Dominion’s 3Q Profit -90% As Ekati Margins Slump

Toronto: Dominion Diamond Corporation reported a 90 percent drop in profit year on year to $3.4 million in the third quarter that ended on October 31, 2015 as margins declined at the company’s Canadian mines, reports Rapaport. Overall revenue declined 35 percent, mainly due to a large drop in the average price per carat of sales from the Ekati Diamond Mine.

Gross margin declined 23 percentage points to 11 percent as a result of decreased production at Ekati in the previous three months and a cautious market which impacted diamond prices, according to a statement December 10. Rough sales were restrained by difficult polished market conditions and were further impacted by a drop in the level of rough diamond manufacturing capacity, Dominion said. The company lowered prices at the August sale and prices at the second sale of the quarter were flat.

While sales from Ekati fell 38 percent to $88.2 million, the cost of sales decreased by only 3.8 percent, driving the gross margin down 36 percentage points to negative 2.9 percent, according to the company. The mine made an operating loss of $4.3 million compared with a profit of $47 million in the same period last year. The mine plan has shifted from higher-value production from the Koala, Koala North and Fox ore bodies to lower-value material from Misery Satellite and Coarse Ore Rejects. The higher-value Misery Main and Pigeon open pits are currently undergoing pre-stripping.

Sales by volume from Ekati increased 4.8 percent to 480,000 carats, but average price per carat slumped 41 percent to $184 because of a change in ore mix, with more production coming from sources with a lower average price. Margins were also damaged by lower production volumes due to a planned eight-day maintenance shutdown in May 2015.

The decrease in profitability at the Diavik Diamond Mine, in which Dominion holds a 40% share, was gentler as the gap between the revenue decline and the drop in costs was smaller. Sales fell 29 percent to $56.9 million and the cost of sales declined 28 percent to $38.1 million, meaning the gross margin slipped only 1.7 percentage points to 33 percent. Nonetheless, the operating profit fell 33 percent to $18.1 million. Carats sold from the Diavik mine decreased 55 percent to $315 million and the average price per carat increased 56 percent to $181 due to the company holding back lower-than-average priced inventory during the quarter in response to market conditions.

The polished diamond market has also remained subdued with only the US retail market showing positive demand, the company added. China is weak as major retailers sell down their inventory and Indian retail has remained flat.