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Dominion Upbeat Despite Sales Decline

Apr 13, 2017 6:12 AM   By Rapaport News
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RAPAPORT... Dominion Diamond Corporation saw a 21% slump in sales during the fiscal year that ended January 31, with lower-quality production at its two Canada mines leading to reduced revenue. Nonetheless, it expressed optimism Wednesday about its prospects for the next three years, as it continued to undergo a strategic review that might result in the sale of the company.

A larger volume of low-value goods recovered at Dominion’s Ekati and Diavik mines depressed prices in fiscal 2017, resulting in sales falling to $570.9 million from the previous year’s $720.6 million, the company said. The average price dropped to $87 per carat from $117, while overall rough prices declined 7% in the fourth quarter, reflecting the slowdown in demand following India’s demonetization policy, it added.

The miner reported an operating loss of $56.6 million, compared to a profit of $8 million the previous year. Its net loss improved to negative $12.8 million from a loss of $38.8 million the year before, impacted by gains from the sale of an office building and an income tax recovery.

Still, Dominion chairman Jim Gowans said the ramp-up of high-value production at Ekati, together with a steady performance at Diavik, was driving significant growth in gross margins and earnings.

The company noted that diamond market conditions had improved toward the end of the year, with “resilient” larger, higher-quality goods compensating for the more challenging situation of smaller, relatively cheaper diamonds, which were affected by demonetization.

Dominion held back a large volume of those lower-value diamonds in the fourth quarter due to the weak market conditions, but expects to sell the leftover inventory as market conditions in India steadily improve.

Meanwhile, sales are projected to rise to between $875 million and $975 million in fiscal 2018, as the company expects to benefit from higher-value ore processed from Ekati’s Misery Main and Koala underground pipes in the past few months. Earnings before interest, tax, depreciation and amortization (EBITDA) are forecast to hit $475 million to $560 million, up from $182.2 million last year.

The company maintained a “robust” outlook for sales and EBITDA through 2020, supported by its planned ramp-up of production at Ekati and Diavik. Combined production is expected to rise from 7.8 million carats this past fiscal year to between 9.1 and 10 million carats in each of the next two years, before it scales back to around 8 million carats in 2020.

The focus remains on its development programs, mainly at Ekati, while the company recently extended Diavik’s mine life by two years to 2025. Dominion raised its exploration budget to $9 million for the current year.

The update comes weeks after Washington Companies unveiled a $1.1 billion stalled bid to acquire Dominion. The miner subsequently formed a committee to review strategic alternatives, which could include selling the company, continuing its current development plan, or considering other options, Dominion said. 
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Tags: diamonds, Diavik, Dominion, Dominion Diamond Corporation, ekati, Jim Gowans, Rapaport News, Rio Tinto, Washington Corporations
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