Strong sales and Adjusted EBITDA driven by
high-value Ekati production; robust project pipeline
advancing
Dominion Diamond Corporation (TSX: DDC, NYSE: DDC) (the
“Company” or “Dominion”) today reported its first quarter
operational and financial results for the three months ending April
30, 2017. Unless otherwise indicated, all references to “first
quarter,” “Q1 fiscal 2018” and “Q1 2018” refer to the three months
ended April 30, 2017, all references to “Q1 fiscal 2017” and “Q1
2017” refer to the three months ended April 30, 2016, and all
financial information is presented in US dollars.
Highlights
- Higher-value ore blend at Ekati
Diamond Mine (“Ekati mine”) continues to have positive impact on
financial results
- Adjusted EBITDA(1) was $97.0 million in
Q1 fiscal 2018, an increase of 79% from $54.3 million in Q1 fiscal
2017, reflecting higher-value production at the Ekati mine.
- Significant year-over-year
production growth
- Consolidated carats recovered increased
17% to 2.15 million carats in Q1 fiscal 2018 from 1.83 million
carats in Q1 fiscal 2017 due primarily to production from the
high-grade Misery Main pipe at the Ekati mine, with stable
production at the Diavik Diamond Mine (“Diavik mine”).
- Robust project pipeline
advancing
- Misery Deep approved for construction
by the Board of Directors based on a positive pre-feasibility study
completed in May; Jay water licence recommended for Ministerial
approval; Fox Deep preliminary economic assessment underway.
- Generating growth through
exploration
- High-priority pipes identified near
existing infrastructure at Ekati mine – inaugural inferred mineral
resource reported at Leslie pipe, and drilling planned at Kodiak
pipe this summer.
- Strong balance sheet
maintained
- Total unrestricted cash resources of
$131.2 million, debt of $10.6 million and $210 million available
under the revolving credit facility at April 30, 2017.
- Financial and operating guidance
unchanged
- Fiscal 2018 sales expected to be
between $875 and $975 million and Adjusted EBITDA between $475 and
$560 million.
- Value creation remains the
focus
- Dual-track approach – execution on
long-term strategy, and strategic review process.
“The significant year-over-year improvement in sales, gross
margin and Adjusted EBITDA is the result of our transition to
high-value production at Ekati, and continued solid performance at
Diavik,” said Jim Gowans, Chairman of the Board. “We are building
upon the strong momentum that started at the beginning of this
year, while advancing our project pipeline to support longer-term
value generation. With Misery Deep now approved for construction,
we will benefit from an enhanced mid-term production and cash flow
profile, while continuing to optimize our operations and maximize
the value of the diamonds we sell.”
(1)
The term EBITDA (earnings before interest,
taxes, depreciation and amortization) is a non-IFRS measure.
Adjusted EBITDA
removes the effects of impairment charges,
foreign exchange gains (losses), exploration costs and the gain on
the sale of the Toronto office building from EBITDA. See “Non-IFRS
Measures” for additional information.
Consolidated Performance Review (Ekati
mine 100% and Diavik mine 40%)Financial
Summary
(in millions of US dollars, except where otherwise noted)
Three monthsended April
30,2017
Three monthsended April 30,2016
Sales(1) $ 211.0 $ 178.3 Carats sold
(000s) 2,333 2,600 Average price per carat sold ($/carat)
$ 90 $ 69 Cash cost of sales per carat sold
(2) ($/carat) $ 45 $ 50 Gross margin $
30.8 $ (18.8) Gross margin (%) 15%
(11%) Selling, general and administrative expenses $
8.3 $ 8.0 Current and deferred income tax expense (recovery) $ 19.1
$ (30.6) Net income (loss) $ (7.8) $
(5.3) Adjusted EBITDA $ 97.0 $ 54.3 Adjusted EBITDA margin (2) (%)
46% 30% Depreciation and amortization $ 75.8 $ 61.5 Earnings (loss)
per share attributable to shareholders ($/share) $ (0.09) $ (0.01)
Cash provided from operating activities before changes innon-cash
operating working capital(2) $ 73.5 $ 11.2 Free cash flow(2)
$ (15.5) $ (90.0) (1)
Q1 fiscal 2017 sales exclude 0.1 million
carats produced from Misery Main and Pigeon pipes during the
pre-commercial production period for proceeds of $4.4 million.
(2)
The terms “Cash cost of sales per carat
sold”, “Adjusted EBITDA margin”, “Cash provided from operating
activities before changes in non-cash operating working capital”
and “Free cash flow” do not have a standardized meaning according
to IFRS. The Company defines cash cost of sales per carat sold as
the cash component of cost of sales, excluding depreciation and
amortization divided by the total carats sold. Adjusted EBITDA
margin is defined as Adjusted EBITDA divided by total sales. Cash
provided from operating activities before changes in non-cash
operating working capital is defined as net cash from operating
activities less changes in non-cash operating working capital. Free
cash flow is defined as net cash from operating activities, less
sustaining capital expenditure and less growth and exploration
capital expenditure. See “Non-IFRS Measures” for additional
information.
Financial Performance
Net income (loss)
In Q1 fiscal 2018, the Company reported a consolidated net loss
attributable to shareholders of $7.8 million, or $0.09 per share.
The net loss includes a foreign currency exchange impact on income
tax expense of $13.6 million, or $0.16 per share, and restructuring
costs of $2.3 million, or $0.02 per share, relating to the
relocation of the corporate head office. Relative to Q1 fiscal
2017, financial performance was also impacted by:
- The sale of higher-value goods from the
Ekati mine, including approximately $21 million of high- value
fancy coloured diamonds, which contributed to an 18% increase in
sales to $211.0 million and an increase of $49.6 million in gross
margin to $30.8 million. Dominion holds ten sales per year and
there were two sales in each of Q1 2018 and Q1 2017. Gross margin
in Q1 fiscal 2017 was negatively impacted by an impairment charge
of $19.6 million reflective of the lower-value production from the
Misery Satellites at the Ekati mine.
- The demonetization of the Indian rupee
in November 2016, which disrupted normal trading activity for
smaller, lower-value goods.
- An increase in depreciation associated
with the Misery Main pre-stripping asset as the related goods were
processed and sold.
Adjusted EBITDA, Cash Flow and Balance Sheet
- Q1 fiscal 2018 Adjusted EBITDA of $97.0
million increased 79% from $54.3 million in the comparable period
of the prior year, reflecting a significant increase in gross
margin.
- Cash from operating activities before
changes in non-cash operating working capital of $73.5 million in
Q1 fiscal 2018 increased from $11.2 million in Q1 fiscal 2017
primarily due to the increase in sales, combined with stable cash
cost of production at both the Ekati and Diavik mines. Tax payments
were lower than in Q1 fiscal 2017 due to timing differences.
- Free cash flow was negative $15.5
million in Q1 fiscal 2018 compared to negative free cash flow of
$90.0 million in Q1 fiscal 2017. In Q1 fiscal 2018, capital
expenditures included significant investments in the A-21 project
at the Diavik mine, and in the Sable project and in production
stripping at the Pigeon pipe at the Ekati mine. During the first
fiscal quarter of any given year, expenditures also include a large
portion of the annual supplies for both mines due to the use of
winter road transportation to their remote location.
- As at April 30, 2017, the Company had
total unrestricted cash and cash equivalents of $131.2 million,
debt of $10.6 million and $210 million available under its
revolving credit facility. In May 2017, restricted cash of $48.0
million was released and letters of credit were issued under the
revolving credit facility. As a result, unrestricted cash increased
by $48.0 million and availability under the credit facility was
reduced by the same amount.
Operational Summary
(in US dollars, except where otherwise
noted)
Three months endedApril 30,
2017
Three months endedApril 30, 2016
Carats recovered (000s)
2,146
1,830
Cash cost per tonne processed (1)
($/tonne)
$
85
$
81
Total cost per tonne processed (1)
($/tonne)
$
149
$
129
Cash cost per carat produced (1)
($/carat)
$
46
$
54
Total cost per carat produced (1)
($/carat)
$
77
$
84
(1)
Cash cost per tonne processed and cash
cost per carat produced are non-IFRS measures, and are calculated
by dividing cash cost of production by total tonnes processed and
total carats produced, respectively. Cash cost of production is a
non-IFRS measure, and includes mine site operating costs such as
mining, processing and administration, other cash costs relating to
sorting and valuation activities and private royalties, but is
exclusive of amortization, capital, and exploration and development
costs. Total cost of production is a non-IFRS measure and is
comprised of cash cost of production plus depreciation and
amortization. Total cost per tonne processed and total cost per
carat produced are non-IFRS measures, and are calculated by
dividing total cost of production by total tonnes processed and
total carats produced, respectively. See “Non-IFRS Measures” for
additional information.
- During Q1 fiscal 2018, 2.1 million
carats were recovered, an increase of 17% from Q1 fiscal 2017,
during which 1.8 million carats were recovered. The increase in Q1
fiscal 2018 is primarily due to the processing of significant
amounts of high-grade ore from the Misery open pit at the Ekati
mine.
- Cash cost per tonne processed increased
in Q1 fiscal 2018 compared to Q1 fiscal 2017 due to a reduction in
tonnes processed at both the Ekati and Diavik mines, partially
mitigated by cost reductions at the Diavik mine. Total cost per
tonne processed increased as a result of higher depreciation of the
Misery Main pre-stripping asset as significant quantities of this
ore were processed in Q1 fiscal 2018.
- Cash cost per carat produced decreased
in Q1 fiscal 2018 compared to Q1 fiscal 2017 primarily due to the
increase in carats recovered. Total cost per carat produced
decreased less than cash cost per carat produced due to higher
depreciation of the Misery Main pre-stripping asset.
Diamond Market
- The diamond market has become more
positive than in recent months and overall prices have improved
from early fiscal 2018 levels after a slight dip associated with
the residual effects of the November 2016 demonetization of the
Indian rupee. In India, there has been a recovery of demand in the
retail jewelry market following demonetization, and a noticeable
rise in activity in the lower-end price ranges, notably from the
larger jewelry chains. It is expected there will be a full return
to normal trading activity as work resumes at the Indian diamond
polishing factories after the May break. This is the most active
time of year for purchases by the jewelry manufacturing segment, as
it prepares for the end of year sales season.
- The diamond jewelry retail industry in
the United States failed to meet market expectations in the first
quarter of calendar 2017. The level of optimism in the market has
since increased, except with regards to the outlook for the larger
retailers. Traffic is less buoyant in the cheaper diamond ranges
than at calendar year-end 2016, however, bridal goods have been
more resilient, and the higher end of the market, while slow, is
improving.
- The improvement in mainland Chinese
demand early in the quarter has persisted and there is increased
activity in Hong Kong and Macau, both of which had suffered a
retail downturn in recent months.
- Between the February 2017 sale and the
May 2017 sale, average prices have increased by 3% and 1% for the
Ekati mine and Diavik mine, respectively. The increase in average
prices reflects some recovery in demand for lower-priced rough
diamonds following the Indian demonetization. Prices for
higher-value goods were not as significantly impacted by
demonetization and have remained relatively stable. While prices
have not recovered as quickly for the smaller white goods, there
has been more marked improvement in prices for brown goods, leading
to a greater average price increase for the Ekati segment.
Mine
Feed type
February 2017sales cycleaverage
priceper carat
Average %change toMay 2017sales
cycle(1)
Ekati Diamond Mine
Koala
$
280
3%
Misery Main
53
Misery Southwest Extension
37
Pigeon
138
Diavik Diamond Mine
A-154 South
111
1%
A-154 North
147
A-418
80
COR(2)
40
(1)
The average price changes from February
2017 to May 2017 represent net changes in prices for all goods from
each mine, both higher-value and lower-value. Prices for the
higher-value and lower-value market segments can move independently
of one another, depending on relative demand. As such,
strengthening prices in one market segment can offset weakening
prices in another, resulting in minimal average price change.
(2)
COR refers to coarse ore rejects, which
are not classified as mineral reserves and do not have demonstrated
economic viability.
Ekati Mine Performance Review (100%
basis)
Financial Performance
(in
millions US dollars, except where otherwise noted)
Three monthsended April
30,2017
Three monthsended April 30,2016
Sales(1)
$
137.7
$
105.1
Carats sold (000s)
1,834
1,545
Average price per carat sold ($/carat)
$
75
$
68
Cash cost of sales per carat sold
($/carat)
$
39
$
59
Gross margin $
9.8
$
(31.8)
Gross margin %
7%
(30%) Adjusted EBITDA
$
64.3 $ 25.9 Adjusted EBITDA margin %
47%
25% Depreciation and amortization $
56.0
$
38.9
(1)
Q1 fiscal 2017 sales exclude 0.1 million
carats produced from Misery Main and Pigeon pipes during the
pre-commercial production period for proceeds of $4.4 million.
- Sales increased in the current year due
to a 19% increase in carats sold resulting from the sale of goods
from the higher-value Misery Main and Koala pipes. Sales and
average price per carat sold were positively influenced in Q1
fiscal 2018 by an auction of approximately $21 million of
high-value fancy coloured diamonds, predominantly from the Misery
Main pipe.
- Cash cost of sales per carat sold
decreased in Q1 fiscal 2018 compared to Q1 fiscal 2017 due
primarily to a $19.6 million impairment charge recorded in cost of
sales in Q1 fiscal 2017 as a result of the recovery of goods from
low value Misery Satellites in that quarter. This decrease was
partially offset by a 10% increase in the average price per carat
sold in Q1 fiscal 2018. As costs are allocated to goods sold on the
basis of their relative value, cash cost of sales per carat sold
will typically increase or decrease in line with the average price
per carat sold.
Operational Performance
For the three months ended April 30,
2017 For the three months ended April 30, 2016
Pipe
TonnesProcessed(000s)
Carats(1)(000s) Grade(1)(carats/tonne)
TonnesProcessed(000s)
Carats(1)(000s) Grade(1)(carats/tonne)
Koala 500 221 0.44
314 197 0.63 Misery Main
258
1,115 4.30 75 204 2.72 Pigeon 148 52 0.35 248 109 0.44 Misery
Satellites (2) – – –
335 566 1.69 Total(3)
906 1,388 1.53
972 1,076 1.11
(1)
As different kimberlite sources are
blended during processing, carats and grade per pipe are estimated
using the block models for the tonnes processed from each pipe,
adjusted for the overall reconciliation of total carats recovered
against the model. The total carats produced include all
incremental production arising as a result of the changes made to
the Ekati process plant to improve diamond liberation
(2)
The Misery Satellites include the Misery
South and Southwest satellite pipes, which are inferred mineral
resources, and Misery Northeast material. During the three months
ended April 30, 2016, approximately 0.6 million carats were
recovered from the processing of approximately 0.3 million tonnes
of material from Misery South, Southwest extension and Northeast
pipes. The Northeast material is not included in the mineral
reserves or mineral resources, and is therefore incremental
production.
(3)
Figures may not add due to rounding.
(in US dollars, except where otherwise
noted)
Three monthsended April
30,2017
Three monthsended April 30,2016
Waste tonnes mined (000s)
6,824
5,406
Kimberlite tonnes mined (000s)
863
1,651
Tonnes processed (000s)
906
972
Carats recovered (000s)
1,388
1,076
Grade (carats/tonne)
1.53
1.11
Cash cost per tonne processed
($/tonne)
$
73
$
67
Total cost per tonne processed
($/tonne)
$
128
$
104
Cash cost per carat produced ($/carat)
$
49
$
62
Total cost per carat produced
($/carat)
$
84
$
94
- During Q1 fiscal 2018, the Ekati mine
recovered 1.4 million carats from 0.9 million tonnes processed,
compared to 1.1 million carats recovered from 1.0 million tonnes
processed in Q1 fiscal 2017.
- Carat production increased by 29% in Q1
fiscal 2018 compared to the same period in the prior year, due to
the positive impact of processing a large proportion of high-grade
Misery Main ore. Carat production in Q1 fiscal 2018 was also
negatively impacted by a 7% decrease in ore tonnes processed
compared to Q1 fiscal 2017 due to reduced plant availability
resulting from unplanned maintenance, and to a lesser extent,
seasonal weather-related material handling at the Ekati mine.
- Mining activities in Q1 fiscal 2018
were focused at Misery, Pigeon and Lynx open pits and at Koala
underground. Approximately 1.8 million tonnes of kimberlite
material remained in stockpiles at the end of Q1 fiscal 2018,
primarily from Pigeon and Misery Satellites.
- A fines dense media separation (“Fines
DMS”) unit was commissioned in Q4 fiscal 2017 in order to improve
the recovery of small diamonds. In Q1 fiscal 2018, the unit ramped
up to its design throughput. The recovery of small diamonds,
which have low values per carat, has not met expectations to date.
However, adjustments are in progress to the recovery circuit to
improve performance, and it is expected that the unit will achieve
planned recovery in the second half of the year.
Diavik Mine Performance Review (40%
basis)
Financial Performance
(expressed in millions US dollars, except where otherwise noted)
Three monthsended April
30,2017
Three monthsended April 30,2016
Sales
$
73.3
$
73.1
Carats sold (000s)
499
1,055
Average price per carat sold ($/carat)
$
147
$
69
Cash cost of sales per carat sold
($/carat)
$
66
$
36
Gross margin $ 21.0
$
13.0 Gross margin % 29%
18% Adjusted EBITDA
$
40.3 $ 34.5 Adjusted EBITDA margin % 55% 47% Depreciation and
amortization $
19.5
$
22.4
- Sales in Q1 fiscal 2018 were $73.3
million, consistent with Q1 fiscal 2017, as a 53% decrease in
carats sold was offset by a 113% increase in average price per
carat sold. In Q1 fiscal 2018, the market for smaller white goods
was relatively slow to recover from the impact of Indian
demonetization and, therefore, higher-value goods accounted for a
greater proportion of sales.
- The cash cost of sales per carat sold
increased 83% to $66 per carat in Q1 fiscal 2018 from $36 per carat
in Q1 fiscal 2017 due to the increase in average price per carat
sold. As noted above, relatively high-value goods were sold in Q1
fiscal 2018 as compared to Q1 fiscal 2017. As costs are allocated
to goods sold on the basis of their relative value, cash cost of
sales per carat sold will typically increase or decrease in line
with the average price per carat sold.
Operational Performance
For the three months ended March 31, 2017 For
the three months ended March 31, 2016 Pipe
TonnesProcessed(000s tonnes)
Carats(000s)
Grade(carats/tonne)
TonnesProcessed(000s tonnes)
Carats(000s) Grade(carats/tonne) A-154
South 40 132
3.25
49 142 2.90 A-154 North
61 163
2.65
71 166 2.34 A-418 110 447
4.08
102 430 4.22 COR 1 16 –
1 16 – Total (1)
212 758 3.50(2)
223 754 3.32(2)
(1)
Figures may not add due to rounding
(2)
Grade has been adjusted to exclude COR
(in US dollars, except where otherwise
noted)
Three monthsended April
30,2017
Three monthsended April 30,2016
Waste tonnes mined (000s)
40
36
Kimberlite tonnes mined (000s)
232
209
Tonnes processed (000s)
212
223
Carats recovered (000s)
758
754
Grade (carats/tonne)
3.50
3.32
Cash cost per tonne processed
($/tonne)
$
133
$
140
Total cost per tonne processed
($/tonne)
$
235
$
241
Cash cost per carat produced ($/carat)
$
42
$
44
Total cost per carat produced
($/carat)
$
66
$
71
- During Q1 calendar 2017, on a 40%
basis, the Diavik mine recovered 0.8 million carats from 0.2
million tonnes processed, compared to 0.8 million carats recovered
from 0.2 million tonnes processed in Q1 calendar 2016.
- Carat production in Q1 calendar 2017
was consistent with the same period in the prior year, as the
positive impact of processing a relatively high proportion of
higher-grade A-418 ore was offset by a 5% reduction in the volume
of ore processed compared to the prior year as a result of lower
ore availability.
- Mining activities in Q1 calendar 2017
were focused at the A-154 South, A-154 North and A-418 underground
operations.
Diamond Inventory
(in millions of US dollars, except where
otherwise noted)
April 30, 2017
January 31, 2017
Consolidated Diamond Inventory (Ekati mine 100%, Diavik mine
40%)
Carats in inventory available-for-sale
(000s)
3,551
3,674
Estimated market value of inventory
available-for-sale
$
200
$
212
Estimated average market value per carat
available-for-sale ($/carat)
$
56
$
58
Cost of inventory available-for-sale
$
159
$
182
Ekati Diamond Inventory (100% basis)
Carats in inventory available-for-sale
(000s)
2,491
3,046
Estimated market value of inventory
available-for-sale
$
125
$
156
Estimated average market value per carat
available-for-sale ($/carat)
$
50
$
51
Cost of inventory available-for-sale
$
115
$
143
Diavik Diamond Inventory (40%
basis)
Carats in inventory available-for-sale
(000s)
1,060
628
Estimated market value of inventory
available-for-sale
$
75
$
56
Estimated average market value per carat
available-for-sale ($/carat)
$
71
$
89
Cost of inventory available-for-sale
$
44
$
38
- Consolidated carats in inventory
available-for-sale decreased 3% from 3.7 million at January 21,
2017 to 3.6 million at April 30, 2017, reflecting 2.2 million
carats transferred to available-for-sale during the quarter
compared to 2.3 million carats sold. The estimated market value
decreased 6% during this period to approximately $200 million at
April 30, 2017, primarily as a result of the decrease in carats in
inventory. The decrease was also due to the auction of
approximately $21 million of high-value fancy coloured diamonds in
Q1 fiscal 2018.
- Carats in inventory available-for-sale
from the Ekati mine decreased 18% from 3.0 million at January 31,
2017 to 2.5 million at April 30, 2017, reflecting 1.3 million
carats transferred to available-for-sale during the quarter
compared to 1.8 million carats sold. At April 30, 2017, there were
approximately 0.6 million carats of rough diamond inventory
that was work-in-progress (January 31, 2017 – 0.5 million carats),
and that were primarily from Misery Main, with lesser amounts from
Koala underground and Pigeon. The estimated market value decreased
20% during this period to approximately $125 million at April 30,
2017, primarily as a result of the decrease in carats in inventory.
The decrease was also due to the auction of approximately $21
million of high-value fancy coloured diamonds in Q1 fiscal
2018.
- Carats in inventory available-for-sale
from the Diavik mine increased 69% from 0.6 million at January 31,
2017 to 1.1 million at April 30, 2017, reflecting 1.0 million
carats transferred to available-for-sale during the quarter
compared to 0.5 million carats sold. There was no work-in-progress
inventory in the Diavik segment at April 30, 2017. The estimated
market value increased 34% during this period to approximately $75
million at April 30, 2017, as a result of the increase in carats,
partly offset by the 20% decrease in average value per carat
available-for-sale from $89 to $71.
Development Projects
Jay
- The Jay project is a significant
undeveloped deposit at the Ekati mine and is currently in the final
stages of permitting. On May 30, 2017, Dominion announced that the
Wek’èezhìi Land and Water Board (“WLWB”) had amended the water
licence at the Ekati mine to include the Jay project. The WLWB has
recommended that the amended water licence be approved by the
Minister of Environment and Natural Resources, Government of the
Northwest Territories, and a decision is expected this summer.
- To date in fiscal 2018, clean granite
from the Lynx pit has been stockpiled for use as road building
material. Crushing of this road base material started in May, and
road construction to the project site is expected to begin later
this month.
Sable
- Final site infrastructure at the Sable
pipe at the Ekati mine is nearing completion, and costs remain
below budget. Pre-stripping is on track to commence by July 2017,
significantly ahead of the schedule outlined in the pre-feasibility
study.
- Following waste stripping, the first
production of high-value carats from the Sable pipe is anticipated
in fiscal 2020.
Misery Deep
- In May 2017, a positive pre-feasibility
study was completed on the development of an underground operation
below the Misery Main open pit at the Ekati mine. The
pre-feasibility study is based on the mining of Misery Deep between
calendar years 2018 and 2022, and a probable mineral reserve of 1.8
million tonnes of kimberlite and 8.7 million carats, on a 100%
basis. Construction of the project has been approved by the Board
of Directors and permit applications are expected to be filed in
the third quarter of calendar 2017.
Fox Deep
- Work continues on the evaluation of an
underground mine below the mined-out Fox open pit at the Ekati
mine. A preliminary economic analysis on the project is expected in
the third quarter of fiscal 2018 and a pre-feasibility study is
scheduled for completion by the end of the fiscal year. If
successful, this project has the potential to extend the life of
the Ekati mine significantly.
A-21
- Development of the A-21 pipe at the
Diavik mine continues to progress on time and on budget, with the
completion of the dike and the start of de-watering expected in
late calendar 2017. Following waste stripping, processing of ore
from the A-21 pipe is expected to commence in calendar 2018.
Exploration Program
Ekati
- A four-part program is planned
including an assessment of historical geophysical data, till sample
data analysis, an evaluation of known kimberlites to prioritize
targets, and a summer 2017 field program comprising geophysics and
diamond drilling of high-priority targets.
- High-priority kimberlite pipes are the
Leslie and Kodiak pipes, both of which are located close to
existing infrastructure.
- In May 2017, a maiden inferred mineral
resource of 51 million tonnes and 16 million carats, on a 100%
basis, was announced at Leslie, and a concept study is planned this
calendar year.
- The Kodiak pipe has not been bulk
sampled and the work plan for calendar 2017 includes a follow-up
vertical drill hole in the centre of the pipe. Remodelling of the
pipe size and geology, microdiamond estimation and quality
assessment should be completed by the fall of 2017 and, pending the
results of this program, a reverse circulation bulk sample program
may be planned for winter 2018.
Diavik
- Three priority kimberlites – C42, T29
and A61 – have been highlighted for additional work based on
potential size and proximity to the existing infrastructure. The
goal for calendar 2017 is to delineate these kimberlites further
using core drilling, and to collect sufficient material for mineral
chemistry and microdiamond sampling.
Lac de Gras Joint Venture
- A spring 2017 ground geophysics program
utilizing magnetic, gravity and resistivity techniques has been
completed over 20 selected targets. The data is currently being
interpreted and will be used to guide the selection of targets for
possible drill testing later this summer. Additionally, a
400-square kilometre area in the southern part of the property will
be covered by a new airborne geophysical survey during the summer
of 2017.
Glowworm
- A re-evaluation of the historical data
on the Glowworm Lake property is underway. A field program is
planned for 2017, with targets being selected for follow up with
ground geophysics (magnetic, gravity and resistivity).
Capital Expenditures (Ekati mine 100%
and Diavik mine 40%)
(in millions of US dollars)
Three monthsended April
30,2017
Three monthsended April 30,2016
Ekati sustaining capital expenditures
$
16.6
$
18.6
Ekati production stripping
expenditures
27.0
3.1
Diavik sustaining capital expenditures
4.3
6.0
Total sustaining capital expenditures
47.9 27.7
Sable expenditures
11.0
9.6
Lynx expenditures
3.7
13.7
Jay expenditures
2.1
23.4
Misery expenditures
-
19.8
A-21 expenditures
9.2
12.0
Other expenditures
3.3
5.2
Total growth capital expenditures
29.3 83.7
Reconciliation to capital cash
additions:
Capitalized depreciation
(3.4)
(2.7)
Capital accruals
(1.6)
3.0
Total cash capital additions $
72.2 $ 111.7
During the first quarter, the Company invested $72.2 million in
property, plant and equipment, of which $59.6 million related to
the Ekati mine and $12.6 million related to the Diavik mine.
Expenditures related primarily to construction and development of
new kimberlite pipes at both mines, as well as excess waste
stripping in open pits which is capitalized as production
stripping.
On June 5, 2017, an agreement was reached with Archon Minerals
Limited, to convert its participating interest in the Buffer Zone
at the Ekati mine to a royalty equal to 2.3% of all future
gross revenue from diamonds produced from the Buffer Zone. As a
result of this transaction, Dominion’s ownership interest in the
Buffer Zone increased to 100.0%.
Conference Call and
Webcast
Beginning at 11:00 AM (ET) on Tuesday, June 13, 2017, the
Company will host a conference call for analysts, investors and
other interested parties. Listeners may access a live broadcast of
the conference call on the Company's website at www.ddcorp.ca or by
dialing 844-249-9383 within North America or 270-823-1531 from
international locations and entering the conference ID
13700907.
An online archive of the broadcast will be available by
accessing the Company's website at www.ddcorp.ca. A telephone
replay of the call will be available two hours after the call
through 2:00 PM (ET), Tuesday, June 27, 2017, by dialing
855-859-2056 within North America or 404-537-3406 from
international locations and entering the conference ID
13700907.
Management’s Discussion and Analysis
and Financial Statements
Complete Management’s Discussion and Analysis and Financial
Statements can be found on Dominion’s website at:
http://www.ddcorp.ca/investors/reports/quarterly-reports.
Condensed Consolidated Interim Balance Sheets
(unaudited) (expressed in thousands of US dollars)
April 30,2017
January 31,2017
ASSETS Current assets Cash and cash
equivalents (note 4) $ 131,168 $ 136,168 Accounts receivable 17,566
13,946 Inventory and supplies (note 5) 446,700 412,227 Other
current assets 32,639 29,765 Income taxes receivable
14,919 17,720 642,992 609,826
Property, plant and equipment 1,311,773 1,295,584 Restricted cash
(note 4) 47,982 65,742 Other non-current assets 21,130 21,362
Deferred income tax assets 16,520
11,362 Total assets $ 2,040,397
$ 2,003,876 LIABILITIES AND EQUITY
Current liabilities Trade and other payables $ 141,989 $ 108,866
Dividends payable 16,138 – Employee benefit plans 1,943 1,192
Income taxes payable 71,460 54,710 Current portion of loans and
borrowings 10,556 10,556
242,086 175,324 Deferred income tax liabilities 160,194
155,380 Employee benefit plans 17,208 15,911 Provisions
331,455 328,356 Total
liabilities 750,943
674,971 Equity Share capital 465,848 478,526 Contributed
surplus 31,117 31,667 Retained earnings 691,540 718,298 Accumulated
other comprehensive loss (8,917 )
(9,622 ) Total shareholders’ equity 1,179,588 1,218,869
Non-controlling interest 109,866
110,036 Total equity 1,289,454
1,328,905 Total liabilities and equity
$ 2,040,397 $ 2,003,876
The notes are an integral part of these condensed consolidated
interim financial statements.
Condensed Consolidated Interim Statements of Income
(Loss)
(unaudited) (expressed in thousands of US
dollars, except shares and per share amounts
Three monthsended
April30, 2017
Three monthsended April30, 2016
Sales $ 210,978 $ 178,259 Cost
of sales 180,205
197,077 Gross margin 30,773 (18,818 ) Selling,
general and administrative expenses 8,280 8,036 Restructuring costs
(note 11) 2,275
– Operating profit 20,218 (26,854 ) Finance
expenses (3,631 ) (2,488 ) Exploration costs (736 ) (3,581 )
Finance and other income 989 371 Foreign exchange (loss) gain
(5,565 )
(3,360 ) Profit (loss) before income taxes 11,275 (35,912 ) Current
income tax expense 21,139 6,676 Deferred income tax recovery
(2,026 ) (37,286 )
Net (loss) income $ (7,838 )
$ (5,302 ) Net (loss) income attributable to Shareholders $
(7,910 ) $ (1,044 ) Non-controlling interest
72 (4,258 ) (Loss)
earnings per share Basic (0.09 ) (0.01 ) Diluted
(0.09 ) (0.01 ) Basic
weighted average number of shares outstanding
83,648,017 85,310,368
The notes are an integral part of these condensed consolidated
interim financial statements.
Condensed Consolidated Interim Statement of Cash
Flows
(unaudited) (expressed in thousands of US dollars)
Threemonthsended
April30, 2017
Threemonthsended April30, 2016
Cash provided by (used in)
OPERATING Net (loss) income $ (7,838 ) $ (5,302 )
Depreciation and amortization 75,809 58,444 Deferred income tax
recovery (2,026 ) (37,286 ) Current income tax expense 21,139 6,676
Finance expenses 3,631 2,488 Stock-based compensation (406 ) 817
Other non-cash items (14,480 ) 3,530 Unrealized foreign exchange
gain (2,138 ) 9,340 Gain on disposition of assets – 235 Impairment
losses on inventory – 19,603 Interest paid (77 ) (94 ) Income and
mining taxes paid (99 ) (47,285 )
Change in non-cash operating working
capital
(16,840 ) 6,795
Net cash from operating activities
56,675 17,961
FINANCING Repayment of interest-bearing loans and borrowings
– (185 ) Distributions to and contributions from minority partners,
net – (3,986 ) Issue of common shares, net of issue 262 127 Share
repurchase (13,084 )
–
Cash used in financing activities
(12,822 ) (4,044 )
INVESTING Decrease in restricted cash 14,596 – Net proceeds
from preproduction sales – 3,741 Purchase of property, plant and
equipment (72,229 ) (111,656 ) Other non-current assets
230 1,436
Cash used in investing activities
(57,403 ) (106,479 ) Foreign exchange
effect on cash balances 8,550 (1,022 ) Decrease in cash and cash
equivalents (5,000 ) (93,584 ) Cash and cash equivalents, beginning
of period 136,168
320,038 Cash and cash equivalents, end of period
$ 131,168 $ 226,454
Change in non-cash operating working capital Accounts
receivable (3,162 ) (465 ) Inventory and supplies (43,715 ) (12,240
) Other current assets (2,640 ) (8,776 ) Trade and other payables
31,926 30,215 Employee benefit plans
751 (1,939 )
$ (16,840 ) $ 6,795
The notes are an integral part of these condensed consolidated
interim financial statements.
Non-IFRS MeasuresThis news release uses a number of
financial measures, including: cash cost of production, total cost
of production, cash cost and total cost per tonne processed, cash
cost and total cost per carat produced, cash cost of sales per
carat sold, Adjusted EBITDA, free cash flow, sustaining capital
expenditure, and growth capital expenditure. These measures are
used to monitor and evaluate the performance of the Company, are
intended to provide additional information and should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. These measures are
not prescribed by IFRS and will differ from measures determined in
accordance with IFRS. Other companies may calculate these non-IFRS
financial measures differently. These non-IFRS measures should not
be considered as a substitute for, or superior to, measures of
financial performance prepared in accordance with IFRS. Please
refer to the section “Non-IFRS Measures” in the Company’s
Management’s Discussion and Analysis for the three months ended
April 30, 2017, for further details, including a reconciliation of
each such measure to its most directly comparable measure
calculated in accordance with IFRS.
Forward-Looking InformationInformation included herein,
including information about expected sales and Adjusted EBITDA,
diamond pricing, estimated production from, and exploration and
development activities at, the Ekati mine and the Diavik mine, and
expectations concerning the diamond industry, constitutes
forward-looking information or statements within the meaning of
applicable securities laws. Forward-looking information is based on
certain factors and assumptions including, among other things, the
current mine plan for each of the Ekati mine and the Diavik mine;
mining, production, construction and exploration activities at the
Ekati mine and the Diavik mine; currency exchange rates; world and
US economic conditions; future diamond prices; and the level of
worldwide diamond production. Forward-looking information is
subject to certain factors, including risks and uncertainties,
which could cause actual results to differ materially from what the
Company currently expects. These factors include, among other
things, the uncertain nature of mining activities, including risks
associated with underground construction and mining operations,
risks associated with joint venture operations, risks associated
with the remote location of and harsh climate at the Company’s
mining properties, variations in mineral reserve and mineral
resource estimates, grade estimates and expected recovery rates,
failure of plant, equipment or processes to operate as anticipated,
risks associated with regulatory requirements, the risk of
fluctuations in diamond prices and changes in US and world economic
conditions, the risk of fluctuations in the Canadian/US dollar
exchange rate, cash flow and liquidity risks, and uncertainties
related to the Company’s strategic review process. Actual results
may vary from the forward-looking information. Readers are
cautioned not to place undue importance on forward-looking
information, which speaks only as of the date of this disclosure,
and should not rely upon this information as of any other date.
While the Company may elect to, it is under no obligation and does
not undertake to, update or revise any forward-looking information,
whether as a result of new information, further events or otherwise
at any particular time, except as required by law. Additional
information concerning factors that may cause actual results to
materially differ from those in such forward-looking statements is
contained in the Company's filings with Canadian and United States
securities regulatory authorities and can be found at www.sedar.com
and www.sec.gov, respectively.
About Dominion Diamond CorporationDominion Diamond
Corporation is a Canadian mining company and one of the
world’s largest producers and suppliers of premium rough diamond
assortments to the global market. The Company operates
the Ekati Diamond Mine, in which it owns a controlling
interest, and owns 40% of the Diavik Diamond Mine, both of
which are located in the low political risk environment of
the Northwest Territories in Canada. It also has
world-class sorting and selling operations in Canada, Belgium and
India.
For more information, please visit
www.ddcorp.ca.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170612006270/en/
Investors:Dominion Diamond CorporationJacqueline Allison,
416-205-4371Vice-President, Investor
Relationsjacqueline.allison@ddcorp.caorCanadian Media Contact:DFH
Public AffairsIan Hamilton, 416-206-0118 x222orUS Media
Contact:Gagnier CommunicationsDan Gagnier, 646-569-5897
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