Dominion Diamond Corporation (TSX:DDC, NYSE:DDC) (the “Company”
or “Dominion”) reports fourth quarter 2016 (November through
January) and fiscal 2016 full year financial results. Unless
otherwise indicated, all financial information is presented in U.S.
dollars.
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DOMINION DIAMOND DIAVIK LIMITED
PARTNERSHIP'S 40% SHARE OF DIAVIK DIAMOND MINE PRODUCTION - CARATS
(reported on a one-month lag)
Highlights
(in millions of US dollars except pershare
amounts and where otherwisenoted)
Three monthsended Jan
31,2016
Three monthsended Jan 31,2015
Twelve monthsended Jan
31,2016
Twelve monthsended Jan 31,2015
Sales
178.1
240.6
720.6
915.8 Gross Margin
(13.7)
61.8
51.6
233.1
Operating Profit (loss)
(24.5)
52.6
8.0
199.3
Profit (loss) before income taxes
(27.9)
49.3
(11.6)
170.3
Adjusted EBITDA(1)
49.0 95.6
219.3 390.2 Free Cash
Flow(1)
27.5
107.6
(34.7) 182.7 Earnings (loss) per share (“EPS”)
(0.41)
(0.03)
(0.40)
0.79
1 These are non-IFRS measures. See
“Non-IFRS Measures” below for additional information.
Commenting on the results, Brendan Bell, Chief Executive Officer
stated: “As anticipated during this transition period in the Ekati
mine plan, gross margins are lower as a result of a change in the
ore mix with more production coming from lower value sources prior
to the higher grade Misery Main pipe coming on line in the second
half of this fiscal year. Misery Main development remains on
schedule and will provide significant cash flow. We are encouraged
by the recent rebound in diamond prices.”
Profit (Loss) Before Income Tax and Net Income The
Company reported a loss before income taxes of $27.9 million for
the quarter and consolidated net loss attributable to shareholders
of $34.9 million or $0.41 per share for the quarter. Both measures
were impacted by:
- Inventory impairment in the amount of
$19.8 million (after-tax $0.17 earnings per share) was recorded on
work in progress inventory at the Ekati mine.
- The foreign exchange impact on income
tax expense resulted in additional income tax expense in the
quarter of $16.9 million or $0.20 per share.
- Prices were lowered in the Company’s
January sale in line with the market.
- Estimated prices for Misery Southwest
Extension were lowered in the quarter based upon the sorting
results of goods produced during the batch processing of unblended
material in Q3 fiscal 2016.
- The expected shift in the mine plan in
fiscal 2016 from higher value production from the Koala, Koala
North and Fox ore bodies to lower value material from Misery
Satellites and Coarse Ore Rejects, while pre-stripping is being
completed in the higher value Misery Main and Pigeon open
pits.
For the full fiscal year, the Company reported a loss before
income taxes of $11.6 million and consolidated net loss
attributable to shareholders of $34.0 million. In addition to the
factors listed above, both measures in fiscal 2016 both were also
negatively impacted by:
- A weaker diamond market with diamond
prices lower during the year that persisted throughout the
year.
- The foreign exchange impact on income
tax expense resulted in an income tax expense for fiscal 2016 of
$26.1 million or $0.31 per share.
- Excluded from full year sales were
proceeds of $9.8 million from the sale of carats produced from the
Misery Main and Misery Northeast pipes during the pre-commercial
production period.
- $9.8 million or $0.08 per share
after-tax one-time charge incurred in connection with the departure
of Mr. Gannicott as CEO in Q2 fiscal 2016.
Cash flow, Adjusted EBITDA and Balance Sheet:
- Positive free cash flow generated in
the quarter of $27.5 million was due to strong operating cash flow
of $83.6 million offset against cash capital expenditures of $56.1
million. Fourth quarter capital expenditures include significant
investments in the Misery Main, Sable and Pigeon pipes as well
as the Jay feasibility at the Ekati Diamond Mine and in the
A-21 pipe at the Diavik Diamond Mine.
- Fourth quarter Adjusted EBITDA of $49.0
million remained steady as compared to the prior quarter despite a
decrease in prices due to reduced mine operating costs as a result
of operational efficiencies and the weakening Canadian dollar in
the quarter. Adjusted EBITDA does not include the impact of
significant non-cash costs in the fourth quarter which impacted
gross margins. See “Non-IFRS Measures” below.
- Total unrestricted cash resources of
$320.0 million, restricted cash of $63.3 million and an
undrawn availability of $210.0 million under its corporate
revolving credit facility.
Inventory Impairment
- At the end of the fourth quarter the
Company recognized an impairment of work-in-progress inventory from
the Ekati Diamond Mine in the amount of $19.8 million due to
declining prices combined with a weaker ore blend with significant
amounts of lower value material from Misery Southwest, which
impacted on both gross margin and profitability. The impairment
represents the excess of the inventoried cash and non-cash costs
over the amount the Company realized upon final sorting, valuation
and subsequent sale of the majority of this inventory in Q1 fiscal
2017.
Production, Development and ExplorationEkati
- During the fourth quarter, tonnage
processed at the Ekati Diamond Mine was on forecast and the
recovered grade exceeded modelled grade for all ore sources
reflecting the positive impact of the additional recovery resulting
from the liberation initiative.
- The first ore at the Pigeon pipe was
mined at the end of November and commercial production commenced in
January 2016.
- The first ore from the Misery Main pipe
was mined in February. With a grade of 4.7 carats per tonne and an
average value of $75 per carat, Misery Main is the richest ore body
on the Ekati property and remains on schedule.
- Pre-stripping at Lynx began on schedule
in December.
- The Mackenzie Valley Environmental
Impact Review Board completed its Report of Environmental
Assessment for the Jay Project in February and has recommended
that the Jay Project be approved. The Company expects to publish a
feasibility study in May 2016.
- A pre-feasibility study was completed
for the Sable Project in February, and equipment was mobilized in
anticipation of construction. First production is expected in
fiscal 2019.
- Exploratory drilling beneath the
completed Fox open pit commenced in February.
- During the fourth quarter, there were
no lost time injuries corresponding to a frequency rate per 200,000
hours worked (“LTIFR”) of 0.00 and a year to date LTIFR of
0.29.
Diavik
- Diavik processing volumes in the fourth
calendar quarter of 2015 were 9% lower than the same quarter of the
prior year due primarily to three weeks of maintenance shutdowns in
the processing plant.
- The development of the A-21 pipe
continues to progress according to plan.
Diamond market
- Prices were lowered in the Company’s
January sale in line with the market. Polished prices in many
categories have firmed since then as US retailers look to restock,
and the shortage of rough in the cutting centers resulted in an
improvement in some areas of rough pricing during the Company’s
tender held in early February in India.
Working Capital
- As at January 31, 2016, the Company had
total unrestricted cash and cash equivalents of
$320.0 million, restricted cash of $63.3 million and an
undrawn availability of $210.0 million under its corporate
revolving credit facility.
- The Company continues to see the impact
of lower crude prices, with a landed cost of approximately
CDN $1.12 per litre for fiscal 2017.
- As at January 31, 2016, the Company had
approximately 2.0 million carats of rough diamond inventory
available for sale with an estimated market value of
approximately $106 million. The Company also had approximately
1.3 million carats of rough diamond inventory that was work in
progress.
Dividend
- On April 13, 2016, the Board of
Directors declared a final dividend of $0.20 per share to be paid
in full on June 2, 2016 to shareholders of record at the close of
business on May 17, 2016. The dividend will be an eligible dividend
for Canadian income tax purposes.
Guidance
Full Year Guidance1
(in millions of US dollars)2
Cash Costs ofProduction3
Cost of Sales
Depreciation &Amortization inCost of
Sales
DevelopmentCapitalExpenditures
SustainingCapital
Ekati Diamond Mine (100%) 308 510 161
229 36 Diavik Diamond Mine (40%) 116 239
102 42 19
(1) The guidance provided in
the table above for the Diavik Diamond Mine and the Ekati Diamond
Mine are for the calendar year ending December 31, 2016, and the
fiscal year ending January 31, 2017, respectively.
(2) Assuming an average
Canadian/US dollar exchange rate of 1.33.
(3) The term cash costs of
production does not have a standardized meaning according to IFRS.
See “Non-IFRS Measures” below for additional information.
See “Caution Regarding Forward-Looking
Information” in the Company’s 2016 Annual Report Management’s
Discussion and Analysis for additional information with respect to
guidance on projected capital expenditure requirements, expected
cost of sales, depreciation & amortization and cash costs of
production for the Diavik Diamond Mine and Ekati Diamond Mine.
Non-IFRS MeasuresThe terms Adjusted EBITDA, Adjusted
EBITDA margin, free cash flow, cash cost of production, and working
capital do not have standardized meanings according to
International Financial Reporting Standards. See “Non-IFRS
Measures” in the Company’s 2016 Annual Report Management’s
Discussion and Analysis for additional information.
Conference Call and WebcastBeginning at 8:30AM (ET) on
Thursday, April 14, the Company will host a conference call for
analysts, investors and other interested parties. Listeners may
access a live broadcast of the conference call on the Company's web
site at www.ddcorp.ca or by dialing
866-855-4460 within North America or 704-908-0470 from
international locations and entering passcode 63883717.
An online archive of the broadcast will be available by
accessing the Company's web site at www.ddcorp.ca. A telephone replay of the call will
be available two hours after the call through 11:00PM (ET),
Thursday, April 28, 2016, by dialing 855-859-2056 within North
America or 404-537-3406 from international locations and entering
passcode 63883717.
About Dominion Diamond CorporationDominion Diamond
Corporation is the world’s third largest producer of rough diamonds
by value. Both of its production assets are located in the low
political risk environment of the Northwest Territories in Canada
where the Company also has its head office. The Company is well
capitalized and has a strong balance sheet.
The Company operates the Ekati Diamond Mine and also owns 40% of
the Diavik Diamond Mine. Between the two mining operations,
diamonds are currently produced from a number of separate
kimberlite pipes providing a diversity of diamond supply as well as
reduced operational risk. It supplies premium rough diamond
assortments to the global market through its sorting and selling
operations in Canada, Belgium and India.
For more information, please visit
www.ddcorp.ca
Fourth Quarter Fiscal 2016 Highlights
- Free Cash Flow
- Positive free cash flow of $27.5
million in the quarter was due to strong operating cash flow of
$83.6 million offset against cash capital expenditures of $56.1
million.
- Fourth quarter capital expenditures
include significant investments in the Misery Main, Pigeon and
Jay pipes at the Ekati Diamond Mine and in the A-21 pipe
at the Diavik Diamond Mine.
- Sales
- Fourth quarter diamond sales were
$178.1 million with prices lowered by approximately 5% in the
Company’s January sale in line with the market.
- There were improvements in some areas
of rough pricing at a tender held by the Company during early
February in India.
- Adjusted EBITDA
- Fourth quarter Adjusted EBITDA of $49.0
million remained steady as compared to the prior quarter despite a
decrease in prices due to reduced mine operating costs as a result
of operational efficiencies and the weakening Canadian dollar in
the quarter.
- Gross Margins – Consolidated
negative gross margin of $13.7 million and gross margin
percentage of (7.7)% during the quarter were negatively impacted
by:
- Impairment of work-in-progress
inventory from the Ekati Diamond Mine in the amount of $19.8
million ($0.17 per share after-tax) due to a weaker ore blend with
significant amounts of lower value material from Misery
Southwest.
- The expected shift in the mine plan in
fiscal 2016 from higher value production from the Koala, Koala
North and Fox ore bodies to lower value material from Misery
Satellite and Coarse Ore Rejects (“COR”), while pre-stripping is
being completed in the higher value Misery Main and Pigeon open
pits.
- A price decrease of approximately 5% in
the Company’s January sale in line with the market.
- Processing inefficiencies associated
with batch processing of unblended ore for testing of the
liberation initiative in Q3 fiscal 2016 at the Ekati Diamond Mine
impacted gross margins in the fourth quarter as that production was
sold.
- Profit (Loss) before Income Tax and
Net Income – Fourth quarter loss before income taxes of $27.9
million and consolidated net loss attributable to shareholders of
$34.9 million or $0.41 per share for the quarter were negatively
impacted by:
- Inventory impairment in the amount of
$19.8 million ($0.17 per share after tax) taken at the Ekati
Diamond Mine.
- The foreign exchange impact on income
tax resulted in additional income tax expense in the quarter of
$16.9 million or $0.20 per share, of which $8.1 million of
expense or $0.09 per share related to revaluations of foreign
currency non-monetary items and the deferred tax liability, both of
which are non-cash items.
- Production
- The first ore at the Pigeon pipe was
mined at the end of November and commercial production commenced in
January 2016.
- Diavik processing volumes in the fourth
calendar quarter of 2015 were 9% lower than in the same quarter of
the prior year due primarily to three weeks of maintenance
shutdowns in the processing plant.
- Development and Exploration
Projects
- Lynx pre-stripping began on schedule in
December.
- The first ore from the Misery Main pipe
was mined in February.
- The development of the A-21 pipe
continues to progress according to plan.
- The Mackenzie Valley Environmental
Impact Review Board completed its Report of Environmental
Assessment for the Jay Project in February and has recommended
that the Jay Project be approved, subject to the measures described
in the report.
- A pre-feasibility study was completed
for the Sable Project in February, and equipment was mobilized in
anticipation of construction. First production is expected in
fiscal 2019.
- Exploratory drilling beneath the
completed Fox open pit commenced in February.
- Balance Sheet – The Company has
a strong balance sheet with total unrestricted cash resources of
$320 million and $210 million is available under its revolving
credit facility.
- Dividend Declaration –
The Board of Directors of the Company declared a semi-annual
dividend of 20 cents per share on April 13, 2016. The dividend will
be paid on June 2, 2016 to shareholders of record at the close of
business on May 17, 2016.
Fiscal 2016 Highlights
- Free Cash Flow
- Free cash flow was positive through the
year with the exception of the first quarter due primarily to
increased capital expenditures for the winter road and to higher
income tax and royalty payments in that quarter as a result of
higher taxable income generated in fiscal 2015.
- Significant capital expenditures in
fiscal 2016 included investments in the Misery Main, Pigeon
and Jay pipes at the Ekati Diamond Mine and in the
A-21 pipe at the Diavik Diamond Mine.
- Sales
- Fiscal 2016 diamond sales were
$720.6 million, reflecting a decline in prices of approximately 10%
during the year as well as a shift to lower value ore sources.
- Adjusted EBITDA
- Despite declining prices, Adjusted
EBITDA was positive for fiscal 2016 reflecting decreased cash
operating costs as a result of the weakening Canadian dollar.
- Adjusted EBITDA was negatively impacted
by a $9.8 million ($0.08 per share after-tax) one-time charge
incurred in connection with the departure of Mr. Gannicott as CEO
in Q2 fiscal 2016.
- Gross Margins – Consolidated
gross margin of $51.6 million and gross margin percentage of
7.2% during fiscal 2016 were negatively impacted by:
- Impairment of work-in-progress
inventory from the Ekati Diamond Mine in the fourth quarter in the
amount of $19.8 million ($0.17 per share after-tax) due to a weaker
ore blend with significant amounts of lower value material from
Misery Southwest.
- The expected shift in the mine plan in
fiscal 2016 from higher value production from the Koala, Koala
North and Fox ore bodies to lower value material from Misery
Satellite and COR, while pre-stripping is being completed in the
higher value Misery Main and Pigeon open pits.
- Profit (Loss) before Income Tax and
Net Income – Loss before income taxes of $11.6 million and
consolidated net loss attributable to shareholders of $34.0 million
or $0.40 per share for the year were negatively impacted by:
- The foreign exchange impact on income
tax resulted in additional income tax expense of $26.1 million or
$0.31 per share, of which $2.8 million of expense or $0.03 per
share related to revaluations of foreign currency non-monetary
items and the deferred tax liability, both of which are non-cash
items.
- Production
- Ekati processing volumes were 12% lower
as compared to fiscal 2015 due to operational challenges in the
process plant in the first quarter of fiscal 2016 as well as a new
diamond liberation initiative introduced in the second quarter of
fiscal 2016 which included reducing the level of throughput to the
plant from 12,000 to 10,500 tonnes per day.
- Diavik diamonds recovered in calendar
2015 of 6.4 million carats were 9% lower than the original calendar
2015 plan of 7.0 million carats, due to a combination of ore
availability issues resulting from lower mining rates from A-154N,
lower grades from A-418, and availability of the process plant in
the fourth calendar quarter.
- Development and Exploration
Projects
- At the Ekati Diamond Mine, significant
pre-stripping was completed at the Pigeon and Misery Main open pits
during the year, with the first ore mined from the Pigeon pipe in
the fourth quarter of fiscal 2016.
- The development of the A-21 pipe at the
Diavik Diamond Mine continues to progress according to plan.
- Evaluation of the Jay and Sable pipes
continued during the year and equipment was mobilized in
anticipation of construction of the Sable project in fiscal
2017.
Market Commentary
After weakening through the fourth quarter, the rough market
ended the quarter on a more positive note as the upbeat Christmas
season in the US resulted in higher polished diamond sales and
substantially reduced inventories in the middle of the pipeline.
Most Indian rough diamond manufacturers had reduced their purchases
in preparation for the Diwali shutdown in November and returned to
the market in January looking to replenish their stocks.
Conversely, the Chinese retail market was less upbeat in the
lead-up to the New Year there and the levels of polished diamond
replenishment are expected to be muted. The Indian retail diamond
jewelry market is slowly returning to projected levels but it is
still restricted by the effects of a weakening Rupee. Prices were
lowered by 5% in the Company’s January sale in line with the
market. Polished prices in many categories have firmed since then
as US retailers look to restock, and the shortage of rough diamonds
in the cutting centres resulted in an improvement in some areas of
rough diamond pricing during the Company’s tender held in early
February in India.
Management’s Discussion and Analysis
PREPARED AS OF APRIL 13, 2016 (ALL FIGURES ARE
IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED)
Basis of Presentation
The following is management’s discussion and analysis
(“MD&A”) of the results of operations for Dominion Diamond
Corporation for the year ended January 31, 2016, and its
financial position as at January 31, 2016. This MD&A is
based on the Company’s audited consolidated financial statements as
at and for the year ended January 31, 2016 prepared in accordance
with International Financial Reporting Standards (“IFRS”), as
issued by the International Accounting Standards Board (“IASB”),
and should be read in conjunction with the audited consolidated
financial statements and related notes. These consolidated
financial statements are expressed in United States dollars, which
is the functional currency of the Company. Unless otherwise
specified, all financial information is presented in United States
dollars. Unless otherwise indicated, all references to (i) “fourth
quarter”, “Q4 2016” and “Q4 fiscal 2016” refer to the three
months ended January 31, 2016; (ii) “Q4 fiscal 2015” and “Q4
2015” refer to the three months ended January 31, 2015; (iii)
“fiscal year ended 2016” refers to the year ended January 31, 2016;
and (iv) “fiscal year ended 2015” refers to the year ended
January 31, 2015.
Caution Regarding Forward-Looking Information
Certain information included in this MD&A constitutes
forward-looking information within the meaning of Canadian and
United States securities laws. Forward-looking information can
generally be identified by the use of terms such as “may”, “will”,
“should”, “could”, “would”, “expect”, “plan”, “anticipate”,
“foresee”, “appears”, “believe”, “intend”, “estimate”, “predict”,
“potential”, “continue”, “objective”, “modeled”, “hope”, “forecast”
or other similar expressions concerning matters that are not
historical facts. Forward-looking information relates to
management’s future outlook and anticipated events or results, and
can include statements or information regarding plans for mining,
development, production and exploration activities at the Company’s
mineral properties, projected capital expenditure requirements,
liquidity and working capital requirements, estimated production
from the Ekati Diamond Mine and Diavik Diamond Mine, expectations
concerning the diamond industry, and expected cost of sales, cash
operating costs and gross margin. Forward-looking information
included in this MD&A includes the current production forecast,
cost of sales, cash cost of production and gross margin estimates
and planned capital expenditures for the Diavik Diamond Mine and
other forward-looking information set out under “Diavik Operations
Outlook”, and the current production forecast, cost of sales, cash
cost of production and gross margin estimates and planned capital
expenditures for the Ekati Diamond Mine and other forward-looking
information set out under “Ekati Operations Outlook”.
Forward-looking information is based on certain factors and
assumptions described below and elsewhere in this MD&A,
including, among other things, the current mine plans for each of
the Ekati Diamond Mine and the Diavik Diamond Mine; mining,
production, construction and exploration activities at the
Company’s mineral properties; the timely receipt of required
regulatory approvals; mining methods; currency exchange rates;
estimates related to the capital expenditures required to bring the
Jay pipe and the A-21 pipe into production; required operating
and capital costs, labour and fuel costs, world and US economic
conditions, future diamond prices, and the level of worldwide
diamond production. While the Company considers these assumptions
to be reasonable based on the information currently available to
it, they may prove to be incorrect. Forward-looking information is
subject to certain factors, including risks and uncertainties that
could cause actual results to differ materially from what the
Company currently expects. These factors include, among other
things, the uncertain nature of mining activities, including risks
associated with underground construction and mining operations;
risks associated with joint venture operations, including risks
associated with the inability to control the timing and scope of
future capital expenditures; risks associated with the estimates
related to the capital expenditures required to bring the Jay pipe
and the A-21 pipe into production; the risk that the operator
of the Diavik Diamond Mine may make changes to the mine plan and
other risks arising because of the nature of joint venture
activities; risks associated with the remote location of, and harsh
climate at, the Company’s mineral property sites; variations in
mineral resource and mineral reserve estimates or expected recovery
rates; failure of plant, equipment or processes to operate as
anticipated; risks resulting from the Eurozone financial crisis and
macro-economic uncertainty in other financial markets; risks
associated with regulatory requirements and the ability to obtain
all necessary regulatory approvals; the risk that diamond price
assumptions may prove to be incorrect; modifications to existing
practices so as to comply with any future permit conditions that
may be imposed by regulators; delays in obtaining approvals and
lease renewals; the risk of fluctuations in diamond prices and
changes in US and world economic conditions; uncertainty as to
whether dividends will be declared by the Company’s Board of
Directors or whether the Company’s dividend policy will be
maintained; the risk of fluctuations in the Canadian/US dollar
exchange rate; and cash flow and liquidity risks. Please see page
29 of this MD&A, as well as the Company’s current Annual
Information Form, available at www.sedar.com and www.sec.gov, for a
discussion of these and other risks and uncertainties involved in
the Company’s operations. Actual results may vary from the
forward-looking information.
Readers are cautioned not to place undue importance on
forward-looking information, which speaks only as of the date of
this MD&A – they should not rely upon this information as of
any other date. Due to assumptions, risks and uncertainties,
including the assumptions, risks and uncertainties identified above
and elsewhere in this MD&A, actual events may differ materially
from current expectations. The Company uses forward-looking
statements because it believes such statements provide useful
information with respect to the currently expected future
operations and financial performance of the Company, and cautions
readers that the information may not be appropriate for other
purposes. While the Company may elect to do so, it is under no
obligation and does not undertake to update or revise any
forward-looking information, whether as a result of new
information, future events or otherwise at any particular time,
except as required by law.
Business Overview
Dominion Diamond Corporation is focused on the mining and
marketing of rough diamonds to the global market. The Company
supplies rough diamonds to the global market from its operation of
the Ekati Diamond Mine (in which it owns a controlling interest)
and its 40% ownership interest in the Diavik Diamond Mine. Both
mineral properties are located at Lac de Gras in Canada’s Northwest
Territories.
The Company controls the Ekati Diamond Mine as well as the
associated diamond sorting and sales facilities in Toronto and
Yellowknife, Canada, Mumbai, India, and Antwerp, Belgium. The
Company acquired its initial interest in the Ekati Diamond Mine on
April 10, 2013. The Ekati Diamond Mine consists of the Core
Zone, which includes the current operating mine and other permitted
kimberlite pipes, as well as the Buffer Zone, an adjacent area
hosting kimberlite pipes having both development and exploration
potential, such as the Jay kimberlite pipe and the Lynx kimberlite
pipe. The Company controls and consolidates the Ekati Diamond Mine;
the interests of minority shareholders are presented as
non-controlling interests in the consolidated financial
statements.
The Company has an ownership interest in the Diavik group of
mineral claims. The Diavik Joint Venture (the “Diavik Joint
Venture”) is an unincorporated joint arrangement between Diavik
Diamond Mines (2012) Inc. (“DDMI”) (60%) and Dominion Diamond
Diavik Limited Partnership (“DDDLP”) (40%), a wholly-owned
subsidiary of the Company, where DDDLP holds an undivided 40%
ownership interest in the assets, liabilities and expenses of the
Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond
Mine and DDMI is a wholly owned subsidiary of Rio Tinto plc of
London, England. The Company receives 40% of the diamond production
from the Diavik Diamond Mine.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(expressed in millions of United States dollars, except per
share amounts and where otherwise noted)
Three months endedJanuary 31,2016 Three
months endedJanuary 31,2015
(Restated)(iii)
Year endedJanuary 31,2016 Year endedJanuary
31,2015
(Restated) (iii)
Sales $ 178.1 $ 240.6 $ 720.6 $ 915.8
Cost of sales 191.8 178.8 668.9 682.6 Gross margin (13.7) 61.8 51.6
233.1 Gross margin (%) (7.7)% 25.7% 7.2% 25.5% Selling, general and
administrative expenses 10.8 9.2 43.7 33.9 Operating (loss) profit
(24.5) 52.6 8.0 199.3 Financing expense (1.2) (4.2) (9.9) (13.1)
Exploration expense 0.7 (2.1) (7.0) (25.4) Finance and other (loss)
income (0.9) 0.4 0.2 5.3 Foreign exchange (loss) gain (2.0) 2.5
(2.8) 4.3 (Loss) Profit before income taxes (27.9) 49.3 (11.6)
170.3 Income tax expense 9.9 47.1 27.2 96.8 Net (loss) income
attributable to shareholders (34.9) (2.2) (34.0) 67.1 Earnings
(loss) per share attributable to shareholders(ii) (0.41) (0.03)
(0.40) 0.79 Adjusted EBITDA(i) 49.0 95.6 219.3 390.2 Adjusted
EBITDA margin (%)(i) 28% 40% 30% 43% Free cash flow(i) 27.5
107.6
(34.7) 182.7 Capital expenditures 75.5 34.9 242.3 168.3
Depreciation and amortization 53.6 43.0
191.4 191.0
(i) The terms “Adjusted EBITDA”, “Adjusted
EBITDA margin” and “free cash flow” do not have standardized
meanings according to IFRS. See “Non-IFRS Measures” for additional
information.
(ii) Earnings per share for the fourth
quarter were reduced by $0.20 per share (Q4 2015 – $0.37 per share)
due to the impact of foreign exchange on tax expense. The full year
impact was $0.31 per share (2015 – $0.42 per share).
(iii) Prior year figures have been
restated as a result of retrospective application of a voluntary
change in accounting policy related to asset retirement obligations
(“ARO”). For further details, refer to note 3 of the consolidated
financial statements for the year ended January 31, 2016.
Three Months Ended January 31, 2016, Compared to Three
Months Ended January 31, 2015
CONSOLIDATED SALES
Consolidated sales for the fourth quarter totalled
$178.1 million (Q4 2015 – $240.6 million),
consisting of Ekati rough diamond sales of $111.6 million
(Q4 2015 – $159.1 million) and Diavik rough diamond sales
of $66.5 million (Q4 2015 – $81.5 million).
The Company expects that results for its mining operations will
fluctuate depending on the seasonality of production at its mineral
properties; the number of sales events conducted during the
quarter; rough diamond prices; and the volume, size and quality
distribution of rough diamonds delivered from the Company’s mineral
properties and sold by the Company in each quarter.
See “Segmented Analysis” section for
additional information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company’s cost of sales includes costs associated with
mining and rough diamond sorting activities. Consolidated cost of
sales and gross margin in the current quarter were negatively
impacted by a $19.8 million impairment of work-in-progress
inventory from the Ekati Diamond Mine, lower achieved diamond
prices, and an expected shift in the Ekati Diamond Mine plan in
fiscal 2016 from higher value production from the Koala, Koala
North and Fox ore bodies to lower value material from Misery
Satellite and COR.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of selling, general and administrative
(“SG&A”) expenses include expenses for salaries and benefits,
professional fees, consulting and travel. SG&A increased by
$1.6 million over Q4 fiscal 2015 as a result of increased
consulting fees.
CONSOLIDATED FINANCE EXPENSE
Finance expense in the fourth quarter decreased by $3.0 million
over Q4 fiscal 2015 mainly as a result of a decrease of $4.6
million in accretion expense. The Company’s asset retirement
obligation (“ARO”) liabilities are denominated in Canadian dollars
and are translated to US dollars at the period end exchange rate.
The weakening Canadian dollar during the quarter resulted in a
decrease in the ARO liability and associated accretion expense.
CONSOLIDATED EXPLORATION EXPENSE
Exploration expense incurred during Q4 fiscal 2016 primarily
related to exploration work on the Sable pipe within the Core Zone
at the Ekati Diamond Mine, whereas exploration expense
incurred during Q4 fiscal 2015 was primarily related to the Jay
pipe within the Buffer Zone. With the completion of the Jay Project
Pre-feasibility Study on January 27, 2015, which established
probable reserves for the Jay kimberlite pipe, the Company has
begun to capitalize certain exploration and evaluation costs
related to the Jay pipe in accordance with the Company’s accounting
policy for exploration and evaluation activities. During the fourth
quarter, $11.5 million of exploration and evaluation costs
including equipment were capitalized.
CONSOLIDATED FINANCE AND OTHER INCOME (LOSS)
Finance and other income (loss) decreased by $1.3 million
compared to Q4 fiscal 2015.
CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange loss of $2.0 million was recognized
during the fourth quarter (Q4 2015 – gain of $2.5 million).
The Company does not currently have any foreign exchange
derivative instruments outstanding.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $9.9 million
during the fourth quarter (2015 – $47.1 million). The Company’s
combined Canadian federal and provincial statutory income tax rate
for the quarter was 26.5% (2015 – 26.5%). There are a number of
items that can significantly impact the Company’s effective tax
rate, including foreign currency exchange rate fluctuations, the
Northwest Territories mining royalty, earnings subject to tax at
rates different than the statutory rate and unrecognized tax
benefits. As a result, the Company’s recorded tax provision can be
significantly different than the expected tax provision calculated
based on the statutory tax rate.
The recorded tax provision is particularly impacted by foreign
currency exchange rate fluctuations. The Company’s functional and
reporting currency is US dollars; however, the calculation of
income tax expense is based on income in the currency of the
country of origin, a substantial portion of which is denominated in
Canadian dollars. As such, the Company is continually subject to
foreign exchange fluctuations, particularly as the Canadian dollar
moves against the US dollar. During the fourth quarter, foreign
currency exchange rate fluctuations resulted in a $16.9 million
(2015 – $31.3 million) increase in the Company’s income tax
expense.
Due to the number of factors that can potentially impact the
effective tax rate and the sensitivity of the tax provision to
these factors, as discussed above, it is expected that the
Company’s effective tax rate will fluctuate in future periods.
NET (LOSS) INCOME ATTRIBUTABLE TO SHAREHOLDERS
Included in net loss attributable to shareholders was the
foreign exchange impact on income tax expense. The weakening of the
Canadian dollar relative to the US dollar during the quarter
resulted in additional income tax expense of $16.9 million or $0.20
per share (Q4 2015 – additional income tax expense of
$31.3 million or $0.37 per share), with $8.1 million of
expense or $0.09 per share for the quarter (Q4 2015 – $14.5 million
of expense or $0.17 per share) relating to revaluations of foreign
currency non-monetary items and of the deferred tax liability, both
of which are non-cash items.
Year Ended January 31, 2016, Compared to Year Ended
January 31, 2015 Consolidated Sales
Consolidated sales during the year ended January 31, 2016
totalled $720.6 million (2015 – $915.8 million), consisting of
Diavik rough diamond sales of $255.7 million (2015 – $351.6
million) and Ekati rough diamond sales of $464.8 million (2015
– $564.2 million). See “Segmented Analysis” section for
additional information.
CONSOLIDATED COST OF SALES AND GROSS MARGIN
Consolidated cost of sales during the year ended January 31,
2016 totalled $668.9 million, resulting in a gross margin of 7.2%
(2015 – $682.6 million and 25.5%, respectively). The Company’s
cost of sales includes costs associated with mining and rough
diamond sorting activities. Consolidated cost of sales and gross
margin in fiscal 2016 were negatively impacted by the expected
shift in the Ekati Diamond Mine plan in fiscal 2016 from higher
value production from the Koala North and Fox ore bodies to lower
value material from Misery Satellite and COR, while pre-stripping
is being completed in the higher value Misery Main and Pigeon open
pits. Additionally, the Company recognized an impairment charge on
work-in-progress inventory in the amount of $19.8 million in the
current year.
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of SG&A expenses include expenses
for salaries and benefits, professional fees, consulting and
travel. The $9.8 million increase over fiscal 2015 relates
primarily to a charge of $9.8 million incurred in connection
with the departure of Mr. Gannicott as CEO in Q2 fiscal 2016
and increased consulting fees, which were offset by a decrease in
stock-based compensation expense of $1.3 million.
CONSOLIDATED FINANCE EXPENSE
Finance expense in fiscal year 2016 decreased by $3.2 million
over fiscal year 2015, mainly as a result of a decrease of $7.1
million in accretion expense which was offset by an increase in
interest expense of $3.0 million. The Company’s ARO liability is
denominated in Canadian dollars and is translated to US dollars at
the period end exchange rate. The weakening Canadian dollar during
the year resulted in a decrease in the ARO liability and associated
accretion expense.
CONSOLIDATED EXPLORATION EXPENSE
Exploration expense during fiscal year 2016 primarily related to
exploration work on the Sable pipe within the Core Zone at the
Ekati Diamond Mine, whereas exploration expense during the
comparable prior period was primarily related to the Jay pipe
within the Buffer Zone. With the completion of the Jay Project
Pre-feasibility Study on January 27, 2015, which established
probable reserves for the Jay kimberlite pipe, the Company began to
capitalize certain exploration and evaluation costs related to the
Jay pipe in accordance with the Company’s accounting policy for
exploration and evaluation activities. During the fiscal 2016
period, $33.0 million of exploration and evaluation costs were
capitalized.
CONSOLIDATED FINANCE AND OTHER INCOME (LOSS)
Finance and other income (loss) decreased by $5.2 million
compared to fiscal 2015. Included in the prior year was a gain on
the sale of an asset of $2.4 million.
CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange loss of $2.8 million was recognized
during the fiscal 2016 period (2015 – gain of $4.3 million).
The Company does not currently have any foreign exchange
derivative instruments outstanding.
CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $27.2 million
during the year ended January 31, 2016 (2015 – $96.8 million). The
Company’s combined Canadian federal and provincial statutory income
tax rate for the year ended January 31, 2016 was 26.5% (2015 –
26.5%). There are a number of items that can significantly impact
the Company’s effective tax rate, including foreign currency
exchange rate fluctuations, the Northwest Territories mining
royalty, earnings subject to tax at rates different than the
statutory rate and unrecognized tax benefits. As a result, the
Company’s recorded tax provision can be significantly different
than the expected tax provision calculated based on the statutory
tax rate.
The recorded tax provision is particularly impacted by foreign
currency exchange rate fluctuations. The Company’s functional and
reporting currency is US dollars; however, the calculation of
income tax expense is based on income in the currency of the
country of origin, a substantial portion of which is denominated in
Canadian dollars. As such, the Company is continually subject to
foreign exchange fluctuations, particularly as the Canadian dollar
moves against the US dollar. During the year ended January 31,
2016, foreign currency exchange rate fluctuations resulted in a
$26.1 million (2015 – $35.8 million) increase in the Company’s
income tax expense.
Due to the number of factors that can potentially impact the
effective tax rate and the sensitivity of the tax provision to
these factors, as discussed above, it is expected that the
Company’s effective tax rate will fluctuate in future periods.
NET (LOSS) INCOME ATTRIBUTABLE TO SHAREHOLDERS
Included in net loss attributable to shareholders was the
foreign exchange impact on income tax expense. The weakening of the
Canadian dollar relative to the US dollar during the year ended
January 31, 2016 resulted in additional income tax expense of $26.1
million or $0.31 per share (2015 – additional income tax expense of
$35.8 million or $0.42 per share), with $2.8 million of
expense or $0.03 per share (2015 – $16.4 million of expense or
$0.19 per share) relating to revaluations of foreign currency
non-monetary items and of the deferred tax liability, both of which
are non-cash items.
Segmented Analysis
The operating segments of the Company include the Ekati Diamond
Mine, the Diavik Diamond Mine and the Corporate segment. The
Corporate segment captures costs not specifically related to
operating the Ekati and Diavik mines.
EKATI DIAMOND MINE (100% SHARE)
(expressed in millions of United States dollars, except per
share, per tonne or per carat amounts and where otherwise
noted)
Three months endedJanuary 31,2016 Three
monthsendedJanuary 31,2015
(Restated)(ii)
Year endedJanuary 31,2016 Year endedJanuary
31,2015
(Restated)(ii)
Sales $ 111.6 $ 159.1 $ 464.8 $ 564.2
Carats sold (000s) 636 897 2,337 2,166 Cost of sales 135.9 116.6
472.4 433.0 Gross margin (24.3) 42.5 (7.6) 131.2 Gross margin (%)
(21.8)% 26.7% (1.6)% 23.3% Average price per carat 175 177 199 260
Selling, general and administrative expenses 1.3 0.6 6.1 3.6
Operating profit (loss) (25.6) 41.9 (13.6) 127.6 Finance expenses
(1.3) (3.6) (7.1) (10.4) Exploration costs 0.8 (2.2) (6.9) (25.2)
Finance and other income (0.8) 0.4 0.2 1.6 Foreign exchange gain
(loss) 2.8 11.2 3.1 12.6 Segmented profit (loss) before income
taxes (24.1) 47.7 (24.3)
106.2 Cash cost of production(i) 81.9 95.7 315.7
349.1 Cash cost per tonne processed(i) 89.3 99.0 87.3 84.5 Non-cash
cost per tonne processed(i) 41.0 29.2 38.6 31.0 Cash cost per
carat(i) 71.7 118.0 86.3 111.9 Adjusted EBITDA(i) 29.0 62.5 129.1
229.2 Adjusted EBITDA margin (%)(i) 26% 39% 28% 41% Capital
expenditures 60.0 28.6 196.5 146.8 Depreciation and amortization
34.7 20.6 122.8
101.6
(i) The terms “cash cost of production”,
“cash cost per tonne processed”, “non-cash cost per tonne
processed”, “cash cost per carat”, “Adjusted EBITDA” and “Adjusted
EBITDA margin” do not have standardized meanings according to IFRS.
See “Non-IFRS Measures” for additional information.
(ii) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
Three Months Ended January 31, 2016, Compared to Three Months
Ended January 31, 2015
EKATI SALES
The $47.5 million decrease in sales for Q4 fiscal 2016 was
primarily due to a weakened diamond market and a change in the ore
mix, with more production coming from lower value sources. Excluded
from sales recorded in the fourth quarter were 0.1 million carats
produced from Misery Main and Misery Northeast pipes during the
pre-commercial production period for proceeds of $2.5 million (Q4
fiscal 2015 – $11.5 million, as a result of pre-commercial
production from Misery Main, South & Southwest).
EKATI COST OF SALES AND GROSS MARGIN
Gross margin percentage decreased from 26.7% to (21.8)% at the
Ekati Diamond Mine primarily due to a work-in-progress inventory
impairment charge of $19.8 million recorded in cost of sales
in Q4 fiscal 2016. Work-in-progress inventory includes carats for
which sorting and valuation is not yet complete. The impairment
represents the excess of the inventoried cash and non-cash costs
over net realizable value, or the amount the Company realized or
expected to realize upon final sorting, valuation and subsequent
sale of this inventory in Q1 fiscal 2017. The impairment resulted
from fourth quarter production having a relatively high proportion
of Misery South, Southwest and COR material. Due to Misery South
& Southwest material being higher grade but lower value, carat
production was relatively high in the fourth quarter, but upon
completion of the sorting and valuation process, the average value
of production was lower than expected. Amortization of the
capitalized stripping costs for Misery Satellites is on a
unit-of-production basis, meaning depreciation and amortization
also increased in the fourth quarter in line with increased
processing of Misery South & Southwest material.
The decrease in gross margin was also due to the expected shift
in the mine plan in fiscal 2016 from higher value production from
the Koala, Koala North and Fox ore bodies to lower value material
from Misery Satellite and COR, while pre-stripping is being
completed in the higher value Misery Main and Pigeon open pits.
Fourth quarter margins were also negatively impacted by a decrease
in tonnage processed as a result of processing inefficiencies
associated with testing of the new diamond liberation initiative in
Q3 fiscal 2016 which resulted in approximately three equivalent
days of lost production. Decreased production results in a higher
cash and non-cash cost per carat as operating costs that are
largely fixed, and depreciation costs that are calculated on a
straight-line basis, are spread over a lower volume of production.
That lower gross margin is then realized when those carats are
sold. The gross margin is anticipated to fluctuate between
quarters, resulting from variations in the volume, size and quality
distribution of rough diamonds sold by the Company in
each quarter and variation in rough diamond prices.
Cost of sales includes mine operating costs incurred at the
Ekati Diamond Mine and sorting costs, which represent the Company’s
cost of handling and sorting product in preparation for sales to
third parties. The $13.8 million decrease in cash cost of
production from Q4 fiscal 2015 is due primarily to a
combination of the weakening Canadian dollar, cost savings through
operational efficiencies and royalty expense related to the
processing of Misery Main and Misery Satellite material incurred in
the prior year. The royalty was fully paid in Q2 fiscal 2016. A
majority of mine operating costs including labour and overhead
costs, are incurred in Canadian dollars. See “Non-IFRS Measures”
for additional information. Cost of sales also includes sorting
costs, which represent the Company’s cost of handling and sorting
product in preparation for sales to third parties, and depreciation
and amortization, the majority of which is recorded using the
straight-line method over the remaining mine life of management
approved projects. Capitalized costs of new pit or underground
development are amortized on a unit-of-production basis as the
associated material is processed. The increase in depreciation and
amortization in fiscal 2016 is primarily due to amortization of the
pre-stripping asset for the Misery Satellites as this material was
processed throughout the year.
As at January 31, 2016, the Company had 1.0 million carats of
Ekati Diamond Mine–produced rough diamond inventory available for
sale with an estimated market value of approximately $66 million
(October 31, 2015 – 1.0 million carats and $90 million,
respectively). The Company also had approximately 1.1 million
carats of rough diamond inventory that was work in progress. Prices
achieved upon completion of the February sales cycle resulted in an
improvement in some areas of rough diamond pricing. Inventory
classified as available for sale represents carats that have
completed the sorting and valuation process. Carats still
undergoing sorting and valuation are classified as work-in-progress
inventory. At January 31, 2016, available for sale inventory
included a relatively higher number of lower-than-average priced
carats.
Ekaticarats (millions)
Ekati
cost
Diamond Inventory available for sale, October 31, 2015 1.0
$ 90.9 Transfer from work in progress 0.7 90.9 Cost of
sales(i) (0.7) (116.2) Diamond Inventory
available for sale, January 31, 2016 1.0 $ 65.6
(i) Does not include $19.8 million
impairment of work in progress inventory.
SEGMENTED PROFIT (LOSS) BEFORE INCOME TAXES
Segmented profit (loss) before income taxes during the quarter
decreased by $71.8 million, which was primarily driven by decreased
sales during Q4 fiscal 2016. Refer to the “Ekati Sales” section
above for a detailed explanation.
Year Ended January 31, 2016, Compared to Year Ended
January 31, 2015
EKATI SALES
Sales from the Ekati segment decreased $99.3 million over fiscal
2015 primarily due to a weaker diamond market and the change in ore
mix. Carats sold increased by 8% and price per carat decreased by
24% compared to fiscal 2015, primarily due to the change in ore mix
with more production coming from sources with a higher grade and
lower average price. Excluded from sales in the current period were
0.1 million carats produced from Misery Main and Misery Northeast
pipes during the pre-commercial production period for proceeds of
$9.8 million. Fiscal 2015 excludes 0.5 million carats produced from
the Misery South & Southwest satellite pipes during their
pre-commercial production phase for proceeds of
$40.7 million.
EKATI COST OF SALES AND GROSS MARGIN
Gross margin decreased from 23.3% to (1.6)% at the Ekati Diamond
Mine as a result of the continued shift to lower value material and
associated processing issues experienced between Q4 fiscal 2015 and
Q2 fiscal 2016 and a work-in-progress inventory impairment charge
of $19.8 million recorded in cost of sales in Q4 fiscal 2016.
The impairment represents the excess of the inventoried cash and
non-cash costs over net realizable value, or the amount the Company
realized or expected to realize upon final sorting, valuation and
subsequent sale of this inventory in Q1 fiscal 2017. The impairment
resulted from fourth quarter production having a relatively high
proportion of Misery South, Southwest and COR material. Due to
Misery South & Southwest material being higher grade but lower
value, carat production was relatively high in the fourth quarter,
but upon completion of the sorting and valuation process, the
average value of production was lower than expected. Amortization
of the capitalized stripping costs for Misery South & Southwest
is on a unit-of-production basis, meaning depreciation and
amortization also increased in the fourth quarter in line with
increased processing of Misery South & Southwest material.
Cost of sales includes mine operating costs incurred at the
Ekati Diamond Mine. During fiscal 2016, the Ekati cash cost of
production was $315.7 million (2015 – $349.1 million).
The $33.4 million decrease is primarily due to the weakening
of the Canadian dollar as a majority of mine operating costs,
relating primarily to labour and overhead costs, are incurred in
Canadian dollars. Diesel and other supplies inventory are purchased
in advance for winter road delivery, meaning the impact of the
weakening Canadian dollar in fiscal 2016 will not be realized in
cash cost of production until fiscal 2017 when the inventory is
transported to the mine and consumed. The decrease in Ekati cash
cost of production was partially offset by $8.8 million royalty
expense related to the processing of Misery Main and Misery
Satellite material in fiscal 2016. The royalty was fully paid in Q2
fiscal 2016. See “Non-IFRS Measures” for additional information.
Cost of sales also includes sorting costs, which represent the
Company’s cost of handling and sorting product in preparation for
sales to third parties, and depreciation and amortization, the
majority of which is recorded using the straight-line method over
the remaining mine life of management approved projects. The $15.0
million increase in non-cash cost of production was due to
increased amortization of the capitalized stripping costs of Misery
South & Southwest.
As at January 31, 2016, the Company had 1.0 million carats of
Ekati Diamond Mine–produced rough diamond inventory available for
sale with an estimated market value of approximately $66 million
(January 31, 2015 – 0.1 million carats and $65 million,
respectively). The Company also had approximately 1.1 million
carats of rough diamond inventory that was work in progress. Prices
achieved upon completion of the February sales cycle resulted in an
improvement in some areas of rough diamond pricing. Inventory
classified as available for sale represents carats that have
completed the sorting and valuation process. Carats still
undergoing sorting and valuation are classified as work in progress
inventory. The expected shift in the mine plan in fiscal 2016 from
higher value production from the Koala, Koala North and Fox ore
bodies to higher grade but lower value material from Misery
Satellite and COR resulted in an increase in the number of carats
in inventory throughout the year. At January 31, 2016, available
for sale inventory included a relatively higher number of
lower-than-average priced carats.
Ekaticarats (millions)
Ekati
cost
Diamond Inventory available for sale, January 31, 2015 0.1 $ 50.7
Transfer from work in progress
3.3
467.5 Cost of sales(i)
(2.4)
(452.6) Diamond Inventory available for sale, January
31, 2016 1.0 $ 65.6
(i) Does not include $19.8
million impairment of work in progress inventory.
SEGMENTED PROFIT (LOSS) BEFORE INCOME TAXES
Segmented profit (loss) before income taxes during fiscal 2016
decreased by $130.2 million, which was primarily driven by
decreased sales and increased cost of sales, offset by the decrease
in exploration expense during fiscal year 2016. Refer to the
relevant sections above for a detailed explanation.
Operational Update
A diamond liberation initiative at the Ekati Diamond Mine,
which, among other things, involved a reduction in the level of
throughput at the Ekati processing plant from 12,000 to
10,500 tonnes per day (or approximately 4.3 million to 3.8
million tonnes per year), was initiated in July 2015, and testing
of the impact on diamond recoveries was completed in the third
quarter. Test results demonstrated an increase in grade recovered,
primarily of diamonds up to 1.5 carats in size. In the third
quarter, tonnage throughput was impacted by the testing of the
liberation initiative as a result of process plant downtime that
was necessary to batch process unblended material from Misery
Southwest and Koala Underground. In the fourth quarter, recovered
grade was at par with or above modeled grade for all ore sources,
which reflects the positive impact of the additional recovery
resulting from the liberation initiative.
Mining activities during the fourth quarter were focused on ore
production from the Koala Underground operation and pre-stripping
operations at the Misery pushback and Pigeon open pits. The first
ore was mined from Pigeon in November with commercial production
reached in January 2016. Tonnage processed from Pigeon was behind
plan in fiscal 2016 due to lower ore availability as mining
activities put a greater focus on moving waste. Lynx pre-stripping
began on schedule in December.
During the fourth quarter of fiscal 2016, the Ekati Diamond Mine
produced (on a 100% basis) 0.3 million carats from the processing
of 0.3 million tonnes of ore from the reserves. The Company
recovered 0.7 million carats from the processing of
0.4 million tonnes of satellite material excavated from the
Misery South, Southwest extension and Northeast pipes. In
addition, a further 0.2 million carats were recovered from the
processing of 0.2 million tonnes of COR. These diamond
recoveries are not included in the Company’s mineral reserves and
are therefore incremental to production.
In January 2016, a spill of processed kimberlite from a broken
elbow on the processed kimberlite pipeline was detected during a
routine inspection. The pipeline was shut down, inspected
immediately and the spill was reported to the appropriate
authorities while repairs were being completed. It was
determined that there was no risk to the environment as a result of
the spill.
With respect to health and safety there were no lost time
injuries during the fourth quarter, corresponding to a frequency
rate per 200,000 hours worked (“LTIFR”) of 0.00 and a year to date
LTIFR of 0.29 (Q4 2015 – four lost time injuries for an LTIFR
of 0.51 and a year to date LTIFR of 0.44).
The charts below show the Ekati Diamond Mine carat production,
ore processed and recovered grade for the eight most recent
quarters.
EKATI DIAMOND MINE PRODUCTION (100% SHARE) – CARATS
Please see associated chart titled "Ekati Diamond Mine
Production (100% Share) – CARATS"
EKATI DIAMOND MINE PRODUCTION (100% SHARE) – ORE PROCESSED
AND RECOVERED GRADE
Please see associated chart titled "Ekati Diamond Mine
Production (100% Share) – ORE PROCESSED AND RECOVERED
GRADE"
Ekati Operations Outlook
KEY MINING AND PIPE ACTIVITIES
Pipe Q1 FY17 Q2 FY17
Q3 FY17 Q4 FY17 Misery Main First ore Commercial
production(i) Pre-production sales Commercial sales Pigeon
Continuing production Pre-production sales Commercial sales
Continuing production Lynx Waste stripping First ore Koala
Continuing production Misery SSW Continuing production Sable
Mobilization Road construction Preparation for site
construction Site construction Jay
Report of EnvironmentalAssessment,
mobilization
Feasibility study
Interim land use permit
Water licence, final land usepermit
(i) Commencement of “commercial”
production is defined as three consecutive months of production
above 60% of nameplate capacity. The Company defines “capacity” as
the average monthly production for the open pit/underground source
over the life of mine.
A fine dense media separation (DMS) unit is also planned to be
commissioned in the process plant in the second half of fiscal 2017
in order to improve the recovery of smaller sized diamonds.
PRODUCTION
The full year production target for fiscal year 2017 foresees
Ekati Diamond Mine production of approximately 3.7 million
carats from the mining and processing of approximately 2.8 million
tonnes of mineral reserves (the base case). This includes
approximately 1.2 million tonnes from the Koala Underground
operation (combined Koala phases 5, 6 and 7), approximately
1.1 million tonnes from the Pigeon open pit, and the remaining
0.5 million tonnes from the Misery Main open pit. Average
grade from Koala Underground is expected to be lower than that
achieved in fiscal 2016 as the mine plan expects the
processing of a higher proportion of ore from lower grade
phases.
In addition to the mineral reserves noted above, in fiscal 2017
the Ekati Diamond Mine also expects to process inferred resources
from the Misery South & Southwest kimberlite pipes that are
made available as the Misery reserves are accessed (the operating
case). When this additional resource material from the Misery South
& Southwest pipes is included, the production target for
fiscal 2017 foresees total Ekati Diamond Mine production of
approximately 5.5 million carats from the mining and processing of
approximately 3.9 million tonnes of mineral reserves and
resources, which includes approximately 1.0 million tonnes
from Misery South & Southwest kimberlite. The Company cautions
that this assessment is preliminary in nature and is based on
inferred resources that are considered too speculative geologically
to have the economic considerations applied to them that would
enable them to be categorized as mineral reserves. Accordingly,
there is no certainty that this assessment will be realized.
Commercial production commenced in January 2016 for Pigeon,
slightly ahead of schedule, with first sales expected by Q2 2017.
For accounting purposes, sales of diamonds recovered during the
pre-production period prior to January 2016 will be applied as a
reduction of capitalized stripping costs.
First ore was mined at Misery Main in February 2016 and
commercial production is expected to commence in Q2 fiscal 2017.
For accounting purposes, sales of diamonds recovered during the
pre-production period will be applied as a reduction of capitalized
stripping costs. Following processing, sorting and valuation, the
initial sale of diamonds recovered during the commercial production
period is expected to occur in Q4 2017. Given the relatively
higher grade of Misery Main ore, it is expected to have a positive
impact on operating results starting in the second half of fiscal
2017.
First ore is expected to be mined from Lynx at the end of fiscal
2017 but its tonnage contribution is expected to be negligible. COR
are not planned to be processed in fiscal year 2017. The production
target does not include the impact of the diamond liberation
initiative on recovered grade. As part of the Koala and Pigeon
mining, a small portion of inferred mineral resource is extracted
along with the reserves. This material is not included in the
current production estimate, but will be processed along with the
reserve ore and will be incremental to production. Mineral
resources that are not reserves do not have demonstrated economic
viability.
The foregoing scientific and technical information for the Ekati
Diamond Mine was prepared and verified by the Company, the operator
of the Ekati Diamond Mine, under the supervision of Peter
Ravenscroft, FAuslMM, of Burgundy Mining Advisors Ltd., an
independent mining consultancy. Mr. Ravenscroft is a Qualified
Person within the meaning of National Instrument 43-101 of the
Canadian Securities Administrators.
CAPITAL EXPENDITURES
The planned capital expenditures excluding capitalized
depreciation at Ekati Diamond Mine for fiscal 2017 (on a 100%
basis) are expected to be approximately $265 million at an
estimated average Canadian/US dollar exchange rate of 1.33. Capital
expenditures include development projects, sustaining capital and
capitalized evaluation activities. Capital expenditure in fiscal
2017 includes waste stripping at the Misery Main and Lynx open pits
as well as mobilization and initial construction for the Jay and
Sable projects. A fine dense media separation (DMS) unit is also
planned to be commissioned in the process plant. The table below
sets out the planned capital expenditure for fiscal 2017 by project
at the Ekati Diamond Mine (100%).
Capital expenditure
Fiscal 2016
actuals(i)
Fiscal 2017 guidance(ii) Misery Main(iii) 70 48 Pigeon(iv)
26 – Lynx 17 54 Sable(v) – 60 Jay 33 54 Fine DMS 2 13 Sustaining
28 36
(i) Calculated excluding capitalized
depreciation and excluding the adjustments for pre-production
revenue.
(ii) Calculated at an estimated average
Canadian/US dollar exchange rate of 1.33.
(iii) Misery Main is expected to achieve
commercial production in mid-fiscal 2017. No development capital is
forecasted in future years.
(iv) Pigeon achieved commercial production
in January 2016. No development capital is forecasted in fiscal
2017.
(v) Expenditures at the Sable pipe are
capitalized in fiscal 2017 following completion of the
pre-feasibility studies.
PRICING
Based on the average prices per carat achieved by the Company in
the latest sale, which was held in February 2016, the Company has
modeled the approximate rough diamond price per carat for the Ekati
kimberlite process plant feed types below. The pricing below is
based on the Company’s pricing model, which does not include price
adjustments for the additional recovery resulting from the diamond
liberation initiative.
Ore type February 2016sales cycleaverage priceper
carat Koala $ 320 Koala North 385 Fox 290 Misery South and Misery
Main 75 Misery SW Extension 45–60 COR 60–115 Pigeon 170
COST OF SALES, CASH COST OF PRODUCTION AND GROSS MARGIN
Based on current sales expectations for the Ekati Diamond Mine
segment for fiscal 2017, the Company currently expects cost of
sales to be approximately $510 million (on a 100% basis)
(including depreciation and amortization of approximately
$161 million). Based on the current mine plan for the
Ekati Diamond Mine for fiscal 2017, the cash cost of
production is expected to be approximately $308 million (on a
100% basis) at an estimated average Canadian/US dollar
exchange rate of 1.33. A majority of Ekati Diamond Mine
operating costs are incurred in Canadian dollars. In fiscal 2017, a
one-cent change in the quarterly average Canadian/US dollar
exchange rate is expected to result in an estimated $0.5 million
movement in cash production costs in that quarter.
The cost of sales, cash cost of production and gross margin
targets for fiscal 2017 do not include the impact of the diamond
liberation initiative. Ekati Diamond Mine depreciation is
calculated primarily on a straight-line basis, which is computed
using the life of mine plan containing only management approved
projects. In fiscal 2017, the expected mine life of the Ekati
Diamond Mine was extended by three years to 2023 following
completion of the Sable pre-feasibility study. The Company expects
that if a feasibility study for the Jay pipe is approved, the
non-cash depreciation per year for existing assets will be
significantly reduced.
The cost of sales, cash cost of production and gross margin
targets for fiscal 2017 also do not include the impact of the mild
weather conditions in Q1 fiscal 2017 which resulted in the annual
winter road to the mine being open for a reduced period of time.
More stringent weight restrictions for a period following the
opening of the road resulted in an increased number of partial
loads which increased freight costs by approximately
$5 million.
Gross margin as a percentage of sales in fiscal 2017 is expected
to continue to be negatively impacted by a lower value product mix
prior to the initial sale of diamonds recovered from Misery Main
late in the fiscal year. The Company expects gross margin as a
percentage of sales to fluctuate depending on, among other things,
production volumes, product mix, diamond prices and cost of
production.
DIAVIK DIAMOND MINE (40% SHARE)
(expressed in millions of United States dollars, except per
share, per tonne or per carat amounts and where otherwise
noted)
Three months endedJanuary
31,2016 Three monthsendedJanuary 31,2015
(Restated)(ii)
Year endedJanuary 31,2016 Year endedJanuary
31,2015
(Restated)(ii)
Sales $ 66.5 $ 81.5 $ 255.7 $ 351.6 Carats sold (000s) 469 778
1,740 3,014 Cost of sales 55.9 62.1 196.5 249.7 Gross margin 10.6
19.3 59.2 101.9 Gross margin (%) 16.0% 23.7% 23.2% 29.0% Average
price per carat 142 105 147 117 Selling, general and administrative
expenses 0.6 1.2 3.1 4.1 Operating profit 10.1 18.1 56.1 97.8
Finance expenses 0.1 (0.6) (2.8) (2.7) Exploration costs (0.1) 0.1
(0.1) (0.2) Finance and other income (0.1) – – 3.8 Foreign exchange
gain (loss) (4.8) (8.6) (5.9) (8.3) Segmented profit (loss) before
income taxes 5.1 8.9 47.3
90.3 Cash cost of production(i) 30.3 36.8 121.0 148.6
Cash cost per tonne processed(i) 164.0 180.5 152.4 163.2 Non-cash
cost per tonne processed(i) 106.3 93.2 90.1 95.4 Cash cost per
carat(i) 54.1 63.4 49.6 54.9 Adjusted EBITDA(i) 28.7 40.2 123.8
185.9 Adjusted EBITDA margin (%)(i) 43% 49% 48% 53% Capital
expenditures 14.2 6.3 43.4 21.5 Depreciation and amortization
18.6 22.1 67.7
88.2
(i) The terms “cash cost of production”,
“cash cost per tonne processed”, “non-cash cost per tonne
processed”, “cash cost per carat”, “Adjusted EBITDA” and “Adjusted
EBITDA margin” do not have standardized meanings according to IFRS.
See “Non-IFRS Measures” for additional information.
(ii) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
Three Months Ended January 31, 2016, Compared to Three
Months Ended January 31, 2015
DIAVIK SALES
Sales in the fourth quarter decreased by $15.0 million primarily
due to a weakened diamond market during the quarter. Carats sold
decreased by 40% and price per carat increased by 35% compared to
Q4 fiscal 2015 due to the decision to hold back
lower-than-average priced inventory during the quarter due to
market conditions.
DIAVIK COST OF SALES AND GROSS MARGIN
Cost of sales in the fourth quarter included $18.6 million
of depreciation and amortization expense (Q4 2015 –
$22.0 million). The Diavik segment generated a gross margin
and Adjusted EBITDA margin of 16.0% and 43%, respectively
(Q4 2015 – 23.7% and 49%). The fourth quarter gross margin was
impacted by lower processing volumes due primarily to three weeks
of maintenance shutdowns of the Diavik processing plant. The gross
margin is anticipated to fluctuate between quarters, resulting from
variations in the specific mix of product produced and sold during
each quarter and variation in rough diamond prices.
A substantial portion of cost of sales is mine operating costs
incurred at the Diavik Diamond Mine. During the fourth quarter, the
Diavik cash cost of production was $30.3 million (Q4 2015
– $36.8 million). The reduction in cash cost of production is
due to operational improvements at the mine and the weakening of
the Canadian dollar. The Diavik cash cost of production mainly
comprises costs that are denominated in Canadian dollars. The term
“cash cost of production” does not have a standardized meaning
according to IFRS. See “Non-IFRS Measures” for additional
information. Cost of sales also includes sorting costs, which
represent the Company’s cost of handling and sorting product in
preparation for sales to third parties, and depreciation and
amortization, the majority of which is recorded using the
unit-of-production method over estimated proven and probable
reserves.
At January 31, 2016, the Company had 1.0 million carats of
Diavik Diamond Mine–produced rough diamond inventory available for
sale with an estimated market value of approximately
$40 million (October 31, 2015 – 0.9 million carats and
$65 million, respectively). Prices achieved upon completion of
the February sales cycle resulted in an improvement in some areas
of rough diamond pricing. Inventory classified as available for
sale represents carats that have completed the sorting and
valuation process. Carats still undergoing sorting and valuation
are classified as work-in-progress inventory. The Company had
approximately 0.2 million carats of rough diamond inventory that
was work in progress, which does not include carats produced but
not yet received. The relatively high number of carats in available
for sale inventory at January 31, 2016 is due to the decision to
hold back lower-than-average priced inventory during the year
because of market conditions.
Diavik
carats (millions)
Diavikcost Diamond inventory available for sale, October 31,
2015 0.9 $ 54.6 Transfer from work in progress 0.5 28.9 Cost of
sales(i) (0.4) (54.5) Diamond inventory
available for sale, January 31, 2016 1.0 $ 29.0
(i) Does not include royalties which are
recorded directly to cost of sales
SEGMENTED PROFIT (LOSS) BEFORE INCOME TAXES
Segmented profit before income taxes during the quarter
decreased by $3.8 million from the comparable quarter of the prior
year. The decrease was primarily driven by lower sales during Q4
fiscal 2016. Refer to the “Diavik Sales” section above for a
detailed explanation.
Year Ended January 31, 2016, Compared to Year Ended
January 31, 2015
DIAVIK SALES
Sales during fiscal 2016 decreased by $95.9 million
primarily due to the weakened diamond market. Carats sold decreased
by 42% and price per carat increased by 26% compared to
fiscal 2015 due to the decision to hold back
lower-than-average priced inventory during the year because of
market conditions.
DIAVIK COST OF SALES AND GROSS MARGIN
Cost of sales during fiscal 2016 included
$67.4 million of depreciation and amortization (2015 –
$87.8 million). The Diavik segment generated a gross margin
and Adjusted EBITDA margin of 23.2% and 48%, respectively (2015 –
29.0% and 53%). The gross margin is anticipated to fluctuate
between quarters, resulting from variations in the specific mix of
product produced and sold during each quarter and variation in
rough diamond prices.
A substantial portion of cost of sales is mine operating costs
incurred at the Diavik Diamond Mine. During the fiscal 2016
period, the Diavik cash cost of production was $121.0 million
(2015 – $148.6 million). The reduction in cash cost of
production is due to operational improvements at the mine and the
weakening of the Canadian dollar. The Diavik cash cost of
production mainly comprises costs that are denominated in Canadian
dollars. The term “cash cost of production” does not have a
standardized meaning according to IFRS. See “Non-IFRS Measures” for
additional information. Cost of sales also includes sorting costs,
which represent the Company’s cost of handling and sorting product
in preparation for sales to third parties, and depreciation and
amortization, the majority of which is recorded using the
unit-of-production method over estimated proven and probable
reserves.
At January 31, 2016, the Company had 1.0 million carats of
Diavik Diamond Mine–produced rough diamond inventory available for
sale with an estimated market value of approximately
$40 million (January 31, 2015 – 0.1 million carats and
$20 million, respectively). Prices achieved upon completion of
the February sales cycle resulted in an improvement in some areas
of rough diamond pricing. Inventory classified as available for
sale represents carats that have completed the sorting and
valuation process. Carats still undergoing sorting and valuation
are classified as work-in-progress inventory. The Company also had
approximately 0.2 million carats of rough diamond inventory that
was work in progress, which does not include carats produced but
not yet received.
The relatively high number of carats in inventory at January 31,
2016 is due to the decision to hold back lower-than-average priced
inventory during the year because of market conditions.
Diavik
carats (millions)
Diavikcost Diamond inventory available for sale, January 31,
2015 0.1 $ 15.8 Transfer from work in progress 2.6 206.1 Cost of
sales(i) (1.7) (192.9) Diamond inventory
available for sale, January 31, 2016 1.0 $ 29.0
(i) Does not include royalties which are
recorded directly to cost of sales
SEGMENTED PROFIT (LOSS) BEFORE INCOME TAXES
Segmented profit before income taxes during the fiscal year
ended January 31, 2016 decreased by $43.0 million, which was
primarily driven by a decrease in gross margins. Refer to the
“Diavik Cost of Sales and Gross Margin” section above for a
detailed explanation.
Operational Update
During Q4 calendar 2015, the Diavik Diamond Mine
produced (on a 100% basis) 1.5 million carats from
0.5 million tonnes of ore processed
(Q4 calendar 2014 – 1.5 million carats and
0.5 million tonnes, respectively). Total production includes
COR, which is not included in the Company’s reserve and resource
statements and is therefore incremental to production.
Processing volumes in the fourth calendar quarter of 2015 were
9% lower than the same quarter of the prior year due primarily to
three weeks of maintenance shutdowns of the Diavik processing
plant. Diamonds recovered in the fourth calendar quarter were 3%
lower than the same quarter of the prior year reflecting lower
processing volumes, which was partially offset by a higher
recovered grade.
Diamonds recovered in calendar 2015 of 6.4 million carats were
9% lower than the original calendar 2015 plan of 7.0 million
carats, due to a combination of ore availability issues resulting
from lower mining rates from A-154N, lower grades from A-418, and
availability of the process plant in the fourth calendar
quarter.
The development of the A-21 pipe continues to progress according
to plan.
The charts below show the Company’s 40% share of Diavik Diamond
Mine carat production, ore processed and recovered grade for the
eight most recent calendar quarters.
DOMINION DIAMOND DIAVIK LIMITED PARTNERSHIP’S 40% SHARE OF
DIAVIK DIAMOND MINE PRODUCTION – CARATS
(reported on a one-month lag)
Please see associated chart titled "DOMINION DIAMOND DIAVIK
LIMITED PARTNERSHIP’S 40% SHARE OF DIAVIK DIAMOND MINE PRODUCTION –
CARATS (reported on a one-month lag)"
DOMINION DIAMOND DIAVIK LIMITED PARTNERSHIP’S 40% SHARE OF
DIAVIK DIAMOND MINE PRODUCTION – ORE PROCESSED AND RECOVERED
GRADE
(reported on a one-month lag)
Please see associated chart titled "DOMINION DIAMOND DIAVIK
LIMITED PARTNERSHIP’S 40% SHARE OF DIAVIK DIAMOND MINE PRODUCTION –
ORE PROCESSED AND RECOVERED GRADE (reported on a one-month
lag)"
Diavik Operations Outlook
PRODUCTION
The mine plan for calendar 2016 foresees Diavik
Diamond Mine production (on a 100% basis) of approximately
7.0 million carats from the mining and processing of
approximately 2.1 million tonnes of ore. Mining activities
will be exclusively underground with approximately 0.7 million
tonnes expected to be sourced from A-154 North, approximately
0.5 million tonnes from A-154 South and approximately
0.9 million tonnes from A-418.
The aforementioned mine plan for the Diavik Diamond
Mine was prepared and verified by DDMI, operator of
the Diavik Diamond Mine, under the supervision of
Calvin Yip, P. Eng., Principal Advisor, Strategic Planning of
DDMI, who is a Qualified Person within the meaning of National
Instrument 43-101 of the Canadian Securities
Administrators.
CAPITAL EXPENDITURES
The Company currently expects DDDLP’s 40% share of the planned
capital expenditures for the Diavik Diamond Mine in
fiscal 2017 to be approximately $61 million at an
estimated average Canadian/US dollar exchange rate of 1.33. The
table below sets out DDDLP’s 40% share of capital expenditures
incurred by the Company during the fiscal 2016 period and the
planned capital expenditures for fiscal 2017 (full):
Capital expenditures
Fiscal 2016actual
Fiscal 2017guidance(i)
A-21 $ 26 $ 42 Sustaining 17 19
(i) Calculated at an estimated average
Canadian/US dollar exchange rate of 1.33.
PRICING
Based on the average prices per carat achieved by the Company in
the latest sale, held in February 2016, the Company has modeled the
approximate rough diamond price per carat for each of the Diavik
kimberlite process plant feed types in the table that follows.
Ore type February 2016
sales cycle
average priceper carat
A-154 South $ 130 A-154 North 175 A-418 95 COR 50
COST OF SALES, CASH COST OF PRODUCTION AND GROSS MARGIN
Based on current sales expectations for the Diavik Diamond Mine
segment for fiscal 2017, the Company currently expects cost of
sales to be approximately $239 million (including depreciation
and amortization of approximately $102 million). Based on the
current mine plan for the Diavik Diamond Mine for
calendar 2016, the Company’s 40% share of the cash cost of
production at the Diavik Diamond Mine is expected to be
approximately $116 million at an estimated average Canadian/US
dollar exchange rate of 1.33.
The Company expects gross margin as a percentage of sales to
fluctuate depending on, among other things, production volumes,
diamond prices and cost of production. Gross margin as a percentage
of sales in fiscal 2017 is expected to be slightly higher than
that achieved in fiscal 2016, as production volumes are
expected to increase year over year.
CORPORATE SEGMENT
(expressed in millions of United States dollars, except per
share amounts and where otherwise noted)
Three months endedJanuary 31, 2016
Three monthsendedJanuary 31, 2015
Year endedJanuary 31, 2016
Year endedJanuary 31, 2015 Selling, general and administrative
expenses $ 8.9 $ 7.3 $ 34.5 $ 26.1
Three Months Ended January 31, 2016, Compared to Three Months
Ended January 31, 2015
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Corporate segment during the quarter
increased by $1.5 million from the comparable quarter of the
prior year due to an increase in consulting costs.
Year Ended January 31, 2016, Compared to Year Ended
January 31, 2015
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the fiscal 2016 period increased by $8.4
million which primarily relates to a charge of $9.8 million
incurred in connection with the departure of Mr. Gannicott as
CEO in Q2 fiscal 2016, which was offset by a decrease in
stock-based compensation expenses.
Liquidity and Capital Resources
The following chart shows the Company’s working capital balances
for the eight most recent quarters, as well as the working capital
ratios for the same periods. Working capital is calculated as total
current assets less total current liabilities, and working capital
ratio is calculated as total current assets divided by total
current liabilities.
Please see associated chart titled "WORKING CAPITAL AND
WORKING CAPITAL RATIO"
CASH FLOW MOVEMENT
(in millions of United States dollars
except where otherwise noted)
Three months endedJanuary 31,2016 Year
endedJanuary 31,2016 Opening cash at November 1, 2015 and February
1, 2015 $ 328.4 $ 457.9 Cash provided by operating activities
before interest and taxes 87.1 270.9 Capital expenditures for the
period (58.0) (210.3) Cash tax paid for the period (1.7) (99.8)
Dividends paid (17.1) (51.1) Net interest paid during the period
(1.7) (3.1) Repayment of debt (10.7) (11.3) Contributions from and
distributions made to minority partners, net (1.0) 3.2 Net proceeds
from pre-production sales 1.9 7.7 (Increase) decrease in restricted
cash 0.6 (33.0) Other (7.8) (11.1) Closing cash at January 31, 2016
$ 320.0 $ 320.0
Working Capital
As at January 31, 2016, the Company had unrestricted cash and
cash equivalents of $320.0 million and restricted cash of
$63.3 million, compared to $328.4 million and
$68.4 million, respectively, at October 31, 2015. The
restricted cash is used to support letters of credit to the
Government of the Northwest Territories (“GNWT”) in the amount of
CDN $29 million to secure the reclamation obligations for
the Ekati Diamond Mine and CDN $60 million to secure
reclamation obligations at the Diavik Diamond Mine.
During Q4 fiscal 2016, the Company reported cash flow provided
from operations of $83.6 million, compared to $134.5 million in Q4
fiscal 2015.
Working capital decreased to $578.5 million at January 31, 2016
from $636.6 million at October 31, 2015. During Q4 fiscal
2016, the Company decreased accounts receivable by
$1.0 million, increased other current assets by
$10.4 million, decreased inventory and supplies by
$25.9 million and increased trade and other payables by
$23.6 million.
At January 31, 2016, the Company had approximately
28.6 million litres of diesel fuel at the Ekati mine site and
75.0 million litres in Yellowknife. Of this diesel fuel inventory,
approximately 39.2 million litres was purchased in the fourth
quarter. The Company continues to see the impact of lower crude
prices at a landed cost of approximately
CDN $1.12 per litre for the Ekati Diamond Mine.
Landed cost is a weighted average cost and includes the rack price
(Hay River and Edmonton, as applicable), transportation costs,
certain storage and handling costs, proportional winter road costs
and applicable taxes. The Ekati Diamond Mine used 74.5 million
litres of diesel fuel in fiscal 2016. The average landed cost
of diesel fuel in fiscal 2016 was CDN $1.36 per
litre.
The Company’s liquidity requirements fluctuate year over year
and quarter over quarter depending on, among other factors, the
seasonality of production at the Company’s mineral properties; the
seasonality of mine operating expenses; capital expenditure
programs; the number of rough diamond sales events conducted during
the year; and the volume, size and quality distribution of rough
diamonds delivered from the Company’s mineral properties and sold
by the Company in the year.
The Company assesses liquidity and capital resources on a
consolidated basis. The Company’s requirements are for cash
operating expenses, working capital, contractual debt requirements
and capital expenditures. The Company believes that it will
generate sufficient liquidity to meet its anticipated requirements
for at least the next 12 months.
Financing Activities
During the fourth quarter, the Company had a cash outflow from
financing activities of $28.7 million, which included dividend
payments of $17.1 million and repayment of debt of $10.7
million.
On April 7, 2015, the Company entered into a $210 million
senior secured corporate revolving credit facility with a syndicate
of commercial banks. The facility has a four-year term, and it may
be extended for an additional period of one year with the consent
of the lenders. Proceeds received by the Company under the new
credit facility are to be used for general corporate purposes.
Accommodations under this credit facility may be made to the
Company, at the Company’s option, by way of an advance or letter of
credit, and the interest payable will vary in accordance with a
pricing grid ranging between 2.5% and 3.5% above LIBOR. The Company
is in compliance with the required financial covenants, which are
customary for a financing of this nature. As at January 31, 2016,
no amounts were outstanding under the Company’s senior secured
corporate revolving credit facility.
On September 10, 2015, the Board of Directors declared an
interim dividend of $0.20 per share which was paid in full on
November 5, 2015 to shareholders of record at the close of
business on October 13, 2015. The dividend was an eligible dividend
for Canadian income tax purposes.
On April 13, 2016, the Board of Directors declared a dividend of
$0.20 per share, which represented the final portion of the $0.40
per share annual dividend for fiscal 2016. This dividend will
be paid on June 2, 2016 to shareholders of record at the close of
business on May 17, 2016. The dividend is an eligible dividend for
Canadian income tax purposes.
Investing Activities
During the fourth quarter, the Company had additions to
property, plant and equipment of $58.0 million, of which
$42.5 million related to the Ekati Diamond Mine and
$15.5 million related to the Diavik Diamond Mine. Expenditures
related primarily to pit development activities at both mines.
In January 2016, the management committee of the Buffer Zone
Joint Venture approved a program and budget for the Buffer Zone
Joint Venture for fiscal year 2017. In March 2016, Archon Minerals
Limited (“Archon”) provided notice to DDEC, the operator of the
Buffer Zone Joint Venture, of its objection to certain elements of
the fiscal 2017 program and budget, and indicated that it was only
prepared to contribute to certain portions of the program and
budget. Accordingly, the Company has elected to fund all of the
cash calls for those elements of the fiscal 2017 program and budget
that will not be funded by Archon, and Archon’s participating
interest in the Buffer Zone Joint Venture is expected to be
correspondingly diluted.
Contractual Obligations
The Company has contractual payment obligations with respect to
interest-bearing loans and borrowings and, through its
participation in the Diavik Joint Venture and the Ekati
Diamond Mine, future site restoration costs at both the Ekati and
Diavik Diamond Mines. Additionally, at the Diavik Joint Venture,
contractual obligations exist with respect to operating purchase
obligations, as administered by DDMI, the operator of
the mine. In order to maintain its 40% ownership interest in
the Diavik Diamond Mine, DDDLP is obligated to fund 40% of the
Diavik Joint Venture’s total expenditures on a monthly basis. The
most significant contractual obligations for the ensuing five-year
period can be summarized as follows:
(expressed in thousands of United States dollars)
Less than Year Year
After Total 1 year 2–3 4–5 5 years Loans and borrowings
(a)(b) $ 34,815 $ 22,700 $ 12,115 $ – $ –
Environmental and participation agreements
incremental commitments (c)
32,043 4,956 8,240 3,692 15,155 Operating lease obligations (d)
16,401 3,748 6,093 6,055 505 Capital commitments (e) 56,702 56,702
– – – Other 714 714 – – – Total contractual obligations $ 140,675 $
88,820 $ 26,448 $ 9,747 $ 15,660
(a)
(i)
Loans and borrowings presented in the
foregoing table include current and long-term portions.
(ii)
The Company has available a $210 million
senior secured corporate revolving credit facility (available in
either US or CDN dollars) with a syndicate of commercial banks for
general corporate purposes. At January 31, 2016, no amounts were
outstanding under this facility.
(iii)
The Company’s first mortgage on real
property has scheduled principal payments of approximately $0.2
million quarterly, which may be prepaid at any time and matures on
September 1, 2018. On January 31, 2016, $2.1 million was
outstanding on the mortgage payable.
(iv)
The Company issued a promissory note on
October 15, 2015 in the amount of $42.2 million for the base
purchase price for the acquisition of an additional 8.889% interest
in the Core Zone. The promissory note is payable in instalments
over 31 months and the Company has the right, but not the
obligation, to satisfy one or more instalments due under the
promissory note in common shares of the Company. On January 31,
2016, $31.7 million, which represents the principal amount of the
note plus accrued interest, was outstanding.
(b)
Interest on loans and borrowings is
calculated at various fixed and floating rates. Projected interest
payments on the current debt outstanding were based on interest
rates in effect at January 31, 2016, and have been included under
loans and borrowings in the table above. Interest payments for the
next 12 months are estimated to be approximately $0.9 million.
(c)
Both the Diavik Joint Venture and the
Ekati Diamond Mine, under environmental and other agreements, must
provide funding for the Environmental Monitoring Advisory Board and
the Independent Environmental Monitoring Agency, respectively.
These agreements also state that the mines must provide security
deposits for the performance of their reclamation and abandonment
obligations under all environmental laws and regulations.
The Company posted surety bonds with the
GNWT in the aggregate amount of CDN $253 million to secure the
obligations under its Water Licence to reclaim the Ekati Diamond
Mine. The Company provided letters of credit, secured by restricted
cash, in the amount of CDN $60 million and CDN $29 million to the
Government of the Northwest Territories (“GNWT”) as security for
the reclamation obligations for the Diavik Diamond Mine and Ekati
Diamond Mine, respectively. The Company has also provided a
guarantee of CDN $20 million for other obligations under the
environmental agreement for the Ekati Diamond Mine.
Both the Diavik and Ekati Diamond Mines
have also signed participation agreements with various Aboriginal
communities. These agreements are expected to contribute to the
social, economic and cultural well-being of these communities. The
actual cash outlay for obligations of the Diavik Joint Venture
under these agreements is not anticipated to occur until later in
the life of the mine. The actual cash outlay under these agreements
in respect of the Ekati Diamond Mine includes annual payments and
special project payments during the operation of the Ekati Diamond
Mine.
(d)
Operating lease obligations represent
future minimum annual rentals under non-cancellable operating
leases at the Ekati Diamond Mine.
(e)
The Company has various long-term
contractual commitments related to the acquisition of property,
plant and equipment. The commitments included in the table above
are based on expected contract prices.
Non-IFRS Measures
In addition to discussing earnings measures in accordance with
IFRS, the MD&A provides the following non-IFRS measures, which
are also used by management to monitor and evaluate the performance
of the Company.
Cash Cost of Production
The MD&A refers to cash cost of production, a non-IFRS
performance measure, in order to provide investors with information
about the measure used by management to monitor performance. This
information is used to assess how well each of the Diavik Diamond
Mine and Ekati Diamond Mine is performing compared to the
respective mine plan and prior periods. Cash cost of production
includes mine site operating costs such as mining, processing and
administration, but is exclusive of amortization, capital, and
exploration and development costs. The majority of mine operating
costs, relating primarily to labour and overhead costs, are
incurred in Canadian dollars and will therefore decrease in US
dollar terms as the Canadian dollar strengthens or weakens. Cash
cost of production does not have any standardized meaning
prescribed by IFRS and differs from measures determined in
accordance with IFRS. This performance measure is intended to
provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared
in accordance with IFRS. This measure is not necessarily indicative
of net profit or cash flow from operations as determined under
IFRS.
The following table provides a reconciliation of cash cost of
production to the Ekati Diamond Mine’s cost of sales disclosed for
the three months and year ended January 31, 2016 and January 31,
2015.
(expressed in thousands of United States dollars)
(unaudited)
Three months endedJanuary 31, 2016
Three months endedJanuary 31, 2015(i)
Year endedJanuary 31, 2016
Year endedJanuary 31, 2015(i)
Ekati cash cost of production $ 81,864 $ 95,714 $ 315,695 $ 349,063
Other cash costs 1,636 1,131
6,341 4,201 Total cash cost of production
83,500 96,845 322,036 353,264 Depreciation and amortization
37,590 28,211 139,588
128,224 Total cost of production 121,090 125,056 461,624
481,488 Impairment loss on inventory 19,838 – 19,838 – Adjusted for
stock movements (4,995) (8,434)
(9,058) (48,517) Total cost of sales $
135,933 $ 116,622 $ 472,404 $ 432,971
(i) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
The following table provides a reconciliation of cash cost of
production to the Diavik Diamond Mine’s cost of sales disclosed for
the three months and year ended January 31, 2016 and January
31, 2015.
(expressed in thousands of United States dollars)
(unaudited)
Three months endedJanuary 31, 2016
Three months endedJanuary 31, 2015(i)
Year endedJanuary 31, 2016
Year endedJanuary 31, 2015(i) Diavik cash cost of production
$ 30,335 $ 36,817 $ 120,986 $ 148,552
Private royalty 1,277 1,580 4,017 6,560 Other cash costs
732 690 2,179
3,639 Total cash cost of production 32,344 39,087 127,182 158,751
Depreciation and amortization 19,666
19,006 71,533 86,800 Total cost of
production 52,010 58,093 198,715 245,551 Adjusted for stock
movements 3,857 4,037
(2,198) 4,117 Total cost of sales $ 55,867
$ 62,130 $ 196,517 $ 249,668
(i) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
Cash Cost per Tonne Processed and Cash Cost per Carat
The MD&A refers to the terms cash cost per tonne processed,
non-cash cost per tonne processed and cash cost per carat, which
are non-IFRS financial measures, in order to provide investors with
information about the measures used by management to monitor
performance. The Company believes these measures will assist
analysts, investors and other stakeholders in understanding the
costs associated with extracting diamonds. This information is used
to assess how well each of the Diavik Diamond Mine and Ekati
Diamond Mine is performing compared to the respective mine plan and
prior periods. Cash cost per tonne processed is calculated by
taking cash cost of production divided by total tonnes processed,
and the non-cash cost per tonne processed is calculated by taking
depreciation and amortization divided by total tonnes processed.
The cash cost per carat processed is calculated by taking cash cost
of production divided by total carats produced. Cash cost per tonne
processed, non-cash cost per tonne processed and cash cost per
carat do not have any standardized meanings prescribed by IFRS and
differ from measures determined in accordance with IFRS. These
performance measures are intended to provide additional information
and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with IFRS. These
measures are not necessarily indicative of net profit or cash flow
from operations as determined under IFRS.
The following table demonstrates our calculation of cash cost
per tonne processed, non-cash cost per tonne processed and cash
cost per carat at the Ekati Diamond Mine disclosed for the three
months and year ended January 31, 2016 and January 31, 2015. Ekati
cash cost of production, depreciation and amortization and total
cash cost of production are reconciled to each segment’s cost of
sales above.
(expressed in thousands of United States dollars, except total
tonnes processed and cash cost per tonne)
(unaudited)
Three months endedJanuary 31, 2016
Three months endedJanuary 31, 2015
Year endedJanuary 31, 2016
Year endedJanuary 31, 2015
Ekati cash cost of production $ 81,864 $ 95,714 $ 315,695 $ 349,063
Total tonnes processed 917 967
3,618 4,131 Ekati cash cost per tonne
processed $ 89.3 $ 99.0 $ 87.3 $ 84.5
(expressed in thousands of United States dollars, except total
tonnes processed and non-cash cost per tonne)
(unaudited)
Three months endedJanuary 31, 2016
Three months endedJanuary 31, 2015(i)
Year endedJanuary 31, 2016
Year endedJanuary 31, 2015(i)
Depreciation and amortization $ 37,590 $ 28,211 $ 139,588 $ 128,224
Total tonnes processed 917 967
3,618 4,131 Ekati non-cash cost per tonne
processed $ 41.0 $ 29.2 $ 38.6 $ 31.0
(i) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
(expressed in thousands of United States dollars, except total
carats produced and cash cost per carat)
(unaudited)
Three months endedJanuary 31, 2016
Three months endedJanuary 31, 2015
Year endedJanuary 31, 2016
Year endedJanuary 31, 2015
Total cash cost of production $ 83,500 $ 96,845 $ 322,036 $ 353,264
Total carats produced 1,164 821
3,732 3,158 Ekati cash cost per carat $ 71.7 $
118.0 $ 86.3 $ 111.9
The following table demonstrates our calculation of cash cost
per tonne processed, non-cash cost per tonne processed and cash
cost per carat at the Diavik Diamond Mine disclosed for the three
months and year ended January 31, 2016 and January 31, 2015. Diavik
cash cost of production, depreciation and amortization and total
cash cost of production are reconciled to each segment’s cost of
sales above.
(expressed in thousands of United States dollars, except total
tonnes processed and cash cost per tonne)
(unaudited)
Three months endedJanuary 31, 2016
Three months endedJanuary 31, 2015
Year endedJanuary 31, 2016
Year endedJanuary 31, 2015
Diavik cash cost of production $ 30,335 $ 36,817 $ 120,986 $
148,552 Total tonnes processed 185 204
794 910 Diavik cash cost per tonne processed $
164.0 $ 180.5 $ 152.4 $ 163.2
(expressed in thousands of United States dollars, except total
tonnes processed and non-cash cost per tonne)
(unaudited)
Three months endedJanuary 31, 2016
Three months endedJanuary 31, 2015(i)
Year endedJanuary 31, 2016
Year endedJanuary 31, 2015(i)
Depreciation and amortization $ 19,666 $ 19,006 $ 71,533 $ 86,800
Total tonnes processed 185 204
794 910 Diavik non-cash cost per tonne
processed $ 106.3 $ 93.2 $ 90.1 $ 95.4
(i) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
(expressed in thousands of United States dollars, except total
carats produced and cash cost per carat)
(unaudited)
Three months endedJanuary 31, 2016
Three months endedJanuary 31, 2015
Year endedJanuary 31, 2016
Year endedJanuary 31, 2015 Total cash cost of production $
32,344 $ 39,087 $ 127,182 $ 158,751 Total carats produced
598 617 2,562 2,892
Diavik cash cost per carat $ 54.1 $ 63.4 $ 49.6
$ 54.9
EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA
Margin
The term “EBITDA” is a non-IFRS financial measure, which is
defined as earnings before interest expense (income), income taxes
and depreciation and amortization. EBITDA margin is calculated by
dividing EBITDA by total sales for the period.
The Company has also disclosed Adjusted EBITDA, which removes
the effects of impairment charges, foreign exchange gains (losses)
and exploration costs from EBITDA. Impairment charges and foreign
exchange gains or losses, both of which are non-cash items, are not
reflective of the Company’s ability to generate liquidity by
producing operating cash flow. Exploration costs do not reflect the
underlying operating performance of our business and are not
necessarily indicative of future operating results. The Company
believes that these adjustments will result in more meaningful
valuation measures for investors and analysts to evaluate our
performance and assess our ability to generate liquidity. Adjusted
EBITDA margin is calculated by dividing Adjusted EBITDA by total
sales for the period.
Management believes that EBITDA, EBITDA margin, Adjusted EBITDA
and Adjusted EBITDA margin are important indicators commonly
reported and widely used by investors and analysts as an indicator
of the Company’s operating performance and ability to incur and
service debt, and also as a valuation metric. The intent of EBITDA,
EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin is to
provide additional useful information to investors and analysts,
and such measures do not have any standardized meaning under IFRS.
These measures should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
IFRS. Other issuers may calculate EBITDA, EBITDA margin, Adjusted
EBITDA and Adjusted EBITDA margin differently.
The following table provides a reconciliation of consolidated
and segmented EBITDA and Adjusted EBITDA for the last
eight-quarters.
CONSOLIDATED
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
2016 2016 2016 2016 2015 2015 2015 2015 2016 2015
Q4 Q3 Q2 Q1
Q4(i) Q3(i) Q2(i)
Q1(i) Total Total(i) Segment net
profit (loss) $ (37,763) $ 6,469 $ (18,894) $ 11,396 $ 2,182 $
34,731 $ 24,158 $ 12,509 $ (38,798) $ 73,581 Finance expense
(income) 2,123 1,966 2,907 2,746 3,758 2,271 1,983 (203) 9,742
7,808 Income tax expense (recovery) 9,896 733 19,485 (2,869) 47,101
25,875 15,230 8,556 27,245 96,762 Depreciation and amortization
53,647 39,595 52,746
45,460 43,007 47,011
62,230 38,722 191,448
190,970 EBITDA 27,903 48,763 56,244 56,733 96,048
109,888 103,601 59,584 189,637 369,121 Foreign exchange (gains)
loss 2,022 (268) 2,174 (1,157) (2,523) (1,868) (815) 951 2,771
(4,255) Exploration costs (734) 576 1,935 5,249 2,110 7,359 6,846
9,044 7,026 25,359 Impairment losses on inventory
19,838 - - -
- - - -
19,838 - Adjusted EBITDA $ 49,029
$ 49,071 $ 60,353 $ 60,825 $ 95,635
$ 115,379 $ 109,632 $ 69,579 $ 219,272
$ 390,225
(i) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
EKATI DIAMOND MINE SEGMENT
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
2016 2016 2016 2016 2015 2015 2015 2015 2016 2015
Q4 Q3 Q2 Q1
Q4(i) Q3(i) Q2(i)
Q1(i) Total Total(i) Segment net
profit (loss) $ (22,508) $ (4,578) $ (5,659) $ 422 $ 15,828 $
23,445 $ 13,930 $ (4,423) $ (32,323) $ 48,780 Finance expense
(income) 2,072 905 1,841 2,123 3,130 2,052 1,749 1,943 6,941 8,874
Income tax expense (recovery) (1,617) 1,095 7,734 773 31,863 16,219
6,222 3,100 7,985 57,404 Depreciation and amortization
34,744 24,985 34,448
28,653 20,612 26,495
34,533 19,913 122,830
101,553 EBITDA 12,691 22,407 38,364 31,971 71,433 68,211
56,434 20,533 105,433 216,611 Foreign exchange (gains) loss (2,797)
(429) (3,393) 3,501 (11,160) (1,311) (982) 854 (3,118) (12,599)
Exploration costs (780) 550 1,935 5,199 2,215 7,412 6,837 8,691
6,904 25,155 Impairment losses on inventory 19,838
- - - -
- - -
19,838 - Adjusted EBITDA $ 28,952 $
22,528 $ 36,906 $ 40,671 $ 62,488 $
74,312 $ 62,289 $ 30,078 $ 129,057 $
229,167
(i) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
DIAVIK DIAMOND MINE SEGMENT
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
2016 2016 2016 2016 2015 2015 2015 2015 2016 2015
Q4 Q3 Q2 Q1
Q4(i) Q3(i) Q2(i)
Q1(i) Total Total(i) Segment net
profit (loss) $ (8,732) $ 15,961 $ (4,062) $ 15,703 $ (8,257) $
16,061 $ 15,813 $ 20,388 $ 18,870 $ 44,005 Finance expense (income)
51 1,061 1,066 623 627 220 234 (2,146) 2,801 (1,065) Income tax
expense (recovery) 13,866 1,413 15,058 (1,938) 17,184 11,376 11,021
6,700 28,399 46,281 Depreciation and amortization
18,643 14,267 18,110
16,651 22,086 20,223
27,406 18,467 67,671
88,182 EBITDA 23,828 32,702 30,172 31,039 31,640 47,880 54,474
43,409 117,741 177,403 Foreign exchange (gains) loss 4,819 161
5,567 (4,658) 8,637 (558) 167 95 5,889 8,341 Exploration costs
46 26 - 50
(105) (52) 9
353 122 205 Adjusted EBITDA
$ 28,693 $ 32,889 $ 35,739 $ 26,431
$ 40,172 $ 47,270 $ 54,650 $ 43,857
$ 123,752 $ 185,949
(i) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
CORPORATE SEGMENT
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
2016 2016 2016 2016 2015 2015 2015 2015 2016 2015
Q4 Q3 Q2 Q1
Q4(i) Q3(i) Q2(i)
Q1(i) Total Total(i) Segment net
profit (loss) $ (6,524) $ (4,916) $ (9,174) $ (4,733) $ (5,392) $
(4,775) $ (5,585) $ (3,453) $ (25,347) $ (19,205) Income tax
expense (recovery) (2,352) (1,773) (3,307) (1,706) (1,944) (1,721)
(2,013) (1,245) (9,138) (6,923) Depreciation and amortization
261 341 188
154 311 293 291
342 944 1,237 EBITDA
(8,615) (6,348) (12,293)
(6,285) (7,025) (6,203)
(7,307) (4,356) (33,541)
(24,891)
Adjusted EBITDA $ (8,615) $ (6,348) $ (12,293)
$ (6,285) $ (7,025) $ (6,203) $ (7,307)
$ (4,356) $ (33,541) $ (24,891)
(i) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
Free Cash Flow and Free Cash Flow per Share
The term “free cash flow” is a non-IFRS measure, which is
defined as cash provided from (used in) operating activities, less
sustaining capital expenditure and less development capital
expenditure. Free cash flow per share is calculated by dividing
free cash flow by the weighted average basic shares
outstanding.
Management believes that free cash flow is a useful indicator of
the Company’s ability to operate without reliance on additional
borrowing or usage of existing cash. The intent of free cash flow
and free cash flow per share is to provide additional useful
information to investors and analysts and such measures do not have
any standardized meaning under IFRS. These measures should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. Other issuers may
calculate free cash flow and free cash flow per share
differently.
CONSOLIDATED
(expressed in thousands of United States dollars)
(unaudited)
2016 2016 2016 2016 2015 2015 2015 2015 2016 2015
Q4 Q3 Q2 Q1
Q4(ii) Q3(ii) Q2(ii)
Q1(ii) Total Total(ii)
Cash provided from (used in)operating activities $ 83,625 $ 60,867
$ 52,780 $ (29,285) $ 134,462 $ 70,539 $ 94,024 $ 23,507 $ 167,987
$ 322,532 Sustaining capital expenditure (8,014)
(15,044) (6,955) (22,609)
(17,786) (15,658)
(14,355) (18,995) (52,622)
(66,794) Free cash flow before development $ 75,611 $ 45,823
$ 45,825 $ (51,894) $ 116,676 $ 54,881 $ 79,669 $ 4,512 $ 115,365 $
255,738 Development and exploration capital expenditure(i)
(48,129) (37,293) (22,953)
(41,667) (9,034) (7,072)
(24,040) (32,859)
(150,042) (73,005) Free cash flow $ 27,482
$ 8,530 $ 22,872 $ (93,561) $ 107,642
$ 47,809 $ 55,629 $ (28,347) $ (34,677)
$ 182,733 Free cash flow per share $ 0.32 $
0.10 $ 0.27 $ (1.10) $ 1.26 $ 0.56
$ 0.65 $ (0.33) $ (0.41) $ 2.15
(i) Development capital expenditure is
calculated net of proceeds from Misery Northeast pre-production
sales.
(ii) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
Sustaining Capital Expenditure
Sustaining capital expenditure is generally defined as
expenditures that support the ongoing operation of the assets or
business without any associated increase in capacity, life of
assets or future earnings. This measure is used by management and
investors to assess the extent of non-discretionary capital
spending being incurred by the Company each period.
Development and Exploration Capital Expenditure
Development capital expenditure is generally defined as capital
expenditures that expand existing capacity, increase life of assets
and/or increase future earnings. Exploration and evaluation capital
expenditure is defined as capital expenditures that relate to
activities involved in evaluating the technical feasibility and
commercial viability of extracting mineral resources and these
activities are only capitalized when the activity relates to proven
and probable reserves. This measure is used by management and
investors to assess the extent of discretionary capital spending
being undertaken by the Company each period.
Working Capital and Working Capital Ratio
Working capital is calculated as current assets less current
liabilities. Working capital ratio is calculated as current assets
divided by current liabilities. The Company believes working
capital is a useful supplemental measure as it provides an
indication of our ability to settle our debts as they come due. Our
calculation of working capital is provided in the table below.
CONSOLIDATED
(expressed in thousands of United States dollars)
(unaudited)
2016 2016 2016 2016 2015
2015 2015 2015 Q4
Q3 Q2 Q1 Q4
Q3 Q2 Q1 Current assets $ 769,296 $
816,525 $ 825,822 $ 898,685 $ 970,424 $ 840,808 $ 787,817 $ 766,081
Less: Current liabilities (190,775)
(179,952) (135,668) (206,374)
(219,986) (212,986) (174,039)
(193,752) Working capital $ 578,521 $
636,573 $ 690,154 $ 692,311 $ 750,438 $
627,822 $ 613,778 $ 572,329 Working capital ratio
4.03 4.54 6.09
4.35 4.41 3.95
4.53 3.95
Risks and Uncertainties
The Company is subject to a number of risks and uncertainties as
a result of its operations. In addition to the other
information contained in this MD&A and the Company’s other
publicly filed disclosure documents, readers should give careful
consideration to the following risks, each of which could have a
material adverse effect on the Company’s business prospects or
financial condition.
Nature of Mining
The Company’s mining operations are subject to risks inherent in
the mining industry, including variations in grade and other
geological differences, unexpected problems associated with
required water retention dikes, water quality, surface and
underground conditions, processing problems, equipment performance,
accidents, labour disputes, risks relating to the physical security
of the diamonds, force majeure risks and natural disasters.
Particularly with underground mining operations, inherent risks
include variations in rock structure and strength as it impacts on
mining method selection and performance, de-watering and water
handling requirements, achieving the required crushed rock-fill
strengths, and unexpected local ground conditions. Hazards, such as
unusual or unexpected rock formations, rock bursts, pressures,
collapses, flooding or other conditions, may be encountered during
mining. Such risks could result in personal injury or fatality;
damage to or destruction of mining properties, processing
facilities or equipment; environmental damage; delays, suspensions
or permanent reductions in mining production; monetary losses; and
possible legal liability.
The Company’s mineral properties, because of their remote
northern location and access only by winter road or by air, are
subject to special climate and transportation risks. These risks
include the inability to operate or to operate efficiently during
periods of extreme cold, the unavailability of materials and
equipment, and increased transportation costs due to the late
opening and/or early closure of the winter road. Such factors can
add to the cost of mine development, production and operation
and/or impair production and mining activities, thereby affecting
the Company’s profitability.
Joint Ventures
The Company’s participation in the mining sector of the diamond
industry is through its ownership interest in the Ekati Diamond
Mine and the Diavik group of mineral claims. The Company holds a
controlling interest in the Ekati Diamond Mine property through its
interests in the Core Zone Joint Venture and the Buffer Zone Joint
Venture, with the remaining interests held by other minority joint
venture parties. DDDLP holds an undivided 40% interest in the
assets, liabilities and expenses of the Diavik Diamond Mine and the
Diavik group of mineral claims. The Diavik Diamond Mine and the
exploration and development of the Diavik group of mineral claims
is a joint arrangement between DDMI (60%) and DDDLP (40%).
The Company’s joint venture interests in the Ekati Diamond Mine
and the Diavik Diamond Mine are subject to the risks normally
associated with the conduct of joint ventures, including: (i)
disagreement with a joint venture partner about how to develop,
operate or finance operations; (ii) that a joint venture partner
may not comply with the underlying agreements governing the joint
ventures and may fail to meet its obligations thereunder to the
Company or to third parties; (iii) that a joint venture partner may
at any time have economic or business interests or goals that are,
or become, inconsistent with the Company’s interests or goals; (iv)
the possibility that a joint venture partner may become insolvent;
and (v) the possibility of litigation with a joint venture
partner.
By virtue of its 60% interest in the Diavik Diamond Mine,
DDMI has a controlling vote in all Diavik Joint Venture management
decisions respecting the development and operation of the Diavik
Diamond Mine and the development of the Diavik group of mineral
claims. Accordingly, DDMI is able to change the mine plan of the
Diavik Diamond Mine and determine the timing and scope of future
project capital expenditures at its discretion. DDMI would also be
able to impose capital expenditure requirements on DDDLP that the
Company may not have sufficient cash to meet. A failure to meet
capital expenditure requirements imposed by DDMI could result in
DDDLP’s interest in the Diavik Diamond Mine and the Diavik group of
mineral claims being diluted.
Diamond Prices and Demand for Diamonds
The profitability of the Company is dependent upon the Company’s
mineral properties and the worldwide demand for and price of
diamonds. Diamond prices fluctuate and are affected by numerous
factors beyond the control of the Company, including worldwide
economic trends, worldwide levels of diamond discovery and
production, and the level of demand for, and discretionary spending
on, luxury goods such as diamonds. Low or negative growth in the
worldwide economy, renewed or additional credit market disruptions,
natural disasters or the occurrence of terrorist attacks or similar
activities creating disruptions in economic growth could result in
decreased demand for luxury goods such as diamonds, thereby
negatively affecting the price of diamonds. Similarly, a
substantial increase in the worldwide level of diamond production
or the release of stocks held back during periods of lower demand
could also negatively affect the price of diamonds. In each case,
such developments could have a material adverse effect on the
Company’s results of operations.
Cash Flow and Liquidity
The Company’s liquidity requirements fluctuate from quarter to
quarter and year to year depending on, among other factors, the
seasonality of production at the Company’s mineral properties; the
seasonality of mine operating expenses; exploration expenses;
capital expenditure programs; the number of rough diamond sales
events conducted during the quarter; and the volume, size and
quality distribution of rough diamonds delivered from the Company’s
mineral properties and sold by the Company in each quarter. The
Company’s principal working capital needs include development and
exploration capital expenditures, investments in inventory, prepaid
expenses and other current assets, and accounts payable and income
taxes payable. There can be no assurance that the Company will be
able to meet each or all of its liquidity requirements. A failure
by the Company to meet its liquidity requirements could result in
the Company failing to meet its planned development objectives, or
in the Company being in default of a contractual obligation, each
of which could have a material adverse effect on the Company’s
business prospects or financial condition.
Dividends
The decision to pay dividends and the amount of such dividends
is subject to the discretion of the Board of Directors based on
numerous factors and may vary from time to time. The amount of cash
available to the Company to pay dividends, if any, can vary
significantly from period to period for a number of reasons,
including, among other things: our operational and financial
performance, fluctuations in diamond prices, the amount of cash
required to fund capital expenditures and working capital
requirements, access to capital markets, foreign exchange rates,
and the other risk factors set forth in the Company’s Annual
Information Form.
In addition, the level of dividends per common share will be
affected by the number of outstanding common shares and other
securities that may be entitled to receive cash payments. Dividends
may be increased, reduced or suspended depending on our operational
success. The market value of the common shares may deteriorate if
the Company is unable to meet dividend expectations in the
future.
Economic Environment
The Company’s financial results are tied to the global economic
conditions and their impact on levels of consumer confidence and
consumer spending. The global markets have experienced the impact
of a significant US and international economic downturn since
autumn 2008. A return to a recession or a weak recovery, due to
recent disruptions in financial markets in the United States, the
Eurozone and elsewhere, budget policy issues in the United States,
political upheavals in the Middle East and Ukraine, and economic
sanctions against Russia, could cause the Company to experience
revenue declines due to deteriorated consumer confidence and
spending, and a decrease in the availability of credit, which could
have a material adverse effect on the Company’s business prospects
or financial condition. The credit facilities essential to the
diamond polishing industry are partially underwritten by European
banks that are currently under stress. The withdrawal or reduction
of such facilities could also have a material adverse effect on the
Company’s business prospects or financial condition. The Company
monitors economic developments in the markets in which it operates
and uses this information in its continuous strategic and
operational planning in an effort to adjust its business in
response to changing economic conditions.
Synthetic Diamonds
Synthetic diamonds are diamonds that are produced by artificial
processes (e.g., laboratory grown) as opposed to natural diamonds,
which are created by geological processes. An increase in the
acceptance of synthetic gem-quality diamonds could negatively
affect the market prices for natural stones. Although significant
questions remain as to the ability of producers to produce
synthetic diamonds economically within a full range of sizes and
natural diamond colours, and as to consumer acceptance of synthetic
diamonds, synthetic diamonds are becoming a larger factor in the
market. Should synthetic diamonds be offered in significant
quantities or consumers begin to readily embrace synthetic diamonds
on a large scale, demand and prices for natural diamonds may be
negatively affected. Additionally, the presence of undisclosed
synthetic diamonds in jewelry would erode consumer confidence in
the natural product and negatively impact demand.
Currency Risk
Currency fluctuations may affect the Company’s financial
performance. Diamonds are sold throughout the world based
principally on the US dollar price, and although the Company
reports its financial results in US dollars, a majority of the
costs and expenses of the Company’s mineral properties are incurred
in Canadian dollars. Further, the Company has a significant
deferred income tax liability that has been incurred and will be
payable in Canadian dollars. The Company’s currency exposure
relates to expenses and obligations incurred by it in Canadian
dollars. From time to time, the Company may use a limited
number of derivative financial instruments to manage its foreign
currency exposure.
Licences and Permits
The Company’s mining operations require licences and permits
from the Canadian and Northwest Territories governments, and the
process for obtaining and renewing such licences and permits often
takes an extended period of time and is subject to numerous delays
and uncertainties. Such licences and permits are subject to change
in various circumstances. Failure to comply with applicable laws
and regulations may result in injunctions, fines, criminal
liability, suspensions or revocation of permits and licences, and
other penalties. There can be no assurance that DDMI, as the
operator of the Diavik Diamond Mine, or the Company has been or
will be at all times in compliance with all such laws and
regulations and with their applicable licences and permits, or that
DDMI or the Company will be able to obtain on a timely basis or
maintain in the future all necessary licences and permits that may
be required to explore and develop their properties, to commence
construction or operation of mining facilities and projects under
development, and to maintain continued operations.
Regulatory and Environmental Risks
The operations of the Company’s mineral properties are subject
to various laws and regulations governing the protection of the
environment, exploration, development, production, taxes, labour
standards, occupational health, waste disposal, mine safety and
other matters. New laws and regulations, amendments to existing
laws and regulations, or more stringent implementation or changes
in enforcement policies under existing laws and regulations could
have a material adverse effect on the Company by increasing costs
and/or causing a reduction in levels of production from the
Company’s mineral properties.
Mining is subject to potential risks and liabilities associated
with pollution of the environment and the disposal of waste
products occurring as a result of mining operations. To the extent
that the Company’s operations are subject to uninsured
environmental liabilities, the payment of such liabilities could
have a material adverse effect on the Company.
The environmental agreements relating to the Diavik Diamond Mine
and the Ekati Diamond Mine require that security be provided to
cover estimated reclamation and remediation costs. On August 25,
2015, the Company reached an agreement with the operator of the
Diavik Joint Venture whereby DDDLP was required to post its
proportionate share of the security deposit used to secure the
reclamation obligations for the Diavik Diamond Mine. The Company
has provided letters of credit in the amount of CDN $60 million to
the GNWT as security for the reclamation obligations for the Diavik
Diamond Mine. For the Ekati Diamond Mine, the amount of financial
security required under the Water Licence is currently set at CDN
$259.7 million. This represents an increase of CDN $6.2 million
from the CDN $253.5 million that was determined by the WLWB on June
17, 2013. In order to secure its obligation under the Water
Licence, the Company has posted surety bonds with the GNWT in the
aggregate amount of CDN $253.5 million and an irrevocable letter of
credit (“ILOC”) in the aggregate amount of CDN $6.2 million. The
Company also has provided a guarantee of CDN $20 million for other
obligations under the environmental agreement for the Ekati Diamond
Mine.
The reclamation and remediation plans for the Ekati Diamond Mine
and the Diavik Diamond Mine, as well as the costs of such plans,
are subject to periodic regulatory review, which could result in an
increase to the amount of security required to be posted in
connection with the operation of each of the Ekati Diamond Mine and
the Diavik Diamond Mine. This could result in additional
constraints on liquidity.
Climate Change
The Canadian government has established a number of policy
measures in response to concerns relating to climate change. While
the impact of these measures cannot be quantified at this time, the
likely effect will be to increase costs for fossil fuels,
electricity and transportation; restrict industrial emission
levels; impose added costs for emissions in excess of permitted
levels; and increase costs for monitoring and reporting. Compliance
with these initiatives could have a material adverse effect on the
Company’s results of operations.
Resource and Reserve Estimates
The Company’s figures for mineral resources and ore reserves are
estimates, and no assurance can be given that the anticipated
carats will be recovered. The estimation of reserves is a
subjective process. Forecasts are based on engineering data,
projected future rates of production and the timing of future
expenditures, all of which are subject to numerous uncertainties
and various interpretations. Estimates made at a given time may
change significantly in the future when new information becomes
available. The Company expects that its estimates of reserves will
change to reflect updated information as well as to reflect
depletion due to production. Reserve estimates may be revised
upward or downward based on the results of current and future
drilling, testing or production levels, and on changes in mine
design. In addition, market fluctuations in the price of diamonds
or increases in the costs to recover diamonds from the Company’s
mineral properties may render the mining of ore reserves
uneconomical. Any material changes in the quantity of mineral
reserves or resources or the related grades may affect the economic
viability of the Company’s mining operations and could have a
material adverse effect on the Company’s business, financial
condition, results of operations or prospects.
Mineral resources that are not mineral reserves do not have
demonstrated economic viability. Due to the uncertainty that may
attach to inferred mineral resources, there is no assurance that
mineral resources will be upgraded to proven and probable ore
reserves. Inferred mineral resources are considered too speculative
geologically to have economic considerations applied to them that
would enable them to be categorized as mineral reserves.
Insurance
The Company’s business is subject to a number of risks and
hazards, including adverse environmental conditions, industrial
accidents, labour disputes, unusual or unexpected geological
conditions, risks relating to the physical security of diamonds
held as inventory or in transit, changes in the regulatory
environment, and natural phenomena such as inclement weather
conditions. Such occurrences could result in damage to the
Company’s mineral properties, personal injury or death,
environmental damage to the Company’s mineral properties, delays in
mining, monetary losses and possible legal liability. Although
insurance is maintained to protect against certain risks in
connection with the Company’s mineral properties and the Company’s
operations, the insurance in place will not cover all potential
risks. It may not be possible to maintain insurance to cover
insurable risks at economically feasible premiums.
Fuel Costs
The expected fuel needs for the Company’s mineral properties are
purchased periodically during the year for storage, and
transported to the mine site by way of the winter road. These
costs will increase if transportation by air freight is required
due to a shortened winter road season or unexpected high fuel
usage.
The cost of the fuel purchased is based on the then
prevailing price and expensed into operating costs on a usage
basis. The Company’s mineral properties currently have no
hedges for future anticipated fuel consumption.
Reliance on Skilled Employees
Production at the Company’s mineral properties is dependent upon
the efforts of certain skilled employees. The loss of these
employees or the inability to attract and retain additional skilled
employees may adversely affect the level of diamond production.
The Company’s success in marketing rough diamonds is dependent
on the services of key executives and skilled employees, as well as
the continuance of key relationships with certain third parties,
such as diamantaires. The loss of these persons or the Company’s
inability to attract and retain additional skilled employees or to
establish and maintain relationships with required third parties
may adversely affect its business and future operations in
marketing diamonds.
Labour Relations
The Company is party to a collective bargaining agreement at its
Ekati Diamond Mine operation which was due to expire on August 31,
2014. The Company entered into negotiations on August 6, 2014 and
on August 26, 2014. A Memorandum of Understanding was signed which
suspended negotiations until the latter part of February 2015 and
continued unchanged all provisions in the current collective
bargaining agreement. The Company participated in mediation with
the union in January 2016, the result of which was a decision to
resume negotiations. Accordingly, the Company and the union met on
February 16, 2016 through February 18, 2016 to resume negotiations.
Additional bargaining dates have been set in April 2016. The
Company is currently in active negotiations with the union. If the
Company is ultimately unable to renew this agreement, or if the
terms of any such renewal are materially adverse to the Company,
then this could result in work stoppages and other labour
disruptions, or otherwise materially impact the Company, all of
which could have a material adverse effect on the Company’s
business, results from operations and financial condition.
Disclosure Controls and Procedures
The Company has designed a system of disclosure controls and
procedures to provide reasonable assurance that material
information relating to Dominion Diamond Corporation, including its
consolidated subsidiaries, is made known to management of the
Company by others within those entities, particularly during the
period in which the Company’s annual filings are being prepared. In
designing and evaluating the disclosure controls and procedures,
the management of the Company recognized that any controls and
procedures, no matter how well designed and operated, can provide
only a reasonable assurance of achieving the desired control
objectives. The management of Dominion Diamond Corporation was
required to apply its judgement in evaluating the cost-benefit
relationship of possible controls and procedures. The results of
the inherent limitations in all control systems mean no evaluation
of controls can provide absolute assurance that all control issues
and instances of fraud, if any, have been detected.
The management of Dominion Diamond Corporation has evaluated the
effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by the
Annual Report. Based on that evaluation, management has concluded
that these disclosure controls and procedures, as defined in Canada
by National Instrument 52-109, Certification of Disclosure in
Issuers’ Annual and Interim Filings, and in the United States by
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”), are effective as of January 31, 2016, to ensure
that information required to be disclosed in reports that the
Company will file or submit under Canada securities legislation and
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in those rules and forms.
Internal Controls over Financial Reporting
The certifying officers of the Company have designed a system of
internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with IFRS and the
requirements of the US Securities and Exchange Commission, as
applicable. Management is responsible for establishing and
maintaining adequate internal control over financial reporting for
the Company, including its consolidated subsidiaries.
Management has evaluated the effectiveness of internal control
over financial reporting using the framework and criteria
established in Internal Control – Integrated Framework (2013),
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management has concluded that
internal control over financial reporting was effective as of
January 31, 2016.
Changes in Internal Controls over Financial Reporting
During fiscal year 2016, there were no changes in the Company’s
disclosure controls and procedures or internal controls over
financial reporting that materially affected, or are reasonably
likely to materially affect, the Company’s disclosure controls and
procedures or internal control over financial reporting.
Critical Accounting Estimates
Management is often required to make judgments, assumptions and
estimates in the application of IFRS that have a significant impact
on the financial results of the Company. Certain policies are more
significant than others and are, therefore, considered critical
accounting policies. Accounting policies are considered critical if
they rely on a substantial amount of judgment (use of estimates) in
their application, or if they result from a choice between
accounting alternatives and that choice has a material impact on
the Company’s financial performance or
financial position.
Mineral Reserves, Mineral Properties and Exploration Costs
The estimation of mineral reserves is a subjective process. The
Company estimates its mineral reserves based on information
compiled by an appropriately qualified person. Forecasts are based
on engineering data, projected future rates of production and the
timing of future expenditures, all of which are subject to numerous
uncertainties and various interpretations. The Company expects that
its estimates of reserves will change to reflect updated
information. Reserve estimates can be revised upward or downward
based on the results of additional future drilling, testing or
production levels, and diamond prices. Changes in reserve
estimates may impact the carrying value of exploration and
evaluation assets, mineral properties, property, plant and
equipment, mine rehabilitation and site restoration provisions,
recognition of deferred tax assets, and depreciation charges.
Estimates and assumptions about future events and circumstances are
also used to determine whether economically viable reserves exist
that can lead to commercial development of an ore body. Estimated
mineral reserves are used in determining the depreciation of
mine-specific assets. This results in a depreciation charge
proportional to the depletion of the anticipated remaining life of
mine production. A unit-of-production depreciation method is
applied, and depending on the asset, is based on carats of diamonds
recovered during the period relative to the estimated proven and
probable reserves of the ore deposit being mined or to the total
ore deposit. Changes in estimates are accounted for
prospectively.
Impairment of Long-lived Assets
The Company assesses each cash-generating unit (“CGU”) at least
annually to determine whether any indication of impairment exists.
Where an indicator of impairment exists, a formal estimate of the
recoverable amount is made, which is considered to be the higher of
the fair value of an asset less costs to sell and its value in use.
These assessments require the use of estimates and assumptions such
as long-term commodity prices, discount rates, future capital
requirements, exploration potential and operating performance.
Financial results as determined by actual events could differ from
those estimated.
Mine Rehabilitation and Site Restoration Provision
Provision for the cost of site closure and reclamation is
recognized at the time that the environmental disturbance occurs.
When the extent of disturbance increases over the life of the
operation, the provision is increased accordingly. Costs included
in the provision encompass all restoration and rehabilitation
activities expected to occur progressively over the life of the
operation and at the time of closure. Routine operating costs that
may impact the ultimate restoration and rehabilitation activities,
such as waste material handling conducted as an integral part of a
mining or production process, are not included in the provision.
Costs arising from unforeseen circumstances, such as contamination
caused by unplanned discharges, are recognized as an expense and
liability when the event gives rise to an obligation that is
probable and capable of reliable estimation.
The site closure and reclamation provision is measured at the
expected value of future cash flows and is discounted to its
present value. Significant judgments and estimates are involved in
forming expectations of future site closure and reclamation
activities and the amount and timing of the associated cash flows.
Those expectations are formed based on existing environmental and
regulatory requirements. The Ekati Diamond Mine rehabilitation and
site restoration provision is prepared by management of the Ekati
Diamond Mine.
The Diavik Diamond Mine rehabilitation and site restoration
provisions have been provided by management of the Diavik Diamond
Mine and are based on internal estimates. Assumptions, based on the
current economic environment, have been made which DDMI management
believes are a reasonable basis upon which to estimate the future
liability. These estimates are reviewed regularly by management of
the Diavik Diamond Mine to take into account any material changes
to the assumptions. However, actual rehabilitation costs will
ultimately depend upon future costs for the necessary
decommissioning work required, which will reflect market conditions
at the relevant time. Furthermore, the timing of rehabilitation is
likely to depend on when the Diavik Diamond Mine ceases to produce
at economically viable rates. This, in turn, will depend upon a
number of factors including future diamond prices, which are
inherently uncertain.
Pension Benefits
The present value of the pension obligations depends on a number
of factors that are determined on an actuarial basis using a number
of assumptions. The assumptions used in determining the net cost
(income) for pensions include the discount rate. Any changes in
these assumptions will impact the carrying amount of the pension
obligation.
The Company determines the appropriate discount rate at the end
of each year. This is the interest rate that should be used to
determine the present value of estimated future cash outflows
expected to be required to settle the pension obligations. In
determining the appropriate discount rate, the Company considers
the interest rates of high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid and
that have terms to maturity approximating the terms of the related
pension obligation.
Other key assumptions for pension obligations are based in part
on current market conditions. Additional information is disclosed
in note 12 to the annual audited financial statements for the year
ended January 31, 2016.
Changes in Accounting Policies
(a) Change in Accounting Policies
The consolidated financial statements reflect the retrospective
application of a voluntary change in accounting policy to treat the
asset retirement obligation (“ARO”) as a monetary liability that is
revalued using the period end exchange rates, instead of being
treated as a non-monetary liability recorded at historical exchange
rates, as previously reported. Refer to note 3 of the consolidated
financial statements for the year ended January 31, 2016.
(b) New Accounting Standards
There were no new accounting standards adopted during the
period.
(c) New Accounting Standards Issued but Not Yet Effective
Standards issued but not yet effective up to the date of
issuance of the consolidated financial statements are listed below.
The listing is of standards and interpretations issued, which the
Company reasonably expects to be applicable at a future date. The
Company intends to adopt those standards when they become
effective.
IAS 1 – PRESENTATION OF FINANCIAL STATEMENTS
On December 18, 2015, the IASB issued amendments to IAS 1,
Presentation of Financial Statements (“IAS 1”), as part of its
major initiative to improve presentation and disclosure in
financial reports. The amendments are effective for annual periods
beginning on or after January 1, 2016. Early adoption is
permitted. The Company intends to adopt these amendments in its
consolidated financial statements for the annual period beginning
on February 1, 2016. The Company does not expect that the
amendments will have a material impact on its consolidated
financial statements.
IFRS 11 – BUSINESS COMBINATION ACCOUNTING FOR INTEREST IN JOINT
OPERATIONS
On May 6, 2015, the IASB issued amendments to IFRS 11,
Joint Arrangements (“IFRS 11”). The amendments apply prospectively
for annual periods beginning on or after January 1, 2016, with
earlier application permitted. The amendments require business
combination accounting to be applied to acquisitions of interests
in a joint operation that constitutes a business. The Company
intends to adopt the amendments to IFRS 11 in its consolidated
financial statements for the annual period beginning on
February 1, 2016. The Company does not expect that the
amendments will have a material impact on its consolidated
financial statements.
IFRS 9 – FINANCIAL INSTRUMENTS
In July 2014, the IASB issued the final version of IFRS 9,
Financial Instruments (“IFRS 9”), to replace IAS 39, Financial
Instruments: Recognition and Measurement. IFRS 9 provides a revised
model for recognition and measurement of financial instruments and
a single, forward-looking ‘expected loss’ impairment model. IFRS 9
also includes a substantially reformed approach to hedge
accounting. The standard is effective for annual periods beginning
on or after January 1, 2018, with early adoption permitted. The
Company has evaluated the impact the standard will have on its
consolidated financial statements and expects to early adopt this
standard starting on February 1, 2016 with no material impact on
its consolidated financial statements.
IFRS 15 – REVENUE FROM CONTRACTS WITH CUSTOMERS
In May 2014, the IASB issued IFRS 15, Revenue from Contracts
with Customers (“IFRS 15”). IFRS 15 is effective for periods
beginning on or after January 1, 2018 and is to be applied
retrospectively. IFRS 15 clarifies the principles for recognizing
revenue from contracts with customers. The Company intends to adopt
IFRS 15 in its financial statements for the annual period beginning
February 1, 2018. The extent of the impact of the adoption of IFRS
15 has not yet been determined.
IFRS 16 – LEASES
In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”),
which replaces IAS 17, Leases and its associated interpretative
guidance. IFRS 16 applies a control model to the identification of
leases, distinguishing between a lease and a services contract on
the basis of whether the customer controls the assets being leased.
For those assets determined to meet the definition of a lease, IFRS
16 introduces significant changes to the accounting by lessees,
introducing a single, on-balance sheet accounting model that is
similar to current finance lease accounting, with limited
exceptions for short-term leases or leases of low value assets.
Lessor accounting remains similar to current accounting practice.
The standard is effective for annual periods beginning on or after
January 1, 2019, with early application permitted for entities that
have also adopted IFRS 15. The Company is currently evaluating the
impact the standard is expected to have on its consolidated
financial statements.
CONSOLIDATED FINANCIAL RESULTS
The following is a summary of the Company’s consolidated
quarterly results for the most recent eight quarters ended January
31, 2016.
(expressed in thousands of United States dollars except per
share amounts and where otherwise noted)
(quarterly results are unaudited)
2016 2016 2016 2016 2015 2015 2015 2015 2016 2015
Q4 Q3 Q2 Q1
Q4(iii) Q3(iii) Q2(iii)
Q1(iii) Total Total(iii)
Sales $ 178,145 $ 145,024 $ 209,676 $ 187,723 $ 240,582 $ 222,335 $
277,314 $ 175,522 $ 720,568 $ 915,753 Cost of sales
191,801 126,538 186,987
163,595 178,753 146,063
220,306 137,517 668,921
682,639 Gross margin (13,656) 18,486 22,689 24,128 61,829 76,272
57,008 38,005 51,647 233,114 Gross margin (%) (7.7)% 12.7% 10.8%
12.9% 25.7% 34.3% 20.6% 21.7% 7.2% 25.5% Selling, general
andadministrative expenses 10,800 9,010
15,082 8,769 9,201
7,904 9,606 7,148
43,661 33,859 Operating profit (24,456)
9,476 7,607 15,359
52,628 68,368 47,402
30,857 7,986 199,255 Finance
expenses (1,208) (2,950) (2,871) (2,869) (4,177) (3,053) (2,916)
(2,994) (9,898) (13,140) Exploration costs 734 (576) (1,935)
(5,249) (2,110) (7,359) (6,846) (9,044) (7,026) (25,359) Finance
and other income (915) 984 (36) 123 419 782 933 3,197 156 5,332
Foreign exchange gain (loss) (2,022)
268 (2,174) 1,157 2,523
1,868 815 (951)
(2,771) 4,255 Profit (loss) before income
taxes (27,867) 7,202 591 8,521 49,283 60,606 39,388 21,065 (11,553)
170,343 Current income tax expense 9,570 7,679 14,923 15,294 9,611
51,661 22,018 32,729 47,466 116,019 Deferred income tax expense
(recovery) 326 (6,946)
4,562 (18,163) 37,490
(25,786) (6,788) (24,173)
(20,221) (19,257) Net profit (loss) $ (37,763)
$ 6,469 $ (18,894) $ 11,390 $ 2,182
$ 34,731 $ 24,158 $ 12,509 $ (38,798)
$ 73,581 Net profit (loss) attributable to: Shareholders $
(34,927) $ 7,170 $ (18,167) $ 11,968 $ (2,155) $ 26,518 $ 26,441 $
16,291 $ (33,956) $ 67,096 Non-controlling interest
(2,836) (701) (727) (578)
4,337 8,213 (2,283)
(3,782) (4,842) 6,485
Earnings (loss) per shareattributable to shareholders Basic $
(0.41) $ 0.08 $ (0.21) $ 0.14 $ (0.03) $ 0.31 $ 0.31 $ 0.19 $
(0.40) $ 0.79 Diluted $ (0.41) $ 0.08 $ (0.21) $ 0.14 $ (0.03) $
0.31 $ 0.31 $ 0.19 $ (0.40) $ 0.78 Cash dividends declared per
share $ 0.00 $ 0.20 $ 0.00 $ 0.40 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $
0.60 $ 0.00 Total assets(i) $ 2,165 $ 2,216 $ 2,193 $ 2,312 $ 2,346
$ 2,350 $ 2,329 $ 2,330 $ 2,165 $ 2,346 Total long-term
liabilities(i) $ 581 $ 602 $ 613 $ 642
$ 646 $ 659 $ 639 $ 953 $ 581
$ 646 Adjusted EBITDA(ii) $ 49,029 $ 49,071
$ 60,353 $ 60,819 $ 95,635 $ 115,379
$ 109,632 $ 69,579 $ 219,272 $ 390,225
(i) Total assets and total long-term
liabilities are expressed in millions of United States dollars.
(ii) The term “Adjusted EBITDA” does not
have a standardized meaning according to IFRS. See “Non-IFRS
Measures” for additional information.
(iii) Prior year figures have been
restated as a result of retrospective application of a voluntary
change in accounting policy related to asset retirement obligations
(“ARO”). For further details, refer to note 3 of the consolidated
financial statements for the year ended January 31, 2016.
Ekati Diamond Mine
This segment includes the production, sorting and sale of rough
diamonds from the Ekati Diamond Mine.
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
2016 2016 2016 2016 2015 2015 2015 2015 2016 2015
Q4 Q3 Q2 Q1
Q4(ii) Q3(ii) Q2(ii)
Q1(ii) Total Total(ii)
Sales North America $ – $ – $ – $ – $ – $ – $ – $ – $ – $ – Europe
104,760 81,860 135,282 123,122 155,696 137,769 160,667 88,469
445,024 542,601 India 6,879 6,305
2,390 4,251 3,423
4,163 9,614 4,378
19,825 21,578 Total sales 111,639 88,165 137,672
127,373 159,119 141,932 170,281 92,847 464,849 564,179 Cost of
sales 135,933 88,896
133,590 113,985 116,622
93,558 141,584 81,207
472,404 432,971 Gross margin (24,294) (731) 4,082
13,388 42,497 48,374 28,697 11,640 (7,555) 131,208 Gross margin (%)
(21.8%) (0.8%) 3.0% 10.5% 26.7% 34.1% 16.9% 12.5% (1.6%) 23.3%
Selling, general and administrative expenses 1,335
1,727 1,624 1,370
617 557 941 1,475
6,056 3,590 Operating profit (loss)
$ (25,629) $ (2,458) $ 2,458 $ 12,018
$ 41,880 $ 47,817 $ 27,756 $ 10,165
$ (13,611) $ 127,618 Adjusted EBITDA(i)
28,952 22,528 36,906
40,671 62,488 74,312
62,289 30,078 129,057
229,167 Capital expenditures $ 59,955 $ 48,715
$ 32,865 $ 54,994 $ 28,576 $ 26,951 $
41,981 $ 49,244 $ 196,529 $ 146,752
(i) Earnings before interest, taxes,
depreciation and amortization (“EBITDA”). The term “Adjusted
EBITDA” does not have a standardized meaning according to IFRS. See
“Non-IFRS Measures” for additional information.
(ii) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
Diavik Diamond Mine
This segment includes the production, sorting and sale of rough
diamonds from the Diavik Diamond Mine.
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
2016 2016 2016 2016 2015 2015 2015 2015 2016 2015
Q4 Q3 Q2 Q1
Q4(ii) Q3(ii) Q2(ii)
Q1(ii) Total Total(ii)
Sales North America $ – $ – $ – $ – $ – $ – $ – $ – $ – $ – Europe
61,629 52,119 70,099 57,223 78,049 74,310 94,858 73,918 241,070
321,135 India 4,877 4,740
1,905 3,127 3,413 6,094
12,175 8,757 14,649
30,439 Total sales 66,506 56,859 72,004 60,350 81,462
80,404 107,033 82,675 255,719 351,574 Cost of sales
55,867 37,642 53,398
49,610 62,130 52,506
78,722 56,310 196,517
249,668 Gross margin 10,639 19,217 18,606 10,740 19,332 27,898
28,311 26,365 59,202 101,906 Gross margin (%) 16.0% 33.8% 25.8%
17.8% 23.7% 34.7% 26.5% 31.9% 23.2% 29.0% Selling, general and
administrativeexpenses 589 594
977 960 1,247 851
1,067 975 3,120
4,140 Operating profit $ 10,050 $ 18,623
$ 17,629 $ 9,780 $ 18,085 $ 27,047
$ 27,244 $ 25,390 $ 56,082 $ 97,766
Adjusted EBITDA(i) 28,693 32,889
35,739 26,431 40,172
47,270 54,650 43,857
123,752 185,949 Capital expenditures $
14,243 $ 9,445 $ 7,470 $ 12,232 $ 6,339
$ 4,601 $ 3,750 $ 6,779 $ 43,390
$ 21,469
(i) The term “Adjusted EBITDA” does not
have a standardized meaning according to IFRS. See “Non-IFRS
Measures” for additional information.
(ii) Prior year figures have been restated
as a result of retrospective application of a voluntary change in
accounting policy related to asset retirement obligations (“ARO”).
For further details, refer to note 3 of the consolidated financial
statements for the year ended January 31, 2016.
Corporate
The Corporate segment captures costs not specifically related to
the operations of the Diavik and Ekati Diamond Mines.
(expressed in thousands of United States dollars)
(quarterly results are unaudited)
2016 2016 2016 2016 2015 2015 2015 2015 2016 2015
Q4 Q3 Q2 Q1
Q4 Q3 Q2 Q1
Total Total Sales $ – $ – $ – $ – $ – $
– $ – $ – $ – $ – Cost of sales – –
– – – –
– – – –
Gross margin – – – – – – – – – – Gross margin (%) –% –% –% –% –% –%
–% –% –% –% Selling, general and administrative expenses
8,876 6,689 12,481
6,439 7,336 6,496 7,598
4,699 34,485 26,129
Operating loss $ (8,876) $ (6,689) $ (12,481)
$ (6,439) $ (7,336) $ (6,496) $ (7,598)
$ (4,699) $ (34,485) $ (26,129) EBITDA(i)
(8,615) (6,348) (12,293)
(6,285) (7,025) (6,203)
(7,307) (4,356) (33,541)
(24,891) Capital expenditures $ 1,321 $
131 $ 112 $ 780 $ – $ 19 $ 28
$ – $ 2,344 $ 47
(ii) The term “EBITDA” does not have a
standardized meaning according to IFRS. See “Non-IFRS Measures” for
additional information.
Outstanding Share Information
As at April 13, 2016 Authorized
Unlimited Issued and outstanding shares
85,335,979
Options and share RSU outstanding
2,976,722
Fully diluted 88,312,701
Additional Information
Additional information relating to the Company, including the
Company’s most recently filed Annual Information Form, can be
found on SEDAR at www.sedar.com, and is also available on the
Company’s website at www.ddcorp.ca.
Financial Table of Contents Management’s Responsibility for
Financial Information 40 Independent Auditors’ Report of
Registered Public Accounting Firm 41 Report of Independent
Registered Public Accounting Firm on Internal Control over
Financial Reporting 42 Consolidated Balance Sheets 43 Consolidated
Statements of (Loss) Income 44 Consolidated Statements of
Comprehensive (Loss) Income 45 Consolidated Statements of Changes
in Equity 46 Consolidated Statements of Cash Flows 47 Notes to
Consolidated Financial Statements 48 Note 1: Nature of Operations
48 Note 2: Basis of Preparation 48 Note 3: Change in Accounting
Policy and Retrospective Restatement 49 Note 4: Significant
Accounting Policies 51 Note 5: Cash and Cash Equivalents and
Restricted Cash 60 Note 6: Accounts Receivable 60 Note 7: Inventory
and Supplies 60 Note 8: Property, Plant and Equipment 61 Note 9:
Diavik Joint Venture and Ekati Diamond Mine 62 Note 10: Other
Non-Current Assets 63 Note 11: Trade and Other Payables 63 Note 12:
Employee Benefit Plans 63 Note 13: Income Taxes 67 Note 14:
Provisions 69 Note 15: Dividends 69 Note 16: Share Capital 70 Note
17: Expenses by Nature 72 Note 18: Earnings per Share 73 Note 19:
Loans and Borrowings 73 Note 20: Related Party Disclosure 74 Note
21: Commitments and Guarantees 75 Note 22: Capital Management 76
Note 23: Financial Risk Management Objectives and Policies 76 Note
24: Financial Instruments 78 Note 25: Segmented Information 78 Note
26: Subsequent Events 80
Management’s Responsibility for Financial
Information
The consolidated financial statements and the information
contained in the Annual Report have been prepared by the management
of the Company. The financial statements have been prepared in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
The consolidated financial statements and information in the
MD&A necessarily include amounts based on informed judgments
and estimates of the expected effects of current events and
transactions with appropriate consideration to materiality. The
MD&A also includes information regarding the impact of current
transactions and events, sources of liquidity and capital
resources, operating trends, risks and uncertainties. Actual
results in the future may differ materially from the present
assessment of this information because future events and
circumstances may not occur as expected.
In meeting management’s responsibility for the reliability and
timeliness of financial information, management maintains and
relies on a comprehensive system of internal control and internal
audit, including organizational and procedural controls, disclosure
controls and procedures and internal control over financial
reporting. The system of internal control includes written
communication of policies and procedures governing corporate
conduct and risk management; comprehensive business planning;
effective segregation of duties; delegation of authority and
personal accountability; escalation of relevant information for
decisions regarding public disclosure; careful selection and
training of personnel; and regular updating of accounting policies.
These controls and audits are designed to provide reasonable
assurance that the financial records are reliable for preparing
financial statements and other financial information, assets are
safeguarded against unauthorized use or disposition, liabilities
are recognized, and Dominion Diamond Corporation is in compliance
with all regulatory requirements.
The Company’s independent auditors, who are appointed by the
shareholders, conduct an audit in accordance with generally
accepted auditing standards to allow them to express an opinion on
the financial statements and the Company’s internal control over
financial reporting.
The Board of Directors’ Audit Committee meets
at least quarterly with management to review the internal controls,
financial statements and related reporting matters, and with the
independent auditors to review the scope and results of the
annual audit prior to approval of the financial statements by the
entire Board.
(SIGNED) “BRENDAN BELL” (SIGNED) “RON CAMERON”
BRENDAN BELL RON CAMERON CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL
OFFICER
Independent Auditors’ Report of
RegisteredPublic Accounting Firm
To the Shareholders and Board of Directors of Dominion Diamond
Corporation
We have audited the accompanying consolidated financial
statements of Dominion Diamond Corporation, which comprise the
consolidated balance sheets as at January 31, 2016 and January 31,
2015, the consolidated statements of (loss) income, comprehensive
(loss) income, changes in equity and cash flows for the years then
ended, and notes, comprising a summary of significant accounting
policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board, and for
such internal control as management determines is necessary to
enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or
error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment,
including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, we consider internal
control relevant to the entity’s preparation and fair presentation
of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances. An audit also
includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of Dominion Diamond Corporation as at January 31,
2016 and January 31, 2015, and its consolidated financial
performance and its consolidated cash flows for the years then
ended in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards
Board.
Comparative Information
Without modifying our opinion, we draw attention to note 3 to
the consolidated financial statements which indicates that the
comparative information presented as at and for the year ended
January 31, 2015 has been restated and includes the presentation of
the consolidated balance sheet as at February 1, 2014.
Other Matter
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Dominion
Diamond Corporation’s internal control over financial reporting as
of January 31, 2016, based on the criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated April 13, 2016 expressed an unqualified
(unmodified) opinion on the effectiveness of Dominion Diamond
Corporation’s internal control over financial reporting.
(SIGNED) “KPMG LLP” Chartered Professional
Accountants, Licensed Public Accountants
Toronto, CanadaApril 13, 2016
Report of Independent Registered Public
Accounting Firm on Internal Control over Financial
Reporting
To the Board of Directors of Dominion Diamond Corporation
We have audited Dominion Diamond Corporation’s internal control
over financial reporting as of January 31, 2016, based on criteria
established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Dominion Diamond Corporation’s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included under the
heading Internal Controls over Financial Reporting in Management’s
Discussion and Analysis for the year ended January 31, 2016. Our
responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Dominion Diamond Corporation maintained, in all
material respects, effective internal control over financial
reporting as of January 31, 2016, based on criteria
established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We also have audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States), the consolidated
balance sheets of Dominion Diamond Corporation as at January 31,
2016 and January 31, 2015, and the related consolidated statements
of (loss) income, comprehensive (loss) income, changes in equity,
and cash flows for each of the years ended January 31, 2016 and
January 31, 2015, and our report dated April 13, 2016 expressed an
unmodified (unqualified) opinion on those consolidated financial
statements.
(SIGNED) “KPMG LLP” Chartered Professional
Accountants, Licensed Public Accountants
Toronto, CanadaApril 13, 2016
Consolidated Balance Sheets
(EXPRESSED IN THOUSANDS OF UNITED STATES
DOLLARS)
January 31, 2016
January 31, 2015(Restated – note 3)
February 1, 2014(Restated – note 3)
ASSETS Current assets Cash and cash
equivalents (note 5) $ 320,038 $ 457,934 $ 224,778 Accounts
receivable (note 6) 11,528 13,717 20,879 Inventory and supplies
(note 7) 416,146 474,991 449,669 Other current assets
21,584 23,782 18,048 769,296 970,424
713,374 Property, plant and equipment (note 8) 1,305,143 1,317,238
1,435,468 Restricted cash (note 5) 63,312 34,607 113,612 Other
non-current assets (note 10) 22,752 20,470 4,737 Deferred income
tax assets (note 13) 4,327 2,800
2,734 Total assets $ 2,164,830 $ 2,345,539
$ 2,269,925 LIABILITIES AND EQUITY Current
liabilities Trade and other payables (note 11) $ 114,589 $ 99,242 $
103,653 Employee benefit plans (note 12) 3,142 4,237 3,643 Income
taxes payable (note 13) 51,195 105,199 33,442 Current portion of
loans and borrowings (note 19) 21,849
11,308 794 190,775 219,986 141,532 Loans and
borrowings (note 19) 11,922 33,985 3,504 Deferred income tax
liabilities (note 13) 209,826 229,287 242,563 Employee benefit
plans (note 12) 14,319 13,715 14,120 Provisions (note 14)
344,658 369,197 396,193 Total
liabilities 771,500 866,170
797,912 Equity Share capital (note 16) 509,506 508,573
508,523 Contributed surplus 29,020 25,855 23,033 Retained earnings
752,028 837,117 775,426 Accumulated other comprehensive loss
(10,027) (6,957) (2,447) Total
shareholders’ equity 1,280,527 1,364,588 1,304,535 Non-controlling
interest 112,803 114,781
167,478 Total equity 1,393,330
1,479,369 1,472,013 Total liabilities and equity
$ 2,164,830 $ 2,345,539 $ 2,269,925
The accompanying notes are an integral
part of these consolidated financial statements.
ON BEHALF OF THE BOARD: (SIGNED) “BRENDAN BELL”
(SIGNED) “DANIEL JARVIS” BRENDAN BELL DANIEL JARVIS
DIRECTOR DIRECTOR
Consolidated Statements of (Loss)
Income
(EXPRESSED IN THOUSANDS OF UNITED STATES
DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS)
2016 2015
(Restated – note 3)
Sales $ 720,568 $ 915,753 Cost of sales 668,921
682,639 Gross margin 51,647 233,114 Selling, general
and administrative expenses 43,661
33,859 Operating profit (note 17) 7,986 199,255 Finance expenses
(9,898) (13,140) Exploration costs (7,026) (25,359) Finance and
other income 156 5,332 Foreign exchange (loss) gain
(2,771) 4,255 Profit (loss) before income taxes
(11,553) 170,343 Current income tax expense (note 13) 47,466
116,019 Deferred income tax recovery (note 13)
(20,221) (19,257) Net (loss) income $ (38,798)
$ 73,581 Net (loss) income attributable to Shareholders $
(33,956) $ 67,096 Non-controlling interest (4,842)
6,485 Earnings (loss) per share (note 18) Basic
(0.40) 0.79 Diluted (0.40) 0.78 Basic
weighted average number of shares outstanding
85,240,395 85,132,254
The accompanying notes are an integral
part of these consolidated financial statements.
Consolidated Statements
of Comprehensive(Loss) Income
(EXPRESSED IN THOUSANDS OF UNITED STATES
DOLLARS)
2016 2015
(Restated – note 3)
Net (loss) income $ (38,798) $ 73,581 Other comprehensive loss
Items that may be reclassified to profit (loss) Net loss on
translation of foreign operations (net of tax of $nil) (1,638)
(2,402)
Items that will not be reclassified to profit (loss)
Actuarial loss on employee benefit plans
(net of tax recovery of $0.9 million for theyear ended January 31,
2016; 2015 – tax recovery of $0.9 million)
(1,816) (2,108) Other comprehensive
loss, net of tax (3,454) (4,510) Total
comprehensive (loss) income $ (42,252) $ 69,071
Comprehensive (loss) income attributable to Shareholders $ (37,027)
$ 62,586 Non-controlling interest (5,225)
6,485
The accompanying notes are an integral
part of these consolidated financial statements.
Consolidated Statements
of Changes in Equity
(EXPRESSED IN THOUSANDS OF UNITED STATES
DOLLARS)
2016 2015
(Restated – note 3)
Common shares: Balance at beginning of period $ 508,573 $ 508,523
Issued during the period 933 50 Balance at end of
period 509,506 508,573 Contributed surplus: Balance
at beginning of period 25,855 23,033 Stock-based compensation
expense 3,323 2,835 Exercise of stock options (158)
(13) Balance at end of period 29,020 25,855 Retained
earnings: Balance at beginning of period 837,117 775,426 Net (loss)
income attributable to common shareholders (33,956) 67,096
Dividends (note 15) (51,133) – Acquisition of additional interest
in Ekati – (5,405) Balance at end of period
752,028 837,117 Accumulated other comprehensive loss:
Balance at beginning of period (6,957) (2,447)
Items that may be
reclassified to profit (loss) Net loss on translation of net
foreign operations (net of tax of $nil) (1,638) (2,402)
Items
that will not be reclassified to profit (loss)
Actuarial loss on employee benefit plans
(net of tax recovery of $0.9 million for the year endedJanuary 31,
2016; 2015 – tax recovery of $0.9 million)
(1,432) (2,108) Balance at end of period
(10,027) (6,957) Non-controlling interest: Balance at
beginning of period 114,781 167,478 Net (loss) income attributed to
non-controlling interest (4,842) 6,485 Other comprehensive loss
attributable to non-controlling interest (384) – Acquisition of
interest in Ekati – (71,074) Contributions made by minority
partners 16,178 11,892 Distributions to minority partners
(12,930) – Balance at end of period 112,803
114,781 Total equity $ 1,393,330 $ 1,479,369
The accompanying notes are an integral
part of these consolidated financial statements.
Consolidated Statements of Cash
Flows
(EXPRESSED IN THOUSANDS OF UNITED STATES
DOLLARS)
2016 2015
(Restated – note 3)
Cash provided by (used in)
OPERATING Net (loss) income $
(38,798) $ 73,581 Depreciation and amortization 191,447 194,016
Deferred income tax recovery (20,221) (19,257) Current income tax
expense 47,466 116,019 Finance expenses 9,898 13,140 Stock-based
compensation 3,323 2,835 Other non-cash items 4,085 (1,597)
Unrealized foreign exchange gain (3,738) (4,618) Gain on
disposition of assets (426) (1,863) Impairment losses on inventory
19,838 –
Change in non-cash operating working
capital, excluding taxes and finance expenses
58,022
(19,376)
Cash provided from operating activities 270,896 352,880 Interest
paid (3,088) (1,168) Income and mining taxes paid
(99,821) (29,180)
Net cash from operating
activities 167,987 322,532
FINANCING Repayment of interest-bearing loans and borrowings
(740) (797) Repayment of promissory note (10,556) – Transaction
costs relating to financing activities (3,054) – Dividends paid
(51,133) – Distributions to and contribution from minority
partners, net 3,248 21,269 Issue of common shares, net of issue
costs 542 34
Cash (used in) provided
by financing activities (61,693)
20,506
INVESTING Proceeds from sale of assets – 3,725
(Increase) decrease in restricted cash (33,047) 66,391 Net proceeds
from pre-production sales 7,668 28,469 Purchase of property, plant
and equipment (210,333) (168,268) Net proceeds from sale of
property, plant and equipment 911 2,216 Acquisition of additional
interest in Ekati – (27,512) Other non-current assets
466 589
Cash used in investing activities
(234,335) (94,390) Foreign exchange
effect on cash balances (9,855) (15,492) (Decrease) increase in
cash and cash equivalents (137,896) 233,156 Cash and cash
equivalents, beginning of period 457,934
224,778 Cash and cash equivalents, end of period $
320,038 $ 457,934
Change in non-cash operating working
capital, excluding taxes and finance expenses
Accounts receivable (1,486) 343 Inventory and supplies 52,525
(37,574) Other current assets 1,498 3,592 Trade and other payables
6,436 13,204 Employee benefit plans (951)
1,059 $ 58,022 $ (19,376)
The accompanying notes are an integral part of these
consolidated financial statements.
Notes to Consolidated Financial
Statements
JANUARY 31, 2016 WITH COMPARATIVE
FIGURES(TABULAR AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS,
EXCEPT AS OTHERWISE NOTED)
Note 1:Nature of Operations
Dominion Diamond Corporation (the “Company”) is focused on the
mining and marketing of rough diamonds to the global market.
The Company is incorporated and domiciled in Canada and its
shares are publicly traded on the Toronto Stock Exchange and the
New York Stock Exchange under the symbol “DDC”. The address of its
registered office is Toronto, Ontario.
The Company has ownership interests in the Diavik and the Ekati
group of mineral claims. The Diavik Joint Venture (the “Diavik
Joint Venture”) is an unincorporated joint arrangement between
Diavik Diamond Mines (2012) Inc. (“DDMI”) (60%) and Dominion
Diamond Diavik Limited Partnership (“DDDLP”) (40%), where DDDLP
holds an undivided 40% ownership interest in the assets,
liabilities and expenses of the Diavik Diamond Mine. DDMI is the
operator of the Diavik Diamond Mine. DDMI is a wholly owned
subsidiary of Rio Tinto plc of London, England, and DDDLP is a
wholly owned subsidiary of Dominion Diamond Corporation. The
Company records its interest in the assets, liabilities and
expenses of the Diavik Joint Venture in its consolidated financial
statements with a one-month lag. The accounting policies described
below include those of the Diavik Joint Venture.
The Ekati Diamond Mine consists of the Core Zone, which includes
the current operating mines and other permitted kimberlite pipes,
as well as the Buffer Zone, an adjacent area hosting kimberlite
pipes having both development and exploration potential. Subsequent
to the acquisition as described below, the Company owns an 88.9%
interest in the Core Zone and a 65.3% interest in the Buffer Zone.
The Company controls and consolidates the Ekati Diamond Mine; the
interests of minority shareholders are presented as non-controlling
interests within the consolidated financial statements.
On October 15, 2014, the Company completed the acquisition of
the interests of Fipke Holdings Ltd. (“FipkeCo”) in the Ekati
Diamond Mine. Each of Dr. Stewart Blusson and Archon Minerals
Limited (“Archon”) exercised their rights of first refusal to
acquire their proportionate share of the interests in the Core Zone
and Buffer Zone, respectively, being sold by FipkeCo. As a
consequence, the Company acquired an additional 8.889%
participating interest in the Core Zone and an additional 6.53% in
the Buffer Zone, increasing its interest in the Core Zone and
Buffer Zone to 88.9% and 65.3%, respectively. The base purchase
price for the acquired Core Zone interest was $42.2 million,
plus purchase price adjustments of $13.4 million, for a total
amount payable of $55.6 million. The purchase price
adjustments were paid in cash at closing, and the base purchase
price was satisfied by a promissory note payable in instalments
over 31 months. The Company has the right, but not the obligation,
to satisfy one or more instalments due under the promissory note in
common shares of the Company. The base purchase price for the
acquired Buffer Zone interest was $11.1 million plus purchase
price adjustments of $3.2 million, for a total amount paid in
cash at closing of $14.3 million.
Note 2:Basis of Preparation
(a) Statement of compliance
These consolidated financial statements (“financial statements”)
have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).
These financial statements were prepared on a going concern
basis under the historical cost method except for certain financial
assets and liabilities, which are measured at fair value at the end
of each reporting period. The significant accounting policies are
presented in note 4 and have been consistently applied in each of
the periods presented. These consolidated financial statements were
approved by the Board of Directors on April 13, 2016.
Certain comparative figures have been reclassified to conform
with current presentation.
(b) Currency of presentation
These consolidated financial statements are expressed in United
States dollars, which is the functional currency of the Company.
All financial information presented in United States dollars has
been rounded to the nearest thousand.
Note 3:Change in Accounting Policy and Retrospective
Restatement
The consolidated financial statements reflect the retrospective
application of a voluntary change in accounting policy adopted in
fiscal 2016 to treat, in the Consolidated Balance Sheet and
Consolidated Statement of (Loss) Income, the asset retirement
obligation (“ARO”) as a monetary liability that is revalued using
period end exchange rates, instead of being treated as a
non-monetary liability recorded at historical exchange rates, as
previously reported. The change in accounting policy has been
adopted in accordance with IAS 8, as IAS 37 provides a policy
choice to treat an ARO liability as a monetary or non-monetary
liability. The Company considers this revised treatment of ARO
liability as the most useful to financial statement users and,
consequently, the revised treatment results in more reliable and
relevant information.
a) The following tables outline the effect of this accounting
policy change on the consolidated balance sheet as at January 31,
2016, January 31, 2015 and February 1, 2014.
Balance sheet as at January 31, 2016
Prior to restatement Restatement impact
January 31, 2016 Inventory and supplies (note 7) $ 423,665 $
(7,519) $ 416,146 Property, plant and equipment (note 8) 1,402,135
(96,992) 1,305,143 Deferred income tax assets (note 13) 2,420 1,907
4,327 Total assets 2,267,434 (102,604) 2,164,830 Provisions
(note 14) 466,759 (122,101) 344,658 Total long-term liabilities
702,826 (122,101) 580,725 Retained earnings 734,556 17,472
752,028 Non-controlling interest 110,778 2,025 112,803 Total equity
1,373,833 19,497
1,393,330 Balance sheet as at January
31, 2015 Prior to restatement
Restatement impact January 31, 2015 Inventory and
supplies (note 7) $ 476,930 $ (1,939) $ 474,991 Property, plant and
equipment (note 8) 1,393,918 (76,680) 1,317,238 Deferred income tax
assets (note 13) 6,000 (3,200) 2,800 Total assets 2,427,358
(81,819) 2,345,539 Provisions (note 14) 452,477 (83,280)
369,197 Total long-term liabilities 729,464 (83,280) 646,184
Retained earnings 836,201 916 837,117 Non-controlling interest
114,236 545 114,781 Total equity 1,477,908
1,461 1,479,369
Balance sheet as at February 1, 2014 Prior to
restatement Restatement impact February
1, 2014 Inventory and supplies $ 449,961 $ (292) $ 449,669
Property, plant and equipment 1,469,557 (34,089) 1,435,468 Deferred
income tax assets 3,078 (344) 2,734 Total assets 2,304,650 (34,725)
2,269,925 Provisions 430,968 (34,775) 396,193 Total
long-term liabilities 691,155 (34,775) 656,380 Retained
earnings 775,419 7 775,426 Non-controlling interest 167,435 43
167,478 Total equity 1,471,963 50
1,472,013
b) The following tables outline the effect of this accounting
policy change on the consolidated statement of (loss) income for
the years ended January 31, 2016 and 2015.
For the year ended January 31, 2016
Prior to restatement Restatement impact
January 31, 2016 Cost of sales $ 679,009 $ (10,088) $
668,921 Finance expenses (12,740) 2,842 (9,898) Deferred income tax
recovery (15,114) (5,107) (20,221) Net loss (56,835) 18,037
(38,798) Net (loss) income attributable to Shareholders
(50,512) 16,556 (33,956) Non-controlling interest (6,323) 1,481
(4,842) Basic (loss) earnings per share (0.59)
0.19 (0.40) For
the year ended January 31, 2015 Prior to restatement
Restatement impact January 31, 2015
Cost of sales $ 685,685 $ (3,046) $ 682,639 Finance expenses
(13,993) 853 (13,140) Finance and other income 4,962 370 5,332
Deferred income tax recovery (22,113) 2,856 (19,257) Net profit
72,168 1,413 73,581 Net income attributable to Shareholders
66,187 909 67,096 Non-controlling interest 5,981 504 6,485 Basic
earnings per share 0.78 0.01
0.79
c) The following tables outline the effect of this accounting
policy change on the consolidated statement of changes in equity
for the years ended January 31, 2016 and January 31, 2015.
For the year ended January 31, 2016
Prior to restatement Restatement impact
January 31, 2016 Retained earnings at beginning of period $
836,201 $ 916 $ 837,117 Net (loss) income attributable to common
shareholders (50,512) 16,556 (33,956) Retained earnings at the end
of period 734,556 17,472 752,028 Non-controlling interest at
beginning of period 114,236 545 114,781 Net loss attributable to
non-controlling interest (6,323) 1,481 (4,842) Non-controlling
interest at end of period 110,778 2,025
112,803 For the year
ended January 31, 2015 Prior to restatement
Restatement impact January 31, 2015 Retained
earnings at beginning of period $ 775,419 $ 7 $ 775,426 Net income
attributable to common shareholders 66,187 909 67,096 Retained
earnings at the end of period 836,201 916 837,117
Non-controlling interest at beginning of period 167,435 43 167,478
Net income attributable to non-controlling interest 5,981 504 6,485
Non-controlling interest at end of period 114,236
545 114,781
d) The following tables outline the effect of this accounting
policy change on the consolidated statement of cash flow for the
years ended January 31, 2016 and January 31, 2015.
For the year ended January 31, 2016
Prior to restatement Restatement impact
January 31, 2016 Net (loss) income for the period $ (56,835)
$ 18,037 $ (38,798) Deferred income tax recovery (15,114) (5,107)
(20,221) Finance expenses 12,740 (2,842) 9,898 Change in non-cash
operating working capital 68,110 (10,088) 58,022 Net change in
operating activities 167,987 –
167,987 For the year ended
January 31, 2015 Prior to restatement
Restatement impact January 31, 2015 Net income for
the period $ 72,168 $ 1,413 $ 73,581 Deferred income tax recovery
(22,113) 2,856 (19,257) Finance expenses 13,993 (853) 13,140 Change
in non-cash operating working capital (15,960) (3,416) (19,376) Net
change in operating activities 322,532
– 322,532
Note 4:Significant Accounting Policies
The accounting policies set out below have been applied
consistently to all periods presented in these consolidated
financial statements, and have been applied consistently by Company
entities.
(a) Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at January 31,
2016. Subsidiaries are fully consolidated from the date of
acquisition or creation, being the date on which the Company
obtains control, and continue to be consolidated until the date
that such control ceases. The financial statements of the Company’s
subsidiaries are prepared for the same reporting period as the
parent company, using consistent accounting policies. All
intercompany balances, income and expenses, and unrealized gains
and losses resulting from intercompany transactions are eliminated
in full. For partly owned subsidiaries, the net assets and net
earnings attributable to minority shareholders are presented as
non-controlling interests within the consolidated financial
statements.
Interest in Diavik Joint Venture
DDDLP has an undivided 40% ownership interest in the assets,
liabilities and expenses of the Diavik Joint Venture. The Company
records its interest in the assets, liabilities and expenses of the
Diavik Joint Venture in its consolidated financial statements with
a one-month lag. The accounting policies described below include
those of the Diavik Joint Venture.
Interest in Ekati Diamond Mine
The Company’s interest in the Ekati Diamond Mine as at January
31, 2016 consists of a 88.9% ownership interest in the Core Zone
and its 65.3% interest in the Buffer Zone. The Company controls and
consolidates the Ekati Diamond Mine and minority shareholders are
presented as non-controlling interests (11.1% in the Core Zone and
34.7% in the Buffer Zone) within the consolidated financial
statements.
(b) Revenue
Sales of rough diamonds are recognized when significant risks
and rewards of ownership are transferred to the customer, the
amount of sales can be measured reliably and the receipts of future
economic benefits are probable. Sales are measured at the fair
value of the consideration received or receivable and after
eliminating sales within the Company.
(c) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, balances with
banks and short-term money market instruments (with a maturity on
acquisition of less than 90 days), and are carried at fair
value.
(d) Trade accounts receivable
Trade accounts receivable are recorded at the invoiced amount
and generally do not bear interest.
(e) Inventory and supplies
Rough diamond inventory is recorded at the lower of cost and net
realizable value. Cost is determined on a weighted average cost
basis including production costs and value-added processing
activity.
Supplies inventory is recorded at the lower of cost and net
realizable value. Supplies inventory includes consumables and spare
parts maintained at the Diavik Diamond Mine, Ekati Diamond Mine and
at the Company’s sorting and distribution facility locations. Costs
are determined on a weighted average cost basis.
Stockpiled ore represents coarse ore that has been extracted
from the mine and is stored for future processing. Stockpiled ore
value is based on the costs incurred (including depreciation and
amortization) in bringing the ore to the stockpile. Costs are added
to the stockpiled ore based on current mining costs per tonne and
are removed at the average cost per tonne of ore in the
stockpile.
Net realizable value is the estimated selling price in the
ordinary course of business, less estimated costs of completion and
costs of selling the final product. In order to determine net
realizable value, the carrying amount of obsolete and slow-moving
items is written down on a basis of an estimate of their future use
or realization. A write-down is made when the carrying amount is
higher than net realizable value.
(f) Assets held for sale and discontinued operations
A discontinued operation represents a separate major line of
business that either has been disposed of or is classified as held
for sale. Classification as held for sale applies when an asset’s
carrying value will be recovered principally through a sale
transaction rather than through continuing use, it is available for
immediate sale in its present condition and its sale is highly
probable. Results for assets held for sale are disclosed separately
as net profit from discontinued operations in the consolidated
statements of income and comparative periods are reclassified
accordingly.
(g) Business combination and goodwill
Acquisitions of businesses are accounted for using the purchase
method of accounting whereby all identifiable assets and
liabilities are recorded at their fair value as at the date of
acquisition. Any excess purchase price over the aggregate fair
value of identifiable net assets is recorded as goodwill. Goodwill
is identified and allocated to cash-generating units (“CGU”), or
groups of CGUs, that are expected to benefit from the synergies of
the acquisition. A CGU to which goodwill has been allocated is
tested for impairment annually, and whenever there is an indication
that the CGU may be impaired. For goodwill arising on acquisition
in a financial year, the CGU to which goodwill has been allocated
is tested for impairment before the end of that financial year.
When the recoverable amount of a CGU is less than the carrying
amount of that CGU, the impairment loss is first allocated to
reduce the carrying amount of any goodwill allocated to that CGU,
and then to the other assets of that CGU pro rata on the basis of
the carrying amount of each asset in the CGU. Any impairment loss
for goodwill is recognized directly in the consolidated statement
of income. An impairment loss recorded on goodwill is not reversed
in subsequent periods.
(h) Exploration, evaluation and development expenditures
Exploration and evaluation activities include: acquisition of
rights to explore; topographical, geological, geochemical and
geophysical studies; exploratory drilling; trenching and sampling;
and activities involved in evaluating the technical feasibility and
commercial viability of extracting mineral resources. Mineral
exploration is expensed as incurred. Exploration and evaluation
costs are only capitalized when the activity relates to proven and
probable reserves and the Company concludes that the technical
feasibility and commercial viability of extracting the mineral
resource has been demonstrated and the future economic benefits are
probable. In making this determination, the extent of exploration,
as well as the degree of confidence in the mineral resource is
considered. Capitalized exploration and evaluation expenditures are
recorded as a component of property, plant and equipment.
Recognized exploration and evaluation assets will be assessed for
impairment when specific facts and circumstances suggest that the
carrying amount may exceed its recoverable amount.
Once development is sanctioned, any capitalized exploration and
evaluation costs are tested for impairment and reclassified to
mineral property assets within property, plant and equipment. All
subsequent development expenditure is capitalized, net of any
proceeds from pre-production sales.
(i) Commencement of commercial production
There are a number of quantitative and qualitative measures the
Company considers when determining if conditions exist for the
transition from pre-commercial production to commencement of
commercial production of an operating mine, which include:
- all major capital expenditures have
been completed to bring the mine to the condition necessary for it
to be capable of operating in the manner intended by
management;
- mineral recoveries are at or near
expected production levels; and
- the ability to sustain ongoing
production of ore.
This list of measures is not exhaustive and management takes
into account the surrounding circumstances before making any
specific decision.
(j) Property, plant and equipment
Items of property, plant and equipment are measured at cost,
less accumulated depreciation and accumulated impairment losses.
The initial cost of an asset comprises its purchase price and
construction cost, any costs directly attributable to bringing the
asset into operation, including stripping costs incurred in open
pit development before production commences, the initial estimate
of the site restoration obligation, and for qualifying assets,
borrowing costs. The purchase price or construction cost is the
aggregate amount paid and the fair value of any other consideration
given to acquire the asset.
When parts of an item of property, plant and equipment have
different useful lives, the parts are accounted for as separate
items (major components) of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and
equipment are determined by comparing the proceeds from the
disposal with the carrying amount of property, plant and equipment
and are recognized within cost of sales or selling, general and
administrative expenses.
(i) DEPRECIATION
Depreciation commences when the asset is available for use.
Depreciation is charged on the depreciable amount of the asset to
its residual value over its estimated useful life, using a method
that reflects the pattern in which the asset’s future economic
benefits are expected to be consumed by the Company.
The unit-of-production method is applied to a substantial
portion of the Diavik Diamond Mine and Ekati Diamond Mine property,
plant and equipment, and, depending on the asset, is based on
either tonnes of material processed or carats of diamonds recovered
during the period relative to the estimated proven and probable ore
reserves of the ore deposit being mined, or to the total ore
deposit. Other property, plant and equipment are depreciated using
the straight-line method over the estimated useful lives of the
related assets which are as follows:
Asset Estimated useful life (years) Buildings 10–40
Machinery and mobile equipment 3–10 Computer equipment and software
3 Furniture, fixtures and equipment 2–10 Leasehold and building
improvements Up to 20
Depreciation for mine related assets is charged to mineral
properties during the pre-commercial production stage.
Upon the disposition of an asset, the accumulated depreciation
and accumulated impairment losses are deducted from the original
cost, and any gain or loss is reflected in current net profit or
loss.
Depreciation methods, useful lives and residual values are
reviewed at each financial year end and adjusted if appropriate.
The impact of changes to the estimated useful lives or residual
values is accounted for prospectively.
(ii) STRIPPING COSTS
Mining costs associated with stripping activities in an open pit
mine are expensed unless the stripping activity can be shown to
represent a betterment to the mineral property, in which case the
stripping costs would be capitalized and included in deferred
mineral property costs within mining assets.
IFRIC 20, Stripping costs in the production phase of a surface
mine (“IFRIC 20”), specifies the accounting for costs associated
with waste removal (stripping) during the production phase of a
surface mine. When the benefit from the stripping activity is
realized in the current period, the stripping costs are accounted
for as the cost of inventory. When the benefit is the improved
access to ore in future periods, the costs are recognized as a
mineral property asset, if improved access to the ore body is
probable, the component of the ore body can be accurately
identified and the cost associated with improving the access can be
reliably measured. If these conditions are not met, the costs are
expensed to the consolidated statement of operations as incurred.
After initial recognition, the stripping activity asset is
depreciated on a systematic basis (unit-of-production method) over
the expected useful life of the identified component of the ore
body that becomes more accessible as a result of the stripping
activity.
(iii) MAJOR MAINTENANCE AND REPAIRS
Expenditure on major maintenance refits or repairs comprises the
cost of replacement assets or parts of assets and overhaul costs.
When an asset, or part of an asset that was separately depreciated,
is replaced and it is probable that future economic benefits
associated with the new asset will flow to the Company through an
extended life, the expenditure is capitalized. The unamortized
value of the existing asset or part of the existing asset that is
being replaced is expensed. Where part of the existing asset was
not separately considered as a component, the replacement value is
used to estimate the carrying amount of the replaced asset, which
is immediately written off. All other day-to-day maintenance costs
are expensed as incurred.
(k) Financial instruments
From time to time, the Company may use a limited number of
derivative financial instruments to manage its foreign currency and
interest rate exposure. For a derivative to qualify as a hedge at
inception and throughout the hedged period, the Company formally
documents the nature and relationships between the hedging
instruments and hedged items, as well as its risk-management
objectives, strategies for undertaking the various hedge
transactions and method of assessing hedge effectiveness.
Financial instruments qualifying for hedge accounting must maintain
a specified level of effectiveness between the hedge
instrument and the item being hedged, both at inception and
throughout the hedged period. Gains and losses resulting from any
ineffectiveness in a hedging relationship are recognized
immediately in net profit or loss.
(l) Provisions
Provisions represent obligations of the Company for which the
amount or timing is uncertain. Provisions are recognized when (a)
the Company has a present obligation (legal or constructive) as a
result of a past event, (b) it is probable that an outflow of
resources embodying economic benefits will be required to settle
the obligation, and (c) a reliable estimate can be made of the
amount of the obligation. The expense relating to any provision is
included in net profit or loss. If the effect of the time value of
money is material, provisions are discounted using a current
pre-tax rate that reflects, where appropriate, the risks specific
to the obligation. Where discounting is used, the increase in the
provision due to the passage of time is recognized as a finance
cost in net profit or loss.
Mine rehabilitation and site restoration provision
The Company records the present value of estimated costs of
legal and constructive obligations required to restore operating
locations in the period in which the obligation is incurred. The
nature of these restoration activities includes dismantling and
removing structures, rehabilitating mines and tailings dams,
dismantling operating facilities, closure of plant and waste sites,
and restoration, reclamation and re-vegetation of affected
areas.
The obligations generally arise when the asset is installed or
the ground/environment is disturbed at the production location.
When the liability is initially recognized, the present value of
the estimated cost is capitalized by increasing the carrying amount
of the related assets. Over time, the discounted liability is
increased/decreased for the change in present value based on the
discount rates that reflect current market assessments and the
risks specific to the liability. Additional disturbances or changes
in rehabilitation costs, including remeasurement from changes in
the discount rate, are recognized as additions or charges to the
corresponding assets and rehabilitation liability when they
occur.
(m) Foreign currency
Monetary assets and liabilities denominated in foreign
currencies are translated to US dollars at exchange rates in effect
at the balance sheet date, and non-monetary assets and liabilities
are translated at rates of exchange in effect when the assets were
acquired or obligations incurred. Revenues and expenses are
translated at rates in effect at the time of the transactions.
Foreign exchange gains and losses are included in net profit or
loss.
For certain subsidiaries of the Company where the functional
currency is not the US dollar, the assets and liabilities of these
subsidiaries are translated at the rate of exchange in effect at
the reporting date. Sales and expenses are translated at the rate
of exchange in effect at the time of the transactions. Foreign
exchange gains and losses are accumulated in other comprehensive
income within shareholders’ equity. When a foreign operation is
disposed of, in part or in full, the relevant amount in the foreign
exchange reserve account is reclassified to net profit or loss as
part of profit or loss on disposal.
(n) Income taxes
Income tax expense comprises current and deferred tax and is
recognized in net profit or loss except to the extent that it
relates to items recognized directly in equity, in which case it is
recognized in equity or in other comprehensive income.
Current tax expense is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in
respect of previous years. Deferred tax expense is recognized in
respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax expense is
measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting
date.
A deferred tax asset is recognized to the extent that it is
probable that future taxable profits will be available against
which the temporary difference can be utilized. Deferred tax assets
are reviewed at each reporting date and are reduced to the extent
that it is probable that the related tax benefit will not be
realized.
Deferred income and mining tax assets and deferred income and
mining tax liabilities are offset, if a legally enforceable right
exists to offset current tax assets against current income tax
liabilities and the deferred income taxes relate to the same
taxable entity and the same taxation authority.
The Company classifies foreign exchange differences on deferred
tax assets or liabilities in jurisdictions where the functional
currency is different from the currency used for tax purposes as
income tax expense.
(o) Stock-based payment transactions
STOCK-BASED COMPENSATION
Grants under the Company’s share-based compensation plans are
accounted for in accordance with the fair value method of
accounting. For stock option plans that will settle through the
issuance of equity, the fair value of stock options is determined
on their grant date using a Black-Scholes valuation model and
recorded as compensation expense over the period that the award
vests, with the corresponding credit to contributed surplus. When
option awards vest in instalments over the vesting period, each
instalment is accounted for as a separate arrangement. Forfeitures
are estimated throughout the vesting period based on past
experience and future expectations, and adjusted upon actual option
vesting. When stock options are exercised, the proceeds, together
with the amount recorded in contributed surplus, are recorded in
share capital.
RESTRICTED AND DEFERRED SHARE UNIT PLANS
The Restricted and Deferred Share Unit (“RSU” and “DSU”) Plans
are full value phantom shares that mirror the value of Dominion
Diamond Corporation’s publicly traded common shares. Grants under
the RSU Plan are made on a discretionary basis to employees of the
Company subject to Board of Directors’ approval. Under the 2010 RSU
Plan, each RSU grant vests equally over a three-year period.
Vesting under both RSU Plans is subject to special rules for death,
disability and change in control. Grants under the DSU Plan are
awarded to non-executive directors of the Company. Each DSU grant
vests immediately on the grant date.
The expenses related to the RSUs and DSUs are accrued based on
fair value, determined as of the date of grant. This expense is
recognized as compensation expense over the vesting period. Until
the liability is settled, the fair value of the RSUs and DSUs is
remeasured at the end of each reporting period and at the date of
settlement, with changes in fair value recognized as share-based
compensation expense or recovery over the vesting period.
(p) Employee pension plans
The Company operates various pension plans. The plans are
generally funded through payments to insurance companies or
trustee-administered funds determined by periodic actuarial
calculations. The Company has both defined benefit and defined
contribution plans.
A defined contribution plan is a pension plan under which the
employer pays fixed contributions into a separate entity or fund in
respect of each member of the plan. These contributions are
expensed as incurred. Unless otherwise provided in the plan
documentation, the employer has no legal or constructive obligation
to pay any further contributions. The benefits each member of the
plan will receive are based solely on the amount contributed to the
member’s account and any income, expenses, gains and losses
attributed to the member’s account.
A defined benefit plan is a pension plan that guarantees a
defined amount of pension benefit that an employee will receive on
retirement, usually dependent on one or more factors such as age,
years of service and compensation. The liability recognized in the
balance sheet in respect of defined benefit pension plans is the
present value of the defined benefit obligation at the end of the
reporting period less the fair value of plan assets. The defined
benefit obligation is calculated annually by independent actuaries
using the projected unit credit method. The present value of the
defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates on high-quality
corporate bonds that are denominated in the currency in which the
benefits will be paid, and that have terms to maturity
approximating the terms of the related pension obligation.
Actuarial gains and losses arising from experience adjustments
and changes in actuarial assumptions are charged or credited to
equity in other comprehensive income in the period in which they
arise. Past service costs are recognized immediately in income.
(q) Operating leases
Minimum rent payments under operating leases, including any
rent-free periods and/or construction allowances, are recognized on
a straight-line basis over the term of the lease and included in
net profit or loss.
(r) Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets other
than inventory and deferred taxes are reviewed at each reporting
date to determine whether there is any indication of impairment. If
any such indication exists, then the asset’s recoverable amount is
estimated.
The recoverable amount of an asset is the greater of its fair
value less cost of disposal (“FVLCD”) and its value in use. In the
absence of a binding sales agreement, fair value is estimated on
the basis of values obtained from an active market or from recent
transactions or on the basis of the best information available that
reflects the amount that the Company could obtain from the disposal
of the asset. For the purpose of impairment testing, assets are
grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of
the cash inflows of other assets or groups of assets, referred to
as a cash generating unit (“CGU”). FVLCD is estimated by using the
discounted future after-tax cash flows expected to be derived from
the CGU, less an estimated amount for cost to dispose. When
discounting estimated future after-tax cash flows, the Company uses
an after-tax discount rate which reflects the risks specific to the
CGU. Estimated cash flows are based on expected future production,
expected selling prices, expected operating costs and expected
capital expenditures. Value in use is defined as the present value
of future pre-tax cash flows expected to be derived from the use of
an asset, using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset.
An impairment loss is recognized if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognized in the consolidated statement of
income in those expense categories consistent with the function of
the impaired asset. Impairment losses recognized in respect of CGUs
would be allocated first to reduce goodwill and then to reduce the
carrying amounts of the assets in the unit (group of units) on a
pro rata basis.
Impairment losses for property, plant and equipment and
intangible assets are reversed if there has been a change in the
estimates used to determine the asset’s recoverable amount since
the last impairment loss was recognized, and it has been determined
that the asset is no longer impaired or that impairment has
decreased. The reversal is recognized in earnings before income
taxes in the period in which the reversal occurred and is limited
to the carrying value less any subsequent depreciation that would
have been determined had no impairment charge been recognized in
prior years.
These assessments require the use of estimates and assumptions
such as long-term commodity prices, discount rates, future capital
requirements, exploration potential and operating performance.
(s) Basic and diluted earnings per share
Basic earnings per share are calculated by dividing net profit
or loss by the weighted average number of shares outstanding during
the period. Diluted earnings per share are determined using the
treasury stock method to calculate the dilutive effect of options
and warrants. The treasury stock method assumes that the exercise
of any “in-the-money” options with the option proceeds would be
used to purchase common shares at the average market value for the
period. Options with an exercise price higher than the average
market value for the period are not included in the calculation of
diluted earnings per share as such options are not dilutive.
(t) Non-controlling interest
Non-controlling interest in the Company’s less than wholly owned
subsidiaries is classified as a separate component of equity. On
initial recognition, non-controlling interests are measured at
their proportionate share of the acquisition date fair value of
identifiable net assets of the related subsidiary acquired by the
Company. Subsequent to the acquisition date, adjustments are made
to the carrying amount of non-controlling interests for the
non-controlling interests’ share of the changes to the subsidiary’s
equity. Adjustments to recognize the non-controlling interests’
share of changes to the subsidiary’s equity are made even if this
results in the non-controlling interest having a deficit
balance.
Changes in the Company’s ownership interest in a subsidiary that
do not result in a loss of control are recorded as equity
transactions. The carrying value of the non-controlling interests
is adjusted to reflect the change in the non-controlling interests’
relative interest in the subsidiary, and the difference between the
adjustment to the carrying amount of non-controlling interest and
the Company’s share of proceeds received and/or consideration paid
is recognized directly in equity and attributed to the shareholders
of the Company.
(u) Use of estimates, judgments and assumptions
The preparation of the consolidated financial statements in
conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities and
contingent liabilities at the date of the consolidated
financial statements, and the reported amounts of sales and
expenses during the reporting period. Estimates and assumptions are
continually evaluated and are based on management’s experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. However, actual
outcomes can differ from these estimates. Revisions to accounting
estimates are recognized in the period in which the estimates are
revised and in any future periods affected. Information about
significant areas of estimation uncertainty and critical judgments
in applying accounting policies that have the most significant
effect on the amounts recognized in the consolidated financial
statements is as follows:
a. SIGNIFICANT JUDGMENTS IN APPLYING ACCOUNTING POLICIES
Recovery of deferred tax assets
Judgment is required in determining whether deferred tax assets
are recognized in the consolidated balance sheet. Deferred tax
assets, including those arising from unused tax losses, require
management to assess the likelihood that the Company will generate
taxable earnings in future periods in order to utilize recognized
deferred tax assets. Estimates of future taxable income are based
on forecasted income from operations and the application of
existing tax laws in each jurisdiction. To the extent that future
taxable income differs significantly from estimates, the ability of
the Company to realize the deferred tax assets recorded at the
consolidated balance sheet date could be impacted. Additionally,
future changes in tax laws in the jurisdictions in which the
Company operates could limit the ability of the Company to obtain
tax deductions in future periods.
Commitments and contingencies
The Company has conducted its operations in the ordinary course
of business in accordance with its understanding and interpretation
of applicable tax legislation in the countries where the Company
has operations. The relevant tax authorities could have a different
interpretation of those tax laws that could lead to contingencies
or additional liabilities for the Company. The Company believes
that its tax filing positions as at the balance sheet date are
appropriate and supportable. Should the ultimate tax liability
materially differ from the provision, the Company’s effective tax
rate and its profit or loss could be affected positively or
negatively in the period in which the matters are resolved.
Commercial production
Commencement of production is an important “point in time”
determination for accounting purposes, and signifies the point in
time at which a constructed asset is capable of operating in the
manner intended by management. At this point in time, recognition
of revenue and expenses from the operation commence for accounting
purposes. The date of transition from pre-commercial production to
production accounting is based on both qualitative and quantitative
measures such as substantial physical project construction,
sustained level of mining and sustained levels of processing
activity.
b. SIGNIFICANT ESTIMATES AND ASSUMPTIONS IN APPLYING ACCOUNTING
POLICIES
Mineral reserves, mineral properties and exploration costs
The estimation of mineral reserves is a subjective process. The
Company estimates its mineral reserves based on information
compiled by an appropriately qualified person. Forecasts are based
on engineering data, projected future rates of production and the
timing of future expenditures, all of which are subject to numerous
uncertainties and various interpretations. The Company expects that
its estimates of reserves will change to reflect updated
information. Reserve estimates can be revised upward or downward
based on the results of additional future drilling, testing or
production levels, and diamond prices. Changes in reserve
estimates may impact the carrying value of exploration and
evaluation assets, mineral properties, property, plant and
equipment, mine rehabilitation and site restoration provisions,
recognition of deferred tax assets, and depreciation charges.
Estimates and assumptions about future events and circumstances are
also used to determine whether economically viable reserves exist
that can lead to commercial development of an ore body.
Estimated mineral reserves are used in determining the
depreciation of mine-specific assets. This results in a
depreciation charge proportional to the depletion of the
anticipated remaining life of mine production. A unit-of-production
depreciation method is applied and, depending on the asset, is
based on carats of diamonds recovered during the period relative to
the estimated proven and probable reserves of the ore deposit being
mined or to the total ore deposit. Changes in estimates are
accounted for prospectively.
Impairment of long-lived assets
The Company assesses each CGU at least annually to determine
whether any indication of impairment exists. Where an indicator of
impairment exists, a formal estimate of the recoverable amount is
made, which is considered to be the higher of the fair value of an
asset less costs to sell and its value in use. These assessments
require the use of estimates and assumptions such as long-term
commodity prices, discount rates, future capital requirements,
exploration potential and operating performance. Financial results
as determined by actual events could differ from those
estimated.
Inventories
The measurement of inventory including the determination of its
net realizable value, involves the use of estimates. The
significant sources of estimation uncertainty include diamond
prices, production grade and expenditure and determining the
remaining costs of completion to bring inventory into its saleable
form. The Company uses historical data on prices achieved, grade
and expenditure in forming its assessment.
Mine rehabilitation and site restoration provision
Provision for the cost of site closure and reclamation is
recognized at the time that the environmental disturbance occurs.
When the extent of disturbance increases over the life of the
operation, the provision is increased accordingly. Costs included
in the provision encompass all restoration and rehabilitation
activities expected to occur progressively over the life of the
operation and at the time of closure. Routine operating costs that
may impact the ultimate restoration and rehabilitation activities,
such as waste material handling conducted as an integral part of a
mining or production process, are not included in the provision.
Costs arising from unforeseen circumstances, such as contamination
caused by unplanned discharges, are recognized as an expense and
liability when the event gives rise to an obligation which is
probable and capable of reliable estimation.
The site closure and reclamation provision is measured at the
expected value of future cash flows and is discounted to its
present value. Significant judgments and estimates are involved in
forming expectations of future site closure and reclamation
activities and the amount and timing of the associated cash flows.
Those expectations are formed based on existing environmental and
regulatory requirements. The Ekati Diamond Mine rehabilitation and
site restoration provision is prepared by management at the Ekati
Diamond Mine.
The Diavik Diamond Mine rehabilitation and site restoration
provisions have been provided by management of the Diavik Diamond
Mine and are based on internal estimates. Assumptions, based on the
current economic environment, have been made which DDMI management
believes are a reasonable basis upon which to estimate the future
liability. These estimates are reviewed regularly by management of
the Diavik Diamond Mine to take into account any material changes
to the assumptions. However, actual rehabilitation costs will
ultimately depend upon future costs for the necessary
decommissioning work required, which will reflect market conditions
at the relevant time. Furthermore, the timing of rehabilitation is
likely to depend on when the Diavik Diamond Mine ceases to produce
at economically viable rates. This, in turn, will depend upon a
number of factors including future diamond prices, which are
inherently uncertain.
Pension benefits
The present value of the pension obligations depends on a number
of factors that are determined on an actuarial basis using a number
of assumptions. The assumptions used in determining the net cost
(income) for pensions include the discount rate. Any changes in
these assumptions will impact the carrying amount of the pension
obligation.
The Company determines the appropriate discount rate at the end
of each year. This is the interest rate that should be used to
determine the present value of estimated future cash outflows
expected to be required to settle the pension obligations. In
determining the appropriate discount rate, the Company considers
the interest rates of high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid and
that have terms to maturity approximating the terms of the related
pension obligation.
Other key assumptions for pension obligations are based in part
on current market conditions. For additional information refer to
note 12 of these consolidated financial statements.
(v) Standards issued but not yet effective
Standards issued but not yet effective up to the date of
issuance of the consolidated financial statements are listed below.
The listing is of standards and interpretations issued, which the
Company reasonably expects to be applicable at a future date.
IAS 1 – PRESENTATION OF FINANCIAL STATEMENTS
On December 18, 2015, the IASB issued amendments to IAS 1,
Presentation of Financial Statements (“IAS 1”), as part of its
major initiative to improve presentation and disclosure in
financial reports. The amendments are effective for annual periods
beginning on or after January 1, 2016. Early adoption is
permitted. The Company intends to adopt these amendments in its
consolidated financial statements for the annual period beginning
on February 1, 2016. The Company does not expect that the
amendments will have a material impact on its consolidated
financial statements.
IFRS 11 – BUSINESS COMBINATION ACCOUNTING FOR INTEREST IN JOINT
OPERATIONS
On May 6, 2015, the IASB issued amendments to IFRS 11,
Joint Arrangements (“IFRS 11”). The amendments apply prospectively
for annual periods beginning on or after January 1, 2016, with
earlier application permitted. The amendments require business
combination accounting to be applied to acquisitions of interests
in a joint operation that constitutes a business. The Company
intends to adopt the amendments to IFRS 11 in its consolidated
financial statements for the annual period beginning on
February 1, 2016. The Company does not expect that the
amendments will have a material impact on its consolidated
financial statements.
IFRS 9 – FINANCIAL INSTRUMENTS
In July 2014, the IASB issued the final version of IFRS 9,
Financial Instruments (“IFRS 9”), to replace IAS 39, Financial
Instruments: Recognition and Measurement. IFRS 9 provides a revised
model for recognition and measurement of financial instruments and
a single, forward-looking ‘expected loss’ impairment model. IFRS 9
also includes a substantially reformed approach to hedge
accounting. The standard is effective for annual periods beginning
on or after January 1, 2018, with early adoption permitted. The
Company has evaluated the impact the standard will have on its
consolidated financial statements and it expects to early adopt
this standard starting on February 1, 2016 with no material impact
on its consolidated financial statements.
IFRS 15 – REVENUE FROM CONTRACTS WITH CUSTOMERS
In May 2014, the IASB issued IFRS 15, Revenue from Contracts
with Customers (“IFRS 15”). IFRS 15 is effective for periods
beginning on or after January 1, 2018 and is to be applied
retrospectively. IFRS 15 clarifies the principles for recognizing
revenue from contracts with customers. The Company intends to adopt
IFRS 15 in its financial statements for the annual period beginning
February 1, 2018. The extent of the impact of the adoption of IFRS
15 has not yet been determined.
IFRS 16 – LEASES
In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”),
which replaces IAS 17, Leases and its associated interpretative
guidance. IFRS 16 applies a control model to the identification of
leases, distinguishing between a lease and a services contract on
the basis of whether the customer controls the assets being leased.
For those assets determined to meet the definition of a lease, IFRS
16 introduces significant changes to the accounting by lessees,
introducing a single, on-balance sheet accounting model that is
similar to current finance lease accounting, with limited
exceptions for short-term leases or leases of low value assets.
Lessor accounting remains similar to current accounting practice.
The standard is effective for annual periods beginning on or after
January 1, 2019, with early application permitted for entities that
have also adopted IFRS 15. The Company is currently evaluating the
impact the final standard is expected to have on its consolidated
financial statements.
Note 5:Cash and Cash Equivalents and Restricted Cash
2016 2015 Cash and cash
equivalents $ 320,038 $ 457,934 Restricted cash
63,312 34,607 Total cash resources $ 383,350
$ 492,541
During the third quarter of fiscal 2016, the Company reached an
agreement with the operator of the Diavik Joint Venture whereby
DDDLP is required to post its proportionate share of the security
deposit used to secure the reclamation obligation for the Diavik
Diamond Mine. As at January 31, 2016, the Company has outstanding
letters of credit in the amount of CDN $60 million to the
Government of the Northwest Territories (“GNWT”) as security for
the reclamation obligations for the Diavik Diamond Mine.
During the third quarter of fiscal 2016, the GNWT also completed
its review of the Ekati Diamond Mine security held under the
environmental agreement and concluded there was duplication between
security required under the Water License and security held by the
GNWT. The security was reduced by CDN $23 million and that amount
was returned to the Company. As at January 31, 2016, the Company
has outstanding letters of credit in the amount of CDN $29 million
to the GNWT and other regulating bodies as security for the
reclamation obligation for the Ekati Diamond Mine.
Note 6:Accounts Receivable
2016 2015 Trade
receivables $ 760 $ 52 Sales tax credits 5,553 8,508 Other
5,215 5,157 Total accounts receivable $
11,528 $ 13,717
The Company’s exposure to credit risk is disclosed in note 23.
Total receivables are collectable within the next 12 months.
Note 7:Inventory and Supplies
2016 2015
(Restated – note 3)
Stockpile ore $ 7,030 $ 13,368 Rough diamonds – work in progress
119,165 156,261 Rough diamonds – finished goods (available for
sale) 94,631 66,486 Supplies inventory 195,320
238,876 Total inventory and supplies $ 416,146
$ 474,991
Total supplies inventory are net of a write-down for
obsolescence of $7.5 million at January 31, 2016 ($5.7 million at
January 31, 2015). For the year ended January 31, 2016, the
cost of inventories recognized as an expense and included in cost
of sales was $645.1 million (2015 – $676.1 million).
Cost of sales for the year ended January 31, 2016 includes a
$19.8 million (2015 – $nil) write-down in the Ekati segment to
bring work-in-progress inventories to their net realizable
value.
Note 8:Property, Plant and Equipment
Mineralproperties(a),(e)
Equipmentandleaseholds(b)
Furniture,equipmentand other(c)
Realproperty –land andbuilding(d)
Assetsunderconstruction
Total
Cost:
Balance at February 1,
2015 (restated) $ 484,569 $ 1,445,478 $ 12,041 $ 237,905 $ 68,598 $
2,248,591 Additions 7,864 1,053 747 2,289 248,843 260,796 Disposals
– (4,148) (847) (561) – (5,556) Foreign exchange differences
(39,797) – 127 (2,318) – (41,988) Pre-production revenue (7,668) –
– – – (7,668) Transfers and other movements 182,146
48,798 (16) 422
(231,350) – Balance at January 31, 2016
$ 627,114 $ 1,491,181 $ 12,052 $ 237,737
$ 86,091 $ 2,454,175
Accumulated
depreciation/amortization: Balance at February 1, 2015
(restated) $ 225,158 $ 628,804 $ 8,721 $ 68,670 $ – $ 931,353
Depreciation and amortization for the year 14,426 167,798 853
37,725 – 220,802 Disposals – (1,738) – (561) – (2,299) Foreign
exchange differences – –
(134) (690) – (824)
Balance at January 31, 2016 $ 239,584 $ 794,864
$ 9,440 $ 105,144 $ – $ 1,149,032 Net
book value at January 31, 2016 $ 387,530 $ 696,317
$ 2,612 $ 132,593 $ 86,091 $ 1,305,143
(Restated – note 3)
Mineralproperties(a),(e)
Equipmentandleaseholds(b)
Furniture,equipmentand other(c)
Realproperty –land andbuilding(d)
Assetsunderconstruction
Total
Cost:
Balance at February 1,
2014 $ 379,298 $ 1,371,331 $ 13,145 $ 225,657 $ 169,984 $ 2,159,415
Additions 18,139 – 1,711 1,254 157,071 178,175 Disposals – (6,035)
(2,514) (935) (847) (10,331) Foreign exchange differences (46,434)
– (301) (3,464) – (50,199) Pre-production revenue (28,469) – – – –
(28,469) Transfers and other movements 162,035
80,182 – 15,393
(257,610) – Balance at January 31, 2015 $
484,569 $ 1,445,478 $ 12,041 $ 237,905
$ 68,598 $ 2,248,591
Accumulated
depreciation/amortization: Balance at February 1, 2014 $
211,166 $ 468,595 $ 8,260 $ 35,927 $ – $ 723,948 Depreciation and
amortization for the year 13,992 165,414 1,825 34,549 – 215,780
Disposals – (5,205) (1,364) (853) – (7,422) Foreign exchange
differences – – –
(953) – (953) Balance at January
31, 2015 $ 225,158 $ 628,804 $ 8,721 $
68,670 $ – $ 931,353 Net book value at January 31,
2015 $ 259,411 $ 816,674 $ 3,320 $
169,235 $ 68,598 $ 1,317,238
(a) Mineral properties represent the
Company’s ownership share of mineral claims, which contains
commercially mineable diamond reserves, development costs and
stripping activities.
(b) Equipment and leaseholds are project
related assets at the Diavik Joint Venture and Ekati Diamond
Mine.
(c) Furniture, equipment and other
includes equipment located at the Company’s diamond sorting
facility.
(d) Real property includes land and a
building that houses the corporate activities of the Company, and
various betterments to the corporate offices.
(e) Both the Diavik Joint Venture and the
Ekati Diamond Mine have obligations under various agreements (note
14) to reclaim and restore the lands disturbed by its mining
operations.
The Company has expensed $7.0 million in exploration
expenditures in the current year (2015 – $25.4 million).
As at January 31, 2016, $33.0 million of exploration and
evaluation (“E&E”) assets were included in mineral interests,
all of which were additions during the current year. During the
year ended January 31, 2016, the Company acquired no E&E assets
and transferred no E&E assets to capitalized development.
Note 9:Diavik Joint Venture and Ekati Diamond Mine
DIAVIK JOINT VENTURE
The following represents DDDLP’s 40% interest in the net
assets and operations of the Diavik Joint Venture as at December
31, 2015 and December 31, 2014:
2015 2014 Current
assets $ 89,433 $ 99,376 Non-current assets 513,413 558,686 Current
liabilities (35,153) (39,583) Non-current liabilities and
participant’s account (567,693)
(618,479)
2015 2014
Expenses net of interest income(i)
$ 180,219 $ 232,897
Cash flows used in operating
activities(i)
(121,652) (134,793) Cash flows provided by financing activities
164,395 151,790 Cash flows used in investing activities
(42,662) (17,243)
(i) The Joint Venture earns interest
income only as diamond production is distributed to
participants.
DDDLP is contingently liable for DDMI’s portion of the
liabilities of the Diavik Joint Venture, and to the extent DDDLP’s
participating interest could increase because of the failure of
DDMI to make a cash contribution when required, DDDLP would have
access to an increased portion of the assets of the Diavik Joint
Venture to settle these liabilities. Additional information on
commitments and guarantees related to the Diavik Joint Venture is
found in note 21.
EKATI DIAMOND MINE
The following represents a 100% interest in the net assets and
operations of the Ekati Diamond Mine as at January 31, 2016 and
January 31, 2015:
2016 2015
(Restated – note 3)
Current assets $
384,099
$
560,847
Non-current assets 666,931 647,924 Current liabilities
(159,742)
(176,097)
Non-current liabilities and participant’s account
(891,288)
(1,032,674)
2016 2015
(Restated – note 3)
Revenue $ 476,069 $ 583,263 Expenses
(524,788)
(492,246)
Net income (loss)
(48,719)
91,017
Cash flows provided by operating activities
218,624
150,735 Cash flows provided by (used in) financing activities
(64,438) 38,154 Cash flows used in investing activities
(184,856)
(140,824)
The comparative figures in the table above have been recast to
reflect differences in total assets and total liabilities
identified when preparing the current year financial
statements.
Note 10:Other Non-Current Assets
2016 2015 Prepaid
assets $ 768 $ 551 Goodwill 1,188 1,188 Sample diamonds 16,343
16,343 Other assets 3,537 933 Security deposits 916
1,455 $ 22,752 $ 20,470
Note 11:Trade and Other Payables
2016 2015 Trade
and other payables $ 71,428 $ 54,769 Accrued expenses
43,161 44,473 $ 114,589 $ 99,242
Note 12:Employee Benefit Plans
The employee benefit obligation reflected in the consolidated
balance sheet is as follows:
2016 2015 Defined
benefit plan obligation – Ekati Diamond Mine (a) $ 12,557 $ 11,090
Defined contribution plan obligation – Ekati Diamond Mine (b) 222
300 Defined contribution plan obligation – Dominion Diamond
Corporation 47 170 Post-retirement benefit plan – Diavik Diamond
Mine (c) 807 749 RSU and DSU Plans (d) 3,828
5,643 Total employee benefit plan obligation $ 17,461
$ 17,952
2016 2015 Non-current $ 14,319 $
13,715 Current 3,142 4,237 Total
employee benefit plan obligation $ 17,461 $ 17,952
(a) Defined benefit pension plan
Dominion Diamond Ekati Corporation sponsors a non-contributory
defined benefit registered pension plan covering employees in
Canada who were employed by BHP Billiton Canada Inc. and employed
in its diamond business prior to June 30, 2004. As a result of the
acquisition of the Ekati Diamond Mine, the plan was assigned to
Dominion Diamond Ekati Corporation and renamed the Dominion Diamond
Ekati Corporation Defined Benefit Pension Plan. Pension benefits
are based on the length of service and highest average covered
earnings. Any benefits in excess of the maximum pension limit for
registered pension plans under the Income Tax Act accrue for the
employee, via an unfunded supplementary retirement plan. New
employees could not become members of this defined benefit pension
arrangement after June 30, 2004.
(i) NET BENEFIT OBLIGATION
January 31, 2016
January 31, 2015 Accrued benefit obligation $ 69,712 $ 77,213 Plan
assets 57,155 66,123 Funded status –
plan deficit $ 12,557 $ 11,090
As at the last valuation date, on January 31, 2016, the present
value of the defined benefit obligation comprised approximately
$58.8 million relating to active employees, $5.7 million relating
to deferred members and $5.3 million relating to retired
members.
2016 2015 Defined benefit
obligation as at February 1, 2015 and 2014 $ 77,213 $ 76,670
Service cost 4,376 4,525 Interest expense 2,469 3,016 Benefit
payments (5,726) (6,677) Remeasurements (1,750) 15,677 Effect of
changes in foreign exchange rates (6,870)
(15,998) Defined benefit obligation as at January 31, 2016
and 2015 $ 69,712 $ 77,213
(ii) PLAN ASSETS
2016 2015 Plan assets as
at February 1, 2015 and 2014 $ 66,123 $ 65,680 Interest income
2,175 2,679 Total employer contributions 5,252 5,006 Benefit
payments (5,726) (6,677) Taxes paid from plan assets (14) (12)
Return on plan assets, excluding imputed interest income (4,572)
12,472 Effect of changes in foreign exchange rates
(6,083) (13,025) Plan assets as at January 31, 2016
and 2015 $ 57,155 $ 66,123
The amounts recognized in the statement of income are as
follows:
2016 2015 Current service costs
$ 4,376 $ 4,525 Interest costs 294 337 Taxes paid from plan assets
14 12 Total, included in cost of sales
$ 4,684 $ 4,874
The actuarial losses (gains) recognized in other comprehensive
income (loss) net of taxes for defined benefit plans were as
follows:
2016 2015 Return
on plan assets, excluding imputed interest income $ (4,572) $
12,472 Actuarial (loss) gain from change in demographic assumptions
(471) (785) Actuarial (loss) gain from change in financial
assumptions 1,520 (14,370) Actuarial (loss) gain from experience
adjustments 839 (369) Total net
actuarial (loss) gain recognized in other comprehensive loss before
income taxes $ (2,684) $ (3,052) Income tax recovery (expense) on
actuarial gains (losses) 868 944 Total
actuarial (losses) gains, net of income taxes $ (1,816)
$ (2,108)
The asset allocation of pension assets at January 31, 2016 and
2015 was as follows:
January 31,2016
January 31,2015
ASSET CATEGORY Cash equivalents 1% 1% Equity securities 25% 24%
Fixed income securities 74% 75% Other 0% 0% Total
100% 100%
(iii) THE SIGNIFICANT ASSUMPTIONS USED FOR THE PLAN ARE AS
FOLLOWS:
January 31, 2016 January 31,
2015 ACCRUED BENEFIT OBLIGATION Discount rate 3.60% 3.40% Rate of
salary increase 2.00% 2.50% Rate of price inflation 2.00% 2.00%
Mortality table CPM2014Priv with CPM-B CPM2014Priv
with CPM-B BENEFIT COSTS FOR THE YEAR Discount rate 3.40% 4.40%
Expected rate of salary increase 2.50% 3.00% Rate of compensation
increase 2.00% 2.25%
The weighted average duration of the defined benefit obligation
is 10 years. The sensitivity of the gross accrued benefit
obligation to changes in the weighted principal assumption is:
Impact on defined benefit obligation
Changes inassumption
Decrease inassumption
Increase inassumption
Discount rate 0.50% $ 73,141 $ 66,154 Salary
growth rate 0.25% 68,821 70,112
Mortality table 1 year 70,109
68,789
The above sensitivity analysis is based on a change in an
assumption while holding all other assumptions constant. In
practice, this is unlikely to occur, and changes in some of the
assumptions may be correlated.
(iv) RISK ANALYSIS
Through its defined benefit pension plan, the Company is exposed
to a number of risks, the most significant of which are detailed
below:
Asset volatility
The plan liabilities are calculated using a discount rate set
with references to corporate bond yields; if the plan underperforms
the yields, this will create a deficit.
Changes in bond yields
A decrease in corporate bond yields will increase plan
liabilities, although this would likely be partially offset by an
increase in the value of the plan’s bond holdings.
Inflation risk
Most of the plan’s obligations are linked to inflation and
higher inflation will lead to higher liabilities (although, in most
cases, caps on the level of inflationary increases are in place to
protect the plan against extreme inflation). The majority of the
plan’s assets are either unaffected by (fixed interest bonds) or
loosely correlated with (equities) inflation, meaning that an
increase in inflation will also increase the deficit.
Life expectancy
The majority of the plan’s obligations are to provide benefits
for the life of the member and the member’s spouse, so increases in
life expectancy will result in an increase in the plan’s
liabilities.
Salary risk
The present value of the defined benefit obligation was
calculated by reference to the future salaries of plan
participants. An increase in the salary of the plan’s participants
will increase the plan’s liability.
(v) FUNDING POLICY
The Company funds the plan in accordance with the requirements
of the Pension Benefits Standards Act, 1985 and the Pension
Benefits Standards Regulations and the actuarial professional
standards with respect to funding such plans. Funding deficits are
amortized as permitted under the Regulations. In the Company’s
view, this level of funding is adequate to meet current and future
funding needs in light of projected economic and demographic
conditions. The Company may in its absolute discretion fund in
excess of the legislated minimum from time to time, but no more
than the maximum contribution permitted under the Income Tax
Act.
The expected contribution to the plan for fiscal year 2017 is
$4.3 million.
(b) Defined contribution plan
Dominion Diamond Corporation sponsors a defined contribution
plan for Canadian employees who are not employed by Dominion
Diamond Ekati Corporation whereby the employer contributes a
maximum of 6% of the employee’s salary to the maximum contribution
limit under Canada’s Income Tax Act. The total defined contribution
plan liability at January 31, 2016 was $0.1 million ($0.2 million
at January 31, 2015).
Dominion Diamond Ekati Corporation sponsors a defined
contribution plan for its employees who are not members of the
defined benefit pension plan referred to in note 12(a) above. The
employer contributes 8% of earnings up to 2.5 times the Year’s
Maximum Pensionable Earnings (“YMPE”, as defined under the Canada
Pension Plan), and 12% of earnings above 2.5 times YMPE. The
employer also matches additional contributions made by an employee
up to 3% of earnings. Employer contributions in excess of the
maximum contribution limit for defined contribution plans under
Canada’s Income Tax Act are credited by the employer to a notional
(unfunded) supplementary retirement plan. The defined contribution
plan liability at January 31, 2016 was $0.2 million (2015 – $0.3
million). (Supplemental plan liability has been included in the
accrued benefit obligation disclosed in note 12(a) above.)
(c) Post-retirement benefit plan
The Diavik Joint Venture sponsors a defined contribution plan
whereby the employer contributes 6% of the employee’s
salary.
The Diavik Joint Venture provides non-pension post-retirement
benefits to retired employees. The post-retirement benefit plan
liability was $0.8 million at January 31, 2016 ($0.8 million at
January 31, 2015).
(d) Restricted Stock Units (“RSU”) and Deferred Stock Units
(“DSU”) Plans
Grants under the RSU Plan are on a discretionary basis to
employees of the Company and its subsidiaries subject to Board of
Directors’ approval. The RSUs granted vest one-third on March 31
following the date of the grant and one-third on each anniversary
thereafter. The vesting of grants of RSUs are subject to special
rules for a change in control, death and disability. The Company
shall pay out cash on the respective vesting dates of RSUs and
redemption dates of DSUs.
Only non-executive directors of the Company are eligible for
grants under the DSU Plan. Each DSU grant vests immediately on the
grant date.
The expenses related to the RSUs and DSUs are accrued based on
fair value, determined as of the date of grant. This expense is
recognized as compensation expense over the vesting period. Until
the liability is settled, the fair value of the RSUs and DSUs is
remeasured at the end of each reporting period and at the date of
settlement, with changes in fair value recognized as share-based
compensation expense or recovery over the vesting period.
Note 13:Income Taxes
The deferred income tax asset of the Company is $4.3 million.
The deferred income tax liability of the Company is $209.8 million.
The Company’s deferred income tax asset and liability accounts are
revalued to take into consideration the change in the Canadian
dollar compared to the US dollar and the unrealized foreign
exchange gain or loss is recorded as part of deferred tax expense
or recovery for each year.
(a) The income tax provision consists of the following:
2016 2015
(Restated)
CURRENT TAX EXPENSE Current period $ 50,410 $ 115,663 Adjustment
for prior periods (2,944) 356 Total
current tax expense 47,466 116,019
DEFERRED TAX EXPENSE (RECOVERY) Origination and reversal of
temporary differences (20,208) (19,156) Change in unrecognized
deductible temporary differences (5) (130) Current year losses for
which no deferred tax asset was recognized (8)
29 Total deferred tax expense recovery
(20,221) (19,257) Total income tax expense $
27,245 $ 96,762
(b) The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
January 31, 2016 and 2015 are as follows:
2016 2015
(Restated)
DEFERRED INCOME TAX ASSETS: Net operating loss carryforwards $
6,737 $ 5,196 Property, plant and equipment 258 5,451 Future site
restoration costs 112,456 120,547 Deferred mineral property costs
8,628 3,531 Other deferred income tax assets 28,792
34,416 156,871 169,141 Reclassification to deferred
income tax liabilities (152,544)
(166,341) Deferred income tax assets 4,327
2,800 DEFERRED INCOME TAX LIABILITIES: Deferred mineral
property costs (115,888) (116,270) Property, plant and equipment
(225,425) (253,173) Other deferred income tax liabilities
(21,057) (26,185) (362,370) (395,628)
Reclassification from deferred income tax assets
152,544 166,341 Deferred income tax liabilities
(209,826) (229,287) Deferred income tax
liabilities, net $ (205,499) $ (226,487)
Movement in net deferred tax liabilities:
2016 2015
(Restated)
Balance at the beginning of the year $ (226,487) $ (239,829)
Recognized in income 20,221 19,258 Recognized in other
comprehensive income 868 944 Acquired – (6,598) Other
(101) (262) Balance at the end of the year $
(205,499) $ (226,487)
(c) Unrecognized deferred tax assets and liabilities:
Deferred tax assets have not been recognized in respect of the
following items:
2016 2015 Tax
losses $ 456 $ 481
The tax losses not recognized expire as per the amount and years
noted below. Deferred tax assets have not been recognized in
respect of the above tax losses because management has determined
it is not probable that future taxable income will be available
against which the Company can utilize the benefits therefrom.
The following table summarizes the Company’s non-capital losses
as at January 31, 2016 that may be applied against future taxable
profit:
Jurisdiction Type Amount
Expiry date Luxembourg Net operating losses $
1,560 No expiry
The taxable temporary differences associated with investments in
subsidiaries and joint ventures, for which a deferred tax liability
has not been provided, aggregate to $306.8 million (2015 – taxable
temporary differences of $397.6 million).
(d) The difference between the amount of the reported
consolidated income tax provision and the amount computed by
multiplying profit (loss) before income taxes by the statutory tax
rate of 26.5% (2015 – 26.5%) is a result of the following:
2016 2015
(Restated)
Expected income tax expense $ (3,061) $ 45,140 Non-deductible
(non-taxable) items 1,771 274 Impact of foreign exchange 26,078
35,826 Northwest Territories mining royalty (net of income tax
relief) 7,482 22,187 Impact of changes in future income tax rates 5
– Earnings subject to tax different than statutory rate 674 (191)
Assessments and adjustments (4,374) 1,573 Current year losses for
which no deferred tax asset was recognized (8) 29 Tax effect on
income allocated to non-controlling interest (520) (4,137) Change
in unrecognized temporary differences (5) (130) Other
(797) (3,809) Recorded income tax expense $
27,245 $ 96,762
(e) The Company has net operating loss carryforwards for
Canadian income tax purposes of approximately $23.7 million that
are scheduled to expire between 2035 and 2036, and $1.6 million for
other foreign jurisdictions’ tax purposes with no expiry.
Note 14:Provisions
FUTURE SITE RESTORATION COSTS
2016 2015
(Restated –note 3)
Diavik Diamond Mine (a) Balance at February 1, 2015 and 2014 $
77,629 $ 76,529 Revisions of previous estimates (10,601) (696)
Accretion of provision 1,185 2,047 Restoration cost incurred
– (251) Total Diavik Diamond Mine site
restoration costs 68,213 77,629 Ekati
Diamond Mine (b) Balance at February 1, 2015 and 2014 291,568
319,664 Revisions of previous estimates (19,542) (36,051) Accretion
of provision 4,439 8,408 Restoration cost incurred
(20) (453) Total Ekati Diamond Mine site restoration
costs 276,445 291,568 Total site
restoration costs $ 344,658 $ 369,197
The Company has an obligation under various agreements to
reclaim and restore the lands disturbed by its mining
operations.
(a) Diavik Diamond Mine
The Company’s share of the total undiscounted amount of the
future cash flows that will be required to settle the obligation
incurred at
January 31, 2016 is estimated to be CDN $112 million and is
expected to be incurred between 2019 and 2033. The expenditures are
discounted using a discount rate of 1.77%. The revision of previous
estimates in fiscal 2015 and 2016 is based on revised expectations
of reclamation activity costs, changes in estimated reclamation
timelines and fluctuations in foreign exchange rates. The Diavik
Joint Venture is required to provide security for future site
closure and reclamation costs for the Diavik Diamond Mine’s
operations and for various permits and licences. The Company
has fulfilled such obligations for the security deposits by posting
letters of credit in the amount of CDN $60 million with the
Government of the Northwest Territories supported by restricted
cash to reclaim Diavik Diamond Mine.
(b) Ekati Diamond Mine
The undiscounted estimated expenditures required to settle the
obligation total approximately CDN $412 million and are expected to
be incurred between 2019 and 2054. The expenditures are discounted
using a discount rate of 1.63%. The revision of previous estimates
in fiscal 2015 and 2016 is based on revised expectations of
reclamation activity costs, changes in estimated reclamation
timelines and fluctuations in foreign exchange rates. The Company
is required to provide security for future site closure and
reclamation costs for the Ekati Diamond Mine’s operations and for
various permits and licences. As at January 31, 2016, the Company
posted surety bonds in the aggregate amount of CDN $253 million and
letters of credit supported by restricted cash of CDN $29 million
with the Government of the Northwest Territories to secure the
obligations under its Water Licence to reclaim the Ekati Diamond
Mine.
The Company has provided a guarantee of CDN $20 million to the
Government of Canada for other obligations under the Environmental
Agreement.
Note 15:Dividends
On April 8, 2015, the Company’s Board of Directors declared
a dividend of $0.40 per share, payable to shareholders of
record at the close of business on April 30, 2015, and paid on
May 21, 2015. This dividend was an eligible dividend for
Canadian income tax purposes.
On September 10, 2015, the Board of Directors declared a
dividend of $0.20 per share which was paid on
November 5, 2015 to shareholders of record at the close of
business on October 13, 2015. This represents the first
portion of the expected $0.40 per share annual dividend
(to be paid semi-annually) for fiscal 2016, consistent with the
Board of Director’s previously stated dividend policy. The dividend
was an eligible dividend for Canadian income tax purposes. The
final dividend for fiscal 2016 is expected to be paid on June
2, 2016. Refer to note 26 for more details.
Note 16:Share Capital
(a) Authorized
Unlimited common shares without par value.
(b) Issued
Number of shares
Amount Balance, January 31, 2014 85,124,479 $ 508,523 SHARES
ISSUED FOR: Exercise of share-based payments 10,000
50 Balance, January 31, 2015 85,134,479 508,573
SHARES ISSUED FOR: Exercise of share-based payments
156,500 933 Balance, January 31, 2016
85,290,979 $ 509,506
(c) Stock options
Under the Employee Stock Option Plan, amended and approved by
the shareholders on June 4, 2008, the Company may grant options for
up to 6,000,000 shares of common stock. Options may be granted to
any director, officer, employee or consultant of the Company or any
of its affiliates. Options granted to directors vest immediately
and options granted to officers, employees or consultants
vest over three to four years. The maximum term of an option
is ten years. The number of shares reserved for issuance to
any one optionee pursuant to options cannot exceed 2% of the issued
and outstanding common shares of the Company at the date of grant
of such options.
The exercise price of each option cannot be less than the fair
market value of the shares on the last trading day preceding the
date of grant.
The Company’s shares are primarily traded on a Canadian dollar
based exchange and, accordingly, stock option information is
presented in Canadian dollars, with conversion to US dollars at the
average exchange rate for the year.
Compensation expense for stock options was $1.6 million for
fiscal 2016 (2015 – $2.8 million) and is presented as a
component of both cost of sales and selling, general and
administrative expenses. The amount credited to share capital for
the exercise of the options is the sum of (a) the cash proceeds
received and (b) the amount debited to contributed surplus upon
exercise of stock options by optionees (2016 – $0.2 million;
2015 – $0.1 million).
Changes in share options outstanding are as follows:
2016 2015
Weighted average Weighted average Options
exercise price Options
exercise price 000s CDN$ US$
000s CDN$ US$ Outstanding, beginning of year 2,695
10.91 10.51 2,438 11.93 11.49 Granted 305 22.37 17.75 403 14.75
13.44 Forfeited – – – – – – Exercised (146) 3.78 3.02 (10) 5.23
4.76 Expired – – – (136) 41.43
37.78 Outstanding, end of year 2,854 12.49
12.02 2,695 10.91 10.51
For the year ended January 31, 2016, the weighted average share
price at the date of exercise was CDN $20.58.
The following summarizes information about stock options
outstanding at January 31, 2016:
Options outstanding
Options exercisable Weighted average remaining
Weighted Weighted Number contractual average Number average Range
of exercise prices outstanding life in years exercise
price exercisable exercise price CDN$ 000s
CDN$ 000s CDN$ 3.78 711 3.2 $ 3.78 711
$ 3.78 12.35–14.75 1,488 4.3 13.63 929 13.45 16.70–22.37 655
4.9 19.34 350 16.70 2,854
$ 12.49 1,990 $ 10.57
(d) Stock-based compensation
The Company applies the fair value method to all grants of stock
options.
The fair value of options granted during the years ended January
31, 2016 and 2015 was estimated using a Black-Scholes option
pricing model with the following weighted average assumptions:
2016
2015 Risk-free interest rate 0.91% 2.30% Dividend yield 1.79% 0.00%
Volatility factor 41.80% 57.00% Expected life of the options 6.0
years 6.0 years Average fair value per option, CDN $ 7.53 $ 8.10
Average fair value per option, US $ 5.98 $
7.38
Expected volatility is estimated by considering historic average
share price volatility based on the average expected life of the
options.
(e) RSU and DSU Plans
RSU Number of units Balance, January
31, 2014 441,489 Awards and payouts during the year (net) RSU
awards 332,945 RSU payouts (178,503) Balance, January
31, 2015 595,931 Awards and payouts during the year (net) RSU
awards(a) 286,830 RSU payouts (375,769) Balance,
January 31, 2016 506,992
DSU Number of units Balance, January 31, 2014 163,495
Awards and payouts during the year (net) DSU awards 26,624 DSU
payouts (96,074) Balance, January 31, 2015 94,045
Awards and payouts during the year (net) DSU awards(a) 19,039 DSU
payouts – Balance, January 31, 2016
113,084
(a) RSU and DSU awards include dividends reinvested during the
year.
During the 2016 fiscal year, the Company granted 286,830 RSUs
(net of forfeitures) and 19,039 DSUs under an employee and director
incentive compensation program, respectively. The RSU and DSU Plans
are full value phantom shares that mirror the value of Dominion
Diamond Corporation’s publicly traded common shares.
Grants under the RSU Plan are on a discretionary basis to
employees of the Company and its subsidiaries subject to Board of
Directors’ approval. The RSUs granted vest one-third on March 31
and one-third on each anniversary thereafter. The vesting of grants
of RSUs is subject to special rules for a change in control, death
and disability. The Company shall pay out cash on the respective
vesting dates of RSUs and redemption dates of DSUs.
Only non-executive directors of the Company are eligible for
grants under the DSU Plan. Each DSU grant vests immediately on the
grant date.
The expenses related to the RSUs and DSUs are accrued based on
fair value, determined as of the date of grant. The compensation
expense is accrued over the vesting period of the award. Until the
liability is settled, fluctuations in the fair value of the award
will be remeasured at each reporting period, with changes to
accrued compensation expense recognized in the period in which the
fluctuation occurs.
The Company recognized an expense of $3.9 million for the
year ended January 31, 2016 (2015 – $3.7 million). The total
carrying amount of liabilities for cash settled share-based payment
arrangements is $3.8 million (2015 – $5.6 million). The amounts for
obligations and expense (recovery) for cash settled share-based
payment arrangements have been grouped with Employee Benefit Plans
in note 12 for presentation purposes.
Note 17:Expenses by Nature
The operating profit including cost of sales and selling,
general and administrative expenses, as reported in the
consolidated statement of (loss) income, has been grouped by nature
of expenses as follows:
2016 2015
(Restated – note 3)
Raw materials, consumables and spare parts $ 179,356 $ 195,933
Salaries and employee benefits 150,824 172,663 Contractors and
engineering services 82,877 83,691 Royalties 15,974 15,568
Operating lease 5,483 5,870 Research and development 2,203 3,334
Property tax and insurance costs 19,052 19,514 Depreciation and
amortization 207,719 214,750 Changes in inventory 21,211 (22,719)
Other 27,883 27,894 $
712,582 $ 716,498
Note 18:Earnings per Share
The following table presents the calculation of diluted earnings
per share:
2016 2015
(Restated – note 3)
NUMERATOR Net earnings for the year attributable to shareholders $
(33,956) $ 67,096 DENOMINATOR (000s SHARES) Weighted average
number of shares outstanding 85,240 85,132 Dilutive effect of
employee stock options (a) - 957
85,240 86,089
(a) A total of 2.9 million options were excluded from the
dilution calculation (2015 – 0.4 million) as they are
anti-dilutive.
Note 19:Loans and Borrowings
2016
2015 Credit facilities (a) $ – $ – First mortgage on real property
(b) 2,104 3,071 Promissory note (c) 31,667
42,222 Total loans and borrowings
33,771 45,293 Less current portion
(21,849) (11,308) $
11,922 $ 33,985
(a) Credit facilities
The Company has available a $210 million senior secured
corporate revolving credit facility with a syndicate of commercial
banks. The facility has a four-year term expiring on April 7, 2019,
and it may be extended for an additional period of one year with
the consent of the lenders. Proceeds received by the Company under
the credit facility are to be used for general corporate purposes.
Accommodations under this credit facility may be made to the
Company, at the Company’s option, by way of an advance or letter of
credit, and the interest payable will vary in accordance with a
pricing grid ranging between 2.5% and 3.5% above LIBOR. The Company
is in compliance with the financial covenants associated with the
facility. As at January 31, 2016 and 2015, no amounts were drawn
under the credit facility.
(b) First mortgage on real property
Currency
Nominalinterest rate Date of maturity Carrying amount
atJanuary 31, 2016 Face value
at January 31, 2016
Borrower First mortgage on real property CDN$ 7.98%
September 1, 2018 $2.1 million $2.1 million
6019838 Canada Inc.
(c) Promissory note
The Company issued a promissory note on October 15, 2014 in
the amount of $42.2 million in connection with its acquisition of
an additional 8.889% interest in the Core Zone. The promissory note
is interest bearing at the prime rate and is payable in instalments
over 31 months and the Company has the right, but not the
obligation, to satisfy one or more instalments due under the
promissory note in common shares of the Company. During the year,
in accordance with the instalment schedule, the Company made $10.6
million in principal payments.
Note 20:Related Party Disclosure
There were no material related party transactions in the years
ended January 31, 2016 and January 31, 2015 other than compensation
of key management personnel.
(a) Operational information
The Company had the following investments in significant
subsidiaries at January 31, 2016:
Name of company Effective interest
Jurisdiction of formation Dominion Diamond Holdings Ltd. 100%
Northwest Territories Dominion Diamond Diavik Limited Partnership
100% Northwest Territories Dominion Diamond (India) Private Limited
100% India Dominion Diamond International N.V. 100% Belgium
Dominion Diamond Marketing Corporation 100% Canada Dominion Diamond
(UK) Limited 100% England 6019838 Canada Inc. 100% Canada Dominion
Diamond Ekati Corporation 100% Canada Dominion Diamond Resources
Corporation 100% Canada Dominion Diamond Marketing N.V. 100%
Belgium
(b) Compensation of key management personnel
Key management includes:
Chief Executive OfficerChief Financial
OfficerChief Operating OfficerExecutive Vice President,
DiamondsVice President, Projects and Business
DevelopmentDirectors
2016 2015
Short-term employee benefits $ 5,881 $ 6,496 Share-based expenses
3,375 3,712 Severance benefits 9,116
991 $ 18,372 $ 11,199
Note 21:Commitments and Guarantees
CONTRACTUAL OBLIGATIONS
Less than Year Year After
Total 1 year 2–3
4–5 5 years Loans and borrowings (a) $ 34,815
$ 22,700 $ 12,115 $ – $ – Environmental and participation
agreements incremental commitments (b)(c) 32,043 4,956 8,240 3,692
15,155 Operating lease obligations (d) 16,401 3,748 6,093 6,055 505
Capital commitments (e) 56,702 56,702 – – – Other 714
714 – – –
Total contractual obligations $ 140,675 $ 88,820
$ 26,448 $ 9,747 $ 15,660
(a) Promissory note
The Company issued a promissory note on October 15, 2014 in
the amount of $42.2 million in connection with its acquisition
of an additional 8.889% interest in the Core Zone at the Ekati
Diamond Mine. The promissory note is payable in instalments over 31
months and the Company has the right, but not the obligation, to
satisfy one or more instalments due under the promissory note in
common shares of the Company. On January 31, 2016, $31.7 million,
which represents the principal amount of the note plus accrued
interest, was outstanding.
(b) Environmental agreements
Through negotiations of environmental and other agreements, both
the Diavik Joint Venture and the Ekati Diamond Mine must provide
funding for the Environmental Monitoring Advisory Board and the
Independent Environmental Monitoring Agency, respectively. Further
funding will be required in future years; however, specific amounts
have not yet been determined. These agreements also state that the
mines must provide security for the performance of their
reclamation and abandonment obligations under environmental laws
and regulations.
The Company posted surety bonds with the GNWT in the aggregate
amount of CDN $253 million to secure the obligations
under its Water Licence to reclaim the Ekati Diamond Mine. The
Company provided letters of credit, secured by restricted cash, in
the amount of CDN $60 million and CDN $29 million to the
Government of the Northwest Territories (“GNWT”) as security for
the reclamation obligations for the Diavik Diamond Mine and Ekati
Diamond Mine, respectively. The Company has also provided a
guarantee of CDN $20 million for other obligations under
the environmental agreement for the Ekati Diamond Mine.
(c) Participation agreements
Both the Diavik Joint Venture and the Ekati Diamond Mine have
signed participation agreements with various Aboriginal
communities. These agreements are expected to contribute to the
social, economic and cultural well-being of these communities. The
Diavik participation agreements are for an initial term of 12 years
and shall be automatically renewed on terms to be agreed upon for
successive periods of six years thereafter until termination. The
Diavik participation agreements terminate in the event that the
Diavik Diamond Mine permanently ceases to operate. The Ekati
Diamond Mine participation agreements are in place during the life
of the Ekati Diamond Mine and the agreements terminate in the event
the mine ceases to operate.
(d) Operating lease obligations
The Company has entered into non-cancellable operating leases
for the rental of fuel tanks and office premises for the Ekati
Diamond Mine, which expire at various dates through 2021. The
leases have varying terms, escalation clauses and renewal rights.
Any renewal terms are at the option of the lessee at lease payments
based on market prices at the time of renewal. Minimum rent
payments under operating leases are recognized on a straight-line
basis over the term of the lease, including any periods of free
rent.
(e) Capital commitments
The Company has various long-term contractual commitments
related to the acquisition of property, plant and equipment. The
commitments included in the table above are based on contract
prices.
Note 22:Capital Management
The Company’s capital includes cash and cash equivalents,
current and non-current loans and borrowings, and equity, which
includes issued common shares, contributed surplus and retained
earnings.
The Company’s primary objective with respect to its capital
management is to ensure that it has sufficient cash resources to
maintain its ongoing operations, to provide returns to shareholders
and benefits for other stakeholders, and to pursue growth
opportunities. To meet these needs, the Company may from time to
time raise additional funds through borrowing and/or the issuance
of equity or debt or by securing strategic partners, upon approval
by the Board of Directors. The Board of Directors reviews and
approves any material transactions out of the ordinary course of
business, including proposals on acquisitions or other major
investments or divestitures, as well as annual capital and
operating budgets.
The declaration and payment of dividends on the Company’s common
shares and the amount thereof are at the discretion of the Board of
Directors which takes into account the Company’s financial results,
capital requirements, available cash flow, future prospects of the
Company’s business and other factors considered relevant from time
to time.
The Company is required to be in compliance with the required
financial covenants as part of the senior secured corporate
revolving credit facility. As at January 31, 2016, no amounts were
outstanding under this facility (note 19). The Company assesses
liquidity and capital resources on a consolidated basis. The
Company’s requirements are for cash operating expenses, working
capital, contractual debt requirements and capital expenditures.
The Company believes that it will generate sufficient liquidity to
meet its anticipated requirements for the next
twelve months.
Note 23:Financial Risk Management Objectives and Policies
The Company is exposed, in varying degrees, to a variety of
financial-instrument-related risks by virtue of its activities.
The Company’s overall financial risk management program
focuses on the preservation of capital and protecting current and
future Company assets and cash flows by minimizing exposure to
risks posed by the uncertainties and volatilities of
financial markets.
The Company’s Audit Committee has responsibility to review and
discuss significant financial risks or exposures and to assess the
steps management has taken to monitor, control, report and mitigate
such risks to the Company.
Financial risk management is carried out by the finance
department, which identifies and evaluates financial risks and
establishes controls and procedures to ensure financial risks are
mitigated.
The types of risk exposure and the way in which such exposures
are managed are as follows:
(i) Currency risk
The Company’s sales are predominantly denominated in US dollars.
As the Company operates in an international environment, some of
the Company’s financial instruments and transactions are
denominated in currencies other than the US dollar. The
results of the Company’s operations are subject to currency
transaction risk and currency translation risk. The operating
results and financial position of the Company are reported in US
dollars in the Company’s consolidated financial statements.
The Company’s primary foreign exchange exposure impacting
pre-tax profit arises from the following sources:
NET CANADIAN DOLLAR DENOMINATED MONETARY ASSETS AND
LIABILITIES
The Company’s functional and reporting currency is US dollars;
however, many of the mining operations’ monetary assets and
liabilities are denominated in Canadian dollars. As such, the
Company is continually subject to foreign exchange fluctuations,
particularly as the Canadian dollar moves against the US dollar.
The weakening/strengthening of the Canadian dollar versus the US
dollar results in an unrealized foreign exchange gain/loss on the
revaluation of the Canadian dollar denominated monetary assets and
liabilities.
COMMITTED OR ANTICIPATED FOREIGN CURRENCY DENOMINATED
TRANSACTIONS
Primarily the Company incurs costs in Canadian dollars at both
the Diavik Diamond Mine and the Ekati Diamond Mine.
Based on the Company’s net exposure to Canadian dollar monetary
assets and liabilities at January 31, 2016, a one-cent change in
the exchange rate would have impacted pre-tax profit for the year
by $0.5 million (2015 – $2.9 million).
(ii) Interest rate risk
Interest rate risk is the risk borne by an interest-bearing
asset or liability as a result of fluctuations in interest rates.
Financial assets and financial liabilities with variable interest
rates expose the Company to cash flow interest rate risk.
The Company’s most significant interest rate risk arises from
its credit facility, which bears variable interest based
on LIBOR.
(iii) Concentration of credit risk
Credit risk is the risk of a financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet
its contractual obligation.
The Company’s exposure to credit risk is minimized by its sales
policy, which requires receipt of cash prior to the delivery of
rough diamonds to its customers.
The Company manages credit risk, in respect of short-term
investments, by maintaining bank accounts with creditworthy major
banks and investing only in term deposits or bankers’ acceptances
with highly rated financial institutions that are capable of prompt
liquidation. The Company monitors and manages its concentration of
counterparty credit risk on an ongoing basis.
At January 31, 2016, the Company’s maximum counterparty credit
exposure consists of the carrying amount of cash and cash
equivalents and accounts receivable, which approximates fair
value.
(iv) Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due.
The Company manages its liquidity by ensuring that there is
sufficient capital to meet short-term and long-term business
requirements, after taking into account cash flows from operations
and the Company’s holdings of cash and cash equivalents. The
Company also strives to maintain sufficient financial liquidity at
all times in order to participate in investment opportunities as
they arise, as well as to withstand sudden adverse changes in
economic circumstances. The Company assesses liquidity and capital
resources on a consolidated basis. Management forecasts cash flows
for its current and subsequent fiscal years to predict future
financing requirements. Future financing requirements are met
through a combination of committed credit facilities and access to
capital markets.
At January 31, 2016, the Company had $320.0 million of cash
and cash equivalents.
The following table summarizes the aggregate amount of
contractual undiscounted future cash outflows for the Company’s
financial liabilities:
Less than Year Year After
Total 1 year 2–3
4–5 5 years Trade and other payables $ 114,589
$ 114,589 $ – $ – $ – Loans and borrowings(a) 34,815 22,700 12,115
– – Environmental and participation agreementincremental
commitments 32,043 4,956
8,240 3,692 15,155
(a) Includes projected interest payments on the current debt
outstanding based on interest rates in effect at January 31,
2016.
Note 24:Financial Instruments
The Company has various financial instruments comprising cash
and cash equivalents, accounts receivable, trade and other
payables, and loans and borrowings.
Cash and cash equivalents consist of cash on hand and balances
with banks, and short-term investments held in overnight deposits
with a maturity on acquisition of less than 90 days. Cash and cash
equivalents, which are designated as held-for-trading, are carried
at fair value based on quoted market prices and are classified
within Level 1 of the fair value hierarchy established by the
IASB.
The fair value of accounts receivable is determined by the
amount of cash anticipated to be received in the normal course of
business from the financial asset.
The Company’s loans and borrowings are for the most part fully
secured, hence the fair values of these instruments at January 31,
2016 and January 31, 2015 are considered to approximate their
carrying values.
The carrying values and estimated fair values of these financial
instruments are as follows:
2016 2015
Estimated
fair value
Carrying
value
Estimated
fair value
Carrying
value
Financial assets Cash and cash equivalents,
including restricted cash $ 383,350 $ 383,350 $ 492,541 $ 492,541
Accounts receivable 11,528 11,528
13,717 13,717 $ 394,878
$ 394,878 $ 506,258 $ 506,258
Financial
liabilities Trade and other payables $ 114,589 $ 114,589 $
99,242 $ 99,242 Loans and borrowings 33,771
33,771 45,293 45,293
$ 148,360 $ 148,360 $ 144,535 $ 144,535
Note 25:Segmented Information
The reportable segments are those operations whose operating
results are reviewed by the Chief Operating Decision Makers to make
decisions about resources to be allocated to the segment and assess
its performance provided those operations pass certain quantitative
thresholds. Operations whose revenues, earnings or losses, or
assets exceed 10% of the total consolidated revenue, earnings or
losses, or assets are reportable segments.
In order to determine reportable segments, management reviewed
various factors, including geographical locations and managerial
structure. Management determined that the Company operates in three
segments within the diamond industry – Diavik Diamond Mine, Ekati
Diamond Mine and Corporate – for the years ended January 31, 2016
and 2015.
The Diavik segment consists of the Company’s 40% ownership
interest in the Diavik group of mineral claims and the sale of
rough diamonds. The Ekati segment consists of the Company’s
ownership interest in the Ekati group of mineral claims and the
sale of rough diamonds. The Corporate segment captures all costs
not specifically related to the operations of the Diavik and Ekati
Diamond Mines.
For the year ended January 31, 2016
Diavik Ekati Corporate
Total
Sales Europe $ 241,070 $ 445,024 $ – $
686,094 India 14,649 19,825
– 34,474 Total sales 255,719
464,849 – 720,568
Cost
of sales Depreciation and amortization 67,382 122,073 – 189,455
Inventory impairment – 19,838 – 19,838 All other costs
129,135 330,493 –
459,628 Total cost of sales 196,517
472,404 668,921
Gross
margin 59,202 (7,555) – 51,647 Gross margin (%) 23.2% (1.6)% –
7.2% Selling, general and administrative expenses Selling and
related expenses 3,120 6,056 – 9,176 Administrative expenses
– – 34,485 34,485
Total selling, general and administrative expenses
3,120 6,056 34,485 43,661
Operating profit (loss) 56,082 (13,611) (34,485) 7,986 Finance
expenses (2,789) (7,109) – (9,898) Exploration costs (122) (6,904)
– (7,026) Finance and other income (12) 168 – 156 Foreign exchange
gain (5,889) 3,118 –
(2,771) Segment profit (loss) before income taxes
$ 47,270 $ (24,338) $ (34,485) $
(11,553)
Segmented assets as at January 31, 2016 Canada $
683,553 $ 1,341,836 $
26,915
$ 2,052,304 Other foreign countries 50,006
62,520 – 112,526 $
733,559 $ 1,404,356 $
26,915
$ 2,164,830 Capital expenditures $ (45,509) $ (212,943) $
(2,344) $ (260,796) Inventory 117,145 299,001 – 416,146 Total
liabilities 290,492 469,467 11,541 771,500
Other significant
non-cash items: Deferred income tax recovery
(23,755) 3,601 (67)
(20,221)
For the year ended January 31, 2015
Diavik Ekati Corporate
Total
Sales Europe $ 321,135 $ 542,601 $ – $
863,736 India 30,439 21,578
– 52,017 Total sales 351,574
564,179 – 915,753
Cost
of sales Depreciation and amortization 87,765 101,469 – 189,234
All other costs 161,903 331,502
– 493,405 Total cost of sales
249,668 432,971 – 682,639
Gross margin 101,906 131,208 – 233,114 Gross margin (%)
29.0% 23.3% –% 25.5% Selling, general and administrative expenses
Selling and related expenses 4,140 3,590 – 7,730 Administrative
expenses – – 26,129
26,129 Total selling, general and administrative
expenses 4,140 3,590
26,129 33,859 Operating profit (loss) 97,766 127,618
(26,129) 199,255 Finance expenses (2,708) (10,432) – (13,140)
Exploration costs (205) (25,154) – (25,359) Finance and other
income 3,773 1,558 – 5,332 Foreign exchange gain
(8,341) 12,596 – 4,255
Segment profit (loss) before income taxes $ 90,285 $
106,186 $ (26,129) $ 170,343
Segmented assets as
at January 31, 2015 Canada $ 933,143 $ 1,283,694 $ 20,319 $
2,237,156 Other foreign countries 33,590
74,793 – 108,383 $
966,733 $ 1,358,487 $ 20,319 $ 2,345,539
Capital expenditures $
(26,880)
$
(151,248)
$ (47) $ (178,175) Inventory 118,993 355,998 – 474,991 Total
liabilities 88,261 767,566 10,343 866,170
Other significant
non-cash items: Deferred income tax recovery
(22,298) 2,952 89
(19,257)
Note 26:Subsequent Events
Dividend
On April 13, 2016, the Board of Directors declared a dividend of
20 cents per share to be paid in full on June 2, 2016 to
shareholders of record at the close of business on May 17, 2016.
This dividend will be an eligible dividend for Canadian income tax
purposes.
Buffer zone joint venture
In January 2016, the management committee of the Buffer Zone
Joint Venture approved a program and budget for the Buffer Zone
Joint Venture for fiscal year 2017. In March 2016, Archon Minerals
Limited (“Archon”) provided notice to DDEC, the operator of the
Buffer Zone Joint Venture, of its objection to certain elements of
the fiscal 2017 program and budget, and indicated that it was only
prepared to contribute to certain portions of the program and
budget. Accordingly, the Company has elected to fund all of the
cash calls for those elements of the fiscal 2017 program and budget
that will not be funded by Archon, and Archon’s participating
interest in the Buffer Zone Joint Venture is expected to be
correspondingly diluted.
Diavik Diamond Mine Mineral Reserve andMineral
Resource Statement
AS OF DECEMBER 31, 2015 (UNAUDITED) (100%
BASIS)
Mineral Reserves
Proven Probable
Proven and Probable Kimberlite pipes Type Millions of tonnes
Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
A-154 South UG 0.3 3.2 1.1 1.2 3.4 4.0
1.5 3.3 5.1 A-154 North UG 4.1 2.4 9.7 4.7 2.4 11.1
8.8 2.4 20.8 A-418 UG 2.6 4.1 10.9 2.0 2.9 5.8 4.6 3.6 16.7 A-21 OP
3.7 2.7 10.0
–
– – 3.7 2.7 10.0 Stockpile N/A 0.1 3.5 0.3
– – – 0.1 3.5 0.3
Sub-total – Underground 7.1 3.1 21.7
7.9 2.7 20.9 14.9 2.9 42.6
Sub-total – Open Pit 3.7 2.7 10.0 –
– – 3.7 2.7 10.0 Sub-total –
Stockpile 0.1 3.5 0.3 – –
– 0.1 3.5 0.3 Total Reserves 10.8 3.0
32.0 7.9 2.7 20.9 18.7
2.8 52.8
Note: Totals may not add up due to rounding.
Mineral resources estimates reflects a bottom screen size of
+1.0 mm.
Mineral Resources
Measured Resources
Indicated Resources Inferred Resources Kimberlite pipes Type
Millions of tonnes Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne Millions
of carats A-154 South UG
–
– – – – – 0.3 3.0 0.8
A-154 North UG – – – – – – 0.5 2.4 1.2 A-418 UG – – – – – – 0.3 2.4
0.7 A-21 OP – – – 0.4 2.6
1.0 0.8 3.0 2.3 Total Resources – –
– 0.4 2.6 1.0 1.8 2.8
5.0
Note: Totals may not add up due to rounding.
Mineral resources are exclusive of mineral reserves.
Mineral resources estimates reflects a bottom screen size of
+1.0 mm.
Cautionary Note to United States Investors Concerning
Disclosure of Mineral Reserves and Resources: The Company is
organized under the laws of Canada. The mineral reserves and
resources described herein are estimates, and have been prepared in
compliance with National Instrument 43-101 (“NI 43-101”). The
definitions of proven and probable reserves used in NI 43-101
differ from the definitions in the United States Securities and
Exchange Commission (“SEC”) Industry Guide 7. In addition, the
terms “mineral resource”, “measured mineral resource”, “indicated
mineral resource” and “inferred mineral resource” are defined in
and required to be disclosed by NI 43-101; however, these terms are
not defined terms under SEC Industry Guide 7, and normally are not
permitted to be used in reports and registration statements filed
with the SEC. Accordingly, information contained in this financial
report containing descriptions of the Diavik Diamond Mine’s mineral
deposits may not be comparable to similar information made public
by US companies subject to the reporting and disclosure
requirements under the United States federal securities laws and
the rules and regulations thereunder. United States investors
are cautioned not to assume that all or any part of Measured or
Indicated Mineral Resources will ever be converted into Mineral
Reserves. United States investors are also cautioned not to assume
that all or any part of an Inferred Mineral Resource exists, or is
economically or legally mineable.
The reserve and resource information for the Diavik Diamond Mine
was prepared and verified by or under the supervision of Calvin G.
Yip, P. Eng., an employee of Diavik Diamond Mines (2012) Inc. and a
Qualified Person within the meaning of NI 43-101. For further
details and information concerning the Company’s mineral reserves
and mineral resources, readers should refer to the technical report
entitled “Diavik Diamond Mine, Northwest Territories, Canada, NI
43-101 Technical Report” that has an effective date of March 18,
2015, and the Company’s most recently filed Annual Information
Form, which can be found on the Company’s profile at www.sedar.com
and on the Company’s website at www.ddcorp.ca.
Ekati Diamond Mine Mineral Reserve andMineral
Resource Statement (excluding the Jay Pipe)
AS OF JANUARY 31, 2016 (UNAUDITED) (100%
BASIS)
Mineral Reserves (excluding Jay pipe)
Proven Probable
Proven and Probable Kimberlite pipes Zone location Type
Millions of tonnes Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Koala Core UG
–
– – 3.0 0.6 1.7 3.0 0.6
1.7 Misery Main Core OP – – – 3.1 5.2 16.1 3.1 5.2 16.1 Pigeon Core
OP – – – 7.6 0.5 3.5 7.6 0.5 3.5 Sable Core OP – – – 12.0 0.8 10.1
12.0 0.8 10.1 Lynx Buffer OP – – – 1.0 0.8 0.8 1.0 0.8 0.8
Stockpile Core N/A – – – 0.1 0.7
0.1 0.1 0.7 0.1 Sub-total Core Zone
– – –
25.6 1.2
31.5 25.6 1.2
31.5 Sub-total Buffer Zone – – –
1.0 0.8 0.8 1.0
0.8 0.8 Total Reserves – –
–
26.6 1.2 32.2
26.6 1.2 32.2
Note: Totals may not add up due to rounding.
Mineral reserves are reported at +1.0 mm (diamonds that would
be recovered using 1.0 mm slot de-grit screens
and inclusive of incremental small diamonds recovered by
the Fines Dense Media Separator circuit which is scheduled for
commissioning in the second half of fiscal 2017).
Mineral Resources
Measured Resources
Indicated Resources Inferred Resources Kimberlite pipes Zone
location Type Millions of tonnes Carats per
tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Koala Core UG
–
– – 5.5 0.9 4.9 0.3 1.7
0.6 Fox Core UG – – – 35.2 0.3 11.6 2.0 0.4 0.8 Misery Main Core OP
– – – 3.7 5.6 20.9 0.8 3.6 2.9 Misery South Core OP – – – – – – 0.2
1.4 0.3 Misery Southwest Core OP – – – – – – 1.3 3.0 3.8 Pigeon
Core OP – – – 11.8 0.5 5.8 1.7 0.4 0.8 Sable Core OP – – – 15.4 0.9
14.3 0.3 1.0 0.3 Lynx Buffer OP – – – 1.3 0.8 1.0 0.3 0.8 0.2
Stockpile Core N/A – – – 0.1
0.7 0.1 6.7 0.2 1.4 Sub-total
Core Zone – – –
71.7 0.8 57.6 13.3
0.8 10.8 Sub-total Buffer Zone
– – –
1.3
0.8 1.0 0.3 0.8
0.2 Total Resources – – –
73.0 0.8 58.6 13.5
0.8 11.0
Mineral resources are inclusive of mineral reserves.
Mineral resources are reported at +0.5 mm (diamonds recovered
using a 0.5mm width slot de-grit screen and retained on a 1.0 mm
circular aperture screen).
Note: Totals may not add up due to rounding.
Ekati Diamond Mine Mineral Reserve andMineral
Resource Statement – Jay Pipe
AS OF JANUARY 31, 2015 (UNAUDITED) (100%
BASIS)
Mineral Reserves
Proven Probable
Proven and Probable Kimberlite pipes Zone location
Type Millions of tonnes Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Jay Buffer OP
–
– – 45.6 1.9 84.6 45.6
1.9 84.6
Note: Totals may not add up due to rounding.
Mineral resources are reported at 0.5 mm (diamonds recovered
using a 0.5 mm width slot de-grit screen and retained on a 1.0 mm
circular aperture screen).
Mineral Resources
Measured Resources
Indicated Resources Inferred Resources Kimberlite pipes
Zone location Type Millions of tonnes
Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Millions of tonnes Carats per tonne
Millionsof carats
Jay Buffer OP
–
– – 48.2 1.9 90.6 4.2
2.1 8.6
Note: Totals may not add up due to rounding.
Mineral resources are inclusive of mineral reserves.
Mineral resources are reported at 0.5 mm (diamonds recovered
using a 0.5 mm width slot de-grit screen and retained on a 1.0 mm
circular aperture screen).
Cautionary Note to United States Investors Concerning
Disclosure of Mineral Reserves and Resources: The Company is
organized under the laws of Canada. The mineral reserves and
resources described herein are estimates, and have been prepared in
compliance with National Instrument 43-101 (“NI 43-101”). The
definitions of proven and probable reserves used in NI 43-101
differ from the definitions in the United States Securities and
Exchange Commission (“SEC”) Industry Guide 7. In addition, the
terms “mineral resource”, “measured mineral resource”, “indicated
mineral resource” and “inferred mineral resource” are defined in
and required to be disclosed by NI 43-101; however, these terms are
not defined terms under SEC Industry Guide 7, and normally are not
permitted to be used in reports and registration statements filed
with the SEC. Accordingly, information contained in this financial
report containing descriptions of the Ekati Diamond Mine’s mineral
deposits may not be comparable to similar information made public
by US companies subject to the reporting and disclosure
requirements under the United States federal securities laws and
the rules and regulations thereunder. United States investors
are cautioned not to assume that all or any part of Measured or
Indicated Mineral Resources will ever be converted into Mineral
Reserves. United States investors are also cautioned not to assume
that all or any part of an Inferred Mineral Resource exists, or is
economically or legally mineable.
The reserve and resource information for the Ekati Diamond Mine
was prepared and verified by or under the supervision of Peter
Ravenscroft, FAusIMM, of Burgundy Mining Advisors Ltd., an
independent mining consultancy. Mr. Ravenscroft is a Qualified
Person within the meaning of NI 43-101. For further details and
information concerning the Company’s mineral reserves and mineral
resources, readers should refer to the technical report entitled
“Ekati Diamond Mine, Northwest Territories, Canada, NI 43-101
Technical Report” that has an effective date of January 31, 2015,
and the Company’s most recently filed Annual Information Form,
which can be found on the Company’s profile at www.sedar.com and on
the Company’s website at www.ddcorp.ca.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160413006471/en/
Dominion Diamond CorporationMr. Richard Chetwode, +44 (0)
7720-970-762Vice President, Corporate
Developmentrchetwode@ddcorp.caorMs. Kelley Stamm,
416-205-4380Manager, Investor Relationskstamm@ddcorp.ca