Strong sales and Adjusted EBITDA driven by high-value Ekati
production; robust project pipeline advancing
Company Website:
http://www.ddcorp.ca
YELLOWKNIFE, Northwest Territories -- (Business Wire)
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 months ended April 30, 2017 |
|
| Three months ended 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 in non-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 $48.0 million and availability under the credit facility
was reduced by the same amount.
Operational Summary
(in US dollars, except where otherwise noted) |
|
|
| Three months ended April 30, 2017 |
|
| Three months ended April 30, 2016 |
Carats recovered (000s)
|
|
|
|
2,146
|
|
|
1,830
|
Cash cost per tonne processed (1) ($/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 2017 sales cycle average price per carat |
|
| Average % change to May 2017 sales 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 months ended April 30, 2017 |
|
| Three months ended 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
|
|
|
Tonnes Processed (000s)
|
|
|
Carats(1) (000s)
|
|
|
Grade(1) (carats/tonne)
|
|
|
Tonnes Processed (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 months ended April 30, 2017 |
|
| Three months ended 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 months ended April 30, 2017 |
|
| Three months ended 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 $36 per carat in Q1 fiscal 2017 due to the
increase in average price per carat sold. As noted above, relatively
high-value goods were sold in Q1 fiscal 2018 as compared to Q1 fiscal
2017. As costs are allocated to goods sold on the basis of their
relative value, cash cost of sales per carat sold will typically
increase or decrease in line with the average price per carat sold.
Operational Performance
For the three months ended March 31, 2017 |
|
| For the three months ended March 31, 2016 |
Pipe
|
|
|
Tonnes Processed (000s tonnes) |
|
|
Carats (000s) |
|
|
Grade (carats/tonne) |
|
|
Tonnes Processed (000s tonnes) |
|
|
Carats (000s) |
|
|
Grade (carats/tonne) |
A-154 South
|
|
|
40
|
|
|
132
|
|
|
3.25
|
|
|
49
|
|
|
142
|
|
|
2.90
|
A-154 North
| | |
61
| | |
163
| | |
2.65
| | |
71
| | |
166
| | |
2.34
|
A-418
| | |
110
| | |
447
| | |
4.08
| | |
102
| | |
430
| | |
4.22
|
COR
|
|
|
1
|
|
|
16
|
|
|
–
|
|
|
1
|
|
|
16
|
|
|
–
|
Total (1) |
|
|
212
|
|
|
758
|
|
|
3.50(2) |
|
|
223
|
|
|
754
|
|
|
3.32(2) |
| | | | | | | | | | | | | | | | | |
|
(1) |
|
|
Figures may not add due to rounding
|
(2) | | |
Grade has been adjusted to exclude COR
|
| | |
|
|
|
|
|
|
|
|
|
(in US dollars, except where otherwise noted) |
|
|
| Three months ended April 30, 2017 |
|
| Three months ended April 30, 2016 |
Waste tonnes mined (000s)
|
|
|
|
40
|
|
|
36
|
Kimberlite tonnes mined (000s)
| | | |
232
| | |
209
|
Tonnes processed (000s)
| | | |
212
| | |
223
|
Carats recovered (000s)
| | | |
758
| | |
754
|
Grade (carats/tonne)
| | | |
3.50
| | |
3.32
|
Cash cost per tonne processed ($/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 months ended April 30, 2017 |
|
| Three months ended 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.caor 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 months ended April 30,
2017 |
|
| Three months ended April 30, 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) |
|
|
| Three months ended
April 30, 2017 |
|
| Three months ended April 30,
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 Measures
This 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 Information
Information 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 Corporation
Dominion
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/
Contacts:
Investors:
Dominion Diamond Corporation
Jacqueline
Allison, 416-205-4371
Vice-President, Investor Relations
jacqueline.allison@ddcorp.ca
or
Canadian
Media Contact:
DFH Public Affairs
Ian Hamilton,
416-206-0118 x222
or
US Media Contact:
Gagnier
Communications
Dan Gagnier, 646-569-5897
Source: Dominion Diamond Corporation
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