Mountain Province Diamonds Inc

TSX:MPVD

Earnings Call Transcript 2018-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to the Mountain Province Diamonds Inc. Q4 and Financial Year 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Stuart Brown, President and CEO. Sir, you may begin.

[Stuart Michael Brown, President, CEO & Director]

Thank you very much. Good morning, and good afternoon to all the people who have dialed in, and thank you very much. Just before I go into the details of the call, I'd just like to remind everyone of the forward-looking cautionary information, you should make yourselves familiar with that. We will be engaging in some dialogue on what we'll be doing in 2019 and beyond.So without further ado, format for today, I'll do a brief introduction which will cover the production and the performance then hand over to Perry, our CFO, who will deal with the financial statements and related issues around costs; and then Reid Mackie, our VP of Sales will give us an update on the market and how we performed. And then I'll end with a conclusion on the initiatives and the projects and markets and the focus of what we've been doing over the next 12 months and beyond.So without further ado, 2018, I think we've met or exceeded our guidance in the first full year of production. Clearly the diamond market hasn't been plain sailing throughout the year. Very difficult close to the year in terms of the retail and the ref markets. Pleasing though the production on the mines, we have achieved all of our targets and we've done that safely and well within the bills managed operation. In the market, as Reid will explain in great detail, not easy and especially towards the end of 2019, but pleasingly, I think we did very well to get all of our diamonds sold. Standing back and looking at what is a very new mine. I think we have delivered exceptionally good performance. But I think it has translated into a lot of challenges, and we've had to focus on that, and I will be touching on all of that at the end of the presentation. So without further ado, if I could hand over to Perry to take us through the financials. Thank you.

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

Thanks, Stuart. Good morning, everyone, I'm Perry Ing, I'm the CFO. I'll take you through the financial results for the fourth quarter and for 2018. All figures that I'll refer to are in Canadian dollars unless I state otherwise. So turning first in terms of our income statement, our top line revenue for the quarter was over $70 million from 3 tender sales totaling 823,000 carats out of the average price of USD 65 per carat. This compares to sales of 1 million carats at USD 61 per carat in the fourth quarter of 2017.For the full year, revenue was $311 million on the sale of the $3.25 million carats at an average price of USD 74 a carat, which is 22% increase compared to 2017 when the company filed $2.66 million carats at a price of USD 70 per carat. Please note from a GAAP-reported standpoint that the 2017 comparative only include production figure -- production and sales -- sales figures from those carats produced and sold after the declaration of commercial production. Overall, sales volumes were consistent with our attributable production of 3.4 million carats from the GK mine, but the slight difference due to the normal lag of our sales cycle.Reid Mackie, our VP Marketing, will provide some additional color on the sales and demand picture following my section.Overall, despite challenging diamond market conditions in the second half of the year, our sales results coupled with strong operating performance and achieving cost guidance allowed the company to generate significant EBITDA and free cash flow. On an adjusted EBITDA basis, we reported EBITDA of $26.5 million for the fourth quarter and $139 million for the full year compared to $104 million in 2017. We believe that this demonstrates a strong cash flow margin that the GK mine can provide as a high-volume, low-cost per carat producer, despite some of the challenges in the diamond market, as Stuart reflected on. These margins allow us to comfortably service our debt and provide a cushion against any further weakness in the diamond markets. Overall, we reported a 45% adjusted EBITDA margin for 2018, despite some temporary cost pressures in the fourth quarter. Turning to our GAAP results, we reported a net loss of $30 million for the fourth quarter or $0.15 a share, and a loss of $19 million or $0.10 a share for the full year.Comparatively, we lost $16 million in the fourth quarter of 2017 and reported net income of $17.5 million for the full year for 2017. Now I'd like to point out that the reported loss for the quarter and the year can be largely attributed to unrealized foreign exchange translation losses, reflecting our U.S. denominated outstanding bonds, given the Canadian dollar ended the year 133 to the U.S. dollar, compared to 124 at the beginning of 2018 and 130 at the beginning of the fourth quarter.As is true for all Canadian mining companies, a weaker Canadian dollar is to our benefit as our revenue is in US dollars and our cost base is in Canadian dollars. We do need, however, to translate our US dollars denominated debt for reporting purposes to Canadian dollars. So during 2018, even though we started the year with $330 million in debt and we purchased USD 20 million of debt to end the year with $310 million in outstanding debt. If you look at our Canadian dollar balance sheet, we actually reported a higher amount of outstanding liabilities in terms of our secured note payables as disclosed on our balance sheet. But again, I'd like to stress that this is an accounting artifact and really this is to our benefit because the weaker the Canadian dollar is the better our margins will be, especially since our revenues are in US dollars. So there's a natural hedge in place there.So turning to our next slide, we ended the year with $31 million in cash compared to $43 million at the start of the year or a decrease of $12 million. On the prior slide, I show an adjusted EBITDA of $139 million. So in total, we had a net movement of about $150 million in cash. So the major components of that were investment in property, plant and equipment, including deferred stripping of about $80 million. Interest on our bonds of about CAD 33 million. Debt repurchases, which translate to CAD 26 million and dividends paid of just under CAD 9 million.So with a better working capital movement, that's -- shows basically what we did with the cash flow generated during the year. In terms of cash management, the $31 million we opened 2019 with along with our diamond sales to date a pair of sufficient funds. Our portion of the winter ice road supply season, which is nearing completion. But we do not anticipate needing to drop on our revolving credit facility during 2019, at least that's the current status.Turning back to review of 2018, earnings from mining operations were $13 million for the quarter and $81 million for the full year compared to $52 million for 2017. Just looking at our costs, we reported cash costs of production, including deferred stripping of a $126 per tonne for the quarter and $100 -- $101 per tonne for the year compared to $73 per tonnes for 2017. Overall, we came at the higher end of our guidance range due to some onetime cost challenges in the fourth quarter as noted in our earnings release.As production for the year was ahead of schedule, we had the flexibility to conduct an extended maintenance shutdown at the end of the third quarter, which extended into the fourth quarter as well as conducting a focused revenue sample from the Hearne Pit, which reduced throughputs through the plant for the quarter to 751,000 tonnes, which was about an 8% decrease compared to the first 3 quarters of the year. We believe that conducting the focused turned revenue sample is a prudent course of action in order to better understand the credibility and variability of the kimberlite under different conditions through the plant, given that it will represent over 60% of total production for 2019. Adding to the higher costs for the quarter were additional mobile maintenance costs and addressing warranty issues. We believe these costs are behind us and the risks have been mitigated, and costs have returned to normal for the first 2.5 months of 2019. The big picture is, while we were not pleased with having escalated costs at the end of the year. We believe that the work done by the -- by us in De Beers has been prudent and sets us up well on the path for success for 2019.Our initial cost guidance for the year is $110 to $120 per tonne, and Stuart will be talking about some initiatives we are undertaking with De Beers to bring the cost range down, both by addressing the cost side and addressing -- and potentially increasing throughput.Last number, on the slide was sustaining CapEx, which was $2.7 million for the fourth quarter and $36 million for the full year. We believe that the majority of CapEx for the foreseeable future is behind us. We completed the acquisition of the remaining truck/shovel fleet that we acquired from mining operations as well as completed a gymnasium for the workers on site, which we think is a significant recruitment and retention tool for our workers on site.It's not on the slide, but I also mention exploration spend for the year, it was a total of $8.2 million for the year, which was fairly evenly split between the GK mine and the Kennady properties. We believe we realized significant value for the $8.2 million spent, and looking forward, our exploration spend will continue to be modest but we have -- we'll spend that money wisely. So with that, I'll turn the presentation to Reid Mackie, our VP Marketing.

[Reid Mackie, Vice President of Diamond Marketing]

Thank you, Perry. I'm Reid Mackie, VP Diamond Marketing from Mountain Province. I would like to briefly discuss the diamond jewelry demand fundamentals relevant to Mountain Province in 2018, and then I'll speak a little more detail -- to a little more detail on our products and how they performed in sales last year. Overall, retail demand for luxury goods in 2018 was reported to be firm in the world's 2 largest markets, U.S. and China up to Q4. We're estimating that the size of the diamond jewelry business in 2018 was around $80 billion. During Q4, though, we did see demand in China slow and show signs of softening, coincident with the onset of trade tensions with the U.S. Further, the U.S. overall retail sales in Q4 were somewhat disappointing with the combination of financial market volatility, the U.S. government shutdowns and trade tensions reducing customer confidence and spending levels. I'll speak briefly on lab grown diamonds. They were a story for 2018 and much discussed in industry press. At present we see the threat of lab grown diamonds to pricing of natural rough diamonds, it appears to sit squarely in the consumer confidence space for the moment. But with advancements in testing up to meeting this challenge. For example, some of the automated testers that are out there for synthetic products. But ultimately, it's the consumers that will decide the position and market share of lab grown diamonds in the expensive jewelry space. As they did with lab grown colored gemstones, cultured pearls and various other diamond simulant. And they're also indications from some of the largest retailers, those who have very new nuanced views of today's diamond consumers that perhaps today's consumers might be reluctant to celebrate and honor some of the life's most important milestones with an industrial-made product.Speaking a little bit to the consumers. Consumers under 40 years old are now the largest global demographic and obviously, have the high spending power. A lot has been said about millennials in the diamond industry and the diamond consumer space, we're driving growth in consumption of luxury goods. And analysis done by some of our contemporary such as De Beers indicates that millennials drive nearly 60% of diamond jewelry demand in the U.S. and nearly 80% in China.This group are individually demanding, well-informed consumers who seek expressions of individuality, they demand authenticity and strive for ethical consumption. As natural diamonds align with these values, and as a significant portion of Gahcho Kué production flows into relatively affordable diamond jewelry, in 2019 we'll be exploring a rural mountain province, may play downstream in supporting the promotion and branding and meeting this future demand. I'll move on into our actual product categories and speak to the -- little bit to the profile of our diamonds and the diamonds that we sell. In 2018, nonprofit sold over 500-plus 10.8-carat gem quality stones at our tenders in Antwerp. And in the process, it has developed a reputation for being an important source for diamonds of exceptional size and quality, for example, the 95 and 65 carat pictured here.Like all producers, we were exposed to lower-market prices for small and cheaper diamond categories during H2 2018. However, our competitive sales process insured that we carried no unsold stock during this period and maximized revenue in those categories that saw softer demand. Though, in volume terms, we have an important population of smaller diamonds, i.e., those less than 1 carat. It should be recognized that in value terms more than 50% of Mountain Province's 2018 revenue was generated by stones of sufficient size and quality to produce polished diamonds of 1 carat or larger, highlighted here in red and blue in the pie charts. And that the prices for the majority of these remained firm throughout 2018. Though sales for our larger white gem categories continue to perform well. We do see discounting from fluorescents in the mid-market wholesales thus possessed. In 2019, we'll be exploring how targeted-promotional initiatives might assist us in mitigating this. And on that, I will pass it back to you, Stuart, for closing comments.

[Stuart Michael Brown, President, CEO & Director]

Thanks very much, Reid. So if I could just summarize between Reid and Perry and my initial comments. In conclusion, I think from a production perspective, it was a very good year. It allowed us to do some testing and on premise prevention which did cost us some money in the fourth quarter but we were well prepared for that. We now understand how 2019 is going to perform, and as Perry said, with the first 2.5 months our costs have went down to just below $100 and the mine is performing very well. We're treating product very well through the mine, and we've had some record days of about 12,000 tonnes a day when we have an average capacity expecting to about 8,000 tonnes a day on certain days. So I think we got a good understanding and we've got a good solid base to work from. We've got a good margin in a difficult diamond market, as Reid's been reading to in the fourth quarter. But we have seen start of sales and -- the close of sales last year and the start of sales this year, where we've seen marginal price increases at the bottom end. So there is some hope to see stability in the market, although, the market is very cautious. So I think we got good prospects to add value during 2019 and beyond. So if I take a step back and then look at what are we going to focus on, taking 2018 into account and the good performance and the expected continuing good performance. How can we make this look better in the future, against the backdrop of the market as it stands now. We've had a lot of work going on in the last 4, 5 months, focusing on what are the key drivers that we can focus on to deliver better performance, to translating into better cash and obviously better shareholder value. So in no particular order, we've got 6 initiatives that we're working on either by ourselves or with De Beers. First one is, though, winter program on our wholly owned property in the Southwest of the mine site, where Tom, who joined us early this year, has done a lot of work on the database, putting it all together into a single-focused database. It's very interactive and that's delivering us excellent prospect targets. We've dedicated a small amount of mine for Tom to go drilling and he started drilling the last week. We believe that good data plus good experience translates to great potential discovery. We should be complete with this drilling over the next few months and we'll be able to release the results of that drilling in the second quarter of 2019. We selected the best targets closest to the mine on our property as we think that gives us the best return for our money and also gives us the best leverage to engage with De Beers.Some of that money other people spend, and that Perry mentioned, was on the JV. We spent in 2018 and the back end of 2017 was on the drilling between 5034 and Tuzo. And that's indicated that we've gotten excess of 6 million tonnes of kimberlites, it's not yet in the mine plan, it's at that just between, and it's attached to 5034 and it extends towards Tuzo that contains potentially between 12 million and 13 million carats. And we're busy with the parameters and the planning to include that in my next version of the mine plan, which will come out early in Q3, which will give us time to analyze and work out how best we can then integrate our thinking with the Kelvin-Faraday kimberlites into that, and I'll touch on that later on in this slide. So I think we know that's value accretive, we just want to see the impacts on the -- where the stripping works and the mine plan fits together. So for that for us is very exciting because I think that adds at least 2 years' worth of mining in Texas into the early '20s, '30s from where we are right now, which gives us a long runway of good cash flow. Having sat down and looked at the 2018 performance and looking at the future, we said to De Beers, this is fine but we need to see how much better we can do. What can we do to optimize the plant? And what can we do to lower the unit costs? Obviously, you can increase your tonnage, you can also lower the cost through initiatives, and De Beers have taken up that challenge and we continually work with them on that. We're looking at adjusting the slope angles on certain parts of the pits. We can get 1 or 2 degree improvement there that will add significantly to the bottom line. That load work is nearing completion and it's now going through technical -- geotechnical sign off. And as soon as that's available to us, that will also be worked into the mine plan and that will also be very value accretive as any reduction in wage stripping, it will report directly to the bottom line because we won't have to move those tonnes.One of our biggest initiatives that we started focusing on late last year was looking at the diamond market. The distribution of our sales frequency of our product and seeing if there were ways where we could enhance the throughput through the mine. And the net result of that is on the studies and we've done it on the flow sheet. If we move our bottom cutoff up from 1 to 1.25 millimeters, it will mainly discard some our small or very small diamonds, but it will allow us to potentially increase the tonnage throughput between 5% and 10%, which will then give us a better revenue per hour figure coming up the plant. We have started this in 2019 and there's 5 interventions that we're doing, some are plant flow changes and others are just screen changes. The impact of this will be felt throughout 2019, we need a sustained period of analysis to see how this works through the plant. Initially, we are seeing small improvements, but we haven't completed all of these interventions. The potential of this is a very low capital investment, and it's directly to Mountain Province will be just around -- in excess of $10 million a year on the revenue line, and could go more than that if we get better efficiencies towards the 10% increase. What's very important to us is -- are the Kennady assets. As everybody knows, we reacquired those, Kelvin and Faraday. At the end of last year, Tom decided to do some further work on Faraday 2, where we took some of the drilling core and tested for micro diamonds. That data has just been received and we're busy working through that, but it looks like it's increasing the size of the inferred resource of Faraday 2. We'll be reporting on that in Q2 very shortly. But that's very good news for us because we think that significantly enhances the value of Faraday 2. I will turn back to the life of mine planning. De Beers, understandably, have been working very hard to try and enhance the mine and move the life of mine beyond where the original end of mine life was. So we're in agreements with them there. We think that the integration of these 2 projects, Faraday and Kelvin will add to it but we'll only be in a position to do this in our own planning later this year when we receive that life of mine plan. I think the work we've done on that has been to further add value and create more value, and we are engaging with De Beers in discussions around this at the moment. Finally, as Reid said, what we know is what we produce, and there's a number of ways we can just look at life. We can either continue selling it the same way and get much of the same results. Or we can look at a number of ways to lift our revenue, despite the market, which is what we've decided to do. We have a very distinct advantage that we work in Canada. Our Canadian providence, I think, is a very strong asset when we look at the way consumers are starting to purchase, their habits, their desire to understand where the products come from. And we intended to look at fluorescence as an asset rather than a liability.So the work we're going to be doing over the next sort of 12 to 18 months, will be to see how can we enhance this by partnering with various people and seeing if we can develop a brand that is associated with our environment and also the good work we do on this. And again, that all adds into the potential value add for this company. So in conclusion, good operations, good margins under the current market, any price increase we will receive flows directly to the bottom line. Well, I can say, we're pleased and frustrated because we think we can deliver more, and pleasingly De Beers are working very hard and we're participating in that. Just trying to improve every line that we can on the income statement to reduce cost and where we can push tonnage through. And 2019 so far has demonstrated that, that's working. So I think we've put as much effort as we can do in this, and we look forward to updating you further in the year along with these milestones and further reporting on the company. Thank you very much. We now would like to invite any questions.

[Operator]

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

[Geordie Mark, Co]

Just got a few questions, they may be for Perry. On the projections of cash flow drawer on the facility, what sort of commodity price or, I guess, percentage lower commodity price, when you forecasted this year, or do you think you would predicate a drawer on your facility there?

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

Yes. Most of our -- Geordie, thanks for the question. Most of our cash flow constraints will adjust from the lumpiness of having to supply the winter route. And having a really heavy Q1 and Q2 cash costs. I don't see any realistic scenario. Once we've gotten through early April where even a 10%, 20%, 25% drop would necessitate time to grow on the revolver. It's really to do with the winter road supply season.

[Geordie Mark, Co]

Okay. May be a bit on the life of mine sort of concept. And maybe stepping on 2 more angles up a bit. [Can I get] sort of a broad sense of each degree, what sort of volume you might sort of decrease.

[Stuart Michael Brown, President, CEO & Director]

So we see about $20 million tonnes, Geordie, at the moment...

[Geordie Mark, Co]

For each degree?

[Stuart Michael Brown, President, CEO & Director]

No, for all.

[Geordie Mark, Co]

For the 2 degree, I see. Okay. And how are you seeing cost innovations for -- from mining and processing?

[Stuart Michael Brown, President, CEO & Director]

We've had long discussions with De Beers on this and we'd like to aim for a way we could be in 2018, that's our aspirational target. We did guide between 110 and 120, as Perry mentioned earlier. But we were -- we budgeting on the 110 in our heads when we gave that guidance off but we're now looking to try and lower that further in 2019 and that's the initiative work we're doing with De Beers. Of course if we can push tonnage as well that adds to the top line as well as helping to lower the cost per ton.

[Geordie Mark, Co]

Of course. And may be over to Reid, on the diamonds out of hand. Any comments on what you're seeing in terms of the -- from the sales and the recovery of diamonds from Hearne versus the population from 5034? Are you seeing any sort of normalization to a mean there, or what are you seeing? And in terms of yellows that you're starting to see, is that a discernible population that's sort of growing or we need some more time to tell?

[Reid Mackie, Vice President of Diamond Marketing]

Geordie, good question. It's too early to tell with Hearne, to be blunt. There's still -- we're not seeing pure shipments of Hearne as yet. And there is also the backdrop of what Stuart mentioned, the improvements that are going on right now in terms of throughput of production. So I think it's going to take -- in the months ahead, the receipt of a few pure or at least Hearne-dominated shipments before we can make any call. Today, we're seeing -- as Stuart mentioned a few hints of better size distribution and quality, some improvements to quality. But I wouldn't want to say anything definitive until we get some, as I just said, a good few pure Hearne production shipments through. So I'll leave it at that.

[Geordie Mark, Co]

Okay. And may be one last question there. On the $6 million tonnes you mentioned for the extension, should we sort of project potential grades to emulate that with what you see for average 5034. Is that kind of the deal?

[Stuart Michael Brown, President, CEO & Director]

Yes. We would be happy with that. So we're still looking around 2, Geordie, after the plant cutoff is factored into that.

[Geordie Mark, Co]

And that can be 1.25 mill? Yes.

[Stuart Michael Brown, President, CEO & Director]

Yes. 2 carats per tonne, sorry.

[Operator]

And our next question comes from Scott Macdonald with Deutsche Bank (sic) [ Scotiabank ].

[Scott Macdonald, Associate Analyst]

Geordie covered off a lot of my questions but may be just one for Reid. You did talk about lab grown diamonds in general terms. To what extent though, do you think sort of a pickup in acceptance of these products impacted the sort of drop in rough diamond prices in late last year?

[Reid Mackie, Vice President of Diamond Marketing]

I think it's -- as I've mentioned briefly, Scott, and it's a good question. I think at this stage it is still very much in the confidence space. We're not seeing the volumes that -- in quantitative terms that really would justify the decreases that we saw. I think it was a contributing factor emotionally in the secondary rough market. But just as equally as far as preference, I think there has been and there has been for quite some time the question around consumer confidence and confidence through the midstream of lab grown or synthetic diamonds inadvertently being introduced into the national productions, and that has been a concern for quite some time. But as I did mention, there have been some developments technologically that have come through, such as the automated [ mally ] testing -- testers that De Beers has released last year that have kind of risen to meet that challenge. Going forward, of course, and as has been much discussed, lab grown diamonds are going to make a space for themselves in the consumers -- at the consumer level. But I think it's more -- becomes more of a marketing challenge. And I think a lot of different diamond producers equally -- natural diamond producers are becoming more nuanced and more sophisticated in creating brands for consumer, and specially millennials, as I alluded to in my presentation. And lab grown diamonds are going to fit into that space. That's my belief in that. And we do have evidence that with some of the larger retailers out there that have a very nuanced view of their consumers, that question whether or not lab grown diamonds are going to be accepted as kind of monumental purchases for those important stages of life. So I think we still have to see quite a bit of time out in the market with lab grown diamonds before we see anything more.

[Operator]

And our next question comes from Paul Zimnisky with PZDA.

[Paul Zimnisky]

I guess regarding the 60 carats fancy that you press released in January. Do you know if that came out of Hearne or 5034? And if you can kind of may be give an idea of what that sold for? And just lastly, perhaps you could provide may be some more color on any other notable stones that you think come out of Hearne in February or March.

[Stuart Michael Brown, President, CEO & Director]

Reid, can I get you on this?

[Reid Mackie, Vice President of Diamond Marketing]

Yes, sure. We don't -- good question, Paul and I appreciate the interest in the 60 carat. Unfortunately, this -- unfortunately we can't give the actual price that the stone sold for, but we were happy with the results. And the reason we can't give the price of the stone is because it was sold successfully and we wouldn't want to disadvantage the buyer who's basically polishing it up right now. So I -- as far as the future prospectivity of fancy colors like that coming through, obviously, it's a great sign so early in mining Hearne. And seeing a few fancy colors come through in that shipment and in this latest sale, they were widely appreciated by the market. We saw some of our highest interest levels in our tender process in February, on the back of having those as part of the offering. So we're -- we've had the sale and we're looking forward to receiving more of them hopefully. And it's becoming a hallmark of or at least an important aspect of our production profile.

[Operator]

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

[Bruno Costa]

So a few of my questions are already answered previously, but I have just one more. So what's the CapEx guidance for Mountain Province in 2019? And how much of this number is maintenance? And how much of it is discretionary CapEx?

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

Bruno, I believe the number is just under $10 million for next year, which is...

[Stuart Michael Brown, President, CEO & Director]

For this year.

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

For this year, yes. Yes, for 2019. And the other part of your question was sustaining versus...

[Bruno Costa]

How much of this $10 million is maintenance CapEx versus how much of it is discretionary?

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

I would say, it's all maintenance. There's really nothing extraneous in there that I'd say is discretionary.

[Bruno Costa]

Okay. And this $10 million, is that on the 100% basis or is that just for Mountain Province?

[Stuart Michael Brown, President, CEO & Director]

Just us.

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

That's our share.

[Stuart Michael Brown, President, CEO & Director]

There's some replacement equipment in there as we -- the mine started out but generally just maintenance, really keeping the plant in tip top shape. Around that benefits, probably higher this year then it would be in the years after this.

[Operator]

And our next question comes from Daniel Plager with Plager Asset Management.

[Daniel Plager]

My question is really for Stuart, and first of all, I'd like to say my compliments to the team for your continued tremendous operational skills, the production from the mine and the mine diamond production has always been stellar and really beyond question. The issue obviously, boils down to diamond pricing. And while I appreciate -- the -- make your attempts to kind of dance around the issue of lab grown diamonds, Stuart my discussions with you have indicated that you have had a bit of a healthier respect, I think, for the future developments of lab grown diamonds then perhaps the previous management who did the Kennady acquisition. I think we all have to just accept the fact that technological improvements will continue, technological progress moves forward and lab grown diamonds will continue to be a much larger factor. For those of us who have millennial children, they couldn't care less whether it's lab grown or natural, if it sparkles, looks good and is a diamond, I think that's what people are going to want to focus on. So I guess my question is to -- we sit -- a year from now we'll be talking about increased encroachment of lab grown diamonds into the marketplace, increased acceptance of that. So I guess my question is, if we really think diamond pricing is not likely to improve in the long run, due partially to the encroachment of lab grown, would we be doing anything differently at all? Is there really a favorable path forward if we really don't see improved diamond pricing over the next many years?

[Stuart Michael Brown, President, CEO & Director]

Okay. I mean, that's something that we do focus on Daniel, so thanks for that. In our previous discussions you referred to, I think, it keeps us thinking. So my opinion on the technology side works both ways on this. As the technology from mining also improves it allows us to move down the cost curve and we're certainly looking at that. And one of the way is you've got to balance what you want to invest to develop your mine further and see if that's better than doing something else. I guess is always the tradeoff. And how much certainty have you got on your product pricing in the future. We've certainly taken a very pragmatic view of future diamond prices in all the economic situations, which is precisely why we sat down with De Beers to say, first of all, they are working both ends of this equation. They have got huge investments planned in mining. You'll see they just announced that they're going to do to Jwaneng mine with $2 billion. At the same time they're developing this synthetic factory, I think is in Portland and Oregon. And that's costing them $100 million. And their strategy is very clear, and I think when they initially announced it, yes, there was a lot of talk in the market. And some of the callers on today do a lot of research on this as well. So my view on this is we said precisely what you raising with De Beers, the bottom end of the market and if you look at the pie charts Reid presented in his presentation, the 88% of our production, which is in the lower end, let's call it the size fraction lower end, not in the high-value end. I think that's where we see potential for the cheaper end jewelry where that gets, as you referred to millennials don't really care between the 2, but once you start going to up the value curve, you certainly see a massive preference. And we're not seeing diamond processes for synthetic grow, in fact, we're seeing those decline over the last year. As De Beers have rolled up their strategy. We also then said to De Beers, that's exactly why we want to do the cutoff change, we want to move up the value chain. We want to move our average value that we recover off the mine up into the larger sizes. So the bottom cutoff has that effect on doing that. And then what technology can we introduced into the mine to lower our cost to keep our margin there. There's no doubt that technology will also improve on growing diamonds either through high pressure, high temperature, and more importantly, on the chemical vapor deposition methods, where everyone is looking at that. But you've seen De Beers do that and the De Beers strategy is to differentiate this product on a radical basis. It's announced its price structure. It's sold about 20,000 carats so far. Just on an initial test basis out of laboratories. It's had very good take up from very interested people. Everyone wants to have a look at it, what does the product look like. But we're definitely seeing a definite split in trends. And millennials on both sides of the equation will buy both products. If you want to buy a very expensive diamond and you can buy a cheaper synthetic, you can see that you can get your money back on a much more expensive one as retailers are realizing that they want to continue adding value. So overall, in the start of where was my confidence, it was more 50-50. We've got to get this right, we've got to invest in this. A year later now, as it was May, when this was launched by De Beers last year, so nearly a year. I'm feeling more confident that I understand the dynamics, I understand where the consumers are going and how the Chinese consumer is reacting to it. But I don't think we can be complacent. We have to, as an industry, invest quite a lot in the mine to prevent this from just being done to us. And I think rather that we need to do to the industry and actively manage it. But we won't be investing huge amounts of capital over the next 5 to 10 years in this mine, it's very low capital intensity. Mostly strip and mine, so we don't have a big capital investment program. When -- even if -- when we bring Kelvin-Faraday on, it's very low cost in terms of getting this started mining compared to the initial construction of a big plant. But -- and I think it's still a lot of work to go on this but those are all points that we do take into account. But I don't think we can just give up and say, well, it's going to work it's all gone synthetic factory because I think De Beers have taken the margin around that investment. I think people that are investing in that now are having to mute down the cost curve and move up in the productivity curve. But we are definitely seeing in the bigger prices, our prices are maintaining their price and the size of those synthetics are competing, they're dropping.

[Daniel Plager]

One operational, or financial question. Have you given any guidance at all on your expected repurchase of the bonds for 2019? I know that's been kind of an ongoing feature. Will you be continuing to repurchase bonds, and any quantity that you can guide us towards?

[Stuart Michael Brown, President, CEO & Director]

Not at the moment. Dan, we'd like to see how we go for this year. We want to get, let's say to the diamond markets that's cautious at the moment. I think we don't want to give a prediction that we're going to pay $20 million down, and then we miss that and get penalized for it. What we will promise is we won't squander any of this money that we do make. We are cash positive for 2019 and then we'll take a view and the boards view as we will review this on a quarterly basis to see what we do with our spare cash. But right now we want to get through the winter road period, we nearly finished on the deliveries but we haven't finished on all the payments, as Perry says it's going to take us a while to do that. So we really want to avoid having to draw down on the revolver, which we don't think we have to do. And towards the end of the year, we will be much more confident as how people have got through this sort of early 2019 difficult period.

[Operator]

And our last question for this Q&A session comes from [ Robert Mayne ] with [ DCM ].

[Unknown Analyst]

Just a quick one on the bond. Can you tell us what the balance is outstanding in US dollars and Canadian dollars please?

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

Yes, Robert, we repurchased $20 million in the year so our outstanding was USD 310 million, which out -- the year and experience relates was just over CAD 400 million.

[Operator]

Thank you. And I'm -- pardon, go ahead.

[Stuart Michael Brown, President, CEO & Director]

No, carry on, thanks.

[Operator]

I was going to mention that there is no further questions in queue at this time. And I'd like to turn the call back over to Stuart Brown, President and CEO for any closing remarks.

[Stuart Michael Brown, President, CEO & Director]

Thanks very much, and thanks for all those question from all the callers. And thank you for the rest of you who dialed in to listen. I think it's been very thorough, we've gone over everything, and we'd like to believe our announcement contained a great deal of detail and also, gave you enough forward-looking guidance to give you comfort that we are operating well, and we're very good at high margins. So we look forward to updating you when we do our Q1 announcement pretty soon, come around -- these things roll around quicker than you think. And we'll also be looking to update you when Tom completes the work on the Kelvin-Faraday work. Thank you very much, and we'll speak to you soon.

[Operator]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your program, and you may all disconnect. Everyone, have a great day.