TORONTO, June 11, 2014 /PRNewswire/ - Dominion Diamond Corporation (TSX: DDC, NYSE: DDC) (the "Company") today announced its fiscal 2015 first quarter results for the period ended April 30, 2014.
Robert Gannicott, Chairman and Chief Executive Officer stated: "A year on from our purchase of the Ekati operation, we continue to improve ore production and recoveries as we develop new ore sources. The receipt of full operating permits for the Lynx open pit development in less than a year from application speaks better than words about the determination of a newly empowered Government of the Northwest Territories to effectively manage through this transition and to support well planned resource development."
Diamond Market
Sentiment at the very important JCK Las Vegas show in June reflected the
optimism of the US retail market. Demand continues to be steady from
China and is picking up from India.
First Quarter Highlights
The first quarter of fiscal 2015 marks the anniversary of the
divestiture of the Company's luxury business and the acquisition of the
Ekati Diamond Mine. The Company is now focused on delivering enhanced
value from its world class diamond mines: an 80% interest in the Ekati
Diamond Mine and a 40% interest in the Diavik Diamond Mine. The Company
is well-funded and has a strong balance sheet.
- During the first quarter, both the Ekati Diamond Mine and the Diavik Diamond Mine performed well. Production at both mines was substantially ahead of expectations.
- An improved plan has been developed for mining the Jay kimberlite, the largest diamondiferous resource in North America.
- A total of $163 million of capital expenditure remains to be spent on the Misery push-back before bringing the Misery Main Pipe, which at 4 carats a tonne is one of the richest ore bodies in the world, into full production at the beginning of calendar 2016.
- The Company has received the amended Ekati Water License to now incorporate the Lynx development.
- A decision on the development of the A-21 pipe at the Diavik Diamond Mine is expected later this year.
| Consolidated Financial Highlights (in millions of US dollars except earnings per share) | Q1 2015 | Q1 2014 | |
| Dominion Diamond Corporation | Sales | 175.5 | 108.8 |
| Cost of Sales | 137.7 | 81.5 | |
| Gross Margin | 37.8 | 27.3 | |
| Gross Margin (%) | 21.6% | 25.1% | |
| Selling general & administration | 7.1 | 16.8 | |
| Operating profit from continuing operations | 30.7 | 10.5 | |
| EBITDA from continuing operations | 69.6 | 30.7 | |
| EBITDA Margin (%) | 39.6% | 28.2% | |
| Earnings per share | 0.17 | 0.04 | |
Excluded from the Ekati sales recorded in the first quarter 2015 were estimated sales of $6.9 million of rough diamonds recovered from the satellite material at the Misery South and Southwest kimberlite pipes, as this material was excavated during the pre-stripping operations for the Misery Main Pipe. The Company estimates that consolidated gross margin and EBITDA margin would have been approximately 23.0% and 40.4%, respectively, if the carats sold from material excavated from the Misery South & Southwest kimberlite pipes were recognized as revenue.
Exploration expense of $9.0 million was incurred during the first quarter ($1.0 million in Q1 2014). Included in exploration expense for the first quarter is $8.7 million of exploration work on the Jay pipe within the Buffer Zone at the Ekati Diamond Mine.
Two rough diamond sales were completed by the Company during the first quarter. The third rough diamond sale of fiscal 2015, which commenced in the last week of April and only finished in the first week in May, will be included as one of the three sales in the second quarter of fiscal 2015. As of April 30, 2014, the Company held rough diamond inventory with a market value of approximately $285 million and total cash and cash equivalents of $328 million ($212.5 million of cash and $115.6 million of restricted cash).
Jay Project Update
An improved plan for mining the Jay kimberlite pipe, which simplifies
construction and has a reduced impact on the water and fish population
compared to the initial plan, has been introduced to the Northwest
Territories regulatory bodies and the impacted communities.
Improvements to diamond prices and an improved understanding of the
geology of the kimberlite and surrounding rocks supports the mining of
Jay alone without the early support of the Cardinal pipe. The changes,
which have been received with enthusiastic support, reduce both the
expected timeline and the environmental footprint of the project. This
gives enhanced assurance of the release of ore from Jay in late
calendar 2019 to meet the completion of the current ore reserves. The
"Developer's Assessment Report" for the project will be filed with the
regulator in September this year in anticipation of ministerial
approval from the Government of the Northwest Territories in the fall
of next year.
Operational Summary
The stronger than expected production results at the Ekati Diamond Mine
for the first quarter reflect the Company's strategy for fully
utilizing the processing plant capacity, higher than expected grades in
the reserve feed and an increase in diamond recovery (primarily of
smaller diamonds) due to operational improvements to the processing
plant implemented by the Company over the last 8 months. The Company
estimates that process plant improvements to date have increased the
recovered grade during the first quarter, albeit in predominantly
smaller diamonds, by approximately 15%.
Ore processing at the Diavik Diamond Mine was 11% ahead of plan as a result of greater ore availability, higher mining rates and improved equipment availability, equipment efficiencies and utilization of the processing plant.
| Rough Diamond Production | Q1 2015 | Q1 20141 | |
| Ekati Diamond Mine (100%) | Tonnes processed ('000's) | 962 | 206 |
| Three months ended April 30 | Carats Recovered ('000's) | 561 | 82 |
| Grade (carats per tonne) | 0.58 | 0.58 | |
| Diavik Diamond Mine (40%) | Tonnes processed ('000's) | 235 | 202 |
| Three months ended March 312 | Carats Recovered ('000's) | 746 | 778 |
| Grade (carats per tonne) | 2.913 | 3.673 |
1 The Q1 2014 amounts for the Ekati Diamond Mine are for the period from
April 10, 2013 (the date of acquisition by the Company of its interest
in the Ekati Diamond Mine) to April 30, 2013.
2 The Diavik Diamond Mine reports on a calendar quarter, whereas the Ekati
Diamond Mine reports to the Company's fiscal quarter. For the three
months ended April 30, 2014, the Diavik Diamond Mine (on a 40% basis)
produced 735,000 carats from the processing of 236,000 tonnes of ore.
The last month of this production is not included in the Company's
first quarter financial results, as the Company reports Diavik results
on a one-month lag.
3 Grade adjusted to exclude Coarse Ore Rejects (COR). COR is not included
in the reserves and is therefore incremental production.
| Ekati and Diavik Summary (in millions of US dollars, except carats sold) | Q1 2015 | Q1 20141 | |
| Ekati Diamond Mine (100%) | Sales2 | 92.8 | 20 |
| Carats sold ('000's) | 259 | 12 | |
| Cash Cost of Production | 89.9 | 17.4 | |
| Cost of Sales | 81.4 | 19.6 | |
| Gross Margin | 11.4 | 0.3 | |
| Gross Margin (%) | 12.3% | 1.4% | |
| Operating Profit | 9.9 | (0.2) | |
| Depreciation & amortization | 20.2 | 0 | |
| EBITDA | 30.1 | (0.2) | |
| EBITDA Margin (%) | 32.4% | -1.2% | |
| Capital Expenditures | 49.2 | 8.8 | |
| Diavik Diamond Mine (40%) | Sales | 82.7 | 88.9 |
| Carats sold ('000's) | 582 | 783 | |
| Cash Cost of Production | 39.2 | 42.9 | |
| Cost of Sales | 56.2 | 61.9 | |
| Gross Margin | 26.4 | 27.0 | |
| Gross Margin (%) | 32.0% | 30.4% | |
| Operating Profit | 25.5 | 25.9 | |
| Depreciation & amortization | 18.4 | 19.9 | |
| EBITDA | 43.9 | 45.8 | |
| EBITDA Margin (%) | 53.0% | 51.5% | |
| Capital Expenditures | 6.8 | 10.2 | |
1The Q1 2014 amounts for the Ekati Diamond Mine are for the period from
April 10, 2013 (the date of acquisition by the Company of its interest
in the Ekati Diamond Mine) to April 30, 2013.
2 Excluded from the Ekati sales recorded in the first quarter 2015 were
estimated sales of $6.9 million of rough diamonds recovered from the
satellite material at the Misery South and Southwest kimberlite pipes,
as this material was excavated during the pre-stripping operations for
the Misery Main Pipe. The Company estimates that the Ekati gross margin
and EBITDA margin would have been approximately 15.6% and 34.3%,
respectively, if the carats sold from material excavated from the
Misery South & Southwest kimberlite pipes were recognized as revenue.
| Diamond Inventory (in millions of US dollars, except carats) | April 30, 2014 | January 31, 2014 | |
| Ekati Diamond Mine (100%) | Carats (million) | 0.8 | 0.5 |
| At Cost | 170 | 130 | |
| Estimated Market Value | 200 | 140 | |
| Diavik Diamond Mine (40%) | Carats (million) | 0.7 | 0.4 |
| At Cost | 60 | 50 | |
| Estimated Market Value | 85 | 65 | |
| Consolidated Diamond Inventory | Estimated Market Value of Total Inventory1 | 285 | 205 |
1 Includes an estimated $65 million (at market value) of discretionary stock held back from sale at April 30, 2014.
| Cash (in millions of US dollars) | April 30, 2014 | Jan 31, 2014 | |
| Consolidated Balance Sheet | Restricted cash | 115.6 | 113.6 |
| Unrestricted cash | 212.5 | 224.8 | |
| Total cash | 328.1 | 338.4 | |
| Diamond Prices April/May 2014 Average Price per Carat (in US dollars) | |||
| Diavik Ore Type | Ekati Ore Type1 | ||
| A-154 South | $145 | Koala | $395 |
| A-154 North | $190 | Koala North | $440 |
| A-418 | $105 | Fox | $315 |
| Coarse Ore Rejects | $50 | Misery Satellite Pipes | $80 - 100 |
| Coarse Ore Rejects | $65 - 120 | ||
| Rough Diamond Prices January to June, 2014 | +8% | Recovered Small Diamonds | $70 - 100 |
1The Ekati prices do not reflect the increased recovery of small diamonds from the improvements in processing so as to be consistent with the Company's current reserve estimates. The rough diamond price of the additional recovered small diamonds at Ekati is estimated at between $70 and $100 per carat.
| Full Year Guidance (in millions of US dollars)1 | Cash Costs2 | Depreciation & Amortization | Cost of Sales | Capital Expenditures2 |
| Ekati Diamond Mine (100%) | 345 | 125 | 490 | 180 |
| Diavik Diamond Mine (40%) | 150 | 95 | 275 | 19 |
1 Assuming an average Canadian/US dollar exchange rate of $1.10.
2 The guidance on capital expenditures and cash costs of production for
Diavik are for the calendar year ending December 31, 2014; all others
are for the fiscal year ending January 31, 2015.
| Had the Company sold only the last production shipped in the first
quarter, the estimated price based on the prices achieved in the May 2014 sale, would have been: | |
| Ekati Diamond Mine (100%) | approximately $281 per carat |
| Diavik Diamond Mine (40%) | approximately $120 per carat |
Non-IFRS Measures
The terms EBITDA, EBITDA margin and cash cost of production do not have
standardized meanings according to International Financial Reporting
Standards. See "Non-IFRS Measures" in the Company's First Quarter
Management's Discussion and Analysis for additional information.
Conference Call and Webcast
Beginning at 8:30AM (ET) on Thursday, June 12th, 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 866-515-2915 within North America or 617-399-5129 from
international locations and entering passcode 36919939.
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, June 26th, 2014 by dialing 888-286-8010 within North America or 617-801-6888 from international locations and entering passcode 66271254.
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% 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 third 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)
FIRST QUARTER RESULTS
Dominion Diamond Corporation (the "Company") recorded a consolidated net
profit attributable to shareholders of $14.7 million or $0.17 per share
for the quarter, compared to a net profit attributable to shareholders
of $506.2 million or $5.96 per share in the first quarter of the prior
year. Prior year results include the sale of Harry Winston, Inc. (the
"Luxury Brand Segment") to Swatch Group.
Consolidated sales from continuing operations were $175.5 million for the quarter, compared to $108.8 million for the comparable quarter of the prior year, resulting in an operating profit of $30.7 million, compared to an operating profit of $10.5 million in the comparable quarter of the prior year. Consolidated EBITDA from continuing operations was $69.6 million compared to $30.7 million in the comparable quarter of the prior year.
During the first quarter, the Company recorded sales from the Diavik Diamond Mine of $82.7 million, compared to $88.9 million in the comparable quarter of the prior year. The Company sold approximately 0.6 million carats from the Diavik Diamond Mine for an average price per carat of $142, compared to 0.8 million carats for an average price per carat of $114 in the comparable quarter of the prior year. The 25% increase in the achieved average rough diamond prices and 26% decrease in volume of carats sold versus the comparable quarter of the prior year resulted primarily from the carryover of some lower value inventory at April 30, 2014 for sorting and sale in the second quarter due to increased production volumes during the first quarter. The Diavik segment generated gross margins and EBITDA margins as a percentage of sales of 32.0% and 53%, respectively, compared to 30.4% and 52%, respectively, in the comparable quarter of the prior year. At April 30, 2014, the Company had 0.7 million carats of Diavik Diamond Mine produced inventory with an estimated market value of approximately $85 million.
During the first quarter, the Ekati Diamond Mine recorded sales of $92.8 million, compared to $19.9 million for the period from April 10 to April 30, 2013. The Company sold approximately 0.3 million carats for an average price per carat of $359 compared to 0.01 million carats for an average price per carat of $1,620 for the period of April 10 to April 30, 2013. Excluded from sales recorded in the first quarter 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 operations from the Misery Main pipe. The Ekati Diamond Mine generated gross margins and EBITDA margins of 12.3% and 32%, respectively, compared to 1.4% and -1% for the period of April 10 to April 30, 2013. The prior year results include the purchase of inventory at market values as part of the acquisition of the Ekati Diamond Mine (the "Ekati Diamond Mine Acquisition"). The Company estimates that gross margins and EBITDA margins would have been approximately 15.6% and 34%, 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 & Southwest carats have been applied as a reduction of mining assets. At April 30, 2014, the Company had 0.8 million carats of Ekati Diamond Mine produced inventory with an estimated market value of approximately $200 million. Included in ending inventory is an estimated 0.1 million carats of Misery South & Southwest with an estimated market value of approximately $8 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 $4.7 million, compared to $15.2 million in the comparable quarter of the prior year. Prior year results included $11.3 million of transaction costs related to the Ekati Diamond Mine Acquisition.
Management's Discussion and Analysis
PREPARED AS OF JUNE 11, 2014 (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 three
months ended April 30, 2014, and its financial position as at April 30,
2014. This MD&A is based on the Company's unaudited interim condensed
consolidated financial statements prepared in accordance with
International Accounting Standards 34 ("IAS 34"), as issued by the
International Accounting Standards Board ("IASB"), and should be read
in conjunction with the unaudited interim condensed consolidated
financial statements and notes thereto for the three months ended April
30, 2014, and the audited consolidated financial statements for the
year ended January 31, 2014. Unless otherwise specified, all financial
information is presented in United States dollars. Unless otherwise
indicated, all references to "first quarter" refer to the three months
ended April 30, 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 macro economic 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 19 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, which the Company controls, 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 controls 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 Acquisition"). The Ekati Diamond Mine consists of the Core Zone (in which the Company owns 80%), which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer Zone (in which the Company owns 58.8%), an adjacent area hosting kimberlite pipes having both development and exploration potential, such as the Jay kimberlite pipe and the Lynx kimberlite pipe. The Company 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
The rough diamond market maintained the momentum experienced at the beginning of the calendar year. Rough diamond prices then held steady as the normally slow period during late April and early May had little effect on market sentiment. The diamond market has also overcome earlier concerns about liquidity in the Indian diamond manufacturing industry and it has become increasingly evident that tighter credit will lead to more sustainable growth in both market demand and diamond pricing.
Polished sales have remained healthy with shortages still evident in the lower price ranges. The major retail jewelry markets remain upbeat with solid growth in the US and in the market for jewelry in China. The Japanese jewelry market was also positive as the expected decline in demand following the introduction of a consumption tax in April has failed to have the anticipated impact. The new business focused government in India was welcomed by the diamond market and the expected impacts of stability of the Rupee and promised economic growth bodes well for a marked improvement in Indian retail demand.
CONSOLIDATED FINANCIAL RESULTS
The following is a summary of the Company's consolidated quarterly results for the eight quarters ended April 30, 2014.
(expressed in thousands of United States dollars except per share amounts and where otherwise noted) (unaudited)
| Three months ended April 30, 2014 | Three months ended April 30, 2013 | ||||||||||||||||||||
| 2015 Q1 | 2014 Q4 | 2014 Q3 | 2014 Q2 | 2014 Q1 | 2013 Q4 | 2013 Q3 | 2013 Q2 | ||||||||||||||
| Sales | $ | 175,522 | $ | 233,163 | $ | 148,138 | $ | 261,803 | $ | 108,837 | $ | 110,111 | $ | 84,818 | $ | 61,473 | $ | 175,522 | $ | 108,837 | |
| Cost of sales | 137,680 | 202,030 | 136,221 | 231,086 | 81,535 | 79,038 | 71,663 | 46,784 | 137,680 | 81,535 | |||||||||||
| Gross margin | 37,842 | 31,133 | 11,917 | 30,717 | 27,302 | 31,073 | 13,155 | 14,689 | 37,842 | 27,302 | |||||||||||
| Gross margin (%) | 21.6% | 13.4% | 8.0% | 11.7% | 25.1% | 28.2% | 15.5% | 23.9% | 21.6% | 25.1% | |||||||||||
| Selling, general and administrative expenses | 7,148 | 10,117 | 7,408 | 15,056 | 16,843 | 10,086 | 7,581 | 5,750 | 7,148 | 16,843 | |||||||||||
| Operating profit (loss) from continuing operations | 30,694 | 21,016 | 4,509 | 15,661 | 10,459 | 20,987 | 5,574 | 8,939 | 30,694 | 10,459 | |||||||||||
| Finance expenses | (3,310) | (3,553) | (3,136) | (17,921) | (2,742) | (2,382) | (2,308) | (2,151) | (3,310) | (2,742) | |||||||||||
| Exploration costs | (9,044) | (3,290) | (7,074) | (3,145) | (1,039) | (306) | (673) | (568) | (9,044) | (1,039) | |||||||||||
| Finance and other income | 2,827 | 491 | 825 | 1,032 | 804 | 601 | 60 | 67 | 2,827 | 804 | |||||||||||
| Foreign exchange gain (loss) | (947) | (7,917) | 1,122 | (2,814) | 732 | 116 | (301) | 1,048 | (947) | 732 | |||||||||||
| Profit (loss) before income taxes from continuing operations | 20,220 | 6,747 | (3,754) | (7,187) | 8,214 | 19,016 | 2,352 | 7,335 | 20,220 | 8,214 | |||||||||||
| Income tax expense (recovery) | 9,533 | 19,018 | 2,792 | 8,655 | 5,042 | 6,977 | 1,583 | 3,386 | 9,533 | 5,042 | |||||||||||
| Net profit (loss) from continuing operations | $ | 10,687 | (12,271) | $ | (6,546) | $ | (15,842) | $ | 3,172 | $ | 12,039 | $ | 769 | $ | 3,949 | $ | 10,687 | $ | 3,172 | ||
| Net profit (loss) from discontinued operations | - | - | - | - | 502,656 | 2,802 | 3,245 | 804 | - | 502,656 | |||||||||||
| Net profit (loss) | $ | 10,687 | $ | (12,271) | $ | (6,546) | $ | (15,842) | $ | 505,828 | $ | 14,841 | $ | 4,014 | $ | 4,753 | $ | 10,687 | $ | 505,828 | |
| Net profit (loss) from continuing operations attributable to | |||||||||||||||||||||
| Shareholders | $ | 14,671 | $ | (7,802) | $ | (4,794) | $ | (13,884) | $ | 3,504 | $ | 12,146 | $ | 152 | $ | 3,951 | $ | 14,671 | $ | 3,504 | |
| Non-controlling interest | (3,984) | (4,469) | (1,752) | (1,958) | (332) | (107) | 617 | (2) | (3,984) | (332) | |||||||||||
| Net profit (loss) attributable to | |||||||||||||||||||||
| Shareholders | $ | 14,671 | $ | (7,802) | $ | (4,794) | $ | (13,884) | $ | 506,160 | $ | 14,948 | $ | 3,397 | $ | 4,755 | $ | 14,671 | $ | 506,160 | |
| Non-controlling interest | (3,984) | (4,469) | (1,752) | (1,958) | (332) | (107) | 617 | (2) | (3,984) | (332) | |||||||||||
| Earnings (loss) per share - continuing operations attributable to shareholders | |||||||||||||||||||||
| Basic | $ | 0.17 | $ | (0.09) | $ | (0.06) | $ | (0.16) | $ | 0.04 | $ | 0.14 | $ | 0.00 | $ | 0.05 | $ | 0.17 | $ | 0.04 | |
| Diluted | $ | 0.17 | $ | (0.09) | $ | (0.06) | $ | (0.16) | $ | 0.04 | $ | 0.14 | $ | 0.00 | $ | 0.05 | $ | 0.17 | $ | 0.04 | |
| Earnings (loss) per share attributable to shareholders | |||||||||||||||||||||
| Basic | $ | 0.17 | $ | (0.09) | $ | (0.06) | $ | (0.16) | $ | 5.96 | $ | 0.18 | $ | 0.04 | $ | 0.06 | $ | 0.17 | $ | 5.96 | |
| Diluted | $ | 0.17 | $ | (0.09) | $ | (0.06) | $ | (0.16) | $ | 5.89 | $ | 0.18 | $ | 0.04 | $ | 0.06 | $ | 0.17 | $ | 5.89 | |
| 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 | |
| Total assets(i) | $ | 2,361 | $ | 2,305 | $ | 2,305 | $ | 2,299 | $ | 2,412 | $ | 1,710 | $ | 1,733 | $ | 1,660 | $ | 2,361 | $ | 2,412 | |
| Total long-term liabilities(i) | $ | 676 | $ | 691 | $ | 688 | $ | 694 | $ | 695 | $ | 269 | $ | 682 | $ | 461 | $ | 676 | $ | 695 | |
| Operating profit (loss) from continuing operations | $ | 30,694 | $ | 21,016 | $ | 4,509 | $ | 15,661 | $ | 10,459 | $ | 20,987 | $ | 5,574 | $ | 8,939 | $ | 30,694 | $ | 10,459 | |
| Depreciation and amortization(ii) | 38,885 | 55,228 | 31,978 | 32,644 | 20,211 | 24,346 | 20,588 | 13,160 | 38,885 | 20,211 | |||||||||||
| EBITDA from continuing operations(iii) | $ | 69,579 | $ | 76,244 | $ | 36,487 | $ | 48,305 | $ | 30,670 | $ | 45,333 | $ | 26,162 | $ | 22,099 | $ | 69,579 | $ | 30,670 | |
(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 17.
Three Months Ended April 30, 2014, Compared to Three Months Ended April
30, 2013
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a first quarter consolidated net income
attributable to shareholders of $14.7 million or $0.17 per share,
compared to $506.2 million or $5.96 per share in the first quarter of
the prior year. Included in the three month period ended April 30, 2013amount is the net profit from discontinued operations of $502.7 millionrecognized on the sale of the Luxury Brand Segment.
CONSOLIDATED SALES
Consolidated sales for the first quarter totalled $175.5 million,
consisting of Diavik rough diamond sales of $82.7 million and
Ekati rough diamond sales of $92.8 million. This compares to sales of
$108.8 million in the comparable quarter of the prior year (Diavik
rough diamond sales of $88.9 million and Ekati rough diamond sales of
$19.9 million; Ekati sales are for the period of April 10 to April 30,
2013).
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 8 for additional information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's first quarter cost of sales was $137.7 million resulting
in a gross margin of 21.6%, compared to a cost of sales of
$81.5 million and a gross margin of 25.1% 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 8 for additional information.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $9.5 million during the
first quarter, compared to a net income tax expense of $5.0 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, and earnings
subject to tax different than the statutory rate. 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 first quarter, the Canadian dollar strengthened against the US dollar. As a result, the Company recorded an unrealized foreign exchange loss of $3.9 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange gain of $1.8 million in the comparable quarter of the prior year. The unrealized foreign exchange loss is recorded as part of the Company's deferred income tax expense, and is not deductible for Canadian income tax purposes. During the first quarter, the Company also recognized a deferred income tax recovery of $5.4 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 $3.1 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 $2.9 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 $1.2 million recognized in the comparable quarter 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 $7.1
million for the first quarter, compared to $16.8 million in the
comparable quarter of the prior year. The prior year SG&A expenses
included transaction costs related to the Ekati Diamond Mine
acquisition. See "Segmented Analysis" on page 8 for additional
information.
CONSOLIDATED FINANCE EXPENSES
Finance expense for the first quarter was $3.3 million, compared to
finance expense of $2.7 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 only recorded for the period from April 10 to April 30 in the
comparable quarter of the prior year. Accretion expense was $2.9
million (three months ended April 30, 2013 - $2.2 million) related to
future site restoration liabilities at the Diavik Diamond Mine and the
Ekati Diamond Mine.
CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $9.0 million was incurred during the first
quarter, compared to $1.0 million in the comparable quarter of the
prior year. Included in exploration expense for the first quarter is
$8.7 million of exploration work on the Jay pipe within the Buffer Zone
at the Ekati Diamond Mine and $0.3 million of exploration work on the
Company's claims in the Northwest Territories.
CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $2.8 million was recorded during the first
quarter, compared to $0.8 million in the comparable quarter of the
prior year.
CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange loss of $0.9 million was recognized during the
first quarter, compared to a net foreign exchange gain of $0.7 millionin the comparable quarter of 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)
| 2015 | 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | Three months ended April 30, | Three months ended April 30, | ||||||||||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | 2014 | 2013 | ||||||||||||||
| Sales | |||||||||||||||||||||||
| North America | $ | - | $ | 511 | $ | - | $ | - | $ | 6,179 | $ | 4,604 | $ | 7,697 | $ | 2,269 | $ | - | $ | 6,179 | |||
| Europe | 73,918 | 112,001 | 45,088 | 80,530 | 61,642 | 84,346 | 57,438 | 50,514 | 73,918 | 61,642 | |||||||||||||
| India | 8,757 | 6,704 | 7,818 | 10,737 | 21,095 | 21,161 | 19,683 | 8,690 | 8,757 | 21,095 | |||||||||||||
| Total sales | 82,675 | 119,216 | 52,906 | 91,267 | 88,916 | 110,111 | 84,818 | 61,473 | 82,675 | 88,916 | |||||||||||||
| Cost of sales | 56,232 | 87,690 | 40,018 | 68,328 | 61,888 | 79,038 | 71,663 | 46,784 | 56,232 | 61,888 | |||||||||||||
| Gross margin | 26,443 | 31,526 | 12,888 | 22,939 | 27,028 | 31,073 | 13,155 | 14,689 | 26,443 | 27,028 | |||||||||||||
| Gross margin (%) | 32.0% | 26.4% | 24.4% | 25.1% | 30.4% | 28.2% | 15.5% | 23.9% | 32.0% | 30.4% | |||||||||||||
| Selling, general and administrative expenses | 975 | 1,122 | 1,123 | 1,409 | 1,110 | 1,860 | 1,279 | 1,050 | 975 | 1,110 | |||||||||||||
| Operating profit | $ | 25,468 | $ | 30,404 | $ | 11,765 | $ | 21,530 | $ | 25,918 | $ | 29,213 | $ | 11,876 | $ | 13,639 | $ | 25,468 | $ | 25,918 | |||
| Depreciation and amortization (i) | 18,389 | 28,885 | 12,434 | 21,768 | 19,906 | 24,042 | 20,283 | 12,874 | 18,389 | 19,906 | |||||||||||||
| EBITDA (ii) | $ | 43,857 | $ | 59,289 | $ | 24,199 | $ | 43,298 | $ | 45,824 | $ | 53,255 | $ | 32,159 | $ | 26,513 | $ | 43,857 | $ | 45,824 | |||
(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 17.
Three Months Ended April 30, 2014, Compared to Three Months Ended April
30, 2013
DIAVIK SALES
During the first quarter, the Company sold approximately 0.6 million
carats from the Diavik Diamond Mine for a total of $82.7 million for an
average price per carat of $142, compared to 0.8 million carats for a
total of $88.9 million for an average price per carat of $114 in the
comparable quarter of the prior year. The 25% increase in the achieved
average rough diamond prices and 26% decrease in volume of carats sold
versus the comparable quarter of the prior year resulted primarily from
the carryover of some lower value inventory at April 30, 2014 for
sorting and sale in the second quarter due to increased production
volumes during the first quarter. At April 30, 2014, the Company had
0.7 million carats of Diavik Diamond Mine produced inventory with an
estimated market value of approximately $85 million, compared to
0.6 million carats with an estimated market value of approximately $85
million in the comparable quarter of the prior year.
Had the Company sold only the last production shipped in the first quarter, the estimated achieved price would have been approximately $120 per carat based on the prices achieved in the May 2014 sale.
DIAVIK COST OF SALES AND GROSS MARGIN
The Company's first quarter cost of sales for the Diavik Diamond Mine
was $56.2 million resulting in a gross margin of 32.0%, compared to a
cost of sales of $61.9 million and a gross margin of 30.4% in the
comparable quarter of the prior year. Cost of sales for the first
quarter included $18.3 million of depreciation and amortization,
compared to $19.5 million in the comparable quarter of the prior year.
The Diavik segment generated gross margins and EBITDA margins of 32.0%
and 53%, respectively, compared to 30.4% and 52%, 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 first quarter, the Diavik cash cost of production was $39.2 million compared to $42.9 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 April 30, 2014 and 2013.
| (expressed in thousands of United States dollars) | Three months ended April 30, 2014 | Three months ended April 30, 2013 | ||||
| Diavik cash cost of production | $ | 39,195 | $ | 42,919 | ||
| Private royalty | 1,426 | 1,194 | ||||
| Other cash costs | 712 | 1,070 | ||||
| Total cash cost of production | 41,333 | 45,183 | ||||
| Depreciation and amortization | 20,732 | 22,909 | ||||
| Total cost of production | 62,065 | 68,092 | ||||
| Adjusted for stock movements | (5,833) | (6,204) | ||||
| Total cost of sales | $ | 56,232 | $ | 61,888 | ||
DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Diavik Diamond Mine segment during the first
quarter was $1.0 million, compared to $1.1 million in the comparable
quarter of the prior year.
OPERATIONAL UPDATE
During the first quarter of the calendar year 2014, the Diavik Diamond
Mine produced (on a 100% basis) 1.9 million carats from 0.6 million
tonnes of ore processed compared to 1.9 million carats from 0.5 million
tonnes of ore processed in the comparable quarter of the prior year.
Total production includes 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 first quarter of calendar 2014 were 17% higher than the prior year's comparable quarter as a result of continuing improvements in mining rates as the underground ramp up progressed to full production from all three kimberlite pipes. Carat production from first quarter of calendar 2014 was 4% lower compared to the comparable quarter of the prior year, primarily as a result of mining and processing a greater proportion of the lower grade A-154 North ore.
DOMINION DIAMOND DIAVIK LIMITED PARTNERSHIP'S 40% SHARE OF DIAVIK
DIAMOND MINE PRODUCTION
(reported on a one-month lag)
For the three months ended March 31, 2014
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) |
| A-154 South | 38 | 135 | 3.56 |
| A-154 North | 98 | 227 | 2.33 |
| A-418 | 97 | 315 | 3.25 |
| Coarse Ore Rejects ("COR") | 2 | 69 | - |
| Total | 235 | 746 | 2.91(a) |
(a) Grade has been adjusted to exclude COR.
For the three months ended March 31, 2013
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) |
| A-154 South | 60 | 282 | 4.71 |
| A-154 North | 70 | 162 | 2.32 |
| A-418 | 71 | 291 | 4.11 |
| Coarse Ore Rejects | 1 | 43 | - |
| Total | 202 | 778 | 3.67(a) |
(a) Grade has been adjusted to exclude COR.
For the period from February 1 to April 30, 2014(a)
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) |
| A-154 South | 48 | 168 | 3.50 |
| A-154 North | 97 | 218 | 2.26 |
| A-418 | 90 | 311 | 3.46 |
| Coarse Ore Rejects | 2 | 37 | 23.25 |
| Total | 237 | 734 | 2.97(b) |
(a) The last month of this production is not included in the Company's
first quarter financial results, as the Company reports Diavik Diamond
Mine results on a one-month lag.
(b) Grade has been adjusted to exclude COR.
For the period from February 1 to April 30, 2013(a)
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) |
| A-154 South | 58 | 246 | 4.24 |
| A-154 North | 68 | 134 | 1.98 |
| A-418 | 83 | 296 | 3.56 |
| Coarse Ore Rejects | 3 | 41 | 13.6 |
| Total | 212 | 717 | 3.23(b) |
(a) The last month of this production is not included in the Company's
first quarter financial results, as the Company reports Diavik Diamond
Mine results on a one-month lag.
(b) 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 to production. 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.
Production guidance for the Diavik Diamond Mine will be reviewed at the end of the second quarter.
PRICING
Based on the average prices per carat achieved by the Company in the
latest sale which was held in May 2014, the Company has modeled the
approximate rough diamond price per carat for each of the Diavik
kimberlite process plant feed types in the table that follows:
| Ore type | April/May 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 $275
million (including depreciation and amortization of approximately $95
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 DDDLP'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 first quarter, DDDLP's share of
capital expenditures was $6.8 million ($10.2 million for the period
ended April 30, 2013).
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 calendar 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) | ||||||||||||||||||||||
| 2015 | 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | Three months ended April 30, | Three months ended April 30, | |||||||||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | 2014 | 2013 | |||||||||||||
| Sales | ||||||||||||||||||||||
| North America | $ | - | $ | 413 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||
| Europe | 88,469 | 111,542 | 95,232 | 170,536 | 19,921 | - | - | - | 88,469 | 19,921 | ||||||||||||
| India | 4,378 | 1,992 | - | - | - | - | - | - | 4,378 | - | ||||||||||||
| Total sales | 92,847 | 113,947 | 95,232 | 170,536 | 19,921 | - | - | - | 92,847 | 19,921 | ||||||||||||
| Cost of sales | 81,448 | 114,340 | 96,202 | 162,758 | 19,647 | - | - | - | 81,448 | 19,647 | ||||||||||||
| Gross margin | 11,399 | (393) | (970) | 7,778 | 274 | - | - | - | 11,399 | 274 | ||||||||||||
| Gross margin (%) | 12.3% | (0.3%) | (1.0%) | 4.6% | 1.4% | -% | -% | -% | 12.3% | 1.4% | ||||||||||||
| Selling, general and administrative expenses | 1,475 | 1,120 | 362 | 676 | 520 | - | - | - | 1,475 | 520 | ||||||||||||
| Operating profit (loss) | $ | 9,924 | $ | (1,513) | $ | (1,332) | $ | 7,102 | $ | (246) | $ | - | $ | - | $ | - | $ | 9,924 | $ | (246) | ||
| Depreciation and amortization(i) | 20,154 | 25,892 | 19,166 | 10,513 | - | - | - | - | 20,154 | - | ||||||||||||
| EBITDA(ii) | $ | 30,078 | $ | 24,379 | $ | 17,834 | $ | 17,615 | $ | (246) | $ | - | $ | - | $ | - | $ | 30,078 | $ | (246) |
| (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 17. |
Three Months Ended April 30, 2014, Compared to Three Months Ended April
30, 2013
EKATI SALES
During the first quarter, the Company sold approximately 0.3 million
carats from the Ekati Diamond Mine for a total of $92.8 million for an
average price per carat of $359. Excluded from sales recorded in the
first quarter 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 operations of
the Misery Main pipe. The Misery South & 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 first quarter, the Company sold
an estimated 0.1 million carats of production from the Misery South &
Southwest kimberlite pipe material for estimated proceeds of $6.9
million for an average price per carat of $75, which includes the
recovery of small diamonds. During pre-production, sales of diamonds
recovered from the Misery South & Southwest material have been applied
as a reduction of mining assets. At April 30, 2014, the Company had 0.8
million carats of Ekati Diamond Mine produced inventory with an
estimated market value of approximately $200 million, compared to 0.5
million carats with an estimated market value of approximately $165
million in the comparable quarter of the prior year. Included in ending
inventory is an estimated 0.1 million carats of Misery South &
Southwest with an estimated market value of approximately $8 million.
Had the Company sold only the last production shipped in the first quarter, the estimated achieved price would have been approximately $281 per carat based on the prices achieved in the May 2014 sale.
EKATI COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Ekati Diamond Mine during the first
quarter was $81.4 million, resulting in a gross margin of 12.3% and an
EBITDA margin of 32%, compared to a cost of sales of $19.6 million and
a gross margin of 1.4% and an EBITDA margin of -1% for the period of
April 10 to April 30, 2013. Cost of sales for the first quarter of the
prior year reflected the purchase of inventory at market values as part
of the Ekati Diamond Mine Acquisition. Cost of sales for the comparable
quarter of the prior year would have been approximately $13 millionexcluding the market value adjustment made as part of the Ekati Diamond
Mine Acquisition. There was no impact during the first quarter of the
current fiscal year. At April 30, 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 first quarter, the Ekati cash cost of production was $89.9 million compared to $17.4 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 straight-line method over the remaining mine life.
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 April 30, 2014.
| (expressed in thousands of United States dollars) | Three months ended April 30, 2014 | Period April 10 to April 30, 2013 | ||||
| Ekati cash cost of production | $ | 89,859 | $ | 17,381 | ||
| Other cash costs | 998 | 134,647 | ||||
| Total cash cost of production | 90,857 | 152,028 | ||||
| Depreciation and amortization | 31,601 | 6,544 | ||||
| Total cost of production | 122,458 | 158,572 | ||||
| Adjusted for stock movements | (41,010) | (138,925) | ||||
| Total cost of sales | $ | 81,448 | $ | 19,647 | ||
EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Ekati Diamond Mine segment for the first quarter
were $1.5 million, compared to $0.5 million for the period of April 10
to April 30, 2013.
OPERATIONAL UPDATE
During the first quarter of fiscal 2015, the Ekati Diamond Mine produced
(on a 100% basis) 0.4 million carats from the processing of 0.9 million
tonnes of ore from the reserves. Mining activities during the quarter
were focused on ore production from the Fox open pit and Koala
underground and pre-stripping operations at the Misery pushback open
pit. The Company recovered 0.1 million carats from the processing of
0.1 million tonnes of inferred resource from the Koala North and Koala
underground mines and an additional 0.1 million carats from the
processing of 0.1 million tonnes of satellite material excavated from
the Misery South Pipe & Southwest Extension during the pre-stripping of
the Misery Main pipe. These diamond recoveries are not included in the
Company's reserves statement and are therefore incremental to
production.
The Company estimates that process plant improvements to date have increased the recovered grade during the first quarter by approximately 15% compared to the mine plan. Most of this incremental recovery is in smaller diamonds not currently included in reserves. Historically, the Ekati Diamond Mine has bypassed the recrush circuit in order to maximize process plant throughput and has not recovered the entrained diamonds within the coarse fraction of the tail rejects. The recrush circuit will likely be re-established by year end to further improve diamond recovery. Once the process improvements have been substantially completed the Company intends to incorporate the higher recovery rate into an updated reserves statement.
On April 30th, 2014, the Wek'èezhìi Land and Water Board (WLWB) issued the Land use Permit for the Lynx Project and made recommendations to the Minster of Environment and Natural Resources for the Government of the Northwest Territories on an amendment on the Ekati Water Licence to incorporate the Lynx Project. On May 30, 2014, the Minister signed the amended Ekati Water Licence.
EKATI DIAMOND MINE PRODUCTION (100% SHARE)
| For the three months ended April 30, 2014 | |||
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) |
| Koala | 152 | 172 | 1.13 |
| Koala North | 82 | 71 | 0.87 |
| Fox | 671 | 231 | 0.34 |
| Misery South & Southwest | 56 | 86 | 1.52 |
| Coarse Ore Rejects | - | - | - |
| Total | 962 | 561 | 0.58 |
| For the period from April 10 to April 30, 2013 | |||
| Pipe | Ore processed (000s tonnes) | Carats (000s) | Grade (carats/tonne) |
| Koala | 22 | 16 | 1.21 |
| Koala North | 22 | 21 | 0.97 |
| Fox | 162 | 45 | 0.28 |
| Misery South & Southwest | - | - | - |
| Coarse Ore Rejects | - | - | - |
| Total | 206 | 82 | 0.58 |
Ekati Operations Outlook
PRODUCTION
In fiscal 2015, the Ekati Diamond Mine expects to process (on a 100%
basis) approximately 2.6 million tonnes from mineral reserves 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 &
Southwest kimberlite pipes as well as the stockpile of coarse ore
rejects. The Misery South & 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.
Production guidance for the Ekati Diamond Mine will be reviewed at the end of the second quarter of fiscal 2015.
PRICING
Based on the average prices per carat achieved by the Company in the
latest sale which was held in May 2014, the Company has modeled the
approximate rough diamond price per carat for the Ekati kimberlite
process plant feed types below. The Ekati prices do not reflect the
increased recovery of small diamonds from the improvements in
processing so as to be consistent with the Company's current reserve
estimates. The rough diamond price of the additional recovered small
diamonds at Ekati is estimated at between $70 and $100 per carat.
| Ore type | April/May 2014 sales cycle Average price per carat (in US dollars) | |
| Koala | $ | 395 |
| Koala North | 440 | |
| Fox | 315 | |
| Misery South & Southwest | 80-100 | |
| Coarse Ore Rejects | 65-120 | |
| Recovered Small Diamonds | 70-100 |
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 $490 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 $345 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 achieve ore release, and approximately $50
million towards the development of the Pigeon Pipe. During the first
quarter, the Ekati Diamond Mine incurred capital expenditures of $49.2
million ($8.8 million for the period from April 10 to April 30, 2013).
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)
(quarterly results are unaudited)
| 2015 | 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | Three months ended April 30, | Three months ended April 30, | |||||||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | 2014 | 2013 | |||||||||||
| Sales | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
| Cost of sales | - | - | - | - | - | - | - | - | - | - | ||||||||||
| Gross margin | - | - | - | - | - | - | - | - | - | - | ||||||||||
| Gross margin (%) | -% | -% | -% | -% | -% | -% | -% | -% | -% | -% | ||||||||||
| Selling, general and administrative expenses | 4,698 | 7,875 | 5,924 | 12,971 | 15,213 | 8,227 | 6,302 | 4,700 | 4,698 | 15,213 | ||||||||||
| Operating loss | $ | (4,698) | $ | (7,875) | $ | (5,924) | $ | (12,971) | $ | (15,213) | $ | (8,227) | $ | (6,302) | $ | (4,700) | $ | (4,698) | $ | (15,213) |
| Depreciation and amortization(i) | 342 | 451 | 378 | 363 | 305 | 304 | 306 | 286 | 342 | 305 | ||||||||||
| EBITDA(ii) | $ | (4,356) | $ | (7,424) | $ | (5,546) | $ | (12,608) | $ | (14,908) | $ | (7,923) | $ | (5,996) | $ | (4,414) | $ | (4,356) | $ | (14,908) |
| (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 17. |
Three Months Ended April 30, 2014, Compared to Three Months Ended April
30, 2013
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Corporate segment during the quarter decreased by
$10.5 million from the comparable quarter of the prior year, primarily
due to $11.3 million of transaction costs related to the Ekati Diamond
Mine acquisition in the prior year.
Liquidity and Capital Resources
Working Capital
As at April 30, 2014, the Company had unrestricted cash and cash
equivalents of $212.5 million and restricted cash of $115.6 millioncompared to $224.8 million and $113.6 million at January 31, 2014. The
restricted cash is used to support letters of credit to the Government
of the Northwest Territories of CDN $127 million in support of the
reclamation obligations for the Ekati Diamond Mine. During the quarter
ended April 30, 2014, the Company reported cash flow from operations of
$27.7 million compared to a use of cash in operations of $9.5 millionin the prior year.
As at April 30, 2014, the Company had 1.5 million carats of rough diamond inventory with an estimated market value of approximately $285 million, of which approximately $145 million represented inventory available for sale, with the remaining $140 million being sorted.
Working capital increased to $573.7 million at April 30, 2014 from $572.1 million at January 31, 2014. During the quarter, the Company increased accounts receivable from continuing operations by $7.4 million, decreased other current assets from continuing operations by $11.7 million, increased inventory and supplies from continuing operations by $58.7 million, increased trade and other payables from continuing operations by $41.1 million and decreased employee benefit plans from continuing operations by $2.3 million.
The Company's liquidity requirements fluctuate 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
As at April 30, 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 $27.9
million and $nil at April 30, 2013.
There were no significant transactions to note during the first quarter.
Investing Activities
During the first quarter, the Company purchased property, plant and
equipment of $56.0 million for its continuing operations, of which
$6.8 million was purchased for the Diavik Diamond Mine and $49.2
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
$400 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 the Jay pipe) 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) | $ | 4,950 | $ | 1,121 | $ | 2,241 | $ | 1,588 | $ | - | |||||
| Environmental and participation agreements incremental commitments (c) | 182,057 | 60,096 | 2,121 | 4,328 | 115,512 | ||||||||||
| Operating lease obligations (d) | 13,149 | 7,469 | 5,680 | - | - | ||||||||||
| Total contractual obligations | $ | 200,156 | $ | 68,686 | $ | 10,042 | $ | 5,916 | $ | 115,512 |
| (a) | (i) Interest-bearing loans and borrowings presented in the foregoing table include current and long-term portions. |
| (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 14.5%. At April 30, 2014, $nil was outstanding under this facility relating to Dominion Diamond International NV and Dominion Diamond (India) Private Limited, respectively. 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 April 30, 2014, $4.2 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 April 30, 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 April 30, 2014 was $58.9 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 Wek'eezhii Land and Water Board ("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 April 30, 2014 posted letters of credit of CDN $127 million with the Government of the Northwest Territories 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 on an appropriate form of security. The Company has provided a guarantee of CDN $20 million for other obligations under the environmental agreement. 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 by dividing 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 such measures do not have any standardized meaning under IFRS. These measures should not be considered in isolation or as a 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) | ||||||||||||||||||||||
| 2015 | 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | Three months ended April 30, | Three months ended April 30, | |||||||||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | 2014 | 2013 | |||||||||||||
| Operating profit (loss) from continuing operations | $ | 30,694 | $ | 20,016 | $ | 4,509 | $ | 15,661 | $ | 10,459 | $ | 20,987 | $ | 5,574 | $ | 8,939 | $ | 30,694 | $ | 10,459 | ||
| Depreciation and amortization | 38,885 | 55,228 | 31,978 | 32,644 | 20,211 | 24,346 | 20,588 | 13,160 | 38,885 | 20,211 | ||||||||||||
| EBITDA from continuing operations | $ | 69,579 | $ | 75,244 | $ | 36,487 | $ | 48,305 | $ | 30,670 | $ | 45,333 | $ | 26,162 | $ | 22,099 | $ | 69,579 | $ | 30,670 | ||
| DIAVIK DIAMOND MINE SEGMENT | ||||||||||||||||||||||
| (expressed in thousands of United States dollars) (unaudited) | ||||||||||||||||||||||
| 2015 | 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | Three months ended April 30, | Three months ended April 30, | |||||||||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | 2014 | 2013 | |||||||||||||
| Operating profit | $ | 25,468 | $ | 30,404 | $ | 11,765 | $ | 21,530 | $ | 25,918 | $ | 29,213 | $ | 11,876 | $ | 13,639 | $ | 25,468 | $ | 25,918 | ||
| Depreciation and amortization | 18,389 | 28,885 | 12,434 | 21,768 | 19,906 | 24,042 | 20,283 | 12,874 | 18,389 | 19,906 | ||||||||||||
| EBITDA | $ | 43,857 | $ | 59,289 | $ | 24,199 | $ | 43,298 | $ | 45,824 | $ | 53,255 | $ | 32,159 | $ | 26,513 | $ | 43,857 | $ | 45,824 | ||
| EKATI DIAMOND MINE SEGMENT | ||||||||||||||||||||||
| (expressed in thousands of United States dollars) (unaudited) | ||||||||||||||||||||||
| 2015 | 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | Three months ended April 30, | Three months ended April 30, | |||||||||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | 2014 | 2013 | |||||||||||||
| Operating profit (loss) | $ | 9,924 | $ | (1,513) | $ | (1,332) | $ | 7,102 | $ | (246) | $ | - | $ | - | $ | - | $ | 9,924 | $ | (246) | ||
| Depreciation and amortization | 20,154 | 25,892 | 19,166 | 10,513 | - | - | - | - | 20,154 | - | ||||||||||||
| EBITDA | $ | 30,078 | $ | 24,379 | $ | 17,834 | $ | 17,615 | $ | (246) | $ | - | $ | - | $ | - | $ | 30,078 | $ | (246) | ||
| CORPORATE SEGMENT | ||||||||||||||||||||||
| (expressed in thousands of United States dollars) (unaudited) | ||||||||||||||||||||||
| 2015 | 2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | Three months ended April 30, | Three months ended April 30, | |||||||||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | 2014 | 2013 | |||||||||||||
| Operating profit (loss) | $ | (4,698) | $ | (7,875) | $ | (5,924) | $ | (12,971) | $ | (15,213) | $ | (8,227) | $ | (6,302) | $ | (4,700) | $ | (4,698) | $ | (15,213) | ||
| Depreciation and amortization | 342 | 451 | 378 | 363 | 305 | 304 | 306 | 286 | 342 | 305 | ||||||||||||
| EBITDA | $ | (4,356) | $ | (7,424) | $ | (5,546) | $ | (12,608) | $ | (14,908) | $ | (7,923) | $ | (5,996) | $ | (4,414) | $ | (4,356) | $ | (14,908) |
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 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 April 30, 2014was $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 April 30, 2014 posted letters of credit of CDN $127 million with the Government of the Northwest Territoriessupported 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 on an appropriate form of security. The Company has provided a guarantee of CDN $20 million for other obligations under the environmental agreement. 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
during the second quarter of 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.
Changes in Internal Controls over Financial Reporting
During the first quarter of fiscal 2015, 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.
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 critical accounting estimates applied in the preparation of the Company's unaudited interim condensed consolidated financial statements are consistent with those applied and disclosed in the Company's MD&A for the year ended January 31, 2014.
Changes in Accounting Policies
| (a) | New Accounting Standards Effective in 2014 | |
| 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 has performed an assessment of the impact of IFRIC 21 and concluded it did not have a significant impact on our consolidated financial statements. | ||
| (b) | New Accounting Standards Issued but Not Yet 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. |
Outstanding Share Information
| As at May 31, 2014 | ||||
| Authorized | Unlimited | |||
| Issued and outstanding shares | 85,134,480 | |||
| Options outstanding | 2,695,819 | |||
| Fully diluted | 87,830,299 |
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.
| Condensed Consolidated Balance Sheets | |||||||
| (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) | |||||||
| April 30, 2014 | January 31, 2014 | ||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents (note 4) | $ | 212,468 | $ | 224,778 | |||
| Accounts receivable | 25,598 | 20,879 | |||||
| Inventory and supplies (note 5) | 513,951 | 440,853 | |||||
| Other current assets | 15,414 | 27,156 | |||||
| 767,431 | 713,666 | ||||||
| Property, plant and equipment | 1,463,369 | 1,469,557 | |||||
| Restricted cash (note 4) | 115,553 | 113,612 | |||||
| Other non-current assets | 4,389 | 4,737 | |||||
| Deferred income tax assets | 9,902 | 3,078 | |||||
| Total assets | $ | 2,360,644 | $ | 2,304,650 | |||
| LIABILITIES AND EQUITY | |||||||
| Current liabilities | |||||||
| Trade and other payables | $ | 145,463 | $ | 103,653 | |||
| Employee benefit plans | 1,399 | 3,643 | |||||
| Income taxes payable | 46,068 | 33,442 | |||||
| Current portion of interest-bearing loans and borrowings | 822 | 794 | |||||
| 193,752 | 141,532 | ||||||
| Interest-bearing loans and borrowings | 3,349 | 3,504 | |||||
| Deferred income tax liabilities | 226,341 | 242,563 | |||||
| Employee benefit plans | 12,214 | 14,120 | |||||
| Provisions | 433,908 | 430,968 | |||||
| Total liabilities | 869,564 | 832,687 | |||||
| Equity | |||||||
| Share capital | 508,570 | 508,523 | |||||
| Contributed surplus | 23,518 | 23,033 | |||||
| Retained earnings | 790,090 | 775,419 | |||||
| Accumulated other comprehensive income | (2,050) | (2,447) | |||||
| Total shareholders' equity | 1,320,128 | 1,304,528 | |||||
| Non-controlling interest | 170,952 | 167,435 | |||||
| Total equity | 1,491,080 | 1,471,963 | |||||
| Total liabilities and equity | $ | 2,360,644 | $ | 2,304,650 | |||
| The accompanying notes are an integral part of these consolidated financial statements. |
| Condensed Consolidated Statements of Income | ||||||||
| (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS) | ||||||||
| Three months ended April 30, 2014 | Three months ended April 30, 2013 (Recast - Note 12) | |||||||
| Sales | $ | 175,522 | $ | 108,837 | ||||
| Cost of sales | 137,680 | 81,535 | ||||||
| Gross margin | 37,842 | 27,302 | ||||||
| Selling, general and administrative expenses | 7,148 | 16,843 | ||||||
| Operating profit | 30,694 | 10,459 | ||||||
| Finance expenses | (3,310) | (2,742) | ||||||
| Exploration costs | (9,044) | (1,039) | ||||||
| Finance and other income | 2,827 | 804 | ||||||
| Foreign exchange (loss) gain | (947) | 732 | ||||||
| Profit before income taxes from continuing operations | 20,220 | 8,214 | ||||||
| Income tax expense | 9,533 | 5,042 | ||||||
| Net profit from continuing operations | 10,687 | 3,172 | ||||||
| Net profit from discontinued operations (Note 6) | - | 502,656 | ||||||
| Net profit | $ | 10,687 | $ | 505,828 | ||||
| Net profit from continuing operations attributable to | ||||||||
| Shareholders | $ | 14,671 | $ | 3,504 | ||||
| Non-controlling interest | (3,984) | (332) | ||||||
| Net profit (loss) attributable to | ||||||||
| Shareholders | $ | 14,671 | $ | 506,160 | ||||
| Non-controlling interest | (3,984) | (332) | ||||||
| Earnings (loss) per share - continuing operations | ||||||||
| Basic | $ | 0.17 | $ | 0.04 | ||||
| Diluted | 0.17 | 0.04 | ||||||
| Earnings per share | ||||||||
| Basic | 0.17 | 5.96 | ||||||
| Diluted | 0.17 | 5.89 | ||||||
| Weighted average number of shares outstanding | 85,125,476 | 84,890,564 | ||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
| Condensed Consolidated Statements of Comprehensive Income | ||||||||
| (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) | ||||||||
| Three month ended April 30, 2014 | Three month ended April 30, 2013 (Recast - Note 12) | |||||||
| Net profit | $ | 10,687 | $ | 505,828 | ||||
| Other comprehensive income | ||||||||
| Items that may be reclassified to profit | ||||||||
| Net loss on translation of net foreign operations (net of tax of $nil) | 397 | (10,735) | ||||||
| Other comprehensive loss, net of tax | 397 | (10,735) | ||||||
| Total comprehensive income | $ | 11,084 | $ | 495,093 | ||||
| Comprehensive income from continuing operations | $ | 11,084 | $ | 3,042 | ||||
| Comprehensive income from discontinued operations | - | 492,051 | ||||||
| Comprehensive income attributable to | ||||||||
| Shareholders | $ | 15,068 | $ | 495,425 | ||||
| Non-controlling interest | (3,984) | (332) | ||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
| Condensed Consolidated Statements of Changes in Equity | ||||
| (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) | ||||
| Three months ended April 30, 2014 | Three months ended April 30, 2013 (Recast - Note12) | |||
| Common shares: | ||||
| Balance at beginning of period | $ | 508,523 | $ | 508,007 |
| Issued during the period | 47 | 394 | ||
| Balance at end of period | 508,570 | 508,401 | ||
| Contributed surplus: | ||||
| Balance at beginning of period | 23,033 | 20,387 | ||
| Stock-based compensation expense | 498 | 1,036 | ||
| Exercise of stock options | (13) | - | ||
| Balance at end of period | 23,518 | 21,423 | ||
| Retained earnings: | ||||
| Balance at beginning of period | 775,419 | 295,738 | ||
| Net profit attributable to common shareholders | 14,671 | 506,160 | ||
| Balance at end of period | 790,090 | 801,898 | ||
| Accumulated other comprehensive income: | ||||
| Balance at beginning of period | (2,447) | 6,357 | ||
| Other comprehensive income | ||||
| Items that may be reclassified to profit | ||||
| Net loss on translation of net foreign operations (net of tax of $nil) | 397 | (10,735) | ||
| Balance at end of period | (2,050) | (4,378) | ||
| Non-controlling interest: | ||||
| Balance at beginning of period | 167,435 | 763 | ||
| Non-controlling interest | (3,984) | 152,464 | ||
| Contributions made by minority partners | 7,501 | - | ||
| Balance at end of period | 170,952 | 153,227 | ||
| Total equity | $ | 1,491,080 | $ | 1,480,571 |
| The accompanying notes are an integral part of these consolidated financial statements. |
| Condensed Consolidated Statements of Cash Flows | |||||
| (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) | |||||
| Three months ended April 30, 2014 | Three months ended April 30, 2013 (Recast - note 12) | ||||
| Cash provided by (used in) | |||||
| Operating | |||||
| Net profit | $ | 10,687 | $ | 505,828 | |
| Depreciation and amortization | 38,885 | 20,211 | |||
| Deferred income tax recovery | (23,195) | (8,397) | |||
| Current income tax expense | 32,728 | 13,439 | |||
| Finance expenses | 3,310 | 2,742 | |||
| Stock-based compensation | 498 | 1,036 | |||
| Other non-cash items | 3,115 | (859) | |||
| Foreign exchange (gain) loss | (210) | (1,037) | |||
| Loss on disposition of assets | 862 | 362 | |||
| Gain on sale of assets | (2,375) | - | |||
| Change in non-cash operating working capital, excluding taxes and finance expenses | (15,568) | (28,671) | |||
| Cash provided by operating activities | 48,737 | 504,654 | |||
| Interest paid | (384) | (1,212) | |||
| Income and mining taxes paid | (20,679) | (10,249) | |||
| Cash provided by operating activities - continuing operations | 27,674 | 493,193 | |||
| Cash used in operating activities - discontinued operations | - | (502,656) | |||
| Net cash from (used in) operating activities | 27,674 | (9,463) | |||
| FINANCING | |||||
| Increase (decrease) in interest-bearing loans and borrowings | (194) | (196) | |||
| Increase in revolving credit | - | 27,863 | |||
| Decrease in revolving credit | - | (1,128) | |||
| Issue of common shares, net of issue costs | 34 | 394 | |||
| Contribution from non-controlling interest | 10,816 | - | |||
| Cash provided from financing activities - continuing operations | 10,656 | 26,933 | |||
| Cash provided from financing activities - discontinued operations | - | - | |||
| Cash provided from financing activities | 10,656 | 26,933 | |||
| INVESTING | |||||
| Acquisition of Ekati | - | (490,925) | |||
| Proceeds from sale of assets | 3,726 | ||||
| Property, plant and equipment | (56,023) | (19,718) | |||
| Net proceeds from sale of property, plant and equipment | 585 | 1,796 | |||
| Other non-current assets | 672 | (3,125) | |||
| Cash provided in investing activities - continuing operations | (51,040) | (511,972) | |||
| Cash provided in investing activities - discontinued operations | - | 746,738 | |||
| Cash used in investing activities | (51,040) | 234,766 | |||
| Foreign exchange effect on cash balances | 2,341 | 354 | |||
| (Decrease) increase in cash and cash equivalents | (10,369) | 252,590 | |||
| Cash and cash equivalents, beginning of period | 338,390 | 104,313 | |||
| Cash and equivalents, end of period | 328,021 | 356,903 | |||
| Less cash and equivalents of discontinued operations, end of period | - | - | |||
| Cash and cash equivalents of continuing operations, end of period | $ | 328,021 | $ | 356,903 | |
| Change in non-cash operating working capital, excluding taxes and finance expenses | |||||
| Accounts receivable | (7,384) | (3,182) | |||
| Inventory and supplies | (58,655) | (31,011) | |||
| Other current assets | 11,739 | 1,780 | |||
| Trade and other payables | 41,076 | 4,735 | |||
| Employee benefit plans | (2,344) | (993) | |||
| $ | (15,568) | $ | (28,671) | ||
| The accompanying notes are an integral part of these consolidated financial statements. |
Notes to Condensed Consolidated Financial Statements
APRIL 30, 2014 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 assuming control over 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 Harry Winston, Inc. (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 6.
Note 2:
Basis of Preparation
(a) Statement of compliance
These unaudited interim condensed consolidated financial statements
("interim financial statements") have been prepared in accordance with
IAS 34, "Interim Financial Reporting" ("IAS 34"). The accounting
policies applied in these unaudited interim financial statements are
consistent with those used in the annual audited consolidated financial
statements for the year ended January 31, 2014, except as disclosed in
Note 3.
These interim financial statements do not include all disclosures required by International Financial Reporting Standards ("IFRS") for annual audited consolidated financial statements and accordingly should be read in conjunction with the Company's annual audited consolidated financial statements for the year ended January 31, 2014 prepared in accordance with IFRS as issued by the IASB.
(b) Currency of presentation
These interim 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 interim 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
interim 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
(a) New Accounting Standards Effective in 2014
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
has performed an assessment of the impact of IFRIC 21 and concluded it
did not have a significant impact on our consolidated financial
statements.
(b) New Accounting Standards Issued but not yet 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 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.
Note 4:
Cash and Cash Equivalents
| April 30, 2014 | January 31, 2014 | |||||||
| Cash on hand and balances with banks | $ | 212,468 | $ | 224,778 | ||||
| Restricted cash | 115,553 | 113,612 | ||||||
| Total cash and cash equivalents | $ | 328,021 | $ | 338,390 |
The Company has provided CDN $127 million in letters of credit to the Government of the Northwest Territories, supported by restricted cash for the reclamation obligations for the Ekati Diamond Mine.
Note 5:
Inventory and Supplies
| April 30, 2014 | January 31, 2013 | ||||||||
| Stockpile ore | $ | 36,077 | $ | 38,475 | |||||
| Rough diamonds - work in progress | 113,169 | 139,520 | |||||||
| Rough diamonds - finished goods (available for sale) | 120,317 | 35,573 | |||||||
| Supplies inventory | 244,388 | 227,285 | |||||||
| Total inventory and supplies | $ | 513,951 | $ | 440,853 |
Total inventory and supplies is net of a provision for obsolescence of $0.5 million ($0.6 million at January 31, 2014).
Note 6:
Assets Held for Sale (Discontinued Operations)
On March 26, 2013, the Company completed the sale of Harry Winston Inc.
(the "Luxury Brand Segment") to Swatch Group. Continuing operations no
longer includes the operations of the Luxury Brand Segment and the
results of this segment are now treated as discontinued operations for
reporting purposes.
Results of the discontinued operations are presented separately as net profit from discontinued operations in the unaudited interim consolidated statements of income, and comparative periods have been adjusted accordingly.
| Three months ended April 30, 2013 (Recast - Note 12) | |||||||||
| Sales | $ | 63,799 | |||||||
| Cost of sales | (31,355) | ||||||||
| Other expenses | (30,964) | ||||||||
| Other income and foreign exchange gain (loss) | (1,551) | ||||||||
| Net income tax (expense) recovery | (186) | ||||||||
| Net profit (loss) from discontinued operations before gain | $ | (257) | |||||||
| Gain on sale | $ | 502,913 | |||||||
| Net profit from discontinued operations | $ | 502,656 | |||||||
| Earnings per share - discontinued operations | |||||||||
| Basic | 5.91 | ||||||||
| Diluted | 5.85 | ||||||||
Note 7:
Diavik Joint Venture
The following represents DDDLP's 40% interest in the net assets and
operations of the Diavik Joint Venture as at March 31, 2014 and
December 31, 2013:
| March 31, 2014 | December 31, 2013 | |||||||
| Current assets | $ | 106,292 | $ | 97,078 | ||||
| Non-current assets | 603,335 | 618,141 | ||||||
| Current liabilities | 48,921 | 31,296 | ||||||
| Non-current liabilities and participant's account | 660,706 | 683,923 | ||||||
| Three months ended March 31, 2014 | Three months ended March 31, 2013 | |||||||
| Expenses net of interest income of $nil (2013 - $nil)(a) | $ | 59,095 | $ | 66,647 | ||||
| Cash flows used in operating activities | (39,518) | (44,828) | ||||||
| Cash flows resulting from financing activities | 44,593 | 53,159 | ||||||
| Cash flows used in investing activities | (5,076) | (10,711) |
| (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 9.
Note 8:
Related Party Disclosure
There were no material related party transaction in fiscal year 2015 and
2014 other than compensation of key management personnel.
(a) Operational information
The Company had the following investments in significant subsidiaries at April 30, 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 N.V. | 100% | Belgium | ||||||
| Dominion Diamond Marketing Corporation | 100% | Canada | ||||||
| Dominion Diamond (UK) Limited | 100% | England | ||||||
| 6019838 Canada Inc. | 100% | Canada | ||||||
| Dominion Diamond Ekati Corporation | 100% | Canada | ||||||
| Dominion Diamond Resources Corporation | 100% | Canada | ||||||
| Dominion Diamond Marketing N.V. | 100% | Belgium |
Note 9:
Commitments and Guarantees
| Contractual Obligations | Less than | Year | Year | After | ||||||
| Total | 1 year | 2-3 | 4-5 | 5 years | ||||||
| Interest-bearing loans and borrowings | $ | 4,950 | $ | 1,121 | $ | 2,241 | $ | 1,588 | $ | - |
| Environmental and participation agreements incremental commitments (a)(b) | 182,057 | 60,096 | 2,121 | 4,328 | 115,512 | |||||
| Operating lease obligations (c) | 13,149 | 7,469 | 5,680 | - | - | |||||
| Total contractual obligations | $ | 200,156 | $ | 68,686 | $ | 10,042 | $ | 5,916 | $ | 115,512 |
(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
April 30, 2014 was $59 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 the Northwest Territories supported by restricted cash in
support of the reclamation obligations for the Ekati Diamond Mine.
The Company has provided a guarantee of CDN $20 million to the Government of the Northwest Territories for other obligations under the environmental agreement.
(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 10:
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 IASB.
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 April 30, 2014 are considered to approximate their carrying value.
The carrying values and estimated fair values of these financial instruments are as follows:
| April 30, 2014 | January 31, 2014 | |||||||
| Estimated fair value | Carrying value | Estimated fair value | Carrying value | |||||
| Financial assets | ||||||||
| Cash and cash equivalents, including restricted cash | $ | 328,021 | $ | 328,021 | $ | 338,390 | $ | 338,390 |
| Accounts receivable | 25,598 | 25,598 | 20,879 | 20,879 | ||||
| $ | 353,619 | $ | 353,619 | $ | 359,269 | $ | 359,269 | |
| Financial liabilities | ||||||||
| Trade and other payables | $ | 145,463 | $ | 145,463 | $ | 103,653 | $ | 103,653 |
| Interest-bearing loans and borrowings | 4,171 | 4,171 | 4,298 | 4,298 | ||||
| $ | 149,634 | $ | 149,634 | $ | 107,951 | $ | 107,951 | |
Note 11:
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 three months ended April 30, 2014.
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 three months ended April 30, 2014 | Diavik | Ekati | Corporate | Total | ||||
| Sales | ||||||||
| North America | $ | - | $ | - | $ | - | $ | - |
| Europe | 73,918 | 88,469 | - | 162,387 | ||||
| India | 8,757 | 4,378 | - | 13,135 | ||||
| Total sales | 82,675 | 92,847 | - | 175,522 | ||||
| Cost of sales | ||||||||
| Depreciation and amortization | 18,287 | 20,154 | - | 38,441 | ||||
| All other costs | 37,945 | 61,294 | - | 99,239 | ||||
| Total cost of sales | 56,232 | 81,448 | - | 137,680 | ||||
| Gross margin | 26,443 | 11,399 | - | 37,842 | ||||
| Gross margin (%) | 32.0% | 12.3% | -% | 21.6% | ||||
| Selling, general and administrative expenses | ||||||||
| Selling and related expenses | 975 | 1,475 | - | 2,450 | ||||
| Administrative expenses | 4,698 | 4,698 | ||||||
| Total selling, general and administrative expenses | 975 | 1,475 | 4,698 | 7,148 | ||||
| Operating profit (loss) | 25,468 | 9,924 | (4,698) | 30,694 | ||||
| Finance expenses | (904) | (2,406) | - | (3,310) | ||||
| Exploration costs | (353) | (8,691) | - | (9,044) | ||||
| Finance and other income | 2,922 | (95) | - | 2,827 | ||||
| Foreign exchange gain (loss) | (93) | (854) | - | (947) | ||||
| Segmented profit (loss) before income taxes | $ | 27,040 | $ | (2,122) | $ | (4,698) | $ | 20,220 |
| Segmented assets as at April 30, 2014 | ||||||||
| Canada | $ | 883,020 | $ | 1,361,939 | $ | - | $ | 2,244,959 |
| Other foreign countries | 63,064 | 52,621 | - | 115,685 | ||||
| $ | 946,084 | $ | 1,414,560 | $ | - | $ | 2,360,644 | |
| Capital expenditures | $ | (6,779) | $ | (49,244) | $ | - | $ | (56,023) |
| Inventory | 141,845 | 372,106 | - | 513,951 | ||||
| Total liabilities | 30,816 | 838,748 | - | 869,564 | ||||
| Other significant non-cash items: | ||||||||
| Deferred income tax recovery | $ | (12,041) | $ | (11,154) | $ | - | $ | (23,195) |
| Sales to one customer totalled $25 million for the three months ended April 30, 2014. |
| For the three months ended April 30, 2013 | Diavik | Ekati (Recast - Note 12) | Corporate | Total | ||||
| Sales | ||||||||
| North America | $ | 6,179 | $ | - | $ | - | $ | 6,179 |
| Europe | 61,642 | 19,921 | - | 81,563 | ||||
| India | 21,095 | - | - | 21,095 | ||||
| Total sales | 88,916 | 19,921 | - | 108,837 | ||||
| Cost of sales | ||||||||
| Depreciation and amortization | 19,542 | - | - | 19,542 | ||||
| All other costs | 42,346 | 19,647 | - | 61,993 | ||||
| Total cost of sales | 61,888 | 19,647 | - | 81,535 | ||||
| Gross margin | 27,028 | 274 | - | 27,302 | ||||
| Gross margin (%) | 30.4% | 1.4% | -% | 25.1% | ||||
| Selling, general and administrative expenses | ||||||||
| Selling and related expenses | 1,110 | 520 | - | 1,630 | ||||
| Administrative expenses | - | - | 15,213 | 15,213 | ||||
| Total selling, general and administrative expenses | 1,110 | 520 | 15,213 | 16,843 | ||||
| Operating profit (loss) | 25,918 | (246) | (15,213) | 10,459 | ||||
| Finance expenses | (2,019) | (723) | - | (2,742) | ||||
| Exploration costs | (1,039) | - | - | (1,039) | ||||
| Finance and other income | 540 | 264 | - | 804 | ||||
| Foreign exchange gain (loss) | 1,560 | (828) | - | 732 | ||||
| Segmented profit (loss) before income taxes | $ | 24,960 | $ | (1,533) | $ | (15,213) | $ | 8,214 |
| Segmented assets as at April 30, 2013 | ||||||||
| Canada | $ | 1,177,853 | $ | 1,203,112 | $ | - | $ | 2,380,965 |
| Other foreign countries | 27,663 | 3,003 | - | 30,666 | ||||
| $ | 1,205,516 | $ | 1,206,115 | $ | - | $ | 2,411,631 | |
| Capital expenditures | $ | (10,154) | $ | (8,780) | $ | (784) | $ | (19,718) |
| Inventory | 154,561 | 285,225 | - | 439,786 | ||||
| Total liabilities | 306,618 | 625,351 | - | 931,969 | ||||
| Other significant non-cash items: | ||||||||
| Deferred income tax recovery | $ | (4,474) | $ | (3,923) | $ | - | $ | (8,397) |
Note 12:
Recast
As a result of reflecting the final purchase price adjustments relating to the Ekati Diamond Mine acquisition retrospectively, the interim financial statements for the three months ended April 30, 2013 have been recast. For the three months ended April 30, 2013, finance expense decreased by $1.3 million, whereas income tax expense increased by $0.3 million. In addition, the Company has reclassified $5.3 million from gain on sale of the Luxury Brand Segment to other comprehensive income in connection with the actuarial gain/losses that should not have been reclassified to profit. As a result, net profit attributed to common shareholders increased by $6.2 million.
SOURCE Dominion Diamond Corporation
