Dominion Diamond: Q4 2017 Rough Diamond Sales Fall 27% as Production Surges

Mining and Exploration
23/02/2017 09:48

Dominion Diamonds has announced that sales of Ekati Diamond Mine and Diavik Diamond Mine diamonds fell 27% in Q4 2017 (November 2016 through January 2017) and 21% overall in FY 2017, despite the quantity of diamonds sold increasing 24% in Q4 and 61% for the year. It has also provided Q4 production results from its Ekati Mine, where carat production increased by 93% compared to the same period in the prior year due to the positive impact of processing of a large proportion of high grade Misery ore. Dominion's results from the Diavik Mine are on a 40% share of production and sales (Rio Tinto 60%).

Fourth fiscal quarter diamond sales were $129.9 million from the sale of 1.4 million carats (Q4 fiscal 2016 = $178.1 million from the sale of 1.1 million carats), leaving cumulative sales for the year at $570.9 million from the sale of 6.55 million carats (FY 2016 = $720.6 million from the sale of 4.1 million carats). The company explains: "This was due primarily to a reduction in the goods available for sale following the process plant fire at the Ekati Diamond Mine. Sales in the quarter were also negatively affected by the disruption in normal trading activity following the demonetization of the Indian rupee in November 2016. Total carats sold in the fourth fiscal quarter increased by 24% from the same period in the prior year, due primarily to the availability for sale of rough diamonds from high grade Misery Main ore. Total carats sold in the fourth fiscal quarter of the prior year were negatively impacted by the decision to hold back lower-than-average priced inventory due to a weakened diamond market.

Production

Meanwhile, production at the Ekati Diamond Mine in Q4 2017 achieved a record 2.3 million carats from 1.0 million tons processed (Q4 fiscal 2016 - 1.2 million carats from 0.9 million tons processed). Carat production increased by 93% compared to the same period in the prior year due to the positive impact of processing of a large proportion of high grade Misery ore. For FY 2017, Ekati production reached 5.2 million carats from 2.9 million tons processed (FY 2016 - 3.7 million carats from 3.6 million tons processed) as the average grade rose to 1.77 carats per ton (from 1.03) as a result of 3.6 million carats from the high grade Misery ore. The Diavik Diamond Mine production results (40% Dominion, 60% Rio Tinto) for the fourth calendar quarter of 2016 were released on January 16, 2017. Diavik reports to the calendar year ending December 31, and Ekati reports to the fiscal year ending January 31. Rio Tinto rather than Dominion reports Diavik fiscal production results. 

Detailing the Ekati Fiscal 2018 Mine Plan, Dominion states that in fiscal 2018, they plans to produce 6.3 to 7.0 million carats from the processing of 3.7 to 4.0 million tons (fiscal 2017: 5.2 million carats from the processing of 2.9 million tons). They expect to process primarily high value ore from the Koala underground and Misery Main pipes during Q1 2018, with an increased proportion of ore from the Pigeon and Lynx pipes during the remainder of the fiscal year. They are also encouraged from the results of the Fox Deep Drilling Program, which is now underway, and is expected to be completed in late fiscal 2018. They drilled three holes, with a drill hole diameter of approximately 24 inches, to depths ranging from 448 metres to 600 metres, producing a sample of approximately 1,000 dry tons, yielding a total of 378 carats at a 1.0 millimetre bottom cut-off for an average bulk sample grade of 0.38 carats per ton.

Market Analysis

Dominion notes that, "The market ended the year on a positive note despite the divergence between the resilient market for larger better goods and the more challenging situation for the smaller cheaper goods. The Christmas season in the U.S. failed to meet market expectations, but this was balanced out by renewed retail activity over the Chinese New Year, resulting in an anticipated rise in polished demand from China in the first quarter of 2017. The Indian retail market has started to recover from the jewelers' strike in the middle of the year and the impact of demonetization of the Indian rupee towards year-end. The latter is expected to continue to have a dampening effect on the Indian retail jewelry market in the short-term, with demand expected to return to normal in this sector by the fall of 2017. Much of the manufacturing sector that focuses on lower price rough diamonds was brought to a standstill by the demonetization. However, the segment of the manufacturing sector that focuses on higher priced rough diamonds, and produces primarily for the export market, has been less disrupted."

Three rough diamond sales were held during the quarter. The Company plans to hold two rough diamond sales in the first quarter of fiscal 2018.