Spec Value Hunter Comment - April 23, 2010: Mountain Province expecting feasibility study in August

Mountain Province Diamonds Inc, which is working with De Beers on a feasibility study for their 51:49 joint ventured Gahcho Kue diamond project that is not expected to be out before August 2010, broke out of its sideways pattern during what was generally a bad week for resource juniors and not particularly interesting for diamond juniors with advanced projects such Stornoway, Shore Gold and Lucara. CEO Patrick Evans confirmed to me that there are no new developments affecting the fundamental outlook for Gahcho Kue that might be behind the uptick and believes the move is related to market developments. He was in London during the past couple weeks telling the Gahcho Kue story to financial institutions who are aware that De Beers is in the mode of preparing to go public again through an IPO and his message may have resonated with some of them. He also mentioned that an explanation for the selling pressure since December has come to light, namely that the bankruptcy trustee for Lehman Brothers has been trying to secretly liquidate a large block of Mountain Province stock by tapping it into a not overly liquid market without bothering to contact management to see if there was a willing home for the block. It now appears that only a portion of this overhang remains and will soon disappear. The weakness in the stock seemed odd in light of a $9 million bought deal completed in December consisting of 3,334,000 units at $2.70 by Salman Partners, Paradigm Capital and Scotia Capital. This financing was cleared by prospectus and was thus immediately free trading. Mountain Province has about $8 million working capital, of which $4 million will go towards the remainder of the $5.1 million Mountain Province is contributing to the feasibility study. Once the feasibility study is completed, and if it indicates a minimum 15% IRR which of course it will be engineered to do, or the partners simply go ahead with a production decision, Mountain Province must pay De Beers $10 million. Another financing will thus be required by September. A final draft of the project description has been completed and will form part of the Environmental Impact Statement which is running in parallel with the feasibility study. Mountain Province has indicated that the mining plan involves processing 3 million tonnes per year for 12 years to produce 4.5 million carats annually before switching from open pit mining to underground development as many of the world's largest diamond mines are preparing to soon do. Mountain Province has been an open bottom-fish recommendation since December 20, 2001 when it was made a top priority buy in the
.50-
.75 range. The bottom-fish recommendation has been Spec Cycle Hold 100% since March 20, 2003. On June 2, 2009 I issued a Good Absolute Spec Value Buy at $1.52 after De Beers released a new 43-101 resource estimate for Gahcho Kue and it had become apparent that Mountain Province management was making headway in its negotiations with De Beers to amend the underlying agreement. On July 6, 2009 a new agreement was announced and

Mountain Province is now a 49% contributing partner with full diamond marketing rights. The Spec Value Buy envisions a price target in the $4-$6 range arising through a buyout offer from a party like Harry Winston, Rio Tinto or BHP Billiton, though if De Beers does go public again it will also be in a strong position to take out its partner.Our recommendation to both bottom-fishers and spec value hunters is to hold their positions until the feasibility study is published and then reassess the position. Because diamond prices are strengthening and because at this stage it is unlikely the feasibility study will uncover any major new costs or obstacles, I expect the stock to move quietly towards the $4 level between now and the feasibility study's completion in August.