Mr. Jim Gowans reports
DOMINION DIAMOND ANNOUNCES FISCAL 2018 GUIDANCE: STRONG SALES AND ADJUSTED EBITDA DRIVEN BY HIGH VALUE EKATI PRODUCTION AND SOLID PERFORMANCE AT DIAVIK
Dominion Diamond Corp. has released its guidance for sales, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1),
unit operating costs, and capital and exploration expenditures for
fiscal 2018 (ending Jan. 31, 2018). All amounts are in U.S. dollars
unless otherwise noted. An exchange rate of $1.33 (Canadian)/$1 (U.S.) was used for
costs denominated in Canadian dollars.
Highlights:
-
Sales are expected to be between $875-million and $975-million, an increase of
62 per cent compared with fiscal 2017 sales, assuming the midpoint of fiscal
2018 guidance is achieved.
- Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is forecast to be between $475-million and $560-million,
reflecting a high-margin ore mix, combined with continuing cost
containment and efficiency initiatives.
- The cash cost of production (2) is expected to be between
$70 and $80 per tonne processed and between $35 and $40 per carat
produced.
- Growth capital expenditures are expected to total between $115-million and
$140-million, demonstrating a commitment to investment in growth.
Sustaining capital expenditures, including capitalized production
stripping, are expected to total between $160-million and $190-million.
- The production guidance released earlier this year is reaffirmed for
the Ekati diamond mine and Diavik diamond mine. Combined production at
the Ekati mine (100-per-cent basis, fiscal 2018) and the Diavik mine (40-per-cent
share, calendar 2017) is expected to be between 9.1 million and 10.0 million
carats.
- Opportunities exist to enhance the medium- and longer-term production
profile at Ekati, including the potential development of the Misery
Deep and Fox Deep projects, for which prefeasibility studies are
currently under way.
"We continue to execute on our long-term strategic plan and to deliver
results. Our strong sales and adjusted EBITDA forecasts for fiscal 2018
are driven by high-value production from Koala and Misery Main, as Ekati
moves to the first full year of the new phase of the mine plan," said
Jim Gowans, chairman of the board of directors. "The cash flow generated
by Ekati and Diavik during this period is expected to be ample to fund
our pipeline of attractive growth projects and a renewed focus on
exploration."
(1) The term EBITDA (earnings before interest, taxes, depreciation and amortization) is a non-international financial reporting standard measure. Adjusted EBITDA removes the effects of impairment charges, foreign exchange gains (losses) and exploration costs from EBITDA.
(2) Cash cost of production is a non-IFRS measure and includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost per tonne processed and cash cost per carat produced are calculated by dividing cash cost of production by total tonnes processed and total carats produced, respectively.
The company continues to deliver on its production plan and to advance
several projects at Ekati, in addition to the A-21 project at Diavik.
The Jay project is in the final stage of permitting, with the water
licence expected this summer. In addition to the Jay project and
greenfield exploration, a number of near-term and longer-term
development opportunities are being advanced in fiscal 2018 at the
highly prospective Ekati property.
-
Lynx project: Commercial production of high-value carats is expected
in fiscal 2018.
- Sable project: First production of high-value carats is anticipated in
fiscal 2020.
- Misery Deep project: A prefeasibility study is being completed on the
development of an underground operation below the final profile of the
planned open pit. The study is focused on the processing of additional
high-value ore from the Misery pipe, and a positive outcome could lead
to the recovery of carats beyond fiscal 2020, enhancing the production
profile at Ekati. Completion of the prefeasibility study is expected
in the second quarter of fiscal 2018.
- Fox Deep project: As disclosed in the news release of Feb. 22,
2017, based on encouraging bulk sample results from the
previously mined Fox open pit, a prefeasibility study is under way to
examine the economics of an underground mine below the large open pit.
As of July 31, 2016, the Fox kimberlite pipe had an indicated resource
of 35.2 million tonnes containing 11.6 million carats. A resource
update is expected in the current fiscal quarter. The prefeasibility
study is scheduled to be completed in late fiscal 2018.
FISCAL 2018 FINANCIAL GUIDANCE
Ekati (100%) Diavik (40%) Combined
Sales (1) $ millions $575-$645 $300-$330 $875-$975
Adjusted EBITDA (2) $ millions 315-370 180-210 475-560
Depreciation and amortization in cost of sales $ millions 225-265 85-100 310-365
Average price per carat sold $/carat 60-80 90-110 70-90
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Note: Totals may not add up due to rounding.
(1) Sales guidance for fiscal 2018 includes production from the Misery Southwest pipe,
which is currently an inferred resource (this is the operating case). The mine plan for
fiscal 2018 foresees between 1.3 million and 1.4 million carats recovered from Misery
Southwest, with an estimated market value of between $48-million and $52-million.
Mineral resources that are not mineral reserves do not have demonstrated economic
viability. Inferred mineral resources are considered too speculative geologically to
have economic considerations applied to them that would enable them to be categorized
as mineral reserves. There is no certainty that the operating case will be realized.
(2) Combined adjusted EBITDA includes corporate general and administrative costs.
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) and exploration costs from EBITDA.
Sales are expected to be between $875-million and $975-million, an increase of
62 per cent compared with fiscal 2017 sales, assuming the midpoint of fiscal 2018
guidance is achieved. Sales are expected to benefit from the focus on
high-value ore from the Misery Main and Koala underground pipes at the
Ekati mine in the latter part of fiscal 2017 and the first quarter of
fiscal 2018. This, combined with the ramp-up of ore from the Pigeon and
Lynx pipes at Ekati during the rest of the year and strong
production from the Diavik mine, is expected to drive sales approaching
$1-billion.
The diamond market continues to recover from the impact of
demonetization in India. The guidance for fiscal 2018 foresees the sale
of a higher volume of lower-value diamonds that were previously held
back from sale due to the weaker market conditions following the
demonetization. This is expected to affect the average price per carat
sold, as well as the number of carats sold.
Adjusted EBITDA is expected to be between $475-million and $560-million,
reflecting a high-margin ore mix, combined with continuing cost containment
and efficiency initiatives, including reduced energy consumption and
continued implementation of the long haulage strategy at the Ekati mine,
with the addition of two high-capacity road trains.
The average price per carat sold is expected to range from $70 to $90
per carat. The upper end of the range reflects the potential for a
larger proportion of sales of higher-value diamonds, while the lower end
of the range reflects the potential for a higher proportion of sales of
lower-quality stones.
Sales, adjusted EBITDA and the average price per carat sold in any given
quarter are impacted by seasonal trends in the diamond industry, the
number of sales in a quarter, ore mix, the sale of special stones through a
limited number of special tenders during the year and other factors.
The Ekati mine contains a greater number of kimberlite sources, each
with different average price per carat and grade profile compared with
those at the Diavik mine. In the first fiscal quarter, the company expects the
combined average price per carat sold to be near the low end of the
guidance range for the full fiscal year, partly due to a significant
amount of lower-value goods in inventory from recent Misery Main
production, and weakness in the lower value segment of the diamond
market due to demonetization in India. This is expected to reverse later
in the year with the processing of ore containing diamonds with a higher
average price per carat.
FISCAL 2018 UNIT PRODUCTION COST AND CAPITAL EXPENDITURE GUIDANCE
Ekati Diavik Combined
Cash cost per tonne processed $/tonne $60-$70 $120-$130 $70-$80
Total cost per tonne processed $/tonne 120-135 220-235 140-155
Cash cost per carat produced $/carat 35-40 35-40 35-40
Total cost per carat produced $/carat 65-75 60-70 65-75
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(1) Cash cost per tonne processed and cash cost per carat produced
are non-international financial reporting standard measures, and are
calculated by dividing cash cost of production by total tonnes
processed and total carats produced, respectively. Cash cost of
production includes mine site operating costs, such as mining,
processing and administration, but is exclusive of amortization,
capital, and exploration and development costs. Total cost is
composed of cash cost plus depreciation and amortization.
Per-carat metrics in any particular quarter may vary from the annual
guidance due to changes in the ore blend.
FISCAL 2018 CAPITAL EXPENDITURE GUIDANCE
Ekati (100%) Diavik (40%) Combined
Growth capital $ millions $90-$110 $25-$30 $115-$140
Sustaining capital (1) $ millions 140-170 13-15 160-190
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(1) Combined sustaining capital includes corporate capital expenditures.
FISCAL 2018 CAPITAL EXPENDITURE GUIDANCE
Ekati (100 per cent)
Growth capital $ millions $90-$110
Percentage of growth capital
Lynx 10%
Sable 50%
Jay 25%
Other 15%
---------
Total 100%
---------
Sustaining capital $ millions $140-$170
---------
Diavik (40 per cent)
Growth capital
A-21 $ millions $25-$30
Sustaining capital $ millions 13-15
---------
The planned growth capital expenditures in fiscal 2018 include $90-million to
$110-million at the Ekati mine and $25-million to $30-million at the Diavik
mine. Of the planned growth capital expenditures at Ekati in fiscal
2018, approximately $45-million to $55-million is expected to be spent at the
Sable project, and approximately $25-million is expected to be spent at
the Jay project. The planned sustaining capital expenditures include
approximately $115-million of capitalized production stripping at the
Ekati mine.
FISCAL 2018 EXPLORATION GUIDANCE
Exploration expenditures $ millions 9
Ekati (100%) 55%
Diavik (40%) 10%
Other 35%
----
Total 100%
----
(1) One hundred per cent of
expenditures on exploration
in fiscal 2018 are expected
to be expensed.
The company is renewing its focus on exploration on its extensive land
package in the Lac de Gras region, which is still a relatively new and
highly prospective diamond mining district. A robust exploration program
is planned for fiscal 2018. The program includes prioritization of the
150 known kimberlite pipes on the Ekati property and planning for a
potential bulk sampling program in fiscal 2019. Re-evaluation of
historical data is under way on undeveloped kimberlites, and diamond
drilling is planned on up to six targets in the Core zone and Buffer
zone. At Diavik, drilling of three known kimberlites is planned in 2017.
Most of the previous diamond exploration in the Lac de Gras region was
done during the diamond rush of the 1990s. Since that time, significant
improvements have been made to the methodology and interpretative
techniques that are used. Since the acquisition of the Ekati mine,
Dominion has had a strong record of reserve addition, including
the conversion of 78.6 million carats to mineral reserve at the Jay
project and 10.1 million carats to mineral reserve at the Sable project.
The renewed focus on exploration is expected to drive longer-term growth
and shareholder value.
Production guidance reaffirmed
Production guidance for the Ekati and Diavik mines was released earlier
this year and is unchanged. During fiscal 2018, the Ekati mine is
expected to produce 6.3 million to 7.0 million carats on a 100-per-cent basis, from the
processing of 3.7 million to 4.0 million tonnes. During calendar 2017, the
Diavik mine is forecast to produce 7.1 million to 7.6 million carats on a 100-per-cent
basis, from the processing of 2.0 million to 2.2 million tonnes.
PRODUCTION GUIDANCE
Ekati (100%) Diavik (100%) Combined (1)
fiscal 2018 calendar 2017
Tonnes mined (total), millions 27-30 2.1-2.3 (2)
Tonnes processed, millions 3.7-4.0 2.0-2.2
Carats recovered (base case), millions 5.0-5.6
Carats recovered (operating case), millions 6.3-7.0 (3) 7.1-7.6 9.1-10.0 (3)
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(1) Combined production includes 100 per cent of Ekati production in fiscal 2018
and 40 per cent of Diavik production in calendar 2017.
(2) Excludes 1.2 million tonnes of waste mining at the A-21 project at Diavik
mine.
(3) Reflects the operating case at Ekati mine. This includes the Misery Southwest
pipe, which is currently an inferred mineral resource. Mineral resources that are
not mineral reserves do not have demonstrated economic viability. Inferred mineral
resources are considered too speculative geologically to have economic
considerations applied to them that would enable them to be categorized as mineral
reserves. There is no certainty that the operating case will be realized.
Qualified person
The mine plan for the Ekati diamond mine for fiscal 2018 was prepared
and verified by Dominion, operator of the Ekati diamond mine, under the
supervision of Peter Ravenscroft, FAusIMM, of Burgundy Mining Advisors
Ltd., an independent mining consultant, a qualified person within
the meaning of National Instrument 43-101 of the Canadian Securities
Administrators, and the mine plan for the Diavik diamond mine for
calendar 2017 was prepared and verified by DDMI, operator of the Diavik
diamond mine, under the supervision of Calvin Yip, PEng, principal
adviser, strategic planning, of DDMI, who is a qualified person within
the meaning of National Instrument 43-101 of the Canadian Securities
Administrators. The other scientific and technical information contained
in this press release has been prepared and verified by Dominion,
operator of the Ekati diamond mine, under the supervision of Chantal
Lavoie, PEng, chief operating officer of Dominion, president of
Dominion Diamond Ekati Corp. (DDEC), a qualified person within
the meaning of National Instrument 43-101 of the Canadian Securities
Administrators. For further details and information concerning the
company's mineral reserves and mineral resources at the Ekati diamond mine, please refer to the technical report entitled "Ekati diamond mine,
Northwest Territories, Canada, NI 43-101 technical report," that has an
effective date of July 31, 2016. For further details and information
concerning the company's mineral reserves and resources at the Diavik
diamond mine, please refer to the technical report entitled "Diavik
diamond mine, Northwest Territories, Canada, NI 43-101 technical report,"
that has an effective date of March 18, 2015. These technical reports
can be found on the company's profile at
SEDAR
and on the company's website.
About Dominion Diamond Corp.
Dominion Diamond is a Canadian diamond mining company
with ownership interests in two major producing diamond mines. Both
mines are located in the low-political-risk environment of the Northwest
Territories in Canada. The company operates the Ekati diamond mine, in
which it owns a controlling interest, and also owns 40 per cent of the Diavik
diamond mine. It supplies premium rough diamond assortments to the
global market through its sorting and selling operations in Canada,
Belgium and India.
We seek Safe Harbor.
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