Dominion Diamond's sales slump 21% in fiscal 2017

Canada’s largest diamond producer Dominion Diamond Corp has reported a 21% decrease in diamond sales for the 2017financial year ended January, as a fire at its flagship Ekati mine, in the Northwest Territories, last year and lower-value output weighed on the bottom line.

The Yellowknife-based company did, however, stress its improved outlook over the next three years, as expansion projects at both Ekati and the Diavik mines come on line, and the company continues to progress a strategic review that might result in the sale of the company.

Dominion said Thursday that there have been no further developments regarding a recently unveiled $1.1-billion unsolicited bid by Washington Companies. Dominion has subsequently formed a committee to review strategic alternatives, which could include selling the company, continuing its current development plan, or considering other options, Dominion reported.

During fiscal 2017, Dominion saw increased low-value rough diamond output at both mines, which resulted in an average price per carat sold in fiscal 2017 of $87, as compared with $177 in fiscal 2016.

Sales fell to $570.9-million from the previous year’s $720.6-million, further impacted by rough prices falling 7% in the fourth quarter, reflecting the slowdown in demand following India’s demonetisation policy in November, Dominion said.

The miner reported an operating loss of $56.6-million, compared with a profit of $8-million the previous year. Its net loss narrowed to $12.8-million, from a loss of $38.8-million in 2016, impacted by a $84.8-million gain from the sale of its Toronto office building and an income tax recovery of $14.4-million.

“The much-anticipated ramp-up of high value production at Ekati, together with steady performance at Diavik, is driving significant growth in gross margins and adjusted Ebitda [earnings before interest, taxes, depreciation and amortisation],” chairperson Jim Gowans noted.

Dominion said that it has held back a significant volume of lower-value diamonds in the fourth quarter owing to the weaker market conditions, but expects to sell more diamonds from inventory as market conditions in India steadily improve.

The market ended the year on a positive note despite the divergence between the resilient market for larger, higher-quality goods and the more challenging situation for smaller, relatively cheaper goods, Dominion reported. The Christmas season in the US failed to meet market expectations, but this was balanced out by renewed retail activity over the Chinese New Year, resulting in an expected rise in polished demand from China in the first quarter of 2017.

Dominion forecast sales to rise to between $875-million and $975-million in fiscal 2018, based on higher-value ore processed from Ekati’s Misery Main and Koala undergroundpipes in the past few months. Ebitda is forecast to hit $475-million to $560-million, up from $182.2-million in fiscal 2017.

The company forecast a “robust” outlook for sales and adjusted Ebitda through fiscal 2018, 2019 and 2020, boosted by its planned ramp-up of production at Ekati and Diavik. Total output is expected to rise from 7.8-million carats in fiscal 2017, to between 9.1-million and 10-million carats in 2018, 9.2-million to 10.1-million carats in 2019, and 7.6-million to 8.4-million in 2020.

Dominion has recently filed a technical report for Diavik, extending the mine’s life by two years to 2025. Dominion said it had raised its exploration budget to $9-million for the current year, up from $7-million in fiscal 2017.