on our productivity.Which then leads us to the revised guidance that we did issue earlier this year on tonnes processed. I've seen us being slightly above. If everything goes well, the 3.3 million tonnes [ of tonnes treated. ] I do acknowledge though that we have had some very difficult tonnes being put through the plant. We've been linked and limited to Southwest Corridor and some of the lower-grade, lower-value areas in the Hearne pit. We were expecting some of this, but we are working very hard to access some of the better-grade areas towards the end of the year, and we're seeing those plans come in pretty soon.So I'm comfortable that we will get at the upper end or slightly above the 3.3 million. On carats [ covered ] , I'm very comfortable that we will get between the 6.6 million and 6.9 million. I'd like to think we're going to be towards the upper end there. Bearing in mind, we are doing some of the cut-off changes. So we have had some grade [ movements there ] deliberately so in some areas, where we're trying to optimize the plant throughput because we see that as a big value driver.Our cash cost production per tonne. We are trending lower. You've seen the results. We're slightly below the $110. There's always pressure on costs in the mine like ours with higher fixed costs on an annual cycle basis. So the more we can push tonnage through the plant, that's helping us there. And we're keeping all of the cost drivers under control. Well, De Beers are, along with ourselves, doing what we can. And the cash cost production per carat, again, also trending down here. And the better we can produce the carats in the second half of the year, this will improve.So overall, how we see things on the production front, a lot of intervention going on. We are seeing the fruits of that, and we will get to the better ore as we get out of Southwest Corridor and complete most of that mining. And we'll see much better production in the second half of the year. Without further ado, I'll just hand over to Perry, and he can take us through the financials. Thanks.

[Perry Y. Ing, VP of Finance, CFO & Corporate Secretary]

Thanks, Stuart. Hello, everyone. As Stuart mentioned, I'll take you through the financial results highlights. All figures that I'm going to state are going to be in Canadian dollars, unless otherwise noted. So I'll move ahead to Slide 6 then showing our income statement highlights.Our top line revenue for the quarter was $96 million from the sale of just under 1.1 million carats at an average price of USD 67 per carat. This is roughly consistent with revenue of $99 million in the second quarter of 2018 from the sale of 1.1 million carats at an average price of USD 69 per carat. Overall, we are pleased with the results, given sales were principally derived from the production from the Hearne pit and the Southwest Corridor of the 5034 pit, which we expected to have a lower per carat value compared to the main portion from the 5034 pit.2019 sales results have continued to be impacted by the relatively weak rough diamond market. And following my highlights, Reid Mackie will provide some additional color on what he is seeing on the ground and hearing from our customers.Looking at our adjusted EBITDA, which I think is a key metric for us. It was $39 million for the second quarter compared to $41 million in adjusted EBITDA for the same period in 2018. On a GAAP -- on a reported GAAP basis, our reported net income was $10.3 million or $0.05 a share income compared to a net loss of $6.3 million in the second quarter of 2018. When you look at reported net income, most of the variance between the 2 results is due to largely unrealized foreign exchange gains and losses, principally from the translation of our U.S. dollar-denominated debt. If you look instead at a metric such as our earnings from mine operations on our income statement, you'll see that they're basically equal for the same periods at roughly $18 million. You can also see that is reflected in our adjusted EBITDA margin, which was 41% in both the current quarter and the comparative quarter in 2018.From a year-to-date standpoint, we've generated total adjusted EBITDA of $59 million, which is down modestly from $75 million in the same period in 2018, but still demonstrates the strong cash flow generating ability of the GK mine despite the challenges in the diamond market and lower realized prices year-on-year.Moving ahead to Slide 7. You'll see improvement from the cost side that Stuart discussed earlier. We came in at $106 per tonne processed compared to $112 a tonne in 2018 and $111 per tonne in the first quarter of 2019. On a per carat basis, this translates to $54 per carat compared to $52 a carat in the second quarter of 2018, slight increase being due to the lower grades processed in the quarter, principally attributed to lower-grade sections of the Southwest Corridor of 5034.We expect costs to be stable for the remainder of the year, which gives us an opportunity to come in at or below our lower end of our guidance range of $110 a tonne. And should we see the improvement in the -- and we should see an improvement in the per carat metrics as well once we get into the higher-grade portions of the 5034 and Hearne pits later in the year.You also note that our sustaining CapEx was down significantly compared to last year, as we've now completed all the major projects at the GK mine, which include both the winterization project and the new [ Atlantic ] facility. So that also helps us build our cash for the remainder of the year.Turning just to our liquidity and our balance sheet. We ended the quarter with cash of $30 million, which is roughly the same as we started the year. We did dip down to $11 million at the end of the first quarter of 2019, when we were in the middle of funding the season's purchase of fuel, explosives and other supplies for the winter [ road ] supply campaign. We did all this without having to draw on our revolving credit facility. And obviously, for the remainder of the year, we expect to generate significant positive free cash given the cash calls are down significantly once we're through that supply campaign.Just subsequent to the end of the quarter, we've repurchased USD 7 million of our outstanding debt, bringing our total outstanding debt balance down to USD 303 million. And our intention is to repurchase further amounts in 2019 as our cash flows allow based on our achieved sales results. We are already seeing the benefits of our prior repurchases and reducing our interest costs and hope to continue that effort.So looking ahead at the remainder of the year, what do we expect? We expect stable sales volumes from the carats sold standpoint. We expect our costs to continue to be stable. And if we can maintain the sustained higher throughput through the plant and process higher grade, then we should also see improved results on a unit cost and per carat basis.We've already initiated our debt repurchase program, as I just mentioned, and we'll look to continue that for the remainder of the year. The better we do from a sales standpoint, the more debt we'll repurchase.Stuart talked a bit about exploration. I think we've seen good exploration success of the dollars spent so far. We'll continue to look for a good bang for our buck from an exploration spend perspective, and we'll continue with the trend -- spending trend that we've been on, most likely. And then just in terms of cash balance, our intention is to end the year with more cash than we started the year, which should give us some additional buffer in case rough diamond markets conditions persist into next year.So with that, I'll turn it over to Reid to have him talk about the diamond market.

[Reid Mackie, Vice President of Diamond Marketing]

Thanks, Perry. I myself will provide a brief synopsis of our sales, the prevailing market conditions and long-term supply and demand fundamentals facing our industry.On Slide 8, you'll note that it's been recently reported that De Beers and Alrosa's combined H1 sales are down 25% year-on-year. Ourselves, we've completed 5 sales in the first half and our revenues decreased by 15% year-on-year, and we carry no unsold stock. The variance is a result of both market price and product mix and demonstrates the resilience of our sales process and its ability to maximize revenue in even difficult markets.Slide 8 also shows a broad reach of current market conditions. The magnitude of the major supply reduction is clear and analysis of rough market prices indicates around a 9% year-on-year price decrease for the world average product -- production profile. Price pressure was felt across the polish sector and current market sentiment in the rough market is also depressed.Low profitability and challenges faced by the diamond midstream in accessing finance have been widely reported. Meanwhile, as a result of the U.S. trade dispute and [ political ] unrest in Hong Kong, the short-term outlook for Greater China's diamond demand is somewhat uncertain for this important market.However, it should be noted that the retail luxury and jewelry demand results have been strong recently, evidenced by recent positive H1 2019 results from carrying LVMH and Richemont, which all reported strong revenue. Further, from the supply side, recent reductions in offered sales volumes from the major producers and recent news regarding the imminent closure of Argyle and its removal of large volumes of small brands, lower-quality diamonds, which have been particularly depressed from supply, are expected to help confidence in the midstream.And on the demand side, De Beers' recent announcement to increase -- that it will increase its downstream promotional spend to the highest levels schemes in more than a decade should be viewed as helpful in the medium term.And with that, I'll pass it back to Stuart.

[Stuart Michael Brown, President, CEO & Director]

Thanks, Reid. If we turn to Slide 9, before I get to the conclusion, and this is a regular slide that those of you that dialed in will be familiar with. We've touched on the winter exploration program. We've ticked that as complete. But what we're doing right now, we're assessing the results of the program. We did announce that it was a limited success due to [ excess in the flying ] time. But also on our own JV ground, the success of the Wilson discovery has meant that we're reviewing exploration potential on the near-term JV areas as well as on our own ground. And Tom McCandless is busy with a whole lot of work on that right now. So I think that sets us up well for looking at where best to deploy our limited exploration dollars.We have to combine this as well with a new life of mine plan. Where we are on that is we said we should be finished at end of Q3. We're largely on track with it. There may be some approval processes from our JV partner on that, that might push us slightly into Q4, but we don't believe there will be anything difficult to delay anything.What we've done right now and as we've revalidated the plan with the current market price predictions and look forward to make sure that we've got the best possible sort of best case scenario that we can have that we know we can deliver without any risk. We've had a risk review of what will prevent us from achieving a life of mine that goes into 2030.We've looked at some slope angle improvements that will have a positive impact on the long-term plan compared to the existing mine plan. So we believe that will be positive. And once approved and released, we believe this will be adding at least 12 million carats and at least 2 years of life to the mines. We think that will be very positive.And to note, this will exclude the impact of the Wilson kimberlite, which we've also released quite a broad range of volume. So the work we're doing on Wilson right now is to firm up on the volume and get much stronger definition on the microdiamond grade, which will give us the ability to start planning on what to do with that and winter blended in over the life of mine, and that will come in in the next trading cycles starting next year. So I think, again, those 2 areas are very positive.On the plant optimization, I think at the start of the year, that was the focus as how do we get the plant to treat more ore for the same cost. And I think we're seeing the success there. We've been reporting that consistently. And we see that ore blending will continue. And as I said, the guidance we've already indicated will be at the top end of the 3.3 million and hopefully above that. That's what we're aiming for, which is very positive.That links us to the increase on the bottom cut-off where we are right now. We've made some screen changes. But the initial final screen change will only happen after the plant shutdown when we do our annual maintenance in September. And this is under constant review because the whole theory around this was to allow the plant to treat even more ore. And we're seeing good results with the change that we have made so far. So this will be an ongoing review, assessing the market, how it's moving, who's producing, what and how best we can implement this to make sure that we get the best revenue improvement from the mine and the best cash flow outcome.So I think those are all positive. On the resource extension of the Kennady assets, we released that announcement on that. So what we're doing right now is 2 things that's linked to the winter exploration program pointed above where we will assess it. We've got potential targets that we think are worth looking at, given the data we now understand from the Wilson signature as it were, but we know what we can look for further looking at that technology and the thought process around that.And then once we receive the detailed mine plan from De Beers on the 2019 strategic business plan, we'll be in a position to undertake some prefeasibility work on some of the Kelvin and Faraday assets to see how we would blend those in or what the options are available to us. That's quite a broad work stream. So I think that will be ongoing for quite a lot of time in 2019 through to 2020. But that will be off the back of a very solid 2019 strategic business plan.And then finally, on the marketing initiatives, Reid is driving this process, where we want to derive some value. From the fact that the diamonds we produce are Canadian, we think that's a very strong brand capacity builder. The fact that we have fluorescence, we think there is scope for getting a premium on this product rather than a discount. This involves quite a lot of work behind the scenes on the website review and changes there. We will be launching that towards the end of the year. And in the interim, Reid is developing more business threads and opportunities with some of our existing customers about how do we benefit them and ourselves in placing our product in this very difficult market.So in conclusion, we've always [ touched we use ] the difficult market. There's no doubt it is very difficult. It's widely reported. The global planet of economic stresses and strains that are going around from trade wars to China disruption to anything else you could care to think of, you could pick any negative and come up with a depressing story, despite all of these things going on, we are very cash positive. We've had a very strong second quarter. We've got good money in the bank. We are in our cash generation phase, having got through the winter program, as Perry mentioned.We have very little cash outflow compared to the first half of the year. We've got 4 more sales to conclude. We've already concluded our sixth sale last month. [ We saw at ] the end of this month. We are not changing our strategy on selling at the moment. We're happy with the tender system. We believe it gives us the best possible outcome against people that are trying to drive the prices down. It's a very competitive process.We believe we'll be strongly cash generative, and we are looking at making sure that we enter into 2020 in a position where the mine is very well run, and we believe that it is. We're hitting our production targets. We're getting very clear understanding on where the value is on the mine, and our plans around that to maximize that.We've got our costs under control. And long term to medium term, the fundamentals in the market are in our favor, despite the near-term bad weather we're experiencing. So this market will turn. And when it does, we will be in a very good position compared to many of our peers to take a strong benefit from this. And that is what the strategy has been, to drive that. And I think we're starting to see all of those fundamentals come to fruition.I think paying our debt down very sensibly, we'll continue to do. Post every sale, we review our cash position to ensure that we get to the end of the year with sufficient cash to take us through risk free in the first half of 2020. But at the same time, making sure that every time we buy a dollar of debt, we make a [ saving ] on that. Our debt is still trading at par around just over 100 cents on the dollar. So the market has confidence in that, as do we.And then on that basis, I'd like to conclude and open the floor to any questions that people may have.

[Operator]

[Operator Instructions] Our first question comes from Geordie Mark with Haywood Securities.

[Geordie Mark, Co]

Just a few smaller questions, I guess. In terms of outlook for costs, certainly for this year and thinking about your ongoing sort of optimization plans for the plant, I mean are those costs sort of savings already sort of borne into your predictions for H2? And any language around by increasing the top -- or bottom [ cut ] , I guess, are you saving on various consumables there? So FeSi or power or what other sort of factors might sort of come to bear there for cost savings?

[Stuart Michael Brown, President, CEO & Director]

Okay. Thanks. I'll take the second part of that question and leave you on Perry for the first part on outlook on costs. The bottom cut isn't giving us any savings at all really, Geordie. We -- FeSi and things like that, there's limited movement between all those. What we are seeing is slightly [ higher wear ] until we're using the plant full, and our bottleneck is the primary scrubbers now. So there's various increases in maintenance because we're running the plant harder. But we are getting the volume of tonnes out. I mean I think we did 200,000 tonnes more than expected. We get the -- it does flow through in the carats, and that's value-accretive. Perhaps maybe answering the first part, it's a bit more difficult to do that.We're seeing sort of a unit cost improvement. We don't see an increase in any of the costs that we've budgeted for the year. We're in discussion with De Beers. So we'd like to maintain what we budgeted for and then see the volume increase, so we get a better unit outcome. On 2020 and beyond, the improvements in cost is going to come in the mining, where we're looking for better efficiency on the payload as well as the slope angle improvements. But the plant, I think, is pretty much dialed into where we're going to be. And we'll see how we move the screen sizes around over the remainder of the year and experiment for the best possible outcome.

[Geordie Mark, Co]

Okay. And if you can remind me what sort of -- sorry, Perry. Yes.

[Perry Y. Ing, VP of Finance, CFO & Corporate Secretary]

Yes. So just commenting on the unit cost side, I mean, I think coming in below $110 on the per tonne side is a high likelihood. On the per carat side, we're obviously a little higher at $57 per carat right now because of the lower grade. So really getting into our range and potentially getting towards the lower end of the range will really depend on getting into these higher grades over 2 carat per tonne sections of the mine plan and being able to get that through the plant in the second half. And as well as Stuart mentioned, we have the annual maintenance shutdown coming up. So obviously, whenever you shut down the plant for an extended period, there's a bit of risk in terms of the restart and the timing. So a lot of that will play into the actual final comp for the Q3 and the rest of the year.

[Geordie Mark, Co]

Okay. Excellent. And in terms of the shutdown, what's the sort of planned period for that?

[Perry Y. Ing, VP of Finance, CFO & Corporate Secretary]

Currently planned for 4 days towards the end of the third quarter.

[Geordie Mark, Co]

Okay. And in terms of grade distribution going through material feed for the plant, I mean, that's largely from Hearne at the moment, I guess, and you expect the FeSi change from Hearne as a blend as well as introducing more 5034, I guess, in Q4 so we should expect sort of lower grades in Q3 versus Q4. Is that the way you would describe it?

[Stuart Michael Brown, President, CEO & Director]

Yes. We had some -- yes, I think I picked up when you came on [ the line ]. We've had some issues. We're a little bit behind on the waste stripping, which we're now making up, and we're, I think, another 2, 3 weeks away committing the high-grade areas, which we've completed the strip, and it allows access to the center load and higher-grade areas. So I think we will see probably comparable production in Q3 compared to Q1 and 2 and then a definite increase in Q4, when we see much -- October is our key month [ as opposed the ] shutdown. So yes, it's all functioning towards the end of the year, which is normally how it works because we're always trying to achieve the targets. I'm confident that we've got those plans in place, and De Beers have given us assurance that that's what they're focusing on. So I think we'll see from our share of production, hopefully, close to 3.4 million carats produced for the year.

[Operator]

Our next question comes from Bruno Costa with Concise Capital Management.

[Bruno Costa]

So a few of the other questions that I had were already asked by Geordie. So I just have one left, which is how much does the company plan on spending on stripping costs for Q3 and Q4?

[Perry Y. Ing, VP of Finance, CFO & Corporate Secretary]

I don't think I have that right in front of me, Bruno, but if you reach out to me following the call.

[Stuart Michael Brown, President, CEO & Director]

20 million now and we've got to strip [ away ] further. We've done 20 million tonnes for the first half of the year. We're aiming at about 43 million tonnes. Of that 43 million, we're going to do about 3 million tonnes of ore. So then that leaves us with 20 million to go, Bruno. So that would be around $3 to $4 a tonne is I guess what we keep spending on that. But that's all [ accounted ] for in our current cash flow predictions and projections.

[Operator]

Our next question comes from Richard Hatch with Berenberg.

[Richard James Hatch, Analyst]

Yes. First question, so when the plant changes are made and you adjust the bottom cut, have you any steer on what you think that's going to [ teach ] your average selling price? Just kind of comparing apples and apples on what the dollar per carat may do. First one.

[Stuart Michael Brown, President, CEO & Director]

Okay. To answer that it's a difficult one. But yes, what we've done so far, Richard, is we didn't have the right screen panels, where we run the theoretical outcome of how it would look like when we put in, let's say, 1.1 millimeter or 1.25 millimeter. So we don't have the screen panel. So what we've done is interim, we've put some changes through where we had some screen panels and stuff. And then we started looking at -- it was trial and error because we're also blending in Hearne and learning how that ore behaved.What we've seen so far this year is about a 5% drop in the recovery of the smaller finer diamonds with the screen panel change that we have made so far to -- along with the other modifications in the plant that have allowed us to push the volume up. So we're trending above 9,000 tonnes of day and our sort of nameplate capacity is about 8,200 tonnes a day. So we've achieved that, but we haven't achieved it with the optimal screen size changes yet. So it's a bit trial and -- not trial and error, but we're seeing how it's working. And so far, we've realized the production gain.And post the shutdown, we'll have the screens on site, and we're looking at the best way of implementing. Do we do them all the 3 screens in one go, do we do 1 and see how that works compared to the other 2. Overall, compared to what we were expecting for our budget for the year, losing that 5%, taking the market conditions into account and where we are on a dollar per carat basis, we're similar to last year, averaging around $69 a carat. So it's a bit influenced by the market where we've seen quite a drop in the bottom-end prices where we've held our own. So we'd like to think we're about 10% up if we look at what we were thinking we're going to get to what we've actually got [ in ] that. But it's a lot of moving parts to get there. What we do know is this has worked, and it's allowed us to treat probably in excess of 200,000 more tonnes for the same cost, and we're going to get the plant to work very efficiently to do that.

[Richard James Hatch, Analyst]

Okay. Can I just -- I wonder if you've done -- I'm sure you've done a lot of it. But whether you've got a number off the top of your head. One sort of these are -- sort of once all these changes have been made, have you got a [ stare ] on what your average dollar per tonne revenue would increase to on your estimates? Or is it kind of too early? Is it kind of a wait and see?

[Stuart Michael Brown, President, CEO & Director]

It's a little bit of wait and see, Richard, because 2019, as we've publicly said, was always going to be our worst year of our 5-year plans. When we got into Hearne and Hearne was a large volume, and we had quite a lot of low-grade areas, and we also have Southwest Corridor to do. That was just the way the mine [ constrained ] . We're working out of that now. And in the next 2, 3 weeks, we should be out of that bottleneck limitation. So I'd like to wait till I get the 2020 view onwards with the new mine plan before I commit to that. But we definitely think it's working. Otherwise, we wouldn't have pursued this. We'd have gone back to the bottom cut-off size and [ stuck ] the way we are. So it's working. But I can't give you a number yet, I'm sorry.

[Richard James Hatch, Analyst]

And just one for Perry, just the working capital build on the payables front in the quarter, do you expect that to reverse into Q3?

[Perry Y. Ing, VP of Finance, CFO & Corporate Secretary]

Sorry, could you repeat that, Richard? I didn't catch that.

[Richard James Hatch, Analyst]

Yes. Working cap build on the payables in the cash flow statement for the quarter, is that something you expect to flow back in on -- into the third quarter?

[Perry Y. Ing, VP of Finance, CFO & Corporate Secretary]

Yes. I think working capital, I think those movements are temporary. I think you'll see that definitely reversed [ out ] for Q3.

[Richard James Hatch, Analyst]

Okay. And then last one is just on the market. And Reid, I wonder whether I can just kind of pick your brain or take your view. On the expectation that Argyle closes in the next couple of years, which it should probably will, like, what is your kind of -- do you have a kind of a base case assumption for what that does to these small diamond market in terms of prices and how that kind of then flows through into your own basket? And then have you got a kind of an angle on or a steer on where small diamond prices have moved year-to-date in terms of kind of percentage moves and kind of how that compares to your own average basket?

[Reid Mackie, Vice President of Diamond Marketing]

Sure, Richard. I'll try to handle the 2 questions. On the first one, as far as the steer with the removal of Argyle, on a specific price per carat, no. We're hearing that they're going to commence with the removal of minus 5 [ material ] , which will take potentially 4 million carats of that out of the market. At this point, we're just looking at it as a confidence bolster, obviously, to that sector of the market, which has seen more than its fair share of difficulties in the past couple of years relative to kind of the average production profile that's out there.And I think going forward, for ourselves, you take a look at kind of past performance of that sector. We have a considerable exposure to [ smalls and brands ] that we've discussed that in plenty of past versions of this call. And we expect to only see benefit from it. Because it has a lower price per carat, the actual spend in downturns, we typically, we see those [ articles ] start to see a reverse or -- not a correction but an improvement early on because the absolute spend, and especially in the conditions that we're seeing today, which are heavily influenced by financing, we would expect to see a pretty sharp turnaround in those goods once the actual market see sections of the pipeline start to dry out with the reduction in those volumes. So sorry, I don't have actual price per carat mix. And at that point, I think it'd be premature to kind of crystal ball any of those numbers. But definitely, we've seen it in the past, and I don't think it's overly optimistic to expect a quick kind of bounce back on prices of those materials.

[Richard James Hatch, Analyst]

Okay. And then year-to-date moves?

[Reid Mackie, Vice President of Diamond Marketing]

Sorry?

[Richard James Hatch, Analyst]

And then, like year-to-date kind of movements for some smaller diamonds versus kind of your kind of average basket?

[Reid Mackie, Vice President of Diamond Marketing]

Yes. We're not releasing the specific price reductions that we've had there, but it's been in line with what we're seeing in the market. So -- and things like the index that [ were ] put here by Zimnisky, our price reductions have been in line with market. We're a market taker, but we haven't released the actual on a category basis, what the price reductions of those particular bids are.

[Operator]

Next question comes from Paul Zimnisky with PZDA.

[Paul Zimnisky]

Nice quarter in a challenging environment. I guess regarding foreign exchange, you had a translation gain in the debt with the stronger Canadian dollar in the period though the Canadian dollar since reversed the last few days with the global macro events. But how are you guys viewing FX? Do you see the U.S. dollar-denominated debt [ as ] inherently hedged since the [ revenue's ] in U.S. dollars? And then, I guess, you kind of look at FX in the industry and the impact and a stronger dollar probably helps you guys from an operational standpoint with expenses paid in Canadian, but then stronger dollar could have an adverse impact on global diamond demand and vice versa. So I guess, how are you guys viewing foreign exchange sensitivity on the business right now?

[Perry Y. Ing, VP of Finance, CFO & Corporate Secretary]

Yes, that's right, Paul. I think the way you've described is essentially the way we see it as well. We are hedged in terms of near-term on the U.S. dollar CAD. So obviously, all our revenue is in U.S. dollars, as you mentioned. So we've hedged about 2/3 of our Canadian dollar closure for the remainder of the year and out into the first quarter of 2019 at $1.34. I think you saw a dip to the $1.30 level, but with the recent geopolitical and weaker oil, has trended to, I think, $1.32 and change right now. Like any other Canadian miner, the stronger -- the weaker the CAD is, the better it is for us [ for ] meeting our operational costs. So -- but as you mentioned, a strong U.S. dollar overall for a sustained period is -- may not be beneficial to commodity buyers. So -- but other than that, yes, we see things pretty much the way you see it.

[Operator]

I'm not showing any further questions at this time. I'd like to turn the conference back over to our hosts.

[Stuart Michael Brown, President, CEO & Director]

Okay. Well, I think that takes us to the end of the call. Thank you very much for those dialing in and your questions. I appreciate those. One just, a very brief conclusion, strong cash generative business in this market, look to improve at every opportunity, the mine's running well, and we look forward to updating you when we do our Q3 numbers later in the year. Thank you very much.

[Operator]

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.