Dominion Diamond Corporation Reports Fiscal 2013 Fourth Quarter and Year-End Results
TORONTO, April 4, 2013 /PRNewswire/ --
Dominion Diamond Corporation (TSX:DDC), (NYSE:DDC) (the "Company") today announced its fourth quarter and year-end results for the period ending January 31, 2013.
Robert Gannicott, Chairman and Chief Executive Officer, stated: "The last year, and this first quarter, has been a time of great positive change for the Company, including changing its very identity to "Dominion Diamond Corporation". This change reflects a focus on the production, sorting and sale of diamonds from Northern Canada, a region that we know and understand well. The acquisition of the Ekati Mine, and its operating team, is expected to close next week giving us operational control of both a producing mine and development opportunities in the large scale resources on the Ekati property. Together with our exploration acreage adjacent to the Ekati and Diavik properties, this positions us from grass-roots exploration through development opportunities. We also become the largest supplier of Canadian diamonds sold through an expert sorting and marketing chain that we have perfected through the years of Diavik production."
Fourth Quarter Highlights:
Corporate
- The sale of the Company's Luxury Brand Segment, Harry Winston, Inc., to The Swatch Group Ltd. was completed on March 26, 2013. As part of the closing of the transaction, the Company's name was changed to Dominion Diamond Corporation, and its common shares now trade on both the Toronto and New York stock exchanges under the symbol DDC. As a result, the Company's consolidated results from continuing operations relate solely to its mining operations, which include the production, sorting and sale of rough diamonds. The results of the Luxury Brand Segment are treated as discontinued operations for accounting and reporting purposes and current and prior period results have been adjusted accordingly.
- During the quarter, the Company entered into share purchase agreements with BHP Billiton to purchase all of BHP Billiton's diamond assets, including its controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium for an agreed purchase price of $500 million. The transaction is currently expected to close on or about April 10, 2013. In connection with this acquisition, the Company has also arranged new secured credit facilities consisting of a $400 million term loan, a $100 million revolving credit facility (of which $50 million will be available for purposes of funding the Ekati acquisition) and a $140 million letter of credit facility (expandable to $265 million in aggregate). These new facilities would replace the Company's current $125 million facility with Standard Chartered Bank.
Diamond Market
- During the fourth quarter of fiscal 2013, the retail jewelry market improved in almost all areas, led by Diwali and the wedding season in India, followed closely by a positive US year-end holiday season and improved consumer demand in China, which regained momentum in advance of the Lunar New Year. Rough diamond supply was impacted by delivery problems at certain diamond mines combined with lower than expected Russian rough diamond supply. The tight supply coupled with a more active polished market helped improve rough prices during the quarter.
Q4 Results Highlights
- Consolidated sales from continuing operations increased 8% to $110.1 million for the fourth quarter compared to $102.2 million for the comparable quarter of the prior year. The increase in sales resulted from an 11% increase in achieved rough diamond prices due to an improved sales mix, partially offset by a 3% decrease in volume of carats sold during the quarter.
- Operating profit from continuing operations decreased 12% to $21.0 million compared to an operating profit of $24.0 million in the comparable quarter of the prior year. Consolidated EBITDA from continuing operations decreased 6% to $45.3 million compared to $48.3 million in the comparable quarter of the prior year.
- Rough diamond production during the fourth calendar quarter increased 19% to 1.9 million carats, compared to 1.6 million carats for the fourth calendar quarter of last year (on a 100% basis). The increase was primarily due to improved grades in each of the kimberlite pipes.
- The Company had 0.5 million carats of rough diamond inventory with an estimated current market value of approximately $65 million at January 31, 2013, of which approximately $25 million represents rough diamond inventory available for sale, with the remaining $40 million currently being sorted.
- The Company recorded a consolidated net profit attributable to shareholders of $14.9 million or $0.18 per share for the quarter, compared to a net profit attributable to shareholders of $16.6 million or $0.20 per share in the fourth quarter of the prior year. Net profit from continuing operations attributable to shareholders (which now represents the "mining operations") was $12.1 million or $0.14 per share compared to $12.7 million or $0.15 per share in the comparable quarter of the prior year. Continuing operations includes all costs related to the Company's mining operations, including those previously reported as part of the corporate segment.
Annual Results Highlights:
- Consolidated sales from continuing operations for the full financial year increased 19% to $345.4 million, compared to $290.1 million for the prior year. The increase in sales resulted from a 49% increase in volume of carats sold during the year, offset by a 20% decrease in achieved rough diamond prices.
- Rough diamond production for the calendar year 2012 increased 8% to 7.2 million carats compared to 6.7 million carats in the prior calendar year (on a 100% basis). The increase was due primarily to improved grades in each of the kimberlite pipes.
- The 49% increase in the quantity of carats sold was primarily the result of the decision by the Company to hold back some lower priced goods at October 31, 2011 due to an oversupply in the market at that time and the subsequent sale of almost all of these lower priced carryover goods during fiscal 2013.
- The 20% decrease in the Company's achieved average rough diamond prices during the fiscal year resulted from a combination of two factors: first, the sale of the lower priced goods originally held back in inventory by the Company at October 31, 2011; and second, a decrease in the market price for rough diamonds from the peak achieved in the prior year.
- Operating profit increased 27% to $47.7 million compared to an operating profit of $37.6 million in the prior year. Included in the operating profit for the prior year was a $13.0 million ($8.4 million after tax) non-cash charge related to the de-recognition of certain assets associated with paste production at the Diavik Diamond Mine, which were no longer expected to be required for underground mining. Consolidated EBITDA from continuing operations rose 10% to $127.9 million compared to $116.3 million in the prior year.
- The Company recorded a consolidated net profit attributable to shareholders of $34.7 million or $0.41 per share for the year, compared to a net profit attributable to shareholders of $25.5 million or $0.30 per share in the prior year. Net profit from continuing operations attributable to shareholders was $22.3 million or $0.26 per share compared to $17.3 million or $0.20 per share in the prior year. Continuing operations includes all costs related to the Company's mining operations, including those previously reported as part of the corporate segment.
Fourth Quarter and Fiscal 2013 Financial Summary from Continuing Operations
(US$ in millions except Earnings per Share amounts)
Three months Three months Twelve months Twelve months
ended ended ended ended
Jan. 31, 2013 Jan. 31, 2012 Jan. 31, 2013 Jan. 31, 2012
Sales 110.1 102.2 345.4 290.1
Operating Profit 21.0 24.0 47.7 37.6
Net Profit
attributable to
shareholders 12.1 12.7 22.3 17.3
Earnings per share $0.14 $0.15 $0.26 $0.20
Outlook
A new mine plan and budget for calendar 2013 has been approved by Rio Tinto plc and the Company. The plan for calendar 2013 foresees Diavik Diamond Mine production of approximately 6 million carats from the mining and processing of approximately 1.6 million tonnes of ore with a further 0.2 million tonnes processed from stockpile 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 0.4 million tonnes from A-418 kimberlite pipes. Included in the estimated production for calendar 2013 is approximately 0.6 million carats from RPR and 0.1 million carats from the improved recovery process for small diamonds. These RPR and small diamond recoveries are not included in the Company's reserves and resource statement and are therefore incremental to production.
The development of A-21, the last of the Diavik Diamond Mine's kimberlite pipes in the original mine plan, has been deferred due both to the current diamond market conditions and the decreased urgency of development following the identification of extensions to the existing pipes. Although these extension areas cannot be categorized as ore at this time due to insufficient definition work, the Company expects the life of the existing developed pipes will be extended, thereby deferring the need for production from A-21 to keep the processing plant full. The A-21 pre-feasibility study currently being undertaken assumes that the A-21 pipe will be mined with the open pit methods used for the other pipes. A dike would be constructed similar to the two other pits but smaller in size. Detailed plans are still being refined and optimized although no underground mining is currently envisaged.
Conference Call and Webcast
Beginning at 8:30AM (ET) on Thursday, April 4th, 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 investor relations web site at http://www.ddcorp.ca or by dialing 800-299-8538 within North America or 617-786-2902 from international locations and entering passcode 80556554.
An online archive of the broadcast will be available by accessing the Company's investor relations web site at http://www.ddcorp.ca A telephone replay of the call will be available one hour after the call through 11:00PM (ET), Thursday, April 18th, 2013 by dialing 888-286-8010 within North America or 617-801-6888 from international locations and entering passcode 39398597.
About Dominion Diamond Corporation
Dominion Diamond Corporation is focused on the mining and marketing of rough diamonds to the global market from attractive operating mine assets that present low political risk. Our business encompasses 40% of the Diavik Diamond Mine in Canada's Northwest Territories and rough diamond sorting and sales operations in Canada, Belgium and India. The Company is in the process of purchasing an 80% interest in the Ekati Diamond Mine, also located in the Northwest Territories of Canada, as well as a control interest in surrounding areas containing significant prospective resources. The Company expects the closing of the transaction will occur on or about April 10, 2013.
For more information, please visit http://www.ddcorp.ca
FOURTH QUARTER RESULTS
During the quarter, Dominion Diamond Corporation (the "Company") announced that it had entered into an agreement to sell its luxury brand diamond jewelry and timepiece division, Harry Winston, Inc. (the "Luxury Brand Segment") to The Swatch Group Ltd. ("Swatch Group"). The sale transaction was completed on March 26, 2013. As a result of the sale, the Company's corporate group underwent name changes to remove references to "Harry Winston". The Company's name has now been changed to "Dominion Diamond Corporation" and its common shares trade on both the Toronto and New York stock exchanges under the symbol "DDC". See "Discontinued Operations". Accordingly, the Company's consolidated results are supported from continuing operations, which no longer include the operations of the Luxury Brand Segment and the results of this segment are now treated as discontinued operations for reporting purposes. Current and prior period results have been restated to reflect this change.
The Company recorded a consolidated net profit attributable to shareholders of $14.9 million or $0.18 per share for the quarter, compared to a net profit attributable to shareholders of $16.6 million or $0.20 per share in the fourth quarter of the prior year. Net profit from continuing operations attributable to shareholders (which now represents the "mining operations") was $12.1 million or $0.14 per share compared to $12.7 million or $0.15 per share in the comparable quarter of the prior year. Continuing operations includes all costs related to the Company's mining operations, including those previously reported as part of the corporate segment.
Consolidated sales from continuing operations were $110.1 million for the fourth quarter compared to $102.2 million for the comparable quarter of the prior year, resulting in an operating profit of $21.0 million compared to an operating profit of $24.0 million in the comparable quarter of the prior year. Gross margin increased 6% to $31.1 million from $29.5 million in the comparable quarter of the prior year. Consolidated EBITDA from continuing operations was $45.3 million compared to $48.3 million in the comparable quarter of the prior year.
The increase in sales resulted from an 11% increase in achieved rough diamond prices, partially offset by a 3% decrease in volume of carats sold during the quarter. Rough diamond production during the fourth calendar quarter was 19% higher than the comparable quarter of the prior year. The Company had 0.5 million carats of rough diamond inventory with an estimated current market value of approximately $65 million at January 31, 2013, of which approximately $25 million represents rough diamond inventory available for sale, with the remaining $40 million currently being sorted.
The net earnings from discontinued operations of $2.8 million are presented separately in the consolidated income statements, and comparative periods have been adjusted accordingly.
ANNUAL RESULTS
The Company recorded a consolidated net profit attributable to shareholders of $34.7 million or $0.41 per share for the year, compared to a net profit attributable to shareholders of $25.5 million or $0.30 per share in the prior year. Net profit from continuing operations attributable to shareholders was $22.3 million or $0.26 per share compared to $17.3 million or $0.20 per share in the prior year. Continuing operations includes all costs related to the Company's mining operations, including those previously reported as part of the corporate segment.
Consolidated sales from continuing operations were $345.4 million for the year compared to $290.1 million for the prior year, resulting in an operating profit of $47.7 million compared to an operating profit of $37.6 million in the prior year. Gross margin increased 25% to $77.8 million from $62.2 million in the prior year. Consolidated EBITDA from continuing operations was $127.9 million compared to $116.3 million in the prior year.
The increase in sales resulted from a 49% increase in volume of carats sold during the year, offset by a 20% decrease in achieved rough diamond prices. The 49% increase in the quantity of carats sold was primarily the result of a decision by the Company to hold back some lower priced goods at October 31, 2011 due to an oversupply in the market at that time and the subsequent sale of almost all of these lower priced carryover goods during fiscal 2013. Rough diamond production during the year was 8% higher than the prior year. The Company recorded a consolidated operating profit from continuing operations of $47.7 million compared to $37.6 million in the prior year. Included in the operating profit for the prior year was a $13.0 million ($8.4 million after tax) non-cash charge related to the de-recognition of certain assets associated with paste production at the Diavik Diamond Mine, which were no longer expected to be required for underground mining.
The net earnings from discontinued operations of $12.4 million are presented separately in the consolidated income statements, and comparative periods have been adjusted accordingly.
Management's Discussion and Analysis
(ALL FIGURES ARE IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED)
On March 26, 2013, Harry Winston Diamond Corporation changed its name to Dominion Diamond Corporation ("Dominion Diamond Corporation" or the "Company"). 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, 2013, and its financial position as at January 31, 2013. This MD&A is based on the Company's consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") and should be read in conjunction with the consolidated financial statements and related notes. Unless otherwise specified, all financial information is presented in United States dollars. Unless otherwise indicated, all references to "year" refer to the fiscal year ended January 31, 2013.
Certain information included in this MD&A may constitute forward-looking information within the meaning of Canadian and United States securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "foresee", "appears", "believe", "intend", "estimate", "predict", "potential", "continue", "objective", "modeled", "hope" or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding plans, timelines and targets for construction, mining, development, production and exploration activities at the Diavik Diamond Mine, future mining and processing at the Diavik Diamond Mine, projected capital expenditure requirements and the funding thereof, liquidity and working capital requirements and sources, estimated reserves and resources at, and production from, the Diavik Diamond Mine, the number and timing of expected rough diamond sales, the demand for rough diamonds, expected diamond prices and expectations concerning the diamond industry, expected cost of sales and gross margin trends, and the ability to complete the Ekati Diamond Mine Acquisition (as defined herein). Actual results may vary from the forward-looking information. See "Risks and Uncertainties" on page 15 for material risk factors that could cause actual results to differ materially from the forward-looking information.
Forward-looking information is based on certain factors and assumptions regarding, among other things, mining, production, construction and exploration activities at the Diavik Diamond Mine, world and US economic conditions, diamond supply, and the timeline for the funding and completion of the Ekati Diamond Mine Acquisition. In making statements regarding expected diamond prices and expectations concerning the diamond industry, the Company has made assumptions regarding, among other things, the state of world and US economic conditions, and worldwide diamond production levels. While the Company considers these assumptions to be reasonable based on the information currently available to it, they may prove to be incorrect. See "Risks and Uncertainties" on page 15.
Forward-looking information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what we currently expect. 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, 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 Diavik Diamond Mine site, risks resulting from the Eurozone financial crisis, risks associated with regulatory requirements, fluctuations in diamond prices and changes in US and world economic conditions, the risk of fluctuations in the Canadian/US dollar exchange rate, cash flow and liquidity risks, and the risks relating to the ability to satisfy the closing conditions of the Ekati Diamond Mine Acquisition and the Company's related new credit facilities. Please see page 15 of this MD&A, as well as the Company's current Annual Information Form, available at http://www.sedar.com and http://www.sec.gov, respectively, for a discussion of these and other risks and uncertainties involved in the Company's operations.
Readers are cautioned not to place undue importance on forward-looking information, which speaks only as of the date of this MD&A, and 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 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, 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. Additional information concerning factors that may cause actual results to materially differ from those in such forward-looking statements is contained in the Company's filings with Canadian and United States securities regulatory authorities and can be found at http://www.sedar.com and http://www.sec.gov, respectively.
Summary Discussion
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 40% ownership interest in the Diavik Diamond Mine, located in Canada's Northwest Territories.
The Company has an ownership interest in the Diavik group of mineral claims. The Diavik Joint Venture (the "Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI") (60%) and Dominion Diamond Diavik Limited Partnership (formerly known as Harry Winston Diamond 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 and DDDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England.
On November 13, 2012, the Company entered into share purchase agreements with BHP Billiton Canada Inc. and various affiliates to purchase all of BHP Billiton's diamond assets, including its controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium (the "Ekati Diamond Mine Acquisition"). 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. The agreed purchase price, payable in cash, is $400 million for the Core Zone and $100 million for the Buffer Zone, subject to adjustments in accordance with the terms of the share purchase agreements. The share purchase agreements include typical closing conditions, including receipt of required regulatory and competition or antitrust law approvals. Each of the Core Zone and the Buffer Zone is subject to a separate joint venture agreement. BHP Billiton holds an 80% interest in the Core Zone and a 58.8% interest in the Buffer Zone, with the remainder held by the Ekati minority joint venture parties. BHP Billiton has advised the Company that all of the minority joint venture partners have agreed to waive their rights of first refusal to purchase the interests in the Buffer Zone and Core Zone that they do not own, as applicable, pursuant to the terms of their respective joint venture agreements. Closing of the Ekati Diamond Mine Acquisition is currently expected to occur on April 10, 2013. In connection with the Ekati Diamond Mine Acquisition, the Company has arranged new secured credit facilities consisting of a $400 million term loan, a $100 million revolving credit facility (of which $50 million will be available for purposes of funding the Ekati Diamond Mine Acquisition) and a $140 million letter of credit facility (expandable to $265 million in aggregate). These new facilities will replace the Company's current $125 million facility with Standard Chartered Bank.
On January 14, 2013, the Company announced that it entered into an agreement to sell the Luxury Brand Segment to Swatch Group (the "Luxury Brand Divestiture"). The Luxury Brand Divestiture was completed on March 26, 2013. As a result of the Luxury Brand Divestiture, the Company's corporate group underwent name changes to remove references to "Harry Winston". The Company's name has now been changed to "Dominion Diamond Corporation" and its common shares trade on both the Toronto and New York stock exchanges under the symbol "DDC".
Market Commentary
The Diamond Market
The rough and polished diamond markets continued to soften throughout the first half of fiscal 2013 due to the macroeconomic uncertainty that negatively impacted the second half of fiscal 2012. The retail industry had built up diamond stocks in expectation of 2012 being a year of greater growth in demand, and the overstocking did not clear until late 2012. Market conditions improved in the second half of fiscal 2013 as a stronger US holiday season and renewed activity in the retail market in China helped increase prices from the market lows experienced in the middle of the year. In addition, the retail markets in both India and the Middle East recovered in the second half of the year, adding further stability to the diamond markets. The diamond market is impacted by currency fluctuations and the dramatic fall in the Indian rupee against the US dollar in early 2012 negatively affected the cost of diamonds to the consumer and the credit available to the Indian diamond cutting industry. In early 2012, industry leading banks reviewed their credit exposure to the diamond industry, tightening liquidity and creating an additional challenge to the difficult market conditions. This tightening of credit forced many diamond companies to improve their operations, allowing the industry to take full advantage of the better market conditions that were evident at the end of fiscal 2013.
During the fourth quarter of fiscal 2013, the retail jewelry market improved in almost all areas, led by Diwali and the wedding season in India followed closely by a positive US year-end holiday season and improved consumer demand in China, which regained momentum in advance of the Lunar New Year. Rough diamond supply was impacted by delivery problems at certain diamond mines combined with lower than expected Russian rough diamond supply. The tight supply coupled with a more active polished market helped improve rough prices during the quarter.
Consolidated Financial Results
On January 14, 2013, the Company announced that it entered into an agreement to sell the Luxury Brand Segment to Swatch Group. The sale transaction was completed on March 26, 2013. As a result of the sale, the Company's corporate group underwent name changes to remove references to "Harry Winston". The Company's name has now been changed to "Dominion Diamond Corporation" and its common shares trade on both the Toronto and New York stock exchanges under the symbol "DDC". See "Discontinued Operations". Accordingly, the Company's consolidated results from continuing operations relate solely to its mining operations, which include the production, sorting and sale of rough diamonds. The results of the Luxury Brand Segment are treated as discontinued operations for accounting and reporting purposes and current and prior period results have been adjusted accordingly. The following is a summary of the Company's consolidated quarterly results for the eight quarters ended January 31, 2013 following the basis of presentation utilized in its IFRS financial statements:
(expressed in thousands of United States dollars except per share amounts and where otherwise noted)
(unaudited)
2013 2013 2013 2013 2012 2012
Q4 Q3 Q2 Q1 Q4 Q3
Sales $ 110,111 $ 84,818 $ 61,473 $ 89,009 $ 102,232 $ 36,239
Cost of sales 79,038 71,663 46,784 70,099 72,783 34,112
Gross margin 31,073 13,155 14,689 18,910 29,449 2,127
Gross margin (%) 28.2% 15.5% 23.9% 21.2% 28.8% 5.9%
Selling, general and
administrative expenses 10,086 7,581 5,750 6,739 5,464 5,390
Operating profit (loss)
from continuing
operations 20,987 5,574 8,939 12,171 23,985 (3,263)
Finance expenses (2,382) (2,308) (2,151) (2,242) (1,616) (2,691)
Exploration costs (306) (673) (568) (254) (177) (600)
Finance and other income 601 60 67 52 51 256
Foreign exchange gain (loss) 116 (301) 1,048 (370) 680 285
Profit (loss) before income
taxes from continuing
operations 19,016 2,352 7,335 9,357 22,923 (6,013)
Income tax expense
(recovery) 6,977 1,583 3,386 3,330 10,281 (1,574)
Net profit (loss) from
continuing operations $ 12,039 $ 769 $ 3,949 $ 6,027 $ 12,642 $ (4,439)
Net profit (loss) from
discontinued operations 2,802 3,245 804 5,583 3,946 (292)
Net profit (loss) $ 14,841 $ 4,014 $ 4,753 $ 11,610 $ 16,588 $ (4,731)
Net profit (loss) from
continuing operations
attributable to
Shareholders $ 12,146 $ 152 $ 3,951 $ 6,027 $ 12,654 $ (4,436)
Non-controlling interest (107) 617 (2) - (12) (3)
Net profit (loss)
attributable to
Shareholders $ 14,948 $ 3,397 $ 4,755 $ 11,610 $ 16,600 $ (4,728)
Non-controlling interest (107) 617 (2) - (12) (3)
Earnings (loss) per share
- continuing operations
Basic $ 0.14 $ - $ 0.05 $ 0.07 $ 0.15 $ (0.05)
Diluted $ 0.14 $ - $ 0.05 $ 0.07 $ 0.15 $ (0.05)
Earnings (loss) per share
Basic $ 0.18 $ 0.04 $ 0.06 $ 0.14 $ 0.20 $ (0.06)
Diluted $ 0.18 $ 0.04 $ 0.06 $ 0.14 $ 0.19 $ (0.06)
Cash dividends
declared per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Total assets (i) $ 1,710 $ 1,733 $ 1,660 $ 1,716 $ 1,607 $ 1,656
Total long-term
liabilities (i) $ 269 $ 682 $ 461 $ 472 $ 641 $ 661
Operating profit (loss)
from continuing
operations $ 20,987 $ 5,574 $ 8,939 $ 12,171 $ 23,985 $ (3,263)
Depreciation and
amortization (ii) 24,346 20,588 13,160 22,172 24,284 19,933
EBITDA from continuing
operations (iii) $ 45,333 $ 26,162 $ 22,099 $ 34,343 $ 48,269 $ 16,670
Table cont'd
2012 2012 2013 2012 2011
Q2 Q1 Total Total Total
Sales $ 89,608 $ 62,035 $ 345,411 $ 290,114 $ 279,154
Cost of sales 67,613 53,443 267,584 227,951 205,412
Gross margin 21,995 8,592 77,827 62,163 73,742
Gross margin (%) 24.5% 13.9% 22.5% 21.4% 26.4%
Selling, general and
administrative expenses 5,709 8,026 30,156 24,589 19,742
Operating profit (loss)
from continuing
operations 16,286 566 47,671 37,574 54,000
Finance expenses (3,787) (2,693) (9,083) (10,787) (7,136)
Exploration costs (781) (212) (1,801) (1,770) (666)
Finance and other income 78 77 780 462 281
Foreign exchange gain (loss) 846 (977) 493 834 ( 1,644)
Profit (loss) before income
taxes from continuing
operations 12,642 (3,239) 38,060 26,313 44,835
Income tax expense
(recovery) 4,517 (4,217) 15,276 9,007 3,345
Net profit (loss) from
continuing operations $ 8,125 $ 978 $ 22,784 $ 17,306 $ 41,490
Net profit (loss) from
discontinued operations 1,863 2,620 12,434 8,137 5,711
Net profit (loss) $ 9,988 $ 3,598 $ 35,218 $ 25,443 $ 47,201
Net profit (loss) from
continuing operations
attributable to
Shareholders $ 8,123 $ 976 $ 22,276 $ 17,317 $ 35,819
Non-controlling interest 2 2 508 (11) 5,671
Net profit (loss)
attributable to
Shareholders $ 9,986 $ 3,596 $ 34,710 $ 25,454 $ 41,530
Non-controlling interest 2 2 508 (11) 5,671
Earnings (loss) per share
- continuing operations
Basic $ 0.10 $ 0.01 $ 0.26 $ 0.20 $ 0.45
Diluted $ 0.09 $ 0.01 $ 0.26 $ 0.20 $ 0.44
Earnings (loss) per share
Basic $ 0.12 $ 0.04 $ 0.41 $ 0.30 $ 0.52
Diluted $ 0.12 $ 0.04 $ 0.41 $ 0.30 $ 0.51
Cash dividends
declared per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Total assets (i) $ 1,671 $ 1,671 $ 1,710 $ 1,607 $ 1,592
Total long-term
liabilities (i) $ 633 $ 613 $ 269 $ 641 $ 586
Operating profit (loss)
from continuing
operations $ 16,286 $ 566 $ 47,671 $ 37,574 $ 54,000
Depreciation and
amortization (ii) 17,461 17,083 80,266 78,761 63,424
EBITDA from continuing
operations (iii) $ 33,747 $ 17,649 $ 127,937 $ 116,335 $ 117,424
(i) Total assets and total long-term liabilities are expressed in
millions of United States dollars.
(ii) Depreciation and amortization included in cost of sales and
selling, general and administrative expenses.
(iii)
Earnings before interest, taxes, depreciation and amortization
("EBITDA"). See "Non-IFRS Measures" on page 14.
<end_table>
The comparability of quarter-over-quarter results is impacted by seasonality
of mining operations. Dominion Diamond Corporation expects that the quarterly
results for its mining operations will continue to fluctuate depending on the
seasonality of production at the Diavik Diamond Mine, the number of sales events
conducted during the quarter, and the volume, size and quality distribution of
rough diamonds delivered from the Diavik Diamond Mine in each quarter.
Three Months Ended January 31, 2013
Compared to Three Months Ended January 31, 2012
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a fourth quarter consolidated net profit attributable to
shareholders of $14.9 million or $0.18 per share compared to a net profit
attributable to shareholders of $16.6 million or $0.20 per share in the fourth
quarter of the prior year. Net profit from continuing operations attributable to
shareholders was $12.1 million or $0.14 per share compared to $12.7 million or
$0.15 per share in the comparable quarter of the prior year. Discontinued
operations represented $2.8 million of net profit or $0.04 per share compared to
$3.9 million or $0.05 per share in the fourth quarter of the prior year.
CONSOLIDATED SALES FROM CONTINUING OPERATIONS
(expressed in thousands of United States dollars)
(unaudited)
2013 2013 2013 2013 2012 2012
Q4 Q3 Q2 Q1 Q4 Q3
Sales
North America $ 4,604 $ 7,697 $ 2,269 $ 7,432 $ 2,727 $ 8,835
Europe 84,346 57,438 50,514 54,370 78,846 21,993
India 21,161 19,683 8,690 27,207 20,659 5,411
Total sales $ 110,111 $ 84,818 $ 61,473 $ 89,009 $ 102,232 $ 36,239
Table cont'd
2012 2012 2013 2012 2011
Q2 Q1 Total Total Total
Sales
North America $ 447 $ 3,009 $ 22,002 $ 15,018 $ 10,418
Europe 80,131 50,752 246,668 231,722 247,677
India 9,030 8,274 76,741 43,374 21,059
Total sales $ 89,608 $ 62,035 $ 345,411 $ 290,114 $ 279,154
During the fourth quarter, the Company sold approximately 0.83 million carats for a total of $110.1 million for an average price per carat of $133 compared to approximately 0.86 million carats for a total of $102.2 million for an average price per carat of $120 in the comparable quarter of the prior year. The 11% increase in the Company's achieved average rough diamond prices during the fourth quarter versus the comparable quarter of the prior year resulted from an improved sales mix. Had the Company sold only the last production shipped in the fourth quarter, the estimated achieved price would have been approximately $117 per carat based on the prices achieved in the February 2013 sale. The Company expects that results for its mining operations will continue to fluctuate depending on the seasonality of production at the Diavik Diamond Mine, 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 Diavik Diamond Mine and sold by the Company in each quarter. CONSOLIDATED COST OF SALES AND GROSS MARGIN FROM CONTINUING OPERATIONS The Company's fourth quarter consolidated cost of sales was $79.0 million resulting in a gross margin of 28.2% compared to a cost of sales of $72.8 million and a gross margin of 28.8% in the comparable quarter of the prior year. Cost of sales for the fourth quarter included $23.6 million of depreciation and amortization compared to $23.5 million in the comparable quarter of the prior year. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices. A substantial portion of consolidated cost of sales is mining operating costs, which are incurred at the Diavik Diamond Mine. During the fourth quarter, the Diavik cash cost of production was $44.8 million compared to $44.2 million in the comparable quarter of the prior year. Cost of sales also includes sorting costs, which consists of 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. 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 the Diavik Diamond Mine is performing compared to the 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. 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 mining operations' cost of sales disclosed for the three months ended January 31, 2013 and 2012.
(expressed in thousands of Three months ended Three months ended
United States dollars) January 31, 2013 January 31, 2012
Diavik cash cost of production $ 44,764 $ 44,187
Private royalty 2,040 1,529
Other cash costs 1,272 1,074
Total cash cost of production 48,076 46,790
Depreciation and amortization 20,182 21,748
Total cost of production 68,258 68,538
Adjusted for stock movements 10,780 4,245
Total cost of sales $ 79,038 $ 72,783
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FROM CONTINUING OPERATIONS Consolidated SG&A expenses for the fourth quarter increased by $4.6 million from the prior year primarily due to $1.6 million related to the Ekati Diamond Mine Acquisition, $0.6 million related to the Luxury Brand Divestiture and $0.8 million related to stock-based compensation. CONSOLIDATED INCOME TAXES FROM CONTINUING OPERATIONS The Company recorded a net income tax expense from continuing operations of $7.0 million during the fourth quarter, compared to a net income tax expense from continuing operations of $10.3 million in the comparable quarter of the prior year. The Company's combined Canadian federal and provincial statutory tax rate for the quarter is 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 different than the statutory rate such as earnings in foreign jurisdictions, and changes in the Company's view of whether deferred tax assets are probable of being realized. 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. 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, the Company recorded an unrealized foreign exchange loss of $0.3 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange gain of $1.2 million in the comparable quarter of the prior year. The unrealized foreign exchange loss is recorded as part of the Company's deferred income tax expense, and is not deductible for Canadian income tax purposes. During the fourth quarter, the Company also recognized a deferred income tax expense of $0.9 million for temporary differences arising from the difference between the historical exchange rate and the current exchange rate translation of foreign currency non-monetary items. This compares to a deferred income tax expense of $2.8 million recognized in the comparable quarter of the prior year. The recorded tax provision during the fourth quarter also included a net income tax recovery of $1.1 million relating to foreign exchange differences between income in the currency of the country of origin and the US dollar. This compares to a net income tax recovery of $0.6 million recognized in the comparable period of the prior year. 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. CONSOLIDATED FINANCE EXPENSES FROM CONTINUING OPERATIONS Finance expenses for the fourth quarter were $2.4 million compared to $1.6 million for the comparable quarter of the prior year. Also included in consolidated finance expense is accretion expense of $0.6 million (2012 - $(0.3) million) related to the Diavik Diamond Mine's future site restoration liability. CONSOLIDATED EXPLORATION EXPENSE FROM CONTINUING OPERATIONS Exploration expense of $0.3 million was incurred during the fourth quarter compared to $0.2 million in the comparable quarter of the prior year. CONSOLIDATED FINANCE AND OTHER INCOME FROM CONTINUING OPERATIONS Finance and other income of $0.6 million was recorded during the fourth quarter compared to $0.1 million in the comparable quarter of the prior year. CONSOLIDATED FOREIGN EXCHANGE FROM CONTINUING OPERATIONS A net foreign exchange gain of $0.1 million was recognized during the fourth quarter compared to a net foreign exchange gain of $0.7 million in the comparable quarter of the prior year. The Company does not currently have any significant foreign exchange derivative instruments outstanding. Year Ended January 31, 2013 Compared to Year Ended January 31, 2012 CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS The Company recorded a consolidated net profit attributable to shareholders of $34.7 million or $0.41 per share for the year ended January 31, 2013, compared to a net profit attributable to shareholders of $25.5 million or $0.30 per share in the prior year. Excluding the $8.4 million after-tax de-recognition in the prior year of certain paste production assets, the Company would have recorded a net profit attributable to shareholders of $33.8 million or $0.40 per share. Net profit from continuing operations attributable to shareholders was $22.3 million or $0.26 per share, compared to $17.3 million or $0.20 per share in the prior year. Excluding the $8.4 million described above, the Company would have recorded a net profit from continuing operations attributable to shareholders of $25.7 million or $0.30 per share in the prior year. Discontinued operations represented $12.4 million of net profit or $0.15 per share compared to $8.1 million or $0.10 per share in the prior year. CONSOLIDATED SALES FROM CONTINUING OPERATIONS During the year ended January 31, 2013, the Company sold approximately 3.2 million carats for a total of $345.4 million for an average price per carat of $109 compared to approximately 2.1 million carats for a total of $290.1 million for an average price per carat of $137 in the prior year. The 49% increase in the quantity of carats sold was primarily the result of a decision by the Company to hold back some lower priced goods at October 31, 2011 due to an oversupply in the market at that time and the subsequent sale of almost all of these lower priced carryover goods during fiscal 2013. The 20% decrease in the Company's achieved average rough diamond prices during the fiscal year resulted from a combination of two factors: first, the sale of the lower priced goods originally held back in inventory by the Company at October 31, 2011; and second, a decrease in the market price for rough diamonds from the peak achieved in the prior year. CONSOLIDATED COST OF SALES AND GROSS MARGIN FROM CONTINUING OPERATIONS The Company's cost of sales was $267.6 million during the year ended January 31, 2013, resulting in a gross margin of 22.5% compared to a cost of sales of $228.0 million and a gross margin of 21.4% in the prior year. Included in the cost of sales for the prior year was a non-cash $13.0 million charge related to the de-recognition of certain components of the backfill plant associated with paste production at the Diavik Diamond Mine. Cost of sales for the year ended January 31, 2013, included $77.3 million of depreciation and amortization compared to $76.1 million for the prior year. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices. A substantial portion of cost of sales is mining operating costs, which are incurred at the Diavik Diamond Mine. During the year ended January 31, 2013, the Diavik cash cost of production was $171.4 million compared to $167.8 million in the prior year. Cost of sales also includes sorting costs, which consists of 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. The following table provides a reconciliation of cash cost of production (a non-IFRS performance measure) to cost of sales disclosed in the financial statements for the fiscal years ended January 31, 2013 and 2012.
(expressed in thousands of United States dollars) 2013 2012
Diavik cash cost of production $ 171,442 $ 167,787
Private royalty 7,399 5,535
Other cash costs 4,360 4,009
Total cash cost of production 183,201 177,331
Depreciation and amortization 70,516 88,302
Total cost of production 253,717 265,633
Adjusted for stock movements 13,868 (37,682)
Total cost of sales $ 267,585 $ 227,951
CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FROM CONTINUING
OPERATIONS
Consolidated SG&A expenses increased by $5.6 million from the prior year
primarily due to $3.2 million related to the Ekati Diamond Mine Acquisition and
$1.0 million related to the Luxury Brand Divestiture.
CONSOLIDATED INCOME TAXES FROM CONTINUING OPERATIONS
The Company recorded a net income tax expense from continuing operations of
$15.3 million during the year ended January 31, 2013, compared to a net income
tax expense from continuing operations of $9.0 million in the prior year. The
Company's combined Canadian federal and provincial statutory tax rate for the
period is 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
different than the statutory rate, such as earnings in foreign jurisdictions,
and changes in the Company's view of whether deferred tax assets are probable of
being realized. 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. 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, 2013, the Company
recorded an unrealized foreign exchange loss of $1.1 million on the revaluation
of the Company's Canadian dollar denominated deferred income tax liability. This
compares to an unrealized foreign exchange loss of $0.5 million in the prior
year. The unrealized foreign exchange loss is recorded as part of the Company's
deferred income tax recovery, and is not deductible for Canadian income tax
purposes. During the year ended January 31, 2013, the Company also
recognized a deferred income tax expense of $4.4 million for temporary
differences arising from the difference between the historical exchange rate and
the current exchange rate translation of foreign currency non-monetary items.
This compares to a deferred income tax expense of $5.6 million recognized in the
prior year. The recorded tax provision during the year ended January 31,
2013 also included a net income tax recovery of $5.2 million relating to foreign
exchange differences between income in the currency of the country of origin and
the US dollar. This compares to a net income tax recovery of $4.4 million
recognized in the prior year.
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.
CONSOLIDATED FINANCE EXPENSES FROM CONTINUING OPERATIONS
Finance expenses for the year ended January 31, 2013 were $9.1 million
compared to $10.8 million in the prior year. Also included in finance expense is
accretion expense of $2.4 million (2012 - $2.0 million) related to the Diavik
Diamond Mine's future site restoration liability.
CONSOLIDATED EXPLORATION EXPENSE FROM CONTINUING OPERATIONS
Exploration expense of $1.8 million was incurred during the year ended
January 31, 2013, consistent with the prior year.
CONSOLIDATED FINANCE AND OTHER INCOME FROM CONTINUING OPERATIONS
Finance and other income of $0.8 million was recorded during the year ended
January 31, 2013, compared to $0.5 million in the prior year.
CONSOLIDATED FOREIGN EXCHANGE FROM CONTINUING OPERATIONS
A net foreign exchange gain of $0.5 million was recognized during the year
ended January 31, 2013, compared to $0.8 million in the prior year.
The Company does not currently have any significant foreign exchange
derivative instruments outstanding.
OPERATIONAL UPDATE
Production for calendar year 2012 at the Diavik Diamond Mine was 7.2 million
carats consisting of 4.3 million carats produced from 1.2 million tonnes of ore
from the A-418 kimberlite pipe, 1.9 million carats produced from 0.4 million
tonnes of ore from the A-154 South kimberlite pipe, and 0.9 million carats
produced from 0.4 million tonnes of ore from the A-154 North kimberlite pipe.
Also included in production for the 2012 calendar year was an estimated 0.1
million carats from reprocessed plant rejects ("RPR"). These RPR are not
included in the Company's reserves and resource statement and are therefore
incremental to production. Rough diamond production was 8% higher than the prior
calendar year due primarily to improved grades in each of the kimberlite
pipes.
Production in the fourth calendar quarter was 1.9 million carats consisting
of 0.8 million carats produced from 0.2 million tonnes of ore from the A-418
kimberlite pipe, 0.7 million carats produced from 0.2 million tonnes of ore from
the A-154 South kimberlite pipe, 0.3 million carats produced from 0.1 million
tonnes of ore from the A-154 North kimberlite pipe and 0.04 million carats from
RPR. Average grade increased to 4.1 carats per tonne in the fourth calendar
quarter from 2.9 carats per tonne in the comparable quarter of the prior year.
The 19% increase in carats recovered in the quarter was primarily due to
improved grades in each of the kimberlite pipes, partially offset by the 16%
decline in ore processed in the quarter, which was due to a reduction in
processing plant throughput that resulted from changes in the geological
composition of the ore. Open pit mining of the A-418 kimberlite pipe concluded
in September 2012, although processing of open pit ore from the A-418 kimberlite
pipe will continue into calendar 2013.
DOMINION DIAMOND DIAVIK LIMITED PARTNERSHIP'S 40% SHARE OF DIAVIK DIAMOND
MINE PRODUCTION
(reported on a one-month lag)
Three months Three months Twelve months Twelve months
ended ended ended ended
December 31, December 31, December 31, December 31,
2012 2011 2012 2011
Diamonds recovered
(000s carats) 760 641 2,892 2,670
Grade (carats/tonne) 4.08 2.88 3.52 2.99
During the fiscal year, the Company expanded its Mumbai, India, office to the Bharat Diamond Bourse in Bandra, India. The new office will continue to support the Company's rough sorting and sales expansion in India. Mining Operations Outlook PRODUCTION A new mine plan and budget for calendar 2013 has been approved by Rio Tinto plc and the Company. The plan for calendar 2013 foresees Diavik Diamond Mine production of approximately 6 million carats from the mining and processing of approximately 1.6 million tonnes of ore with a further 0.2 million tonnes processed from stockpile 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 0.4 million tonnes from A-418 kimberlite pipes. Included in the estimated production for calendar 2013 is approximately 0.6 million carats from RPR and 0.1 million carats from the improved recovery process for small diamonds. These RPR and small diamond recoveries are not included in the Company's reserves and resource statement and are therefore incremental to production. The development of A-21, the last of the Diavik Diamond Mine's kimberlite pipes in the original mine plan, has been deferred due both to the current diamond market conditions and the decreased urgency of development following the identification of extensions to the existing pipes. Although these extension areas cannot be categorized as ore at this time due to insufficient definition work, the Company expects the life of the existing developed pipes will be extended, thereby deferring the need for production from A-21 to keep the processing plant full. The A-21 pre-feasibility study currently being undertaken assumes that the A-21 pipe will be mined with the open pit methods used for the other pipes. A dike would be constructed similar to the two other pits but smaller in size. Detailed plans are still being refined and optimized although no underground mining is currently envisaged. PRICING Based on prices from the Company's rough diamond sales during the fourth quarter and the current diamond recovery profile of the Diavik processing plant, the Company has modeled the current approximate rough diamond price per carat for each of the Diavik ore types in the table that follows:
February 2013
average price per carat
Ore type (in US dollars)
A-154 South $ 135
A-154 North 170
A-418 95
RPR 45
COST OF SALES AND CASH COST OF PRODUCTION The Company currently expects cost of sales in fiscal 2014 to be approximately $255 million (including depreciation and amortization of approximately $70 million). The Company's share of the cash cost of production at the Diavik Diamond Mine for calendar 2013 is expected to be approximately $170 million at an assumed average Canadian/US dollar exchange rate of $1.00. CAPITAL EXPENDITURES During fiscal 2013 and the fourth quarter, DDDLP's 40% share of capital expenditures at the Diavik Diamond Mine was approximately $51.6 million and $8.7 million, respectively. During fiscal 2014, DDDLP's 40% share of the planned capital expenditures is expected to be approximately $28 million at an assumed average Canadian/US dollar exchange rate of $1.00. Discontinued Operations On January 14, 2013, the Company announced that it entered into an agreement to sell the Luxury Brand Segment to Swatch Group. The sale transaction was completed on March 26, 2013 and the Company's corporate group underwent name changes to remove references to "Harry Winston". The Company's name has now been changed to "Dominion Diamond Corporation" and its common shares trade on both the Toronto and New York stock exchanges under the symbol "DDC". As a result of the Luxury Brand Divestiture, the Company's consolidated results no longer include the operations of the Luxury Brand Segment and the results of the Luxury Brand Segment are now treated as discontinued operations for reporting purposes. Current and prior period results have been restated to reflect this change. Liquidity and Capital Resources Working Capital As at January 31, 2013, the Company had unrestricted cash and cash equivalents of $104.3 million compared to $78.1 million at January 31, 2012. During the year ended January 31, 2013, the Company reported cash from operations of $105.1 million compared to $59.0 million in the prior year. The increase resulted primarily from the Company's decision to hold rough diamond inventory due to market conditions in the prior year. At January 31, 2013, the Company had 0.5 million carats of rough diamond inventory with an estimated current market value of approximately $65 million, of which approximately $25 million represents inventory available for sale, with the remaining $40 million currently being sorted. At January 31, 2012, the Company had 0.8 million carats of rough diamond inventory with an estimated market value of approximately $80 million, of which approximately $50 million represented inventory available for sale, with the remaining $30 million being sorted. Working capital decreased to $361.5 million at January 31, 2013 from $439.0 million at January 31, 2012. During the year, the Company increased accounts receivable from continuing operations by $1.7 million, decreased other current assets from continuing operations by $0.1 million, decreased inventory and supplies from continuing operations by $9.0 million, increased trade and other payables from continuing operations by $0.1 million and increased employee benefit plans from continuing operations by $1.4 million. The Company's liquidity requirements fluctuate from quarter to quarter depending on, among other factors, the seasonality of production at the Diavik Diamond Mine, seasonality of mine operating 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 Diavik Diamond Mine and sold by the Company in each quarter. 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. Financing Activities The Company maintains a senior secured revolving credit facility with Standard Chartered Bank. At January 31, 2013, $50.0 million was outstanding. On November 13, 2012, the Company entered into share purchase agreements with respect to the Ekati Diamond Mine Acquisition. In connection with the Ekati Diamond Mine Acquisition, the Company has arranged new secured credit facilities with The Royal Bank of Canada and Standard Chartered Bank consisting of a $400 million term loan, a $100 million revolving credit facility (of which $50 million will be available for purposes of funding the Ekati Diamond Mine Acquisition) and a $140 million letter of credit facility (expandable to $265 million in aggregate). These new facilities will replace the Company's current $125 million facility with Standard Chartered Bank. These new facilities include customary covenants, including certain reporting and financial covenants, and bear interest at market rates. The term loan will require principal repayments beginning 30 months following closing of the Ekati Diamond Mine Acquisition and a final bullet payment of 50 percent of the principal amount being due on the date that is five years after the closing of the Ekati Diamond Mine Acquisition. The $100 million portion of the revolving facility will be due five years after closing. The letter of credit facility expires 364 days after the closing of the Ekati Diamond Mine Acquisition. These new facilities are subject to customary closing conditions, including closing of the Core Zone acquisition. If the Core Zone acquisition is not completed but the Buffer Zone acquisition is completed, then the Company expects to finance the acquisition of the Buffer Zone using other cash resources available to it. As at January 31, 2013, $nil and $1.1 million was outstanding under the Company's revolving financing facility relating to its Belgian subsidiary, Dominion Diamond International NV (formerly known as Harry Winston Diamond International NV), and its Indian subsidiary, Dominion Diamond (India) Private Limited (formerly known as Harry Winston Diamond (India) Private Limited), respectively, compared to $nil and $4.3 million at January 31, 2012. Investing Activities During the fiscal year, the Company purchased property, plant and equipment of $56.5 million for its continuing operations. Contractual Obligations The Company has contractual payment obligations with respect to interest-bearing loans and borrowings and, through its participation in the Joint Venture, future site restoration costs at the Diavik Diamond Mine level. Additionally, at the Joint Venture level, 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 Joint Venture's total expenditures on a monthly basis. Not reflected in the table below are capital expenditures for the calendar years 2013 to 2017 of approximately $70 million assuming a Canadian/US average exchange rate of $1.00 for each of the five years relating to DDDLP's current projected share of the planned capital expenditures (excluding the A-21 pipe) at the Diavik Diamond Mine. Also not included is the potential impact of the Ekati Diamond Mine Acquisition. The most significant contractual obligations for the ensuing five-year period can be summarized as follows:
CONTRACTUAL OBLIGATIONS
Less
(expressed in thousands of than Year Year After 5
United States dollars) Total 1 year 2-3 4-5 years
Interest-bearing loans and borrowings
(a)(b) $ 58,938 $ 53,191 $ 2,463 $ 2,463 $ 821
Environmental and participation
agreements incremental commitments (c) 92,725 83,195 4,817 - 4,713
Total contractual obligations $ 151,663 $ 136,386 $ 7,280 $ 2,463 $ 5,534
(a) (i) Interest-bearing loans and borrowings presented in the foregoing
table include current and long-term portions. The Company maintains a
senior secured revolving credit facility with Standard Chartered Bank
for $125.0 million. The facility has an initial maturity date of June
24, 2013, with two one-year extensions at the Company's option. There
are no scheduled repayments required before maturity. At January 31,
2013, $50.0 million was outstanding.
(ii) The Company has available a $45.0 million revolving financing
facility (utilization in either US dollars or Euros) with Antwerp
Diamond Bank for inventory and receivables funding in connection with
marketing activities through its Belgian subsidiary, Dominion Diamond
International NV, and its Indian subsidiary, Dominion Diamond (India)
Private Limited. Borrowings under the Belgian facility bear interest
at the bank's base rate plus 1.5%. Borrowings under the Indian
facility bear an interest rate of 13.5%. At January 31, 2013, $nil and
$1.1 million were outstanding under this facility relating to Dominion
Diamond International NV and Dominion Diamond (India) Private Limited,
respectively. The facility is guaranteed by Dominion Diamond
Corporation.
(iii) The Company's first mortgage on real property has scheduled
principal payments of approximately $0.2 million quarterly, may be
prepaid at any time, and matures on September 1, 2018. On January 31,
2013, $5.6 million was outstanding on the mortgage payable.
(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,
2013, and have been included under interest-bearing loans and
borrowings in the table above. Interest payments for the next twelve
months are approximated to be $1.2 million.
(c) The Joint Venture, under environmental and other agreements, must
provide funding for the Environmental Monitoring Advisory Board. These
agreements also state that the Joint Venture must provide security
deposits for the performance by the Joint Venture of its reclamation
and abandonment obligations under all environmental laws and
regulations. The operator of the Joint Venture has fulfilled such
obligations for the security deposits by posting letters of credit, of
which DDDLP's share as at January 31, 2013 was $82.0 million based on
its 40% ownership interest in the Diavik Diamond Mine. There can be no
assurance that the operator will continue its practice of posting
letters of credit in fulfillment of this obligation, in which event
DDDLP would be required to post its proportionate share of such
security directly, which would result in additional constraints on
liquidity. The requirement to post security for the reclamation and
abandonment obligations may be reduced to the extent of amounts spent
by the Joint Venture on those activities. The Joint Venture has also
signed participation agreements with various native groups. These
agreements are expected to contribute to the social, economic and
cultural well-being of area Aboriginal bands. The actual cash outlay
for the Joint Venture's obligations under these agreements is not
anticipated to occur until later in the life of the Diavik Diamond
Mine.
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 the Diavik Diamond Mine is performing compared to the 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. 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. EBITDA The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have a standardized meaning according to IFRS and therefore may not be comparable to similar measures presented by other issuers. The Company defines EBITDA as sales minus cost of sales and selling, general and administrative expenses, meaning it represents operating profit before depreciation and amortization. EBITDA is a measure 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 as a valuation metric. EBITDA margin is defined as the ratio obtained by dividing EBITDA by sales. (expressed in thousands of United States dollars) (unaudited)
2013 2013 2013 2013 2012 2012
Q4 Q3 Q2 Q1 Q4 Q3
Operating profit (loss)
from continuing operations $ 20,987 $ 5,574 $ 8,939 $ 12,171 $ 23,985 $ (3,263)
Depreciation and amortization 24,346 20,588 13,160 22,172 24,284 19,933
EBITDA from continuing
operations $ 45,333 $ 26,162 $ 22,099 $ 34,343 $ 48,269 $ 16,670
Table cont'd.
2012 2012 2013 2012 2011
Q2 Q1 Total Total Total
Operating profit (loss)
from continuing operations $ 16,286 $ 566 $ 47,671 $ 37,574 $ 54,000
Depreciation and amortization 17,461 17,083 80,266 78,761 63,424
EBITDA from continuing
operations $ 33,747 $ 17,649 $ 127,937 $ 116,335 $ 117,424
Risks and Uncertainties
Dominion Diamond Corporation 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 operation of the Diavik Diamond Mine is 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 Diavik Diamond Mine, because of its remote northern location and access
only by winter road or by air, is 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.
Nature of Interest in DDMI
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%), and is subject
to the risks normally associated with the conduct of joint ventures and similar
joint arrangements. These risks include the inability to exert influence over
strategic decisions made in respect of the Diavik Diamond Mine and the Diavik
group of mineral claims, including the inability to control the timing and scope
of capital expenditures, and risks that DDMI may decide not to proceed with
mining of the A-21 pipe or may otherwise change the mine plan. By virtue of
DDMI's 60% interest in the Diavik Diamond Mine, it has a controlling vote in
virtually all 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 determine the timing and scope of
future project capital expenditures, and therefore is 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. Rio Tinto plc, the parent of DDMI, announced a
review of its diamond operations in early 2012.
Diamond Prices and Demand for Diamonds
The profitability of the Company is dependent upon production from the Diavik
Diamond Mine, which is dependent on 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, particularly in
the US, Japan, China and India, 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 recent periods of low 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 Diavik Diamond Mine, 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 Diavik Diamond Mine and sold by the Company in
each quarter. The Company's principal working capital needs include 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.
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. This has restricted the Company's growth
opportunities both domestically and internationally, and a return to a recession
or weak recovery, due to recent disruptions in financial markets in the US, the
Eurozone or elsewhere, budget policy issues in the US and political upheavals in
the Middle East, 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 largely underwritten by European
banks that are currently under stress with the European sovereign debt issue.
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.
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 Diavik Diamond Mine 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. The appreciation of the Canadian dollar against the US
dollar, therefore, will increase the expenses of the Diavik Diamond Mine and the
amount of the Company's Canadian dollar liabilities relative to the revenue
the Company will receive from diamond sales. 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 operation of the Diavik Diamond Mine and exploration on the Diavik
property requires licences and permits from the Canadian government. The Diavik
Diamond Mine Type "A" Water Licence was renewed by the regional Wek'eezhii Land
and Water Board to October 31, 2015. While the Company anticipates that
DDMI, the operator of the Diavik Diamond Mine, will be able to renew this
licence and other necessary permits in the future, there can be no guarantee
that DDMI will be able to do so or obtain or maintain all other necessary
licences and permits that may be required to maintain the operation of the
Diavik Diamond Mine or to further explore and develop the
Diavik property.
Regulatory and Environmental Risks
The operation of the Diavik Diamond Mine and exploration activities at the
Diavik property 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,
manufacturing 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 Diavik Diamond Mine.
Mining and manufacturing are subject to potential risks and liabilities
associated with pollution of the environment and the disposal of waste products
occurring as a result of mining and manufacturing 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.
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 on the Diavik
group of mineral claims 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. 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 Diavik Diamond Mine may render the mining of ore reserves
uneconomical.
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 at the Diavik property
will be upgraded to proven and probable ore 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 Diavik Diamond Mine, personal injury or death,
environmental damage to the Diavik property, delays in mining, monetary losses
and possible legal liability. Although insurance is maintained to protect
against certain risks in connection with the Diavik Diamond Mine 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 Diavik Diamond Mine's expected fuel needs 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 Diavik Diamond Mine currently has no hedges for its future anticipated
fuel consumption.
Reliance on Skilled Employees
Production at the Diavik Diamond Mine is dependent upon the efforts of
certain skilled employees of DDMI. The loss of these employees or the inability
of DDMI to attract and retain additional skilled employees may adversely affect
the level of diamond production from the Diavik Diamond Mine.
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.
Cybersecurity
The Company and certain of its third-party vendors receive and store personal
information in connection with human resources operations and other aspects of
the business. Despite the Company's implementation of security measures, its IT
systems are vulnerable to damage from computer viruses, natural disasters,
unauthorized access, cyber attack and other similar disruptions. Any system
failure, accident or security breach could result in disruptions to the
Company's operations. A material network breach in the security of the IT
systems could include the theft of intellectual property or trade secrets. To
the extent that any disruption or security breach results in a loss or damage to
the Company's data, or in inappropriate disclosure of confidential information
or financial data, such disruption or breach could cause significant damage to
the Company's reputation, affect its relationships with its customers, lead to
claims against the Company and ultimately harm its business. In addition, the
Company may be required to incur significant costs to protect against damage
caused by these disruptions or security breaches in the future. Although the
Company believes that it has robust information security procedures and other
safeguards in place, as cyber threats continue to evolve, the Company may be
required to expend additional resources to continue to enhance its information
security measures and/or to investigate and remediate any information security
vulnerabilities.
Risks relating to the Ekati Diamond Mine Acquisition
On November 13, 2012, the Company entered into share purchase agreements with
respect to the Ekati Diamond Mine Acquisition. The closing of the Ekati Diamond
Mine Acquisition is subject to the satisfaction of typical closing conditions,
including the receipt of competition and antitrust law approvals and other
regulatory approvals required in connection with the transfer of operatorship
and ownership of the Core Zone and the Buffer Zone interests of the Ekati
Diamond Mine. In connection with the Ekati Diamond Mine Acquisition, the Company
has arranged new secured credit facilities with The Royal Bank of Canada and
Standard Chartered Bank. These new facilities are subject to customary closing
conditions, including closing of the Core Zone acquisition. There can be no
assurances that all of the closing conditions to the Core Zone acquisition will
be satisfied and accordingly, that the new facilities become available to the
Company, and there can be no assurances that all of the closing conditions to
the Ekati Diamond Mine Acquisition will be satisfied.
Completion of the Ekati Diamond Mine Acquisition and the integration of the
Ekati Diamond Mine into the Company's operations will require significant
management time and resources.
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
the 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 reasonable assurance of achieving the
desired control objectives. The management of Dominion Diamond Corporation was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. The result of the inherent limitations in
all control systems means 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 Multilateral 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, 2013, to ensure that
information required to be disclosed in reports that the Company will file or
submit under Canadian securities legislation and the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in those
rules and forms.
Internal Control 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 the Internal
Control - Integrated Framework, 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, 2013.
Changes in Internal Control over Financial Reporting
During the fourth quarter of fiscal 2013, there were no changes in the
Company's disclosure controls and procedures or internal control 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. The following discussion
outlines the accounting policies and practices that are critical to determining
Dominion Diamond Corporation's financial results.
Significant Judgments, Estimates 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 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 un-utilized 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.
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 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 provision, 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
units-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 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
The mine rehabilitation and site restoration provision has been provided by
management of the Diavik Diamond Mine and is 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.
Changes in Accounting Policies
The International Accounting Standards Board ("IASB") has issued a new
standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately
replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39").
IFRS 9 provides guidance on the classification and measurement of financial
assets and financial liabilities. This standard becomes effective for the
Company's fiscal year end beginning February 1, 2015. The Company is currently
assessing the impact of the new standard on its financial statements.
IFRS 10, "Consolidated Financial Statements" ("IFRS 10"), was issued by the
IASB on May 12, 2011, and will replace the consolidation requirements
in SIC-12, "Consolidation - Special Purpose Entities" and IAS 27,
"Consolidated and Separate Financial Statements". The new standard establishes
control as the basis for determining which entities are consolidated in the
consolidated financial statements and provides guidance to assist in the
determination of control where it is difficult to assess. IFRS 10 is effective
for the Company's fiscal year end beginning February 1, 2013, with early
adoption permitted. The Company is currently assessing the impact of IFRS 10 on
its consolidated financial statements.
IFRS 11, "Joint Arrangements" ("IFRS 11"), was issued by the IASB on May 12,
2011 and will replace IAS 31, "Interest in Joint Ventures". The new standard
will apply to the accounting for interests in joint arrangements where there is
joint control. Under IFRS 11, joint arrangements are classified as either joint
ventures or joint operations. The structure of the joint arrangement will no
longer be the most significant factor in determining whether a joint arrangement
is either a joint venture or a joint operation. For a joint venture,
proportionate consolidation will no longer be allowed and will be replaced by
equity accounting. IFRS 11 is effective for the Company's fiscal year end
beginning February 1, 2013, with early adoption permitted. The Company is
currently assessing the impact of IFRS 11 on its results of operations and
financial position.
IFRS 13, "Fair Value Measurement" ("IFRS 13"), was also issued by the IASB on
May 12, 2011. The new standard generally makes IFRS consistent with generally
accepted accounting principles in the United States ("US GAAP") on measuring
fair value and related fair value disclosures. The new standard creates a single
source of guidance for fair value measurements. IFRS 13 is effective for the
Company's fiscal year end beginning February 1, 2013, with early adoption
permitted. The Company is currently assessing the impact of IFRS 13 on its
consolidated financial statements.
The International Financial Reporting Interpretations Committee ("IFRIC")
issued IFRIC 20, "Stripping Costs in the Production Phase of a Surface Mine"
("IFRIC 20"), on October 19, 2011. IFRIC 20 clarifies the requirements for
accounting for stripping costs associated with waste removal in surface mining,
including when production stripping costs should be recognized as an asset, how
the asset is initially recognized, and subsequent measurement. IFRIC 20 is
effective for the Company's fiscal year end beginning February 1, 2013. The
Company is currently assessing the impact of IFRIC 20 on its consolidated
financial statements.
Amendments to IAS 19, "Employee Benefits" ("IAS 19"), was issued by the IASB
on June 11, 2011. The amended standard eliminates the option to defer the
recognition of actuarial gains and losses through the "corridor" approach,
revises the presentation of changes in assets and liabilities arising from
defined benefit plans and enhances the disclosures for defined benefit
plans. IAS 19 is effective for the Company's fiscal year end beginning
February 1, 2013, with early adoption permitted. The Company is currently
assessing the impact of IAS 19 on its consolidated financial statements.
Outstanding Share Information
As at March 31, 2013
Authorized Unlimited
Issued and outstanding shares 84,883,031
Options outstanding 2,362,175
Fully diluted 87,245,206
Additional Information Additional information relating to the Company, including the Company's most recently filed Annual Information Form, can be found on SEDAR at http://www.sedar.com, and is also available on the Company's website at http://www.ddcorp.ca.
Consolidated Balance Sheets
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED)
January 31, January 31,
2012 2011
January 31, (Recast - (Recast -
2013 note 25) note 25)
ASSETS
Current assets
Cash and cash equivalents
(note 4) $ 104,313 $ 78,116 $ 108,693
Accounts receivable
(note 5) 3,705 26,910 22,788
Inventory and supplies
(note 6) 115,627 457,827 403,212
Other current assets
(note 7) 29,486 45,494 41,317
Assets held for sale
(note 8) 718,804 - -
971,935 608,347 576,010
Property, plant and equipment
- Mining (note 9) 727,489 734,146 764,093
Property, plant and equipment
- Luxury brand (note 9) - 69,781 61,019
Intangible assets, net - 127,337 127,894
Other non-current assets (note 11) 6,937 14,165 14,521
Deferred income tax assets
(note 14) 4,095 53,485 48,563
Total assets $ 1,710,456 $ 1,607,261 $ 1,592,100
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables
(note 12) $ 39,053 $ 104,681 $ 139,551
Employee benefit plans
(note 13) 2,634 6,026 4,317
Income taxes payable (note 14) 32,977 29,450 6,660
Promissory note - - 70,000
Current portion of
interest-bearing loans and
borrowings (note 15) 51,508 29,238 24,215
Liabilities held for sale
(note 8) 484,252 - -
610,424 169,395 244,743
Interest-bearing loans and
borrowings (note 15) 4,799 270,485 235,516
Deferred income tax liabilities
(note 14) 181,427 295,565 292,598
Employee benefit plans
(note 13) 3,499 9,463 7,287
Provisions (note 16) 79,055 65,245 50,130
Total liabilities 879,204 810,153 830,274
Equity
Share capital (note 17) 508,007 507,975 502,129
Contributed surplus 20,387 17,764 16,233
Retained earnings 295,738 261,028 235,574
Accumulated other
comprehensive income 6,357 10,086 7,624
Total shareholders' equity 830,489 796,853 761,560
Non-controlling interest 763 255 266
Total equity 831,252 797,108 761,826
Total liabilities and equity $ 1,710,456 $ 1,607,261 $ 1,592,100
Subsequent events (note 1)
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Income Statements
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
2013 2012
Sales $ 345,411 $ 290,114
Cost of sales 267,584 227,951
Gross margin 77,827 62,163
Selling, general and administrative expenses 30,156 24,589
Operating profit (note 18) 47,671 37,574
Finance expenses (9,083) (10,787)
Exploration costs (1,801) (1,770)
Finance and other income 780 462
Foreign exchange gain 493 834
Profit before income taxes 38,060 26,313
Income tax expense (note 14) 15,276 9,007
Net profit from continuing operations 22,784 17,306
Net profit from discontinued operations
(note 8) 12,434 8,137
Net profit $ 35,218 $ 25,443
Net profit (loss) from continuing
operations attributable to
Shareholders $ 22,276 $ 17,317
Non-controlling interest 508 (11)
Net profit (loss) attributable to
Shareholders $ 34,710 25,454
Non-controlling interest 508 $ (11)
Earnings per share - continuing operations
Basic $ 0.26 $ 0.20
Diluted 0.26 0.20
Earnings per share
Basic 0.41 0.30
Diluted 0.41 0.30
Weighted average number of shares
outstanding (note 19) 84,875,789 84,660,796
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Income
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED)
2013 2012
Net profit $ 35,218 $ 25,443
Other comprehensive income
Net gain (loss) on translation of net
foreign operations (net of tax of nil) (2,883) 3,634
Actuarial loss on employee benefit plans
(net of tax of $0.1 million for the year
ended January 31, 2013; 2012 - $0.6 million) (846) (1,172)
Other comprehensive income, net of tax (3,729) 2,462
Total comprehensive income $ 31,489 $ 27,905
Comprehensive income from continuing
operations $ 22,778 $ 17,319
Comprehensive income from discontinued
operations 8,711 10,586
Net comprehensive income (loss) attributable to
Shareholders $ 30,981 $ 27,916
Non-controlling interest 508 (11)
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) (UNAUDITED)
2013 2012
Common shares:
Balance at beginning of period $ 507,975 $ 502,129
Issued during the period 32 5,286
Transfer from contributed surplus on
exercise of options - 560
Balance at end of period 508,007 507,975
Contributed surplus:
Balance at beginning of period 17,764 16,233
Stock-based compensation expense 2,623 2,091
Transfer from contributed surplus on
exercise of options - (560)
Balance at end of period 20,387 17,764
Retained earnings:
Balance at beginning of period (Recast
- note 25) 261,028 235,574
Net profit attributable to common
shareholders 34,710 25,454
Balance at end of period 295,738 261,028
Accumulated other comprehensive income:
Balance at beginning of period 10,086 7,624
Other comprehensive income
Net gain (loss) on translation of net
foreign operations (net of tax of nil) (2,883) 3,634
Actuarial loss on employee benefit plans
(net of tax of $0.1 million for the year
ended January 31, 2013; 2012 - $0.6 million) (846) (1,172)
Balance at end of period 6,357 10,086
Non-controlling interest:
Balance at beginning of period 255 266
Non-controlling interest 508 (11)
Balance at end of period 763 255
Total equity $ 831,252 $ 797,108
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Cash Flows
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED)
2013 2012
Cash provided by (used in)
OPERATING
Net profit (loss) $ 22,784 $ 17,306
Depreciation and amortization 80,266 78,761
Deferred income tax recovery (9,752) (2,290)
Current income tax expense 25,028 11,297
Finance expenses 9,083 10,787
Stock-based compensation 2,623 2,091
Other non-cash items (1,761) 303
Foreign exchange gain (45) (2,619)
Gain on disposition of assets (330) -
Change in non-cash operating working
capital, excluding taxes and finance
expenses 8,871 (27,691)
Cash provided by (used in) operating
activities 136,767 87,945
Interest paid (5,318) (8,922)
Income and mining taxes paid (15,987) 12,422
Cash provided by (used in) operating
activities - continuing operations 115,462 91,445
Cash provided by (used in) operating
activities - discontinued operations (10,339) (32,454)
Net cash from (used in) operating
activities 105,123 58,991
FINANCING
Decrease in interest-bearing loans
and borrowings (5,359) (709)
Increase in revolving credit 38,765 60,166
Decrease in revolving credit (41,898) (56,118)
Repayment of promissory note - (70,000)
Issue of common shares, net of issue
costs 32 5,286
Contributed capital (8,000) (10,000)
Cash provided from financing
activities - continuing operations (16,460) (71,375)
Cash provided from financing
activities - discontinued operations 39,880 46,045
Cash provided from financing
activities 23,420 (25,330)
Investing
Property, plant and equipment (56,478) (45,165)
Net proceeds from sale of property,
plant and equipment 2,619 -
Other non-current assets 50 (652)
Cash provided in investing
activities - continuing operations (53,809) (45,817)
Cash provided in investing
activities - discontinued operations (25,023) (20,918)
Cash used in investing activities (78,832) (66,735)
Foreign exchange effect on cash
balances (378) 2,497
Increase (decrease) in cash and cash
equivalents 49,333 (30,577)
Cash and cash equivalents, beginning
of period 78,116 108,693
Cash and equivalents, end of period 127,449 78,116
Less cash and equivalents of
discontinued operations, end of
period 23,136 19,815
Cash and cash equivalents of
continuing operations, end of period $ 104,313 $ 58,301
Change in non-cash operating working
capital, excluding taxes and finance
expenses
Accounts receivable (1,747) 669
Inventory and supplies 8,994 (21,718)
Other current assets 148 (4,491)
Trade and other payables 72 (3,725)
Employee benefit plans 1,404 1,574
$ 8,871 $ (27,691)
The accompanying notes are an integral part of these consolidated financial statements
Notes to Consolidated Financial
Statements
JANUARY 31, 2013 (UNAUDITED) WITH COMPARATIVE FIGURES
(TABULAR AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT
AS OTHERWISE NOTED)
Note 1:
Nature of Operations and Subsequent Events
Effective March 26, 2013, Harry Winston Diamond Corporation changed its name
to Dominion Diamond Corporation ("Dominion Diamond Corporation" or the
"Company") and its common shares now trade on both the Toronto and New York
stock exchanges under the symbol "DDC". Dominion Diamond Corporation 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.
The address of its registered office is Toronto, Ontario.
The Company's mining asset is an ownership interest in the Diavik group of
mineral claims. The Diavik Joint Venture (the "Joint Venture") is an
unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI")
(60%) and Dominion Diamond Diavik Limited Partnership (formerly known as
Harry Winston Diamond 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 and DDDLP are headquartered in Yellowknife, Canada. DDMI is a wholly
owned subsidiary of Rio Tinto plc of London, England, and DDDLP is a wholly
owned subsidiary of Dominion Diamond Corporation of Toronto, Canada.
On November 13, 2012, the Company entered into share purchase agreements with
BHP Billiton Canada Inc. and various affiliates to purchase all of BHP
Billiton's diamond assets, including its controlling interest in the Ekati
Diamond Mine as well as the associated diamond sorting and sales facilities in
Yellowknife, Canada, and Antwerp, Belgium (the "Ekati Diamond Mine
Acquisition"). 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. The agreed purchase price, payable in cash, is $400
million for the Core Zone interest and $100 million for the Buffer Zone
interest, subject to adjustments in accordance with the terms of the share
purchase agreements. The share purchase agreements include typical closing
conditions. Each of the Core Zone and the Buffer Zone is subject to a separate
joint venture agreement. BHP Billiton holds an 80% interest in the Core Zone and
a 58.8% interest in the Buffer Zone, with the remainder held by the Ekati
minority joint venture parties. BHP Billiton has advised the Company that all of
the minority joint venture partners have agreed to waive their rights of first
refusal to purchase the interests in the Buffer Zone and Core Zone that they do
not own, as applicable, pursuant to the terms of their respective joint venture
agreements. Closing of the Ekati Diamond Mine Acquisition is currently expected
to occur on April 10, 2013. In connection with the Ekati Diamond Mine
Acquisition, the Company has arranged new secured credit facilities consisting
of a $400 million term loan, a $100 million revolving credit facility (of which
$50 million will be available for purposes of funding the Ekati Diamond Mine
Acquisition) and a $140 million letter of credit facility (expandable to $265
million in aggregate). These new facilities will be secured and will replace the
Company's current $125 million facility with Standard Chartered Bank.
On March 26, 2013, the Company completed the sale of the Luxury Brand Segment
to Swatch Group (the "Luxury Brand Divestiture"). As a result of the sale, the
Company's corporate group underwent name changes to remove references to "Harry
Winston".
Note 2:
Basis of Preparation
(a) Statement of compliance
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board ("IASB").
(b) Basis of measurement
These consolidated financial statements have been prepared on the
historical cost basis except for the following:
- financial instruments held for trading are measured at fair value through profit and loss
- liabilities for Restricted Share Unit and Deferred Share Unit plans are measured at fair value
(c) 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: 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,
2013. 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 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 on the consolidated
balance sheet.
Interest in Diavik Joint Venture
DDDLP has an undivided 40% ownership interest in the assets,
liabilities and expenses of the Joint Venture. The Company records
its interest in the assets, liabilities and expenses of the Joint
Venture in its consolidated financial statements with a one-month
lag. The accounting policies described below include those of the
Joint Venture.
(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 receipt 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. Account balances are written off
against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
(e) Inventory and supplies
Mining rough diamond inventory is recorded at the lower of cost or
net realizable value. Cost is determined on an average cost basis
including production costs and value-added processing activity.
Mining supplies inventory is recorded at the lower of cost or net
realizable value. Supplies inventory includes consumables and spare
parts maintained at the Diavik Diamond Mine site and at the Company's
sorting and distribution facility locations.
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 provision for obsolescence 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 income statements and
comparative periods are reclassified accordingly.
(g) 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. Capitalized exploration
and evaluation expenditures are recorded as a component of property,
plant and equipment. Exploration and evaluation assets are no longer
classified as such when the technical feasibility and commercial
viability of extracting a mineral resource are demonstrable. Before
reclassification, exploration and evaluation assets are assessed for
impairment. Recognized exploration and evaluation assets will be
assessed for impairment when the facts and circumstances suggest that
the carrying amount may exceed its recoverable amount.
Drilling and related costs are capitalized for an ore body where
proven and probable reserves exist and the activities are directed at
either (a) obtaining additional information on the ore body that is
classified within proven and probable reserves, or (b) converting
non-reserve mineralization to proven and probable reserves and the
benefit is expected to be realized over an extended period of time.
All other drilling and related costs are expensed as incurred.
(h) 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
mining before production commences, the initial estimate of the
rehabilitation 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 so as to write off 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
Diavik Diamond Mine property, plant and equipment, and, depending on the
asset, is based on 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. The Company does not include
estimates of measured, indicated or inferred resources in its calculation
of ore reserves. Other plant, property and equipment are depreciated using
the straight-line method over the estimated useful lives of the related
assets, for the current and comparative periods, 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
Amortization for mine related assets was 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. Stripping costs incurred during the production
phase of an open pit mine are variable production costs that are
included as a component of inventory to be recognized as a component
of cost of sales in the same period as the sale of inventory.
(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 assets, which is immediately written
off. All other day-to-day maintenance costs are expensed as incurred.
(i) Other non-current assets
Other non-current assets include depreciable assets amortized over
a period not exceeding ten years.
(j) 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.
(k) Provisions
Provisions represent obligations to 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 re-measurement from changes
in the discount rate, are recognized as additions or charges
to the corresponding assets and rehabilitation liability
when they occur. The periodic unwinding of the discount is
recognized in net profit or loss as a finance cost.
(l) Foreign currency
Foreign currency translation
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.
(m) Income taxes
Current and deferred 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 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.
(n) Stock-based payment transactions
Stock-based compensation
The Company applies the fair value method to all grants of
stock options. The fair value of options granted is
estimated at the date of grant using a Black-Scholes option
pricing model incorporating assumptions regarding risk-free
interest rates, dividend yield, volatility factor of the
expected market price of the Company's stock, and a weighted
average expected life of the options. When option awards
vest in installments over the vesting period, each
installment is accounted for as a separate arrangement. The
estimated fair value of the options is recorded as an
expense with an offsetting credit to shareholders' equity.
Any consideration received on amounts attributable to stock
options is credited to 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 on a discretionary
basis to employees of the Company subject to Board of
Directors approval. Under the prior RSU Plan, each RSU grant
vests on the third anniversary of the grant date. 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. When a
share-based payment award vests in installments over the
vesting period, each installment is accounted for as a
separate arrangement. These awards are accounted for as
liabilities with the value of these liabilities being
re-measured at each reporting date based on changes in the
fair value of the awards, and at settlement date. Any
changes in the fair value of the liability are recognized as
employee benefit plan expense in net profit or loss.
(o) Employee benefit plans
Contributions to defined contribution pension plans are
expensed as incurred.
(p) 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.
(q) 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 costs to sell 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. 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. 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 (the "cash-generating unit").
An impairment loss is recognized if the carrying amount of
an asset or its cash-generating unit 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 cash-generating
units would be allocated to reduce the carrying amounts of
the assets in the unit (group of units) on a pro rata basis.
For property, plant and equipment, an assessment is made at
each reporting date as to whether there is any indication
that previously recognized impairment losses may no longer
exist or may have decreased. If such indication exists, the
Company makes an estimate of the recoverable amount. A
previously recognized impairment loss is reversed only if
there has been a change in the estimates used to determine
the asset's recoverable amount since the last impairment
loss was recognized. If this is the case, the carrying
amount of the asset is increased to its recoverable amount.
The increased amount cannot exceed the carrying amount that
would have been determined, net of depreciation, had no
impairment loss been recognized for the asset in prior
years. Such reversal is recognized in the consolidated
statement of income.
(r) 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.
(s) 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 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 un-utilized 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.
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
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 provision, 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 units-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 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
The mine rehabilitation and site restoration provision has been
provided by management of the Diavik Diamond Mine and is 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.
(t) Standards issued but not yet effective
The following standards and interpretations have been issued
but are not yet effective and have not been early adopted in
these financial statements.
The International Accounting Standards Board ("IASB") has
issued a new standard, IFRS 9, "Financial Instruments"
("IFRS 9"), which will ultimately replace IAS 39, "Financial
Instruments: Recognition and Measurement" ("IAS 39"). IFRS 9
provides guidance on the classification and measurement of
financial assets and financial liabilities. This standard
becomes effective for the Company's fiscal year end
beginning February 1, 2015. The Company is currently
assessing the impact of the new standard on its financial
statements.
IFRS 10, "Consolidated Financial Statements" ("IFRS 10"),
was issued by the IASB on May 12, 2011, and will replace the
consolidation requirements in SIC-12, "Consolidation -
Special Purpose Entities" and IAS 27, "Consolidated and
Separate Financial Statements". The new standard establishes
control as the basis for determining which entities are
consolidated in the consolidated financial statements and
provides guidance to assist in the determination of control
where it is difficult to assess. IFRS 10 is effective for
the Company's fiscal year end beginning February 1, 2013,
with early adoption permitted. The Company is currently
assessing the impact of IFRS 10 on its consolidated
financial statements.
IFRS 11, "Joint Arrangements" ("IFRS 11"), was issued by the
IASB on May 12, 2011 and will replace IAS 31, "Interest in
Joint Ventures". The new standard will apply to the
accounting for interests in joint arrangements where there
is joint control. Under IFRS 11, joint arrangements are
classified as either joint ventures or joint operations. The
structure of the joint arrangement will no longer be the
most significant factor in determining whether a joint
arrangement is either a joint venture or a joint operation.
For a joint venture, proportionate consolidation will no
longer be allowed and will be replaced by equity accounting.
IFRS 11 is effective for the Company's fiscal year end
beginning February 1, 2013, with early adoption permitted.
The Company is currently assessing the impact of IFRS 11 on
its results of operations and financial position.
IFRS 13, "Fair Value Measurement" ("IFRS 13"), was also
issued by the IASB on May 12, 2011. The new standard
generally makes IFRS consistent with generally accepted
accounting principles in the United States ("US GAAP") on
measuring fair value and related fair value disclosures. The
new standard creates a single source of guidance for fair
value measurements. IFRS 13 is effective for the Company's
fiscal year end beginning February 1, 2013, with early
adoption permitted. The Company is currently assessing the
impact of IFRS 13 on its consolidated financial statements.
The International Financial Reporting Interpretations
Committee ("IFRIC") issued IFRIC 20, "Stripping Costs in the
Production Phase of a Surface Mine" ("IFRIC 20"), on October
19, 2011. IFRIC 20 clarifies the requirements for accounting
for stripping costs associated with waste removal in surface
mining, including when production stripping costs should be
recognized as an asset, how the asset is initially
recognized, and subsequent measurement. IFRIC 20 is
effective for the Company's fiscal year end beginning
February 1, 2013. The Company is currently assessing the
impact of IFRIC 20 on its consolidated financial statements.
Amendments to IAS 19, "Employee Benefits" ("IAS 19"), was
issued by the IASB on June 11, 2011. The amended standard
eliminates the option to defer the recognition of actuarial
gains and losses through the "corridor" approach, revises
the presentation of changes in assets and liabilities
arising from defined benefit plans and enhances the
disclosures for defined benefit plans. IAS 19 is effective
for the Company's fiscal year end beginning February 1,
2013, with early adoption permitted. The Company is
currently assessing the impact of IAS 19 on its consolidated
financial statements.
Note 4: Cash and Cash Equivalents
2013 2012
Cash on hand and balances with banks $ 104,313 $ 76,030
Short-term investments - 2,086
Total cash and cash equivalents $ 104,313 $ 78,116
Short-term investments are held in overnight deposits and money market instruments with a maturity of 30 days. Note 5: Accounts Receivable
2013 2012
Mining receivables $ 3,705 $ 1,923
Luxury brand trade receivables - 25,828
Luxury brand allowance for doubtful accounts - (841)
Total accounts receivable $ 3,705 $ 26,910
The Company's exposure to interest rate risk and sensitivity analysis is disclosed in Note 22. Note 6: Inventory and Supplies
2013 2012
Mining rough diamonds $ 45,467 $ 62,472
Mining supplies inventory 70,160 68,916
Luxury brand raw materials - 62,188
Luxury brand work-in-progress - 45,407
Luxury brand merchandise inventory - 218,844
Total inventory and supplies $ 115,627 $ 457,827
Total inventory and supplies is net of a provision for obsolescence of $0.4 million ($3.1 million at January 31, 2012). Cost of sales from continuing operations includes inventory of $262.7 million sold during the year (2012 - $207.3 million), with another $4.9 million of non-inventoried costs (2012 - $20.6 million). Note 7: Other Current Assets
2013 2012
Mining prepaid assets $ 29,486 $ 28,148
Luxury brand other current assets - 7,082
Luxury brand prepaid assets - 10,264
Total other current assets $ 29,486 $ 45,494
Note 8: Assets Held for Sale (Discontinued Operations) On March 26, 2013, the Company completed the sale of the Luxury Brand Segment to Swatch Group (the "Luxury Brand Divestiture"). As a result of the sale, the Company's corporate group underwent name changes to remove references to "Harry Winston". The Company's name has now been changed to "Dominion Diamond Corporation" and its common shares trade on both the Toronto and New York stock exchanges under the symbol "DDC". The major classes of assets and liabilities of the discontinued operations were as follows:
January 31,
2013
ASSETS
Cash and cash equivalents $ 23,136
Accounts receivable and other current assets 51,674
Inventory and supplies 373,957
Property, plant and equipment 78,176
Intangible assets, net 126,779
Other non-current assets 11,452
Deferred income tax assets 53,630
Total assets related to discontinued operations $ 718,804
LIABILITIES
Trade and other payables $ 93,495
Income taxes payable 2,547
Interest-bearing loans and borrowings 273,175
Deferred income tax liabilities 106,614
Other long-term liabilities 8,421
Total liabilities related to discontinued operations $ 484,252
Results of the discontinued operations are presented separately as net profit from discontinued operations in the consolidated income statements, and comparative periods have been adjusted accordingly.
2013 2012
Sales $ 435,835 $ 411,929
Cost of sales (208,574) (224,009)
Other expenses (212,562) (174,862)
Other income and foreign exchange gains 1,888 293
Net income tax expense (4,153) (5,214)
Net profit from discontinued operations $ 12,434 $ 8,137
Earnings per share - discontinued operations
 Basic $ 0.15 $ 0.10
Diluted 0.15 0.10
Note 9: Property, Plant and Equipment
MINING OPERATIONS
Diavik Real
equipment Furniture, property -
Mineral and equipment land and
properties(a) leaseholds(b) and other(c) building(d)
Cost:
Balance at February 1, 2012 $ 249,527 $ 855,213 $ 9,306 $ 37,577
Additions 327 - 2,509 2,460
Disposals (14,805) (151) -
Foreign exchange differences - - - 157
Transfers and other movements (134) 59,187 - -
Balance at January 31, 2013 $ 249,720 $ 899,595 $ 11,664 $ 40,194
Accumulated depreciation/
amortization:
Balance at February 1, 2012 $ 162,068 $ 297,245 $ 6,028 $ 9,335
Depreciation and amortization
for the year 11,425 54,502 904 1,578
Disposals - (12,403) (151) -
Foreign exchange differences - - - (34)
Balance at January 31, 2013 $ 173,493 $ 339,344 $ 6,781 $ 10,879
Net book value at
January 31, 2013 $ 76,227 $ 560,251 $ 4,883 $ 29,315
Table cont'd.
MINING OPERATIONS
Mine
Assets rehabilitation
under and site
construction restoration(e) Total
Cost:
Balance at February 1, 2012 $ 23,174 $ 53,471 $ 1,228,268
Additions 51,181 11,368 67,845
Disposals - - (14,956)
Foreign exchange differences - - 157
Transfers and other movements (59,053) - -
Balance at January 31, 2013 $ 15,302 $ 64,839 $ 1,281,314
Accumulated depreciation/
amortization:
Balance at February 1, 2012 $ - $ 19,446 $ 494,122
Depreciation and amortization
for the year - 3,882 72,291
Disposals - - (12,554)
Foreign exchange differences - - (34)
Balance at January 31, 2013 $ - $ 23,328 $ 553,825
Net book value at
January 31, 2013 $ 15,302 $ 41,511 $ 727,489
Diavik Real
equipment Furniture, property -
Mineral and equipment land and
properties(a) leaseholds(b) and other(c) building(d)
Cost:
Balance at February 1, 2011 $ 250,047 $ 768,515 $ 7,927 $ 35,227
Additions - - 1,379 2,450
Disposals - (942) - -
Impairments for the year - (13,193) - -
Foreign exchange differences - - - (100)
Transfers and other movements (520) 100,833 - -
Balance at January 31, 2012 $ 249,527 $ 855,213 $ 9,306 $ 37,577
Accumulated depreciation/
amortization:
Balance at February 1, 2011 $ 149,814 $ 239,883 $ 5,677 $ 8,062
Depreciation and amortization
for the year 12,254 58,304 351 1,293
Disposals - (942) - -
Foreign exchange differences - - - (20)
Balance at January 31, 2012 $ 162,068 $ 297,245 $ 6,028 $ 9,335
Net book value at
January 31, 2012 $ 87,459 $ 557,968 $ 3,278 $ 28,242
Table cont'd.
Mine
Assets rehabilitation
under and site
construction restoration(e) Total
Cost:
Balance at February 1, 2011 $ 82,135 $ 40,291 $ 1,184,142
Additions 41,352 13,180 58,361
Disposals - - (942)
Impairments for the year - - (13,193)
Foreign exchange differences - - (100)
Transfers and other movements (100,313) - -
Balance at January 31, 2012 $ 23,174 $ 53,471 $ 1,228,268
Accumulated depreciation/
amortization:
Balance at February 1, 2011 $ - $ 16,613 $ 420,049
Depreciation and amortization
for the year - 2,833 75,035
Disposals - - (942)
Foreign exchange differences - - (20)
Balance at January 31, 2012 $ - $ 19,446 $ 494,122
Net book value at
January 31, 2012 $ 23,174 $ 34,025 $ 734,146
LUXURY BRAND SEGMENT
Furniture, Real
equipment property -
and land and Assets under
other(c) building(d) construction Total
Cost:
Balance at February 1, 2012 $ 43,024 $ 87,828 $ 9,961 $ 140,813
Additions 13,957 7,218 2,579 23,754
Disposals (216) (376) - (592)
Foreign exchange differences (1,446) (3,206) (23) (4,675)
Reclassification to assets held
for sale (55,319) (91,464) (12,517) (159,300)
Balance at January 31, 2013 $ - $ - $ - $ -
Accumulated depreciation/
amortization:
Balance at February 1, 2012 $ 29,460 $ 41,572 $ - $ 71,032
Depreciation and amortization
for the year 5,284 8,861 - 14,145
Disposals (219) (410) - (629)
Foreign exchange differences (1,161) (2,263) - (3,424)
Reclassification to assets
held for sale (33,364) (47,760) - (81,124)
Balance at January 31, 2013 $ - $ - $ - $ -
Net book value at
January 31, 2013 $ - $ - $ - $ -
Real
Furniture, property -
equipment and land and Assets under
other(c) building(d) construction Total
Cost:
Balance at February 1,
2011 $ 34,866 $ 85,430 $ 63 $ 120,359
Additions 8,196 1,587 9,898 19,681
Disposals (765) (1,366) - (2,131)
Foreign exchange
differences 727 2,177 - 2,904
Balance at January 31,
2012 $ 43,024 $ 87,828 $ 9,961 $ 140,813
Accumulated
depreciation/amortization:
Balance at February 1,
2011 $ 23,879 $ 35,461 $ - $ 59,340
Depreciation and
amortization for the year 5,835 6,487 - 12,322
Disposals (763) (1,358) - (2,121)
Foreign exchange
differences 509 982 - 1,491
Balance at January 31,
2012 $ 29,460 $ 41,572 $ - $ 71,032
Net book value at January
31, 2012 $ 13,564 $ 46,256 $ 9,961 $ 69,781
(a) The Company holds a 40% ownership interest in the Diavik group of
mineral claims, which contains commercially mineable diamond reserves.
DDMI, a subsidiary of Rio Tinto plc, is the operator of the Joint
Venture and holds the remaining 60% interest. The claims are subject
to private royalties, which are in the aggregate 2% of the value of
production.
(b) Diavik equipment and leaseholds are project related assets at the
Joint Venture level.
(c) Furniture, equipment and other includes equipment located at the
Company's diamond sorting facility and at Harry Winston Inc. salons.
(d) Real property is comprised of land and a building that houses the
corporate activities of the Company, and various leasehold
improvements to Harry Winston Inc. salons and corporate offices.
(e) The Joint Venture has an obligation under various agreements (note 22)
to reclaim and restore the lands disturbed by its mining operations.
Depreciation expense for continuing operations for 2013 was $72.3 million (2012 - $75.0 million). Note 10: Diavik Joint Venture The following represents DDDLP's 40% proportionate interest in the Joint Venture as at December 31, 2012 and December 31, 2011:
2012 2011
Current assets $ 102,299 $ 101,454
Non-current assets 677,808 685,590
Current liabilities 30,517 31,745
Non-current liabilities and participant's account 749,590 755,298
2012 2011
Expenses net of interest income of $0.1 million
(2011 - $0.1 million) (a) $ 243,796 $ 257,807
Cash flows used in operating activities (164,645) (166,854)
Cash flows resulting from financing activities 214,061 214,834
Cash flows used in investing activities (50,925) (43,499)
(a) The Joint Venture only earns interest income.
DDDLP is contingently liable for DDMI's portion of the liabilities of the Joint Venture, and to the extent DDDLP's participating interest has increased 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 Joint Venture to settle these liabilities. Additional information on commitments and contingencies related to the Diavik Joint Venture is found in Note 22. During fiscal 2012, the Company recognized a non-cash $13.0 million charge in cost of sales related to the de-recognition of certain components of the backfill plant (the "Paste Plant") associated with paste production at the Diavik Diamond Mine. The original mine plan envisioned the use of blasthole stoping and underhand cut and fill underground mining methods for the Diavik ore bodies using paste to preserve underground stability. It is now expected that the higher velocity and lower cost sub-level retreat mining method, which does not require paste, will be used for both the A-154 South and A-418 underground ore bodies. As a result, certain components of the Paste Plant necessary for the production of paste will no longer be required and accordingly were de-recognized during the year. Note 11: Other Non-Current Assets
2013 2012
Prepaid pricing discount(a), net of accumulated
amortization of $11.7 million (2012 - $10.3 million) $ 240 $ 1,680
Other assets 6,279 3,276
Refundable security deposits 418 9,209
$ 6,937 $ 14,165
(a) Prepaid pricing discount represents funds paid to Tiffany & Co. by the
Company to amend its rough diamond supply agreement. The amendment
eliminated all pricing discounts on future sales. The payment has been
deferred and is being amortized on a straight-line basis over the
remaining life of the contract.
Note 12: Trade and Other Payables
2013 2012
Trade and other payables $ 1,105 $ 41,031
Accrued expenses 6,647 17,835
Customer deposits 784 14,070
Payables and accruals at the Diavik Joint Venture 30,517 31,745
$ 39,053 $ 104,681
Note 13: Employee Benefit Plans The employee benefit obligation reflected in the consolidated balance sheet is as follows:
2013 2012
Post-retirement benefit plan - Diavik Diamond
Mine (b) $ 699 $ 289
RSU and DSU plans (note 17) 5,434 3,731
Defined benefit plan obligation - Harry Winston
luxury brand segment - 11,381
Defined contribution plan obligation - Harry
Winston luxury brand segment - 88
Total employee benefit plan obligation $ 6,133 $ 15,489
2013 2012
Non-current $ 3,499 $ 9,463
Current 2,634 6,026
Total employee benefit plan obligation $ 6,133 $ 15,489
The amounts recognized in the consolidated income statement in respect of employee benefit plans are as follows:
2013 2012
Defined contribution plan - the Company's mining head
office (a) $ 251 $ 207
Defined contribution plan - Diavik Diamond Mine (a) 2,258 2,081
Post-retirement benefit plan - Diavik Diamond Mine
(b) 51 299
RSU and DSU plans (note 17) 3,380 2,169
$ 5,940 $ 4,756
Share-based payments 2,623 2,091
Total employee benefit plan expense $ 8,563 $ 6,847
Employee benefit plan expense has been included in the consolidated income statement as follows:
2013 2012
Cost of sales $ 2,309 $ 2,380
Selling, general and administrative expenses 6,254 4,467
$ 8,563 $ 6,847
(a) Defined contribution plan
The Joint Venture sponsors a defined contribution plan whereby the
employer contributes 6% of the employee's salary.
Dominion Diamond Corporation sponsors a defined contribution plan for
Canadian employees whereby the employer contributes to 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, 2013 was $nil ($0.1 million at January 31, 2012).
(b) Post-retirement benefit plan
The Joint Venture provides non-pension post-retirement benefits to
retired employees. The post-retirement benefit plan liability was $0.7
million at January 31, 2013 ($0.3 million at January 31, 2012).
Note 14: Income Taxes The deferred income tax asset of the Company is $4.1 million. Included in the deferred tax asset is $0.3 million that has been recorded to recognize the benefit of $1.2 million of net operating losses that the Company has available for carry forward to shelter income taxes for future years. Certain net operating losses are scheduled to expire between 2027 and 2031. The deferred income tax liability of the Company is $181.4 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 expenses for each year. (a) The income tax provision consists of the following:
2013 2012
CURRENT TAX EXPENSE FROM CONTINUING OPERATIONS
Current period $ 25,172 $ 14,317
Adjustment for prior periods (144) (3,020)
Total current tax expense 25,028 11,297
DEFERRED TAX EXPENSE FROM CONTINUING OPERATIONS
Origination and reversal of temporary differences (9,718) (1,779)
Change in unrecognized deductible temporary
differences (36) (525)
Current year losses for which no deferred tax
asset was recognized 2 14
Total deferred tax expense (9,752) (2,290)
Total income tax expense from continuing
operations $ 15,276 $ 9,007
Tax expense from continuing operations excludes tax expense from discontinued operations of $4.2 million (2012 - $5.2 million). (b) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at January 31, 2013 and 2012 are as follows:
2013 2012
DEFERRED INCOME TAX ASSETS:
Net operating loss carryforwards $ 331 $ 36,935
Property, plant and equipment 116 4,625
Future site restoration costs 13,329 11,083
Luxury brand inventory - 6,211
Deferred mineral property costs 240 251
Other deferred income tax assets 12,861 11,772
26,877 70,877
Reclassification to deferred income tax
liabilities (a) (22,782) (17,392)
Deferred income tax assets 4,095 53,485
DEFERRED INCOME TAX LIABILITIES:
Deferred mineral property costs (27,459) (29,339)
Property, plant and equipment (157,683) (160,616)
Luxury brand inventory - (47,927)
Intangible assets - (52,081)
Other deferred income tax liabilities (19,067) (22,994)
(204,209) (312,957)
Reclassification to deferred income tax
assets (a) 22,782 17,392
Deferred income tax liabilities (181,427) (295,565)
Deferred income tax liabilities, net $ (177,332) $ (242,080)
(a) There was an out-of-period reclassification in the prior year of deferred income tax assets to deferred income tax liabilities, including future site restoration costs, related to income taxes levied by the same tax jurisdiction. Movement in net deferred tax liabilities:
2013 2012
Balance at the beginning of the year $ (242,080) $ (244,035)
Reclassification to assets held for sale 50,181 (335)
Recognized in profit (loss) 9,752 2,290
Reclassification to current income taxes
payable 4,815 -
Balance at the end of the year $ (177,332) $ (242,080)
(c) Unrecognized deferred tax assets and liabilities: Deferred tax assets have not been recognized in respect of the following items:
2013 2012
Tax losses $ 548 $ 6,460
Deductible temporary differences 265 166
Total $ 813 $ 6,626
The tax losses not recognized expire as per the amount and years noted below. The deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit 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, 2013 that may be applied against future taxable profit:
Jurisdiction Type Amount Expiry Date
Luxembourg Net operating losses $ 1,903 No expiry
The deductible temporary differences associated with investments in subsidiaries and joint ventures, for which a deferred tax asset has not been recognized, aggregate to $60.0 million (2012 - $67.2 million). (d) The difference between the amount of the reported consolidated income tax provision and the amount computed by multiplying the earnings (loss) before income taxes by the statutory tax rate of 26.5% (2012 - 28%) is a result of the following:
2013 2012
Expected income tax expense from continuing
operations $ 10,080 $ 7,368
Non-deductible (non-taxable) items 1,208 592
Impact of foreign exchange 659 1,153
Northwest Territories mining royalty (net of
income tax relief) 4,637 3,242
Earnings subject to tax different than statutory
rate 70 (726)
Assessments and adjustments (1,386) (2,622)
Current year losses for which no deferred tax
asset was recognized 2 14
Change in unrecognized temporary differences (36) (525)
Other 42 511
Recorded income tax expense from continuing
operations $ 15,276 $ 9,007
e) The mining operations have net operating loss carryforwards for Canadian income tax purposes of approximately $1.2 million and $1.9 million for other foreign jurisdictions' tax purposes. Note 15: Interest-Bearing Loans and Borrowings
2013 2012
Mining operations credit facilities $ 49,560 $ 48,460
First mortgage on real property 5,619 6,342
Bank advances 1,128 27,850
Harry Winston Inc. credit facilities - 217,071
Total interest-bearing loans and borrowings 56,307 299,723
Less current portion (51,508) (29,238)
$ 4,799 $ 270,485
Carrying Face
Nominal amount at value at
interest Date of January 31, January 31,
Currency rate maturity 2013 2013 Borrower
Secured bank June 24, $49.6 $50.0 Dominion Diamond
loan (a)(i) US 3.70% 2013 million million Corporation and
Dominion Diamond
Holdings Ltd.
First mortgage
on real September $5.6 $5.6
property (a)(ii) CDN 7.98% 1, 2018 million million 6019838 Canada Inc.
Secured bank Due on $1.1 $1.1 Dominion Diamond
advance (c) US 13.50% demand million million (India) Private
Limited
(a) Credit facilities
(i) The mining operation maintains a senior secured revolving credit
facility with Standard Chartered Bank for $125.0 million. The
facility has an initial maturity date of June 24, 2013, with two
one-year extensions at the Company's option. There are no
scheduled repayments required before maturity. The facility is
available to the Company and Dominion Diamond Holdings Ltd.
(formerly known as Harry Winston Diamond Mines Ltd.) for general
corporate purposes. Borrowings bear an interest margin of 3.5%
above the higher of LIBOR or lender cost of funds. The Company
is required to comply with financial covenants at the mining
operation level customary for a financing of this nature, with
change in control provisions at the Company and Diavik Diamond
Mines level. These provisions include consolidated minimum
tangible net worth, maximum mining operation debt to equity
ratio, maximum mining operation debt to EBITDA ratio and minimum
interest coverage ratio. The Company has met all of its
financial covenants as at January 31, 2013. At January 31, 2013,
the Company had $50.0 million outstanding on its mining senior
secured revolving credit facility.
(ii) The Company's first mortgage on real property has scheduled
principal payments of approximately $0.2 million quarterly, and
may be prepaid at any time.
(b) Required principal repayments
2014 $ 51,948
2015 886
2016 958
2017 1,036
2018 1,121
Thereafter 797
(c) Bank advances
The Company has available a $45.0 million (utilization in either US
dollars or Euros) revolving financing facility for inventory and
receivables funding in connection with marketing activities through
its Belgian subsidiary, Dominion Diamond International NV (formerly
known as Harry Winston Diamond International NV), and its Indian
subsidiary, Dominion Diamond (India) Private Limited (formerly known
as Harry Winston Diamond (India) Private Limited). Borrowings under
the Belgian facility bear interest at the bank's base rate plus 1.5%.
Borrowings under the Indian facility bear an interest rate of 13.5%.
At January 31, 2013, $1.1 million was drawn under the Company's
revolving financing facility relating to Dominion Diamond (India)
Private Limited and $nil was drawn by Dominion Diamond International
NV. The facility is guaranteed by Dominion Diamond Corporation.
Note 16: Provisions (a) Future site restoration costs
2013 2012
At February 1, 2012 and 2011 $ 65,245 $ 50,130
Revision of previous estimates 11,369 13,179
Accretion of provision 2,441 1,936
At January 31, 2013 and 2012 $ 79,055 $ 65,245
The Joint Venture has an obligation under various agreements (Note 22) to reclaim and restore the lands disturbed by its mining operations. 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, 2013 is estimated to be $87.6 million, of which approximately $49.1 million is expected to occur at the end of the mine life. The revision of previous estimates in fiscal 2012 and 2013 is based on revised expectations of reclamation activity costs and changes in estimated reclamation timelines. The anticipated cash flows relating to the obligation at the time of the obligation have been discounted at an annualized rate of 2.65% (2012 - 1.5%). (b) Provisions for litigation claims By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. The Company is subject to various litigation actions, whose outcome could have an impact on the Company's results should it be required to make payments to the plaintiffs. Legal advisors assess the potential outcome of the litigation and the Company establishes provisions for future disbursements as required. At January 31, 2013, the Company does not have any material provisions for litigation claims. Note 17: Share Capital (a) Authorized Unlimited common shares without par value. (b) Issued
Number of shares Amount
Balance, January 31, 2011 84,159,851 $ 502,129
SHARES ISSUED FOR:
Exercise of options 714,930 5,846
Balance, January 31, 2012 84,874,781 507,975
SHARES ISSUED FOR:
Exercise of options 8,250 32
Balance, January 31, 2013 84,883,031 $ 508,007
(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 $2.6 million for fiscal 2013 (2012 - $2.1 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 (2013 - $nil; 2012 - $0.6 million). Changes in share options outstanding are as follows:
2013 2012
Weighted
average
Weighted average exercise
Options exercise price Options price
000s CDN $ US $ 000s CDN $ US $
Outstanding,
beginning of
year 2,401 14.21 14.34 2,868 $ 12.58 $ 12.26
Granted 350 14.00 14.14 350 16.70 17.44
Forfeited (26) 26.64 26.54 - - -
Exercised (a) (8) 3.78 3.82 (715) 7.26 7.43
Expired (355) 24.39 24.48 (102) 25.54 26.14
Outstanding,
end of year 2,362 12.56 12.68 2,401 $ 14.21 $ 14.34
(a) The weighted average share price at the date of exercise for options exercised during the year was CDN $14.05. The following summarizes information about stock options outstanding at January 31, 2013:
Options outstanding Options exercisable
Weighted
average
remaining Weighted Weighted
Range of contractual average average
exercise Number life in exercise Number exercise
prices outstanding years price exercisable price
CDN $ 000s CDN $ 000s CDN $
3.78 1,007 6.2 $ 3.78 1,007 $ 3.78
12.35-16.70 1.000 5.4 14.45 317 13.95
26.45 219 0.2 26.45 219 26.45
41.45 136 1.2 41.45 136 41.45
2,362 $ 12.56 1,679 $ 11.70
(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, 2013 and 2012 was estimated using a Black-Scholes option pricing model with the following weighted average assumptions:
2013 2012
Risk-free interest rate 1.17% 2.41%
Dividend yield 0.00% 0.00%
Volatility factor 50.00% 50.00%
Expected life of the options 3.5 years 3.5 years
Average fair value per option, CDN $ 5.17 $ 6.51
Average fair value per option, US $ 5.18 $ 6.80
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, 2011 155,946
Awards and payouts during the year (net)
RSU awards 66,991
RSU payouts (46,963)
Balance, January 31, 2012 175,974
Awards and payouts during the year (net)
RSU awards 175,200
RSU payouts (74,148)
Balance, January 31, 2013 277,026
DSU Number of units
Balance, January 31, 2011 193,214
Awards and payouts during the year (net)
DSU awards 38,781
DSU payouts (17,127)
Balance, January 31, 2012 214,868
Awards and payouts during the year (net)
DSU awards 27,078
DSU payouts (52,261)
Balance, January 31, 2013 189,685
During the fiscal year, the Company granted 175,200 RSUs (net of forfeitures) and 27,078 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. This expense is recognized on a straight-line basis over each vesting period. The Company recognized an expense of $3.4 million for the year ended January 31, 2013 (2012 - $2.2 million). The total carrying amount of liabilities for cash settled share-based payment arrangements is $5.4 million (2012 - $3.7 million). The amounts for obligations and expense (recovery) for cash settled share-based payment arrangements have been grouped with Employee Benefit Plans in Note 13 for presentation purposes. Note 18: Expenses by Nature Operating profit (loss) from continuing operations includes the following items of expense:
2013 2012
Research and development $ 3,651 $ 4,147
Operating lease 382 317
Employee compensation expense 60,265 47,062
Depreciation and amortization 80,266 78,761
Note 19: Earnings per Share The following table presents the calculation of diluted earnings per share:
2013 2012
NUMERATOR
Net earnings for the year attributable to
shareholders $ 34,710 $ 25,454
DENOMINATOR (000S SHARES)
Weighted average number of shares outstanding 84,876 84,661
Dilutive effect of employee stock options (a) 620 871
85,496 85,532
(a) A total of 1.2 million options were excluded from the dilution calculation (2012 - 1.3 million) as they are anti-dilutive. Note 20: Related Party Disclosure (a) Operational information The Company had the following investments in significant subsidiaries at January 31, 2013:
Name of company Effective interest Country of incorporation
Dominion Diamond Holdings Ltd. 100% Canada
Dominion Diamond Diavik Limited Partnership 100% Canada
Dominion Diamond (India) Private Limited 100% India
Dominion Diamond International NV 100% Belgium
Dominion Diamond Technical Services Inc. 100% Canada
6019838 Canada Inc. 100% Canada
Harry Winston Inc.(1) 100% US
Harry Winston SARL1 100% France
Harry Winston Japan, K.K.(1) 100% Japan
Harry Winston (UK) Limited(1) 100% UK
Harry Winston Inc. Taiwan Branch(1) 100% Taiwan
Harry Winston S.A.(1) 100% Switzerland
Harry Winston (Hong Kong) Limited(1) 100% Hong Kong
Harry Winston Commercial (Beijing) Co., Ltd(1) 100% China
Harry Winston N.A. Pte Ltd.(1) 100% Singapore
(1) These subsidiaries have been classified as discontinued operations as at January 31, 2013. Note 21: Segmented Information The Company's continuing operations has activities in three geographical areas for the years ended January 31, 2013 and 2012.
2013 2012
Sales
North America $ 22,002 $ 15,018
Europe 246,668 231,722
India 76,741 43,374
$ 345,411 $ 290,114
2013
Assets
North America $ 966,014
Europe 15,407
India 10,231
$ 991,652
Note 22: Commitments and Guarantees
(a) Environmental agreements
Through negotiations of environmental and other agreements, the Joint
Venture must provide funding for the Environmental Monitoring Advisory
Board. Further funding will be required in future years; however,
specific amounts have not yet been determined. These agreements also
state that the Joint Venture must provide security deposits for the
performance by the Joint Venture of its reclamation and abandonment
obligations under all environmental laws and regulations. DDDLP's
share of the letters of credit outstanding posted by the operator of
the Joint Venture with respect to the environmental agreements as at
January 31, 2013, was $82.0 million. The agreement specifically
provides that these funding requirements will be reduced by amounts
incurred by the Joint Venture on reclamation and abandonment
activities.
(b) Participation agreements
The Joint Venture has signed participation agreements with various
native groups. These agreements are expected to contribute to the
social, economic and cultural well-being of the Aboriginal bands. The
agreements are each for an initial term of twelve years and shall be
automatically renewed on terms to be agreed upon for successive
periods of six years thereafter until termination. The agreements
terminate in the event that the mine permanently ceases to operate.
Dominion Diamond Corporation's share of the Joint Venture's
participation agreements as at January 31, 2013 was $1.2 million.
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 operation's monetary assets and
liabilities are 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 Canadian dollar costs at the Diavik Diamond Mine.
Based on the Company's net exposure to Canadian dollar monetary assets and liabilities at January 31, 2013, a one-cent change in the exchange rate would have impacted pre-tax profit for the year by $0.5 million (2012 - $0.5 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 various credit facilities, which bear variable interest based on LIBOR. Based on the Company's LIBOR-based credit facilities at January 31, 2013, a 100 basis point change in LIBOR would have impacted pre-tax net profit for the year by $0.5 million (2012 - $2.3 million). (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 in the mining operations 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 Tier 1 banks and investing only in term deposits or banker's 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, 2013, 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, 2013, the Company had $104.3 million of cash and cash equivalents and $75.0 million available under credit facilities. The following table summarizes the aggregate amount of contractual undiscounted future cash outflows for the Company's financial liabilities:
Less After
than Year Year 5
Total 1 year 2-3 4-5 years
Trade and other payables $ 39,053 $ 39,053 $ - $ - $ -
Income taxes payable 32,977 32,977 - - -
Interest-bearing loans and borrowings(a) 58,938 53,191 2,463 2,463 821
Environmental and participation agreement
incremental commitments 92,725 83,195 4,817 - 4,713
(a) Includes projected interest payments on the current debt outstanding based on interest rates in effect at January 31, 2013. (v) Capital management The Company's capital includes cash and cash equivalents, current and non-current interest-bearing 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 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 24: Financial Instruments The Company has various financial instruments comprising cash and cash equivalents, accounts receivable, trade and other payables, and interest-bearing 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 International Accounting Standards Board. 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 interest-bearing loans and borrowings are for the most part fully secured; hence the fair values of these instruments at January 31, 2013 are considered to approximate their carrying value. The carrying values and estimated fair values of these financial instruments are as follows:
January 31, 2013 January 31, 2012
Estimated Carrying Estimated Carrying
fair value value fair value value
Financial assets
Cash and cash
equivalents $ 104,313 $ 104,313 $ 78,116 $ 78,116
Accounts receivable 3,705 3,705 26,910 26,910
$ 108,018 $ 108,018 $ 105,026 $ 105,026
Financial liabilities
Trade and other
payables $ 39,053 $ 39,053 $ 104,681 $ 104,681
Interest-bearing
loans and borrowings 56,307 56,307 299,723 299,723
$ 95,360 $ 95,360 $ 404,404 $ 404,404
Note 25: Recast During the preparation of the income tax provision for the quarter ended April 30, 2012, the Company noted a historical difference related to the accounting for Northwest Territories mining royalty taxes in connection with the Company's rough diamond inventory. For Northwest Territories mining royalty tax purposes, the Company is subject to mining royalty taxes, which includes a requirement to treat the rough diamond inventory when it comes out of the Diavik Diamond Mine as taxable. This results in an accounting timing difference between the mining and extraction of the diamonds and when they are sold. The Company did not previously record the corresponding deferred tax asset on the rough diamond inventory related to royalty taxes payable. The Company has revised the comparative figures to correct the immaterial impact of this item with the offset recorded in retained earnings, amounting to $5.8 million as at January 31, 2011 and 2012. Diavik Diamond Mine Mineral Reserve and Mineral Resource Statement AS OF DECEMBER 31, 2012 Proven and Probable Reserves
Proven Probable
Open pit and Millions Carats Millions Millions Carats Millions
underground mining of tonnes per tonne of carats of tonnes per tonne of carats
A-154 South
Open Pit - - - - - -
Underground 1.2 4.2 5.2 1.4 3.4 4.9
Total A-154 South 1.2 4.2 5.2 1.4 3.4 4.9
A-154 North
Open Pit - - - - - -
Underground 4.1 2.1 8.4 4.1 2.1 8.4
Total A-154 North 4.1 2.1 8.4 4.1 2.1 8.4
A-418
Open Pit - - - - - -
Underground 5.1 3.8 19.3 2.2 2.9 6.4
Total A-418 5.1 3.8 19.3 2.2 2.9 6.4
Stockpile 0.3 2.9 0.9 - - -
Total
Open Pit - - - - - -
Underground 10.3 3.2 32.9 7.7 2.6 19.6
Stockpile 0.3 2.9 0.9 - - -
Total Reserves 10.7 3.2 33.8 7.7 2.6 19.6
Table cont'd.
Proven and Probable
Open pit and Millions Carats Millions
underground mining of tonnes per tonne of carats
A-154 South
Open Pit - - -
Underground 2.7 3.8 10.1
Total A-154 South 2.7 3.8 10.1
A-154 North
Open Pit - - -
Underground 8.1 2.1 16.8
Total A-154 North 8.1 2.1 16.8
A-418
Open Pit - - -
Underground 7.2 3.6 25.6
Total A-418 7.2 3.6 25.6
Stockpile 0.3 2.9 0.9
Total
Open Pit - - -
Underground 18.0 2.9 52.5
Stockpile 0.3 2.9 0.9
Total Reserves 18.3 2.9 53.5
Note: Totals may not add up due to rounding. Additional Indicated and Inferred Resources
Measured Resources Indicated Resources
Millions Carats Millions Millions Carats Millions
Kimberlite pipe of tonnes per tonne of carats of tonnes per tonne of carats
A-154 South - - - - - -
A-154 North - - - - - -
A-418 - - - - - -
A-21 3.6 2.8 10.0 0.4 2.6 1.0
Total 3.6 2.8 10.0 0.4 2.6 1.0
Table cont'd.
Inferred Resources
Millions Carats Millions
Kimberlite pipe of tonnes per tonne of carats
A-154 South 0.04 3.6 0.2
A-154 North 2.3 2.6 5.9
A-418 0.3 2.4 0.7
A-21 0.8 3.0 2.3
Total 3.4 2.7 9.0
Note: Totals may not add up due to rounding.
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 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 above mineral reserve and mineral resource statement was prepared by
Diavik Diamond Mines Inc., operator of the Diavik Diamond Mine, under the
supervision of Calvin Yip, P.Eng., Principal Advisor, Strategic Planning of
Diavik Diamond Mines Inc., and a Qualified Person within the meaning of
National Instrument 43-101 of the Canadian Securities Administrators. For
further details and information concerning Dominion Diamond Corporation's
Mineral Reserves and Resources, readers should reference Dominion Diamond
Corporation's Annual Information Form available through http://www.sedar.com and http://www.ddcorp.ca.
For further information:
Mr. Richard Chetwode, Vice President, Corporate Development -
+44(0)7720-970-762 or
rchetwode@ddcorp.ca
Ms. Kelley Stamm, Manager, Investor Relations - +1-416-205-4380
or kstamm@ddcorp.ca
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