Announcing its financial results for first quarter 2017 (three months ended April 30, 2016), Dominion Diamond Corporation reported a loss (before income taxes) of US$ 35.9 million for the quarter; and consolidated net loss attributable to shareholders of US$ 1.0 million or US$ 0.01 per share for the quarter.

The Company explained that both the above reported measures were affected as a result of:  a lower value product mix at Ekati prior to production at Misery Main; inventory impairment in the amount of US$ 19.6 million ($0.15 per share after tax) which was recorded on available for sale inventory at the Ekati mine; income tax recovery in the quarter was primarily due to foreign exchange rate fluctuations which had a US$ 21.6 million or US$ 0.25 per share impact.

Adjusted EBITDA for Q1 2017 of US$ 54.3 million “remained positive”, Dominion said, as mine operating costs were reduced; and due to the weakening Canadian dollar in the quarter compared to the prior year. (Adjusted EBITDA does not include the impact of significant non-cash costs in the first quarter which impacted gross margins.) 

Furthermore, the Company reported: “Negative free cash flow generated in the quarter of US$ 90.0 million was due to operating cash flow of US$18.0 million, offset against cash capital expenditures of US$107.9 million.”

Dominion explained that the first quarter “is seasonally the weakest for free cash flow generation” due to payments of taxes (which amounted to US$ 47.3 million in Q1 2017), and for items that are delivered on the winter road. “First quarter capital expenditures include significant investments in the Misery Main and Sable pipes as well as the Jay project at the Ekati Diamond Mine and in the A-21 pipe at the Diavik Diamond Mine,” the Company said.

The Company noted that it has a   strong balance sheet with total unrestricted cash resources of US$ 226.5 million, restricted cash of US$ 70.7 million and an undrawn availability of US$ 210.0 million under its corporate revolving credit facility.

“As at April 30, 2016, the Company had approximately 2.2 million carats of rough diamond inventory available for sale with an estimated market value of approximately $167 million,” Dominion said. “The Company also had approximately 0.4 million carats of rough diamond inventory that was work in progress.”

While the “transitional period” at Ekati continues to impact earnings, Dominion declared that commercial production at the Misery Main would begin in May, ahead of planned schedule. The Company is optimistic about production from this pipe as it deems Misery Main to be “the richest ore body on the Ekati property”.

“We are very pleased to announce the commencement of commercial production at Misery Main, ahead of schedule,” Brendan Bell, Chief Executive Officer stated, commenting on the results. “Misery Main will provide significant cash flow and will have a positive contribution on our earnings in the second half of the year. We will also end this transitional period at Ekati with a strong balance sheet. We have determined that we can maintain continuous production at Ekati without starting major construction at Jay this year, and we are incorporating this new construction schedule into our Jay feasibility study, which we expect to release the results of shortly.”

Dominion, which had lowered prices by 5% in January, said that by the end of the first quarter prices were at an average, 8% higher than at the beginning of the fiscal year.

Ekati’s production – in terms of caratage -- in the first quarter was 34% higher as compared to Q1 fiscal 2016. During the period, the Ekati Diamond Mine recovered 1.1 million carats from 1.0 million tonnes of ore processed (0.8 million carats from 0.9 million tonnes in Q1 fiscal 2016).

Diavik reported 17% higher processing volumes in the first calendar quarter of 2016  y-o-y; this was due to “greater ore availability as a result of higher mining rates and availability of stockpiled ore”, the Company said. The diamonds recovered in the first calendar quarter were higher by 26% as compared to the same period of the previous  year “reflecting higher processing volumes and a higher recovered grade”.