Mountain Province Diamonds Inc

TSX:MPVD

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Mountain Province Diamonds Third Quarter 2022 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 9, 2022. I would now like to turn the conference over to Mark Wall, President and CEO. Please go ahead.

[Mark Wall, executive]

Thank you, and good day to everyone who's dialed in to listen to our Q3 results call. My name is Mark Wall, and I'm the President and CEO of the company. Also present on this call is Steve Thomas, our CFO; Reid Mackie, our Vice President and Head of Sales and Marketing; Matt Macphail, our Chief Tech Officer; Dr. April Hayward, our Chief Sustainability Officer; and Dr. Tom McCandless, our Vice President and Head of Exploration. The team will be available for any questions that you may have.

Firstly, I'd like to draw your attention to our cautionary and forward-looking statement. This presentation will be posted on our website for anyone who needs additional time to review this statement. Mountain Province is a Canadian diamond producer, mining Canadian diamonds into the high standards of corporate social responsibility, and that is something that we continue to be proud of. We own 49% of the Gahcho Kué mine in the Northwest territories with De Beers owning the remaining 51%. We operate with a joint venture agreement with a 4-person management committee, 2 from De Beers and 2 from Mountain Province. We've appointed De Beers as the operator of the asset, and that has resulted in the operating systems of De Beers and Anglo American being applied to the assets, including the high standards of corporate social responsibility.

In addition to the 5,025 hectares of joint venture ground containing the existing mining operations, Mountain Province is the 100% owner of more than 113,000 hectares of highly prospective ground that surrounds the Gahcho Kué asset. We refer to these grounds as the Kennady North project.

The first thing to say about Q3 is that there was a fatal accident at the mine, where our colleague, Max, who is employed by a maintenance contractor on site was fatally injured while conducting maintenance activities on a haul truck. Attending Max's funeral was absolutely heart-wrenching, and I'll state the obvious that fatalities have no place in our industry and must cease. Anglo American and De Beers have undertaken an exhaustive investigation to avoid a similar incident with regard to this type of equipment anywhere else in the world. And the site management team are laser-focused on ensuring a safe workplace.

During Q3, our Chief Sustainability Officer continued to advance work around any opportunities that may exist to utilize the properties of the kimberlite rock, which hosted diamonds to capture CO2 and sequester it indefinitely in that rock. This work is very interesting, and we will continue to advance it.

On the sustainability side, I'm happy to say that the Gahcho Kué mine team awarded 12 scholarships to the top Northwest Territories graduates from Aurora Colleges Early Learning and Child Care program. These scholarships saw an important funding gap for part-time students living in the Northwest Territories who are ineligible for government funding because of their part-time status. The mine has made a total commitment of $216,000 over the life of the scholarship program in its efforts to support the health and well-being of Northwest Territories children and communities.

Turning to the third quarter operational and financial results. I'm pleased to report the highest quarterly revenue in the company's history of more than $110 million and a quarterly adjusted EBITDA of $54.1 million. Production recovered in the third quarter to 1.452 million carats on a 100% basis, a 22% increase on Q1 2022 and a 15% increase on Q2 2022. The action plan that was put in place during Q2 remains under implementation and is working. You will have seen that all tonnes mined remains a challenge, primarily due to the availability of heavy equipment operators in Canada's North. There is a strong focus on both hiring and retention of operators to improve mine on results and with run-of-mine stockpile in excess of 1.8 million tonnes sitting on the pad, waiting to be fed to the plant, there is no production impact from the low tonnes mined.

While Steve will cover off the year-on-year increase in cash costs specifically, it is pleasing at the same time to see that cash cost of production is trending below the bottom of guidance range, primarily due to plant availability and utilization being better than expected early in the year when the impact of COVID-19 was significant as reported at the time.

I was on site the week before last as a part of a joint operations review with De Beers' senior management and where we continue to review further opportunities to manage costs and optimize production. On the exploration front, the company previously reported successful interim drilling results for the Hearne Northwest Extension at Gahcho Kué, intersecting kimberlites in 60% of the 14 holes drilled with the longest intersection reaching 114.5 meters or some 375 feet. The Hearne kimberlite is 1 of 4 kimberlites being mined at Gahcho Kué. We've been in discussions with De Beers around the best way to progress this discovery while considering the underground potential of what appears to be a large ore body, and an ore body that we know quite well as we've been mining it via the Hearne pit.

This discovery is testament to the prospectivity of the Gahcho Kué and Kennady lands, where a large ore body can sit right next to an open pit that we've been mining and remain undiscovered for so long. We will be issuing a summary press release of our full 2022 exploration program in the coming weeks. I'll now hand over to our CFO, Steve to take you through the financial results.

[Steven Thomas, executive]

Thank you, Mark, and good morning, everyone. Q3 is seeing continued strong operational performance in terms of revenue earned, cash generated and adjusted EBITDA. But notably, with the significant increase in the strength of the U.S. dollar during September, that had a material impact across several elements of the income statement, which I will highlight. A significant additional event in the reportable subsequent period with the announcement in October that the company has executed a nonbinding term sheet with certain existing noteholders which, along with other sources of cash, will replace the existing notes due to expire on 15th of December this year.

This is a significant development for the company designed to recapitalize the company and underpin its financial stability. So all numbers I discuss are in Canadian dollars unless stated otherwise. I will start with an overview of financial highlights for the 3 and 9 months ended 30th of September '22, a quarter which saw record revenue earned, but saw a net loss for the quarter, driven largely by unrealized foreign exchange impacts. Record revenue for the quarter came from a combination of higher carats and strong U.S. dollar sales price. Carats sold were almost 50% above the average for Q1 and Q2, whereas U.S. dollar per carat was 20% below Q2 to make -- to product mix, and I will expand on that shortly.

Increased sales reflect an increase in both plant grade and ore tonnes treated, which were up 9% from Q2 and 15% compared to Q1, reflecting the success in targeted improvements across the operation. The increase in ore tonnes mined in Q3 by 30% compared to the average for the first 6 months of the year enabled the ore stockpile to grow by 39% over the quarter to almost 1.9 million tonnes. The company held 2 sales during the quarter, selling at an average of USD 104 per carat, which allied with a stronger U.S. dollar than in the first half of the year equaled CAD 137 per carat, which compares to $167 per carat in Q1 and Q2. The reduction in the U.S. dollar per carat price reflects the mix of goods put forward for sale in Q3, which, if put on a like-for-like basis per Q2 indicates Q3 prices were 2% higher than in Q2.

For the 9 months ended 30th of September, the average sales price of USD 119 per carat compares to USD 72 per carat for the first 9 months of 2021. During Q3, the company sold 805,000 carats, some 218,000 above Q2 2022, but 222,000 carats below the comparable quarter in 2021. For the first 9 months of this year, total sales were 1.9 million carats compared to $2.35 in the first 9 months of 2021. The first 9 months of 2022 saw ore tonnes treated equal to the amount treated during the same period in 2021. But with average plant grade at 1.71 versus 2.08 in 2021.

In respect to performance during the year-to-date, Q3's throughput at 8,978 tonnes per, day compared favorably to an average of 8,050 tonnes per day for the first 6 months of the year, an average plant grade in Q3 at 1.78 carats per tonne has increased marginally from an average of 1.68 achieved in the first half of the year. This performance results in Mountain Province's share of diamonds recovered to the end of Q3 at 1.9 million diamonds, 17% below last year's equivalent figure of 2.3 million carats.

Against this level of activity, we have seen cash cost of production per tonne of ore produced, excluding deferred stripping, increased from $103 per tonne in Q2 2022 to $109 per tonne in Q3 2022. This reflects the consumption of more expensive fuel purchased on the 2022 winter road being consumed now.

For the 9 months year-to-date, the average cash cost per tonne of ore treated stands at $110 per tonne, consistent with the first half of the year but some 18% higher than the comparable cost of $93 per tonne for the same period in 2021. During 2022, despite global inflationary pressures, the operation has done well to manage costs. And other than the fuel cost increase experienced in Q1 of 2022, and the added investment in COVID prevention measures and staff attraction initiatives, costs have been managed close to plan.

Turning to an overview of the balance sheet. There has been a significant increase in cash on hand at the end of Q3, up $50 million from the close of Q2, reflecting sizable sales in July and more so in September. Driven in large part by this cash movement, working capital has increased by $31 million compared to Q2 with a smaller increase than the cash explained above -- the cash movement explained above, that has been offset by a reduction in inventories, an increase in accounts payable and secured notes payable in Canadian dollar terms.

Within the reduction in total inventory during the quarter, incorporating the normal fluctuation in rough diamonds passing through the sales process and the steady reduction in consumable stock purchased on the winter road, Q3 has seen a significant growth of the ore stockpile by a further 530,000 tonnes compared to Q2 2022, and that is in line with the strategic mine plan. Ore stockpile itself is valued at the lower of cost and net realizable value on the balance sheet and at $56.3 million compared to $44.5 million at the end of Q2 and only $18.2 million at the end of Q3 2021.

For the senior secured loan notes, although USD 16.9 million were bought back below par in Q3, the translation of the U.S. dollar balance of $273 million at the quarter end closing exchange rate of 1.38% equals CAD 378 million, compared to CAD 373 million in respect of the USD 290 million outstanding at the end of Q2. Note that after the quarter end, we bought back a further USD 15 million of notes below par, leaving a balance of USD 258 million currently outstanding.

In respect of the junior credit facility, the company drew a further USD 15 million to bridge temporary working capital needs which included payments made to De Beers for bids for fancies and special carats that we won. As with the secured notes, the outstanding balance for Q3 of USD 25 million was translated at a higher closing rate of 1.38 and then the translation of the $10 million outstanding at Q2 at a closing rate of only 1.28.

In respect of other material liabilities on the balance sheet, being the warrant liability and the decommissioning restoration liability, there was little change in the assumptions used to fair value those liabilities compared to those used in Q2, resulting in a minimal change of $54,000 and $973,000 in those closing balances.

Lastly, on the balance sheet, the deferred tax liability, which arose due to the impairment reversal that took place at the 2021 year-end has increased throughout the 9 months year-to-date as the generation of taxable profit continues to utilize the available tax pools. Now diving into operating results. As per Q1 and Q2 2022, revenue in Q3 includes the sale of the additional fancy and special diamonds acquired from De Beers through the competitive bid processes held in Q2 and July. The cost of the diamonds acquired from De Beers sold in the period are accounted for through the acquired cost line and for Q3 equaled $8.1 million, and for the 9 months year-to-date equals $21.3 million compared to $10.6 million for the comparative 9 months period in 2021. These goods contributed to the overall operating income margin of 40% for the 9 months ended 30th of September, which, although appreciably higher than the 30% margin earned for the comparative period in 2021 is below the 43% margin earned in the first 6 months of 2022, that being achieved through the higher average selling price in that 6-month period.

Revenue earned in Q3 includes also proceeds from De Beers for our shares of fancies and special goods sold to them in September. CAD 110 million in revenue was earned in Q3 and $293 million for the first 9 months of the year, compared to $94 million and $224 million for the same period in 2021. Driven by this revenue performance, the company generated in Q3 $44.7 million in earnings from operations second only to Q2 2022, which was at $51.4 million and significantly above $35.5 million earnings in Q3 of 2021. For the first 9 months of the year, earnings were $138.9 million, 70% higher than in the first 9 months of 2021. Despite this performance for the reasons explained earlier, Q3 saw a loss before income tax of $1.4 million versus an average income of $28 million in Q2 and Q1 2022 and $8.8 million in Q2 2021 -- Q3 2021, driven largely by the aforementioned higher U.S. dollar FX rate in place at the end of the quarter.

It is worth reemphasizing the point I raised in Q2 results call that the impact of changing foreign exchange and interest rates will continue to generate material changes in net income from period to period given the scale of the underlying U.S. dollar-denominated liabilities on which they are calculated and that is what has arisen in Q3. Specifically, the loss in Q3 reflects the impact of translation of the U.S. denominated second lien loan note and junior credit facility and the associated accrued interest, less the U.S. dollar-denominated bank balance, all at a closing rate of $138 million compared to the opening exchange rate of $1.29. This results in a foreign exchange loss of $26.3 million. The equivalent FX loss arising from the strengthening of the U.S. dollar during Q2 was $11.7 million and compares to an FX gain of $4.2 million in Q1.

Driven by the same strengthening of the U.S. dollar, Q3 saw an unrealized derivative loss of $3.7 million, arising on some of the foreign currency hedges placed earlier in the year as the Q3 closing exchange rate exceeded the future participation rate on those hedges. We will know in due course whether this loss is realized or reverses dependent upon the applicable rate at the future settlement dates. Q3's net loss after tax of $7.2 million equates to a loss of $0.03 per share on a basic and diluted basis compared to $0.11 per share in Q2 and Q1 and $0.04 per share in Q3 of 2021.

For the 9 months ended 30th of September 2022, the company has generated $0.19 per share compared to $0.18 per share for the same period in 2021. In conclusion, quarter 3 has seen strong results in respect of cash generation, operating income and adjusted EBITDA, achieved through increased volume of sales and robust prices, albeit comparatively lower than in the first half of the year. During the quarter and in early October, the company paid down USD 32 million of the loan notes below par and with a significant announcement regarding the plans to refinance the balance of the second lien debt, the company is well positioned financially to capitalize on the continued strong fundamentals prevailing in the market.

Thank you for your attention. And with that, I will now pass the presentation back to Mark.

[Mark Wall, executive]

Thanks, Steve. I will cover the diamond market and macros with Reid Mackie, who is on the call, our Head of Sales and Marketing, available for questions at the end of this call. Mountain Province's unique sales strategy demonstrated its resilience during Q3. We saw a stabilization of the market with an average price for the quarter of CAD 137 per carat. Adjusting for the mix of goods sold on a like-for-like basis, we saw a 2% increase in average price per carat relative to Q2 of this year and sales very well attended with key competition metrics 20% higher than previous years.

In the diamond market, we see 1 headwind and 2 tailwinds. The headwind being inflation and the extent to which inflation will slow sales at the retail end of the pipeline. It is unclear at this point what the impact will be with American Express commenting that the U.S. consumer continues to look very strong while others citing higher-than-normal polished diamond stocks are being more cautious. On the tailwind side, we see China has been held back from its normal purchasing behavior by extended continued COVID-19 lockdowns. The pent-up demand of Chinese consumers will be released at some point and recent positive signs seen in China's financial markets, may be a lead indicator of this.

We also know that Russia's invasion of Ukraine has had a disruptive impact on the rough diamond market. Despite sporadic reports of Russian rough entering the market, this supply is considered severely interrupted. Efforts to hold the supply of Russian diamonds to the U.S. continues with most major retailers and industry bodies, having declared publicly they're buying policies that prohibit the purchase of Russian diamonds. This has led to increased branding efforts in the industry around source differentiation and origin-based marketing of diamonds, which highlight the positive stories behind our diamonds and their Canadian provenance.

Lastly, turning to our strategy and closing remarks. Our strategy remains the same as previously discussed. On optimize the business, we continue to work on production recovery and opportunities to manage costs in an inflationary environment. On drive sustainable development, the team continues to work hard to identify potential opportunities around carbon sequestration, while undertaking its first ESG materiality assessment and continuing to contribute to the well-being of our communities, including the scholarship program discussed earlier.

On the capital structure, we have announced the nonbinding term sheet for a private bond instrument to replace our current senior secured second lien notes with a coupon of 9% with an original issue discount of $0.97. The notes being replaced, we know we're an 8% coupon with an original issue discount of [ $0.97992. ] Achieving a 9% coupon in today's mark, it is quite remarkable. And I thank our largest shareholder, Mr. Dermot Desmond, for his continued and meaningful support of the company.

With regard to extending the life of the mine, the Hearne underground extension is a fantastic discovery and potential opportunity to extend the life of the Gahcho Kué mine. On 5 new lines, we executed a strong program in 2022, a summary of which will be released in the coming weeks. We saw multiple areas of kimberlite where we believe there would be kimberlite and additional work is required to prove out these targets.

It's been an eventful Q3, where much has changed as we work through a poor start to the year, along with the COVID-19 outbreak in Q1 and Q2 on site, through which the mine remained open and production continued. A tremendous amount of work has been done by our board, by our bondholders and our CFO and management to achieve the nonbinding term sheet that we are working diligently on closing. We are working towards the year-end with the objective of having a company that is refinanced on favorable terms, with record earnings and a new discovery in Hearne Deeps, which together, create a company with a bright future. Management will now be available for any questions.

[Operator]

[Operator Instructions] Your first question comes from Paul Zimnisky with PZDA.

[Paul Zimnisky, analyst]

[indiscernible] investments in the mine would be? And how I guess you consider that with the other options of developing at the Kennady asset, and maybe how you think [indiscernible] that going forward?

[Mark Wall, executive]

I'm sorry, Paul, it's Mark here. From my end, that was extremely choppy. I only got a very small part of that. Perhaps, Matt, did you hear the question?

[Matthew Macphail, executive]

We heard the same as you Mark, but I think it was around development opportunities and how to prioritize. But perhaps, Paul, could you repeat your question?

[Paul Zimnisky, analyst]

Yes. Sorry about that. I think you've got it. Just regarding prioritizing maybe underground investment, how you kind of look into that in the medium and longer term versus potential to develop Kennady? And I guess just what time lines for that could look like?

[Mark Wall, executive]

Sure. Thanks, Paul. That was much clearer the second time. So prioritization is always the trick in these things. I will say that the difference with what we have with the Hearne ore body is that it is right next to an existing open pit. It is right next to existing infrastructure, process plant, et cetera. So while the most likely mining method would be some form of underground mining method, which is a bit different to what's being done now. Those -- the Hearne extension is attractive because of its proximity, location matters.

I'll say, at the same time, we're looking at and talking about with our partner, how it is that the Kennady deposits, specifically Kelvin and Faraday may fit into a longer mine life and a different mine life that also contemplates potential underground extraction methodologies where the Faraday 2 ore body specifically, which produces very -- or would produce very nice diamonds, high-quality but would be an underground -- largely an underground mine might fit in to the whole picture.

So the picture has become much more interesting with the discovery of the ore body of Hearne. And as we work through the time line on how we would come at that ore body, it also opens up potential opportunities to relook at Tuzo underground, where the large underground portion of Tuzo is actually very good grade and how that would fit together potentially with the Kennady and Faraday deposits. I hope that answers your question.

[Operator]

[Operator Instructions] There are no further questions at this time. Please proceed.

[Mark Wall, executive]

Matt, do you have any questions?

[Matthew Macphail, executive]

I have a series of -- Matt Macphail here. A series of questions from the webcast that I'm going to read out. The first question comes from David Sharke of Calum Renewables. It relates to inventory of stock of rough diamonds of CAD 55 million at the end of Q3 are valued at cost. What you estimate is the unrealized profit in stock of diamonds at the end of Q3 so that one could see the real overall working capital figure is available to cover outstanding bonds?

[Steven Thomas, executive]

Matt, Mark, if it's okay, shall I step into that question. As much as I understand the question in terms of we necessarily value those rough diamonds we have in the sales pipeline, all the way from the Yellowknife facility to Antwerp at the lower cost and realizable value, we're obliged to do that. And it is not proper practice to disclose what the potential future sales value of those diamonds are because you're getting into speculation about what they might be. We stick in the financial statements and the MD&A largely to historical data to facts, so we have the cost as a fact. We have what we've sold diamonds at historically as a fact, but we don't project to what that future sales price might be for goods going through the process. And the same goes for the ore stockpile, exactly the same value at the lower of cost and NRV report cost. That's what you'll see in our balance sheet and don't speculate because there's a long journey to go from that stockpile through to the eventual selling price. So we won't be disclosing that.

[Matthew Macphail, executive]

Okay. I think that was a fulsome answer. I'm going to read out another question from Mr. Sharke. The question reads, "The current share price completely undervalues the company with the bonds extended. Would you agree with this firstly? And if so, what is the plan to get the market to recognize MPVDs inherent value to increase the share price?" I think, Mark, that's a question for you. .

[Mark Wall, executive]

Sure. Thanks, Matt, and thanks, David. We've been at investor conferences, we're recently at the Denver Gold Show, we'll be in London again in a few weeks. And this is one of the things we're talking about. We've done some work that we presented at investor conferences that says that if you look at Mountain Province Diamonds on a straight NAV per share basis, we come up with $2.40. If you look at what an analyst report that was recently produced has a target of $1.42. So there's a bit of a split there.

But regardless, we believe that this company is undervalued. And up until now, there's been a lot of focus on the debt refinance. That's been a real overhang for the share price. We believe that the collaboration of our Board, our bondholders and management have come up with a good solution to that, that we will be executing in due course. And that will be a positive for the share price. So we will continue to be out there to be communicating with investors that we believe that the company is undervalued at its current share price.

[Matthew Macphail, executive]

Okay. Excellent. One final question from Mr. Sharke is, "Why have the sales value per carat of the Kennady assets for Faraday 1, 3, Faraday 2 and Kelvin not being updated since 2018 and is the plan to incorporate the Kennady assets into extended mine life -- mine plan at De Beers at Gahcho Kué?"

Mark, I can take this one if you're okay with that?

[Mark Wall, executive]

Sure.

[Matthew Macphail, executive]

So the updating of prices of the Kennady assets, meaning the average expected sales price per carat is -- we've done some work internally. We need to stick with the rules of disclosure within the TSX, which would require a technical report to accompany a public update to those prices. Right now -- and again, that's not a free or effortless endeavor, but management is weighing our options for 2023, and it's likely that we're going to undertake that full plan in the new year. So that's what we're working towards right now.

And on including the assets in the life of mine plan at Gahcho Kué, I think Mark partially answered it when he talked about GK Underground. The truth of the matter is that those assets, as combined with a potential underground mining scenario at Gahcho Kué, together, Kennady North and Gahcho Kué underground are synergistic. They are more valuable together than alone. So we see that as a potential path and an incremental positive in the last kind of 12 months to including the Kennady assets into the life of mine plan, and it's something that we're always striving to include and have De Beers ear on their inclusion in the future.

That's the end of David Sharke's questions. I have some other questions from the webcast. The first is from Derek Ballendine of TD Wealth. And the question reads, "Mark, congrats on the quarter. Now that you have the refinancing behind you and the company is generating significant cash flow. I'm hoping you could give me a better understanding of how you'll be allocating that cash flow and what are your priorities?"

[Mark Wall, executive]

Okay. Thanks, Matt. Thanks, Derek, and nice to hear from you. I would say that front of mind is paying down our debt while balancing growth opportunities that are accretive to the company. This company has the opportunity to be a profitable, long-term producer with tremendous prospectivity, but we're also very focused on effectively managing our debt position in order to unlock that. So debt is certainly front of mind while -- and similar in some ways, I think to Paul's question, we need to balance that with the opportunities that through a lot of work in 2022 or before us in order to create a profitable long-term company. I hope that answers your question.

[Matthew Macphail, executive]

Okay. Great. And then one final question from the webcast from Daniel Michael, a private investor. "What amount of this quarter sales were from the fancies and specials, one through bidding against De Beers?" And then the second part to the question, "If the proposed refinancing goes through, can you share your plan to pay down the debt?" I think we've kind of answered the second part of that question, Mark, in your answer to Derek. But I guess the amount of sales from this quarter that were from fancies and specials. Do we have -- Reid, do you have a figure you can pull on that? .

[Reid Mackie, executive]

I don't, unfortunately. It's been -- it hasn't changed much compared to previous quarters. So we've obviously had a high representation of fancies and specials continue in our sales, but maybe that's something we can get back to them online with an actual figure of the fancy and special broken out.

[Matthew Macphail, executive]

Yes, fair enough. I think that's kind of normal course -- is a fair assessment. I have a figure here that I've just pulled up of CAD 5.4 million in proceeds on the 110 total.

[Reid Mackie, executive]

There you go. Thanks, Matt. Yes.

[Steven Thomas, executive]

And Steve here, just to add to that. As I spoke to, we do disclose the cost of acquired diamonds, which is specifically those fancies and specials won through the bid process and that cost of sale is mapped to the revenue earned in the period. So to the extent that we purchase diamonds in the previous periods, then are sold in future periods, we endeavor to match that cost of acquired diamonds to the revenue. So it's not meant to be a dollar-for-dollar match, but we do give the running disclosure of all of those cost of fancies and specials acquired will be sold in the future with an appropriate margin. Thanks.

[Matthew Macphail, executive]

Okay. Operator, that's all the questions I have from the webcast.

[Operator]

All right. There are no more questions at this time.

[Steven Thomas, executive]

Okay. Well, thank you very much for everyone who joined to listen in, and we look forward as a team to briefing you further at the end of our Q4. Thank you.

[Operator]

Ladies and gentlemen, this concludes your conference for today. We thank you for participating and ask that you please disconnect your lines.