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Mountain Province Diamonds Inc. (NASDAQ:MPVD)
Q3 2018 Earnings Conference Call
Nov. 13, 2018 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Mountain Province third-quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions] As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, President and CEO Stuart Brown. Please go ahead, sir.

Stuart Brown -- President and Chief Executive Officer

Thanks very much, Kris, and good day to everyone on the call. Just a brief way of introduction, the call today with me I have Perry Ing, Keyvan Salehi, and we've got Reid Mackie on the line also on the call from Antwerp, where we're busy closing our months over the year. The format for today, just a general introduction from myself, and then I'll hand over immediately to Perry, who will take us through the financials and all the production, and then I'll give some commentary on the market, what we're doing on the mine and the future of the company. And then we'd be happy to take your questions.

So without further ado, if I could hand over to Perry to take us through the numbers. Thanks very much.

Perry Ing -- Chief Financial Officer

Thanks, Stuart. Good morning, everyone. I'll ltake you through the financial and production results. All figures stated will be in Canadian dollars unless otherwise noted.

The third-quarter results reflect the continuation of the strong operational performance seen in the first half of the year as the GK mine continues to run on a healthy steady state. Starting first with our income statement, our headline earnings number, we reported a net income of CAD 17.5 million for the year, up for the quarter, or CAD 0.08 a share, which compares to CAD 27.7 million or CAD 0.17 a share in the same period in 2017. On an adjusted EBITDA basis, stripping out the effects of unrealized foreign exchange movement, we reported adjusted EBITDA of CAD 38 million for the third quarter, which was approximately the same as the adjusted EBITDA in the same quarter in 2017. Adjusted EBITDA for the year to date stands at an impressive CAD 113 million.

We believe that this demonstrates the strong cash margins that the GK mine can provide as a high-volume, low-cost per carry producer despite some challenges with top-line revenue in recent sales. These margins allow us to comfortably service our debt and provide a cushion against any further weakening in diamond prices. Reported revenue for the quarter was CAD 75 million from the sale of CAD 789,000 carats at an average price of USD 73 per carat, the company conducted two tender sales, which took place within the quarter, sales six and seven at an average price of USD 66 a carat. However, I should note from a revenue recognition standpoint, we also recorded roughly a third of sale five, which started in June in the third quarter, as some of the revenues slipped into the third quarter due to the timing of cash receipts.

This included the sale of 43,000 carats at an average price of USD 188 a carat for total proceeds of USD 8.1 million. Overall, the sales of CAD 75 million on 789,000 carats compares to the sale of 757,000 carats at an average price CAD 69 in the same period in 2017, where we recorded total revenue of CAD 65 million. Earnings from mine operations were CAD 25 million for the quarter, an increase of CAD 2 million in the -- compared to the comparable period in 2017 And also an [Inaudible] increase from the second quarter of the year, which came in at CAD 19 million. During the quarter, we also spent CAD 2.1 million on exploration spending, which was approximately evenly split between mine exploration at Gahcho Kue as well as exploration on our 100% owned Kennedy North project.

Turning now to the statement of cash flow. So just from a big-picture cash flow standpoint, we started the third quarter with CAD 33.5 million in cash and ended the quarter with CAD 28 million in cash. So we had a net draw-down of CAD 5.5 million. However, during the quarter, we repurchased nearly CAD 20 million in our outstanding bonds as well as paying a CAD 0.04 per share dividend for a total dividend payment of CAD 8.4 million.

This totaled CAD 29 million in total financing activities, along with CAD 10 million spent on investing activities, primarily related to the purchase -- remaining PPFE at the GK mine. This is all financed by the positive CAD 33 million in cash flows from operating activities you see on the statement of cash flows. We're continuing to focus on cash flow liquidity. As noted, we ended the quarter with a healthy CAD 28 million in cash and a net working capital balance of approximately CAD 92 million, which is relatively unchanged from the beginning of the year and slightly decreased from CAD 100 million at the end of the second quarter.

Moving forward, we will continue to focus on cash management in the fourth quarter. The fourth quarter will be a three-sale quarter, which should allow us to further build our cash balance to the extent possible in anticipation of winter road purchase commitments, which will start quickly in the New Year. We also note that our net interest payment of approximately USD 12.5 million is due in mid-December. To-date, our revolving credit facility has remained undrawn at all times and it is our goal to minimize the use of debt to the extent possible.  Besides cash and working capital, the only other item on our balance sheet that I'd like to highlight is with respect to our outstanding bonds, which are shown on the line noted as secured notes payable.

We repurchased USD 15 million or approximately CAD 20 million equivalent of principal and bonds during the quarter. However, if you'd just looked at the balance sheet, you won't see the full reduction on the balance sheet due to the foreign exchange movement during the year given the net depreciation of the Canadian dollar. So if you want to look at the true balances, please refer to Note 9 of our financial statements, which contains the details. Now, turning over to operations at the GK mine.

Overall tons mined during the quarter surpassed the prior record levels in the second quarter as increased machine availability, especially with full availability of the acquired trucks and travels commissioned last quarter has helped to increase mining rates well over 125,000 tons per day. Total tons mined was 11.6 million tons, which was 40% higher than the 8.3 million tons in the same period in 2017 and 13% higher than the second quarter of the current year. Overall, this has closed the gap between the original budget for the year to about a 10% differential between budget and the actual for total tonnage. Ore mine at 1.16 million tons was similar to the third quarter of 2017 and nearly three times the amount mined during the second quarter.

The ore and stockpile at the end of the period stood at 634,000 tons, which represents a normal healthy operating level of about two months of plant feed. Production through the process plant was 759,000 tons treated or approximately 8,250 tons per day for the quarter with 1.8 million -- 1.82 million carats recovered on an 100% basis at a grade of 2.4 carats per ton. This was nearly 10% higher than a 2.22 carats per ton recovered in the comparable period. Total tons processed through the plant were down compared to 823,000 tons processed in the same period in 2017 at the annual plant maintenance shutdown occurred in September this year versus December in the prior year.

In addition, we encountered several restart issues during the first week of processing following the shutdown, which ultimately resulted in additional unbudgeted downtime of the process plant. Despite of these challenges, we have now recovered 5.4 million carats year to date. And with the solid month of October behind us, we now do expect to come in above the top end of our guidance range of 6.6 million carats for the year, given the strong performance so far. From a cost standpoint, cash cost per ton, including deferred stripping, were CAD 88 per ton compared to CAD 73 in the same period in 2017, and on a per carat basis the CAD 37 per carat including deferred strip compared to CAD 33.

These numbers are broadly in line with our expectations and we expect to come in roughly in line with our CAD 96 per carat figure on a full year basis. With that, I'll turn it back to Stuart.

Stuart Brown -- President and Chief Executive Officer

Thanks very much, Perry. I think the message that Perry is giving us is that we've got consistent production, consistent cash flows, we're very focused on cash management, and we expect to end the year on a strong basis for both of those issues. If I could turn to the market, where we've obviously seen a lot of news over the last quarter and most of it negative on pricing, I'd like to touch on those sort of subject in general for a while. The market for diamond, especially smaller lower quality and brand, have definitely been under pressure as we've reported in our last two sales, where we've seen price reductions.

We'd like to remind everyone Mountain Province sells all its goods on open tender, where we have a willing buyer, willing seller relationship. We have a very established customer base that now understands our product and we believe we obviously sell at the best possible market price. We don't sell premiums to market. We can sell at the price that we have to take.

We're currently busy with [Inaudible] mine. We're seeing very good evidence of same people and new people viewing our good, and interest in our fancies and specials remains very strong. So it's only in the lower qualities where we've seen this price pressure. The announcement yesterday widely reported that not just confirmed by De Beers of a reduction of some 10% in the lower-end good is what we believe De Beers potentially moving their prices to where the market actually is.

As they have not been selling, holding back, and had some refusals. All this anecdotal in the market, but that's the market we live in. So we believe we're confident that we sell all the goods that we have produced and our final distribution of diamond still has a market for it and people have got used to our product offering. We've seen some very strong news in the marketing side of the business in terms of the retail sector, where some retailers are improving -- are providing us with confidence that we should have, as we go into the retail season, a potential to have a good retail season across the U.S.

and the Far East, which should lead us into 2019 with a bit more of a balance between the profit made in the rough sector as well as the polished sector and the retail jewelry sector, which hopefully with this confirmed reduction in price will give diamond people that buy our goods confidence that the market is fully robust and profitable in 2019. If I could turn to the mine itself, where Perry has touched on how well we've been doing and De Beers running operations on our behalf. We have detailed interaction with De Beers and I'd like to touch on the progress we've been making. We've been working together with De Beers to plan for the new reality as we obviously have to look at our current environment and plan according to that.

And especially as we know that we're entering into a period now over the next 12 to 18 months [Inaudible], which we recently brought into production forms a dominant part of our production in 2019. And certainly our initial indications there is a bit of a final product and a color distribution variant of what we used to now. As we start to see that come through, we need to be able to ensure that we can react to those. The work streams we are working on is to improve the current operation but to ensure our future beyond our current 2020 at [Inaudible].

So we're working very hard to get to well into the 2030. Issues we'll be working on -- these are not excessive but looking at the resource extension, we've already announced the Southwest Corridor, where we've added 2.2 million carats to the current mine plan. We're about to, we think, add another small amount of carats in the Hearne, where we have additional kimberlite identified between the two small bits of the path of about 300,000 carat. And we recently announced to the market that we have a potential of up to an additional 4.8 million tons and around a maximum of 8 million carats contained therein in the Northeast extension between 5034 and Tuzo.

There's a lot more work that needs to happen to ensure a lot more of that resource can be reported into the mine plan. We're doing that work over the next eight months. We've done a little bit more drilling and we're, in the process now interpreting those results and will be further do any additional drilling and valuation work as we get into the early parts of 2019. This should give us the ability to generate an alternative mine plan, which in itself will give us more ore going to the plant and instead of the waste being stripped and discarded, that ore going through the plant.

In addition to this, we have our own exploration, where we -- Perry mentioned, we spent some money on the Kelvin-Faraday pipes, largely to do with some geotechnical drilling and we're now doing some resource work on the micro diamond work on Faraday to get a better understanding of grade. We have allocated a small amount of money next year into doing some targeting in the Southwest portion of our Kennady property to the Southwest of where the mine's currently situated as we've got some high-interest targets there. More importantly, what you've looked at with the plant is what potential do we have in the plant in the near and the medium term to look at ways of increasing throughput or improving the quality of the ore that we put through the plant. We're working on a number of issues that we hope to see the results there throughout 2019.

All of this is done to improve the margin so that we can create a better mine design that we will improve our cash flow and we can absorb any shocks that the market sends our way. So in summary, I think we're doing a lot of work including cost control work on the mine and we are right on top of that with our partners.  So finally, I'd like to touch on the issue of liquidity and the commentary in the market and how the world sees the diamond industry but more specifically how Mountain Province is placed against that compared to its peers and other players in the industry. We believe that our current model that demonstrates with our results for the nine months show that we're strong cash generators. We have sufficient liquidity, we are not near to drawing down on our revolver.

That's the safety net which we have in place to ensure that if anything does go wrong we could draw on that but we've seen no need to do that. We have sufficient margin and our expenses and our cash and capital is very well controlled by our finance team and indeed on our partners. We have regular interaction with De Beers on this. We believe the future for Mountain Province is good.

We've identified significant additional ore and have the potential to identify even more ore. We're drilling three holes now at the moment in the Northeast extension and we believe those will all are intersecting Kimberlite in various parts of that. We know that we have the margin. We've demonstrated that over the last quarter.

We've signed -- we've paid our initial dividend. We also reduced our debt by CAD 20 million, which we think is very prudent. However, looking at the early part of the New Year, where we know that significant cash outflow and taking into account the market as confirmed by the speculation and the De Beers reduction in price, we believe it's prudent to not pay a further dividend in this quarter and hold our cash and see how we go through 2019 and how we complete ourselves and stop the sales for 2019. We will continue to make the margins we make and as we see matters every quarter we'll review our ability to pay further debt or pay dividends.

We would like to continue strengthening the balance sheet and make sure that we're prudent with our capital allocation. So in summary, the market is certainly difficult but we're selling our product. We have an established customer base. We have over a hundred businesses viewing our goods every sale.

Our margins are good despite the current pressure on pricing. We do generate cash, we're servicing our debt, we're servicing our capital, we're investing in the future. We are growing our resource base. And in the near term, we're looking to try to increase production through the plant.

And in the medium term, we've definitely got some exciting ideas that we're working on to do this and we have exploration potential. I think that for a diamond company that's operating in the exploration world, the mining world, and the evaluation and indeed selling its own products is definitely one of the companies you'd want to be invested in. Thanks very much. We're more than happy to take questions now. 

Questions and Answers: 

Operator

Thank you. [Operator instructions] And our first question comes from Sam McGovern with Credit Suisse. Your line is now open.

Sam McGovern -- Credit Suisse -- Analyst

Hi, guys. Good morning.

Stuart Brown -- President and Chief Executive Officer

Hi, Sam.

Perry Ing -- Chief Financial Officer

Hi.

Sam McGovern -- Credit Suisse -- Analyst

I was hoping you guys could provide some more color around the low-end diamond market and how, when, why you guys think it will stabilize.

Stuart Brown -- President and Chief Executive Officer

OK. I think I'm just going to hand this straight to Reid, first of all. He's sitting in Antwerp right now, and then I will add anything if I can afterwards.

Reid Mackie -- Vice President, Diamond Marketing

Sure. Thanks, Stuart. Yes, and thanks, Sam. Yes, well, we've seen -- as Stuart alluded to, we've seen the reductions and we've actually absorbed the reduction seen in the lower end since August.

And the much publicized third-party news that came out from the De Beers site yesterday, the numbers we're seeing there is consistent with that. So I think from a confidence standpoint for this sector of the product, you could say that what's occurred in the past few days and what we've seen with our customer base is that there's been a bit more oxygen provided to that sector and we're now seeing movement. And as Stuart also alluded to, within the context of what's anticipated to be a strong retail season in the U.S. potential for the polished stocks of those goods to move through and therefore draw on the rough stock that's sitting there.

We've noticed in our tenders -- in the detail of our tenders, and most, most recently, the last one in October, we actually saw an increase in the amount of interest in terms of bidders and viewings than we did in August. So there's a few things you can look to, some details that show some glimmers of promise for stabilization in those sub CAD 100 per carats goods, per ounce [Inaudible].

Stuart Brown -- President and Chief Executive Officer

Thanks, Reid. If I could just add to that, Sam, what caused this. We just mentioned this in our announcement but it's definitely the Indian rupee weakening, lack of liquidity. I'm less convinced that it's an oversupply issue but it's turned into one as fewer buyers have been able to buy goods.

But we are selling some liquidity is there but at a certain price, so I do believe this will come out in a rush and hopefully come through in 2019.

Sam McGovern -- Credit Suisse -- Analyst

Got it. That's helpful. And can you remind us of your mix and how much is -- of your business is in the low end market versus higher end?

Stuart Brown -- President and Chief Executive Officer

Reid, if you want to go on that before I --

Reid Mackie -- Vice President, Diamond Marketing

Sure. I would say just in value trend that we don't usually get into the details of distribution, but it's less than 50%. So the majority of our product by value is in the higher value articles.

Sam McGovern -- Credit Suisse -- Analyst

Got it. That's very helpful. And then in terms of the bond buybacks and the deleveraging, I mean, how do you think about debt reduction going forward and where on an absolute basis you guys want to get to, the debt balance?

Stuart Brown -- President and Chief Executive Officer

I think I mean from -- any CEO will give you the same answer. You want as little debt as possible precisely to what's happening in the market now. You don't want to be caught unaware. So I think we would like to see a recovery and price and generate more cash and pay out debt further down.

We're comfortable where we are right now, but less debt for us is better.

Sam McGovern -- Credit Suisse -- Analyst

Got it. That's very helpful. And then just lastly, is there any further movement on the discussions with De Beers to integrate the Kennady mine into the joint venture?

Stuart Brown -- President and Chief Executive Officer

Yes. We've been in consultation with them but right now as I was mentioning in my introduction with -- the focus on us is trying to understand the extent of the Northeast Corridor. We believe there's more kimberlite to be added. Until we finalize that actual mine plan, we're probably not in a position to understand the economics of bringing in the Kelvin or the Faraday or three of the additional parts in there.

So, we're still talking, we're still doing work on our project to upgrade this. But until I get a definitive answer later in 2019, it's going to be very difficult to advance that because it's a big unknown and it's really close to the plant from a De Beers perspective. So, it's not finished but we expect to advance that later next year.

Sam McGovern -- Credit Suisse -- Analyst

Great. Thank you very much. I'll pass it on.

Stuart Brown -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Geordie Mark with Haywood Securities. Your line is now open.

Geordie Mark -- Haywood Securities Inc. -- Analyst

Great. Thank you and good morning and afternoon. Thanks for [Inaudible] the call. Just maybe some operational point of view there.

Obviously the plants been acting well on average and from comments you just -- just earlier expecting it to exceed that annualized guidance of just over 3 million. Do you expect that to follow through to next year's throughput given the sort of the learning phases you've encountered this year? And when do you expect the guidance then to come out on that basis?

Stuart Brown -- President and Chief Executive Officer

OK. Good questions there. We do expect to plant to continue performing at its current rate. It's only marginally ahead of our expectation.

We're not trying to over-stress the plant by forcing tonnage through. We're more looking at ways of streamlining and debottlenecking the plant, which might require minimum capital. I think will come up very shortly. We're just in the process of finalizing our 2019 numbers.

We want some more formal information on grade because we feel there's quite a movement between the states and resource grade and what we're actually getting. We're waiting for De Beers to come back to us on that. So as soon as we are, we will come out with guidance numbers and a range basis, Geordie.

Geordie Mark -- Haywood Securities Inc. -- Analyst

Fabulous. Thank you. And maybe on touching on the grade, how you're seeing sort of recovered grade reconciliation? And when coming out, I guess, with some updated reserves, what loaves or parts will be sort of updated within that with new SFDs.

Stuart Brown -- President and Chief Executive Officer

Yes. We're waiting for that from De Beers. There's a lot of work going on right now to ascertain the grade. It's at the bottom sort of the factorization of the one millimeter cutoff to the sample cutoff.

So we are reconciling resource grade to our mine pull factors of every month and we are happy with the way we report and we understand the profile. But as I said, we would like to get more clarity on that before we come out with full guidance.

Unidentified speaker

[Inaudible]

Stuart Brown -- President and Chief Executive Officer

Yes. The Southwest Corridor work is still being worked on, so we expect to come out after the -- early in the new year.

Geordie Mark -- Haywood Securities Inc. -- Analyst

If I can touch one more point and then I'll jump back in the queue. Can you remind me currently given the throughput rates, etc. Well, the proportion of plant costs that are fixed and what sort of leverage, I guess, you had exposed to the Canadian dollar?

Perry Ing -- Chief Financial Officer

Geordie, I believe over 90% of our costs are in Canadian dollars, so obviously heavily exposed there. In terms of leverage, I mean, I would say the plant costs are generally fairly fixed. You're not going to get a large degree of variability. So optimally, you'd see any additional contribution add to your margin with relatively few incremental costs.

Stuart Brown -- President and Chief Executive Officer

I think it's the nature of where the location is, Geordie. I mean, any way to have measure that is if you stop the plant, what costs will you stop incurring? And it would basically be the sort of the consumable costs and power but everything else will continue running along. And you would have bought your fuel anyway so that we buy that in the beginning of the year and it lasts us all year. So even that's fixed.

You just use less of it. I think it's a matter of the way of the location, but I think we feel we covered on that and our selling and U.S. dollars helps us as a natural hedge against the Canadian dollar expenditure.

Geordie Mark -- Haywood Securities Inc. -- Analyst

OK. Great. Thank you very much.

Operator

Thank you. And our next question comes from Richard Hatch with Berenberg. Your line is now open.

Richard Hatch -- Berenberg -- Analyst

Thank you and good morning, gents. Just following up from the -- on the smalls market. I mean, how confident are you that this market is really credibly going to improve because it feels that there's a lot of pressure there. And are you -- what are your customers saying? Are they saying that a 10% cut is enough or do they need more to be sustainable? I'm just trying to get a handle on it and also do you have any stay or handle on the inventory that they're holding at the moment whether they've got too much inventory, too little inventory, just about know kind of stable inventory perhaps for them.

We can start with that one. Thanks.

Stuart Brown -- President and Chief Executive Officer

OK. Reid, do you want to go first and I got a comment on the market. But what I would say on price, Richard, we don't set price that we believe we're selling at market price. So we're not bullying our customers into a room and beating them up until they pay.

This is entirely voluntary on their behalf. So we think we've been selling at market prices. We know we have. Whether De Beers have or not, and their model, as you know, is completely different to ours.

It's on a contract basis. It's performance based. And they've been getting that feedback that clearly there's not enough profit in the boxes for people who want to buy their goods, which has led them to become adopt a very flexible approach toward the end of 2018. All of that for us is very difficult to follow with absolute clarity because no one in this industry publishes anything of fact as it were.

And even when you see the sales results of all of these players, you don't get to know the quality or the volume of that. And the one thing I would say is all mines barring one or two in the world produce all of these goods. So I have to believe it's price stability is going to come back because profitability comes back and we are heading into the biggest retail season right now and we are hearing nothing that's giving us any cause for concern that this won't be a relatively good season.So therefore, we expect to see stocks pull through. And traditionally, if the price match on the rough is good and the polished is moving, then we should see a better stability or confidence whether we see price increases or not.

But I have to believe that prices are going to increase over time.

Richard Hatch -- Berenberg -- Analyst

OK.

Stuart Brown -- President and Chief Executive Officer

Do you have anything to add to that, Reid?

Reid Mackie -- Vice President, Diamond Marketing

No, I agree. I think that important note is that we have been selling through this period, which is in these articles, and which is different from De Beers because they had a policy of deferring the goods from August recitals and is related to further goods. And then in the most recent sale in October, there -- from what we understand, there was a very high level of rejections at that current price book. So because we were selling the goods at the time, we've had pretty clear line of sight in the trajectory of those prices.

And as I mentioned on a -- to an earlier -- alluded to an earlier question, we've actually seen some improvement in terms of competitive metrics or competition metrics that are tender, increased bid, increased viewings. And so nothing that would suggest that there's a further abandonment of the article. But more in the short to medium term here, people have set a new price for it and De Beers is finally catching up with that price.

Richard Hatch -- Berenberg -- Analyst

OK. That's really helpful. Thank you. And then my next question is just picking up a couple of your comments here, first one on the plan, and forgive me if I've missed any of this.

Is there any consideration whatsoever to adjust the bottom car appreciates a volume gain as well. And but is that something you're kind of considering or you're just going to hold fast for the moment?

Stuart Brown -- President and Chief Executive Officer

No, we're definitely looking at all of those options, Richard. And the De Beers are running with that, we've just suggested it. They think it's a good idea to look at in theory. But unless you can up your tonnage, sometimes the market are negative to do that.

But there's definitely all of that works on going, we've sort of kind of a blank sheet of paper look at all the things we could do. As I said, we're working very well with De Beers on that perspective.

Richard Hatch -- Berenberg -- Analyst

Yes, makes sense. And then just on the Hearne product, you talked about the color distribution variants. Can you just perhaps expand a bit on that?

Stuart Brown -- President and Chief Executive Officer

Yes. Reid, do you want to cover that, please?

Reid Mackie -- Vice President, Diamond Marketing

Yes, sure. Without going -- can't get into too much detail because it is a preliminary based on key focus mining samples here. But yes, the goods seem to be slightly finer and there is a brown content that's slightly larger than we've seen in the past. But in terms of color and quality with what we've seen in the past is as more volumes have come through, you see a convergence really in color and quality, I think, between the pipes.

It's more inside frequency distribution. I think it's a pertinent difference here.

Richard Hatch -- Berenberg -- Analyst

OK. That's helpful. And then my last one before hang up -- before I let others have a go. So in the plant what 's the biggest bottleneck in pushing the throughput?

Stuart Brown -- President and Chief Executive Officer

I believe it's something called the thickener. It's all about dewatering and water management on that. So it's not a major issue, but we might look to have another one, which will allow us to do that. It's more to do with the pond's DMS section, which again it's all linked it's not simple as we change the cutoff and it will all work or add another thickener and it'll all work.

Everything works in parallel and then in series as well. So that's why there's quite a lot of work going on in that right now, but no major capital required.

Richard Hatch -- Berenberg -- Analyst

OK. That's really good and thanks a lot. And then congrats on managing a tight balance sheet. Cheers.

Stuart Brown -- President and Chief Executive Officer

Thanks.

Operator

Thank you. And our last question comes from Scott Macdonald with Scotia Bank. Your line is now open.

Scott Macdonald -- Scotiabank -- Analyst

Good morning, guys. Thanks for hosting the call. Just wanted to circle back on Hearne. Just to clarify, you said it's finer and there's more brown sets relative to your resource model, or was that relative to 5034?

Stuart Brown -- President and Chief Executive Officer

[Inaudible] You want me to -- yes, you go.

Reid Mackie -- Vice President, Diamond Marketing

It is very early days. And I think we have to caution that and we're dealing with kind of a low-value sample, but it's compared to 5034 and the goods that we've seen to date. So and hence, my comment and that as we moved, we have seen this kind of convergence in stability, for lack of a better word, in quality and color as the volumes pick up, so there is potential for that. So I wouldn't get hung up too much on the actual quality or color differences to that comment.

Stuart Brown -- President and Chief Executive Officer

Scott, we've just been mining one source of kimberlite, the Hearne kimberlite is made up of different series of kimberlites, so different facies. And we're just moving into a new facies right now. We'll be taking some samples later in the year. That's why I said very early days but one we hope to see an improvement in price and product.

Scott Macdonald -- Scotiabank -- Analyst

OK. And how about the grade at Hearne so far? Is that is that also -- are you seeing positive reconciliation there like you did at 5034?

Stuart Brown -- President and Chief Executive Officer

Yes, we're seeing the same kind of -- a little bit of the same over-performance on grade against the resource grade. So, yes We're seeing similar performance. So the plant is consistent with that material.

Scott Macdonald -- Scotiabank -- Analyst

OK. And so maybe on a overall sort of revenue per ton basis, is it more or less in line with your expectations or is it a little bit below because of the -- so far?

Stuart Brown -- President and Chief Executive Officer

I think it's in line in line with our expectations with a backdrop of the current pricing markets has taken it down to where we would have liked it to be. But yes, so in line with expectations.

Scott Macdonald -- Scotiabank -- Analyst

OK. Maybe just moving on to your discussions with De Beers. So you mentioned I think that you'd have something wrapped up into a new maybe an updated mine plan. Do you say late 2019 is that --

Stuart Brown -- President and Chief Executive Officer

Yes, there's quite a lot of moving parts, because every time you find more kimberlite, you can do a mine design and then it gets bigger. So that's not stuff integrating with the Tuzo part as well. So then you want to start broadening your mine to thinking, well, are you going to have two pits or one pit. But until you've delineated the actual volume of kimberlite, it's very difficult to do that.

And as you know, we added the [Inaudible] and we still got to do a bit more work there. So it's all dependent on strip pressures and then value in the ground. So we get to prove anywhere close to value on those. That's why I said it is going to take us another a good 10 months with the work that we're planning over the next 10 months to try to understand to which facies does this extra kimberlite belong to.

What are the value of the diamond, get the dollar per ton of revenue in the ground and then can we mine and strip it. So there's a huge amount of work that has to go on over the next period on that. So it's good though. [Inaudible] kimberlite.

Scott Macdonald -- Scotiabank -- Analyst

Yes, I appreciate there's a lot of moving parts and it's a good problem to have. I guess. But -- so we should look for something no earlier than late 2019, it sounds like.

Stuart Brown -- President and Chief Executive Officer

It's going to be second half of 2019 before we -- we'll report as we get more information on the drilling but actually on mine planning and design and grade, confirmation of value, I think that's going to take us a while. Tere's a lot of work to do on that.

Scott Macdonald -- Scotiabank -- Analyst

Right. And I presume based on your earlier comments you would expect a definitive agreement with De Beers regarding the Kennady assets until you've sort of updated that Gahcho Kue plan?

Stuart Brown -- President and Chief Executive Officer

Yes, I think that's entirely sensible from the start. Obviously, we would like to do something sooner but until we know the size of the added price, we can't work out with Kelvin and Faraday lots in.

Scott Macdonald -- Scotiabank -- Analyst

Sure. Makes sense. Maybe just one last one. You mentioned you might look to improve not only debottleneck the plant to get the throughput up but also improve the quality of the feed, I think you said.

Could you elaborate a little bit on how you might achieve that?

Stuart Brown -- President and Chief Executive Officer

Ye, we've got -- I mean, all -- most Kimberlites have some form of internal waste, and mining on the contact brings waste into the equation and any ton of waste that goes through the plants is completely barren and costs money. So we're looking at potential ideas on -- they've done some testing on a waste sorting. Early days pioneering on that. But if we could do this relatively inexpensively and prove that up, then just upgrade the quality of the ore going through the plant.

Scott Macdonald -- Scotiabank -- Analyst

Great. Makes sense. So I guess I suppose that might be wrapped up with the mine plan if you [Inaudible] that.

Stuart Brown -- President and Chief Executive Officer

Yes, all of this fits together, which is it's like designing a whole new mine with new parameters and new plantation and grade differentials bottom catalog. So yes, if you can do that that improves the dollar per ton of revenue in the ground and therefore it makes your mining easier, stripping easier, justification therefore yes. So we see 2019 as a year of a lot of work while we weather through this sort of retail rough diamond market.

Scott Macdonald -- Scotiabank -- Analyst

Yes, it sounds like you guys will be keeping yourselves busy. Thanks for that. That's it for me.

Stuart Brown -- President and Chief Executive Officer

Great. I think we've got one more question from Geordie Mark and then we can go.

Operator

And we do have a follow-up of Geordie Mark from Haywood Securities. Your line is now open.

Geordie Mark -- Haywood Securities Inc. -- Analyst

Great. So just a quick question on just thinking about open pits and pit modeling. Any revised sort of insight into sort of steepening the people angles or how's that holding up versus the revised sort of softening of the angles a while ago?

Stuart Brown -- President and Chief Executive Officer

We don't have any immediate updates on that Geordie, De Beers continuing to monitor that would bench sizes and heights and certainly with the potential of the pit widening in the North West as we go off toward Tuzo that there's some areas where we're happy with the pit angle. So we are doing continual test work on that, because we're obviously heavy degree we can steepen up by is quite a few thousand tons saved. So that work is ongoing, but again it's going to be all incorporated into the potential new pit design. So again, early days on that.

Geordie Mark -- Haywood Securities Inc. -- Analyst

Great. OK. Thanks.

Stuart Brown -- President and Chief Executive Officer

OK. I think that's come to the end of our questions. So thanks very much for everyone for dialing in. We appreciate your time.

We give you the assurance that we are very cognizant of the external market, the pressures we face, the pressure of share price, shareholder desires, and we're working very hard to ensure that we can try to satisfy all of those desires with the respect that that deserves. Thank you very much.

Operator

[Operator signoff]

Duration: 0 minutes

Call Participants:

Stuart Brown -- President and Chief Executive Officer

Perry Ing -- Chief Financial Officer

Sam McGovern -- Credit Suisse -- Analyst

Reid Mackie -- Vice President, Diamond Marketing

Geordie Mark -- Haywood Securities Inc. -- Analyst

Richard Hatch -- Berenberg -- Analyst

Scott Macdonald -- Scotiabank -- Analyst

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