Year in Review
Message from the Chief Executive Officer
As we reflect on 2016, there are a number of events – both within and outside our control – that will make a significant mark on our company’s history.
Sadly, it was the year we lost Bob Gannicott, who passed away after an extended battle with leukemia. Bob was the company’s legendary founder and the key architect of its success for many years. He is dearly missed by all who knew him.
The year will also be remembered for the fire that broke out on June 23 in the Ekati process plant and shut down processing for three months. Thanks to our well-trained Emergency Response Team members, all personnel were safely evacuated from the area and the fire was contained.
The fire weighed heavily on the year’s financial results and forced us to alter operating plans. It also delayed the much-anticipated ramp-up of high-value production from the Misery Main pipe, which had achieved commercial status in May.
Thanks to the hard work and dedication of the teams who completed the clean-up and repairs in the process plant, we were able to resume operations by the end of September, allowing us to execute our plan to recover some of the delayed cash flow generation in the fourth quarter of the year.
There was also some very good news during the year. In July, our Board of Directors approved the development of the Jay Project based on the positive results of the feasibility study and the revised project schedule and life-of-mine plan. This decision prompted us to prepare an updated technical report for the Ekati mine that incorporated the Jay and Sable growth projects into the mine plan, as well as the impact of the process plant fire on the processing schedule. Filed in September, the updated report extended the Ekati mine life to fiscal 2034. This was a major achievement for our company when you consider that, when we acquired the Ekati mine in 2013, it had a mine life that ended in fiscal 2019.
In September 2016, we sold a 186-carat gem quality diamond that had been recovered during processing of feed from the Pigeon kimberlite. The stone, which sold for $2.8 million, was the largest gem quality diamond ever recovered at the Ekati mine and a reminder that there continues to be upside potential to the modelled prices used for our Ekati ore bodies.
Through the ups and downs of the year, our team showed incredible skill and resilience, completing several projects under budget and ahead of schedule, and maintaining high social, economic, and environmental standards. Safety performance at the Ekati mine was significantly improved over the past two years. We also met all our commitments to the local communities and continued to involve Aboriginal partners in mine planning, operating, and monitoring processes.
In January 2017, I indicated that I would be stepping down from my role as Chief Executive Officer. The decision to move the corporate offices of Dominion from Yellowknife to Calgary, announced in November, was necessary in order to reduce operating costs and support the long-term strength of the Company, and is one that I continue to support. For personal reasons, however, it is not the right move for my family.
It has been a pleasure working with Dominion’s Board of Directors, senior management team, and employees across our organization. They are a remarkable group of people with a passion for building a company that creates sustainable value for the business and for our many stakeholders.
Corporate Update and Strategy
Message from the Chair of the Board of Directors
After an eventful 2016 that ended with great momentum across our business, the new year has continued at an equally dynamic pace. After Bob Gannicott’s passing, we renewed our focus on executing our long-term value creation strategy. We recharged our Board of Directors, ensuring that it fully reflects the breadth of our business and is well positioned to oversee the execution of our strategy.
Our strategic focus remains squarely on optimizing our existing operations while advancing multiple near-term and longer-term development projects at the Ekati and Diavik mines. The Lynx, Sable, Jay, Misery Deep, and Fox Deep projects at the Ekati mine and the A-21 project at the Diavik mine all offer strong potential to enhance the company’s production and cash flow profile.
We are also continuing to leverage our deep knowledge in diamond sales and marketing to maximize the value of our product. Our CanadaMarkTM brand has been well received by retail consumers who are willing to pay extra for the promise of purity, responsibility, and authenticity that comes with diamonds carrying the mark. Several marketing initiatives are underway with our clients to capture the premium associated with Canadian production and to help protect and grow demand for our rough product.
In addition, we are now in a position to explore high-value opportunities within our extensive Lac de Gras region. With 150 known kimberlites on the Ekati property and the work underway to prioritize targets, our advanced exploration program has the potential to drive significant value growth in a region we know well. With the infrastructure already in place at the Ekati and Diavik mines, the cost of developing new projects near Lac de Gras is significantly lower than the cost of greenfield development.
With a strong balance sheet underpinning our efforts, we are well positioned to continue reinvesting in the business to renew the asset base and drive increases in the company’s net asset value per share.
Following an unsolicited expression of interest by a third party in March 2017, our Board decided that it was in the best interests of the company and its shareholders to form a Special Committee to explore, review, and evaluate potential strategic alternatives focused on maximizing shareholder value. The Special Committee is working with management and advisors to consider alternatives that may include the sale of the company, a continuation of or change to the current strategic plan, or other strategic transactions. At the time of writing, the strategic review process is ongoing and no timetable has been set.
Meanwhile, we continue to advance our strategy and deliver on our production plans. The company has released fiscal 2018 guidance and a three-year outlook forecasting strong sales and Adjusted EBITDA, driven by the shift to a high-value ore blend at the Ekati mine and the expected recovery of the rough diamond market from the impact of demonetization in India by the middle of the year.
In March 2017, we filed an updated technical report for the Diavik mine, which demonstrated improved economics and supported an extension of the mine life from 2023 to 2025. In May, we announced the positive results of a pre-feasibility study on the development of an underground operation below the Misery open pit at the Ekati mine. Also at Ekati, we are ramping up to full production at the Fines Dense Media Separation (DMS) plant, which will increase the recovery of diamonds smaller than 1.2 millimetres.
I would also point out that we continue to return capital to shareholders while maintaining the ability to fund our growth. In fiscal 2017, we returned $65.1 million through a combination of dividends and share repurchases.
In conclusion, I would like to thank our Board of Directors for their efforts on behalf of all shareholders and other stakeholders as we address the challenges before us. We are drawing heavily on their vast experience and counsel. I would also like to recognize our senior management team and employees and contractors for the way in which they responded to the events of last year and continue to show indomitable spirit.