Dominion Diamond shines with Q2 profits of US$27M

Dominion Diamond (TSX: DDC; NYSE: DDC) says its 80%-held Ekati mine and 40%-held Diavik mine in the Northwest Territories performed “exceptionally well” in the second fiscal quarter of 2015, with rough diamond production and sales beating expectations.  

The Toronto-based diamond miner recorded a consolidated net profit attributable to shareholders of US$26.6 million, or US31¢ per share, for the three months ended July 31, 2014, reversing the year-earlier loss of US$13.9 million, or US16¢ per share.

Consolidated sales were US$277.3 million, up from US$261.8 million a year ago. The cost of sales fell nearly US$10 million to US$221.2 million, while gross margins improved to US$56.1 million, or 20.2%, compared to US$30.7 million, or 11.7%.

“It is a pleasure to be able to report another quarter that exceeds expectations,” chairman and CEO Robert Gannicott said in a prepared statement. “We have embedded improvements to diamond recovery, rough diamond marketing and cost-control efficiencies to deliver a story that continues to improve.”

Both mines produced more carats than a year ago due to operational improvements, with the Ekati mine also benefitting from higher-than-expected grades.

Ekati produced 802,000 carats grading 0.76 carat per tonne, up from 483,000 carats at 0.44 carat per tonne. The Diavik mine recovered 860,000 carats at 3.47 carats per tonne, up from 624,000 carats at 2.82 carats per tonne a year ago. (The second production period for Diavik ended in June.) 

During the three months ended July, Diavik generated US$107 million from selling 1 million carats at an average price of US$112 per carat, as it sold lower-value inventory. This compares to revenues of US$91.3 million from selling 700,000 carats averaging US$130 per carat in the same period last year.  

The Ekati mine raked in US$170.3 million in revenue from 600,000 carats sold at an average price of US$308 million per carat, compared to the same amount sold last year at an average price of US$289 per carat for a total of US$170.5 million. Dominion did not include the 130,000 carats produced and sold from Ekati’s Misery South and Southwest kimberlite pipes because it extracted that material during the pre-stripping operations of the Misery main pipe. Commercial production from the Misery satellite pipes started on Sept. 1, 2014. First production from the Misery main pipe is slated for December 2015.

The company says the rough diamond market “remained steady” during the fiscal second quarter after picking up earlier this year. It says the seasonal slowdown in demand that often occurs in the second fiscal quarter was not apparent this year, largely due to the strength in the polished diamond markets. Looking at the first six months of fiscal 2015, Dominion notes the continued growth in jewellery sales in the U.S. and China resulted in an 8% increase in rough diamond prices. Combined, the two countries make up more than half of the world’s diamond sales.

Dominion ended July with cash and equivalents of US$384 million, up from US$328 million in the first fiscal quarter. It has a diamond inventory of 1.4 million carats, with a US$315-million estimated market value.