Mountain Province Diamonds Inc

TSX:MPVD

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Mountain Province Diamonds Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, March 25. 2021. I would now like to turn the conference over to Mr. Stuart Brown. Please go ahead.

[Stuart Michael Brown, President, CEO & Non]

Good day. Thank you very much. Good day to everyone on the call, and thank you for taking the time to dial in and listen to us.Just before I go ahead, anyone, I'd just like to go through the presentation today, just remind everyone on the forward-looking statement cautionary documentation that always is contained at the front of our presentation. As well looking backwards today over the past year, we will also be discussing issues that we're dealing with right now in 2021 and projecting forward from that. So a reminder for everyone to please make themselves familiar with the wording on the screen in front of them or to have a look at it when they can at later date. So today, I'm also joined by Perry Ing, our CFO; and Reid Mackie, our Head of Sales and Marketing, who will cover their respective areas after I've completed my introduction of the summarization of the 2020 year-end review. No doubt that 2020 has certainly been a very challenging year for the company and for the diamond industry in general. It was a particularly difficult time for mining companies. After a relatively bright start to the year, we were quickly [ claimed ] into the global crisis in March 2020, which is almost a year ago to now when the ability to mine started to become increasingly difficult as we struggle to move people around the world and indeed in Canada and hopping in and out of sites, and even worse, the ability to move diamonds around the world as markets shut completely, and it became impossible to sell diamonds through regular channels. I think we responded extremely well to the challenges we faced throughout the year. We were able to keep the mine running, having just completed our winter road resupply in 2020, and we're helped enormously by support from our management and shareholder in the form of Dermot Desmond, in the form of an offtake sales agreement of up to potentially $100 million. In the end, we utilized just short of $50 million of this option for liquidity purposes and also grateful that Dunebridge by Dermot stepped in again to main our liquidity -- maintain our liquidity buffer with a short-term loan of $25 million when our main lenders withdrew. Perry will deal with all the detail of production results. But overall, under the circumstances, we did well despite the challenges to get close to our carat target for 2020, which is understandably we were missing our mining targets, which is simply didn't have the personnel to run all the trucks at the time. The logistical changes and COVID protocols that we had to introduce and implement at the time to keep the mine running have been enormous. We've been stretched due to COVID for over a year now. The impact of COVID-19 on the mine has also affected our planned mining versus our actual mine throughout 2020 and also into 2021. We had to continuously adapt, be more flexible and based on which source of all we've been able to get or go dip into our stockpile usage and trying to manage grade and get an even pattern of carats coming on hasn't always been possible. We also had some particularly bad weather issues towards the end of the year, which caused us further complications. So off to maneuvering our way through the whole of 2020, avoiding any major issues with COVID-19, it was a bit disappointing to have outbreak of COVID on the mine early in February, and this then forced us to shut the mine down for approximately 3 weeks. The restart has been quite difficult. The lessons learned around shutting mines in the middle of winter at minus 45 have been quite harsh in some areas. So we're dealing with this. The excessive cold has certainly slowed us down and indeed, the ongoing mine protocols, but we are now up and running, and we're heading back to full productivity over the coming period. I did mention in our announcement that we are very pleased with the vaccination campaign that we've just completed and will continue with has allowed us to almost vaccinate the bulk of our workforce over the last few days. And this will help us accelerate the minimization of risk and again, assist us with getting the personnel back up to full strength and full productivity. So 2021 winter road campaign has been very successful. The weather all cooperates with it, and we were able to continue with this even though we were shut down for this period. It became a priority and we'd like to thank all of our employees and contractors who remained on the mine as part of the essential services. And indeed, as well as those that were off mine and in quarantine or working from home, they all pitched in to ensure that we could keep this logistical service going while we restocked for the rest of the year. I'd also like to take the time to address where we are in their Kennady assets and assure everyone that we haven't forgotten about them. We are working on those solutions at the moment. We've appointed consultants to assist us with an internal review of the possibilities with respect to different combinations of mining options and to assist with developing a steps -- a set of mining plans to consider. This work is progressing, and we will receive more information in the second quarter. Our desire is still very strongly focused on getting some or all of these assets included in the mining plan. We're just not quite sure of the order and the methodology at the moment, but that work is ongoing. Turning to the diamond market. While the rough diamond markets reopened late in the third quarter and indeed strengthened in the fourth quarter, we saw significantly more confidence return. This was assisted by reduced trade volumes from other suppliers, and this has continued through to 2021. And Reid will touch on all of this in his address, but we have seen prices and the benefit of price increases. And generally now, on average, we're more than fully recovered over the pre-COVID levels, but Reid will give you more information on those. I won't spend too much time at the moment on this Tuzo sample results as I will come to these after Reid and Perry finish their sections. I'd like to, at this stage, now hand over to Perry, who will take us through the production results and then the financial results. And then I'll join you at the end for a summary of what's going on. Thank you.

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

Thank you, Stuart. Good morning, everyone. As Stuart mentioned, I'll provide some brief highlights for the fourth quarter and as well for the full year. All of the production stats I'll reference are on a 100% basis, unless otherwise noted, and all the financial figures will be in Canadian dollars unless otherwise noted. I would note -- I recognize our year-end filings, our financial statements and MD&A might not yet be posted on SEDAR, apologies for any delays, but those should be posted shortly, if they haven't already. So I will start on Slide 4 with just a brief review of our high-level production statistics. In the fourth quarter, we've mined approximately 9.8 million tonnes, which was roughly the same as the prior quarter and a significant increase from 6.8 million tonnes in the second quarter of the year. For comparison, we mined 11.1 million quarters -- 11.1 million tonnes in the fourth quarter of 2019. So on a year-over-year basis, we're down about 12% in terms of total mine movements. Overall, though, as Stuart has said, the mine has made significant improvements in productivity rates through the course of the year despite the COVID environment. And we are averaging about a 50% improvement over the past 2 quarters compared to the second quarter of 2020, which was obviously our worst period. Nevertheless, the 35.9 million tonnes mined was well below plan of 42.7 million tonnes. So about a 7 million tonne deficit or about [ 16% ] and that also compares to 43.2 million tonnes mined in 2019. Obviously, you can attribute almost all of that to the effect of COVID-19 and crew shortages. As a consolation, ore tonnes mined actually performed well. We came in at 840,000 tonnes for the quarter and 3.3 million tonnes for the year, which was generally in line with budget and actually slightly ahead of 2019 performance. In terms of plant performance, consistent with the prior quarter, plant throughput has been less affected than the mine tonnage performance. We ran the quarter at roughly 8,000 tonnes per day for total tonnes treated of 736,000 tonnes compared to 821,000 tonnes in the prior quarter and 937,000 tonnes in the same quarter in 2019. As far as the fourth quarter, we were impacted negatively by mine sequencing, by weather effects and as well a bit of downtime to prepare for and run the segregated bulk sample for the Tuzo kimberlite. In terms of grade, grade was reported at 2.07 carats per tonne, which resulted in recovery of 1.52 million carats recovered compared to 1.79 million carats in the prior quarter and 1.98 million carats in the same quarter in 2019. Obviously, as Stuart mentioned, the recent work stoppage in February of this year due to the COVID situation has certainly impacted the mine plan, and we'll discuss a little bit more on that shortly. But for now, I'll turn over to the next slide on to financial results. All right. So in terms of financial results, fourth quarter was the first quarter in nearly a full year where we were able to rely solely on sales through our normal sales channels in Antwerp, Belgium. Having resumed tender sales in September 2020, we conducted 2 further sales in the fourth quarter with 957,000 carats sold at an average price of USD 65 per carat for total revenue of USD 62 million or approximately CAD 80 million. This was ahead of the 613,000 carats sold in the fourth quarter of 2019 at USD 59 per carat. As a result, we generated $37 million in adjusted EBITDA for the quarter and showed an EBITDA margin of 46%. Obviously, this is a very encouraging end to an otherwise difficult year. In terms of financial statements highlights, our reported loss for the period was $189 million or $0.90 a share. Certainly, what drove that was our $217 million noncash impairment charge on the carrying value of the GK mine as at December 31, 2020. Obviously, the accounting standards require that whenever there's a significant impairment trigger, we're required under those standards to assess our long-term assets for impairment. And in our case, the primary drivers of the impairment were the lower diamond price assumptions on the Tuzo kimberlite based on preliminary reviews coming out of the bulk sampling work. Obviously, everything is with a view of market conditions at the time at the end of the year 2020. Other impact -- other factors impacting the impairment were a strong Canadian dollar and an increase in discount rate assumptions due to market-related factors. Obviously, this is something that the company will assess further on down the road. And if there's an opportunity for us to assess -- reassess the MPV of the GK mine, then obviously, there's an opportunity to potentially reverse some of that impairment down the road. Also recorded during the quarter was $18.6 million in foreign exchange gains relating largely to unrealized gains on the conversion of our debt, which is all denominated in U.S. dollars. During the fourth quarter, the Canadian dollar appreciated from the CAD 1.32 range relative to the dollar, to the CAD 1.27 level at the beginning -- at the end of the year. Obviously, at the Canadian-based operation, a stronger Canadian dollar adversely affects our ability to pay operating costs from a U.S. dollar-denominated revenue standpoint. We note that in recent weeks, the dollar has traded as high as CAD 1.24. And today, I think we're sitting around CAD 1.26. And again, as I mentioned, the Canadian dollar strength was one of the factors driving our impairment. So I think now, I think, we can move on to the -- my final slide, Slide 6. So I'll talk a little bit about earnings from mine operations. For the fourth quarter, we reported earnings from mine operations of $22.8 million compared to $3 million in the same period in 2019. And for the full year, we reported a loss of $1.5 million compared to earnings from mine operations of just under $25 million in 2019. The full year impact was obviously attributable to low selling prices of our diamonds in the second, third quarter of the year due to the situation, as Stuart mentioned, the diamond markets being closed and the need to utilize our Dunebridge sales facility to provide liquidity to get us over those hurdles. On the cost side, cash costs came in at $116 per tonne for the fourth quarter compared to $103 per tonne for the same period in 2019. This was largely due to lower throughput through the plants in the fourth quarter for the reasons I described earlier. For the full year, cost came in at -- also at $103 per tonne treated, which is the exact same as the prior year. And then just touching on CapEx. Sustaining CapEx is $3.8 million for the quarter and $13.2 million for the full year, both somewhat higher than the comparative period, but actually lower than budgeted expenditures given some CapEx was deferred into 2021 due to COVID. It should -- I'll also note, during 2020, the GK mine benefited significantly from the Canadian Emergency Wage Subsidy. On a 100% basis, we received $6 million from -- in the fourth quarter and roughly $15 million during 2020 as a whole. So certainly, we recognize the efforts of the Canadian government to assist the industries that have been heavily impacted by COVID. Also, I guess, a comment, the program has been extended into 2021. Currently, we don't expect to qualify for any further significant amounts given diamond market prices have returned to pre-COVID levels, but we'll obviously update you if anything changes. And then last thing I'll comment about just looking at our balance sheet. We did end the year with a reasonable amount of cash. We had $35 million from the bank, which was the same balance we had at end of 2019. As far as overall liquidity, we successfully completed our first 2 sales of 2021 and currently have another sale underway in Antwerp as we speak. So obviously, this is critical for us given the heavy spend portion of the year with the current 2021 winter road just wrapping up. The unplanned shutdown of the mine in February certainly complicates our liquidity to some degree as that production would have set a planned sale for May in the second quarter. I think any result in production will likely push into June instead. And this may or may not result in a temporary shortfall in liquidity, but we will certainly proactively address that if it should arise. And we've also been informed that Dunebridge has sold a portion of the diamond inventory sold to them last year, so any profit sharing received on that will help to mitigate any liquidity shortfall that we might experience. So with that, I'll turn the presentation over to Reid Mackie on the diamond market.

[Reid Mackie, Vice President of Diamond Marketing]

Thank you, Perry, and good morning. As Stuart and Perry mentioned, we obviously faced some incredible challenges in 2020 from a product distribution perspective. The flexibility of our sorting, valuation and sales processes enabled us to assess, adapt and navigate through the challenges of the pandemic from market shutdowns to product facility closures and severe disruption of international logistics. With great assistance from our business partners during the last 12 months, we were able to keep our diamonds moving through the stages of product preparation so that Mountain Province is in a strong position to reenter a rough diamond market prime for recovery. Since the market is reopening in September, as Perry pointed out, the company's tender sales tapped into the market's renewed demand. Achieving price increases at each sale to levels where Mountain Province's rough diamond price book has now surpassed pre-COVID pricing levels. Downstream, despite the obvious terrible cost of the crisis, the diamond market has reemerged in a relatively good form. Polished demand remained healthy last year. This prompted manufacturers to reduce rough diamond stockpiles and inventories, reassessed their financing options and reduce their debt levels. Midstream companies are now considered better aligned with the mine production profiles and inventory and profit have been redistributed through the value chain. Jewelry retailers across the globe accelerated their shifts into online trading, developing enhanced digital offerings that are now reaching customers in new and exciting ways. On the rough supply side, major producers adopted a price over volume strategy thoughtfully, which helped to support these downstream markets. While this has undeniably increased the major stock levels, with the high-volume Argyle mine now closed, the expected drawdown of stock over coming years is not expected to oversupply the rough market. And given Mountain Province's rough diamond profile, which contains considerable amounts of smalls and browns, the closure of Argyle is expected to support price increases in these product categories over the medium to long term. Lab-grown diamonds are now part of the industry landscape. Retail prices for LGDs continue true to fall -- continue to fall in 2020, while wholesale prices remained stable, squeezing margins for traders and manufacturers, industry efforts and product differentiation and synthetic detection. We'll continue to ensure that customers know what they are buying and get what they pay for. We are still navigating our way through the pandemic and the COVID may yet still throw us a few curveballs. However, natural diamonds have historically performed well after times of crisis. In the U.S. and China fourth quarter retail figures and the recent recovery we've seen in rough prices are both indicative of this. Long-term demand for diamond jewelry is expected to exceed supply, and we're confident that demand and prices for rough diamonds will remain firm into 2021 and beyond. And with that, I'll pass you back to Stuart.

[Stuart Michael Brown, President, CEO & Non]

Thanks very much, Reid, and thanks, Perry. I think Reid and Perry have touched on all the critical points that need an explanation, but I've got no doubt that there will be some questions following. But before I get there, in our future is obviously heavily influenced by our sales and further price recovery or price growth now because we've recovered to the pre-COVID levels and [ Mountain ] exceeded that as Reid just confirmed. But that's not just our only solution. We're not sitting back and just praying with prices increase. We're working on a range of options behind the scenes right now to add more flexibility, more optionality to future revenue, cost reduction and alternative ore sources are a very strong focus over the coming periods. In looking at the forward issues, obviously, the impairment is certainly an issue that I need to address. And apart from the updates and reasons that Perry provided, we need to address the Tuzo sample outcome because that's been the big driver for the size of the impairment. Obviously, the desire to get more certainty of our future revenue and expenditure expectations was what drove the need for the bulk sample. Our original sample was just over 2,000 carats. And it's quite small compared to the volume of over 20 million carats that we're going to be mining over Tuzo over the coming years. So the plan was to take those 2 bulk samples, which we did over the 2 different parts of the ore. But I would say upfront, we weren't expecting such a different outcome from our original plan of $62 to the range that we've got. And we've had to deal with this as we receive the information. As stated in our announcement, we are working with a range of diamond values at present, and we're not yet complete with all the analysis nor without determination of the value of diamonds. We will hope to conclude this later in the second quarter, and we want to be able to receive our share of this sample and put it through our sales mechanism. Reid has valued our diamonds, and we're comfortable with his value. And we note that the market right now is -- I wouldn't say unstable, but it's certainly going through a lot of change. And it's always difficult to pin one particular value at one point in time and makes Reid's job incredibly difficult. We note that the size frequency distribution is finer, and that's driving the change in the diamond value. Overall, we don't see a deterioration in quality at all. We also note that, as I said, the market price for these goods, although improving is not yet completely stable, as Reid mentioned Argyle, influencing people, rearranging themselves as to where they're going to source. And as that section of the retail market recovers in the future, we think we will benefit from a higher price, and this will may influence the values we're using for modeling purposes of the life of mine plans. This is a key focus for us now. However, the relationship between accounting certainty at the time of setting the issue and market uncertainty has certainly been a major factor in the size of the impairment we have booked today. But we had to use the best information we have at the time. And as Perry mentioned, if things change dramatically and improve in the future and we get more confidence of that and we rerun these numbers, we are able to reverse some or all of the impairment. Finally, we're also quite confident that we'll be able to deliver an update on the key guidance metrics. We're almost complete with that review. We just want to see a further period as we recover and ramp up. The De Beers will be confirming that with us in the second quarter, very early on that, with the restart issues that I mentioned. In general, we are attempting to manage our carat and grade options such that we can get close to our original budget, having lost about 21 days of processing, we're able to accelerate and put volume through the plant as we have flexibility and product capacity. So at the moment, although our total tonnes mined will be affected, we think we'll be able to generate the original carat budget that we are internally looking at, but certainly COVID implications have made us very cautious on that. I wouldn't like to confirm an exact number, but it's between a range of 6.4 million to 6.8 million carats. In summary, it's a very difficult year behind us with some challenges ahead, but we are positive on the market outlook and with a lot more work to do. We believe in the longer-term pricing model and as Reid has described, we're ready to benefit from the upside price growth. We have options on more ore with Kennady as we conclude this work, and we will see how this progresses. So we've got a lot of options in front of us in having encountered this difficult period. It was 12 months of survival and getting help from all sorts of quarters and not being helped by some people in certain quarters. So certainly, we had additional challenges. But now we've got to a stage where the mine is running. We got our future firmly ahead of us, and we know the signs of the challenges we face and the team is working hard on this. So I think that concludes what I want to touch on. I think I've touched on quite a few points here. And obviously, people need time to absorb that. So we'll now turn over for some questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from [ Ed Hulsa ] with HSBC.

[Zev Halstuch]

It's Zev Halstuch of HSBC. Sorry I didn't recognize my name. Okay. Sorry, Perry, can you just go over your comments about liquidity, particularly in the second quarter, make sure I understood what you're saying. And if you could also share with us cash balance today, that would be helpful?

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

Sure. I mean, we actually have a sale in progress right now, so I can't give you a real-time cash balance. But as I mentioned, we're looking at our Q2 sales schedule right now and seeing what we can do based on the production that's coming out of the mine. And obviously, for us, we also have the June 15 interest payment. So obviously, between -- still paying for the winter road and the June 15 interest payment. There may be some potential shortfalls, just based on what we get in the sale that's underway and what we do with the May/June sales. So a lot of moving parts, and we'll keep you updated on where things stand.

[Zev Halstuch]

Right. I mean, I would just say it's end of March, so I think whatever you can share with us really is important. We're standing up and saying that we run out of cash in a couple of months, so I appreciate the liquidity of the situation, again, additional disclosure is probably helpful. Just to go over that whole in terms of your sales pace, so obviously, you will have had 3 in the first quarter and you're focusing on the May/June, I assume that there's nothing scheduled for April. So the next one is what you're referring to when you talk about the May/June sale?

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

Yes. I mean like I said, we have a sale in process right now, which we'll be collecting the cash in April. We have a May sales that most likely will be deferred and combined with our previously scheduled June sale. So it's really not -- if we indeed don't have a May sale, then we may have -- we may potentially have some short-term liquidity issues.

[Stuart Michael Brown, President, CEO & Non]

So Ed, if I could just jump in here. I mean, obviously, we're in a very stage -- final stage with negotiating with someone on a confidential basis. So that's why Perry is being a bit cagey. We're actually very aware of it and managing sort of revenue income as well as expenditure outflow and then looking to bridge that gap if necessary. And we will keep the market abreast of this and we're very far advanced on what contingency plans we need to introduce. And I can't say any more than that.

[Operator]

We have a following question from Daniel McConvey with Rossport.

[Daniel McConvey, Founder & Portfolio Manager]

I have a few questions, and Stuart, I wouldn't mind if we could talk offline just on a couple of things as well later. Just on that last point, you're looking at a solution to possible liquidity problems. Do any of these issues -- any of these -- can you say whether equity might be involved in them?

[Stuart Michael Brown, President, CEO & Non]

Not at the moment.

[Daniel McConvey, Founder & Portfolio Manager]

Okay. Okay. So you can't say it at the moment?

[Stuart Michael Brown, President, CEO & Non]

Well, as I said, I've said it enough as I can, but no equity at the moment is not big concern.

[Daniel McConvey, Founder & Portfolio Manager]

Okay. In the write-down, just what was the rate change from to the discount rate that you used? And why was the discount rate changed?

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

It's about a 1% increase to our discount rate, mid-7s to mid-8s and it's just looking at market-related factors. Obviously, our bonds obviously traded quite a bit off from the year before. And just looking at other factors that you would attribute to signal assets, Canadian producers. But the discount rate, yes, wasn't a huge change, but it did tick up by a better percentage point.

[Daniel McConvey, Founder & Portfolio Manager]

Okay. For 2021, the plan is in flux in terms of the mining plan, but do you -- is there any very big catch-up in stripping and other costs that has to be spent?

[Stuart Michael Brown, President, CEO & Non]

Yes. So I can take that question. Obviously, last year, as Perry has reported, we lost about 7 million tonnes of waste. We managed to continue mining all the ore, and we've got sufficient exposed ore this year to be confident that we can get between, I would say, 3 million and 3.3 million tonnes of ore mined. So we're not eating into the stockpile as such. We have a buffer stockpile that has various grades on it. So what we expect we will have again a deficit in waste tonnes mines given the start to the year and the breakdown of -- when we had the COVID shutdown, so not the breakdown. So that all piles up and then gets pushed to the end of the mine. So what we're doing is we're rerunning a lot of the long-term mine plan to see how this affects us in '24, '25 onwards. But over the next couple of years, it won't affect our ability to extract tonnes. We just might not be able to extract the exact tonnes we were thinking of extracting when we looked at our plan a year ago. But we do use the stockpile, which has a flexible -- it has a number of different grade profiles in it that we've deliberately stored from different sources, and we'll see how the mining unfolds over the next few months to get that prediction, which is why there's quite a wide envelope between tonnes treated and carats recovered, and we're not yet in a place to really push a single number out of that. So we always have a range. So it is in flux, but so far, every day that we're treating, we're treating the required amount of tonnage to meet our annual targets.

[Daniel McConvey, Founder & Portfolio Manager]

Okay. The price of 46 or 40, whatever the number was, was that based on the most up-to-date pricing? Or was that based on pricing a few months ago?

[Stuart Michael Brown, President, CEO & Non]

That was -- so the independent valuation is run in the range as they do the bottom and a top and a mid range, which we quoted. And that was used at their price book as of 15th of March.

[Daniel McConvey, Founder & Portfolio Manager]

Okay. And for the diamonds you -- in the mine plan, remind me for the next year or so, are they pretty average in terms of Tuzo?

[Stuart Michael Brown, President, CEO & Non]

Tuzo in the next year -- or this year, it's about 300,000 carats. That's not a big portion of our production. Over the next 5 years, it's about 5 million or 4.6 million carats, or what we call Tuzo Phase I. So when -- we don't describe our diamond as average, but certainly, we're mining to a good average grade and our SFD fluctuates up and down. But in general, we're mining within the envelope of what we expect. So the influence over Tuzo over the next 5 years is not that great. It's the last 5 years where more of the mine comes from Tuzo.

[Daniel McConvey, Founder & Portfolio Manager]

All right. Okay. Stuart, just -- you've gone through a tough year, as you pointed out, and this quarter it's been tough, too, and you're starting up. And the good news is you're getting -- the vaccinations have started and hopefully in a month's time that COVID will be a nonthreat. So you have that kind of -- that win is going to go away that headwind. How do you feel just about -- I know there's a lot of fluidity, a lot of things that might change over the course of this year, but how do you feel about the rest of this year in terms of being able to execute and pull things together?

[Stuart Michael Brown, President, CEO & Non]

Okay. I feel very confident that from a production perspective, that we'll get the carats because I think that drives all the value for De Beers and for ourselves, and it's sort of almost a sacred cow that we can't affect that, so we will do everything we can to that. On the sales side, I've always been very confident that once we've got through and basically 2020 did accelerate a lot of the overhang that was out there in rough and polished. And as Reid mentioned, polished prices did not come down as much. Rough prices came down quite a lot and they've recovered. So how do I feel right now in terms of economies opening up, pent-up cash sitting around levels of savings in the U.S. and Europe are huge. And that money is going to come out. And I think we're competing quite well with that. The retailers are reporting good numbers. I know in China that retail is, and especially in luxury, is hitting record levels. So I feel confident that it is going to certainly assist with further price growth in demand. Reid touched on lab grown. I think I'm publicly quoted on platforms. I don't see that as a threat at all. I see it as a different product. So I'm not ignoring it, but I have a lot of confidence in our product. And then I think we do have to face some of the tough things and work together with our partners quite aggressively on looking at ensuring that we can get around the Tuzo issues and put a sustainable future. And as I said before, I can't touch on too many issues, but there are other plans afoot to try and drive more value now that we've hopefully got to a period that we're not dealing with the crisis as much.

[Daniel McConvey, Founder & Portfolio Manager]

Okay. Last question in terms of people and equipment during COVID maybe we had a lack of money to spend. Are you from equipment perspective and from a people perspective, there might have been some loss, how are you equipped?

[Stuart Michael Brown, President, CEO & Non]

We've got all the equipment we need, so the capital was spent. We did come up -- that winter road problem that we have is you means you have to buy your kit. So we've got another truck coming into production. It's being assembled over the next month. More of the people issue is not knowing who can come to site with the protocols we have. So you're expecting 15 drivers and then you only get 12. Now you're 3 short. And they're not sort of all hanging around on the street corner [ and the other half ] waiting for a job. So we kind of have to overpopulate certain roles. But even doing that, it's very difficult when people report feeling unwell. We don't let them on the plane. Safety comes first from a health perspective. That will hopefully lessen. So equipment, we've got everything we need. We don't need to buy more equipment. We're not short of equipment. And all the equipment we have is either well maintained or working. So we have no problem with. It really is the people issue now, just to try and get up to full complement in all the production areas, especially in mining. So that's sort of the real focus right now.

[Daniel McConvey, Founder & Portfolio Manager]

Have you lost any key people?

[Stuart Michael Brown, President, CEO & Non]

No. I mean we've had the normal staff turnover, where some people have left and gone to other places. Where we've lost people, we've managed to replace them. And we're not seeing a skill shortage as such, but it's the absenteeism. And that's also running over Christmas with COVID, that wasn't helpful. And the Canadian [ customer ] reporting for work is quite direct. You're either there or you're not there. We're running in the [ long shot ]. And 4 weeks on, 4 weeks off, again, that's proving quite a challenge. So we're looking to change that when we can get further through this, the vaccination program.

[Operator]

Your next question comes from Paul Zimnisky with PZDA.

[Paul Zimnisky]

You guys -- you quickly mentioned the Kennady assets earlier in the call. I mean could you provide any more color on how integral Kelvin and where they are to the new mine plan? I guess what I'm asking is, at what point could the plant be operating at under capacity without those assets?

[Stuart Michael Brown, President, CEO & Non]

Paul, thanks. That's a good question because we know our plants can operate at greater than 3.3 million tonnes quite comfortably. In fact, we've demonstrated that in 2019. So there's an argument that our plant is always running under capacity, and we have an ore shortage problem now with our existing mine plan, which is the 3 ore bodies. So we see Kelvin and Faraday or a combination of how we get those ore bodies into the mine as integral. I think there's a lot of constraining factors. If we don't want to use more capital, we have to use the existing capital on mine, and that's obviously quite occupied right now. So that's what is the complexity of working out what we can do. We see that coming in '25 is when we could first get it in. If the permitting process stays as long as it is, and that's always been a difficult issue in North America to deal with. We would like to bring it in earlier, but we have to have an economic option that works. So that's really what we're doing right now. We have Kelvin has indicated and Faraday has inferred, so there's also a couple of issues trying to get Faraday upgraded to indicated status from a grade and value perspective. So that's really what we're claiming in right now as a short-term period of work. But -- so 2025 onwards would be when we could bring this. We could bring ore in any time if it was there and put it through the plant. Plant is not a constraining factor. No, it could eat more ore.

[Operator]

We have a following question from Ed with HSBC.

[Zev Halstuch]

It's actually Zev, but we got that part worked at. Just back to the Tuzo charge, I apologize if this is obvious. I didn't quite understand the issue of the fines and the impact that, that would have exactly on the diamond price. So if you could just spend a minute to explaining that?

[Stuart Michael Brown, President, CEO & Non]

I'll do that because we can touch on that, so that's -- and then Reid will jump in. So we have a standard frequency distribution, and let's just crudely put it, you've got 2 large ones and 4 small ones. That's your expectation, and you price your large one, you price your small ones, and that gives you an average value. Now when you go and resample that, we still got the same 2 large ones. But instead of having 4 small rounds, we've got 5 or 6 small ones. So as you've got more of a lower value, so your average value comes down. So we weren't expecting more in the -- as many more in the lower end and there was a slack movement in the top end. So the average size frequency distribution was finer. We didn't have a deterioration in quality, but maybe, Reid, you could comment on -- I mean, you're the guy looking at these goods on the bench, relating to our other production. How did you see the value impact?

[Reid Mackie, Vice President of Diamond Marketing]

Yes, I'd be happy to, Ed. Yes, from a product quality standpoint, and that's very important. And as Stuart pointed out, is we undertook a full team valuation of the samples. And it's subjected to much the same process as we have when we prepare goods for sale. And so it's down to the highest level of detail in terms of valuation. From a quality standpoint, Tuzo looks good and consistent with historical averages from GK. In fact, there are some areas where it looks better. So we're seeing low bort content in it compared to historical averages. And also, in some cases, the whites are looking whiter. So it's early days. We do have a substantial sample taken, so it is representative and we have to put a lot of weight on that. But the timing of the sample is such that taking of the sample is that the market price is feeding it. We'll see on a medium- to long-term basis how those play out. But from a pure quality standpoint, that's not what's driving the decrease in average price per carat, as Stuart pointed out, it's purely size frequency distribution.

[Stuart Michael Brown, President, CEO & Non]

Thanks. I'll just jump in here. I think we get into the end of the questions, but I do have 2 questions that Kieron Hodgson sent through on the web question. His first relates to how does Tuzo impact on the mine plan? So if I could just deal with those, looking at how does Tuzo fit into the longer-term mining plan fees? I can give you that answer, Kieron. Over the next 5 years, Tuzo represents about 17% of the total production of the mine out of 27 million carats that we expect to mine from '21 to 2025. It has less on an effect over the first, call it, the short term, but Tuzo longer term, obviously, that becomes more dominant. And looking at my numbers in front of me, it sits at about 42% overall, the rest of the life of mine, but at 16 million carats out of 22 million carats for the second 5 years. So it is more dominant in the second period. But we've got a gradual ramp-up to that over the next 5 years. You asked another question, Kieron, around fluorescents and how are we seeing that in the market. And perhaps again, if I could just ask Reid to comment on that, what he's dealing with fluorescents. He's the guy who sold our diamonds. Reid, if you could touch on -- Kieron wants to know how we're seeing the impact of fluorescents and what are we doing in the market to address those.

[Reid Mackie, Vice President of Diamond Marketing]

So overall, the price for fluorescent goods has increased as have increased with large white gem. There have been periods where the discount for fluorescents have kind of stretched because more due to, I think, just the speed at which rough prices in the large white gem and medium white gem were fluorescents has its impact. The speed of those increases, sometimes it's taken a little bit. There's been a little bit of a lag for the fluorescent component of those goods to come up, but we are seeing those come up now. And I expect to see fluorescent discounts to continue to decrease going forward as we see demand and prices for medium and large white rough gem to increase in the medium to long-term here. Fluorescents -- our customers have been dealing with it since 2017 when we first came on the market. We have now put together a highly specialized customer base that accepts this product, knows how to -- firstly, how to manufacture it, to mitigate any of the negative qualities that can be associated with fluorescence to the point now where it's not considered an issue with GK white fluorescent goods. And more importantly, how to market it. And I think there is still more work to be done there. They've gone through the challenges through manufacturing and understanding the fluorescent with our product. But now I think we've turned a corner in the rough market where -- and downstream actually where fluorescents is being seen for what it is, which is having no negative attributes to the polished outcome. And in fact, can be seen as one, a hallmark of natural origin, and there's a few players within our customer base who are now actively marketing fluorescents instead of trying to hide it and marketing it as a positive attribute that denotes the origin of the stones from the Canadian Arctic. And I think there's a lot of work to be done there that's going to be very interesting in the medium term here.

[Stuart Michael Brown, President, CEO & Non]

Thanks, Reid. So I'll just end off on the comment. Fluorescents, I think, we see less of a problem with it as it becomes more accepted, as Reid just said. And we did have good success with that recent large stone we sold, which was -- let's put it highly fluorescent and was desired by our customers. I see that as less of an issue. I've got -- I'm going to take one more question, and I've got this from Scott Macdonald from Scotia. You referred to the Tuzo bulk sample. Is there any expected to be an impact on the average reserve grade? There is some work going on with that, Scott. We're not yet sure yet, so that's been outsourced to a company that they're looking at it. We expect there might be a positive change in the grade, but I'm not sure how that big that will be, and that's part of what's our future looking at it, along with all the other variables. So hopefully, that does give us some benefit and increase volume. So I think with that, we've had a range of questions, and I think we probably answered all that we can answer. So thanks very much for everyone who's dialed in. We've been going for just over 51 minutes now. And we will update you on various issues that we committed to in the announcement. And as soon as we have more information, we'll be putting out our production for Q1 and our sales for Q1 pretty soon. And we'll keep the market updated on any other developments in the near term. So thank you very much for everyone who dialed in today. We appreciate your time.

[Operator]

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