Q2 2025 Mountain Province Diamonds Inc Earnings Call

August 13, 2025

Operator: Call. At this time, note that all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance on the phone line, please press star 0 for the operator. Also, note that this call is being recorded on Wednesday, 13 August 2025. I would now like to turn the conference over to Mr. Mark Wall, President and CEO. Please go ahead, sir.

Mark Wall: Thank you, Sylvie. Good day to everyone who's dialed in to listen to our Q2 2025 Results Call. My name is Mark Wall, and I'm the President and CEO of the company. Also present on this call is Steven Thomas, our CFO, and Jenny Lee, our Financial Controller. Reid, our head of diamond sales and marketing, is not on today's call, but we've incorporated his thoughts on the market into our presentation today. At the conclusion of this presentation, we will be available for any questions that you may have. Firstly, I'd like to draw your attention to our cautionary statement regarding forward-looking information. This presentation will be posted on our website for anyone who needs additional time to review this statement. Mountain Province Diamonds produces Canadian diamonds to the highest standards of corporate social responsibility, and that is something that we continue to be proud of.

Mark Wall: We own 49% of the Gahcho Kué Mine in the Northwest Territories with De Beers, division of Anglo American plc, owning the remaining 51%. Today, I'll speak to our Q2 2025 results and provide some insights into our plan as we move through 2025. Following that, Steve will discuss the Q2 financial performance of the company. I'll comment on the overall diamond market and then make some closing remarks and answer any questions that you may have. The summary of what I will cover is that there has been a laser focus at the operations on safety, production, and costs, while the grade has been lower during the treatment of stockpiles and the diamond market has been weak. Starting with safety, the Gahcho Kué operations have continued the strong safety performance of Q1 and an overall improvement in safety at the operations.

Mark Wall: The total recordable injury frequency rate for half one of 2025 was 2.13, which is considerably lower than the H1 result of 4.38 for the same period in 2024, massively down from the 14.62 result in 2022. Safety continues to be a key area of focus at the operations, efforts in this area will continue. Half one's a really challenging time at the operations with the extreme temperatures of Q1, the ice road season to replenish the mine, the freshet period where wet and slippery roads must be safely managed. We've navigated these periods, we will continue the focus for the remainder of the year. On the production side, both Q2 and the whole of half one of 2025 saw strong operational performance.

Mark Wall: On processing, the combination of the overall availability and the utilization of that availability for the processing facility was 82.5%, which is a significant improvement from past years. Looking back to the 2020 era, the OPU was 76.7% for the same period, and in 2021 was 69.2% for the same period. A focused effort on process plant stability through 2023 saw us get to 81.5% in H1 of 2024, and the continued improvement is the result that we're looking to generate. That translated into 1.8 million tons of ore processed, which is a record for the mine in H1. The focus on optimizing the operating time of the processing facility will continue through the rest of the year. Onto mining, where there's been an intense focus on mining optimization.

Mark Wall: Small improvements in equipment refueling, workforce planning, road management, together with other initiatives, delivered strong tons moved for H1 of 2025. We have beat our budget for total tons moved, which is steadily gaining us access to the high-grade 5034-NEX ore body. A strong focus on mobile maintenance delivered equipment availability that enabled the mining operations team to deliver the results that they did in H1. The grade of ore treated is a less positive story for H1. We were primarily treating ore from stockpile during H1 as planned. This large stockpile is assigned a single grade number, and we know that geostatistically the grade will vary in different areas of the stockpile.

Mark Wall: During H1, we averaged 0.81 carats per ton, which is down 44% from the same period in 2024 and down 54% from the same period in 2023. The two zero stockpile was expected to be low grade, although the grade performed lower than planned. The grade was helped by earlier than planned access to some transitional ore from the 5034-NEX ore body. During Q3, we steadily ramp up NEX production with approximately 140,000 tons in August and 275,000 tons in September. NEX tons are expected to return to the 100,000 ton range in October and then back up to the 270,000 ton range going forward. We're working on increasing the October 5034-NEX tons through further improvements in mining efficiency.

Mark Wall: To sum all that up, safety is going well, processing is going well, mining is going well, while grade in H1 was definitely a challenge. We have some lower grade two zone in the mix over the next few months, and then we're planning to treat mostly 5034-NEX ore. On the diamond market, the market remains really challenging. We were seeing some early positive signs. The recent US tariffs have added a great deal of complexity, and we will continue to assess the impact of US tariffs on the diamond market. Overall, I remain optimistic the market will stabilize, and I'll speak to this in more detail in a few moments. On liquidity, during H1, we were again supported with short-term liquidity from our largest shareholder, Mr. Dermot Desmond, during a period of lower grades and the challenging diamond price environment that I've mentioned.

Mark Wall: The company is very grateful to Mr. Desmond for his continued support of the company. In short, we're in a strong position operationally, there has been tremendous progress so far in 2025, we continue to look forwards to the market improving. On cost, there continues to be significant focus on cost management. I will say that drawing from the stockpile has impacted production costs due to the release of previously capitalized costs in building that stockpile. Steve will cover this in more detail in a few moments. On a top-line basis, we've mined more tons than planned, maintenance costs to deliver the equipment availability to achieve this have gone up. We're tracking in the range of our budgeted costs for the year as we continue to look for savings in all areas.

Mark Wall: Our focus will continue to be on the things we can control, which is safety and operational performance. With that, I'll turn the call over to Steve to take us through the financial results.

Operator: Please unmute, Mr. Thomas.

Mark Wall: Steve? Okay, while we wait for Steve to join, I will start off. I'll start with analysis of the revenue and the significant impact in the first half of this year that diamonds sold being sourced from the stockpile and prevailing market price has on revenue compared to the same time last year. During Q2 2025, we sold approximately 26% less carats than in Q2 2024, and at $65 US per carat versus $74 US per carat a year ago, resulting in CAD 20 million lower revenue than achieved in Q2 2024. For the first 6 months of 2025, referred to as H1 2025, 44% less carats were sold than in the first half of 2024.

Mark Wall: With the average selling price of $68 per carat compared to $72 per carat in the first half of 2024. Comparative revenue is $50 million or CAD 65 million, being 45% lower. This significant comparative revenue reduction impacts all financial results through the income statement and cash flow statement and the financing measures we have necessarily taken to support the balance sheet. We just confirmed.

Steven Thomas: Mark?

Mark Wall: You can hear me okay.

Steven Thomas: Great, Mark. I apologize. Mute was stuck. I'll take over. Thank you for doing that. Picking up. The market price also impacts the reported cost of sales and non-cash adjustments to the carrying value of diamond inventory, feeding into production costs and the depreciation charge in the quarter and the first six months of the year. Also, during this period, with ore treated being drawn from the ore stockpile as we mined waste tons to access the NEX orebody, the depletion of the stockpile and resulting expensing of previously capitalized costs increases the comparative cost of sales compared to Q2 2024 and H1 2024, when the ore stockpile was grown.

Steven Thomas: The resultant loss from mine operations for Q2 2025 compounds the loss incurred in Q1, resulting in a loss for the first six months of the year of CAD 75 million compared to a gain of CAD 42 million in the first six months of 2024. Not surprisingly, the working capital position of the company has deteriorated during Q2 2025. Although materially better than the position at the 2024 year end, the major changes in the short term debt recognized in those comparative periods skews the comparative results. Q2 has seen weakening of the US dollar compared to Canadian, which was flat in Q1 2025, resulting in a significant unrealized foreign exchange gain in Q2 and the resulting gain for the first six months of the year.

Steven Thomas: Adjusting for this and other impacts, adjusted EBITDA for the first three and six months ending June 2025 is notably below the comparative three and six-month periods in 2024, being marginally negative in Q2 2025, but positive for the first six months of 2025. Cash flow from operating activities was a significant outflow in Q2 2025, albeit lower than that arising in Q2 2024. The negative outflow across the first six months of 2025 compares to a small positive inflow for the first six months of 2024.

Steven Thomas: The financial results reflecting continued low selling price and lower production contrast with the performance of the process plant and mining fleets throughout Q2 2025 and the first half of the year being above their comparative 2024 periods, albeit as Mark has discussed, with lower ore grades treated as it is sourced from the ore stockpile. Turning to the balance sheet. Given the relatively lower revenue in the heavy spending period of the year, the cash balance has decreased by approximately CAD 5 million over the quarter and CAD 10 million year to date to end at CAD 1.7 million, despite the injection of $30 million under a bridge credit facility and the equivalent of CAD 33 million made available by our related party, Dunebridge.

Steven Thomas: The outflow of cash in Q2 2025 reflects the CAD 22.7 million reduction in the accounts payable balance, which itself peaks at the end of Q1 in respect of winter road deliveries made in that quarter. The net derivative asset comprises the currency derivative contracts for hedges in place at the Q2 end, valued at CAD 579,000, which at the year-end was a liability of CAD 7.9 million. It also includes the embedded derivative asset representing the early repayment feature within the second lien loan notes, which itself is valued at CAD 981,000 at Q2 end, compared to the year-end value of CAD 6.1 million.

Steven Thomas: The increase in the value of the currency derivative contracts in respect of the US hedges has arisen as the US dollar has weakened during the first half of this year. Conversely, the reduction in the calculated fair value of the embedded derivative contract associated with the second lien loan notes reflects the increase in the discount factor used to derive its fair value due to the increase in the assessed credit spread on those notes. Inventories at CAD 167 million have decreased by CAD 29.5 million compared to the year-end balance. This is due primarily to a CAD 55 million reduction in the comparative value of the ore stockpile, for which the tons held at a 100% level have reduced by 1.7 million tons as the operation is focused on mining waste material from the NEX ore body.

Steven Thomas: There has also been a decrease in the value of rough diamonds in inventory, for which the volume of carats on hand has decreased by just 40,000 since the year-end. However, the value per carat is necessarily reflected at the lower of net realizable value and cost, and has seen a cumulative write down of CAD 27.3 million over the first half of the year. This reflects the lower sales price currently being achieved. The supplies inventory, although reduced by CAD 5 million over the quarter due to the net consumption of the bulk goods, it is up by CAD 32 million compared to the year-end balance of CAD 64 million, reflecting the delivery of all bulk consumables on the winter road.

Steven Thomas: In respect of property, plant, and equipment, the Q2 2025 balance of CAD 625 million is up CAD 13 million over the quarter and CAD 38 million above the year-end balance, reflecting primarily a net increase in property, which comprises CAD 9 million invested in sustaining capital and an increase of CAD 64 million of capitalized waste activity in respect of NEX waste material, less the depreciation that has occurred on that waste balance. The total value of capitalized waste within property, plant, and equipment is CAD 211 million at Q2 period end, compared to CAD 160 million at the 2024 year end. For current liabilities, the accounts payable balance at CAD 89 million is down from its peak of CAD 112 million at Q1 2025 end, when the majority of winter road goods have been delivered.

Steven Thomas: Of course, up from the year-end balance, as those payments are still being settled per credit terms on certain items such as fuel. To note that the AP balance also includes approximately CAD 12 million of accrued interest on the senior secured notes, which the lenders agreed to forgo until settlement in June 2026. This interest was previously paid every 6 months, so would not appear in the comparable AP balance at June 2024 or the 2024 year-end. For the secured note payable balance, as discussed in Q1 earnings call, that debt is now reclassified as long-term compared to current at the year-end, given the extension of the term settlement date to December 2027.

Steven Thomas: As mentioned in my opening remarks, utilization of the US dollar 40 million bridge credit facility, which increased from $20 million utilized in Q1 to $30 million during Q2, has since the Q2 period end increased by a further $10 million per our recent press announcement issued on 29 July. Q2 also saw the finalization of terms for a working capital facility, which was approved at our AGM on 16 May, and total funds of US 23.6 million were drawn in mid-May. These two financings provided critical liquidity during a low revenue period and when cash flows are significant to settle winter road obligations. The value of the US dollar-denominated loans, as with the second lien loan notes and junior credit facility, are valued in Canadian dollars based on the closing period rate.

Steven Thomas: With the strengthening of the Canadian dollar, this has tended to lower their reported value compared to the start of the year or at the start of the quarter. The derivative liability reported at year end in Q1 2025, which represents the fair value of the US currency hedges in place, is now reported as a derivative asset due to the aforementioned strengthening of the Canadian dollar over the quarter, those hedges to be settled at an average settlement rate of 1.36 across the remaining $45 million hedges we have in place.

Steven Thomas: The fair value of the current and long-term components of the decommissioning and restoration liability has seen little movement over the three and six-month period, with the risk-free interest rate used in the fair value calculation at 3.3% being close to the 3% used at Q1 2025 and 3.2% used in the fair value calculation at the year end. The resultant change in the value of net current assets and current liabilities during the three and six months ending Q2 2025 results in the working capital position decreasing by CAD 73 million during Q2 2025.

Steven Thomas: Although it is CAD 125 million greater than at the 2024 year end, if that balance were normalized for the reclassification of the second lien loan notes from short to long-term debt, this would equate to a reduction in working capital compared to the year end normalized of CAD 135 million, reflecting in large part the injection of CAD 74 million of short-term debt for which the cash has been utilized to meet operational needs. In respect of the long-term liabilities being the US denominated senior secured notes junior credit facility, the strengthening of the CAD to the US as mentioned from 1.439 at Q1 2025 to 1.36 at Q2 2025 has decreased those Canadian reported values.

Steven Thomas: This effect has overridden the growth in the US dollar outstanding balances that arises as we now accrue for the unpaid interest on the second lien loan notes since the start of this year and continue to accrue for interest in respect of the Dunebridge junior credit facility. The net result is a non-cash unrealized foreign exchange gain of $22 million in Q2, and $21.5 million since the start of the year. Turning now to earnings plus. I've outlined in my opening remarks the revenue performance in the three and six months to Q2, so will not repeat. But in summary, for the two sales in Q2, US dollar price remained low, compounding the impact of lower volume of carats sold as ore treated was sourced from the ore stockpile at relatively low grade. Mark will provide a brief overview of current market conditions shortly.

Steven Thomas: To note that in Q2 2025, $1.2 million in other income comprises Mountain Province Diamonds' share of a grant received from the Government of the Northwest Territories, plus a fee charged by the company for selling goods for De Beers. The loss of $1.1 million in Q2 2024 is the change in the fair value of the warrants granted under the junior credit facility. That fair value process will no longer be required as the warrants were modified in Q1 2025 to be priced in Canadian dollars and recorded as an equity instrument rather than an embedded liability. Production costs at $53.6 million in Q2 2025 is almost double $27 million incurred in Q2 2024, and when normalized for carats sold, is almost 2.7 times higher.

Steven Thomas: Production for the six months ending Q2 at $92.9 million compares to $59.7 million for the six months ending Q2 2024, which again, when normalized for carats sold, are approximately 2.5 times higher. These significant differences reflect the $80 million charge for writing down the rough diamond inventory from cost to lower net realizable value. Secondly, the fact that in the first six months of 2024, the ore stockpile grew by 1.1 million tons or 50%, whereas in 2025 it shrank by 1.7 million tons or 41%, resulting in the release of a significant proportion of the costs previously capitalized when the stockpile was growing, which tended to lower production costs reported in those periods.

Steven Thomas: Depreciation at CAD 27.5 million for Q2 2025 is CAD 13 million above the comparative figure of CAD 14.3 million in Q2 2024. For the equivalent H1 2025 period at CAD 50.6 million versus CAD 36.3 million in 2024. Again, these increases reflect the equivalent impacts as mentioned for production costs, i.e., a CAD 10 million value adjustment for diamond inventory and depreciation costs no longer reporting to the stockpile during a period of depletion in H1 2025. The cash costs of production, excluding capitalized stripping for the 6 months ending Q2 2025 at CAD 114 per carat and CAD 93 per ton of ore, are markedly above the comparative figures of CAD 48 and CAD 69 for Q2 2024.

Steven Thomas: This is due to the aforementioned major driver of the substantial depletion of the ore stockpile in the first half of 2025 compared to its growth in 2024, and the respective value of opening and closing inventory, feeding production costs, which in the first half of 2024 went down, whereas in H1 2025 they went up. The above differences in comparative costs on a per ton and per carat basis widen when including capitalized stripping, as H1 2025 capitalized stripping costs were CAD 30.6 million higher than in the comparative H1 2024. The effect of this during H1 would tend to push the full year dollar cost per ton and dollar cost per carat towards the top end of guidance. Financing expenses for Q2 2025 and H1 2025 at CAD 14.5 million and CAD 24.6 million respectively are as expected above the 2024 comparable periods.

Steven Thomas: This reflects an increase in the interest charge in respect of the junior credit facility as the accrued interest on that balance compounds, also the inclusion of interest and deferred charges associated with the new bridge loan and working capital facility. Turning to the net derivative gain in Q2 of CAD 2.5 million, that reflects the CAD 6 million gain on the currency derivative hedges, which have reduced as the US dollar value is pegged against a lower US dollar forward curve. That's offset by a CAD 3.5 million dollar loss on the embedded derivative contract due to the change in discount factors used in its fair value calculation.

Steven Thomas: In respect of foreign exchange movements in Q2 2025, these comprise a realized loss of CAD 1.4 million on settled hedges, offset by an unrealized foreign exchange gain of CAD 21.9 million as the US dollar has weakened. Turning briefly to the deferred income tax recovery of CAD 7.3 million in Q2 2025 and CAD 11 million for H1 of 2025. That compares to a new deferred income tax charge of CAD 0.8 million in Q2 2024 and CAD 3.1 million for H1 of 2024, reflecting the reduction in the deferred tax liability due to the scale of the aforementioned operating losses arising in 2025 and a voluntary CAD 160,000 payment in Q1, which itself delivered a CAD 1 million deferred tax benefit in relation to the tax pause.

Steven Thomas: The above results in loss from operations for Q2 2025 of CAD 52.6 million compared to a gain of CAD 12 million in Q2 2024. For H1 2025, a loss of CAD 74.9 million compared to a gain of CAD 42.4 million up to Q2 2024. Selling, general, and admin expenses for both the three and six months ending Q2 2025 are below the comparative periods in 2024, in line with cost control efforts. Cash flows provided by operating activities, including changes in non-cash working capital for Q2 2025, saw an outflow of CAD 27 million compared to an outflow of CAD 35 million for Q2 2024.

Steven Thomas: The injection of CAD 47 million of funds in the period supported the closing cash balance at CAD 1.7 million at Q2 2025 end, and compares to the opening balance of CAD 6.7 million. Per the analysis in the MD&A, adjusted EBITDA for the six months ending Q2 2025 was CAD 3.9 million with a margin of only 5% versus CAD 74 million on a margin of 51% for H1 2024.

Steven Thomas: Overall, a net loss after tax for Q2 2025 of CAD 37.7 million and CAD 72.1 million for the first half of the year compares to a loss of CAD 6.5 million for Q2 2024 and a gain of CAD 340,000 for the first half of 2024, largely due to the comparatively lower sales volume and price, which in turn impacted reported cost of sales due to the inventory valuation adjustments I set out. For Q2 2025, the loss per share was CAD 0.18, and for the first half of the year, a loss of CAD 0.34 compared to a loss of CAD 0.03 for Q2 2024 and CAD 0.00 for H1 2024. In conclusion, Q2 2025 has seen a continuance of a challenging market with constrained price achieved and reduced production volumes available for sale while we mine through the NEX waste material.

Steven Thomas: Despite these results, as Mark has outlined, the mine is performing beyond historical records and positioned to capitalize on the move into the richer NEX orebody and more robust future selling price. Thank you for listening, and with that, I will turn the presentation back to Mark. Mark?

Mark Wall: Thanks, Steven Thomas. With input provided from our VP, Diamond Sales and Marketing, Reid Mackie, I'll make the following general comments on the diamond market. Overarching industry sentiment is one of immediate caution against the evolving tariff backdrop, with some positive signs of consumer demand in key markets to support price recovery in the medium term. Tariff-related concerns affected inventory strategies and diamond purchasing behavior, including spiking imports to the US at the start of the quarter. The industry is now navigating the longer-term impacts of tariffs across key production and manufacturing centers, which are under different rates. This ongoing uncertainty, together with the high price of gold, continue to impact decision-making in rough diamond purchasing, polishing, and jewelry manufacturing. Rough diamond production remained steady as the major producers still appear to be actively managing supply to protect pricing.

Mark Wall: Importantly, for medium-term price outlook, 2025 global rough diamond production is forecast to be at its lowest level since the late 1980s, a metric that has historically preceded rough diamond price recovery. In the midstream, manufacturers and retailers purchased conservatively in Q2, awaiting clarity on tariff impacts, but continued buying to meet their specific needs. We saw the impacts of this on pricing with restrained diamond price recovery in Q2. Larger sizes saw more demand while smaller sizes saw price declines. By the end of the quarter, prices had largely stabilized, with supply scarcity continuing to support pricing. Luxury and retail brands continue to demonstrate resilience downstream, reporting solid results for sales of natural diamond jewelry. Fine jewelers continue to support perceptions around natural diamonds.

Mark Wall: Recently, initiatives that support luxury consumers' desire for exclusivity, brand recognition, and authenticity are being revived, including ideas like physically marking natural diamonds to allow consumers to visually identify natural diamonds by themselves. Consumer outlook is mixed, but a positive forecast is maintained for the key US and Indian retail markets, while a subdued recovery continues in China. At in-industry events like the JCK Show in Las Vegas in June, natural diamonds were regaining ground while lab grown options are increasingly trending towards lower value fashion use. Price divergence continues with natural diamonds stabilizing or gaining, while prices for lab grown decline due to oversupply. Post Q2, recent US tariff barriers enacted against India are expected to impact the polished diamond sector there in the short term.

Mark Wall: The key to its recovery will be the deployment of nimble logistics strategies by Indian manufacturers to meet US retailer demand ahead of the all-important holiday season in Q4. Just returning to the overall results. At the midpoint of 2024, we've continued to focus on safety performance and achieved the lowest H1 TRIFR so far at the operations. We've continued to focus on processing plan initiatives that have now resulted in the process plan operating generally above the original nameplate for throughput. We focused on mining efficiency, maintenance, and waste stripping to the all-important 5034-NEX orebody. We've retained our focus on overall cost control, noting that the impact of drawing from stockpile has had on our costs in the short term.

Mark Wall: We look forward to some stabilization in the market in order to be able to leverage our higher production from Q4 through 2026. Thanks for your time, Steve and I are now available for any questions that you may have. Sylvie?

Operator: Thank you, Mr. Wall. Ladies and gentlemen, if you do have any questions from the phone, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you're on a speakerphone, you will need to lift the handset first. Once again, if you do have any questions from the phone lines, please press star one. At this time, sir, it appears we have no questions from the phone.

Mark Wall: Okay. Steve, any questions on the portal?

Steven Thomas: No questions on the portal, Mark.

Mark Wall: Okay. Well, with that, thank you everyone for joining. I know I speak to some of you from time to time, so we will continue to do that. Everyone, please have a great day. Thank you. Thanks, Sylvie.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we ask that you please disconnect your lines.

Speaker #1: At this time, note that all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. And if at any time during this call you require meeting assistance on the phone line, please press *0 for the operator.

Speaker #1: Also note that this call is being recorded on Wednesday, August 13, 2025. I would now like to end the conference over to Mr. Mark Wall, President and CEO.

Speaker #1: Please go ahead, sir.

Speaker #2: Thank you, Sylvie. Good day to everyone who's dialed in to listen to our Q2 2025 results call. My name is Mark Wall, and I'm the President and CEO of the company.

Speaker #2: Also, present on this call is Steven Thomas, our CFO, and Jenny Lee, our Financial Controller. Reid, our Head of Diamonds Sales and Marketing, is not on today's call, but we've incorporated his thoughts on the market into our presentation today.

Speaker #2: At the conclusion of this presentation, we will be available for any questions that you may have. Firstly, I'd like to draw your attention to our cautionary statement regarding forward-looking information.

Speaker #2: This presentation will be posted on our website for anyone who needs additional time to review this statement. Mountain Province Diamonds produces Canadian diamonds to the highest standards of corporate social responsibility, and that is something that we continue to be proud of.

Speaker #2: We own 49% of the Gacha Quay Mine in the Northwest Territories, with the beers division of Anglo-American PLC owning the remaining 51%. Today, I'll speak to our Q2 2025 results and provide some insights into our plan as we move through 2025.

Speaker #2: Following that, Steve will discuss the Q2 financial performance of the company and I'll comment on the overall diamond market and then make some closing remarks and answer any questions that you may have.

Speaker #2: The summary of what I will cover is that there has been a laser focus at the operations on safety, production, and costs, while the greatest being lower during the treatment of stockpiles and the diamond market has been weak.

Speaker #2: Starting with safety, the Gacha Quay operations have continued the strong safety performance of the first quarter and an overall improvement in safety at the operations.

Speaker #2: The total recordable injury frequency rate for half one of 2025 was 2.13, which is considerably lower than the H1 result of 4.38 for the same period in 2024, and massively down from the 14.62 result in 2022.

Speaker #2: Safety continues to be a key area of focus at the operations, and efforts in this area will continue. Half ones are really challenging time at the operations, with the extreme temperatures of quarter one and the ice road season to replenish the mine, and then the fresh air period where wet and slippery roads must be safely managed.

Speaker #2: We've navigated these periods, and we will continue the focus for the remainder of the year. On the production side, both quarter two and the whole of half one of 2025 saw strong operational performance.

Speaker #2: On processing, the combination of the overall availability and the utilization of that availability for the processing facility was 82.5%, which is a significant improvement from past years.

Speaker #2: Looking back to the 2020 era, the OPU was 76.7% for the same period, and in 2021 was 69.2% for the same period. A focused effort on process plant stability through 2023 saw us get to 81.5% in H1 of 2024, and the continued improvement is the result that we're looking to generate.

Speaker #2: That translated into 1.8 million tons of all processed, which is a record for the mine in H1. The focus on optimizing the operating time of the processing facility will continue through the rest of the year.

Speaker #2: Onto mining, where there's been an intense focus on mining optimization. Small improvements in equipment refueling, workforce planning, road management together with other initiatives delivered strong tons moved for H1 of 2025.

Speaker #2: We have beat our budget for total tons moved, which is steadily gaining us access to the high-grade 5034 NEX ore body. A strong focus on mobile maintenance delivered equipment availability that enabled the mining operations team to deliver the results that they did in H1.

Speaker #2: The grade of ore treated is a less positive story for H1. We were primarily treating ore from stockpile during half one as planned. This led stockpile as assigned a single grade number, and we know that geostatistically, the grade will vary in different areas of the stockpile.

Speaker #2: During H1, we averaged 0.81 carats per ton, which is down 44% from the same period in 2024 and down 54% from the same period in 2023.

Speaker #2: The TUSDO stockpile was expected to be low-grade, although the grade performed lower than planned. The grade was helped by earlier than planned access to some transitional ore from the 5034 NEX ore body.

Speaker #2: During quarter three, we steadily ramp up NEX production with approximately 140,000 tons in August and 275,000 tons in September. NEX tons are expected to return to the 100,000-ton range in October, and then back up to the 270,000-ton range going forward.

Speaker #2: We're working on increasing the October 5034 NEX tons through further improvements in mining efficiency. So to sum all of that up, safety is going well, processing is going well, mining is going well, while grade in H1 was definitely a challenge.

Speaker #2: We have some lower-grade TUSDO in the mix over the next few months, and then we're planning to treat mostly 5034 NEX ore. On the diamond market, the market remains really challenging.

Speaker #2: We were seeing some early positive signs; the recent US tariffs have added a great deal of complexity and we will continue to assess the impact of US tariffs on the diamond market.

Speaker #2: Overall, I remain optimistic the market will stabilize and I'll speak to this in more detail in a few moments. On liquidity, during H1 we were again supported with short-term liquidity from our largest shareholder, Mr. Dermott Desmond.

Speaker #2: During a period of lower grades, and the challenging diamond price environment that I've mentioned. The company's very grateful to Mr. Desmond for its continued support of the company.

Speaker #2: In short, we're in a strong position operationally, and there has been tremendous progress so far in 2025, and we continue to look forward to the market improving.

Speaker #2: On cost, there continues to be significant focus on cost management. I will say that drawing from the stockpile has impacted production costs due to the release of previously capitalized costs in building that stockpile.

Speaker #2: Steve will cover this in more detail in a few moments. On a top-line basis, we've mined more tons than planned and maintenance costs to deliver the equipment availability to achieve this have gone up, we're tracking in the range of our budgeted costs for the year, as we continue to look for savings in all areas.

Speaker #2: Our focus will continue to be on the things we can control, which is safety and operational performance. With that, I'll turn the call over to Steve to take us through the financial results.

Speaker #1: Please unmute, Mr. Thomas.

Speaker #2: Steve. Okay. While we wait for Steve to join, I will start off. So I'll start with an analysis of the revenue and the significant impact in the first half of this year that diamonds sold being sourced from the stockpile and prevailing market price has on revenue, compared to the same time last year.

Speaker #2: During Q2 2025, we sold approximately 26% less carats than in Q2 2024. And at $65 US per carat, versus $74 US per carat a year ago.

Speaker #2: Resulting in $20 million Canadian dollars lower revenue than achieved in Q2 2024. For the first six months of 2025, referred to as H1 2025, 44% less carats were sold than in the first half of 2024.

Speaker #2: With the average selling price of US$68 per carat, compared to US$72 per carat in the first half of 2024. Comparative revenue is US$50 million or Canadian $65 million being 45% lower.

Speaker #2: This significant comparative revenue reduction impacts all financial results through the income statement and cash flow statement, and the financing measures we have necessarily taken to support the balance sheet.

Speaker #2: So we just confirm you can hear me okay. Steve.

Speaker #3: Mark, I apologize. Mute was stuck. I'll take over. Thank you for doing that. Picking up, the market price also impacts the reported cost of sales and non-cash adjustments to the carrying value of diamond inventory, feeding into production costs and the depreciation charge in the quarter, and the first six months of the year.

Speaker #3: Also, during this period, with all treated being drawn from the ore stockpile as we mine waste tons, to access the NEX ore body, the depletion of the stockpile and resulting expensing of previously capitalized costs increases the comparative cost of sales compared to Q2 2024 and H1 2024 when the ore stockpile was growing.

Speaker #3: The resultant loss from mine operations for Q2 2025 compounds the loss incurred in Q1, resulting in a loss for the first six months of the year of $75 million.

Speaker #3: Compared to a gain of $42 in the first six months of 2024. Not surprisingly, the working capital position of the company has deteriorated during Q2 2025.

Speaker #3: And although materially better than the position at the 2024 year-end, the major changes in the short-term debt recognized in those comparative periods skews the comparative results.

Speaker #3: The second quarter has seen weakening of the US dollar compared to Canadian which was flat in the first quarter of 2025, resulting in a significant unrealized foreign exchange gain in Q2, and the resultant gain for the first six months of the year.

Speaker #3: Adjusting for this, and other impacts, adjusted EBITDA for the first three and six months ending June 2025 is notably below the comparative three and six month periods in 2024.

Speaker #3: Being marginally negative in Q2 2025, but positive for the first six months of 2025. Cash flow from operating activities was a significant outflow in Q2 2025, albeit lower than that arising in Q2 2024, but the negative outflow across the first six months of 2025 compares to a small positive inflow for the first six months of 2024.

Speaker #3: The financial results reflecting continued low selling price and lower production contrast with the performance of the process plant and mining fleet throughout Q2 2025 and the first half of the year, being above their comparative 2024 periods.

Speaker #3: Albeit as Mark has discussed, with lower ore-grade treated as it is sourced from the ore stockpile. Turning to the balance sheet, given the relatively lower revenue in the heavy spending period of the year the cash balance has decreased by approximately $5 million over the quarter and $10 million year to date, to end at $1.7 million.

Speaker #3: Despite the injection of US dollars $30 million under a bridge credit facility, and the equivalent of Canadian $33 million made available by our related party Doombridge.

Speaker #3: The outflow of cash in Q2 2025 reflects the $22.7 million reduction in the accounts payable balance, which itself peaks at the end of the first quarter in respect of winter road deliveries made in that quarter.

Speaker #3: The net derivative asset comprises the currency derivative contracts for hedges in place at the quarter end, valued at $579,000. Which at the year-end was a liability of $7.9 million and it also includes the embedded derivative asset representing the early repayment feature within the second-in-loan notes, which itself is valued at $981,000 at Q2 end, compared to the year-end value of $6.1 million.

Speaker #3: The increase in the value of the currency derivative contracts in respect of the US hedges has arisen as the US dollar is weakened during the first half of this year.

Speaker #3: Conversely, the reduction in the calculated fair value of the embedded derivative contract associated with the second-in-loan notes reflects the increase in the discount factor used to derive its fair value, due to the increase in the assessed credit spread on those notes.

Speaker #3: Inventories at $167 million have decreased by $29.5 million compared to the year-end balance. This is due primarily to a 55 million reduction in the comparative value of the ore stockpile for which the tons held at 100% level have reduced by 1.7 million tons, as the operation is focused on mining waste material from the NEX ore body.

Speaker #3: There has also been a decrease in the value of rough diamond in inventory, for which the volume of carats on hand has decreased by just 40,000 since the year-end.

Speaker #3: However, the value per carat is necessarily reflected at the lower of net realizable value and cost, and has seen a cumulative write-down of $27.3 million over the first half of the year.

Speaker #3: This reflects the lower sales price currently being achieved. The supplies inventory, although reduced by $5 million over the quarter, due to the net consumption of the bulk goods, it is up by $32 million compared to the year-end balance of $64 million, reflecting the delivery of all bulk consumables on the winter road.

Speaker #3: In respect of property plant and equipment, the Q2 2025 balance of $625 million is up $13 million over the quarter, and $38 million above the year-end balance, reflecting primarily a net increase in property which comprises a $9 million invested in sustaining capital, and an increase of $64 million of capitalized waste activity in respect of NEX waste material, lest the depreciation that has occurred on that waste balance.

Speaker #3: The total value of capitalized waste within property plant and equipment is $211 million at Q2 period end, compared to $160 million at the 2024 year-end.

Speaker #3: The current liabilities: the accounts payable balance at $89 million is down from its peak of $112 at Q1 2025 end, when the majority of winter road goods have been delivered, but of course up from the year-end balance, as those payments are still being settled per credit terms on certain items such as fuel.

Speaker #3: To note that the AP balance also includes approximately $12 million Canadian of accrued interest on the senior secured notes, which the lenders agreed to forego until settlement in June 2026.

Speaker #3: This interest was previously paid every six months, so would not appear in the comparable AP balance at June 2024 or the 2024 year-end. For the secured note payable balance, as discussed in Q1 earnings call, that debt is now reclassified as long-term compared to current at the year-end, given the extension of the term settlement date to December 2027.

Speaker #3: As mentioned in my opening remarks, utilization of the US dollar $40 million bridge credit facility which increased from $20 million utilized in Q1 to $30 million during Q2, has since the Q2 period end increased by a further $10 million per our recent press announcement issued on July the 29th.

Speaker #3: Q2 also saw the finalization of terms for a working capital facility which was approved at our AGM on May the 16th, and total funds of US $23.6 million were drawn in mid-May.

Speaker #3: These two finances provided critical liquidity during a low revenue period, and when cash flows are significant to settle winter road obligations. The value of the US dollar denominated loans, as with the second-in-loan notes and junior credit facility are valued in Canadian dollars based on the closing period rate, and with the strengthening of the Canadian dollar, this has tended to lower their reported value compared to the start of the year or at the start of the quarter.

Speaker #3: The derivative liability reported at the year-end and Q1 2025, which represents the fair value of the US currency hedges in place, is now reported as a derivative asset, due to the aforementioned strengthening of the Canadian dollar over the quarter, and those hedges to be settled in an average settlement rate of 1.36 across the remaining US dollar $45 million hedges we have in place.

Speaker #3: The fair value of the current and long-term components of the decommissioning and restoration liability has seen little movement over the three and six-month period, with the risk-free interest rate used in the fair value calculation at 3.3% being close to the 3% used at Q1 2025 and 3.2% used in the fair value calculation at the year-end.

Speaker #3: The resultant change in the value of net current assets and current liabilities during the three and six-month end in Q2 2025 results in the working capital position decreasing by $73 million during Q2 2025.

Speaker #3: Although it is $125 million greater than at the 2024 year-end, if that balance were normalized for the reclassification of the second-in-loan notes from short to long-term debt, this would equate to a reduction in working capital compared to the year-end normalized of $135 million, reflecting in large part the injection of $74 million of short-term debt for which the cash has been utilized to meet operational needs.

Speaker #3: In respect of the long-term liabilities being the US denominated senior secured notes junior credit facility the strengthening of the CAD to the US as mentioned from 1.439 at Q1 25 to 1.36 at Q2 2025 has decreased those Canadian reported values.

Speaker #3: This effect has overridden the growth in the US dollar outstanding balances that arises as we now accrue for the unpaid interest on the second-in-loan notes since the start of this year, and continue to accrue for interest in respect of the Doombridge junior credit facility.

Speaker #3: The net result is a non-cash unrealized foreign exchange gain of $22 million in Q2 and $21.5 million since the start of the year. Turning now to earnings plus, I've outlined in my opening remarks the revenue performance in the three and six-months to Q2, so we'll not repeat but in summary, for the two sales in Q2, US dollar price remained low compounding the impact of lower volume of carrots sold as all treated was resourced from the all stockpile at relatively low grade.

Speaker #3: And Mark will provide a brief overview of current market conditions shortly. To note that in Q2 2025, $1.2 million in other income comprises mountain province in share of a grant received from the government of the Northwest Territories plus a fee charge by the company for selling goods for De Beers.

Speaker #3: The loss of $1.1 million in Q2 2024 is the change in the fair value of the warrants granted under the junior credit facility. That fair value process will no longer be required as the warrants were modified in Q1 2025 to be priced in Canadian dollars and recorded as an equity instrument rather than an embedded liability.

Speaker #3: Production costs at $53.6 million in Q2 2025 is almost double $27 million incurred in Q2 2024, and when normalized for carrots sold is almost $2.7 times higher.

Speaker #3: Production for the six months ending Q2 at $92.9 million compares to $59.7 million for the six months ending Q2 2024, which again, when normalized for carrots sold or approximately two and a half times higher.

Speaker #3: These significant differences reflect the $18 million charge $18 million charge for writing down the rough diamond inventory from cost to lower net realizable value, and secondly, the fact that in the first six months of 2024, the all stockpile grew by 1.1 million tonnes or 50%, whereas in 2025, it shrank by 1.7 million tonnes or 41%, resulting in the release of a significant proportion of the cost previously capitalized when the stockpile was growing, which tended to lower production cost reported in those periods.

Speaker #3: Depreciation at $27.5 million for Q2 2025 is $13 million above the comparative figure of $14.3 million in Q2 2024. And for the equivalent H125 period at $50.6 million versus $36.3 million in 2024.

Speaker #3: Again, these increases reflect the equivalent impacts as mentioned for production costs. I.e., a $10 million value adjustment for diamond inventory and depreciation costs no longer reporting to the stockpile during a period of depletion in H1 2025.

Speaker #3: The cash costs of production excluding capitalized stripping for the six months ending Q2 2025 at $114 per carat and $93 per tonne of all are markedly above the comparative figures of $48 and $69 for Q2 2024.

Speaker #3: This is due to the aforementioned major driver of the substantial depletion of the all stockpile in the first half of '25 compared to its growth in 2024.

Speaker #3: And the respective value of opening and closing inventory feeding production costs which in the first half of 2024 went down, whereas in H1 of 2025, they went up.

Speaker #3: The above differences in comparative costs on a per tonne and per carat basis widen when including capitalized stripping, as H1 2025 capitalized stripping costs were $30.6 million higher than in the comparative H1 2024.

Speaker #3: And the effect of this during H1 would tend to push the full year dollar cost per tonne and dollar cost per carat towards the top end of guidance.

Speaker #3: Finance expenses for Q2 2025 and H1 2025 at $14.5 million and $24.6 million respectively are as expected above the 2024 comparable periods and this reflects the increase in the interest charge in respect of the junior credit facility as the accrued interest on that balance compounds and also the inclusion of interest and deferred charges associated with the new bridge loan and working capital facility.

Speaker #3: Turning to the net derivative gain in Q2 of $2.5 million that reflects the $6 million gain on the currency derivative hedges which have reduced as the US dollar's value is pegged against a lower US dollar forward curve.

Speaker #3: And that's offset by a $3.5 million loss on the embedded derivative contract due to the changing discount factors used in its fair value calculation.

Speaker #3: In respect of foreign exchange movements in Q2 '25, these comprise a realized loss of $4 million on $1.4 million on settled hedges offset by an unrealized foreign exchange gain of $21.9 million as the US dollar has deferred income tax recovery at 7.3 million in Q2 2025 and $11 million for H1 of 2025, that compares to a deferred income tax charge of $0.8 million in Q2 2024 and $3.1 million for H1 of 2024, reflecting the reduction in the deferred tax liability due to the scale of the aforementioned operating losses arising in 2025 and a voluntary $160,000 payment in Q1 which itself delivered a $1 million deferred tax benefit in relation to the tax pause.

Speaker #3: The above results in loss from operations for Q2 2025 of $52.6 million compared to a gain of $12 million in Q2 2024 and for H1 2025, a loss of $74.9 million compared to a gain of $42.4 million up to Q2 2024.

Speaker #3: Selling general and admin expenses for both the three and six months ending Q2 2025 are below the comparative periods in 2024 in line with cost control efforts.

Speaker #3: Cash flows provided by operating activities including capital for Q2 2025 saw an outflow of $27 million compared to an outflow of $35 million for Q2 2024.

Speaker #3: The injection of $47 million of funds in the period supported the closing cash balance at $1.7 million at Q2 2025 end and compares to the opening balance of $6.7 million.

Speaker #3: Per the analysis in the MD&A, adjusted EBITDA for the six months ending Q2 2025 was $3.9 million with a margin of only 5%. Versus $74 million and a margin of 51% for H1 2024.

Speaker #3: Overall, a net loss after tax for Q2 2025 of $37.7 million and $72.1 million for the first half of the year compares to a loss of $6.5 million for Q2 2024 and a gain of $340,000 for the first half of 2024.

Speaker #3: Largely due to the comparatively lower sales volume and price which in turn impacted reported cost of sales due to the inventory valuation adjustments I've set out.

Speaker #3: For Q2 2025, the loss per share was $0.18 and for the first half of the year, a loss of $34 cents compared to a loss of $0.03 for Q2 2024 and zero for H1 2024.

Speaker #3: In conclusion, Q2 2025 has seen a continuance of a challenging market with constrained price achieved and reduced production volumes available for sale while we mine through the NEX waste material.

Speaker #3: Despite these results, as Mark has outlined, the mine is performing beyond historical records and positioned to capitalize on the move into the richer NEX ore body and more robust future selling price Thank you for listening and with that, I will turn the presentation back to Mark.

Speaker #3: Mark.

Speaker #2: Thanks, Steve. With input provided from our VP, Diamond Sales and Marketing, Reid Mackie, I'll make the following general comments on the diamond market. sentiment is one of immediate caution against the evolving tariff backdrop.

Speaker #2: With some positive signs as consumer demand in key markets to support price recovery in the medium term. Tariff-related concerns affected inventory strategies and diamond purchasing behavior.

Speaker #2: Including spiking imports to the US at the start of the quarter. The industry is now navigating the longer-term impacts of tariffs across key production and manufacturing centers which are under different rates.

Speaker #2: This ongoing uncertainty together with the high price of gold continue to impact decision-making in rough diamond purchasing polishing and jewelry manufacturing. Rough diamond production remained steady as the major producers still appear to be actively managing supply to protect pricing.

Speaker #2: Importantly, for medium-term price outlook, 2025 global rough diamond production is forecast to be at its lowest level since the late 1980s. A metric that has historically preceded rough diamond price recovery.

Speaker #2: In the midstream, manufacturers and retailers purchase conservatively in Q2, awaiting clarity on tariff impacts but continued buying to meet their specific needs. We saw the impacts of this on pricing with restrained diamond price recovery in Q2.

Speaker #2: Larger sizes saw more demand while smaller sizes saw price declines. By the end of the quarter, prices had largely stabilized with supply scarcity continuing to support pricing.

Speaker #2: Luxury and retail brands continue to demonstrate resilience downstream. Reporting solid results for sales of natural diamond jewelry. Fine jewelers continue to support perceptions around natural diamonds.

Speaker #2: Recently, initiatives that support luxury consumers' desire for exclusivity brand recognition and authenticity are being revived. Including ideas like physically marking natural diamonds to allow consumers to visually identify natural diamonds by themselves.

Speaker #2: Consumer outlook is mixed but a positive forecast is maintained for the key US and Indian retail markets while a subdued recovery continues in China.

Speaker #2: At industry events like the JCK show in Las Vegas in June, natural diamonds were regaining ground while lab-grown options are increasingly trending towards lower value fashion use.

Speaker #2: Price divergence continues with natural diamonds stabilizing or gaining while prices for lab-grown declined due to oversupply. Post-Q2, recent US tariff barriers enacted against India are expected to impact the polished diamond sector there in the short term.

Speaker #2: The key to its recovery will be the deployment of nimble logistics strategies by Indian manufacturers to meet US retailer demand ahead of the all-important holiday season in Q4.

Speaker #2: So just returning to the overall results, at the midpoint of 2024, we've continued to focus on safety performance and achieved the lowest H1 TRIFR so far at the operations.

Speaker #2: We've continued to focus on processing plan initiatives that have now resulted in the process plan operating generally above the original nameplate for throughput. We've focused on mining efficiency maintenance and waste stripping to the all-important 503.4 NEX ore body.

Speaker #2: We've retained our focus noting that the impact of drawing from stockpile has had on our costs in the short term. We look forward to some stabilization in the market in order to be able to leverage our higher production from Q4 through 2026.

Speaker #2: Thanks for your time and Steve and I are now available for any questions that you may have.

Speaker #3: Thank you, Mr. Wall. Ladies and gentlemen, if you do have any questions from the phone, please press star followed by one on your touch-tone phone.

Speaker #3: You will hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two.

Speaker #3: And if you're on a speakerphone, you will need to lift the handset first. Once again, if you do have any questions from the phone lines, please press star one.

Speaker #3: And at this time, sir, it appears we have no questions from the phone.

Speaker #2: Okay. Steve, any questions on the portal?

Speaker #4: No questions on the portal, Mark.

Speaker #2: Okay. Well, with that, thank you, everyone, for joining. And I know I speak to some of you from time to time, so we will continue to do that.

Speaker #2: And everyone, please have a great day. Thank you. Thanks, Sylvie.

Speaker #3: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today, once again, thank you for attending. And at this time, we ask that you please disconnect your lines.

Q2 2025 Mountain Province Diamonds Inc Earnings Call

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