TORONTO (miningweekly.com) – Precious gems producer Dominion Diamond Corp has reported a bumper net profit for the first fiscal quarter of 2014, buoyed by the sale of its luxury brand segment.

For the quarter ended April 30, Dominion recorded a consolidated net profit attributable to shareholders of $500.2-million or $5.89 a share, compared with a net profit of $11.6-million or $0.14 a share in the same quarter a year earlier.

This included the $497.6-million gain from the $750-million sale of its luxury brand diamond jewellery and timepiece division, Harry Winston, to Swiss watchmaker Swatch Group.

Excluding the sale and other one-time items, earnings were $0.03 a share, below analysts' average consensus forecast of $0.09 a share.

Net profit from continuing operations attributable to shareholders, which was now divided into segments representing the Diavik and Ekati mines, as well as the corporate segment, was $2.8-million or $0.03 a share, compared with $6-million or $0.07 a share.

Consolidated rough diamond sales for the quarter totalled $108.8-million, comprising Diavik rough diamond sales of $88.9-million and Ekati rough diamond sales of $19.9-million. Dominion noted that the Ekati rough diamond sales were only from April 10, the date on which the $550-million Ekati acquisition was completed, to the end of the quarter.

The consolidated gross margin increased by 44% year-on-year to $27.3-million from $18.9-million in the comparable quarter of the prior year.

As at April 30, Dominion had access to unrestricted cash and cash equivalents of $231.2-million and restricted cash of $125.7-million. The restricted cash was being used to support letters of credit to the Government of Canada for a total amount of $126-million in support of the reclamation obligations for the Ekati mine.

During its acquisition of Ekati, Dominion had arranged new secured credit facilities consisting of a $400-million term loan, a $100-million revolving credit facility and a $140-million letter of credit facility, which was expandable to $265-million in total.

In the end, Dominion ultimately decided to fund the Ekati mine acquisition by cash on hand and did not draw on these new facilities.

Dominion Diamond, in May, raised the expected precious gem output on a 100% basis from its 40%-owned Diavik mine, for this year, by 11% to 6.6-million carats, as it planned to process more of the stockpiled ore.

Production for the first calendar quarter at Diavik was 1.9-million carats on a 100% basis. Rough diamond production was 21% higher year-on-year, mainly owing to improved grades in each of the kimberlite pipes.

The new mining plan, however, would be subject to further revision at the end of the second quarter.

Dominion also said it was reviewing a new mine plan and budget for the 80%-owned Ekati diamond mine for the next operating period. During the period from April 10 to April 30, the company sold about 100 000 ct from Ekati for a total of $19.9-million, representing an average price per carat of $1 620.

The above-average achieved price per carat resulted from the timing of Ekati sales and, in April, sales consisted only of Ekati's high-value, high-quality diamonds.

Rough diamond sales for the 2014 financial year, based on current rough diamond prices, were expected to total about $730-million, with $365-million coming from each of the 40% share of Diavik and the 80% share of Ekati.

Included in the fiscal 2014 sales for Diavik was about $25-million from sales of inventory for sale at January 31, as well as about $70-million for Ekati from opening acquisition inventory that was expected to be sold towards the end of the 2014 financial year.

DIAMOND MARKET
Dominion said the second quarter started with a stable market for both rough and polished diamonds as a result of improved market conditions at the end of fiscal 2013.

Strong polished diamond sales encouraged manufacturers to increase their buying of rough diamonds at a time of reduced supply, pushing rough diamond prices upwards by about 5% during the first quarter.

Rough diamond supply was also impacted by delivery problems at certain diamond mines, combined with lower-than-expected Russian rough diamond supply.

However, with the exception of high demand in the lower-priced ranges, polished diamond prices remained flat, restricting the upward movement in rough diamond prices at the end of the quarter.

The retail jewellery market outlook remained positive, led by the resilient US market. The East Asian and Indian markets were less positive but the market still expected resurgence in demand in the second half of the year as retailers there restocked.

At the recent show in Basel, Switzerland, better-quality, larger goods sold well, but less interest was evident in the smaller sizes of polished goods commonly used in watches.