TORONTO, April 2, 2014 /PRNewswire/ - Dominion Diamond Corporation (TSX: DDC, NYSE: DDC) (the "Company") today announced its Fiscal 2014 Fourth Quarter and Year-End results for the period ended January 31, 2014.
Robert Gannicott, Chairman and Chief Executive Officer stated: "Our early experience at Ekati continues to exceed our expectations while Diavik also outperforms its planned targets. The diamond market has improved, both in pricing and volume of demand, as the important diamond consuming economies, led by the US, maintain momentum."
Corporate
Fiscal 2014 was a year during which the Company transitioned into one of the world's largest pure play diamond mining companies. During this period, the Company completed the sale of the Harry Winston luxury brand segment at an enterprise value of $1 billion (including the assumption of $250 million of pro forma net debt) and the acquisition of the Ekati Diamond Mine from a global mining company for whom diamonds were non longer a core asset. The Company paid a total of $553 million, for its interest in the Ekati Diamond Mine, which included $62 million of cash, $154 million of rough diamond inventory and $165 million of supplies (fuel, cement and other mining supplies).
The Diavik Diamond Mine, which is one of the highest grade diamond mines in the world, continues to deliver excellent results.
The Company's senior management is completely focused on delivering value from the Ekati Diamond Mine, and the benefits of having the senior management team on hand in Yellowknife are already being demonstrated. Grade recovered is ahead of plan, and cash cost of production for the period from April 10, 2013, to January 31, 2014, which were originally forecast at $320 million, came in at $303 million.
At the beginning of calendar year 2016, the capital spending on the pushback at the Misery Main Pipe will be completed and this pipe will come into production; at over 4 carats per tonne at an average price of approximately $105 per carat, Misery Main is one of the richest kimberlite ore bodies in the world.
During this fiscal year the Company has expensed $10.1 million on the Jay Project which involves the development of the largest diamondiferous resource in North America. It has the potential to extend the operating life of the Ekati Diamond Mine in the order of 10 to 20 years beyond the currently scheduled closure in 2019. The development and mining of this kimberlite is the cornerstone of the Company's strategy for building a long-term, sustainable Canadian diamond business.
We are pleased to welcome Fiona Perrot-Humphrey to our board of directors. Dr Perrot-Humphrey has a long history as a mining equity analyst in both South Africa and then London. She is currently a senior advisor to N.M. Rothschild in London.
Diamond Market
The first three months of calendar 2014 has seen an upturn in rough diamond prices of just over 7%. This growth is primarily the result of restocking in the US, the world's largest market for diamond jewelry, following strong demand in the important US holiday season and strong demand in China, the world's second largest consumer of diamond jewelry, in the period running up to Chinese New Year. Evidence suggests that jewelry sales are also increasing in India, another major consumer of diamond jewelry where sales had been weak in the past two years.
Fourth Quarter Summary
- For the fourth quarter, Ekati recorded sales of $114.0 million, and
incurred cash costs of production of $101.3 million. Total cost of
sales for Ekati for the fourth quarter were $114.3 million.
- For the fourth quarter, Diavik recorded sales of $119.2 million, and incurred cash costs of production of $43.3 million. Total cost of sales for Diavik for the fourth quarter were $87.7 million.
- As at January 31 2014, the Company held cash and cash equivalents of
$224.8 million and restricted cash of $113.6 million.
- Consolidated rough diamond sales from the Company's ownership in the
Diavik and Ekati Diamond Mines for the fourth quarter were $233.2
million compared to $110.1 million for the comparable quarter of the
prior year. This resulted in an operating profit from continuing
operations of $21.0 million, consistent with the comparable quarter of
the prior year. Consolidated EBITDA from continuing operations was
$76.2 million compared to $45.3 million in the comparable quarter of
the prior year.
- Sales from the Diavik Diamond Mine were $119.2 million generating EBITDA
of $59.3 million and EBITDA margins of approximately 50% for the fourth
quarter.
- Sales from the Ekati Diamond Mine were $114.0 million generating EBITDA of $24.4 million and EBITDA margins of approximately 21% for the fourth quarter. However, this excludes the sale of an estimated 0.2 million carats of production from the processing of satellite material from the Misery South and Southwest pipes, which material was excavated during the pre-stripping operations of the Misery Main pipe, for estimated proceeds of $10.8 million. During pre-production, sales of diamonds recovered from the Misery South and Southwest material have been applied as a reduction of mining assets. The Company estimates that the EBITDA margin would have been approximately 26% if the Misery South and Southwest pipes had been in commercial production during the quarter, therefore allowing the sales of carats from such material to be recognized as revenue.
- Included in the exploration costs of $3.3 million for the quarter was
$3.1 million of exploration work on the Jay pipe in the Buffer Zone at
the Ekati Diamond Mine.
- The Company recorded a net foreign exchange loss of $7.9 million during
the fourth quarter related to the weakening in the Canadian dollar
versus the US dollar. This compared to a gain of $0.1 million in the
comparable quarter of the previous year.
- The Company recorded a net income tax expense of $19.0 million during
the fourth quarter which includes $13.5 million of tax expense related
to the significant weakening of the Canadian dollar versus the US
dollar during the fourth quarter, substantially all of which was
non-cash tax expense. This is compared to a net income tax expense of
$7.0 million in the comparable quarter of the previous year with a much
less significant impact of foreign exchange.
- The Company recorded a consolidated net loss from continuing operations
of $7.8 million or $(0.09) per share for the quarter compared to a net
profit from continuing operations of $12.1 million or $0.14 per share
in the comparable quarter in the previous year.
- At the end of the quarter, the Company held rough diamond inventory with
an approximate market value of $205 million, of which $40 million of
rough diamond inventory had been held as strategic stock from sale as
at January 31.
- Detailed life of mine plans for both the Ekati Diamond Mine and the Diavik Diamond Mine based on reserves only were published on February 3, 2014.
Annual Results Summary
- For the period from April 10, 2013 to January 31, 2014, Ekati recorded
sales of $399.6 million and incurred cash costs of production of $303.9
million. Total cost of sales for Ekati for the period were $392.9
million.
- For the fiscal year, Diavik recorded sales of $352.3 million and incurred cash costs of production of $162.6 million. Total cost of sales for Diavik for the fiscal year were $257.9 million.
- Consolidated sales from continuing operations totaled $751.9 million for
the year ended January 31, 2014, compared to $345.4 million compared to
the prior year resulting in an operating profit of $51.6 millioncompared to an operating profit of $47.7 million in the prior year.
- Sales from the Diavik Diamond Mine were $352.3 million generating an
EBITDA margin of approximately 49% for the year.
- Sales from the Ekati Diamond Mine were $399.6 million generating EBITDA
of $59.6 million and EBITDA margin of approximately 15% for the period
from April 10, 2013 to January 31, 2014. However, this excludes the
sale of an estimated 0.2 million carats of production from the
processing of satellite material from the Misery South and Southwest
pipes excavated during the pre-stripping operations of the Misery Main
pipe for estimated proceeds of $14.3 million. EBITDA was also impacted by the sale of inventory that was
recorded at market value as a result of the acquisition of the Ekati
Diamond Mine. The Company estimates that the EBITDA margin would have
been approximately 27% if the effect of the market value adjustment to
inventory made as part of the acquisition of the Ekati Diamond Mine was
excluded and the carats sold from material excavated from the Misery
South & Southwest pipes were recognized as revenue.
- Gross margin increased 30% to $101.1 million from $77.8 million in the
prior year. Consolidated EBITDA from operations was $191.7 millioncompared to $127.9 million in the prior year.
- Exploration expense of $14.6 million was incurred during the year which
compares to $1.8 million in the prior year. Included in the exploration
costs for fiscal 2014 are $10.1 million of exploration work on the Jay
pipe in the Buffer Zone at the Ekati Diamond Mine and $4.5 million of
exploration work on the Company's claims in the Northwest Territories.
- The Company recorded a foreign exchange loss of $8.9 million during the
year related to the weakening in the Canadian dollar versus the US
dollar. This is compared to a gain of $0.5 million in the prior year.
- The Company recorded a net income tax expense of $35.5 million during the year which includes $20.7 million of tax expense related to the significant weakening of the Canadian dollar versus the US dollar during the period, substantially all of which was non-cash tax expense. This is compared to a net income tax expense of $15.3 millionin the prior year with a much less significant impact of foreign exchange.
- Included in the fiscal 2014 financial results are $3.2 million (after
tax) of restructuring costs at the Antwerp, Belgium, office as a result
of the integration of Dominion Diamond and Ekati's sales teams, $11.4
million (after tax) of Ekati acquisition costs and $10.6 million (after
tax) of expenses related to the cancellation of the credit facilities
that had been previously arranged in connection with the Ekati Diamond
Mine acquisition.
- The Company recorded a consolidated net loss from continuing operations
attributable to shareholders of $23.0 million or $(0.27) per share.
- The Company's estimated consolidated net profit attributable to
shareholders for the year would have been $15.2 million or $0.18 per
share excluding the following:
- the restructuring costs at the Antwerp, Belgium office;
- the expenses related to the cancellation of the credit facilities related to the Ekati Acquisition;
- Ekati Acquisition transaction costs; and
- the impact of the sale of opening acquisition inventory that was included at market value in Ekati cost of sales.
Diavik Diamond Mine
- The fourth calendar quarter at the Diavik Diamond Mine saw continued
strong performance, producing (on a 100% basis) 2.1 million carats from
0.54 million tonnes of ore processed compared to production of 1.9
million carats from 0.47 million tonnes of ore processed in the
comparable quarter of the prior year. This was a result of the
improvements in the mining rates as the underground ramp-up progressed
throughout the year to full production from all three pipes.
- During the fourth quarter, the Company sold approximately 1.0 million
carats from the Diavik Diamond Mine for a total of $119.2 million for
an average price per carat of $114.
- Had the Company sold only the last production shipped in the fourth
quarter, the estimated achieved price would have been approximately
$119 per carat based on the prices achieved in the January 2014 sale.
- During the year ended January 31, 2014, the Company sold approximately
3.0 million carats from the Diavik Diamond Mine for a total of $352
million for an average price of $118 per carat, compared to 3.2 million
carats for an average price per carat of $109 in the comparable period
in the prior year.
- At January 31, 2014, the Company had 0.4 million carats of Diavik
Diamond Mine produced inventory with an estimated market value of
approximately $65 million.
- The Diavik management team continues to focus on maximizing production and lowering costs.
Ekati Diamond Mine
- The Ekati Diamond Mine is performing well. A series of initiatives has
been undertaken aimed at optimizing operations since the Company's
senior management team took control. Mining at the open pit Fox pipe
will be completed ahead of schedule. During the fourth fiscal quarter,
approximately 917,500 tonnes of ore (on a 100% basis) was processed
yielding approximately 481,000 carats.
- During the fourth quarter, the Company sold approximately 0.4 million
carats for a total of $114.0 million for an average price per carat of
$276. Not included in this figure are sales of approximately $10.8
million from carats produced during the processing of satellite
material from the Misery South and Southwest satellite pipes.
- Had the Company sold only the last production shipped in the fourth
quarter, the estimated achieved price would have been approximately
$287 based on the prices achieved in the January 2014 sale.
- At January 31, 2014, the Company had 0.5 million carats of Ekati Diamond
Mine produced inventory with an estimated market value of approximately
$140 million.
- During the period from April 10, 2013 to January 31, 2014, the Ekati Diamond Mine produced (on a 100% basis) 1.65 million carats from the processing of approximately 3.4 million tonnes, of which 2.3 million tonnes of ore was sourced from the Fox pipe, approximately 0.4 million tonnes was sourced from Koala Underground, and 0.28 million tonnes was sourced from Koala North. In addition, as at January 31, 2014, the Company had processed approximately 0.25 million tonnes of kimberlite material excavated from the Misery South and Southwest pipes, which achieved an overall grade of 1.4 carats per tonne, as well as 78,000 tonnes of Coarse Ore Rejects which achieved an average grade of 0.4 carats per tonne. These diamond recoveries are not included in the Company's reserves and resources statement and are therefore considered incremental to production
Jay Pipe Development
The Company's work on the Jay Project is proceeding on schedule. The winter 2014 drilling program is well underway at the Jay pipe and along the proposed dike alignments associated with the project. To date, 20 sonic drill holes and 16 diamond drill holes have been completed along four potential dike emplacements and geotechnical drilling is underway at the Jay pipe. The drilling program will extend into late April.
Permitting update
The scoping sessions for the Jay Project were held in January, 2014. All parties were then asked to comment on a draft Terms of Reference for the project and the Mackenzie Valley Review Board (Board) published a final Terms of Reference and interim draft work plan for the environmental assessment of the Jay pipe on February 21, 2014. The Company is now working to submit a Developer's Assessment Report to the Board in Q3 2014. The analytical and hearing phases of the Environmental Review are estimated to take 10-12 months. The Board will then make a recommendation to the Minister with a decision expected in Q3 2015.
Lynx Project
The permitting for the Lynx pipe expansion is entering its final phase. The Company anticipates having all permits in hand well before the planned development of the project in 2015. Ore production is scheduled for 2016.
Administration of Land, Water and Resources in the Northwest Territories
The Government of Canada will be transferring responsibility for managing public land, water and resources in the Northwest Territoriesto the Government of the Northwest Territories (GNWT) on April 1, 2014. The Company is preparing for this transfer by working with the GNWT to strengthen our working relationship and to ensure the schedule for the Jay review is maintained.
Conference Call and Webcast
Beginning at 8:30AM (ET) on Thursday, April 3rd, 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 web site at www.ddcorp.ca or by dialing 800-706-7741 within North America or 617-614-3471 from
international locations and entering passcode 21447206.
An online archive of the broadcast will be available by accessing the Company's web site at www.ddcorp.ca. A telephone replay of the call will be available one hour after the call through 11:00PM (ET), Thursday, April 17th, 2014 by dialing 888-286-8010 within North America or 617-801-6888 from international locations and entering passcode 35806731.
About Dominion Diamond Corporation
Dominion Diamond Corporation is a Canadian diamond mining company with
ownership interests in two major producing diamond mines. Both mines
are located in the low political risk environment of the Northwest
Territories in Canada.
The Company operates the Ekati Diamond Mine through its 80 per cent ownership as well as a 58.8% ownership in the surrounding areas containing additional resources, and also owns 40% of the Diavik Diamond Mine. It supplies rough diamonds to the global market through its sorting and selling operations in Canada, Belgium and India and is the world's fourth largest producer of rough diamonds by value.
For more information, please visit www.ddcorp.ca
Highlights
(ALL FIGURES ARE IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED)
FOURTH QUARTER RESULTS
Dominion Diamond Corporation (the "Company") recorded a consolidated net
loss attributable to shareholders of $7.8 million or $(0.09) per share
for the quarter, compared to a net profit attributable to shareholders
of $14.9 million or $0.18 per share in the fourth quarter of the prior
year. Net loss from continuing operations attributable to shareholders
(which represents the Diavik and Ekati mining segments) was
$7.8 million or $(0.09) per share, compared to a net profit from
continuing operations of $12.1 million or $0.14 per share in the
comparable quarter of the prior year. Included in net loss from
continuing operations was $7.9 million related to a foreign exchange
loss compared to a $0.1 million gain related to foreign exchange in the
fourth quarter of the prior year, due to the weakening of the Canadian
dollar. The net loss from continuing operations for the quarter also
included $13.5 million of income tax expense related to the weakening
of the Canadian dollar, substantially all of which is non-cash tax
expense. This compares to a $0.2 million of tax expense related to the
impact of foreign exchange in the comparable quarter of the prior year.
Consolidated sales from continuing operations were $233.2 million for the quarter, compared to $110.1 million for the comparable quarter of the prior year, resulting in an operating profit of $21.0 million, compared to an operating profit of $21.0 million in the comparable quarter of the prior year. Consolidated EBITDA from continuing operations was $76.2 million compared to $45.3 million in the comparable quarter of the prior year.
During the fourth quarter, the Company recorded sales from the Diavik Diamond Mine of $119.2 million compared to $110.1 million in the comparable quarter of the prior year. The Company sold approximately 1.0 million carats from the Diavik Diamond Mine for an average price per carat of $114, compared to 0.8 million carats for an average price per carat of $133 in the comparable quarter of the prior year. The 27% increase in volume of Diavik Diamond Mine carats sold versus the comparable quarter of the prior year resulted primarily from the sale during the fourth quarter of inventory held back from sale in the prior quarter due to a weakening of the rough diamond market resulting from macroeconomic uncertainty in India. The 14% decrease in the Company's achieved average rough diamond prices for the Diavik Diamond Mine as compared to the fourth quarter of the prior year resulted primarily from a change in the sales mix of product sold, partially offset by an increase in market prices for rough diamonds in the fourth quarter compared to the prior year. The Diavik segment generated gross margins and EBITDA margins as a percentage of sales of 26.4% and 50%, respectively, compared to 28.2% and 48%, respectively, in the comparable quarter of the prior year. At January 31, 2014, the Company had 0.4 million carats of Diavik Diamond Mine produced inventory with an estimated market value of approximately $65 million.
During the fourth quarter, the Ekati Diamond Mine recorded sales of $114.0 million and sold approximately 0.4 million carats for an average price per carat of $276. Excluded from sales recorded in the fourth quarter were carats produced and sold from the processing of satellite material from the Misery South and Southwest kimberlite pipes as this material was excavated during the pre-stripping operations of the Misery South and Southwest kimberlite pipes. The Ekati Diamond Mine generated gross margins and EBITDA margins of (0.3)% and 21%, respectively. The Company estimates that gross margins and EBITDA margins would have been approximately 7.0% and 26.0%, respectively if the carats sold from material excavated from the Misery South & Southwest kimberlite pipes were recognized as revenue. During pre-production, sales of Misery South and Southwest carats have been applied as a reduction of mining assets. At January 31, 2014, the Company had 0.5 million carats of Ekati Diamond Mine produced inventory with an estimated market value of approximately $140 million.
The Corporate segment, which includes all costs not specifically related to the operations of the Diavik and Ekati mines, recorded selling, general and administrative expenses of $7.9 million, compared to $8.2 million in the comparable quarter of the prior year.
ANNUAL RESULTS
During the year, the Company completed the acquisition of the Ekati
Diamond Mine and the sale of Harry Winston, Inc. (the "Luxury Brand
Segment") to Swatch Group. The acquisition of the Ekati Diamond Mine
(the "Ekati Diamond Mine Acquisition") was completed on April 10, 2013.
As a result of the Ekati Diamond Mine Acquisition, the Company acquired
an 80% interest in the Core Zone, which includes the current operating
mine and other permitted kimberlite pipes, as well as a 58.8% interest
in the Buffer Zone, an adjacent area hosting kimberlite pipes with both
development and exploration potential. The sale of the Luxury Brand
Segment was completed on March 26, 2013 and as a result of the sale,
the Company's corporate group underwent name changes to remove
references to "Harry Winston". See "Discontinued Operations".
Accordingly, the Company's consolidated results from continuing
operations are for the Diavik Diamond Mine and the Ekati Diamond Mine
(from April 10th, the date of acquisition by the Company). Continuing
operations no longer include the operations of the Luxury Brand Segment
and the results of this segment are now treated as discontinued
operations for reporting purposes.
The Company recorded a consolidated net profit attributable to shareholders of $479.7 million or $5.64 per share for the year, compared to a consolidated net income attributable to shareholders of $34.7 million or $0.41 per share in the prior year. Net loss from continuing operations attributable to shareholders was $23.0 million or $(0.27) per share compared to net profit from continuing operations attributable to shareholders of $22.3 million or $0.26 per share in the prior year. Included in the consolidated net loss attributable to shareholders for the year was $3.2 million (after-tax) of restructuring costs at the Antwerp, Belgium office, $10.6 million (after-tax) of expenses related to the cancellation of the credit facilities that had been previously arranged in connection with the Ekati Diamond Mine Acquisition and $11.4 million (after-tax) of Ekati acquisition costs. Excluding these items and the impact of the sale of opening acquisition inventory that was included at market value in Ekati cost of sales, the Company's estimated consolidated net profit attributable to shareholders for the year would have been $15.2 million or $0.18 per share. The net loss from continuing operations for the year also included $20.7 million of income tax expense related to the weakening of the Canadian dollar, substantially all of which is non-cash tax expense. This compares to a $0.7 million of tax expense related to the impact of foreign exchange in the prior year. Continuing operations includes all costs related to the Company's mining operations, including those previously reported as part of the corporate segment.
Consolidated sales from continuing operations were $751.9 million for the year compared to $345.4 million for the prior year, resulting in an operating profit of $51.6 million compared to an operating profit of $47.7 million in the prior year. Gross margin increased 30% to $101.1 million from $77.8 million in the prior year. Consolidated EBITDA from operations was $191.7 million compared to $127.9 million in the prior year.
During the year, the Company recorded sales from the Diavik Diamond Mine of $352.3 million compared to $345.4 million in the prior year. The Company sold approximately 3.0 million carats from the Diavik Diamond Mine for an average price per carat of $118, compared to 3.2 million carats for an average price per carat of $109 in the prior year. The Diavik segment generated gross margins and EBITDA margins as a percentage of sales of 26.8% and 49%, respectively, compared to 22.5% and 44% in prior year.
During the year, the Company recorded sales from the Ekati Diamond Mine of $399.6 million and sold approximately 1.3 million carats for an average price per carat of $301. Excluded from sales recorded in the fourth quarter were carats produced and sold from the processing of satellite material from the Misery South and Southwest kimberlite pipes, this material was excavated during the pre-stripping operations of the Misery South and Southwest kimberlite pipes. The Ekati segment generated gross margins and EBITDA margins as a percentage of sales of 1.7% and 15%, respectively. The Company estimates that gross margins and EBITDA margins would have been approximately 8.2% and 27%, respectively if the effect of the market value adjustment to inventory made as part of the Ekati Diamond Mine Acquisition was excluded and the carats sold from material excavated from the Misery South & Southwest kimberlite pipes were recognized as revenue.
The net earnings during the year from discontinued operations of $502.7 million are presented separately in the consolidated income statements, and comparative periods have been adjusted accordingly.
Management's Discussion and Analysis
(ALL FIGURES ARE IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED)
Basis of Presentation
The following is management's discussion and analysis ("MD&A") of the
results of operations for Dominion Diamond Corporation for the year
ended January 31, 2014, and its financial position as at January 31,
2014. This MD&A is based on the Company's unaudited consolidated
financial statements. Unless otherwise specified, all financial
information is presented in United States dollars. Unless otherwise
indicated, all references to "year" refer to the fiscal year ended
January 31, 2014.
Caution Regarding Forward-Looking Information
Certain information included in this MD&A constitutes forward-looking
information within the meaning of Canadian and United States securities
laws. Forward-looking information can generally be identified by the
use of terms such as "may", "will", "should", "could", "expect",
"plan", "anticipate", "foresee", "appears", "believe", "intend",
"estimate", "predict", "potential", "continue", "objective", "modeled",
"hope", "forecast" or other similar expressions concerning matters that
are not historical facts. Forward-looking information relates to
management's future outlook and anticipated events or results, and can
include statements or information regarding plans for mining,
development, production and exploration activities at the Company's
mineral properties, projected capital expenditure requirements,
liquidity and working capital requirements, estimated production from
the Ekati Diamond mine and Diavik Diamond Mine, expectations concerning
the diamond industry, and expected cost of sales and cash operating
costs. Forward-looking information included in this MD&A includes the
current production forecast, cost of sales and cash cost of production
estimates and planned capital expenditures for the Diavik Diamond Mine
and other forward-looking information set out under "Diavik Operations
Outlook", and the current production forecast, cost of sales and cash
cost of production estimates and planned capital expenditures for the
Ekati Diamond Mine and other forward-looking information set out under
"Ekati Operations Outlook".
Forward-looking information is based on certain factors and assumptions described below and elsewhere in this MD&A including, among other things, the current mine plans for each of the Ekati Diamond Mine and the Diavik Diamond Mine; mining, production, construction and exploration activities at the Company's mineral properties; currency exchange rates; and world and US economic conditions. While the Company considers these assumptions to be reasonable based on the information currently available to it, they may prove to be incorrect. 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, including risks associated with the inability to control the timing and scope of future capital expenditures, the risk that the operator of the Diavik Diamond Mine may make changes to the mine plan and other risks arising because of the nature of joint venture activities, risks associated with the remote location of and harsh climate at the Company's mineral property sites, risks resulting from the Eurozone financial crisis and macroeconomic uncertainty in other financial markets, 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 and cash flow and liquidity risks. Please see page 21 of this MD&A, as well as the Company's current Annual Information Form, available at www.sedar.com and www.sec.gov, respectively, for a discussion of these and other risks and uncertainties involved in the Company's operations. 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 MD&A, and should not rely upon this information as of any other date. Due to assumptions, risks and uncertainties, including the assumptions, risks and uncertainties identified above and elsewhere in this MD&A, actual events may differ materially from current expectations. The Company uses forward-looking statements because it believes such statements provide useful information with respect to the currently expected future operations and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. 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, future events or otherwise at any particular time, except as required by law.
SUMMARY DISCUSSION
Dominion Diamond Corporation is focused on the mining and marketing of
rough diamonds to the global market. The Company supplies rough
diamonds to the global market from its operation of the Ekati Diamond
Mine (in which it owns a controlling interest) and its 40% ownership
interest in the Diavik Diamond Mine. Both mineral properties are
located at Lac de Gras in Canada's Northwest Territories.
The Company has a controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium. The Company acquired its interest in the Ekati Diamond Mine on April 10, 2013. The Ekati Diamond Mine consists of the Core Zone (in which the Company has an 80% interest), which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer Zone (in which the Company has a 58.8% interest), an adjacent area hosting kimberlite pipes having both development and exploration potential, such as the Jay and Cardinal kimberlite pipes and the Lynx kimberlite pipe. The Company controls and consolidates the Ekati Diamond Mine and minority shareholders are presented as non-controlling interests in the consolidated financial statements.
The Company has an ownership interest in the Diavik group of mineral claims. The Diavik Joint Venture (the "Diavik Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines (2012) Inc. ("DDMI") (60%) and Dominion Diamond Diavik Limited Partnership ("DDDLP") (40%) where DDDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. Both DDMI and DDDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England. The Company receives 40% of the diamond production from the Diavik Diamond Mine.
MARKET COMMENTARY
After an exuberant start to fiscal 2014 the rough diamond market slowed
in the second quarter as both tight liquidity and problems with a
fluctuating rupee in India dampened market sentiment amongst diamond
manufacturers. The diamond market was also impacted by a decrease in
retail activity in China, which had propelled the diamond market in
fiscal 2013, as political reforms slowed luxury spending.
The market regained its composure in the fourth quarter of fiscal 2014 as more positive demand was evident in the lead up to the traditionally busy year-end holiday season in the US and the Lunar New Year in China. It soon became evident that the world's largest jewelry market, the USA, was in a positive mood and also the lead up to the Chinese New Year was increasingly robust. The mood in the Indian retail market improved as the rupee steadied but it was still a frustrating season there as local economic woes, and a substantial increase in the duty on gold, dampened any enthusiasm for jewelry.
The tightening of liquidity by the banks caused many (mainly India) manufacturers to take a more pragmatic approach to their business; in particular with respect to their stock levels and the length of their supply chain and its impact on cash flow. Whilst this was a painful exercise, it put the business in a far better shape to capitalize on the sound market at the year's end. This assurance has allowed manufacturers to restock with confidence driving a positive start to fiscal 2015.
CONSOLIDATED FINANCIAL RESULTS
The Company's consolidated results from continuing operations relate
solely to its mining operations, which include the production, sorting
and sale of rough diamonds. The results of the Company's Luxury Brand
Segment, which it disposed of on March 26, 2013, are treated as
discontinued operations for accounting and reporting purposes and
current and prior period results have been recast accordingly.
The following is a summary of the Company's consolidated quarterly results for the eight quarters ended January 31, 2014. As a result of retrospective adjustments made reflecting the final purchase price allocation of the Ekati Diamond Mine and adjustments for Misery South & Southwest pre-production revenue, the prior quarters have been recast.
| (expressed in thousands of United States dollars except per share
amounts and where otherwise noted) (unaudited) | |||||||||||||||||||||||
| 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2014 | 2013 | 2012 | |||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Total | Total | Total | |||||||||||||
| Sales | $ | 233,163 | $ | 148,138 | $ | 261,803 | $ | 108,837 | $ | 110,111 | $ | 84,818 | $ | 61,473 | $ | 89,009 | $ | 751,942 | $ | 345,411 | $ | 290,114 | |
| Cost of sales | 202,030 | 136,221 | 231,086 | 81,535 | 79,038 | 71,663 | 46,784 | 70,099 | 650,872 | 267,584 | 227,951 | ||||||||||||
| Gross margin | 31,133 | 11,917 | 30,717 | 27,302 | 31,073 | 13,155 | 14,689 | 18,910 | 101,070 | 77,827 | 62,163 | ||||||||||||
| Gross margin (%) | 13.4% | 8.0% | 11.7% | 25.1% | 28.2% | 15.5% | 23.9% | 21.2% | 13.4% | 22.5% | 21.4% | ||||||||||||
| Selling, general and administrative expenses | 10,117 | 7,408 | 15,056 | 16,843 | 10,086 | 7,581 | 5,750 | 6,739 | 49,425 | 30,156 | 24,589 | ||||||||||||
| Operating profit (loss) from continuing operations | 21,016 | 4,509 | 15,661 | 10,459 | 20,987 | 5,574 | 8,939 | 12,171 | 51,645 | 47,671 | 37,574 | ||||||||||||
| Finance expenses | (3,553) | (3,136) | (17,921) | (2,742) | (2,382) | (2,308) | (2,151) | (2,242) | (27,351) | (9,083) | (10,787) | ||||||||||||
| Exploration costs | (3,290) | (7,074) | (3,145) | (1,039) | (306) | (673) | (568) | (254) | (14,550) | (1,801) | (1,770) | ||||||||||||
| Finance and other income | 491 | 825 | 1,032 | 804 | 601 | 60 | 67 | 52 | 3,153 | 780 | 462 | ||||||||||||
| Foreign exchange gain (loss) | (7,917) | 1,122 | (2,814) | 732 | 116 | (301) | 1,048 | (370) | (8,879) | 493 | 834 | ||||||||||||
| Profit (loss) before income taxes from continuing operations | 6,747 | (3,754) | (7,187) | 8,214 | 19,016 | 2,352 | 7,335 | 9,357 | 4,018 | 38,060 | 26,313 | ||||||||||||
| Income tax expense (recovery) | 19,018 | 2,792 | 8,655 | 5,042 | 6,977 | 1,583 | 3,386 | 3,330 | 35,505 | 15,276 | 9,007 | ||||||||||||
| Net profit (loss) from continuing operations | $ | (12,271) | $ | (6,546) | $ | (15,842) | $ | 3,172 | $ | 12,039 | $ | 769 | $ | 3,949 | $ | 6,027 | $ | (31,487) | $ | 22,784 | $ | 17,306 | |
| Net profit (loss) from discontinued operations | - | - | - | 502,656 | 2,802 | 3,245 | 804 | 5,583 | 502,656 | 12,434 | 8,137 | ||||||||||||
| Net profit (loss) | $ | (12,271) | $ | (6,546) | $ | (15,842) | $ | 505,828 | $ | 14,841 | $ | 4,014 | $ | 4,753 | $ | 11,610 | $ | 471,169 | $ | 35,218 | $ | 25,443 | |
| Net profit (loss) from continuing operations attributable to | |||||||||||||||||||||||
| Shareholders | $ | (7,802) | $ | (4,794) | $ | (13,884) | $ | 3,504 | $ | 12,146 | $ | 152 | $ | 3,951 | $ | 6,027 | $ | (22,974) | $ | 22,276 | $ | 17,317 | |
| Non-controlling interest | (4,469) | (1,752) | (1,958) | (332) | (107) | 617 | (2) | - | (8,513) | 508 | (11) | ||||||||||||
| Net profit (loss) attributable to | |||||||||||||||||||||||
| Shareholders | $ | (7,802) | $ | (4,794) | $ | (13,884) | $ | 506,160 | $ | 14,948 | $ | 3,397 | $ | 4,755 | $ | 11,610 | $ | 479,682 | $ | 34,710 | $ | 25,454 | |
| Non-controlling interest | (4,469) | (1,752) | (1,958) | (332) | (107) | 617 | (2) | - | (8,513) | 508 | (11) | ||||||||||||
| Earnings (loss) per share - continuing operations | |||||||||||||||||||||||
| Basic | $ | (0.09) | $ | (0.06) | $ | (0.16) | $ | 0.04 | $ | 0.14 | $ | 0.00 | $ | 0.05 | $ | 0.07 | $ | (0.27) | $ | 0.26 | $ | 0.20 | |
| Diluted | $ | (0.09) | $ | (0.06) | $ | (0.16) | $ | 0.04 | $ | 0.14 | $ | 0.00 | $ | 0.05 | $ | 0.07 | $ | (0.27) | $ | 0.26 | $ | 0.20 | |
| Earnings (loss) per share | |||||||||||||||||||||||
| Basic | $ | (0.09) | $ | (0.06) | $ | (0.16) | $ | 5.96 | $ | 0.18 | $ | 0.04 | $ | 0.06 | $ | 0.14 | $ | 5.64 | $ | 0.41 | $ | 0.30 | |
| Diluted | $ | (0.09) | $ | (0.06) | $ | (0.16) | $ | 5.89 | $ | 0.18 | $ | 0.04 | $ | 0.06 | $ | 0.14 | $ | 5.59 | $ | 0.41 | $ | 0.30 | |
| Cash dividends declared per share | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | |
| Total assets (i) | $ | 2,305 | $ | 2,305 | $ | 2,299 | $ | 2,412 | $ | 1,710 | $ | 1,733 | $ | 1,660 | $ | 1,716 | $ | 2,305 | $ | 1,710 | $ | 1,607 | |
| Total long-term liabilities (i) | $ | 691 | $ | 688 | $ | 694 | $ | 695 | $ | 269 | $ | 682 | $ | 461 | $ | 472 | $ | 691 | $ | 269 | $ | 641 | |
| Operating profit (loss) from continuing operations | $ | 21,016 | $ | 4,509 | $ | 15,661 | $ | 10,459 | $ | 20,987 | $ | 5,574 | $ | 8,939 | $ | 12,171 | $ | 51,645 | $ | 47,671 | $ | 37,574 | |
| Depreciation and amortization (ii) | 55,228 | 31,978 | 32,644 | 20,211 | 24,346 | 20,588 | 13,160 | 22,172 | 140,061 | 80,266 | 78,761 | ||||||||||||
| EBITDA from continuing operations (iii) | $ | 76,244 | $ | 36,487 | $ | 48,305 | $ | 30,670 | $ | 45,333 | $ | 26,162 | $ | 22,099 | $ | 34,343 | $ | 191,706 | $ | 127,937 | $ | 116,335 | |
| (i) | Total assets and total long-term liabilities are expressed in millions of United States dollars. |
| (ii) | Depreciation and amortization included in cost of sales and selling, general and administrative expenses. |
| (iii) | Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 20. |
Three Months Ended January 31, 2014, Compared to Three Months Ended January 31, 2013
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a fourth quarter consolidated net loss attributable
to shareholders of $7.8 million or $(0.09) per share, compared to a net
profit attributable to shareholders of $14.9 million or $0.18 per share
in the fourth quarter of the prior year. Net loss from continuing
operations attributable to shareholders was $7.8 million or $(0.09) per
share, compared to a net profit from continuing operations of
$12.1 million or $0.14 per share in the comparable quarter of the prior
year. Included in net loss from continuing operations was a $7.9
million related to foreign exchange loss compared to a $0.1 milliongain related to foreign exchange in the fourth quarter of the prior
year, due to the weakening of the Canadian dollar. The net loss from
continuing operations for the quarter also included $13.5 million of
income tax expense related to the weakening of the Canadian dollar,
substantially all of which is non-cash tax expense. This compares to a
$0.2 million of tax expense related to the impact of foreign exchange
in the comparable quarter of the prior year.
Discontinued operations represented $nil of net profit compared to $2.8 million or $0.04 share in the fourth quarter of the prior year.
CONSOLIDATED SALES
Consolidated sales for the fourth quarter totalled $233.2 million,
consisting of Diavik rough diamond sales of $119.2 million and
Ekati rough diamond sales of $114.0 million. This compares to sales of
$110.1 million in the comparable quarter of the prior year (Diavik
rough diamond sales of $110.1 million and Ekati rough diamond sales of
$nil).
The Company expects that results for its mining operations will fluctuate depending on the seasonality of production at its mineral properties, the number of sales events conducted during the quarter, rough diamond prices and the volume, size and quality distribution of rough diamonds delivered from the Company's mineral properties and sold by the Company in each quarter. See "Segmented Analysis" on page 9 for additional information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's fourth quarter cost of sales was $202.0 million resulting
in a gross margin of 13.4%, compared to a cost of sales of
$79.0 million and a gross margin of 28.2% for the comparable quarter of
the prior year. The Company's cost of sales includes costs associated
with mining and rough diamond sorting activities. See "Segmented
Analysis" on page 9 for additional information.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $19.0 million during
the fourth quarter, compared to a net income tax expense of
$7.0 million in the comparable quarter of the prior year. The Company's
combined federal and provincial statutory income tax rate for the
quarter is 26.5%. There are a number of items that can significantly
impact the Company's effective tax rate, including foreign currency
exchange rate fluctuations, the Northwest Territories mining royalty,
earnings subject to tax different than the statutory rate and
unrecognized tax benefits. As a result, the Company's recorded tax
provision can be significantly different than the expected tax
provision calculated based on the statutory tax rate.
The recorded tax provision is particularly impacted by foreign currency exchange rate fluctuations. The Company's functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. During the fourth quarter, the Canadian dollar significantly weakened against the US dollar. As a result, the Company recorded an unrealized foreign exchange gain of $14.6 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange loss of $0.3 million in the comparable quarter of the prior year. The unrealized foreign exchange gain is recorded as part of the Company's deferred income tax recovery, and is not taxable for Canadian income tax purposes. During the fourth quarter, the Company also recognized a deferred income tax expense of $23.5 million for temporary differences arising from the difference between the historical exchange rate and the current exchange rate translation of foreign currency non-monetary items. This compares to a deferred income tax expense of $0.9 million recognized in the comparable quarter of the prior year. The recorded tax provision during the quarter also included a net income tax expense of $1.3 millionrelating to foreign exchange differences between income in the currency of the country of origin and US dollars. This compares to net income tax recovery of $1.1 million recognized in the comparable period of the prior year.
Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company's effective tax rate will fluctuate in future periods.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of selling, general and administrative ("SG&A")
expenses include expenses for salaries and benefits, professional fees,
consulting and travel. The Company incurred SG&A expenses of $10.1
million for the fourth quarter, consistent with the comparable quarter
of the prior year. See "Segmented Analysis" on page 9 for additional
information.
CONSOLIDATED FINANCE EXPENSES FROM CONTINUING OPERATIONS
Finance expense for the fourth quarter was $3.6 million, compared to
finance expense of $2.4 million for the comparable quarter of the prior
year. The increase was due primarily to accretion expense associated
with the future site restoration liability at the Ekati Diamond Mine,
which was not present in the comparable quarter of the prior year.
Accretion expense was $2.8 million (three months ended January 31, 2013- $0.6 million) related to future site restoration liabilities at the
Diavik Diamond Mine and the Ekati Diamond Mine.
CONSOLIDATED EXPLORATION EXPENSE FROM CONTINUING OPERATIONS
Exploration expense of $3.3 million was incurred during the fourth
quarter, compared to $0.3 million in the comparable quarter of the
prior year. Included in exploration expense for the fourth quarter is
$3.1 million of exploration work on the Jay pipe within the Buffer Zone
at the Ekati Diamond Mine and $0.2 million of exploration work on the
Company's claims in the Northwest Territories.
CONSOLIDATED FINANCE AND OTHER INCOME FROM CONTINUING OPERATIONS
Finance and other income of $0.5 million was recorded during the fourth
quarter, compared to $0.6 million in the comparable quarter of the
prior year.
CONSOLIDATED FOREIGN EXCHANGE FROM CONTINUING OPERATIONS
A net foreign exchange loss of $7.9 million was recognized during the
fourth quarter, compared to a net foreign exchange gain of $0.1 millionin the comparable quarter of the prior year, due to the weakening of
the Canadian dollar. The Company does not currently have any
significant foreign exchange derivative instruments outstanding.
Year Ended January 31, 2014, Compared to Year Ended January 31, 2013
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a consolidated net profit attributable to
shareholders of $479.7 million or $5.64 per share for the year ended
January 31, 2014, compared to a net profit attributable to shareholders
of $34.7 million or $0.41 per share in the prior year. Included in this
amount is a $502.9 million gain on the sale of the Luxury Brand Segment
on March 26, 2013. Net loss from continuing operations attributable to
shareholders was $23.0 million or $(0.27) per share, compared to a net
profit from continuing operations attributable to shareholders of
$22.3 million or $0.26 per share in the prior year. Included in the
consolidated net loss attributable to shareholders for the year was
$3.2 million (after-tax) of restructuring costs at the Antwerp, Belgiumoffice, $10.6 million (after-tax) of expenses related to the
cancellation of the credit facilities that had been previously arranged
in connection with the Ekati Diamond Mine Acquisition and $11.4 million(after-tax) of Ekati acquisition costs. Excluding these items and the
impact of the sale of opening acquisition inventory that was included
at market value in Ekati cost of sales, the Company's estimated
consolidated net profit attributable to shareholders for the year would
have been $15.2 million or $0.18 per share. Discontinued operations
represented $502.6 million of net profit or $5.91 per share, compared
to $12.4 million or $0.15 per share in prior year.
CONSOLIDATED SALES
Consolidated sales totalled $751.9 million for the year ended January
31, 2014, consisting of Diavik rough diamond sales of $352.3 millionand Ekati rough diamond sales of $399.6 million. This compares to sales
of $345.4 million in the prior year (Diavik rough diamond sales of
$345.4 million and Ekati rough diamond sales of $nil). The Ekati rough
diamond sales are for the period from April 10, 2013, which was the
date the Ekati Diamond Mine Acquisition was completed, to January 31,
2014.
The Company expects that results for its mining operations will fluctuate depending on the seasonality of production at its mineral properties, the number of sales events conducted during the period, rough diamond prices and the volume, size and quality distribution of rough diamonds delivered from the Company's mineral properties and sold by the Company in each quarter. See "Segmented Analysis" on page 9 for additional information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's cost of sales was $650.9 million for the year ended
January 31, 2014, resulting in a gross margin of 13.4%, compared to a
cost of sales of $267.6 million and a gross margin of 22.5% for the
prior year. The Company's cost of sales includes costs associated with
mining and rough diamond sorting activities. See "Segmented Analysis"
on page 9 for additional information.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $35.5 million during
the year ended January 31, 2014, compared to a net income tax expense
of $15.3 million in the prior year. The Company's combined federal and
provincial statutory income tax rate for the year ended January 31,
2014 is 26.5%. There are a number of items that can significantly
impact the Company's effective tax rate, including foreign currency
exchange rate fluctuations, the Northwest Territories mining royalty,
earnings subject to tax different than the statutory rate and
unrecognized tax benefits. As a result, the Company's recorded tax
provision can be significantly different than the expected tax
provision calculated based on the statutory tax rate.
The recorded tax provision is particularly impacted by foreign currency exchange rate fluctuations. The Company's functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. During the year ended January 31, 2014, the Canadian dollar significantly weakened against the US dollar. The Company recorded an unrealized foreign exchange gain of $24.1 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability during the year ended January 31, 2014. This compares to an unrealized foreign exchange loss of $1.1 million recorded in the prior year. The unrealized foreign exchange gain is recorded as part of the Company's deferred income tax recovery, and is not taxable for Canadian income tax purposes. During the year ended January 31, 2014, the Company recognized a deferred income tax expense of $40.4 million for temporary differences arising from the difference between the historical exchange rate and the current exchange rate translation of foreign currency non-monetary items. This compares to a deferred income tax expense of $4.4 million recognized in the prior year. The recorded tax provision during the year ended January 31, 2014 included a net income tax expense of $0.7 million relating to foreign exchange differences between income in the currency of the country of origin and the US dollar. This compares to a net income tax recovery of $5.2 millionrecognized in the prior year.
Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company's effective tax rate will fluctuate in future periods.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company incurred SG&A expenses of $49.4 million during the year
ended January 31, 2014, compared to $30.2 million in the prior year.
The increase from the prior year was primarily due to $11.2 million of
transaction costs and $4.9 million of restructuring costs at the
Antwerp, Belgium office, related in each case to the Ekati Diamond Mine
Acquisition. See "Segmented Analysis" on page 9 for additional
information.
CONSOLIDATED FINANCE EXPENSES FROM CONTINUING OPERATIONS
Finance expenses were $27.4 million for the year ended January 31, 2014,
compared to $9.1 million for the prior year. The increase was due
primarily to the expensing of approximately $14.0 million relating to
the cancellation of the credit facilities that had been previously
arranged in connection with the Ekati Diamond Mine Acquisition. The
Company ultimately determined to fund the Ekati Diamond Mine
Acquisition by way of cash on hand and did not draw on these credit
facilities, which were subsequently cancelled. Also included in
consolidated finance expense is an accretion expense of $9.3 million(year ended January 31, 2013 - $2.4 million) related to future site
restoration liabilities at the Diavik Diamond Mine and the Ekati
Diamond Mine.
CONSOLIDATED EXPLORATION EXPENSE FROM CONTINUING OPERATIONS
Exploration expense of $14.6 million was incurred during the year ended
January 31, 2014, compared to $1.8 million in the prior year. Included
in exploration expense for the current year is $10.1 million of
exploration work on the Jay pipe within the Buffer Zone at the Ekati
Diamond Mine and $4.5 million of exploration work on the Company's
claims in the Northwest Territories.
CONSOLIDATED FINANCE AND OTHER INCOME FROM CONTINUING OPERATIONS
Finance and other income of $3.2 million was recorded during the year
ended January 31, 2014, compared to $0.8 million in the prior year.
CONSOLIDATED FOREIGN EXCHANGE FROM CONTINUING OPERATIONS
A net foreign exchange loss of $8.9 million was recognized during the
year ended January 31, 2014, compared to a net foreign exchange gain of
$0.5 million in the prior year. The Company does not currently have any
significant foreign exchange derivative instruments outstanding.
Segmented Analysis
The operating segments of the Company include the Diavik Diamond Mine, the Ekati Diamond Mine and the Corporate segment. The Corporate segment captures costs not specifically related to operating the Diavik and Ekati mines.
Diavik Diamond Mine
This segment includes the production, sorting and sale of rough diamonds
from the Diavik Diamond Mine.
| (expressed in thousands of United States dollars) (unaudited) | ||||||||||||||||||||||||
| 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2014 | 2013 | 2012 | ||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Total | Total | Total | ||||||||||||||
| Sales | ||||||||||||||||||||||||
| North America | $ | 511 | $ | - | $ | - | $ | 6,179 | $ | 4,604 | $ | 7,697 | $ | 2,269 | $ | 7,432 | $ | 6,690 | $ | 22,002 | $ | 15,018 | ||
| Europe | 112,001 | 45,088 | 80,530 | 61,642 | 84,346 | 57,438 | 50,514 | 54,370 | 299,262 | 246,668 | 231,722 | |||||||||||||
| India | 6,704 | 7,818 | 10,737 | 21,095 | 21,161 | 19,683 | 8,690 | 27,207 | 46,355 | 76,741 | 43,374 | |||||||||||||
| Total sales | 119,216 | 52,906 | 91,267 | 88,916 | 110,111 | 84,818 | 61,473 | 89,009 | 352,307 | 345,411 | 290,114 | |||||||||||||
| Cost of sales | 87,690 | 40,018 | 68,328 | 61,888 | 79,038 | 71,663 | 46,784 | 70,099 | 257,924 | 267,584 | 227,951 | |||||||||||||
| Gross margin | 31,526 | 12,888 | 22,939 | 27,028 | 31,073 | 13,155 | 14,689 | 18,910 | 94,383 | 77,827 | 62,163 | |||||||||||||
| Gross margin (%) | 26.4% | 24.4% | 25.1% | 30.4% | 28.2% | 15.5% | 23.9% | 21.2% | 26.8% | 22.5% | 21.4% | |||||||||||||
| Selling, general and administrative expenses | 1,122 | 1,123 | 1,409 | 1,110 | 1,860 | 1,279 | 1,050 | 972 | 4,763 | 5,161 | 3,907 | |||||||||||||
| Operating profit | $ | 30,404 | $ | 11,765 | $ | 21,530 | $ | 25,918 | $ | 29,213 | $ | 11,876 | $ | 13,639 | $ | 17,938 | $ | 89,620 | $ | 72,666 | $ | 58,256 | ||
| Depreciation and amortization (i) | 28,885 | 12,434 | 21,768 | 19,906 | 24,042 | 20,283 | 12,874 | 21,876 | 82,993 | 79,075 | 77,529 | |||||||||||||
| EBITDA (ii) | $ | 59,289 | $ | 24,199 | $ | 43,298 | $ | 45,824 | $ | 53,255 | $ | 32,159 | $ | 26,513 | $ | 39,814 | $ | 172,613 | $ | 151,741 | $ | 135,785 | ||
| (i) | Depreciation and amortization included in cost of sales and selling, general and administrative expenses. |
| (ii) | Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 20. |
Three Months Ended January 31, 2014, Compared to Three Months Ended January 31, 2013
DIAVIK SALES
During the fourth quarter, the Company sold approximately 1.0 million
carats from the Diavik Diamond Mine for a total of $119.2 million for
an average price per carat of $114, compared to 0.8 million carats for
a total of $110.1 million for an average price per carat of $133 in the
comparable quarter of the prior year. The 27% increase in volume of
carats sold versus the comparable quarter of the prior year resulted
primarily from the sale during the fourth quarter of inventory held
back from sale in the prior quarter due to a weakening of the rough
diamond market resulting from macroeconomic uncertainty in India. The
14% decrease in the Company's achieved average rough diamond prices for
the Diavik Diamond Mine as compared to the fourth quarter of the prior
year resulted primarily from a change in the sales mix of product sold,
partially offset by an increase in market prices for rough diamonds in
the fourth quarter compared to the prior year. At January 31, 2014, the
Company had 0.4 million carats of Diavik Diamond Mine produced
inventory with an estimated market value of approximately $65 million,
compared to 0.5 million carats with an estimated market value of
approximately $65 million in the comparable quarter of the prior year.
Had the Company sold only the last production shipped in the fourth quarter, the estimated achieved price would have been approximately $119 per carat based on the prices achieved in the January 2014 sale.
DIAVIK COST OF SALES AND GROSS MARGIN
The Company's fourth quarter cost of sales for the Diavik Diamond Mine
was $87.7 million resulting in a gross margin of 26.4%, compared to a
cost of sales of $79.0 million and a gross margin of 28.2% in the
comparable quarter of the prior year. Cost of sales for the fourth
quarter included $28.9 million of depreciation and amortization,
compared to $23.6 million in the comparable quarter of the prior year.
The increase in depreciation and amortization is due primarily to the
sale during the fourth quarter of inventory held back from sale in the
third quarter due to a weakening of the rough diamond market resulting
from macroeconomic uncertainty in India. The Diavik segment generated
gross margins and EBITDA margins of 26.4% and 50%, respectively,
compared to 28.2% and 48%, respectively, in the comparable quarter of
the prior year. The gross margin is anticipated to fluctuate between
quarters, resulting from variations in the specific mix of product sold
during each quarter and rough diamond prices.
A substantial portion of consolidated cost of sales is mining operating costs incurred at the Diavik Diamond Mine. During the fourth quarter, the Diavik cash cost of production was $43.3 million compared to $44.8 million in the comparable quarter of the prior year. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.
The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Diavik Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is 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. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Diavik Diamond Mine's cost of sales disclosed for the three months ended January 31, 2014 and 2013.
| (expressed in thousands of United States dollars) | Three months ended January 31, 2014 | Three months ended January 31, 2013 | |||||||||
| Diavik cash cost of production | $ | 43,284 | $ | 44,764 | |||||||
| Private royalty | 2,287 | 2,040 | |||||||||
| Other cash costs | 1,270 | 1,272 | |||||||||
| Total cash cost of production | 46,841 | 48,076 | |||||||||
| Depreciation and amortization | 24,121 | 20,182 | |||||||||
| Total cost of production | 70,962 | 68,258 | |||||||||
| Adjusted for stock movements | 16,725 | 10,780 | |||||||||
| Total cost of sales | $ | 87,687 | $ | 79,038 | |||||||
DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Diavik Diamond Mine segment during the quarter was
$1.1 million, compared to $1.9 million in the comparable quarter of the
prior year.
Year Ended January 31, 2014, Compared to Year Ended January 31, 2013
DIAVIK SALES
During the year ended January 31, 2014, the Company sold approximately
3.0 million carats from the Diavik Diamond Mine for a total of $352.3
million for an average price per carat of $118 compared to 3.2 million
carats for a total of $345.4 million for an average price per carat of
$109 in the comparable period of the prior year. The 8% increase in the
Company's achieved average rough diamond prices and the 6% decrease in
volume of carats sold resulted primarily from the sale during the first
quarter of the prior year of almost all of the remaining lower priced
goods originally held back in inventory by the Company at October 31,
2011 due to an oversupply in the market at that time.
DIAVIK COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Diavik Diamond Mine for the year
ended January 31, 2014, was $257.9 million resulting in a gross margin
of 26.8% compared to a cost of sales of $267.6 million and a gross
margin of 22.5% in the comparable period of the prior year. Cost of
sales for the year ended January 31, 2014 included $83.0 million of
depreciation and amortization compared to $79.0 million in the prior
year. This segment generated gross margins and EBITDA margins of 26.8%
and 49%, respectively, compared to 22.5% and 44%, respectively, in the
prior year.
A substantial portion of consolidated cost of sales is mining operating costs, incurred at the Diavik Diamond Mine. During the year ended January 31, 2014, the Diavik cash cost of production was $162.6 millioncompared to $171.4 million in the comparable period of the prior year. Cost of sales also includes sorting costs, which consist of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.
The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Diavik Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is 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. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Diavik Diamond Mine's cost of sales disclosed for the twelve months ended January 31, 2014 and 2013.
| (expressed in thousands of United States dollars) | 2014 | 2013 | |||||||||||||
| Diavik cash cost of production | $ | 162,648 | $ | 171,442 | |||||||||||
| Private royalty | 6,217 | 7,399 | |||||||||||||
| Other cash costs | 3,988 | 4,360 | |||||||||||||
| Total cash cost of production | 172,853 | 183,201 | |||||||||||||
| Depreciation and amortization | 84,888 | 70,516 | |||||||||||||
| Total cost of production | 257,741 | 253,717 | |||||||||||||
| Adjusted for stock movements | 181 | 13,868 | |||||||||||||
| Total cost of sales | $ | 257,922 | $ | 267,585 |
DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Diavik Diamond Mine segment for the year ended
January 31, 2014 was $4.8 million, compared to $5.2 million in the
comparable period of the prior year.
OPERATIONAL UPDATE
For the 2013 calendar year, the Diavik Diamond Mine performed ahead of
target, producing (on a 100% basis) 7.2 million carats from 2.1 million
tonnes of ore processed. The fourth quarter of calendar 2013 saw a
continuing strong performance from the Diavik Diamond Mine with
production (on a 100% basis) of 2.1 million carats from 0.54 million
tonnes of ore processed compared to 1.9 million carats from 0.47
million tonnes of ore processed in the comparable quarter of the prior
year. This total production does include coarse ore rejects ("COR"),
which are not included in the Company's reserves and resource statement
and are therefore incremental to production.
Processing volumes in the fourth quarter of calendar 2013 were 16% higher than the prior year's comparable quarter. This was a result of improvements in the mining rates as the underground ramp up progressed throughout the year to full production from all three pipes.
DOMINION DIAMOND DIAVIK LIMITED PARTNERSHIP'S 40% SHARE OF DIAVIK
DIAMOND MINE PRODUCTION
(reported on a one-month lag)
| For the three months ended December 31, 2013 | |||||||||
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) | ||||||
| A-154 South | 51 | 220 | 4.28 | ||||||
| A-154 North | 69 | 144 | 2.10 | ||||||
| A-418 | 94 | 418 | 4.46 | ||||||
| Coarse Ore Rejects | 2 | 44 | - | ||||||
| Total | 216 | 826 | 3.66(a) | ||||||
| (a) Grade has been adjusted to exclude COR. | |||||||||
| For the three months ended December 31, 2012 | |||||||||
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) | ||||||
| A-154 South | 67 | 313 | 4.66 | ||||||
| A-154 North | 42 | 89 | 2.11 | ||||||
| A-418 | 77 | 344 | 4.49 | ||||||
| Coarse Ore Rejects | 1 | 14 | - | ||||||
| Total | 187 | 760 | 4.01(a) | ||||||
| (a) Grade has been adjusted to exclude COR. | |||||||||
| For the year ended December 31, 2013 | |||||||||
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) | ||||||
| A-154 South | 228 | 976 | 4.29 | ||||||
| A-154 North | 288 | 606 | 2.11 | ||||||
| A-418 | 326 | 1,160 | 3.56 | ||||||
| Coarse Ore Rejects | 6 | 155 | - | ||||||
| Total | 848 | 2,897 | 3.26(a) | ||||||
| (a) Grade has been adjusted to exclude COR. | |||||||||
| For the year ended December 31, 2012 | |||||||||
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) | ||||||
| A-154 South | 166 | 750 | 4.52 | ||||||
| A-154 North | 173 | 354 | 2.05 | ||||||
| A-418 | 482 | 1,732 | 3.59 | ||||||
| Coarse Ore Rejects | 2 | 55 | - | ||||||
| Total | 823 | 2,892 | 3.45(a) |
(a) Grade has been adjusted to exclude COR.
Diavik Operations Outlook
PRODUCTION
The mine plan for calendar 2014 foresees Diavik Diamond Mine production
(on a 100% basis) of approximately 6.1 million carats from the mining
and processing of approximately 1.9 million tonnes of ore. Mining
activities will be exclusively underground with approximately 0.7
million tonnes expected to be sourced from A-154 North, approximately
0.4 million tonnes from A-154 South and approximately 0.8 million
tonnes from A-418 kimberlite pipes. In addition to the 6.1 million
carats produced from underground mining there will be production from
COR and production from the improved recovery of small diamonds. This
additional production is not included in the Company's ore reserves,
and is therefore incremental. Based on historical recovery rates, the
tonnage of this material which is planned to be processed during
calendar 2014 would have produced 0.6 million carats from COR and 0.2
million carats from the improved recovery process.
PRICING
Based on prices from the Company's rough diamond sales during the fourth
quarter and the current diamond recovery profile of the Diavik
processing plant, the Company has modeled the current approximate rough
diamond price per carat for each of the Diavik ore types in the table
that follows:
| Ore type | February 2014 sales cycle Average price per carat (in US dollars) | |||||||||||
| A-154 South | $ | 145 | ||||||||||
| A-154 North | 190 | |||||||||||
| A-418 | 105 | |||||||||||
| Coarse Ore Rejects | 50 |
COST OF SALES AND CASH COST OF PRODUCTION
Based on the current mine plan for the Diavik Diamond Mine for calendar
2014, the Company currently expects its 40% share of the cost of sales
for the Diavik Diamond Mine in fiscal 2015 to be approximately $280
million (including depreciation and amortization of approximately $100
million). The Company's 40% share of the cash cost of production at
the Diavik Diamond Mine for calendar 2014 is expected to be
approximately $150 million at an assumed average Canadian/US dollar
exchange rate of $1.10.
CAPITAL EXPENDITURES
The Company currently expects Dominion Diamond Diavik
Limited Partnership's 40% share of the planned capital expenditures for
the Diavik Diamond Mine in fiscal 2015 to be approximately $19 million,
assuming an average Canadian/US dollar exchange rate of $1.10. During
the fourth quarter, DDDLP's share of capital expenditures was $3.2
million ($26.6 million for the year ended January 31, 2014).
The Company and Rio Tinto plc are currently assessing the rejuvenation of the A-21 project which provides a window of opportunity to extract value of the Diavik Diamond Mine before the end of its mine life. Current work is being completed on dike design and mining methodology with the plan to seek Rio Tinto plc investment committee approval in the fall of 2014.
Ekati Diamond Mine
This segment includes the production, sorting and sale of rough diamonds
from the Ekati Diamond Mine.
| (expressed in thousands of United States dollars) (unaudited) | ||||||||||||||||||||||||||||||||||
| 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Total | Total | |||||||||||||||||||||||||
| Sales | ||||||||||||||||||||||||||||||||||
| North America | $ | 413 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 413 | $ | - | ||||||||||||||
| Europe | 111,542 | 95,232 | 170,536 | 19,921 | - | - | - | - | 397,231 | - | ||||||||||||||||||||||||
| India | 1,992 | - | - | - | - | - | - | - | 1,992 | - | ||||||||||||||||||||||||
| Total sales | 113,947 | 95,232 | 170,536 | 19,921 | - | - | - | - | 399,636 | - | ||||||||||||||||||||||||
| Cost of sales | 114,340 | 96,202 | 162,758 | 19,647 | - | - | - | - | 392,948 | - | ||||||||||||||||||||||||
| Gross margin | (393) | (970) | 7,778 | 274 | - | - | - | - | 6,688 | - | ||||||||||||||||||||||||
| Gross margin (%) | (0.3%) | (1.0%) | 4.6% | 1.4% | -% | -% | -% | -% | 1.7% | -% | ||||||||||||||||||||||||
| Selling, general and administrative expenses | 1,120 | 362 | 676 | 520 | - | - | - | - | 2,678 | - | ||||||||||||||||||||||||
| Operating profit (loss) | $ | (1,513) | $ | (1,332) | $ | 7,102 | $ | (246) | $ | - | $ | - | $ | - | $ | - | $ | 4,010 | $ | - | ||||||||||||||
| Depreciation and amortization (i) | 25,892 | 19,166 | 10,513 | - | - | - | - | - | 55,572 | - | ||||||||||||||||||||||||
| EBITDA (ii) | $ | 24,379 | $ | 17,834 | $ | 17,615 | $ | (246) | $ | - | $ | - | $ | - | $ | - | $ | 59,582 | $ | - | ||||||||||||||
| (i) | Depreciation and amortization included in cost of sales and selling,
general and administrative expenses. All sales of inventory purchased
as part of the Ekati Diamond Mine Acquisition are accounted for as cash cost of sales. |
| (ii) | Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 20. |
| (iii) | As a result of retrospective adjustments made reflecting the final
purchase price allocation of the Ekati Diamond Mine and the accounting
treatment for Misery South & Southwest pre-production revenue, the prior quarters have been recast. |
Three months ended January 31, 2014
EKATI SALES
During the fourth quarter, the Company sold approximately 0.4 million
carats from the Ekati Diamond Mine for a total of $114.0 million for an
average price per carat of $276. Excluded from sales recorded in the
fourth quarter were carats produced and sold from the processing of
satellite material from the Misery South and Southwest kimberlite pipes
as this material was excavated during the pre-stripping operations of
the Misery South and Southwest kimberlite pipes. The Misery South and
Southwest kimberlite pipes have been designated as exploration targets,
and are not currently classified as resources. The diamonds that have
been recovered to date from this material display similar
characteristics to diamonds from the Misery Main kimberlite pipe.
During the fourth quarter, the Company sold an estimated 0.2 million
carats of production from the Misery South and Southwest kimberlite
pipe material for estimated proceeds of $10.8 million. During
pre-production, sales of diamonds recovered from the Misery South and
Southwest material have been applied as a reduction of mining assets.
At January 31, 2014, the Company had 0.5 million carats of Ekati
Diamond Mine produced inventory with an estimated market value of
approximately $140 million.
EKATI COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Ekati Diamond Mine during the fourth
quarter was $114.3 million, resulting in a gross margin of (0.3)% and
an EBITDA margin of 21%. Cost of sales for the fourth quarter was
impacted slightly by the sale of inventory that was recorded at market
value as a result of the Ekati Diamond Mine Acquisition. The Company
estimates the cost of sales would have been approximately
$114.2 million during the fourth quarter if the effect of the market
value adjustment made as part of the Ekati Diamond Mine Acquisition was
excluded. The Company estimates that gross margins and EBITDA margin
would have been (0.2)% and 21%, respectively, if the effect of the
market value adjustment made as part of the Ekati Diamond Mine
Acquisition was excluded. At January 31, 2014, the Company had
approximately $10 million remaining of inventory acquired as part of
the Ekati Diamond Mine Acquisition, the majority of which are made up
of production samples. The gross margin is anticipated to fluctuate
between quarters, resulting from variations in the specific mix of
product sold during each quarter and rough diamond prices.
Consolidated cost of sales includes mining operating costs incurred at the Ekati Diamond Mine. During the fourth quarter, the Ekati cash cost of production was $101.3 million. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the straight-line method over estimated proven and probable reserves.
The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Ekati Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is 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. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Ekati Diamond Mine's operations' cost of sales disclosed for the three months ended January 31, 2014.
| (expressed in thousands of United States dollars) | Three months ended January 31, 2014 | ||||||
| Ekati cash cost of production | $ | 101,320 | |||||
| Other cash costs including inventory acquisition | 1,055 | ||||||
| Total cash cost of production | 102,375 | ||||||
| Depreciation and amortization | 29,808 | ||||||
| Total cost of production | 132,183 | ||||||
| Adjusted for stock movements | (17,843) | ||||||
| Total cost of sales | $ | 114,340 | |||||
EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Ekati Diamond Mine segment for the quarter were
$1.1 million.
Period from April 10, 2013 to January 31, 2014
EKATI SALES
During the period from April 10 to January 31, 2014, the Company sold
approximately 1.3 million carats from the Ekati Diamond Mine for a
total of $399.6 million for an average price per carat of $301.
Excluded from sales recorded in the fiscal year were carats produced
and sold from the processing of satellite material from the Misery
South & Southwest kimberlite pipes as this material was excavated
during the pre-stripping of the Misery South and Southwest kimberlite
pipe. During the period from April 10 to January 31, 2014, the Company
sold an estimated 0.2 million carats from the Misery South and
Southwest kimberlite pipes for estimated proceeds of $14.3 million.
Had the Company sold only the last production shipped in the fourth quarter, the estimated achieved price would have been approximately $287 per carat based on the prices achieved in the January 2014 sale.
EKATI COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Ekati Diamond Mine for the period
from April 10 to January 31, 2014, was $392.9 million, resulting in a
gross margin of 1.7% and an EBITDA margin of 15%. Cost of sales was
impacted by the sale of inventory that was recorded at market value as
a result of the Ekati Diamond Mine Acquisition. The Company estimates
that the cost of sales would have been approximately $376.7 millionduring the period if the effect of the market value adjustment made as
part of the Ekati Diamond Mine Acquisition was excluded. The Company
estimates that gross margins and EBITDA margins of sales would have
been 5.7% and 26%, respectively, if the effect of the market value
adjustment made as part of the Ekati Diamond Mine Acquisition was
excluded. At January 31, 2014, the Company had approximately $10
million remaining of inventory acquired as part of the Ekati Diamond
Mine Acquisition, the majority of which are made up of production
samples. The gross margin is anticipated to fluctuate between quarters,
resulting from variations in the specific mix of product sold during
each quarter and rough diamond prices.
A substantial portion of consolidated cost of sales is mining operating costs, which are incurred at the Ekati Diamond Mine. During the period from April 10 to January 31, 2014, the Ekati cash cost of production was $303.9 million. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the straight-line method over estimated proven and probable reserves.
The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Ekati Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is 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. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Ekati Diamond Mine's operations' cost of sales disclosed for the period April 10 to January 31, 2014.
| (expressed in thousands of United States dollars) | April 10, 2013 to January 31, 2014 | ||||||
| Ekati cash cost of production | $ | 303,902 | |||||
| Other cash costs | 167,794 | ||||||
| Total cash cost of production | 471,696 | ||||||
| Depreciation and amortization | 87,767 | ||||||
| Total cost of production | 559,463 | ||||||
| Adjusted for stock movements | (166,515) | ||||||
| Total cost of sales | $ | 392,948 | |||||
EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Ekati Diamond Mine segment for the period from
April 10 to January 31, 2014 were $2.7 million.
OPERATIONAL UPDATE
During the fourth quarter of fiscal 2014, the Ekati Diamond Mine
produced (on a 100% basis) 0.5 million carats from the processing of
0.9 million tonnes of ore from the reserves. Activities through the
quarter continued to focus on ore production from the Fox open pit, and
Koala and Koala North underground pits. The Company also recovered 0.1
million carats from the processing of 0.1 million tonnes of coarse ore
rejects, and from satellite material excavated from the Misery South &
Southwest kimberlite pipes, this material was excavated during the
pre-stripping of the Misery South and Southwest kimberlite pipe. These
diamond recoveries were not included in the Company's reserves and
resource statement and are therefore incremental to production.
On November 18th, 2013, the Wek'èezhii Land and Water Board ("WLWB") issued a Preliminary Screening Decision Report on the Lynx kimberlite pipe at the Ekati Diamond Mine which determined that the Lynx pipe expansion could proceed with the regulatory process. On November 22, 2013, the WLWB decided to refer the Company's Detailed Project Report on the Jay and Cardinal kimberlite pipes at the Ekati Diamond Mine to the Mackenzie Valley Review Board ("MVRB") for an environmental assessment. The Company expects the process to amend the existing Water License to incorporate the Lynx pipe to be complete by the third quarter of fiscal 2015. In February 2014, the MVRB issued the final Terms of Reference and interim draft work plan for the environmental assessment of the Jay-Cardinal pipes. The Company expects to submit its Developer's Assessment Report for the Jay-Cardinal pipes in the second quarter of fiscal 2015.
During the period from April 10, 2013 to January 31, 2014, the Ekati Diamond Mine produced (on a 100% basis) 1.2 million carats from the processing of 3.0 million tonnes of ore from the reserves. The Company also recovered 0.4 million carats from the processing of 0.4 million tonnes of coarse ore rejects and satellite materials from the Misery South and Southwest kimberlite pipes and from the Koala North underground (inferred resource only).
EKATI DIAMOND MINE PRODUCTION (80% SHARE)
| For the three months ended January 31, 2014 | |||||||||
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) | ||||||
| Koala Phase 5 | 51 | 21 | 0.41 | ||||||
| Koala Phase 6 | 75 | 87 | 1.16 | ||||||
| Koala North | 69 | 60 | 0.87 | ||||||
| Fox | 452 | 125 | 0.28 | ||||||
| Misery South & Southwest | 58 | 74 | 1.28 | ||||||
| Coarse Ore Rejects | 29 | 18 | 0.62 | ||||||
| Total | 734 | 385 | 0.62 | ||||||
| For the period from April 10, 2013 (date of acquisition) to January 31, 2014 | |||||||||
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) | ||||||
| Koala Phase 5 | 168 | 68 | 0.40 | ||||||
| Koala Phase 6 | 182 | 239 | 1.31 | ||||||
| Koala North | 220 | 165 | 0.75 | ||||||
| Fox | 1,853 | 560 | 0.30 | ||||||
| Misery South & Southwest | 200 | 269 | 1.35 | ||||||
| Coarse Ore Rejects | 63 | 23 | 0.37 | ||||||
| Total | 2,686 | 1,324 | 0.49 |
Ekati Operations Outlook
PRODUCTION
In fiscal 2015, the Ekati Diamond Mine expects to process (on a 100%
basis) approximately 2.6 million tonnes from the mineral reserve and
produce approximately 0.9 million carats. The Company expects to
process approximately 1.7 million tonnes from the Fox pipe (including
stockpiles) and approximately 0.9 million tonnes from the Koala
underground operations split between Koala phase 5 and phase 6 & 7. As
part of the Koala deposit, a small portion of inferred resources is
extracted along with the reserves. This material is not included in the
current production estimate, but will be processed along with the
reserve ore and will be incremental to production. Mineral resources
that are not reserves do not have demonstrated economic viability.
Additional plant feed to keep the processing plant at capacity for the
period will be sourced from satellite material from the Misery South
and Southwest kimberlite pipes as well as the stockpile of coarse ore
rejects. The Misery South and Southwest satellite bodies as well as the
coarse ore rejects are not included in the Company's reserves and
resource statement and are therefore considered incremental to
production.
PRICING
Based on prices from the Company's rough diamond sales during the fourth
quarter and the current diamond recovery profile of the Ekati
processing plant, the Company has modeled the current approximate rough
diamond price per carat for each of the Ekati ore types in the table
that follows:
| Ore type | February 2014 Sales Cycle Average price per carat (in US dollars) | |||||||||||
| Koala Phase 5 | $ | 365 | ||||||||||
| Koala Phase 6 | 420 | |||||||||||
| Koala North | 440 | |||||||||||
| Fox | 315 | |||||||||||
| Misery South & Southwest | 80-100 | |||||||||||
| Coarse Ore Rejects | 65-120 |
COST OF SALES AND CASH COST OF PRODUCTION
Based on the current mine plan for the Ekati Diamond Mine for fiscal
2015, the Company currently expects cost of sales at the Ekati Diamond
Mine (on a 100% basis) in fiscal 2015 to be approximately $520 million(including depreciation and amortization of approximately
$125 million). The cash cost of production at the Ekati Diamond Mine
for fiscal 2015 is expected to be approximately $340 million (on a 100%
basis) at an assumed average Canadian/US dollar exchange rate of $1.10.
CAPITAL EXPENDITURES
The planned capital expenditures for the Core Zone at the Ekati Diamond
Mine for fiscal 2015 (on a 100% basis) are expected to be approximately
$180 million at an assumed average Canadian/US dollar exchange rate of
$1.10. The planned capital expenditures include approximately $95
million for the continued development of the Misery Pipe, consisting
largely of mining costs to access ore release, and approximately $50
million towards the development of the Pigeon Pipe. During the fourth
quarter, the Ekati Diamond Mine incurred capital expenditures of $30.2
million ($95.6 million for the period from April 10, 2013 to January
31, 2014).
Corporate
The Corporate segment captures costs not specifically related to the
operations of the Diavik and Ekati diamond mines.
| (expressed in thousands of United States dollars) (unaudited) | |||||||||||||||||||||||
| 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2014 | 2013 | 2012 | |||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Total | Total | Total | |||||||||||||
| Sales | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |
| Cost of sales | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||
| Gross margin | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||
| Gross margin (%) | -% | -% | -% | -% | -% | -% | -% | -% | % | -% | -% | ||||||||||||
| Selling, general and administrative expenses | 7,875 | 5,924 | 12,971 | 15,213 | 8,227 | 6,302 | 4,700 | 5,767 | 41,981 | 24,996 | 20,679 | ||||||||||||
| Operating loss | $ | (7,875) | $ | (5,924) | $ | (12,971) | $ | (15,213) | $ | (8,227) | $ | (6,302) | $ | (4,700) | $ | (5,767) | $ | (41,981) | $ | (24,996) | $ | (20,679) | |
| Depreciation and amortization (i) | 451 | 378 | 363 | 305 | 304 | 306 | 286 | 296 | 1,496 | 1,191 | 1,231 | ||||||||||||
| EBITDA (ii) | $ | (7,424) | $ | (5,546) | $ | (12,608) | $ | (14,908) | $ | (7,923) | $ | (5,996) | $ | (4,414) | $ | (5,471) | $ | (40,485) | $ | (23,805) | $ | (19,448) | |
| (i) | Depreciation and amortization included in cost of sales and selling, general and administrative expenses. |
| (ii) | Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 20. |
Three Months Ended January 31, 2014, Compared to Three Months Ended January 31, 2013
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Corporate segment during the quarter decreased by
$0.4 million from the comparable quarter of the prior year.
Year Ended January 31, 2014, Compared to Year Ended January 31, 2013
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Corporate segment during the year ended January
31, 2014 increased by $17.0 million from the prior year. The increase
from the prior year was primarily due to $11.2 million of transaction
costs and $4.9 million of restructuring costs at the Antwerp, Belgiumoffice, related in each case to the Ekati Diamond Mine Acquisition.
Discontinued Operations
On March 26, 2013, the Company completed the disposition of the Luxury
Brand Segment to Swatch Group. As a result, the Company's consolidated
results no longer include the operations of the Luxury Brand Segment
and the results of the Luxury Brand Segment are now treated as
discontinued operations for reporting purposes. Current and prior
period results have been restated to reflect this change.
Liquidity and Capital Resources
Working Capital
As at January 31, 2014, the Company had unrestricted cash and cash
equivalents of $224.8 million and restricted cash of $113.6 millioncompared to $104.3 million and $nil at January 31, 2013. The restricted
cash is used to support letters of credit to the Government of Canadaof CDN $127 million in support of the reclamation obligations for the
Ekati Diamond Mine. During the year ended January 31, 2014, the Company
reported cash flow from operations of $166.3 million compared to $105.1
million in the prior year.
As at January 31, 2014, the Company had 1.0 million carats of rough diamond inventory with an estimated market value of approximately $205 million, of which approximately $45 million represented inventory available for sale, with the remaining $160 million being sorted.
Working capital increased to $572.1 million at January 31, 2014 from $361.5 million at January 31, 2013. During the year, the Company increased accounts receivable from continuing operations by $2.5 million, decreased other current assets from continuing operations by $2.9 million, decreased inventory and supplies from continuing operations by $9.8 million, decreased trade and other payables from continuing operations by $5.2 million and increased employee benefit plans from continuing operations by $1.4 million.
The Company's liquidity requirements fluctuate from year over year and quarter over quarter depending on, among other factors, the seasonality of production at the Company's mineral properties, seasonality of mine operating expenses, capital expenditure programs, the number of rough diamond sales events conducted during the year, and the volume, size and quality distribution of rough diamonds delivered from the Company's mineral properties and sold by the Company in the year.
The Company assesses liquidity and capital resources on a consolidated basis. The Company's requirements are for cash operating expenses, working capital, contractual debt requirements and capital expenditures. The Company believes that it will generate sufficient liquidity to meet its anticipated requirements for the next 12 months.
Financing Activities
On May 31, 2013, the Company repaid its senior secured revolving credit
facility with Standard Chartered Bank and cancelled this facility.
In connection with the Ekati Diamond Mine Acquisition, the Company arranged new secured credit facilities with The Royal Bank of Canadaand Standard Chartered Bank consisting of a $400 million term loan, a $100 million revolving credit facility and a $140 million letter of credit facility (expandable to $265 million in aggregate). The Ekati Diamond Mine Acquisition was completed on April 10, 2013. The Company ultimately determined to fund the Ekati Diamond Mine Acquisition by way of cash on hand and did not draw on these new facilities. The new facilities were subsequently cancelled in fiscal 2014.
As at January 31, 2014, $nil and $nil was outstanding under the Company's revolving financing facility relating to its Belgian subsidiary, Dominion Diamond International NV, and its Indian subsidiary, Dominion Diamond (India) Private Limited, respectively, compared to $nil and $1.1 million at January 31, 2013.
Investing Activities
During the fiscal year, the Company purchased property, plant and
equipment of $122.3 million for its continuing operations, of which
$26.6 million was purchased for the Diavik Diamond Mine and $95.7
million for the Ekati Diamond Mine.
Contractual Obligations
The Company has contractual payment obligations with respect to
interest-bearing loans and borrowings and, through its participation in
the Diavik Joint Venture and the Ekati Diamond Mine, future site
restoration costs at both the Ekati and Diavik Diamond Mine level.
Additionally, at the Diavik Joint Venture level, contractual
obligations exist with respect to operating purchase obligations, as
administered by DDMI, the operator of the mine. In order to maintain
its 40% ownership interest in the Diavik Diamond Mine, DDDLP is
obligated to fund 40% of the Diavik Joint Venture's total expenditures
on a monthly basis. Not reflected in the table below are currently
estimated capital expenditures for the calendar years 2014 to 2018 of
approximately $78 million in the aggregate assuming a Canadian/US
average exchange rate of $1.10 for each of the five years, representing
DDDLP's current projected share of the currently planned capital
expenditures (excluding the A-21 pipe) at the Diavik Diamond Mine. Also
not reflected in the table below are currently estimated capital
expenditures for the fiscal years 2015 to 2019 of approximately
$404 million in the aggregate assuming a Canadian/US average exchange
rate of $1.10 for each of the five years, representing the current
planned capital expenditures (excluding Jay-Cardinal pipes) at the
Ekati Diamond Mine. The most significant contractual obligations for
the ensuing five-year period can be summarized as follows:
| CONTRACTUAL OBLIGATIONS | Less than | Year | Year | After | ||||||||||||||
| (expressed in thousands of United States dollars) | Total | 1 year | 2-3 | 4-5 | 5 years | |||||||||||||
| Interest-bearing loans and borrowings (a)(b) | $ | 5,297 | $ | 1,140 | $ | 2,271 | $ | 1,886 | $ | - | ||||||||
| Environmental and participation agreements incremental commitments (c) | 197,359 | 190,775 | 2,325 | 4,259 | - | |||||||||||||
| Operating lease obligations (d) | 12,975 | 7,385 | 5,590 | - | - | |||||||||||||
| Total contractual obligations | $ | 215,631 | $ | 199,300 | $ | 10,186 | $ | 6,145 | $ | - |
| (a) | (i) Interest-bearing loans and borrowings presented in the foregoing
table include current and long-term portions. The Company does not have any credit facilities. |
| (ii) The Company has available a $45.0 million revolving financing
facility (utilization in either US dollars or Euros) with Antwerp
Diamond Bank for inventory and receivables funding in connection with marketing activities through its Belgian subsidiary, Dominion Diamond International NV, and its Indian subsidiary, Dominion Diamond (India) Private Limited. Borrowings under the Belgian facility bear interest at the bank's base rate plus 1.5%. Borrowings under the Indian facility bear an interest rate of 14.25%. At January 31, 2014, $nil was outstanding under this facility relating to Dominion Diamond International NV and Dominion Diamond (India) Private Limited. The facility is guaranteed by Dominion Diamond Corporation. | |
| (iii) The Company's first mortgage on real property has scheduled
principal payments of approximately $0.2 million quarterly, may be prepaid at any time, and matures on September 1, 2018. On January 31, 2014, $4.3 million was outstanding on the mortgage payable. | |
| (b) | Interest on loans and borrowings is calculated at various fixed and
floating rates. Projected interest payments on the current debt outstanding were based on interest rates in effect at January 31, 2014, and have been included under interest-bearing loans and borrowings in the table above. Interest payments for the next 12 months are approximated to be $0.3 million. |
| (c) | Both the Diavik Joint Venture and the Ekati Diamond Mine, under
environmental and other agreements, must provide funding for the Environmental Monitoring Advisory Board, and the Independent Environmental Monitoring Agency, respectively. These agreements also state that the mines must provide security deposits for the performance of their reclamation and abandonment obligations under all environmental laws and regulations. The operator of the Diavik Joint Venture has fulfilled such obligations for the security deposits by posting letters of credit, of which DDDLP's share as at January 31, 2014 was $58 million based on its 40% ownership interest in the Diavik Diamond Mine. There can be no assurance that the operator will continue its practice of posting letters of credit in fulfillment of this obligation, in which event DDDLP would be required to post its proportionate share of such security directly, which would result in additional constraints on liquidity. The requirement to post security for the reclamation and abandonment obligations may be reduced to the extent of amounts spent by the Diavik Joint Venture on those activities. In June 2013, the WLWB adjusted the total reclamation liability for the Ekati Diamond Mine (inclusive of Sable property) to reflect the revised Interim Closure and Reclamation Plan, and this liability is currently set at CDN $264 million. The Company has posted letters of credit of CDN $127 million with the Government of Canada supported by restricted cash in support of the reclamation obligations for the Ekati Diamond Mine, and has provided a proposal to the Government of the Northwest Territories and the Government of Canada on an appropriate form of security. Both the Diavik and Ekati Diamond Mines have also signed participation agreements with various native groups. These agreements are expected to contribute to the social, economic and cultural well-being of area Aboriginal bands. The actual cash outlay for obligations of the Diavik Joint Venture under these agreements is not anticipated to occur until later in the life of the mine. The actual cash outlay in respect of the Ekati Diamond Mine under these agreements includes annual payments and special project payments during the operation of the Ekati Diamond Mine. |
| (d) | Operating lease obligations represent future minimum annual rentals under non-cancellable operating leases at the Ekati Diamond Mine. |
Non-IFRS Measures
In addition to discussing earnings measures in accordance with IFRS, the
MD&A provides the following non-IFRS measures, which are also used by
management to monitor and evaluate the performance of the Company.
Cash Cost of Production
The MD&A refers to cash cost of production, a non-IFRS performance
measure, in order to provide investors with information about the
measure used by management to monitor performance. This information is
used to assess how well each of the Diavik Diamond Mine and Ekati
Diamond Mine is performing compared to the mine plan and prior periods.
Cash cost of production includes mine site operating costs such as
mining, processing and administration, but is exclusive of
amortization, capital, and exploration and development costs. Cash cost
of production does not have any standardized meaning prescribed by IFRS
and differs from measures determined in accordance with IFRS. This
performance measure is 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. This measure is not
necessarily indicative of net profit or cash flow from operations as
determined under IFRS.
EBITDA and EBITDA Margin
The term EBITDA (earnings before interest, taxes, depreciation and
amortization) is a non-GAAP financial measure, which is defined as
sales minus cost of sales and selling, general and administrative
expenses, meaning it represents operating profit before depreciation
and amortization. EBITDA margin is calculated using EBITDA over total
sales for the period.
Management believes that EBITDA and EBITDA margin are important indicators commonly reported and widely used by investors and analysts as an indicator of the Company's operating performance and ability to incur and service debt and as a valuation metric. EBITDA margin is defined as the ratio obtained by dividing EBITDA by sales and is a measurement for cash margins. The intent of EBITDA and EBITDA margin is to provide additional useful information to investors and analysts and the measure does not have any standardized meaning under IFRS. These measures should not be considered in isolation or as substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate EBITDA and EBITDA margins differently.
| CONSOLIDATED | |||||||||||||||||||||||
| (expressed in thousands of United States dollars) (unaudited) | |||||||||||||||||||||||
| 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2014 | 2013 | 2012 | |||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Total | Total | Total | |||||||||||||
| Operating profit (loss) from continuing operations | $ | 20,016 | $ | 4,509 | $ | 15,661 | $ | 10,459 | $ | 20,987 | $ | 5,574 | $ | 8,939 | $ | 12,171 | $ | 51,645 | $ | 47,671 | $ | 37,574 | |
| Depreciation and amortization | 55,228 | 31,978 | 32,644 | 20,211 | 24,346 | 20,588 | 13,160 | 22,172 | 140,061 | 80,266 | 78,761 | ||||||||||||
| EBITDA from continuing operations | $ | 75,244 | $ | 36,487 | $ | 48,305 | $ | 30,670 | $ | 45,333 | $ | 26,162 | $ | 22,099 | $ | 34,343 | $ | 191,706 | $ | 127,937 | $ | 116,335 | |
| DIAVIK DIAMOND MINE SEGMENT | |||||||||||||||||||||||
| (expressed in thousands of United States dollars) (unaudited) | |||||||||||||||||||||||
| 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2014 | 2013 | 2012 | |||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Total | Total | Total | |||||||||||||
| Operating profit | $ | 30,404 | $ | 11,765 | $ | 21,530 | $ | 25,918 | $ | 29,213 | $ | 11,876 | $ | 13,639 | $ | 17,938 | $ | 89,619 | $ | 72,666 | $ | 58,256 | |
| Depreciation and amortization | 28,885 | 12,434 | 21,768 | 19,906 | 24,042 | 20,283 | 12,874 | 21,876 | 82,993 | 79,075 | 77,529 | ||||||||||||
| EBITDA | $ | 59,289 | $ | 24,199 | $ | 43,298 | $ | 45,824 | $ | 53,255 | $ | 32,159 | $ | 26,513 | $ | 39,814 | $ | 172,612 | $ | 151,741 | $ | 135,785 | |
| EKATI DIAMOND MINE SEGMENT | |||||||||||||||||||||||
| (expressed in thousands of United States dollars) (unaudited) | |||||||||||||||||||||||
| 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2014 | 2013 | 2012 | |||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Total | Total | Total | |||||||||||||
| Operating profit (loss) | $ | (1,513) | $ | (1,332) | $ | 7,102 | $ | (246) | $ | - | $ | - | $ | - | $ | - | $ | 4,010 | $ | - | $ | - | |
| Depreciation and amortization | 25,892 | 19,166 | 10,513 | - | - | - | - | - | 55,572 | - | - | ||||||||||||
| EBITDA | $ | 24,379 | $ | 17,834 | $ | 17,615 | $ | (246) | $ | - | $ | - | $ | - | $ | - | $ | 59,582 | $ | - | $ | - | |
| CORPORATE SEGMENT | |||||||||||||||||||||||
| (expressed in thousands of United States dollars) (unaudited) | |||||||||||||||||||||||
| 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2014 | 2013 | 2012 | |||||||||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Total | Total | Total | |||||||||||||
| Operating profit (loss) | $ | (7,875) | $ | (5,924) | $ | (12,971) | $ | (15,213) | $ | (8,227) | $ | (6,302) | $ | (4,700) | $ | (5,767) | $ | (41,981) | $ | (24,996) | $ | (20,679) | |
| Depreciation and amortization | 451 | 378 | 363 | 305 | 304 | 306 | 286 | 296 | 1,496 | 1,191 | 1,231 | ||||||||||||
| EBITDA | $ | (7,424) | $ | (5,546) | $ | (12,608) | $ | (14,908) | $ | (7,923) | $ | (5,996) | $ | (4,414) | $ | (5,471) | $ | (40,485) | $ | (23,805) | $ | (19,448) |
RISK AND UNCERTAINTIES
The Company is subject to a number of risks and uncertainties as a
result of its operations. In addition to the other information
contained in this MD&A and the Company's other publicly filed
disclosure documents, readers should give careful consideration to the
following risks, each of which could have a material adverse effect on
the Company's business prospects or financial condition.
Nature of Mining
The Company's mining operations are subject to risks inherent in the
mining industry, including variations in grade and other geological
differences, unexpected problems associated with required water
retention dikes, water quality, surface and underground conditions,
processing problems, equipment performance, accidents, labour disputes,
risks relating to the physical security of the diamonds, force majeure
risks and natural disasters. Particularly with underground mining
operations, inherent risks include variations in rock structure and
strength as it impacts on mining method selection and performance,
de-watering and water handling requirements, achieving the required
crushed rock-fill strengths, and unexpected local ground conditions.
Hazards, such as unusual or unexpected rock formations, rock bursts,
pressures, collapses, flooding or other conditions, may be encountered
during mining. Such risks could result in personal injury or fatality;
damage to or destruction of mining properties, processing facilities or
equipment; environmental damage; delays, suspensions or permanent
reductions in mining production; monetary losses; and possible legal
liability.
The Company's mineral properties, because of their remote northern location and access only by winter road or by air, are subject to special climate and transportation risks. These risks include the inability to operate or to operate efficiently during periods of extreme cold, the unavailability of materials and equipment, and increased transportation costs due to the late opening and/or early closure of the winter road. Such factors can add to the cost of mine development, production and operation and/or impair production and mining activities, thereby affecting the Company's profitability.
Nature of Interest in Diavik Diamond Mine
DDDLP holds an undivided 40% interest in the assets, liabilities and
expenses of the Diavik Diamond Mine and the Diavik group of mineral
claims. The Diavik Diamond Mine and the exploration and development of
the Diavik group of mineral claims is a joint arrangement between DDMI
(60%) and DDDLP (40%), and is subject to the risks normally associated
with the conduct of joint ventures and similar joint arrangements.
These risks include the inability to exert influence over strategic
decisions made in respect of the Diavik Diamond Mine and the Diavik
group of mineral claims, including the inability to control the timing
and scope of capital expenditures, and risks that DDMI may change the
mine plan. By virtue of DDMI's 60% interest in the Diavik Diamond Mine,
it has a controlling vote in all Diavik Joint Venture management
decisions respecting the development and operation of the Diavik
Diamond Mine and the development of the Diavik group of mineral claims.
Accordingly, DDMI is able to determine the timing and scope of future
project capital expenditures, and therefore is able to impose capital
expenditure requirements on DDDLP that the Company may not have
sufficient cash to meet. A failure to meet capital expenditure
requirements imposed by DDMI could result in DDDLP's interest in the
Diavik Diamond Mine and the Diavik group of mineral claims being
diluted.
Diamond Prices and Demand for Diamonds
The profitability of the Company is dependent upon the Company's mineral
properties and the worldwide demand for and price of diamonds. Diamond
prices fluctuate and are affected by numerous factors beyond the
control of the Company, including worldwide economic trends, worldwide
levels of diamond discovery and production, and the level of demand
for, and discretionary spending on, luxury goods such as diamonds. Low
or negative growth in the worldwide economy, renewed or additional
credit market disruptions, natural disasters or the occurrence of
terrorist attacks or similar activities creating disruptions in
economic growth could result in decreased demand for luxury goods such
as diamonds, thereby negatively affecting the price of diamonds.
Similarly, a substantial increase in the worldwide level of diamond
production or the release of stocks held back during recent periods of
lower demand could also negatively affect the price of diamonds. In
each case, such developments could have a material adverse effect on
the Company's results of operations.
Cash Flow and Liquidity
The Company's liquidity requirements fluctuate from quarter to quarter
and year to year depending on, among other factors, the seasonality of
production at the Company's mineral properties, the seasonality of mine
operating expenses, exploration expenses, capital expenditure programs,
the number of rough diamond sales events conducted during the quarter,
and the volume, size and quality distribution of rough diamonds
delivered from the Company's mineral properties and sold by the Company
in each quarter. The Company's principal working capital needs include
investments in inventory, prepaid expenses and other current assets,
and accounts payable and income taxes payable. There can be no
assurance that the Company will be able to meet each or all of its
liquidity requirements. A failure by the Company to meet its liquidity
requirements could result in the Company failing to meet its planned
development objectives, or in the Company being in default of a
contractual obligation, each of which could have a material adverse
effect on the Company's business prospects or financial condition.
Economic Environment
The Company's financial results are tied to the global economic
conditions and their impact on levels of consumer confidence and
consumer spending. The global markets have experienced the impact of a
significant US and international economic downturn since autumn 2008. A
return to a recession or weak recovery, due to recent disruptions in
financial markets in the US, the Eurozone or elsewhere, budget policy
issues in the US and political upheavals in the Middle East, could
cause the Company to experience revenue declines due to deteriorated
consumer confidence and spending, and a decrease in the availability of
credit, which could have a material adverse effect on the Company's
business prospects or financial condition. The credit facilities
essential to the diamond polishing industry are largely underwritten by
European banks that are currently under stress. The withdrawal or
reduction of such facilities could also have a material adverse effect
on the Company's business prospects or financial condition. The Company
monitors economic developments in the markets in which it operates and
uses this information in its continuous strategic and operational
planning in an effort to adjust its business in response to changing
economic conditions.
Currency Risk
Currency fluctuations may affect the Company's financial performance.
Diamonds are sold throughout the world based principally on the
US dollar price, and although the Company reports its financial results
in US dollars, a majority of the costs and expenses of the Company's
mineral properties are incurred in Canadian dollars. Further, the
Company has a significant deferred income tax liability that has been
incurred and will be payable in Canadian dollars. The Company's
currency exposure relates to expenses and obligations incurred by it in
Canadian dollars. The appreciation of the Canadian dollar against the
US dollar, therefore, will increase the expenses of the Company's
mineral properties and the amount of the Company's Canadian dollar
liabilities relative to the revenue the Company will receive from
diamond sales. From time to time, the Company may use a limited number
of derivative financial instruments to manage its foreign
currency exposure.
Licences and Permits
The Company's mining operations require licences and permits from the
Canadian and Northwest Territories governments, and the process for
obtaining and renewing of such licences and permits often takes an
extended period of time and is subject to numerous delays and
uncertainties. Such licences and permits are subject to change in
various circumstances. Failure to comply with applicable laws and
regulations may result in injunctions, fines, criminal liability,
suspensions or revocation of permits and licences and other penalties.
There can be no assurance that DDMI, as the operator of the Diavik
Diamond Mine, or the Company has been or will be at all times in
compliance with all such laws and regulations and with its applicable
licences and permits, or that DDMI or the Company will be able to
obtain on a timely basis or maintain in the future all necessary
licences and permits that may be required to explore and develop their
properties, commence construction or operation of mining facilities and
projects under development or to maintain continued operations.
Regulatory and Environmental Risks
The operation of the Company's mineral properties are subject to various
laws and regulations governing the protection of the environment,
exploration, development, production, taxes, labour standards,
occupational health, waste disposal, mine safety and other matters. New
laws and regulations, amendments to existing laws and regulations, or
more stringent implementation or changes in enforcement policies under
existing laws and regulations could have a material adverse effect on
the Company by increasing costs and/or causing a reduction in levels of
production from the Company's mineral properties.
Mining is subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mining operations. To the extent that the Company's operations are subject to uninsured environmental liabilities, the payment of such liabilities could have a material adverse effect on the Company.
The environmental agreements relating to the Diavik Diamond Mine and the Ekati Diamond Mine require that security be provided to cover estimated reclamation and remediation costs. The operator of the Diavik Joint Venture has fulfilled such obligations for the security deposits by posting letters of credit, of which DDDLP's share as at January 31, 2014 was $58 million based on its 40% ownership interest in the Diavik Diamond Mine. There can be no assurance that the operator will continue its practice of posting letters of credit in fulfillment of this obligation, in which event DDDLP would be required to post its proportionate share of such security directly, which would result in additional constraints on liquidity. In June 2013, the WLWB adjusted the total reclamation liability for the Ekati Diamond Mine (inclusive of the Sable property) to reflect the revised Interim Closure and Reclamation Plan, and this liability is currently set at CDN $264 million. The Company has as at January 31, 2014 posted letters of credit of CDN $127 million with the Government of Canada supported by restricted cash in support of the reclamation obligations for the Ekati Diamond Mine, and has provided a proposal to the Government of the Northwest Territories and the Government of Canada on an appropriate form of security. As reclamation and remediation cost estimates are updated and revised, the Company expects that it will be required to post additional security for those obligations, which could result in additional constraints on liquidity.
Climate Change
The Canadian government has established a number of policy measures in
response to concerns relating to climate change. While the impact of
these measures cannot be quantified at this time, the likely effect
will be to increase costs for fossil fuels, electricity and
transportation; restrict industrial emission levels; impose added costs
for emissions in excess of permitted levels; and increase costs for
monitoring and reporting. Compliance with these initiatives could have
a material adverse effect on the Company's results of operations.
Resource and Reserve Estimates
The Company's figures for mineral resources and ore reserves are
estimates, and no assurance can be given that the anticipated carats
will be recovered. The estimation of reserves is a subjective process.
Forecasts are based on engineering data, projected future rates of
production and the timing of future expenditures, all of which are
subject to numerous uncertainties and various interpretations. The
Company expects that its estimates of reserves will change to reflect
updated information as well as to reflect depletion due to production.
Reserve estimates may be revised upward or downward based on the
results of current and future drilling, testing or production levels,
and on changes in mine design. In addition, market fluctuations in the
price of diamonds or increases in the costs to recover diamonds from
the Company's mineral properties may render the mining of ore reserves
uneconomical.
Mineral resources that are not mineral reserves do not have demonstrated economic viability. Due to the uncertainty that may attach to inferred mineral resources, there is no assurance that mineral resources will be upgraded to proven and probable ore reserves.
Insurance
The Company's business is subject to a number of risks and hazards,
including adverse environmental conditions, industrial accidents,
labour disputes, unusual or unexpected geological conditions, risks
relating to the physical security of diamonds held as inventory or in
transit, changes in the regulatory environment, and natural phenomena
such as inclement weather conditions. Such occurrences could result in
damage to the Company's mineral properties, personal injury or death,
environmental damage to the Company's mineral properties, delays in
mining, monetary losses and possible legal liability. Although
insurance is maintained to protect against certain risks in connection
with the Company's mineral properties and the Company's operations, the
insurance in place will not cover all potential risks. It may not be
possible to maintain insurance to cover insurable risks at economically
feasible premiums.
Fuel Costs
The expected fuel needs for the Company's mineral properties are
purchased periodically during the year for storage, and transported to
the mine site by way of the winter road. These costs will increase if
transportation by air freight is required due to a shortened "winter
road season" or unexpected high fuel usage.
The cost of the fuel purchased is based on the then prevailing price and expensed into operating costs on a usage basis. The Company's mineral properties currently have no hedges for their future anticipated fuel consumption.
Reliance on Skilled Employees
Production at the Company's mineral properties is dependent upon the
efforts of certain skilled employees. The loss of these employees or
the inability to attract and retain additional skilled employees may
adversely affect the level of diamond production.
The Company's success in marketing rough diamonds is dependent on the services of key executives and skilled employees, as well as the continuance of key relationships with certain third parties, such as diamantaires. The loss of these persons or the Company's inability to attract and retain additional skilled employees or to establish and maintain relationships with required third parties may adversely affect its business and future operations in marketing diamonds.
Labour Relations
The Company is party to a collective bargaining agreement at its Ekati
Diamond Mine operation which will expire on August 31, 2014. The
Company expects to begin re-negotiations on this labour agreement early
in calendar 2014. If the Company is unable to renew this agreement, or
if the terms of any such renewal are materially adverse to the Company,
then this could result in work stoppages and other labour disruptions,
or otherwise materially impact the Company, all of which could have a
material adverse effect on the Company's business, results from
operations and financial condition.
DISCLOSURE CONTROLS AND PROCEDURES
The Company has designed a system of disclosure controls and procedures
to provide reasonable assurance that material information relating to
Dominion Diamond Corporation, including its consolidated subsidiaries,
is made known to management of the Company by others within those
entities, particularly during the period in which the Company's annual
filings are being prepared. In designing and evaluating the disclosure
controls and procedures, the management of the Company recognized that
any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control
objectives. The management of Dominion Diamond Corporation was
required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. The results of the
inherent limitations in all control systems means no evaluation of
controls can provide absolute assurance that all control issues and
instances of fraud, if any, have been detected.
The management of Dominion Diamond Corporation has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by the Annual Report. Based on that evaluation, management has concluded that these disclosure controls and procedures, as defined in Canada by Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings, and in the United States by Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), are effective as of January 31, 2014, to ensure that information required to be disclosed in reports that the Company will file or submit under Canada securities legislation and the Exchange Act is recorded, processed, summarized and reported within the time periods specified in those rules and forms.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The certifying officers of the Company have designed a system of
internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with IFRS and the
requirements of the US Securities and Exchange Commission, as
applicable. Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company,
including its consolidated subsidiaries.
Management has evaluated the effectiveness of internal control over financial reporting using the framework and criteria established in Internal Control - Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that internal control over financial reporting was effective as of January 31, 2014.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the fourth quarter of fiscal 2014, there were no changes in the
Company's disclosure controls and procedures or internal controls over
financial reporting that materially affected, or are reasonably likely
to materially affect, the Company's disclosure controls and procedures
or internal control over financial reporting.
Limitation on Scope of Design
Management has limited the scope of design of its disclosure controls
and procedures and internal controls over financial reporting to
exclude controls, policies and procedures of entities acquired as part
of the Ekati Diamond Mine Acquisition as permitted under NI 52-109 and
the Exchange Act.
The chart below presents the summary financial information for entities acquired as part of the Ekati Diamond Mine Acquisition included in the Company's consolidated financial statements:
| As at January 31, 2014 | ||||||
| Current assets | 447,465 | |||||
| Long-term assets | 923,209 | |||||
| Current liabilities | 72,839 | |||||
| Long-term liabilities | 722,400 | |||||
| For the year ended January 31, 2014 | ||||||
| Revenue | 399,636 | |||||
| Net loss | (40,820) |
Critical Accounting Estimates
Management is often required to make judgments, assumptions and
estimates in the application of IFRS that have a significant impact on
the financial results of the Company. Certain policies are more
significant than others and are, therefore, considered critical
accounting policies. Accounting policies are considered critical if
they rely on a substantial amount of judgment (use of estimates) in
their application, or if they result from a choice between accounting
alternatives and that choice has a material impact on the Company's
financial performance or financial position. The following discussion
outlines the accounting policies and practices that are critical to
determining Dominion Diamond Corporation's financial results.
Significant Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements in conformity
with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the
reported amounts of assets and liabilities and contingent liabilities
at the date of the consolidated financial statements, and the reported
amounts of sales and expenses during the reporting period. Estimates
and assumptions are continually evaluated and are based on management's
experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances. However,
actual outcomes can differ from these estimates. Revisions to
accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected. Information
about significant areas of estimation uncertainty and critical
judgments in applying accounting policies that have the most
significant effect on the amounts recognized in the consolidated
financial statements is as follows:
a.Significant Judgments in Applying Accounting Policies
Recovery of deferred tax assets
Judgment is required in determining whether deferred tax assets are
recognized in the consolidated balance sheet. Deferred tax assets,
including those arising from unused tax losses, require management to
assess the likelihood that the Company will generate taxable earnings
in future periods in order to utilize recognized deferred tax assets.
Estimates of future taxable income are based on forecasted income from
operations and the application of existing tax laws in each
jurisdiction. To the extent that future taxable income differs
significantly from estimates, the ability of the Company to realize the
deferred tax assets recorded at the consolidated balance sheet date
could be impacted. Additionally, future changes in tax laws in the
jurisdictions in which the Company operates could limit the ability of
the Company to obtain tax deductions in future periods.
Commitments and contingencies
The Company has conducted its operations in the ordinary course of
business in accordance with its understanding and interpretation of
applicable tax legislation in the countries where the Company has
operations. The relevant tax authorities could have a different
interpretation of those tax laws that could lead to contingencies or
additional liabilities for the Company. The Company believes that its
tax filing positions as at the balance sheet date are appropriate and
supportable. Should the ultimate tax liability materially differ from
the provision, the Company's effective tax rate and its profit or loss
could be affected positively or negatively in the period in which the
matters are resolved.
b.Significant Estimates and Assumptions in Applying Accounting Policies
Mineral reserves, mineral properties and exploration costs
The estimation of mineral reserves is a subjective process. The Company
estimates its mineral reserves based on information compiled by an
appropriately qualified person. Forecasts are based on engineering
data, projected future rates of production and the timing of future
expenditures, all of which are subject to numerous uncertainties and
various interpretations. The Company expects that its estimates of
reserves will change to reflect updated information. Reserve estimates
can be revised upward or downward based on the results of future
drilling, testing or production levels, and diamond prices. Changes in
reserve estimates may impact the carrying value of exploration and
evaluation assets, mineral properties, property, plant and equipment,
mine rehabilitation and site restoration provisions, recognition of
deferred tax assets, and depreciation charges. Estimates and
assumptions about future events and circumstances are also used to
determine whether economically viable reserves exist that can lead to
commercial development of an ore body.
Estimated mineral reserves are used in determining the depreciation of mine-specific assets. This results in a depreciation charge proportional to the depletion of the anticipated remaining life of mine production. A units-of-production depreciation method is applied, and depending on the asset, is based on carats of diamonds recovered during the period relative to the estimated proven and probable reserves of the ore deposit being mined or to the total ore deposit. Changes in estimates are accounted for prospectively.
Impairment of long-lived assets
The Company assesses each cash-generating unit at least annually to
determine whether any indication of impairment exists. Where an
indicator of impairment exists, a formal estimate of the recoverable
amount is made, which is considered to be the higher of the fair value
of an asset less costs to sell and its value in use. These assessments
require the use of estimates and assumptions such as long-term
commodity prices, discount rates, future capital requirements,
exploration potential and operating performance. Financial results as
determined by actual events could differ from those estimated.
Mine rehabilitation and site restoration provision
Provision for the cost of site closure and reclamation is recognized at
the time that the environmental disturbance occurs. When the extent of
disturbance increases over the life of the operation, the provision is
increased accordingly. Costs included in the provision encompass all
restoration and rehabilitation activity expected to occur progressively
over the life of the operation and at the time of closure. Routine
operating costs that may impact the ultimate restoration and
rehabilitation activities, such as waste material handling conducted as
an integral part of a mining or production process, are not included in
the provision. Costs arising from unforeseen circumstances, such as
contamination caused by unplanned discharges, are recognized as an
expense and liability when the event gives rise to an obligation which
is probable and capable of reliable estimation.
The site closure and reclamation provision is measured at the expected value of future cash flows and is discounted to its present value. Significant judgments and estimates are involved in forming expectations of future site closure and reclamation activities and the amount and timing of the associated cash flows. Those expectations are formed based on existing environmental and regulatory requirements. The Ekati Diamond Mine rehabilitation and site restoration provision is prepared by management at the Ekati Diamond Mine.
The Diavik Diamond Mine rehabilitation and site restoration provisions have been provided by management of the Diavik Diamond Mine and are based on internal estimates. Assumptions, based on the current economic environment, have been made which DDMI management believes are a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly by management of the Diavik Diamond Mine to take into account any material changes to the assumptions. However, actual rehabilitation costs will ultimately depend upon future costs for the necessary decommissioning work required, which will reflect market conditions at the relevant time. Furthermore, the timing of rehabilitation is likely to depend on when the Diavik Diamond Mine ceases to produce at economically viable rates. This, in turn, will depend upon a number of factors including future diamond prices, which are inherently uncertain.
Pension benefits
The present value of the pension obligations depends on a number of
factors that are determined on an actuarial basis using a number of
assumptions. The assumptions used in determining the net cost (income)
for pensions include the discount rate. Any changes in these
assumptions will impact the carrying amount of the pension obligation.
The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Company considers the interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation.
Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 15.
CHANGES IN ACCOUNTING POLICIES
The Company has adopted the following new standards, along with any
consequential amendments, effective February 1, 2013. These changes
were made in accordance with the applicable transitional provisions.
IFRS 10, "Consolidated Financial Statements" ("IFRS 10"), replaced the consolidation requirements in SIC-12, "Consolidation - Special Purpose Entities" and IAS 27, "Consolidated and Separate Financial Statements". The new standard establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and provides guidance to assist in the determination of control where it is difficult to assess. The Company has conducted a review of all non-wholly owned entities and determined that the adoption of IFRS 10 did not result in any change in the consolidated status of any of its subsidiaries and investees.
IFRS 11, "Joint Arrangements" ("IFRS 11"), replaced IAS 31, "Interest in Joint Ventures". The new standard applies to the accounting for interests in joint arrangements where there is joint control. Under IFRS 11, joint arrangements are classified as either joint ventures or joint operations. The structure of the joint arrangement will no longer be the most significant factor in determining whether a joint arrangement is either a joint venture or a joint operation. For a joint venture, proportionate consolidation will no longer be allowed and will be replaced by equity accounting. IFRS 11 did not have a material impact on the Company's consolidated financial statements upon its adoption on February 1, 2013.
IFRS 13, "Fair Value Measurement" ("IFRS 13"), generally makes IFRS consistent with generally accepted accounting principles in the United States ("US GAAP") on measuring fair value and related fair value disclosures. The new standard creates a single source of guidance for fair value measurements. The Company has added additional disclosures on fair value measurement in note 25 to the consolidated financial statements.
The International Financial Reporting Interpretations Committee ("IFRIC") issued IFRIC 20, "Stripping Costs in the Production Phase of a Surface Mine" ("IFRIC 20"), which clarifies the requirements for accounting for stripping costs associated with waste removal in surface mining, including when production stripping costs should be recognized as an asset, how the asset is initially recognized, and subsequent measurement. The adoption of IFRIC 20 did not have a material impact on the Company's consolidated financial statements.
Amendments to IAS 19, which eliminates the option to defer the recognition of actuarial gains and losses through the "corridor" approach, revises the presentation of changes in assets and liabilities arising from defined benefit plans and enhances the disclosures for defined benefit plans. The adoption of revised IAS 19 did not materially impact measurement or recognition of the Company's pension plans, and additional disclosures required under the new standard can be found in note 15 to the consolidated financial statements.
Amendments to IAS 1, "Presentation of Financial Statements" ("IAS 1") have been adopted by the Company on February 1, 2013, with retrospective application. The amendments to IAS 1 require the grouping of items within other comprehensive income that may be reclassified to profit or loss and those that will not be reclassified. The Company has amended its consolidated statement of comprehensive income for all periods presented in these consolidated financial statements to reflect the presentation changes required under the amended IAS 1. Since these changes are reclassifications within the statement of comprehensive income, there is no net impact on the Company's comprehensive income.
Outstanding Share Information
| As at March 31, 2014 | |||||||||||
| Authorized | Unlimited | ||||||||||
| Issued and outstanding shares | 85,124,480 | ||||||||||
| Options outstanding | 2,438,000 | ||||||||||
| Fully diluted | 87,562,480 |
Additional Information
Additional information relating to the Company, including the Company's
most recently filed Annual Information Form, can be found on SEDAR at www.sedar.com, and is also available on the Company's website at www.ddcorp.ca.
| Consolidated Balance Sheets | |||||||||
| (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED) | |||||||||
| January 31, 2014 | January 31, 2013 | ||||||||
| ASSETS | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents (note 5) | $ | 224,778 | $ | 104,313 | |||||
| Accounts receivable (note 6) | 20,879 | 3,705 | |||||||
| Inventory and supplies (note 7) | 440,853 | 115,627 | |||||||
| Other current assets (note 8) | 27,156 | 29,486 | |||||||
| Assets held for sale (note 10) | - | 718,804 | |||||||
| 713,666 | 971,935 | ||||||||
| Property, plant and equipment (note 11) | 1,469,557 | 727,489 | |||||||
| Restricted cash (note 9) | 113,612 | - | |||||||
| Other non-current assets (note 13) | 4,737 | 6,937 | |||||||
| Deferred income tax assets (note 16) | 3,078 | 4,095 | |||||||
| Total assets | $ | 2,304,650 | $ | 1,710,456 | |||||
| LIABILITIES AND EQUITY | |||||||||
| Current liabilities | |||||||||
| Trade and other payables (note 14) | $ | 103,653 | $ | 39,053 | |||||
| Employee benefit plans (note 15) | 3,643 | 2,634 | |||||||
| Income taxes payable (note 16) | 33,442 | 32,977 | |||||||
| Current portion of interest-bearing loans and borrowings (note 21) | 794 | 51,508 | |||||||
| Liabilities held for sale (note 10) | - | 484,252 | |||||||
| 141,532 | 610,424 | ||||||||
| Interest-bearing loans and borrowings (note 21) | 3,504 | 4,799 | |||||||
| Deferred income tax liabilities (note 16) | 242,563 | 181,427 | |||||||
| Employee benefit plans (note 15) | 14,120 | 3,499 | |||||||
| Provisions (note 17) | 430,968 | 79,055 | |||||||
| Total liabilities | 832,687 | 879,204 | |||||||
| Equity | |||||||||
| Share capital (note 18) | 508,523 | 508,007 | |||||||
| Contributed surplus | 23,033 | 20,387 | |||||||
| Retained earnings | 775,419 | 295,738 | |||||||
| Accumulated other comprehensive income | (2,447) | 6,357 | |||||||
| Total shareholders' equity | 1,304,528 | 830,489 | |||||||
| Non-controlling interest | 167,435 | 763 | |||||||
| Total equity | 1,471,963 | 831,252 | |||||||
| Total liabilities and equity | $ | 2,304,650 | $ | 1,710,456 | |||||
| The accompanying notes are an integral part of these consolidated financial statements. | |||||||||
| Consolidated Statements of Income | |||||||||||
| (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE
AMOUNTS) (UNAUDITED) | |||||||||||
| 2014 | 2013 | ||||||||||
| Sales | $ | 751,942 | $ | 345,411 | |||||||
| Cost of sales | 650,872 | 267,584 | |||||||||
| Gross margin | 101,070 | 77,827 | |||||||||
| Selling, general and administrative expenses | 49,425 | 30,156 | |||||||||
| Operating profit (note 19) | 51,645 | 47,671 | |||||||||
| Finance expenses | (27,352) | (9,083) | |||||||||
| Exploration costs | (14,550) | (1,801) | |||||||||
| Finance and other income | 3,153 | 780 | |||||||||
| Foreign exchange (loss) gain | (8,879) | 493 | |||||||||
| Profit before income taxes from continuing operations | 4,017 | 38,060 | |||||||||
| Income tax expense (note 16) | 35,505 | 15,276 | |||||||||
| Net profit (loss) from continuing operations | (31,488) | 22,784 | |||||||||
| Net profit from discontinued operations (note 10) | 502,656 | 12,434 | |||||||||
| Net profit | $ | 471,168 | $ | 35,218 | |||||||
| Net profit (loss) from continuing operations attributable to | |||||||||||
| Shareholders | $ | (22,975) | $ | 22,276 | |||||||
| Non-controlling interest | (8,513) | 508 | |||||||||
| Net profit (loss) attributable to | |||||||||||
| Shareholders | $ | 479,681 | $ | 34,710 | |||||||
| Non-controlling interest | (8,513) | 508 | |||||||||
| Earnings (loss) per share - continuing operations | |||||||||||
| Basic | $ | (0.27) | $ | 0.26 | |||||||
| Diluted | (0.27) | 0.26 | |||||||||
| Earnings per share | |||||||||||
| Basic | 5.64 | 0.41 | |||||||||
| Diluted | 5.59 | 0.41 | |||||||||
| Weighted average number of shares outstanding (note 20) | 85,019,802 | 84,875,789 | |||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||
| Consolidated Statements of Comprehensive Income | ||||||||||||||||
| (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED) | ||||||||||||||||
| 2014 | 2013 | |||||||||||||||
| Net profit | $ | 471,168 | $ | 35,218 | ||||||||||||
| Other comprehensive income | ||||||||||||||||
| Items that may be reclassified to profit | ||||||||||||||||
| Net loss on translation of net foreign operations (net of tax of nil) | (12,228) | (2,883) | ||||||||||||||
| Items that will not be reclassified to profit | ||||||||||||||||
| Actuarial gain (loss) on employee benefit plans (net of tax of $1.5
million for the year ended January 31, 2014; 2013 - $0.1 million) | 3,424 | (846) | ||||||||||||||
| Other comprehensive loss, net of tax | (8,804) | (3,729) | ||||||||||||||
| Total comprehensive income | $ | 462,364 | $ | 31,489 | ||||||||||||
| Comprehensive income (loss) from continuing operations | $ | (29,686) | $ | 22,778 | ||||||||||||
| Comprehensive income from discontinued operations | 492,050 | 8,711 | ||||||||||||||
| Comprehensive income (loss) attributable to | ||||||||||||||||
| Shareholders | $ | 470,877 | $ | 30,981 | ||||||||||||
| Non-controlling interest | (8,513) | 508 | ||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||
| Consolidated Statements of Changes in Equity | ||||||||||||
| (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED) | ||||||||||||
| 2014 | 2013 | |||||||||||
| Common shares: | ||||||||||||
| Balance at beginning of period | $ | 508,007 | $ | 507,975 | ||||||||
| Issued during the period | 516 | 32 | ||||||||||
| Balance at end of period | 508,523 | 508,007 | ||||||||||
| Contributed surplus: | ||||||||||||
| Balance at beginning of period | 20,387 | 17,764 | ||||||||||
| Stock-based compensation expense | 2,646 | 2,623 | ||||||||||
| Balance at end of period | 23,033 | 20,387 | ||||||||||
| Retained earnings: | ||||||||||||
| Balance at beginning of period | 295,738 | 261,028 | ||||||||||
| Net profit attributable to common shareholders | 479,681 | 34,710 | ||||||||||
| Balance at end of period | 775,419 | 295,738 | ||||||||||
| Accumulated other comprehensive income: | ||||||||||||
| Balance at beginning of period | 6,357 | 10,086 | ||||||||||
| Other comprehensive income | ||||||||||||
| Items that may be reclassified to profit | ||||||||||||
| Net loss on translation of net foreign operations (net of tax of nil) | (12,228) | (2,883) | ||||||||||
| Items that will not be reclassified to profit | ||||||||||||
| Actuarial gain (loss) on employee benefit plans (net of tax of $1.5
million for the year ended January 31, 2014; 2013 - $0.1 million) | 3,424 | (846) | ||||||||||
| Balance at end of period | (2,447) | 6,357 | ||||||||||
| Non-controlling interest: | ||||||||||||
| Balance at beginning of period | 763 | 255 | ||||||||||
| Non-controlling interest | (8,513) | 508 | ||||||||||
| Acquisition of Ekati Diamond Mine (note 4) | 163,776 | - | ||||||||||
| Contributions made by minority partners | 11,409 | - | ||||||||||
| Balance at end of period | 167,435 | 763 | ||||||||||
| Total equity | $ | 1,471,963 | $ | 831,252 | ||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED) | ||||||||||||
| 2014 | 2013 | |||||||||||
| Cash provided by (used in) | ||||||||||||
| OPERATING | ||||||||||||
| Net profit (loss) | $ | 471,168 | $ | 22,784 | ||||||||
| Depreciation and amortization | 140,061 | 80,266 | ||||||||||
| Deferred income tax recovery | (4,894) | (9,752) | ||||||||||
| Current income tax expense | 40,399 | 25,028 | ||||||||||
| Finance expenses | 27,351 | 9,083 | ||||||||||
| Stock-based compensation | 2,646 | 2,623 | ||||||||||
| Other non-cash items | 11,092 | (1,761) | ||||||||||
| Foreign exchange (gain) loss | 10,166 | (45) | ||||||||||
| Loss (gain) on disposition of assets | 362 | (330) | ||||||||||
| Change in non-cash operating working capital, excluding taxes and finance expenses | 6,320 | 8,871 | ||||||||||
| Cash provided by (used in) operating activities | 704,671 | 136,767 | ||||||||||
| Interest paid | (6,383) | (5,318) | ||||||||||
| Income and mining taxes paid | (29,354) | (15,987) | ||||||||||
| Cash provided by (used in) operating activities - continuing operations | 668,934 | 115,462 | ||||||||||
| Cash provided by (used in) operating activities - discontinued operations | (502,656) | (10,339) | ||||||||||
| Net cash from (used in) operating activities | 166,278 | 105,123 | ||||||||||
| FINANCING | ||||||||||||
| Increase (decrease) in interest-bearing loans and borrowings | (789) | (5,359) | ||||||||||
| Increase in revolving credit | - | 38,765 | ||||||||||
| Decrease in revolving credit | (1,128) | (41,898) | ||||||||||
| Repayment of senior secured credit facility | (50,000) | - | ||||||||||
| Issue of common shares, net of issue costs | 516 | 32 | ||||||||||
| Contribution from non-controlling interest | 2,414 | (8,000) | ||||||||||
| Cash provided from financing activities - continuing operations | (48,987) | (16,460) | ||||||||||
| Cash provided from financing activities - discontinued operations | - | 39,880 | ||||||||||
| Cash provided from financing activities | (48,987) | 23,420 | ||||||||||
| INVESTING | ||||||||||||
| Acquisition of Ekati | (490,925) | - | ||||||||||
| Property, plant and equipment | (122,278) | (56,478) | ||||||||||
| Net proceeds from sale of property, plant and equipment | 1,911 | 2,619 | ||||||||||
| Other non-current assets | (2,981) | 50 | ||||||||||
| Cash provided in investing activities - continuing operations | (614,273) | (53,809) | ||||||||||
| Cash provided in investing activities - discontinued operations | 746,738 | (25,023) | ||||||||||
| Cash used in investing activities | 132,465 | (78,832) | ||||||||||
| Foreign exchange effect on cash balances | (15,679) | (378) | ||||||||||
| Increase in cash and cash equivalents | 234,077 | 49,333 | ||||||||||
| Cash and cash equivalents, beginning of period | 104,313 | 78,116 | ||||||||||
| Cash and equivalents, end of period | 338,390 | 127,449 | ||||||||||
| Less cash and equivalents of discontinued operations, end of period | - | 23,136 | ||||||||||
| Cash and cash equivalents of continuing operations, end of period | $ | 338,390 | $ | 104,313 | ||||||||
| Change in non-cash operating working capital, excluding taxes and finance expenses | ||||||||||||
| Accounts receivable | (2,532) | (1,747) | ||||||||||
| Inventory and supplies | 9,758 | 8,994 | ||||||||||
| Other current assets | 2,850 | 148 | ||||||||||
| Trade and other payables | (5,164) | 72 | ||||||||||
| Employee benefit plans | 1,408 | 1,404 | ||||||||||
| $ | 6,320 | $ | 8,871 | |||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||
Notes to Consolidated Financial Statements
JANUARY 31, 2014 (UNAUDITED) WITH COMPARATIVE FIGURES
(TABULAR AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT AS
OTHERWISE NOTED)
Note 1:
Nature of Operations
Dominion Diamond Corporation is focused on the mining and marketing of rough diamonds to the global market.
The Company is incorporated and domiciled in Canada and its shares are publicly traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol "DDC". The address of its registered office is Toronto, Ontario.
The Company has ownership interests in the Diavik and the Ekati group of mineral claims. The Diavik Joint Venture (the "Diavik Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines (2012) Inc. ("DDMI") (60%) and Dominion Diamond Diavik Limited Partnership ("DDDLP") (40%) where DDDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England, and DDDLP is a wholly owned subsidiary of Dominion Diamond Corporation. The Company records its interest in the assets, liabilities and expenses of the Diavik Joint Venture in its consolidated financial statements with a one-month lag. The accounting policies described below include those of the Diavik Joint Venture.
On April 10, 2013, the Company completed the $553.1 million acquisition from BHP Billiton Canada Inc. and its various affiliates of all of BHP Billiton's diamond assets, including its controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium (the "Ekati Diamond Mine Acquisition"). The Ekati Diamond 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. As a result of the completion of the Ekati Diamond Mine Acquisition the Company acquired an 80% interest in the Core Zone and a 58.8% interest in the Buffer Zone. The Company controls and consolidates the Ekati Diamond Mine and minority shareholders are presented as non-controlling interests within the consolidated financial statements.
On March 26, 2013, the Company completed the sale of the Luxury Brand Segment to Swatch Group. The operations of the Luxury Brand Segment have been presented as discontinued operations for reporting purposes. See note 10. As a result of the sale, the Company's corporate group underwent name changes to remove references to "Harry Winston". The Company's name was changed to "Dominion Diamond Corporation".
Note 2:
Basis of Preparation
(a) Statement of compliance
These consolidated financial statements ("financial statements") have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting Standards
Board ("IASB").
These financial statements were prepared on a going concern basis under the historical cost method except for certain financial assets and liabilities which are measured at fair value. The significant accounting policies are presented in Note 3 and have been consistently applied in each of the periods presented.
(b) Currency of presentation
These consolidated financial statements are expressed in United Statesdollars, which is the functional currency of the Company. All financial
information presented in United States dollars has been rounded to the
nearest thousand.
(c) Use of estimates, judgments and assumptions
The preparation of the consolidated financial statements in conformity
with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and
reported amounts of assets and liabilities and contingent liabilities
at the date of the consolidated financial statements, and the reported
amounts of sales and expenses during the reporting period. Estimates
and assumptions are continually evaluated and are based on management's
experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances. However,
actual outcomes can differ from these estimates.
Note 3:
Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Company entities.
(a) Basis of consolidation
The consolidated financial statements comprise the financial statements
of the Company and its subsidiaries as at January 31, 2014.
Subsidiaries are fully consolidated from the date of acquisition or
creation, being the date on which the Company obtains control, and
continue to be consolidated until the date that such control ceases.
The financial statements of the Company's subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies. All intercompany balances, income and expenses,
and unrealized gains and losses resulting from intercompany
transactions are eliminated in full. For partly owned subsidiaries, the
net assets and net earnings attributable to minority shareholders are
presented as non-controlling interests within the consolidated
financial statements.
Interest in Diavik Joint Venture
DDDLP has an undivided 40% ownership interest in the assets, liabilities
and expenses of the Diavik Joint Venture. The Company records its
interest in the assets, liabilities and expenses of the Diavik Joint
Venture in its consolidated financial statements with a one-month lag.
The accounting policies described below include those of the Diavik
Joint Venture.
Interest in Ekati Diamond Mine
Dominion Diamond Delware Company LLC ("DDDLC") has an undivided 80%
ownership interest in the Core Zone and a 58.8% interest in the Buffer
Zone. The Company controls and consolidates the Ekati Diamond Mine and
minority shareholders are presented as non-controlling interest (20% in
the Core Zone and 41.2% in the Buffer Zone) within the consolidated
financial statements.
(b) Revenue
Sales of rough diamonds are recognized when significant risks and
rewards of ownership are transferred to the customer, the amount of
sales can be measured reliably and the receipts of future economic
benefits are probable. Sales are measured at the fair value of the
consideration received or receivable and after eliminating sales within
the Company.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, balances with banks
and short-term money market instruments (with a maturity on acquisition
of less than 90 days), and are carried at fair value.
(d) Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and
generally do not bear interest. Account balances are written off
against the allowance after all means of collection have been exhausted
and the potential for recovery is considered remote.
(e) Inventory and supplies
Rough diamond inventory is recorded at the lower of cost or net
realizable value. Cost is determined on an average cost basis including
production costs and value-added processing activity.
Supplies inventory is recorded at the lower of cost or net realizable value. Supplies inventory includes consumables and spare parts maintained at the Diavik Diamond Mine, Ekati Diamond Mine and at the Company's sorting and distribution facility locations.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and costs of selling the final product. In order to determine net realizable value, the carrying amount of obsolete and slow moving items is written down on a basis of an estimate of their future use or realization. A provision for obsolescence is made when the carrying amount is higher than net realizable value.
(f) Assets held for sale and discontinued operations
A discontinued operation represents a separate major line of business
that either has been disposed of or is classified as held for sale.
Classification as held for sale applies when an asset's carrying value
will be recovered principally through a sale transaction rather than
through continuing use, it is available for immediate sale in its
present condition and its sale is highly probable. Results for assets
held for sale are disclosed separately as net profit from discontinued
operations in the consolidated statements of income and comparative
periods are reclassified accordingly.
(g) Business combination and goodwill
Acquisitions of businesses are accounted for using the purchase method
of accounting whereby all identifiable assets and liabilities are
recorded at their fair value as at the date of acquisition. Any excess
purchase price over the aggregate fair value of identifiable net assets
is recorded as goodwill. Goodwill is identified and allocated to
cash-generating units ("CGU"), or groups of CGU's, that are expected to
benefit from the synergies of the acquisition. A CGU to which goodwill
has been allocated is tested for impairment annually, and whenever
there is an indication that the CGU may be impaired. For goodwill
arising on acquisition in a financial year, the CGU to which goodwill
has been allocated is tested for impairment before the end of that
financial year.
When the recoverable amount of the CGU is less than the carrying amount of that CGU, the impairment loss is first allocated to reduce the carrying amount of any goodwill allocated to that CGU, and then to the other assets of that CGU pro rata on the basis of the carrying amount of each asset in the CGU. Any impairment loss for goodwill is recognized directly in the consolidated statement of income. An impairment loss recorded on goodwill is not reversed in subsequent periods.
(h) Exploration, evaluation and development expenditures
Exploration and evaluation activities include: acquisition of rights to
explore; topographical, geological, geochemical and geophysical
studies; exploratory drilling; trenching and sampling; and activities
involved in evaluating the technical feasibility and commercial
viability of extracting mineral resources. Mineral exploration is
expensed as incurred. Exploration costs are only capitalized when the
exploration activity relates to proven and probable reserves.
Capitalized exploration and evaluation expenditures are recorded as a
component of property, plant and equipment. Exploration and evaluation
assets are no longer classified as such when the technical feasibility
and commercial viability of extracting a mineral resource are
demonstrable. Before reclassification, exploration and evaluation
assets are assessed for impairment. Recognized exploration and
evaluation assets will be assessed for impairment when the facts and
circumstances suggest that the carrying amount may exceed its
recoverable amount.
Drilling and related costs are capitalized for an ore body where proven and probable reserves exist and the activities are directed at either (a) obtaining additional information on the ore body that is classified within proven and probable reserves, or (b) converting non-reserve mineralization to proven and probable reserves and the benefit is expected to be realized over an extended period of time. All other drilling and related costs are expensed as incurred.
(i) Property, plant and equipment
Items of property, plant and equipment are measured at cost, less
accumulated depreciation and accumulated impairment losses. The initial
cost of an asset comprises its purchase price and construction cost,
any costs directly attributable to bringing the asset into operation,
including stripping costs incurred in open pit development before
production commences, the initial estimate of the rehabilitation
obligation, and for qualifying assets, borrowing costs. The purchase
price or construction cost is the aggregate amount paid and the fair
value of any other consideration given to acquire the asset.
When parts of an item of property, plant and equipment have different useful lives, the parts are accounted for as separate items (major components) of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from the disposal with the carrying amount of property, plant and equipment and are recognized within cost of sales or selling, general and administrative expenses.
(i) DEPRECIATION
Depreciation commences when the asset is available for use. Depreciation
is charged so as to write off the depreciable amount of the asset to
its residual value over its estimated useful life, using a method that
reflects the pattern in which the asset's future economic benefits are
expected to be consumed by the Company.
The unit-of-production method is applied to a substantial portion of the Diavik Diamond Mine and Ekati Diamond Mine property, plant and equipment, and, depending on the asset, is based on carats of diamonds recovered during the period relative to the estimated proven and probable ore reserves of the ore deposit being mined, or to the total ore deposit. The Company currently does not include estimates of measured, indicated or inferred resources in its calculation of ore reserves. Other property, plant and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets, for the current and comparative periods, which are as follows:
| Asset | Estimated useful life (years) | ||||||||||
| Buildings | 10-40 | ||||||||||
| Machinery and mobile equipment | 3-10 | ||||||||||
| Computer equipment and software | 3 | ||||||||||
| Furniture, fixtures and equipment | 2-10 | ||||||||||
| Leasehold and building improvements | Up to 20 |
Amortization for mine related assets was charged to mineral properties during the pre-commercial production stage.
Upon the disposition of an asset, the accumulated depreciation and accumulated impairment losses are deducted from the original cost, and any gain or loss is reflected in current net profit or loss.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate. The impact of changes to the estimated useful lives or residual values is accounted for prospectively.
(ii) STRIPPING COSTS
Mining costs associated with stripping activities in an open pit mine
are expensed unless the stripping activity can be shown to represent a
betterment to the mineral property, in which case the stripping costs
would be capitalized and included in deferred mineral property costs
within mining assets.
IFRIC 20 specifies the accounting for costs associated with waste removal (stripping) during the production phase of a surface mine. When the benefit from the stripping activity is realised in the current period, the stripping costs are accounted for as the cost of inventory. When the benefit is the improved access to ore in future periods, the costs are recognised as a non-current asset, if certain criteria are met. After initial recognition, the stripping activity asset is depreciated on a systematic basis (unit of production method) over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity.
(iii) MAJOR MAINTENANCE AND REPAIRS
Expenditure on major maintenance refits or repairs comprises the cost of
replacement assets or parts of assets and overhaul costs. When an
asset, or part of an asset that was separately depreciated, is replaced
and it is probable that future economic benefits associated with the
new asset will flow to the Company through an extended life, the
expenditure is capitalized. The unamortized value of the existing asset
or part of the existing asset that is being replaced is expensed. Where
part of the existing asset was not separately considered as a
component, the replacement value is used to estimate the carrying
amount of the replaced assets, which is immediately written off. All
other day-to-day maintenance costs are expensed as incurred.
(j) Financial instruments
From time to time, the Company may use a limited number of derivative
financial instruments to manage its foreign currency and interest rate
exposure. For a derivative to qualify as a hedge at inception and
throughout the hedged period, the Company formally documents the nature
and relationships between the hedging instruments and hedged items, as
well as its risk-management objectives, strategies for undertaking the
various hedge transactions and method of assessing hedge effectiveness.
Financial instruments qualifying for hedge accounting must maintain a
specified level of effectiveness between the hedge instrument and the
item being hedged, both at inception and throughout the hedged period.
Gains and losses resulting from any ineffectiveness in a hedging
relationship are recognized immediately in net profit or loss.
(k) Provisions
Provisions represent obligations to the Company for which the amount or
timing is uncertain. Provisions are recognized when (a) the Company has
a present obligation (legal or constructive) as a result of a past
event, (b) it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, and (c) a
reliable estimate can be made of the amount of the obligation. The
expense relating to any provision is included in net profit or loss. If
the effect of the time value of money is material, provisions are
discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the obligation. Where discounting is
used, the increase in the provision due to the passage of time is
recognized as a finance cost in net profit or loss.
Mine rehabilitation and site restoration provision:
The Company records the present value of estimated costs of legal and
constructive obligations required to restore operating locations in the
period in which the obligation is incurred. The nature of these
restoration activities includes dismantling and removing structures,
rehabilitating mines and tailings dams, dismantling operating
facilities, closure of plant and waste sites, and restoration,
reclamation and re-vegetation of affected areas.
The obligations generally arise when the asset is installed or the ground/environment is disturbed at the production location. When the liability is initially recognized, the present value of the estimated cost is capitalized by increasing the carrying amount of the related assets. Over time, the discounted liability is increased/decreased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability. Additional disturbances or changes in rehabilitation costs, including re-measurement from changes in the discount rate, are recognized as additions or charges to the corresponding assets and rehabilitation liability when they occur. The periodic unwinding of the discount is recognized in net profit or loss as a finance cost.
(l) Foreign currency
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are
translated to US dollars at exchange rates in effect at the balance
sheet date, and non-monetary assets and liabilities are translated at
rates of exchange in effect when the assets were acquired or
obligations incurred. Revenues and expenses are translated at rates in
effect at the time of the transactions. Foreign exchange gains and
losses are included in net profit or loss.
For certain subsidiaries of the Company where the functional currency is not the US dollar, the assets and liabilities of these subsidiaries are translated at the rate of exchange in effect at the reporting date. Sales and expenses are translated at the rate of exchange in effect at the time of the transactions. Foreign exchange gains and losses are accumulated in other comprehensive income within shareholders' equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign exchange reserve account is reclassified to net profit or loss as part of profit or loss on disposal.
(m) Income taxes
Current and deferred taxes
Income tax expense comprises current and deferred tax and is recognized
in net profit or loss except to the extent that it relates to items
recognized directly in equity, in which case it is recognized in equity
or in other comprehensive income.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax expense is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax expense is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is probable that the related tax benefit will not be realized.
Deferred income and mining tax assets and deferred income and mining tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
The Company classifies foreign exchange differences on deferred tax assets or liabilities in jurisdictions where the functional currency is different from the currency used for tax purposes as income tax expense.
(n) Stock-based payment transactions
Stock-based compensation
The Company applies the fair value method to all grants of stock
options. The fair value of options granted is estimated at the date of
grant using a Black-Scholes option pricing model incorporating
assumptions regarding risk-free interest rates, dividend yield,
volatility factor of the expected market price of the Company's stock,
and a weighted average expected life of the options. When option awards
vest in installments over the vesting period, each installment is
accounted for as a separate arrangement. The estimated fair value of
the options is recorded as an expense with an offsetting credit to
shareholders' equity. Any consideration received on amounts
attributable to stock options is credited to share capital.
Restricted and Deferred Share Unit Plans
The Restricted and Deferred Share Unit ("RSU" and "DSU") Plans are full
value phantom shares that mirror the value of Dominion Diamond
Corporation's publicly traded common shares. Grants under the RSU Plan
are on a discretionary basis to employees of the Company subject to
Board of Directors approval. Under the prior RSU Plan, each RSU grant
vests on the third anniversary of the grant date. Under the 2010 RSU
Plan, each RSU grant vests equally over a three-year period. Vesting
under both RSU Plans is subject to special rules for death, disability
and change in control. Grants under the DSU Plan are awarded to
non-executive directors of the Company. Each DSU grant vests
immediately on the grant date. The expenses related to the RSUs and
DSUs are accrued based on fair value. When a share-based payment award
vests in installments over the vesting period, each installment is
accounted for as a separate arrangement. These awards are accounted for
as liabilities with the value of these liabilities being re-measured at
each reporting date based on changes in the fair value of the awards,
and at settlement date. Any changes in the fair value of the liability
are recognized as employee benefit plan expense in net profit or loss.
(o) Employee pension plans
The Company operates various pension plans. The plans are generally
funded through payments to insurance companies or trustee-administered
funds determined by periodic actuarial calculations. The Company has
both defined benefit and defined contribution plans.
A defined contribution plan is a pension plan under which the employer pays fixed contributions into a separate entity or fund in respect of each member of the plan. These contributions are expensed as incurred. Unless otherwise provided in the plan documentation, the employer has no legal or constructive obligation to pay any further contributions. The benefits each member of the plan will receive are based solely on the amount contributed to the member's account and any income, expenses, gains and losses attributed to the member's account.
A defined benefit plan is a pension plan that guarantees a defined amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates on high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension obligation.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past service costs are recognized immediately in income.
(p) Operating leases
Minimum rent payments under operating leases, including any rent-free
periods and/or construction allowances, are recognized on a
straight-line basis over the term of the lease and included in net
profit or loss.
(q) Impairment of non-financial assets
The carrying amounts of the Company's non-financial assets other than
inventory and deferred taxes are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such
indication exists, then the asset's recoverable amount is estimated.
The recoverable amount of an asset is the greater of its fair value less costs of disposal and its value in use. In the absence of a binding sales agreement, fair value is estimated on the basis of values obtained from an active market or from recent transactions or on the basis of the best information available that reflects the amount that the Company could obtain from the disposal of the asset. Value in use is defined as the present value of future pre-tax cash flows expected to be derived from the use of an asset, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit").
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset. Impairment losses recognized in respect of cash-generating units would be allocated first to reduce goodwill and then to reduce the carrying amounts of the assets in the unit (group of units) on a pro rata basis.
For property, plant and equipment, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimate of the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset is increased to its recoverable amount. The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income.
(r) Basic and diluted earnings per share
Basic earnings per share are calculated by dividing net profit or loss
by the weighted average number of shares outstanding during the period.
Diluted earnings per share are determined using the treasury stock
method to calculate the dilutive effect of options and warrants. The
treasury stock method assumes that the exercise of any "in-the-money"
options with the option proceeds would be used to purchase common
shares at the average market value for the period. Options with an
exercise price higher than the average market value for the period are
not included in the calculation of diluted earnings per share as such
options are not dilutive.
(s) Use of estimates, judgments and assumptions
The preparation of the consolidated financial statements in conformity
with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the
reported amounts of assets and liabilities and contingent liabilities
at the date of the consolidated financial statements, and the reported
amounts of sales and expenses during the reporting period. Estimates
and assumptions are continually evaluated and are based on management's
experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances. However,
actual outcomes can differ from these estimates. Revisions to
accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected. Information
about significant areas of estimation uncertainty and critical
judgments in applying accounting policies that have the most
significant effect on the amounts recognized in the consolidated
financial statements is as follows:
a.Significant Judgments in Applying Accounting Policies
Recovery of deferred tax assets
Judgment is required in determining whether deferred tax assets are
recognized in the consolidated balance sheet. Deferred tax assets,
including those arising from unused tax losses, require management to
assess the likelihood that the Company will generate taxable earnings
in future periods in order to utilize recognized deferred tax assets.
Estimates of future taxable income are based on forecasted income from
operations and the application of existing tax laws in each
jurisdiction. To the extent that future taxable income differs
significantly from estimates, the ability of the Company to realize the
deferred tax assets recorded at the consolidated balance sheet date
could be impacted. Additionally, future changes in tax laws in the
jurisdictions in which the Company operates could limit the ability of
the Company to obtain tax deductions in future periods.
Commitments and contingencies
The Company has conducted its operations in the ordinary course of
business in accordance with its understanding and interpretation of
applicable tax legislation in the countries where the Company has
operations. The relevant tax authorities could have a different
interpretation of those tax laws that could lead to contingencies or
additional liabilities for the Company. The Company believes that its
tax filing positions as at the balance sheet date are appropriate and
supportable. Should the ultimate tax liability materially differ from
the provision, the Company's effective tax rate and its profit or loss
could be affected positively or negatively in the period in which the
matters are resolved.
b.Significant Estimates and Assumptions in Applying Accounting Policies
Mineral reserves, mineral properties and exploration costs
The estimation of mineral reserves is a subjective process. The Company
estimates its mineral reserves based on information compiled by an
appropriately qualified person. Forecasts are based on engineering
data, projected future rates of production and the timing of future
expenditures, all of which are subject to numerous uncertainties and
various interpretations. The Company expects that its estimates of
reserves will change to reflect updated information. Reserve estimates
can be revised upward or downward based on the results of additional
future drilling, testing or production levels, and diamond prices.
Changes in reserve estimates may impact the carrying value of
exploration and evaluation assets, mineral properties, property, plant
and equipment, mine rehabilitation and site restoration provisions,
recognition of deferred tax assets, and depreciation charges. Estimates
and assumptions about future events and circumstances are also used to
determine whether economically viable reserves exist that can lead to
commercial development of an ore body.
Estimated mineral reserves are used in determining the depreciation of mine-specific assets. This results in a depreciation charge proportional to the depletion of the anticipated remaining life of mine production. A units-of-production depreciation method is applied, and depending on the asset, is based on carats of diamonds recovered during the period relative to the estimated proven and probable reserves of the ore deposit being mined or to the total ore deposit. Changes in estimates are accounted for prospectively.
Impairment of long-lived assets
The Company assesses each cash-generating unit at least annually to
determine whether any indication of impairment exists. Where an
indicator of impairment exists, a formal estimate of the recoverable
amount is made, which is considered to be the higher of the fair value
of an asset less costs to sell and its value in use. These assessments
require the use of estimates and assumptions such as long-term
commodity prices, discount rates, future capital requirements,
exploration potential and operating performance. Financial results as
determined by actual events could differ from those estimated.
Mine rehabilitation and site restoration provision
Provision for the cost of site closure and reclamation is recognized at
the time that the environmental disturbance occurs. When the extent of
disturbance increases over the life of the operation, the provision is
increased accordingly. Costs included in the provision encompass all
restoration and rehabilitation activities expected to occur
progressively over the life of the operation and at the time of
closure. Routine operating costs that may impact the ultimate
restoration and rehabilitation activities, such as waste material
handling conducted as an integral part of a mining or production
process, are not included in the provision. Costs arising from
unforeseen circumstances, such as contamination caused by unplanned
discharges, are recognized as an expense and liability when the event
gives rise to an obligation which is probable and capable of reliable
estimation.
The site closure and reclamation provision is measured at the expected value of future cash flows and is discounted to its present value. Significant judgments and estimates are involved in forming expectations of future site closure and reclamation activities and the amount and timing of the associated cash flows. Those expectations are formed based on existing environmental and regulatory requirements. The Ekati Diamond Mine rehabilitation and site restoration provision is prepared by management at the Ekati Diamond Mine.
The Diavik Diamond Mine rehabilitation and site restoration provisions have been provided by management of the Diavik Diamond Mine and are based on internal estimates. Assumptions, based on the current economic environment, have been made which DDMI management believes are a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly by management of the Diavik Diamond Mine to take into account any material changes to the assumptions. However, actual rehabilitation costs will ultimately depend upon future costs for the necessary decommissioning work required, which will reflect market conditions at the relevant time. Furthermore, the timing of rehabilitation is likely to depend on when the Diavik Diamond Mine ceases to produce at economically viable rates. This, in turn, will depend upon a number of factors including future diamond prices, which are inherently uncertain.
Pension benefits
The present value of the pension obligations depends on a number of
factors that are determined on an actuarial basis using a number of
assumptions. The assumptions used in determining the net cost (income)
for pensions include the discount rate. Any changes in these
assumptions will impact the carrying amount of the pension obligation.
The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Company considers the interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation.
Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 15.
(t) New Accounting Standards adopted during the year
The Company has adopted the following new standards, along with any
consequential amendments, effective February 1, 2013. These changes
were made in accordance with the applicable transitional provisions.
IFRS 10, "Consolidated Financial Statements" ("IFRS 10"), replaced the consolidation requirements in SIC-12, "Consolidation - Special Purpose Entities" and IAS 27, "Consolidated and Separate Financial Statements". The new standard establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and provides guidance to assist in the determination of control where it is difficult to assess. The Company has conducted a review of all non-wholly owned entities and determined that the adoption of IFRS 10 did not result in any change in the consolidated status of any of its subsidiaries and investees.
IFRS 11, "Joint Arrangements" ("IFRS 11"), replaced IAS 31, "Interest in Joint Ventures". The new standard applies to the accounting for interests in joint arrangements where there is joint control. Under IFRS 11, joint arrangements are classified as either joint ventures or joint operations. The structure of the joint arrangement will no longer be the most significant factor in determining whether a joint arrangement is either a joint venture or a joint operation. For a joint venture, proportionate consolidation will no longer be allowed and will be replaced by equity accounting. IFRS 11 did not have a material impact on the Company's consolidated financial statements upon its adoption on February 1, 2013.
IFRS 13, "Fair Value Measurement" ("IFRS 13"), generally makes IFRS consistent with generally accepted accounting principles in the United States ("US GAAP") on measuring fair value and related fair value disclosures. The new standard creates a single source of guidance for fair value measurements. The Company has added additional disclosures on fair value measurement in note 25.
The International Financial Reporting Interpretations Committee ("IFRIC") issued IFRIC 20, "Stripping Costs in the Production Phase of a Surface Mine" ("IFRIC 20"), which clarifies the requirements for accounting for stripping costs associated with waste removal in surface mining, including when production stripping costs should be recognized as an asset, how the asset is initially recognized, and subsequent measurement. The adoption of IFRIC 20 did not have a material impact on the Company's consolidated financial statements.
Amendments to IAS 19, "Employee Benefits" ("IAS 19"), which eliminates the option to defer the recognition of actuarial gains and losses through the "corridor" approach, revises the presentation of changes in assets and liabilities arising from defined benefit plans and enhances the disclosures for defined benefit plans. The adoption of revised IAS 19 did not materially impact measurement or recognition of the Company's pension plans, and additional disclosures required under the new standard which can be found in note 15.
Amendments to IAS 1, "Presentation of Financial Statements" ("IAS 1") have been adopted by the Company on February 1, 2013, with retrospective application. The amendments to IAS 1 require the grouping of items within other comprehensive income that may be reclassified to profit or loss and those that will not be reclassified. The Company has amended its consolidated statement of comprehensive income for all periods presented in these consolidated financial statements to reflect the presentation changes required under the amended IAS 1. Since these changes are reclassifications within the statement of comprehensive income, there is no net impact on the Company's comprehensive income.
(u) Standards issued but not yet effective
Standards issued but not yet effective up to the date of issuance of the
consolidated financial statements are listed below. The listing is of
standards and interpretations issued, which the Company reasonably
expects to be applicable at a future date. The Company intends to
adopt those standards when they become effective.
IFRS 9 - Financial Instruments
In November 2009, the IASB issued IFRS 9 Financial Instruments as the
first step in its project to replace IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 retains but simplifies the mixed
measurement model and establishes two primary measurement categories
for financial assets: amortized cost and fair value. The basis of
classification depends on an entity's business model and the
contractual cash flows of the financial asset. Classification is made
at the time the financial asset is initially recognized, namely when
the entity becomes a party to the contractual provisions of the
instrument. Requirements for classification and measurement of
financial liabilities were added in October 2010 and they largely
carried forward existing requirements in IAS 39, except that fair value
changes due to an entity's own credit risk for liabilities designated
at fair value through profit or loss would generally be recorded in
other comprehensive income (OCI) rather than the statement of income.
In November 2013, IFRS 9 was amended to include guidance on hedge
accounting.
The IASB has tentatively decided to require an entity to apply IFRS 9 for annual periods beginning on or after January 1, 2018, however, early adoption of the new standard is still permitted. The Company is currently assessing the impact of the standard on its consolidated financial statements.
IAS 32 - Offsetting Financial Assets and Liabilities
The amendments to IAS 32 clarify that an entity currently has a legally
enforceable right to set-off if that right is:
- not contingent on a future event; and
- enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties.
The amendments to IAS 32 also clarify when a settlement mechanism provides for net settlement or gross settlement that is equivalent to net settlement. The effective date for the amendments to IAS 32 is annual periods beginning on or after January 1, 2014. These amendments are to be applied retrospectively.
The Company intends to adopt the amendments to IAS 32 in its financial statements for the annual period beginning February 1, 2014. The Company does not expect that the amendments will have a material impact on the consolidated financial statements.
IFRIC 21 - Levies
In May 2013, the IASB issued International Financial Reporting
Interpretations Committee (IFRIC) 21, Levies. IFRIC 21 is effective for
annual periods beginning on or after January 1, 2014 and is to be
applied retrospectively. IFRIC 21 provides guidance on accounting for
levies in accordance with IAS 37, Provisions, Contingent Liabilities
and Contingent Assets. The interpretation defines a levy as an outflow
from an entity imposed by a government in accordance with legislation
and confirms that an entity recognizes a liability for a levy only when
the triggering event specified in the legislation occurs. The Company
intends to adopt IFRIC 21 in its financial statements for the annual
period beginning February 1, 2014. The impact to the Company's
consolidated financial statements upon adoption of this standard has
not yet been determined.
Note 4:
Acquisition
On April 10, 2013, the Company completed the acquisition from BHP Billiton Canada Inc. and its various affiliates of all of BHP Billiton's diamond assets, including its controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium.
Acquisitions are accounted for under the acquisition method of accounting, and the results of operations since the respective dates of acquisition are included in the statement of comprehensive income.
The allocation of the purchase price to the fair values of assets acquired and liabilities assumed is set forth below. In accordance with IFRS 3, "Business Combinations" ("IFRS 3"), the provisional purchase price allocation at acquisition has been revised to reflect final adjustments to fair values made during the fourth quarter.
| Preliminary fair values at April 10, 2013 | Further adjustments | Final fair values at April 10, 2013 | |||||||||||||
| Cash consideration paid | $ | 553,142 | $ | - | $ | 553,142 | |||||||||
| Cash and cash equivalents | $ | 62,217 | $ | - | $ | 62,217 | |||||||||
| Accounts receivable and other current assets | 7,465 | (1,376) | 6,089 | ||||||||||||
| Inventory and supplies | 300,248 | 30,967 | 331,215 | ||||||||||||
| Other long-term assets | - | 1,776 | 1,776 | ||||||||||||
| Property, plant and equipment | 800,741 | 6,666 | 807,407 | ||||||||||||
| Trade and other payables | (70,618) | (548) | (71,166) | ||||||||||||
| Income taxes payable | (6,085) | 12,328 | 6,243 | ||||||||||||
| Provisions, future site restoration costs | (348,230) | 4,729 | (343,501) | ||||||||||||
| Deferred income tax liabilities | (62,985) | (2,528) | (65,513) | ||||||||||||
| Other long-term liabilities | (19,017) | (20) | (19,037) | ||||||||||||
| Non-controlling interest | (152,798) | (10,978) | (163,776) | ||||||||||||
| Total net identifiable assets acquired | 510,938 | 41,016 | 551,954 | ||||||||||||
| Goodwill (note 13) | 42,204 | (41,016) | 1,188 | ||||||||||||
| $ | 553,142 | $ | - | $ | 553,142 |
The main adjustments to the provisional fair value relate to the fair value attributed to property, plant and equipment, stockpile ore and provision for future site restoration costs acquired as part of the Ekati Diamond Mine Acquisition and the associated tax impacts.
Non-controlling interest was measured by taking the proportionate share of the fair value of the net assets of the Ekati Diamond Mine. Goodwill comprises the value of expected synergies arising from the Ekati Diamond Mine Acquisition and the expertise and reputation of the assembled workforce acquired. None of the goodwill recognized is expected to be deductible for tax purposes.
From the closing date of the Ekati Diamond Mine Acquisition, revenues of $399.6 million and a net loss of $40.8 million were generated by the operations of the Ekati Diamond Mine. If the acquisition had taken place at the beginning of the 2014 fiscal year, the Company's consolidated pro forma revenue including the Ekati mining segment would have been $860.6 million and pro forma net loss would have been $43.7 million for the year ended January 31, 2014. The Company incurred total transaction costs of $14.4 million related to the Ekati Diamond Mine Acquisition, of which $11.2 million has been expensed and included in selling, general and administrative costs during the current year, with the balance of $3.2 million expensed in fiscal 2013.
Note 5:
Cash and Cash Equivalents
| 2014 | 2013 | |||||||||||||||
| Cash on hand and balances with banks | $ | 224,778 | $ | 104,313 | ||||||||||||
| Restricted cash | 113,612 | - | ||||||||||||||
| Total cash and cash equivalents | $ | 338,390 | $ | 104,313 |
Note 6:
Accounts Receivable
| 2014 | 2013 | ||||||||||||||||
| Trade receivables | $ | 451 | $ | 239 | |||||||||||||
| Accounts receivable - minority partners | 9,158 | - | |||||||||||||||
| Sales tax credits | 7,622 | 546 | |||||||||||||||
| Other | 3,648 | 2,920 | |||||||||||||||
| Total accounts receivable | $ | 20,879 | $ | 3,705 |
The Company's exposure to credit risk is disclosed in note 25.
Note 7:
Inventory and Supplies
| 2014 | 2013 | |||||||||||||||
| Stockpile ore | $ | 38,475 | $ | - | ||||||||||||
| Rough diamonds - Work in progress | 139,520 | 29,343 | ||||||||||||||
| Rough diamonds - Available for sale | 35,573 | 16,124 | ||||||||||||||
| Supplies inventory | 227,285 | 70,160 | ||||||||||||||
| Total inventory and supplies | $ | 440,853 | $ | 115,627 |
Total inventory and supplies is net of a provision for obsolescence of $0.6 million ($0.4 million at January 31, 2013). Cost of sales from continuing operations includes inventory of $645.8 million sold during the year (2013 - $262.7 million), with another $5.1 million of non-inventoried costs (2013 - $4.9 million).
Note 8:
Other Current Assets
| 2014 | 2013 | |||||||||||||||||
| Prepaid assets | $ | 27,156 | $ | 29,486 | ||||||||||||||
| Total other current assets | $ | 27,156 | $ | 29,486 |
Note 9:
Restricted Cash
The Company has provided CDN $127 million in letters of credit to the Government of Canada, supported by restricted cash for the reclamation obligations for the Ekati Diamond Mine.
Note 10:
Assets Held for Sale (Discontinued Operations)
On March 26, 2013, the Company completed the sale of the Luxury Brand Segment to Swatch Group.
The major classes of assets and liabilities of the discontinued operations were as follows at the date of disposal:
| March 26, 2013 | ||||||||||
| Cash and cash equivalents | $ | 25,914 | ||||||||
| Accounts receivable and other current assets | 61,080 | |||||||||
| Inventory and supplies | 403,157 | |||||||||
| Property, plant and equipment | 76,700 | |||||||||
| Intangible assets, net | 126,779 | |||||||||
| Other non-current assets | 7,478 | |||||||||
| Deferred income tax assets | 54,017 | |||||||||
| Trade and other payables | (96,246) | |||||||||
| Income taxes payable | (2,465) | |||||||||
| Interest-bearing loans and borrowings | (292,709) | |||||||||
| Deferred income tax liabilities | (106,137) | |||||||||
| Other long-term liabilities | (13,743) | |||||||||
| Net assets | $ | 243,825 | ||||||||
| Consideration received, satisfied in cash | $ | 746,738 | ||||||||
| Cash and cash equivalents disposed of | (25,914) | |||||||||
| Net cash inflow | $ | 720,824 |
Results of the discontinued operations are presented separately as net profit from discontinued operations in the consolidated statements of income, and comparative periods have been adjusted accordingly.
| 2014 | 2013 | |||||||||||
| Sales | $ | 63,799 | $ | 435,835 | ||||||||
| Cost of sales | (31,355) | (208,574) | ||||||||||
| Other expenses | (30,964) | (212,562) | ||||||||||
| Other income and foreign exchange gain (loss) | (1,551) | 1,888 | ||||||||||
| Net income tax (expense) recovery | (186) | (4,153) | ||||||||||
| Net profit (loss) from discontinued operations before gain | $ | (257) | $ | 12,434 | ||||||||
| Gain on sale | $ | 502,913 | $ | - | ||||||||
| Net profit from discontinued operations | $ | 502,656 | $ | 12,434 | ||||||||
| Earnings per share - discontinued operations | ||||||||||||
| Basic | $ | 5.91 | $ | 0.15 | ||||||||
| Diluted | 5.85 | 0.15 |
Note 11:
Property, Plant and Equipment
| MINING OPERATIONS | |||||||||||||||||||||
| Mineral properties(a) | Equipment and leaseholds(b) | Furniture, equipment and other(c) | Real property - land and building(d) | Assets under construction | Mine rehabilitation and site restoration(e) | Total | |||||||||||||||
| Cost: | |||||||||||||||||||||
| Balance at February 1, 2013 | $ | 249,720 | $ | 899,595 | $ | 11,664 | $ | 40,194 | $ | 15,302 | $ | 64,839 | $ | 1,281,314 | |||||||
| Acquisition (Note 4) | 70,000 | 405,796 | 1,007 | 186,802 | 143,802 | - | 807,407 | ||||||||||||||
| Additions | - | 2,632 | 1,077 | 1,258 | 119,750 | (926) | 123,791 | ||||||||||||||
| Disposals | - | (4,460) | (326) | - | - | - | (4,786) | ||||||||||||||
| Foreign exchange differences | - | - | - | (3,108) | - | - | (3,108) | ||||||||||||||
| Pre-production revenue | (11,114) | - | - | - | - | - | (11,114) | ||||||||||||||
| Transfers and other movements | 40,868 | 67,768 | (277) | 511 | (108,870) | - | - | ||||||||||||||
| Balance at January 31, 2014 | $ | 349,474 | $ | 1,371,331 | $ | 13,145 | $ | 225,657 | $ | 169,984 | $ | 63,913 | $ | 2,139,504 | |||||||
| Accumulated depreciation/amortization: | |||||||||||||||||||||
| Balance at February 1, 2013 | $ | 173,493 | $ | 339,343 | $ | 6,781 | $ | 10,880 | $ | - | $ | 23,328 | $ | 553,825 | |||||||
| Depreciation and amortization for the year | 9,284 | 131,552 | 1,689 | 25,811 | - | 5,060 | 173,396 | ||||||||||||||
| Disposals | - | (2,300) | (210) | - | - | - | (2,510) | ||||||||||||||
| Foreign exchange differences | - | - | - | (764) | - | - | (764) | ||||||||||||||
| Balance at January 31, 2014 | $ | 182,777 | $ | 468,595 | $ | 8,260 | $ | 35,927 | $ | - | $ | 28,388 | $ | 723,947 | |||||||
| Net book value at January 31, 2014 | $ | 166,697 | $ | 902,736 | $ | 4,885 | $ | 189,730 | $ | 169,984 | $ | 35,525 | $ | 1,469,557 | |||||||
| Mineral properties(a) | Equipment and leaseholds(b) | Furniture, equipment and other(c) | Real property - land and building(d) | Assets under construction | Mine rehabilitation and site restoration(e) | Total | |||||||||||||||
| Cost: | |||||||||||||||||||||
| Balance at February 1, 2012 | $ | 249,527 | $ | 855,213 | $ | 9,306 | $ | 37,577 | $ | 23,174 | $ | 53,471 | $ | 1,228,268 | |||||||
| Additions | 327 | - | 2,509 | 2,460 | 51,181 | 11,368 | 67,845 | ||||||||||||||
| Disposals | - | (14,805) | (151) | - | - | - | (14,956) | ||||||||||||||
| Foreign exchange differences | - | - | - | 157 | - | - | 157 | ||||||||||||||
| Transfers and other movements | (134) | 59,187 | - | - | (59,053) | - | - | ||||||||||||||
| Balance at January 31, 2013 | $ | 249,720 | $ | 899,595 | $ | 11,664 | $ | 40,194 | $ | 15,302 | $ | 64,839 | $ | 1,281,314 | |||||||
| Accumulated depreciation/amortization: | |||||||||||||||||||||
| Balance at February 1, 2012 | $ | 162,068 | $ | 297,245 | $ | 6,028 | $ | 9,335 | $ | - | $ | 19,446 | $ | 494,122 | |||||||
| Depreciation and amortization for the year | 11,425 | 54,502 | 904 | 1,578 | - | 3,882 | 72,291 | ||||||||||||||
| Disposals | - | (12,403) | (151) | - | - | - | (12,554) | ||||||||||||||
| Foreign exchange differences | - | - | - | (34) | - | - | (34) | ||||||||||||||
| Balance at January 31, 2013 | $ | 173,493 | $ | 339,344 | $ | 6,781 | $ | 10,879 | $ | - | $ | 23,328 | $ | 553,825 | |||||||
| Net book value at January 31, 2013 | $ | 76,227 | $ | 560,251 | $ | 4,883 | $ | 29,315 | $ | 15,302 | $ | 41,511 | $ | 727,489 |
| The Company has expensed $14.6 million in exploration expenditures in the current year (2013: $1.8 million). | |
| (a) | Represents the Company's ownership share of mineral claims, which contains commercially mineable diamond reserves. |
| (b) | Equipment and leaseholds are project related assets at the Diavik Joint Venture and Ekati Diamond Mine level. |
| (c) | Furniture, equipment and other includes equipment located at the Company's diamond sorting facility. |
| (d) | Real property is comprised of land and a building that houses the corporate activities of the Company, and various betterments to the corporate offices. |
| (e) | Both the Diavik Joint Venture and the Ekati Diamond Mine have an
obligations under various agreements (note 17) to reclaim and restore
the lands disturbed by its mining operations. |
Note 12:
Diavik Joint Venture
The following represents DDDLP's 40% interest in the net assets and operations of the Diavik Joint Venture as at December 31, 2013 and December 31, 2012, which represents the financial year end of the Diavik Joint Venture:
| 2013 | 2012 | ||||||||
| Current assets | $ | 97,078 | $ | 102,299 | |||||
| Non-current assets | 618,141 | 677,808 | |||||||
| Current liabilities | 31,296 | 30,517 | |||||||
| Non-current liabilities and participant's account | 683,923 | 749,590 | |||||||
| 2013 | 2012 | ||||||||
| Expenses net of interest income of $nil (2012 - $0.1 million)(a) | $ | 253,592 | $ | 243,796 | |||||
| Cash flows used in operating activities | (162,535) | (164,645) | |||||||
| Cash flows resulting from financing activities | 182,841 | 214,061 | |||||||
| Cash flows used in investing activities | (22,300) | (50,925) | |||||||
| (a) The Joint Venture only earns interest income. |
DDDLP is contingently liable for DDMI's portion of the liabilities of the Diavik Joint Venture, and to the extent DDDLP's participating interest has increased because of the failure of DDMI to make a cash contribution when required, DDDLP would have access to an increased portion of the assets of the Diavik Joint Venture to settle these liabilities. Additional information on commitments and contingencies related to the Diavik Joint Venture is found in note 23.
Note 13:
Other Non-Current Assets
| 2014 | 2013 | ||||||||||||||
| Prepaid pricing discount(a), net of accumulated amortization of $nil (2013 - $11.7 million) | $ | - | $ | 240 | |||||||||||
| Prepaid assets | 418 | - | |||||||||||||
| Other assets | 1,524 | 6,279 | |||||||||||||
| Security deposits | 1,607 | 418 | |||||||||||||
| $ | 3,549 | $ | 6,937 |
| (a) | Prepaid pricing discount represents funds paid to Tiffany & Co. by the
Company to amend its rough diamond supply agreement. The amendment eliminated all pricing discounts on future sales. The payment was deferred and was being amortized on a straight-line basis over the remaining life of the contract. The contract expired on March 31, 2013. |
Note 14:
Trade and Other Payables
| 2014 | 2013 | ||||||||||||||||
| Trade and other payables | $ | 69,373 | $ | 31,622 | |||||||||||||
| Accrued expenses | 33,693 | 6,647 | |||||||||||||||
| Customer deposits | 587 | 784 | |||||||||||||||
| $ | 103,653 | $ | 39,053 |
Note 15:
Employee Benefit Plans
The employee benefit obligation reflected in the consolidated balance sheet is as follows:
| 2014 | 2013 | ||||||||||||||||
| Defined benefit plan obligation - Ekati Diamond Mine (a) | $ | 10,990 | $ | - | |||||||||||||
| Defined contribution plan obligation - Ekati Diamond Mine (b) | 300 | - | |||||||||||||||
| Post-retirement benefit plan - Diavik Diamond Mine (c) | 746 | 699 | |||||||||||||||
| RSU and DSU plans (d) | 5,727 | 5,434 | |||||||||||||||
| Total employee benefit plan obligation | $ | 17,763 | $ | 6,133 | |||||||||||||
| 2014 | 2013 | ||||||||||||||||
| Non-current | $ | 14,120 | $ | 3,499 | |||||||||||||
| Current | 3,643 | 2,634 | |||||||||||||||
| Total employee benefit plan obligation | $ | 17,763 | $ | 6,133 |
(a) Defined benefit pension plan
Dominion Diamond Ekati Corporation sponsors a non-contributory defined
benefit registered pension plan covering employees in Canada who were
employed by BHP Billiton Canada Inc. and employed in its diamond
business prior to June 30, 2004. As a result of the Ekati Diamond Mine
Acquisition, the plan was assigned to Dominion Diamond Ekati
Corporation and renamed the Dominion Diamond Ekati Corporation Defined
Benefit Pension Plan. Pension benefits are based on the length of
service and highest average covered earnings. Any benefits in excess of
the maximum pension limit for registered pension plans under the Income Tax Act accrue for the employee, via an unfunded supplementary retirement plan.
New employees could not become members of this defined benefit pension
arrangement after June 30, 2004.
(i) NET BENEFIT OBLIGATION:
| January 31, 2014 | ||||||||||||
| Accrued benefit obligation | $ | 76,670 | ||||||||||
| Plan assets | 65,680 | |||||||||||
| Funded status - plan deficit | $ | 10,990 |
As at the last valuation date, the present value of the defined benefit obligation was comprised of approximately $64.2 million relating to active employees, $6.8 million relating to deferred members and $5.7 million relating to retired members.
| 2014 | ||||||||
| Defined benefit obligation at April 10, 2013 | $ | 87,483 | ||||||
| Service cost | 4,094 | |||||||
| Interest expense | 2,719 | |||||||
| Benefit payments | (6,627) | |||||||
| Administrative expense | (95) | |||||||
| Remeasurements | (8,438) | |||||||
| Effect on changes in foreign exchange rates | (2,466) | |||||||
| Defined benefit obligation as at January 31, 2014 | $ | 76,670 |
(ii) PLAN ASSETS
| 2014 | ||||||||
| Plan Assets at April 10, 2013 | $ | 68,721 | ||||||
| Interest Income | 2,205 | |||||||
| Total employer contributions | 6,859 | |||||||
| Benefit payments | (6,627) | |||||||
| Taxes paid from plan assets | (95) | |||||||
| Return on plan assets, excluded imputed interest income | (3,238) | |||||||
| Effect on changes in foreign exchange rates | (2,145) | |||||||
| Plan assets as at January 31, 2014 | $ | 65,680 |
The amounts recognized in the statement of income are as follows:
| 2014 | ||||||||||||
| Current service costs | $ | 4,094 | ||||||||||
| Interest costs | 514 | |||||||||||
| Total, included in costs of sales | $ | 4,608 |
The actuarial losses/(gains) recognized in other comprehensive income/(loss) net of taxes for defined benefit plans were as follows:
| 2014 | |||||
| Return on plan assets, excluding imputed interest income | $ | 3,238 | |||
| Actuarial losses from change in demographic assumptions | 2,791 | ||||
| Actuarial gains from change in financial assumptions | (11,229) | ||||
| Total net actuarial loss recognized in other comprehensive loss before income taxes | $ | (5,200) | |||
| Income tax expenses on actuarial (gains)/losses | 1,457 | ||||
| Actuarial (gains)/losses net of income tax recoveries | $ | 3,743 |
Canadian plan assets represented approximately 95% of total plan assets at January 31, 2014.
The asset allocation of pension assets at January 31 was as follows:
| January 31, 2014 | |||||||||||
| ASSET CATEGORY | |||||||||||
| Cash equivalents | 2% | ||||||||||
| Equity securities | 22% | ||||||||||
| Fixed income securities | 70% | ||||||||||
| Other | 6% | ||||||||||
| Total | 100% |
(iii) THE SIGNIFICANT ASSUMPTIONS USED FOR THE PLAN ARE AS FOLLOWS:
| January 31, 2014 | |||||||||||
| ACCRUED BENEFIT OBLIGATION | |||||||||||
| Discount rate | 4.4% | ||||||||||
| Rate of salary increase | 3.0% | ||||||||||
| Rate of price inflation | 2.25% | ||||||||||
| Mortality table | CPM-RPP2014Priv with CPM-A | ||||||||||
| BENEFIT COSTS FOR THE YEAR | |||||||||||
| Discount rate | 4.0% | ||||||||||
| Expected rate of salary increase | 4.0% | ||||||||||
| Rate of compensation increase | 2.25% |
The weighted average duration of the defined benefit obligation is 17 years. The sensitivity of the defined benefit obligation to changes in the weighted principal assumption is:
| IMPACT ON DEFINED BENEFIT OBLIGATION | Changes in Assumption | Decrease in Assumption | Increase in Assumption | |||||||||||
| Discount Rate | 0.50% | $ | 7,522 | $ | (5,801) | |||||||||
| Salary growth rate | 0.50% | (1,523) | 2,080 | |||||||||||
| Mortality table | Life expectancy 1 | (2,054) | 1,937 |
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.
(iv) RISK ANALYSIS
Through its defined benefit pension plan, the Company is exposed to a
number of risks, the most significant of which are detailed below:
Asset volatility
The plan liabilities are calculated using a discount rate set with
references to corporate bond yields; if the plan underperforms the
yield, this will create a deficit.
Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities,
although this would likely be partially offset by an increase in the
value of the plan's bond holdings.
Inflation risk
Most of the plan's obligations are linked to inflation and higher
inflation will lead to higher liabilities (although, in most cases,
caps on the level of inflationary increases are in place to protect the
plan against extreme inflation). The majority of the plan's assets are
either unaffected by (fixed interest bonds) or loosely correlated with
(equities) inflation, meaning that an increase in inflation will also
increase the deficit.
Life expectancy
The majority of the plan's obligations are to provide benefit for the
life of the member and the member's spouse, so increases in life
expectancy will result in an increase in the plan's liabilities.
(v) FUNDING POLICY
The Company funds the plan in accordance with the requirements of the
Pension Benefits Standards Act, 1985 and the Pension Benefits Standards
Regulations and the actuarial professional standards with respect to
funding such plans. Funding deficits are amortized as permitted under
the Regulations. In the Company's view, this level of funding is
adequate to meet current and future funding needs in light of projected
economic and demographic conditions. The Company may in its absolute
discretion fund in excess of the legislated minimum from time to time,
but no more than the maximum contribution permitted under the Income
Tax Act.
The expected contributions to the plan for fiscal year 2015 are $6.0 million.
(b) Defined contribution plan
Dominion Diamond Corporation sponsors a defined contribution plan for
Canadian employees who are not employed by Dominion Diamond Ekati
Corporation whereby the employer contributes to a maximum of 6% of the
employee's salary to the maximum contribution limit under Canada's Income Tax Act. The total defined contribution plan liability at January 31, 2014 was
$nil ($nil at January 31, 2013).
Dominion Diamond Ekati Corporation sponsors a defined contribution plan for its employees who are not members of the defined benefit pension plan referred to in 15(a) above. The employer contributes 8% of earnings up to 2.5 times the Year's Maximum Pensionable Earnings ( "YMPE": as defined under the Canada Pension Plan), and 12% of earnings above 2.5 times YMPE. The employer also matches additional contributions made by an employee up to 3% of earnings. Employer contributions in excess of the maximum contribution limit for defined contribution plans under Canada's Income Tax Act are credited by the employer to a notional (unfunded) supplementary retirement plan. The defined contribution plan liability at January 31, 2014 was $0.3 million. (Supplemental plan liability has been included in the accrued benefit obligation disclosed in 15(a) above.)
(c) Post-retirement benefit plan
The Diavik Joint Venture sponsors a defined contribution plan whereby
the employer contributes 6% of the employee's salary.
The Diavik Joint Venture provides non-pension post-retirement benefits to retired employees. The post-retirement benefit plan liability was $0.8 million at January 31, 2014 ($0.7 million at January 31, 2013).
(d) Restricted Stock Units ("RSU") and Deferred Stock Units ("DSU")
plans
Grants under the RSU Plan are on a discretionary basis to employees of
the Company and its subsidiaries subject to Board of Directors
approval. The RSUs granted vest one-third on March 31 following the
date of the grant and one-third on each anniversary thereafter. The
vesting of grants of RSUs are subject to special rules for a change in
control, death and disability. The Company shall pay out cash on the
respective vesting dates of RSUs and redemption dates of DSUs.
Only non-executive directors of the Company are eligible for grants under the DSU Plan. Each DSU grant vests immediately on the grant date.
The expenses related to the RSUs and DSUs are accrued based on fair value. This expense is recognized on a straight-line basis over each vesting period.
Note 16:
Income Taxes
The deferred income tax asset of the Company is $3.1 million. Included in the deferred tax asset is $2.0 million that has been recorded to recognize the benefit of $7.7 million of net operating losses that the Company has available for carry forward to shelter income taxes for future years.
The deferred income tax liability of the Company is $242.6 million. The Company's deferred income tax asset and liability accounts are revalued to take into consideration the change in the Canadian dollar compared to the US dollar and the unrealized foreign exchange gain or loss is recorded as part of deferred tax expenses for each year.
(a) The income tax provision consists of the following:
| 2014 | 2013 | ||||||||||||
| CURRENT TAX EXPENSE FROM CONTINUING OPERATIONS | |||||||||||||
| Current period | $ | 36,530 | $ | 25,172 | |||||||||
| Adjustment for prior periods | 3,869 | (144) | |||||||||||
| Total current tax expense | 40,399 | 25,028 | |||||||||||
| DEFERRED TAX EXPENSE FROM CONTINUING OPERATIONS | |||||||||||||
| Origination and reversal of temporary differences | (4,889) | (9,718) | |||||||||||
| Change in unrecognized deductible temporary differences | (39) | (36) | |||||||||||
| Current year losses for which no deferred tax asset was recognized | 34 | 2 | |||||||||||
| Total deferred tax expense | (4,894) | (9,752) | |||||||||||
| Total income tax expense from continuing operations | $ | 35,505 | $ | 15,276 |
Tax expense from continuing operations excludes tax expense from discontinued operations of $0.2 million (2013 - $4.2 million).
(b) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at January 31, 2014 and 2013 are as follows:
| 2014 | 2013 | ||||||||||
| DEFERRED INCOME TAX ASSETS: | |||||||||||
| Net operating loss carryforwards | $ | 2,043 | $ | 331 | |||||||
| Property, plant and equipment | 799 | 116 | |||||||||
| Future site restoration costs | 120,739 | 13,329 | |||||||||
| Deferred mineral property costs | 5,215 | 240 | |||||||||
| Other deferred income tax assets | 27,293 | 12,861 | |||||||||
| 156,089 | 26,877 | ||||||||||
| Reclassification to deferred income tax liabilities | (153,011) | (22,782) | |||||||||
| Deferred income tax assets | 3,078 | 4,095 | |||||||||
| DEFERRED INCOME TAX LIABILITIES: | |||||||||||
| Deferred mineral property costs | (49,706) | (27,459) | |||||||||
| Property, plant and equipment | (320,485) | (157,683) | |||||||||
| Other deferred income tax liabilities | (25,383) | (19,067) | |||||||||
| (395,574) | (204,209) | ||||||||||
| Reclassification from deferred income tax assets | 153,011 | 22,782 | |||||||||
| Deferred income tax liabilities | (242,563) | (181,427) | |||||||||
| Deferred income tax liabilities, net | $ | (239,485) | $ | (177,332) |
Movement in net deferred tax liabilities:
| 2014 | 2013 | ||||||||||
| Balance at the beginning of the year | $ | (177,332) | $ | (242,080) | |||||||
| Reclassification to assets held for sale | - | 50,181 | |||||||||
| Recognized in profit (loss) | 4,894 | 9,752 | |||||||||
| Reclassification to current income taxes payable | - | 4,815 | |||||||||
| Recognized in OCI | (1,457) | - | |||||||||
| Acquired on business combination | (65,513) | - | |||||||||
| Other | (77) | - | |||||||||
| Balance at the end of the year | $ | (239,485) | $ | (177,332) |
(c) Unrecognized deferred tax assets and liabilities:
Deferred tax assets have not been recognized in respect of the following items:
| 2014 | 2013 | |||||||||||||||||
| Tax losses | $ | 568 | $ | 548 | ||||||||||||||
| Deductible temporary differences | 177 | 265 | ||||||||||||||||
| Total | $ | 745 | $ | 813 |
The tax losses not recognized expire as per the amount and years noted below. The deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.
The following table summarizes the Company's non-capital losses as at January 31, 2014 that may be applied against future taxable profit:
| Jurisdiction | Type | Amount | Expiry Date | |||||||||||||||||
| Luxembourg | Net operating losses | $ | 1,947 | No expiry |
The taxable temporary differences associated with investments in subsidiaries and joint ventures, for which a deferred tax liability has not been provided, aggregate to $295.4 million (2013 - deductible temporary differences of $60.0 million).
(d) The difference between the amount of the reported consolidated income tax provision and the amount computed by multiplying the earnings (loss) before income taxes by the statutory tax rate of 26.5% (2013 - 26.5%) is a result of the following:
| 2014 | 2013 | ||||||||||||
| Expected income tax expense from continuing operations | $ | 1,065 | $ | 10,080 | |||||||||
| Non-deductible (non-taxable) items | 3,184 | 1,208 | |||||||||||
| Impact of foreign exchange | 20,655 | 659 | |||||||||||
| Northwest Territories mining royalty (net of income tax relief) | 8,519 | 4,637 | |||||||||||
| Earnings subject to tax different than statutory rate | 576 | 70 | |||||||||||
| Assessments and adjustments | 664 | (1,386) | |||||||||||
| Current year losses for which no deferred tax asset was recognized | 34 | 2 | |||||||||||
| Tax effect on income allocated to non-controlling interest | 1,389 | - | |||||||||||
| Change in unrecognized temporary differences | (39) | (36) | |||||||||||
| Other | (542) | 42 | |||||||||||
| Recorded income tax expense from continuing operations | $ | 35,505 | $ | 15,276 |
(e) The Company has net operating loss carryforwards for Canadian income tax purposes of approximately $7.7 million and $1.9 million for other foreign jurisdictions' tax purposes.
Note 17:
Provisions
| Future site restoration costs | 2014 | 2013 | ||||||||||
| Diavik Diamond Mine (a) | ||||||||||||
| Balance at February 1, 2013 and 2012 | $ | 79,055 | $ | 65,245 | ||||||||
| Revisions of previous estimates | (924) | 11,369 | ||||||||||
| Accretion of provision | 2,057 | 2,441 | ||||||||||
| Total Diavik Diamond Mine site restoration costs | 80,188 | 79,055 | ||||||||||
| Ekati Diamond Mine (b) | ||||||||||||
| Balance at April 10, 2013 | 348,230 | - | ||||||||||
| Revisions of previous estimates | (4,729) | - | ||||||||||
| Accretion of provision | 7,279 | - | ||||||||||
| Total Ekati Diamond Mine site restoration costs | 350,780 | - | ||||||||||
| Total site restoration costs | $ | 430,968 | $ | 79,055 | ||||||||
The Company has an obligation under various agreements to reclaim and restore the lands disturbed by its mining operations.
(a) Diavik Diamond Mine
The Company's share of the total undiscounted amount of the future cash
flows that will be required to settle the obligation incurred at
January 31, 2014 is estimated to be CDN $115 million. The expenditures
are discounted using a discount rate of 2.63%. The revision of previous
estimates in fiscal 2013 and 2014 is based on revised expectations of
reclamation activity costs and changes in estimated reclamation
timelines. The Diavik Joint Venture is required to provide security for
future site closure and reclamation costs for the Diavik Diamond Mine's
operations and for various permits and licenses. The operator of the
Diavik Joint Venture has fulfilled such obligations for the security
deposits by posting letters of credit, of which DDDLP's share as at
January 31, 2014 was $58 million based on its 40% ownership interest in
the Diavik Diamond Mine.
(b) Ekati Diamond Mine - Future site restoration
The undiscounted estimated expenditures required to settle the
obligation totals approximately CDN $420 million through 2048. The
expenditures are discounted using a discount rate of 2.63%. The Company
is required to provide security for future site closure and reclamation
costs for the Ekati Diamond Mine's operations and for various permits
and licenses. As at January 31, 2014, the Company provided CDN $127
million in letters of credit as security with various regulatory
authorities in support of the reclamation obligations for the Ekati
Diamond Mine.
Note 18:
Share Capital
(a) Authorized
Unlimited common shares without par value.
(b) Issued
| Number of shares | Amount | ||||||||||||||
| Balance, January 31, 2012 | 84,874,781 | $ | 507,975 | ||||||||||||
| SHARES ISSUED FOR: | |||||||||||||||
| Exercise of options | 8,250 | 32 | |||||||||||||
| Balance, January 31, 2013 | 84,883,031 | 508,007 | |||||||||||||
| SHARES ISSUED FOR: | |||||||||||||||
| Exercise of options | 140,000 | 516 | |||||||||||||
| Balance, January 31, 2014 | 85,023,031 | $ | 508,523 |
(c) Stock options
Under the Employee Stock Option Plan, amended and approved by the
shareholders on June 4, 2008, the Company may grant options for up to
6,000,000 shares of common stock. Options may be granted to any
director, officer, employee or consultant of the Company or any of its
affiliates. Options granted to directors vest immediately and options
granted to officers, employees or consultants vest over three to four
years. The maximum term of an option is ten years. The number of shares
reserved for issuance to any one optionee pursuant to options cannot
exceed 2% of the issued and outstanding common shares of the Company at
the date of grant of such options.
The exercise price of each option cannot be less than the fair market value of the shares on the last trading day preceding the date of grant.
The Company's shares are primarily traded on a Canadian dollar based exchange, and accordingly stock option information is presented in Canadian dollars, with conversion to US dollars at the average exchange rate for the year.
Compensation expense for stock options was $2.6 million for fiscal 2014 (2013 - $2.6 million) and is presented as a component of both cost of sales and selling, general and administrative expenses. The amount credited to share capital for the exercise of the options is the sum of (a) the cash proceeds received and (b) the amount debited to contributed surplus upon exercise of stock options by optionees (2014 - $nil; 2013 - $nil).
Changes in share options outstanding are as follows:
| 2014 | 2013 | |||||||||||||||||||||
| Weighted average | Weighted average | |||||||||||||||||||||
| Options | exercise price | Options | exercise price | |||||||||||||||||||
| 000s | CDN $ | US $ | 000s | CDN $ | US $ | |||||||||||||||||
| Outstanding, beginning of year | 2,362 | 12.56 | 12.68 | 2,401 | 14.21 | 14.34 | ||||||||||||||||
| Granted | 435 | 13.19 | 12.75 | 350 | 14.00 | 14.14 | ||||||||||||||||
| Forfeited | - | - | - | (26) | 26.64 | 26.54 | ||||||||||||||||
| Exercised | (140) | 3.78 | 3.55 | (8) | 3.78 | 3.82 | ||||||||||||||||
| Expired | (219) | 26.45 | 24.38 | (355) | 24.39 | 24.48 | ||||||||||||||||
| Outstanding, end of year | 2,438 | 11.93 | 11.49 | 2,362 | 12.56 | 12.68 |
The following summarizes information about stock options outstanding at January 31, 2014:
| Options outstanding | Options exercisable | |||||||||||||||||||
| Weighted | ||||||||||||||||||||
| average | ||||||||||||||||||||
| remaining | Weighted | Weighted | ||||||||||||||||||
| Number | contractual | average | Number | average | ||||||||||||||||
| Range of exercise prices | outstanding | life in years | exercise price | exercisable | exercise price | |||||||||||||||
| CDN $ | 000s | CDN $ | 000s | CDN $ | ||||||||||||||||
| 3.78 | 868 | 5.2 | $ | 3.78 | 868 | $ | 3.78 | |||||||||||||
| 12.35-16.70 | 1,435 | 4.5 | 14.07 | 650 | 14.21 | |||||||||||||||
| 41.45 | 135 | 0.2 | 41.45 | 135 | 41.45 | |||||||||||||||
| 2,438 | $ | 11.93 | 1,653 | $ | 10.97 | |||||||||||||||
(d) Stock-based compensation
The Company applies the fair value method to all grants of stock
options.
The fair value of options granted during the years ended January 31, 2014 and 2013 was estimated using a Black-Scholes option pricing model with the following weighted average assumptions:
| 2014 | 2013 | |||||||||||||
| Risk-free interest rate | 1.68% | 1.17% | ||||||||||||
| Dividend yield | 0.00% | 0.00% | ||||||||||||
| Volatility factor | 50.00% | 50.00% | ||||||||||||
| Expected life of the options | 3.5 years | 3.5 years | ||||||||||||
| Average fair value per option, CDN | $ | 5.18 | $ | 5.17 | ||||||||||
| Average fair value per option, US | $ | 4.65 | $ | 5.18 |
Expected volatility is estimated by considering historic average share price volatility based on the average expected life of the options.
(e) RSU and DSU Plans
| RSU | Number of units | ||||||||
| Balance, January 31, 2012 | 175,974 | ||||||||
| Awards and payouts during the year (net) | |||||||||
| RSU awards | 175,200 | ||||||||
| RSU payouts | (74,148) | ||||||||
| Balance, January 31, 2013 | 277,026 | ||||||||
| Awards and payouts during the year (net) | |||||||||
| RSU awards | 293,096 | ||||||||
| RSU payouts | (128,633) | ||||||||
| Balance, January 31, 2014 | 441,489 | ||||||||
| DSU | Number of units | ||||||||
| Balance, January 31, 2012 | 214,868 | ||||||||
| Awards and payouts during the year (net) | |||||||||
| DSU awards | 27,078 | ||||||||
| DSU payouts | (52,261) | ||||||||
| Balance, January 31, 2013 | 189,685 | ||||||||
| Awards and payouts during the year (net) | |||||||||
| DSU awards | 39,366 | ||||||||
| DSU payouts | (65,556) | ||||||||
| Balance, January 31, 2014 | 163,495 |
During the fiscal year, the Company granted 293,096 RSUs (net of forfeitures) and 39,366 DSUs under an employee and director incentive compensation program, respectively. The RSU and DSU Plans are full value phantom shares that mirror the value of Dominion Diamond Corporation's publicly traded common shares.
Grants under the RSU Plan are on a discretionary basis to employees of the Company and its subsidiaries subject to Board of Directors approval. The RSUs granted vest one-third on March 31 and one-third on each anniversary thereafter. The vesting of grants of RSUs is subject to special rules for a change in control, death and disability. The Company shall pay out cash on the respective vesting dates of RSUs and redemption dates of DSUs.
Only non-executive directors of the Company are eligible for grants under the DSU Plan. Each DSU grant vests immediately on the grant date.
The expenses related to the RSUs and DSUs are accrued based on fair value. This expense is recognized on a straight-line basis over each vesting period. The Company recognized an expense of $3.4 million for the year ended January 31, 2014 (2013 - $3.4 million). The total carrying amount of liabilities for cash settled share-based payment arrangements is $5.7 million (2013 - $5.4 million). The amounts for obligations and expense (recovery) for cash settled share-based payment arrangements have been grouped with Employee Benefit Plans in Note 15 for presentation purposes.
Note 19:
Expenses by Nature
Operating profit (loss) from continuing operations includes the
following items of expense:
| 2014 | 2013 | |||||||||||||||
| Research and development | $ | 2,316 | $ | 3,651 | ||||||||||||
| Operating lease | 1,651 | 382 | ||||||||||||||
| Employee compensation expense | 118,393 | 60,265 | ||||||||||||||
| Depreciation and amortization | 140,061 | 80,266 |
Note 20:
Earnings per Share
The following table presents the calculation of diluted earnings per share:
| 2014 | 2013 | |||||||||||
| NUMERATOR | ||||||||||||
| Net earnings for the year attributable to shareholders | $ | 479,681 | $ | 34,710 | ||||||||
| DENOMINATOR (000S SHARES) | ||||||||||||
| Weighted average number of shares outstanding | 85,020 | 84,876 | ||||||||||
| Dilutive effect of employee stock options (a) | 860 | 620 | ||||||||||
| 85,880 | 85,496 |
(a) A total of 0.6 million options were excluded from the dilution calculation (2013 - 1.2 million) as they are anti-dilutive.
Note 21:
Interest-Bearing Loans and Borrowings
| 2014 | 2013 | |||||||||||||||||
| Credit facilities | $ | - | $ | 49,560 | ||||||||||||||
| First mortgage on real property | 4,298 | 5,619 | ||||||||||||||||
| Bank advances | - | 1,128 | ||||||||||||||||
| Total interest-bearing loans and borrowings | 4,298 | 56,307 | ||||||||||||||||
| Less current portion | (794) | (51,508) | ||||||||||||||||
| $ | 3,504 | $ | 4,799 | |||||||||||||||
| Currency | Nominal interest rate | Date of maturity | Carrying amount at January 31, 2014 | Face value at January 31, 2014 | Borrower | |||||||||||||||||||||||
| First mortgage on real property | CDN | 7.98% | September 1, 2018 | $4.3 million | $4.3 million | 6019838 Canada Inc. |
On May 31, 2013, the Company repaid the $50.0 million outstanding on its secured revolving credit facility. The Company has available a $45.0 million revolving financing facility (utilization in either US dollars or Euros) with Antwerp Diamond Bank for inventory and receivables funding in connection with marketing activities through its Belgian subsidiary, Dominion Diamond International NV, and its Indian subsidiary, Dominion Diamond (India) Private Limited.
Note 22:
Related Party Disclosure
There were no material related party transaction in fiscal year 2014 and 2013 other than compensation of key management personnel.
(a) Operational information
The Company had the following investments in significant subsidiaries at
January 31, 2014:
| Name of company | Effective interest | Country of incorporation | ||||||||
| Dominion Diamond Holdings Ltd. | 100% | Canada | ||||||||
| Dominion Diamond Diavik Limited Partnership | 100% | Canada | ||||||||
| Dominion Diamond (India) Private Limited | 100% | India | ||||||||
| Dominion Diamond International NV | 100% | Belgium | ||||||||
| Dominion Diamond Marketing Corporation | 100% | Canada | ||||||||
| Dominion Diamond (UK) Limited | 100% | England | ||||||||
| 6019838 Canada Inc. | 100% | Canada | ||||||||
| Dominion Diamond Building Services Inc. | 100% | Canada | ||||||||
| Dominion Diamond Ekati Corporation | 100% | Canada | ||||||||
| Dominion Diamond Resources Corporation | 100% | Canada | ||||||||
| Dominion Diamond Marketing NV | 100% | Belgium |
Note 23:
Commitments and Guarantees
| CONTRACTUAL OBLIGATIONS | Less than | Year | Year | After | ||||||||||||||||||
| Total | 1 year | 2-3 | 4-5 | 5 years | ||||||||||||||||||
| Interest-bearing loans and borrowings | $ | 5,297 | $ | 1,140 | $ | 2,271 | $ | 1,886 | $ | - | ||||||||||||
| Environmental and participation agreements incremental commitments (a)(b) | 197,359 | 190,775 | 2,325 | 4,259 | - | |||||||||||||||||
| Operating lease obligations (c) | 12,975 | 7,385 | 5,590 | - | - | |||||||||||||||||
| Total contractual obligations | $ | 215,631 | $ | 199,300 | $ | 10,186 | $ | 6,145 | $ | - |
(a) Environmental agreements
Through negotiations of environmental and other agreements, both the
Diavik Joint Venture and the Ekati Diamond Mine must provide funding
for the Environmental Monitoring Advisory Board, and the Independent
Environmental Monitoring Agency, respectively. Further funding will be
required in future years; however, specific amounts have not yet been
determined. These agreements also state that the mines must provide
security for the performance of their reclamation and abandonment
obligations under all environmental laws and regulations. DDDLP's share
of the letters of credit outstanding posted by the operator of the
Diavik Joint Venture with respect to the environmental agreements as at
January 31, 2014, was $58 million. The agreement specifically provides
that these funding requirements will be reduced by amounts incurred by
the Diavik Joint Venture on reclamation and abandonment activities. The
Company has posted letters of credit of CDN $127 million with the
Government of Canada supported by restricted cash in support of the
reclamation obligations for the Ekati Diamond Mine.
(b) Participation agreements
Both the Diavik Joint Venture and the Ekati Diamond Mine have signed
participation agreements with various native groups. These agreements
are expected to contribute to the social, economic and cultural
well-being of the Aboriginal bands. The Diavik participation agreements
are each for an initial term of twelve years and shall be automatically
renewed on terms to be agreed upon for successive periods of six years
thereafter until termination. The Diavik participation agreements
terminate in the event that the Diavik Diamond Mine permanently ceases
to operate. The Ekati Diamond Mine participation agreements are in
place during the life of the Ekati Diamond Mine and the agreements
terminate in the event the mine ceases to operate.
(c) Operating lease commitments
The Company has entered into non-cancellable operating leases for the
rental of fuel tanks and office premises for the Ekati Diamond Mine,
which expire at various dates through 2016. The leases have varying
terms, escalation clauses and renewal rights. Any renewal terms are at
the option of the lessee at lease payments based on market prices at
the time of renewal. Minimum rent payments under operating leases are
recognized on a straight-line basis over the term of the lease,
including any periods of free rent.
Note 24:
Capital Management
The Company's capital includes cash and cash equivalents, current and non-current interest-bearing loans and borrowings and equity, which includes issued common shares, contributed surplus and retained earnings.
The Company's primary objective with respect to its capital management is to ensure that it has sufficient cash resources to maintain its ongoing operations, to provide returns to shareholders and benefits for other stakeholders, and to pursue growth opportunities. To meet these needs, the Company may from time to time raise additional funds through borrowing and/or the issuance of equity or debt or by securing strategic partners, upon approval by the Board of Directors. The Board of Directors reviews and approves any material transactions out of the ordinary course of business, including proposals on acquisitions or other major investments or divestitures, as well as annual capital and operating budgets.
The Company is not subjected to any externally imposed capital requirements. The Company assesses liquidity and capital resources on a consolidated basis. The Company's requirements are for cash operating expenses, working capital, contractual debt requirements and capital expenditures. The Company believes that it will generate sufficient liquidity to meet its anticipated requirements for the next twelve months.
Note 25:
Financial Risk Management Objectives and Policies
The Company is exposed, in varying degrees, to a variety of financial-instrument-related risks by virtue of its activities. The Company's overall financial risk-management program focuses on the preservation of capital and protecting current and future Company assets and cash flows by minimizing exposure to risks posed by the uncertainties and volatilities of financial markets.
The Company's Audit Committee has responsibility to review and discuss significant financial risks or exposures and to assess the steps management has taken to monitor, control, report and mitigate such risks to the Company.
Financial risk management is carried out by the Finance department, which identifies and evaluates financial risks and establishes controls and procedures to ensure financial risks are mitigated.
The types of risk exposure and the way in which such exposures are managed are as follows:
(i) Currency risk
The Company's sales are predominantly denominated in US dollars. As the
Company operates in an international environment, some of the Company's
financial instruments and transactions are denominated in currencies
other than the US dollar. The results of the Company's operations are
subject to currency transaction risk and currency translation risk. The
operating results and financial position of the Company are reported in
US dollars in the Company's consolidated financial statements.
The Company's primary foreign exchange exposure impacting pre-tax profit arises from the following sources:
Net Canadian dollar denominated monetary assets and liabilities
The Company's functional and reporting currency is US dollars; however,
many of the mining operation's monetary assets and liabilities are
denominated in Canadian dollars. As such, the Company is continually
subject to foreign exchange fluctuations, particularly as the Canadian
dollar moves against the US dollar. The weakening/strengthening of the
Canadian dollar versus the US dollar results in an unrealized foreign
exchange gain/loss on the revaluation of the Canadian dollar
denominated monetary assets and liabilities.
Committed or anticipated foreign currency denominated transactions
Primarily Canadian dollar costs at both the Diavik Diamond Mine and
Ekati Diamond Mine.
Based on the Company's net exposure to Canadian dollar monetary assets and liabilities at January 31, 2014, a one-cent change in the exchange rate would have impacted pre-tax profit for the year by $1.1 million(2013 - $0.5 million).
(ii) Interest rate risk
Interest rate risk is the risk borne by an interest-bearing asset or
liability as a result of fluctuations in interest rates. Financial
assets and financial liabilities with variable interest rates expose
the Company to cash flow interest rate risk. The Company's most
significant interest rate risk arises from its various credit
facilities, which bear variable interest based on LIBOR. As at January
31, 2014, the Company had no outstanding balances under our credit
facilities and consequently, a 100 basis point change in LIBOR would
have no impact on our pre-tax net profit (2013 - $0.5 million).
(iii) Concentration of credit risk
Credit risk is the risk of a financial loss to the Company if a customer
or counterparty to a financial instrument fails to meet its contractual
obligation.
The Company's exposure to credit risk in the mining operations is minimized by its sales policy, which requires receipt of cash prior to the delivery of rough diamonds to its customers.
The Company manages credit risk, in respect of short-term investments, by maintaining bank accounts with creditworthy major banks and investing only in term deposits or bankers' acceptances with highly rated financial institutions that are capable of prompt liquidation. The Company monitors and manages its concentration of counterparty credit risk on an ongoing basis.
At January 31, 2014, the Company's maximum counterparty credit exposure consists of the carrying amount of cash and cash equivalents and accounts receivable, which approximates fair value.
(iv) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due.
The Company manages its liquidity by ensuring that there is sufficient capital to meet short-term and long-term business requirements, after taking into account cash flows from operations and the Company's holdings of cash and cash equivalents. The Company also strives to maintain sufficient financial liquidity at all times in order to participate in investment opportunities as they arise, as well as to withstand sudden adverse changes in economic circumstances. The Company assesses liquidity and capital resources on a consolidated basis. Management forecasts cash flows for its current and subsequent fiscal years to predict future financing requirements. Future financing requirements are met through a combination of committed credit facilities and access to capital markets.
At January 31, 2014, the Company had $224.8 million of cash and cash equivalents.
The following table summarizes the aggregate amount of contractual undiscounted future cash outflows for the Company's financial liabilities:
| Less than | Year | Year | After | ||||||||||||||||||||
| Total | 1 year | 2-3 | 4-5 | 5 years | |||||||||||||||||||
| Trade and other payables | $ | 103,653 | $ | 103,653 | $ | $ | $ | ||||||||||||||||
| Interest-bearing loans and borrowings(a) | 4,298 | 4,298 | |||||||||||||||||||||
| Environmental and participation | |||||||||||||||||||||||
| agreement incremental commitments | 197,359 | 190,775 | 2,325 | 4,259 |
| (a) | Includes projected interest payments on the current debt outstanding based on interest rates in effect at January 31, 2014. |
Note 26:
Financial Instruments
The Company has various financial instruments comprising cash and cash equivalents, accounts receivable, trade and other payables, and interest-bearing loans and borrowings.
Cash and cash equivalents consist of cash on hand and balances with banks and short-term investments held in overnight deposits with a maturity on acquisition of less than 90 days. Cash and cash equivalents, which are designated as held-for-trading, are carried at fair value based on quoted market prices and are classified within Level 1 of the fair value hierarchy established by the International Accounting Standards Board.
The fair value of accounts receivable is determined by the amount of cash anticipated to be received in the normal course of business from the financial asset.
The Company's interest-bearing loans and borrowings are for the most part fully secured, hence the fair values of these instruments at January 31, 2014 are considered to approximate their carrying value.
The carrying values and estimated fair values of these financial instruments are as follows:
| January 31, 2014 | January 31, 2013 | ||||||||||||||||
| Estimated fair value | Carrying value | Estimated fair value | Carrying value | ||||||||||||||
| Financial assets | |||||||||||||||||
| Cash and cash equivalents, including restricted cash | $ | 338,390 | $ | 338,390 | $ | 104,313 | $ | 104,313 | |||||||||
| Accounts receivable | 20,879 | 20,879 | 3,705 | 3,705 | |||||||||||||
| $ | 359,269 | $ | 359,269 | $ | 108,018 | $ | 108,018 | ||||||||||
| Financial liabilities | |||||||||||||||||
| Trade and other payables | $ | 103,653 | $ | 103,653 | $ | 39,053 | $ | 39,053 | |||||||||
| Interest-bearing loans and borrowings | 4,298 | 4,298 | 56,307 | 56,307 | |||||||||||||
| $ | 107,951 | $ | 107,951 | $ | 95,360 | $ | 95,360 | ||||||||||
Note 27:
Segmented Information
The reportable segments are those operations whose operating results are reviewed by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance provided those operations pass certain quantitative thresholds. Operations whose revenues, earnings or losses or assets exceed 10% of the total consolidated revenue, earnings or losses or assets are reportable segments.
In order to determine reportable segments, management reviewed various factors, including geographical locations and managerial structure. It was determined by management that the Company operates in three segments within the diamond industry - Diavik Diamond Mine, Ekati Diamond Mine and Corporate - for the year ended January 31, 2014. The results of the Company's luxury brand segment, which it disposed of on March 26, 2013, no longer qualify as a reportable operating segment and current and prior period results have been recast accordingly.
The Diavik segment consists of the Company's 40% ownership interest in the Diavik group of mineral claims and the sale of rough diamonds. The Ekati segment consists of the Company's ownership interest in the Ekati group of mineral claims and the sale of rough diamonds. The Corporate segment captures all costs not specifically related to the operations of the Diavik and Ekati diamond mines.
| For the year ended January 31, 2014 | Diavik | Ekati | Corporate | Total | ||||||||||||||||
| Sales | ||||||||||||||||||||
| North America | $ | 6,690 | $ | 413 | $ | - | $ | 7,103 | ||||||||||||
| Europe | 299,262 | 397,230 | - | 696,492 | ||||||||||||||||
| India | 46,355 | 1,992 | - | 48,347 | ||||||||||||||||
| Total sales | 352,307 | 399,635 | - | 751,942 | ||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Depreciation and amortization | 82,993 | 55,572 | - | 138,565 | ||||||||||||||||
| All other costs | 174,931 | 337,376 | - | 512,307 | ||||||||||||||||
| Total cost of sales | 257,924 | 392,948 | - | 650,872 | ||||||||||||||||
| Gross margin | 94,383 | 6,687 | - | 101,070 | ||||||||||||||||
| Gross margin (%) | 26.8% | 1.7% | -% | 13.4% | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||
| Selling and related expenses | 4,763 | 2,679 | - | 7,442 | ||||||||||||||||
| Administrative expenses | 41,983 | 41,983 | ||||||||||||||||||
| Total selling, general and administrative expenses | 4,763 | 2,679 | 41,983 | 49,425 | ||||||||||||||||
| Operating profit (loss) | 89,620 | 4,008 | (41,983) | 51,645 | ||||||||||||||||
| Finance expenses | (19,690) | (7,662) | - | (27,352) | ||||||||||||||||
| Exploration costs | (4,469) | (10,081) | - | (14,550) | ||||||||||||||||
| Finance and other income | 2,741 | 412 | - | 3,153 | ||||||||||||||||
| Foreign exchange gain (loss) | 3,373 | (12,252) | - | (8,879) | ||||||||||||||||
| Segmented profit (loss) before income taxes | $ | 71,575 | $ | (25,575) | $ | (41,983) | $ | 4,017 | ||||||||||||
| Segmented assets as at January 31, 2014 | ||||||||||||||||||||
| Canada | $ | 907,096 | $ | 1,365,389 | $ | - | $ | 2,272,485 | ||||||||||||
| Other foreign countries | 26,880 | 5,285 | - | 32,164 | ||||||||||||||||
| $ | 933,976 | $ | 1,370,674 | $ | - | $ | 2,304,650 | |||||||||||||
| Capital expenditures | $ | (26,581) | $ | (95,697) | $ | - | $ | (122,278) | ||||||||||||
| Inventory | 115,438 | 325,415 | - | 440,853 | ||||||||||||||||
| Total liabilities | 37,448 | 795,239 | - | 832,687 | ||||||||||||||||
| Other significant non-cash items: | ||||||||||||||||||||
| Deferred income tax expense (recovery) | $ | 650 | $ | (5,544) | $ | - | $ | (4,894) |
Sales to one customer totalled $104 million for the year ended January 31, 2014.
| For the year ended January 31, 2013 | Diavik | Ekati | Corporate | Total | ||||||||||||||||||
| Sales | ||||||||||||||||||||||
| North America | $ | 22,002 | $ | - | $ | - | $ | 22,002 | ||||||||||||||
| Europe | 246,668 | - | - | 246,668 | ||||||||||||||||||
| India | 76,741 | - | - | 76,741 | ||||||||||||||||||
| Total sales | 345,411 | - | - | 345,411 | ||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||
| Depreciation and amortization | 79,075 | - | - | 79,075 | ||||||||||||||||||
| All other costs | 188,509 | - | - | 188,509 | ||||||||||||||||||
| Total cost of sales | 267,584 | - | - | 267,584 | ||||||||||||||||||
| Gross margin | 77,827 | - | - | 77,827 | ||||||||||||||||||
| Gross margin (%) | 22.5% | % | % | 22.5% | ||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||
| Selling and related expenses | 5,161 | - | - | 5,161 | ||||||||||||||||||
| Administrative expenses | - | - | 24,995 | 24,995 | ||||||||||||||||||
| Total selling, general and administrative expenses | 5,161 | - | 24,995 | 30,156 | ||||||||||||||||||
| Operating profit (loss) | 72,666 | - | (24,995) | 47,671 | ||||||||||||||||||
| Finance expenses | (9,083) | - | - | (9,083) | ||||||||||||||||||
| Exploration costs | (1,801) | - | - | (1,801) | ||||||||||||||||||
| Finance and other income | 780 | - | - | 780 | ||||||||||||||||||
| Foreign exchange gain | 493 | - | - | 493 | ||||||||||||||||||
| Segmented profit (loss) before income taxes | $ | 63,055 | $ | - | $ | (24,995) | $ | 38,060 | ||||||||||||||
| Segmented assets as at January 31, 2013 | ||||||||||||||||||||||
| Canada | $ | 1,339,482 | $ | - | $ | - | $ | 1,339,482 | ||||||||||||||
| Other foreign countries | 370,974 | - | - | 370,974 | ||||||||||||||||||
| $ | 1,710,456 | $ | - | $ | - | $ | 1,710,456 | |||||||||||||||
| Capital expenditures | $ | (56,478) | $ | - | $ | - | $ | (56,478) | ||||||||||||||
| Inventory | 115,627 | - | - | 115,627 | ||||||||||||||||||
| Total liabilities | 879,204 | - | - | 879,204 | ||||||||||||||||||
| Other significant non-cash items: | ||||||||||||||||||||||
| Deferred income tax recovery | $ | (9,752) | $ | - | $ | - | $ | (9,752) | ||||||||||||||
Diavik Diamond Mine Mineral Reserve and
Mineral Resource Statement
AS OF DECEMBER 31, 2013 (UNAUDITED) (100% BASIS)
| Mineral Reserves | ||||||||||||||||||||||||
| Proven | Probable | Proven and Probable | ||||||||||||||||||||||
| Kimberlite pipes | Type | Millions of tonnes | Carats per tonne | Millions of carats | Millions of tonnes | Carats per tonne | Millions of carats | Millions of tonnes | Carats per tonne | Millions of carats | ||||||||||||||
| A-154 South | UG | 0.8 | 4.1 | 3.1 | 1.4 | 3.4 | 4.8 | 2.2 | 3.6 | 7.8 | ||||||||||||||
| A-154 North | UG | 5.7 | 2.1 | 12.2 | 1.8 | 2.2 | 3.9 | 7.5 | 2.1 | 16.1 | ||||||||||||||
| A-418 | UG | 4.4 | 3.7 | 16.2 | 2.1 | 2.9 | 6.2 | 6.5 | 3.4 | 22.4 | ||||||||||||||
| Stockpile | N/A | 0.2 | 2.7 | 0.5 | - | - | - | 0.2 | 2.7 | 0.5 | ||||||||||||||
| Sub-Total - Underground | 10.9 | 2.9 | 31.4 | 5.3 | 2.8 | 14.9 | 16.2 | 2.9 | 46.3 | |||||||||||||||
| Sub-Total - Stockpile | 0.2 | 2.7 | 0.5 | - | - | - | 0.2 | 2.7 | 0.5 | |||||||||||||||
| Total Reserves | 11.1 | 2.9 | 32.0 | 5.3 | 2.8 | 14.9 | 16.4 | 2.9 | 46.8 | |||||||||||||||
| Note: Totals may not add up due to rounding. | ||||||||||||||||||||||||
| Mineral Resources | ||||||||||||||||||||||||
| Measured Resources | Indicated Resources | Inferred Resources | ||||||||||||||||||||||
| Kimberlite pipes | Type | Millions of tonnes | Carats per tonne | Millions of carats | Millions of tonnes | Carats per tonne | Millions of carats | Millions of tonnes | Carats per tonne | Millions of carats | ||||||||||||||
| A-154 South | UG | - | - | - | - | - | - | 0.04 | 4.0 | 0.1 | ||||||||||||||
| A-154 North | UG | - | - | - | - | - | - | 2.2 | 2.6 | 5.7 | ||||||||||||||
| A-418 | UG | - | - | - | - | - | - | 0.3 | 2.4 | 0.7 | ||||||||||||||
| A-21 | OP | 3.6 | 2.8 | 10.0 | 0.4 | 2.6 | 1.0 | 0.8 | 3.0 | 2.3 | ||||||||||||||
| Total Resources | 3.6 | 2.8 | 10.0 | 0.4 | 2.6 | 1.0 | 3.3 | 2.7 | 8.8 | |||||||||||||||
| Note: Totals may not add up due to rounding. | ||||||||||||||||||||||||
Cautionary Note to United States Investors Concerning Disclosure of Mineral Reserves and Resources:The Company is organized under the laws of Canada. The mineral reserves and resources described herein are estimates, and have been prepared in compliance with National Instrument 43-101 ("NI 43-101"). The definitions of proven and probable reserves used in NI 43-101 differ from the definitions in the United States Securities and Exchange Commission ("SEC") Industry Guide 7. In addition, the terms "mineral resource", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7, and normally are not permitted to be used in reports and registration statements filed with the SEC. Accordingly, information contained in this financial report containing descriptions of the Diavik Diamond Mine's mineral deposits may not be comparable to similar information made public by US companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves.United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.
The reserve and resource information for the Diavik Diamond Mine was prepared by or under the supervision of Calvin G. Yip, P. Eng., an employee of Diavik Diamond Mines (2012) Inc. and a Qualified Person within the meaning of NI 43-101 of the Canadian Securities Administrators. The Qualified Person has verified the data disclosed, and the data underlying the information contained herein. For further details and information concerning Dominion Diamond Corporation's Mineral Reserves and Mineral Resources, readers should reference Dominion Diamond Corporation's Annual Information Form available through www.sedar.com and www.ddcorp.ca.
Ekati Diamond Mine Mineral Reserve and
Mineral Resource Statement
AS OF JANUARY 31, 2014 (UNAUDITED) (100% BASIS)
| Mineral Reserves | |||||||||||||||||||||||||||
| Proven | Probable | Proven and Probable | |||||||||||||||||||||||||
| Kimberlite pipes | Zone location | Type | Millions of tonnes | Carats per tonne | Millions of carats | Millions of tonnes | Carats per tonne | Millions of carats | Millions of tonnes | Carats per tonne | Millions of carats | ||||||||||||||||
| Koala | Core | UG | - | - | - | 5.1 | 0.6 | 3.0 | 5.1 | 0.6 | 3.0 | ||||||||||||||||
| Fox | Core | OP | - | - | - | 0.5 | 0.3 | 0.2 | 0.5 | 0.3 | 0.2 | ||||||||||||||||
| Misery Main | Core | OP | - | - | - | 3.0 | 4.0 | 12.3 | 3.0 | 4.0 | 12.3 | ||||||||||||||||
| Pigeon | Core | OP | - | - | - | 7.3 | 0.4 | 3.1 | 7.3 | 0.4 | 3.1 | ||||||||||||||||
| Stock-pile | Core | N/A | - | - | - | 1.1 | 0.2 | 0.2 | 1.1 | 0.2 | 0.2 | ||||||||||||||||
| Total Reserves | - | - | - | 17.0 | 1.1 | 18.8 | 17.0 | 1.1 | 18.8 | ||||||||||||||||||
| Note: Totals may not add up due to rounding. | |||||||||||||||||||||||||||
| Mineral Resources | |||||||||||||||||||||||||||
| Measured Resources | Indicated Resources | Inferred Resources | |||||||||||||||||||||||||
| Kimberlite pipes | Zone location | Type | Millions of tonnes | Carats per tonne | Millions of carats | Millions of tonnes | Carats per tonne | Millions of carats | Millions of tonnes | Carats per tonne | Millions of carats | ||||||||||||||||
| Koala | Core | UG | - | - | - | 7.1 | 0.6 | 4.3 | 0.2 | 1.0 | 0.2 | ||||||||||||||||
| Koala North | Core | UG | - | - | - | - | - | - | 0.1 | 0.6 | 0.1 | ||||||||||||||||
| Fox | Core | OP | - | - | - | 6.0 | 0.2 | 1.4 | 0.8 | 0.3 | 0.2 | ||||||||||||||||
| Fox | Core | UG | - | - | - | 20.2 | 0.3 | 6.1 | 5.7 | 0.3 | 1.7 | ||||||||||||||||
| Misery Main | Core | OP | - | - | - | 3.7 | 4.5 | 16.8 | 0.8 | 2.9 | 2.3 | ||||||||||||||||
| Pigeon | Core | OP | - | - | - | 12.0 | 0.5 | 5.9 | 1.7 | 0.4 | 0.8 | ||||||||||||||||
| Sable | Core | OP | - | - | - | 15.4 | 0.9 | 13.3 | - | - | - | ||||||||||||||||
| Jay | Buffer | OP | - | - | - | 36.2 | 2.2 | 78.1 | 9.5 | 1.4 | 12.9 | ||||||||||||||||
| Lynx | Buffer | OP | - | - | - | 1.3 | 0.8 | 1.0 | 0.1 | 0.8 | 0.1 | ||||||||||||||||
| Stock-pile | Core | N/A | - | - | - | 1.1 | 0.2 | 0.3 | 6.6 | 0.2 | 1.0 | ||||||||||||||||
| Sub-Total Core Zone | - | - | - | 65.5 | 0.7 | 48.0 | 15.9 | 0.4 | 6.3 | ||||||||||||||||||
| Sub-Total Buffer Zone | - | - | - | 37.5 | 2.1 | 79.1 | 9.6 | 1.3 | 13.0 | ||||||||||||||||||
| Total Resources | - | - | - | 103.0 | 1.2 | 127.1 | 25.5 | 0.8 | 19.3 | ||||||||||||||||||
Mineral resources are inclusive of mineral reserves.
Mineral resources are reported at +1.0 mm (diamonds retained on a 1.0 mm
slot screen).
Note: Totals may not add up due to rounding.
Cautionary Note to United States Investors Concerning Disclosure of Mineral Reserves and Resources:The Company is organized under the laws of Canada. The mineral reserves and resources described herein are estimates, and have been prepared in compliance with National Instrument 43-101 ("NI 43-101"). The definitions of proven and probable reserves used in NI 43-101 differ from the definitions in the United States Securities and Exchange Commission ("SEC") Industry Guide 7. In addition, the terms "mineral resource", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7, and normally are not permitted to be used in reports and registration statements filed with the SEC. Accordingly, information contained in this financial report containing descriptions of the Ekati Diamond Mine's mineral deposits may not be comparable to similar information made public by US companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves.United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable.
The reserve and resource information for the Ekati Diamond Mine was prepared by or under the supervision of Mats Heimersson, P. Eng., an employee of the Company and a Qualified Person within the meaning of NI 43-101 of the Canadian Securities Administrators. The Qualified Person has verified the data disclosed, and the data underlying the information contained herein. For further details and information concerning Dominion Diamond Corporation's Mineral Reserves and Mineral Resources, readers should reference Dominion Diamond Corporation's Annual Information Form available through www.sedar.com and www.ddcorp.ca.
SOURCE Dominion Diamond Corporation
