03:09:53 EDT Fri 29 Mar 2024
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Dominion Diamond Corp
Symbol DDC
Shares Issued 82,553,651
Close 2017-04-12 C$ 17.03
Market Cap C$ 1,405,888,677
Recent Sedar Documents

Dominion Diamond loses $12.75-million (U.S.) in FY 2017

2017-04-12 18:25 ET - News Release

Mr. Jim Gowans reports

DOMINION DIAMOND REPORTS FISCAL 2017 FOURTH QUARTER RESULTS AND PROVIDES CORPORATE UPDATE

Dominion Diamond Corp. has released its fourth quarter and full-year financial results for the fiscal year ended Jan. 31, 2017, and has also provided an update on multiple projects within its robust development pipeline and exploration priorities. The company remains focused on continuing to optimize its existing operations, is well positioned to advance its portfolio of development projects at both the Ekati diamond mine and the Diavik diamond mine, and is increasing exploration efforts in the highly prospective Lac de Gras region. Unless otherwise indicated, all financial information below is presented in U.S. dollars.

"We continue to execute on our long-term strategy and create value for all shareholders. With the support of our strong balance sheet, we are well positioned to advance a number of key development opportunities and begin reinvestment in near-mine exploration at both Ekati and Diavik," said Jim Gowans, chairman of the board. "As an established operator, one of our primary objectives is to leverage our infrastructure advantage in one of the world's most prospective diamond mining districts."

Key corporate highlights:

  • Guidance for strong sales and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) in fiscal 2018: Financial and operating guidance for fiscal 2018 remains unchanged; sales are expected to be between $875-million and $975-million, and adjusted EBITDA is between $475-million and $560-million.
  • Delivering on development projects:
    • A-21 project, Diavik mine: Completion of dike construction and the start of dewatering are on plan for late calendar 2017;
    • Sable project, Ekati mine: currently below budget and approximately seven months ahead of schedule, with prestripping expected to commence in July, 2017;
    • Misery Deep project, Ekati mine: prefeasibility study on track for completion by July, 2017;
    • Fox Deep project, Ekati mine: indicated resource increased to 45.6 million tonnes and 16.5 million carats; completion of a prefeasibility study expected late this fiscal year;
    • Jay project, Ekati mine: Permitting continues to advance, with a decision on the water licence expected in summer 2017.
  • Diavik mine life extension: The recently filed technical report (2) demonstrates improved economics and supports an extension in the mine life to 2025 from 2023.
  • Growth opportunities through advanced exploration:
    • The company renewed strategic focus on exploration with a $9-million exploration budget for fiscal 2018 focused on near-mine exploration and completion of prefeasibility studies.
    • The identification of priority targets with drilling at the Ekati and Diavik properties is planned in fiscal 2018.
  • Strong balance sheet supports capital allocation strategy:
    • Maintained strong balance sheet with $136.2-million total unrestricted cash resources, debt of $10.6-million and $210-million available under its revolving credit facility as at Jan. 31, 2017;
    • Three-year outlook for strong adjusted EBITDA enables the company to advance its suite of development projects with internally generated cash flows;
    • Declared a dividend on April 12, 2017, of 20 cents per share payable on June 5, 2017, to shareholders of record at the close of business on May 17, 2017;
    • Repurchased and retired approximately 3.4 million shares in fiscal 2017 as part of the company's normal course issuer bid for a total value of $40.9-million (Canadian);
    • In total, the company returned $65.1-million to shareholders in fiscal 2017 through a combination of dividends and share repurchases.

Fiscal fourth quarter highlights:

  • Shift to higher-value ore blend at Ekati positively impacting financial results:
    • Adjusted EBITDA was $62.7-million in fourth quarter fiscal 2017, an increase of 28 per cent from $49.0-million in fourth quarter fiscal 2016, reflecting the contribution from the high-value ore blend at the Ekati mine in the last sale of the quarter following the process plant fire in June, 2016. Growth in adjusted EBITDA is expected to continue in fiscal 2018 as the contribution from the high-value ore blend increases.
  • Delivering production growth:
    • Record carats were recovered at the Ekati mine coupled with solid performance at the Diavik mine.
  • Driving efficiencies and lower operating costs:
    • Efficiency improvements and cost reduction initiatives have been implemented at the Ekati and Diavik mines. A recently filed technical report (2) for the Diavik mine demonstrated improved economics and supported an extension in the mine life to 2025 from 2023.
  • Renewed focus on exploration:
    • In the fourth quarter, planning and analysis to support a renewed greenfield exploration program at the Ekati mine were completed. Drilling of priority kimberlites at Ekati and Diavik properties is planned in fiscal 2018.
  • New labour agreement in place at Ekati:
    • A new collective agreement has been ratified by the union representing workers at the Ekati mine. The new agreement expires in 2019.

"The much-anticipated ramp-up of high-value production at Ekati, together with steady performance at Diavik, is driving significant growth in gross margins and adjusted EBITDA," continued Mr. Gowans. "We expect this momentum to continue, with significantly higher sales and adjusted EBITDA as highlighted in our guidance for fiscal 2018. We are confident in our ability to advance a number of projects to production, enhancing our medium- to long-term cash flow profile, while driving efficiencies across our operations and maximizing the value of our product by leveraging our expertise in sales and marketing."

(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) Technical report entitled "Diavik diamond mine, Northwest Territories, Canada, NI 43-101 technical report," that has an effective date of Jan. 31, 2017.

Corporate and strategic update

Several projects are being advanced at the Ekati mine, in addition to the A-21 project at the Diavik mine. This robust project pipeline provides optionality in the mine plan and has the potential to enhance the company's medium- and longer-term production profile. Given the existing infrastructure at the Ekati and Diavik properties, the cost of developing new projects is significantly lower than in a greenfield setting.

Development and exploration projects

Dominion is advancing a number of near-term and long-term development projects and opportunities at the highly prospective Ekati property in fiscal 2018. Planning and analysis were completed during the fourth quarter to support an exploration program in calendar 2017.

The company is renewing its focus on exploration at its extensive land package in the Lac de Gras region. This is a relatively new and highly prospective diamond mining district, which hosts some of the richest kimberlites in the world. No greenfield exploration has taken place at the Ekati mine since 2006. There are 150 known kimberlites on the property, approximately 110 of which have not been extensively tested.

Dominion plans to progress multiple projects from the target stage to execution. Targets are being identified through till sampling, geophysics and drilling. Advanced exploration will focus on delineation of kimberlite pipes and bulk sampling, and those prospects warranting further investigation are expected to progress to conceptual and engineering studies and, if justified, development.

The exploration program includes prioritization of the known kimberlites pipes on the Ekati property, and planning for a potential bulk sampling program in fiscal 2019. Diamond drilling is planned on up to six identified priority targets in the Core and Buffer zones. At Diavik, drilling of three priority kimberlites is planned in 2017.

Lynx:

  • Waste prestripping of the Lynx open pit at the Ekati mine was substantially completed in fiscal 2017, with first ore expected to be delivered to the process plant in the second quarter of fiscal 2018.

Sable:

  • Construction of an all-season access road to the Sable project site at the Ekati mine and initial site infrastructure works were completed on schedule and below budget by the end of fiscal 2017. The current estimate to complete Sable infrastructure is approximately $30-million (Canadian) below the prefeasibility estimate of $142-million. Prestripping is forecast to commence in July, 2017, approximately seven months ahead of schedule.

Jay:

  • The company announced its approval in July, 2016, to proceed with the development of the Jay project at the Ekati mine, based on the results of the Jay feasibility study. Permitting of the Jay project continues to advance, with a decision on the project's water licence expected in mid-calendar 2017.

Misery Deep:

  • The company is in the process of completing a prefeasibility study on the potential development of additional underground resources at the Misery kimberlite pipe after completion of the current open pit. If the study is positive, the project could result in the processing of additional high-value ore and the recovery of additional carats beyond fiscal 2020, resulting in an enhanced production profile at the Ekati mine. Completion of the prefeasibility study is anticipated in the second quarter of fiscal 2018.

Fox Deep:

  • Based on successful results from the Fox Deep drilling program at the Ekati mine, indicated resources at the Fox kimberlite pipe have increased to 45.6 million tonnes and 16.5 million carats, as at Jan. 31, 2017, from the previous estimates of 35.2 million tonnes and 11.6 million carats, respectively. A prefeasibility study on the Fox Deep underground orebody is under way, and is expected to be completed in late fiscal 2018. If successful, this project has the potential to extend the life of the Ekati mine significantly.

A-21:

  • The 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 dewatering expected in late calendar 2017. Following waste stripping, processing of ore from the A-21 pipe is expected to commence in calendar 2018.

Strategic review process

On March 20, 2017, the company disclosed that it had received an unsolicited expression of interest from the Washington corporations. On March 27, 2017, the company announced that its board of directors had formed a special committee to explore, review and evaluate a range of potential strategic alternatives focused on maximizing shareholder value. Working with the company's management team and advisers, the special committee will consider alternatives that could include the sale of the company, a continuation of, or changes to, the current strategic plan, or other strategic transactions.

The board of directors has not set a timetable for the strategic review process, nor has it made any decisions related to strategic alternatives at this time, and there can be no assurances that the exploration of strategic alternatives will result in any transaction or change in strategy. TD Securities Inc., Stikeman Elliott LLP and Kingsdale Advisors are acting as financial, legal and strategic advisers, respectively, to the company. Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal adviser to the special committee and board of directors of the company.

                                            FINANCIAL SUMMARY
               (in millions of U.S. dollars except per-share amounts and where otherwise noted)

                                     Three months ended     Three months ended     12 months ended     12 months ended
                                          Jan. 31, 2017          Jan. 31, 2016       Jan. 31, 2017       Jan. 31, 2016

Sales                                            $129.9                 $178.1              $570.9              $720.6
Gross margin                                       22.2                  (13.7)               26.4                51.6
Operating profit (loss)                             9.7                  (24.5)              (56.6)                8.0
Profit (loss) before income taxes                     -                  (27.9)              (40.7)              (11.6)
Adjusted EBITDA (1)                                62.7                   49.0               182.2               219.3
Free cash flow (2)                                (19.6)                  27.5              (165.8)              (34.7)
Earnings (loss) per share (EPS)                    0.07                  (0.41)                  -               (0.40)
                                                 ------                 ------              ------              ------

(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) The term free cash flow does not have a standardized meaning 
according to IFRS. The company defines free cash flow as cash provided 
from (used in) operating activities, less sustaining capital 
expenditures and less development capital expenditures.

The company has filed its fiscal 2017 annual report on Form 40-F, including its audited financial statements for the year ended Jan. 31, 2017, with the Securities and Exchange Commission on EDGAR, and has filed its audited financial statements and accompanying management's discussion and analysis with the Canadian securities authorities on SEDAR on April 12, 2017.

Dividend declaration

On April 12, 2017, Dominion declared a dividend of 20 cents per share to be paid in full on June 5, 2017, to shareholders of record at the close of business on May 17, 2017. The dividend will be an eligible dividend for Canadian income tax purposes.

Diamond market:

  • The market ended the year on a positive note despite the divergence between the resilient market for larger, higher-quality goods and the more challenging situation for smaller, relatively cheaper goods. The Christmas season in the United States failed to meet market expectations, but this was balanced out by renewed retail activity over the Chinese New Year, resulting in an anticipated rise in polished demand from China in the first quarter of 2017.
  • Prices decreased in the quarter by an average of 7 per cent from third quarter fiscal 2017, reflecting the disruption in normal trading activity following the demonetization of the Indian rupee in November, 2016. Much of the manufacturing sector that focuses on lower-priced rough diamonds was brought to a standstill by the demonetization. However, the segment of the manufacturing sector in India that focuses on higher-priced rough diamonds and produces primarily for the export market has been less disrupted. Demonetization was expected to have a significant adverse impact on the Indian retail jewellery market; however, demand has proved to be more resilient and a return to normal business conditions is expected in the second quarter of calendar 2017.

Fiscal 2018 guidance

The financial and operating guidance for fiscal 2018 remains consistent with that provided on March 17, 2017.

                       FISCAL 2018 FINANCIAL GUIDANCE
             (millions of U.S. dollars, except per-carat amounts) 

                                        Ekati (100%)      Diavik (40%)         Combined

Sales (1)                                   575-645           300-330           875-975
Adjusted EBITDA (2)                         315-370           180-210        475-560 (3)
Depreciation and amortization               225-265            85-100           310-365
Average price per carat sold                  60-80            90-110             70-90
Growth capital                               90-110             25-30           115-140
Sustaining capital (4)                      140-170             13-15        160-190 (5)
                                           --------          --------       -----------

(1) Sales guidance for fiscal 2018 includes production from the 
Misery Southwest pipe, which is currently an inferred resource. 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 
approximately $50-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) The term adjusted EBITDA does not have a standardized meaning 
according to IFRS.
(3) 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.
(4) Planned sustaining capital expenditures include capitalized production 
stripping.
(5) Combined sustaining capital includes corporate capital expenditures.

Sales are expected to be between $875-million and $975-million and are expected to benefit from the focus on high-value ore processed 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. Sales are also expected to benefit from the ramp-up of ore from the Pigeon and Lynx pipes at the Ekati mine during the rest of the year and strong production from the Diavik mine. The diamond market continues to show signs of recovery from the impact of demonetization in India; however, the lower-value segment of the diamond market is expected to recover at a slower pace than the higher-value segment. The guidance for fiscal 2018 foresees the sale of a higher volume of lower-value diamonds that were previously held back from sale and remained in inventory 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, opening period inventory levels of goods available for sale, the sale of very-high-value 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 combined average price per carat sold is expected to be near the low end of the guidance range for the full fiscal year, partly due to a significant volume of lower-value goods in inventory from recent Misery Main production, and a slower recovery in the lower-value segment of the diamond market relative to higher-value goods after the 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.

Three-year outlook

The three-year outlook includes the company's current expectations for revenue, adjusted EBITDA, unit cash costs of production and capital expenditures for fiscal years 2018 to 2020 for the Ekati and Diavik mines. The revenue and adjusted EBITDA estimates are based on, among other things, the current mine plans at each of the Ekati and Diavik mines for those periods.

In the three-year outlook scenario presented, sales and adjusted EBITDA are expected to increase significantly in fiscal 2018 compared with fiscal 2017 and to remain robust through fiscal 2019 and fiscal 2020.

Demonetization in India has had a negative impact on the Indian retail jewellery market, but a return to normal business conditions is expected in the second quarter of fiscal 2018. The higher end of the outlook for revenue and adjusted EBITDA reflects a scenario where prices increase gradually over the latter half of fiscal 2018, reaching mid-calendar 2016 pricing levels by the start of fiscal 2019, and increasing by approximately 2 per cent annually thereafter. The lower end of the outlook reflects a scenario where revenue and adjusted EBITDA increase more gradually as a result of a slower improvement in prices, with production toward the lower end of the guidance range.

At the Ekati mine, production is forecast, on a 100-per-cent basis, to be between 6.4 million and 7.1 million carats in fiscal 2019, and between 5.1 million and 5.6 million carats in fiscal 2020, from the processing of approximately 4.0 million tonnes per year. Misery Main production is forecast to contribute approximately 60 per cent to 65 per cent of carat production in fiscal 2019 and fiscal 2020, with Sable contributing approximately 20 per cent of recovered carats in fiscal 2020.

At the Diavik mine, production is forecast, on a 100-per-cent basis, to be between 7.0 million and 7.4 million carats in calendar 2018 and between 6.5 million and 6.9 million carats in calendar 2019, from the processing of over two million tonnes per year. The A-21 pipe is expected to start delivering ore to the processing plant in calendar 2018 and to account for approximately 15 per cent of tonnes processed in calendar 2019.

Cash cost per tonne processed reflects relatively stable production costs, and cash cost per carat produced increases modestly in fiscal 2020 due to depletion of the high-grade Misery Main pipe at the Ekati mine.

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, opening period inventory levels of goods available for sale, the sale of very-high-value special stones through a limited number of special tenders during the year and other factors.

Business overview

The company has ownership interests in two established mines, and the associated processing plants, in the Lac de Gras region. The Ekati mine consists of the Core zone, which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer zone, an adjacent area hosting kimberlite pipes having both development and exploration potential, such as the Jay kimberlite pipe and the Lynx kimberlite pipe.

The company is the operator of the Ekati mine, and has a participating interest of 88.9 per cent in the Core zone, and 72.0 per cent in the Buffer zone.

The company has a 40-per-cent interest in the Diavik mine. Rio Tinto PLC has a 60-per-cent interest and operates the mine.

Conference call and webcast

Beginning at 11 a.m. ET on April 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 or by dialling 844-249-9383 within North America or 270-823-1531 from international locations and entering the conference ID 89945848.

An on-line archive of the broadcast will be available by accessing the company's website. A telephone replay of the call will be available two hours after the call through 2 p.m. ET on April 27, 2017, by dialling 855-859-2056 within North America or 404-537-3406 from international locations and entering the conference ID 89945848.

Financial statements

Complete management's discussion and analysis and financial statements can be found on Dominion's website.

                          CONSOLIDATED STATEMENTS OF INCOME (LOSS) 
     (in thousands of U.S. dollars except per-share amounts and where otherwise noted)
                                                                                       2017        2016

Sales                                                                              $570,855    $720,568
Cost of sales                                                                       544,450     668,921
                                                                                   --------    --------
Gross margin                                                                         26,405      51,647
Selling, general and administrative expenses                                         36,843      43,661
Mine standby costs                                                                   44,475           -
Restructuring costs                                                                   1,698           -
                                                                                   --------    --------
Operating (loss) profit                                                             (56,611)      7,986
Finance expenses                                                                    (14,573)     (9,898)
Exploration costs                                                                    (7,084)     (7,026)
Gain on sale of building                                                             44,792           -
Finance and other income                                                              2,527         156
Foreign exchange (loss)                                                              (9,734)     (2,771)
                                                                                   --------    --------
(Loss) before income taxes                                                          (40,683)    (11,553)
Current income tax expense                                                           32,697      47,466
Deferred income tax recovery                                                        (60,623)    (20,221)
                                                                                   --------    --------
Net (loss)                                                                          (12,757)    (38,798)
                                                                                   --------    --------
Net income (loss) attributable to                                                                     
Shareholders                                                                            190     (33,956)
Non-controlling interest                                                            (12,947)     (4,842)
                                                                                   --------    --------
Earnings (loss) per share                                                                           
Basic                                                                                     -       (0.40)
Diluted                                                                                   -       (0.40)
                                                                                   --------    --------

Qualified person

The mine plan for the Ekati diamond mine for fiscal 2018 was prepared and verified by Dominion, operator of the Ekati mine, under the supervision of Peter Ravenscroft, FAusIMM, of Burgundy Mining Advisors Ltd., an independent mining consultant, and a qualified person within the meaning of National Instrument 43-101 of the Canadian Securities Administrators, and the mine plan for the Diavik mine for calendar 2017 was prepared and verified by DDMI, operator of the Diavik 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 mine, under the supervision of Chantal Lavoie, PEng, chief operating officer of Dominion, and president of Dominion Diamond Ekati Corp. (DDEC) and 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 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 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 Jan. 31, 2017. 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 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 per cent 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.

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