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.
We seek Safe Harbor.
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