Note: Fiscal 2017 is the year ending January 31, 2017.
- Fiscal 2017 sales of $570.9 million decreased by $149.7 million from the prior year while the number of carats sold of 6.6 million increased by 2.5 million carats from the prior year. The average price per carat sold in fiscal 2017 was $87 as compared to $177 in fiscal 2016.
- The reduction in sales reflects a reduction in the value of diamonds sold during the year as a result of the process plant fire at the Ekati mine and a significant amount of lower average value goods being carried over from fiscal 2016 and sold in the first quarter of fiscal 2017.
Consolidated gross margin of $26.4 million decreased by $25.2 million from the prior year, primarily as a result of the sale of a lower value product mix from both the Ekati and Diavik mines in the first half of fiscal 2017, offset by the sale of rough diamonds from higher value Misery Main open pit and Koala underground ore in late fiscal 2017. The decrease in gross margin was also caused by higher depreciation and amortization recognized in Q4 fiscal 2017 due to the depreciation of the Misery Main pre-stripping asset as the related goods were processed and sold. Impairment charges of $26 million and $19.8 million were included in cost of sales in fiscal 2017 and fiscal 2016, respectively.
Income (Loss) before Income Tax and Net Income (Loss)
- Loss before income taxes was $40.7 million in fiscal 2017 as compared to a loss of $11.6 million in fiscal 2016. The larger loss before income taxes in fiscal 2017 was primarily due to the process plant fire at the Ekati mine resulting in $44.5 million in mine standby costs and an impairment of available-for-sale inventory from the Ekati mine in the amount of $26 million. Partially offsetting the loss before income taxes in fiscal 2017 was the $44.8 million gain on sale of the company’s downtown Toronto office building in September 2016.
- Consolidated net income attributable to shareholders was $0.2 million or $nil per share in fiscal 2017 as compared to a consolidated net loss attributable to shareholders of $34 million or $0.40 loss per share in fiscal 2016. Net income in fiscal 2017 was positively influenced by the foreign exchange impact on income tax, resulting in an income tax recovery of $14.4 million or $0.17 per share in fiscal 2017.
Fiscal 2017 adjusted EBITDA of $182.2 million was negatively influenced by the process plant fire at the Ekati mine, which resulted in $44.5 million in mine standby costs being incurred during fiscal 2017, partially offset by the sale of rough diamonds from high-grade Misery Main ore in late fiscal 2017. The $37.1 million decrease from the prior year is due primarily to the decrease in gross margin as discussed above.
- The Ekati mine recovered 5.2 million carats from 2.9 million tonnes processed in fiscal 2017. Processing volumes were 23% lower as compared to fiscal 2016 due to the extended shutdown following the process plant fire in June 2016.
- The Diavik mine (100% basis) recovered 6.7 million carats from 2.2 million tonnes processed in calendar 2016. Carats recovered were 4% lower than the revised calendar 2016 plan of 6.9 million carats, due to lower recovered grade as a result of higher levels of underground dilution encountered in the A-418 and A-154 South kimberlite pipes.
Balance Sheet and Return of Capital
- Share repurchases under the company’s normal course issuer bid during fiscal 2017 resulted in the purchase of approximately 3.4 million shares for approximately CDN $40.9 million.
- The Board of Directors of the company declared an interim and final dividend each of $0.20 per share on September 8, 2016 and April 12, 2017, respectively.
- In total, the company returned $65.1 million to shareholders in fiscal 2017 through a combination of dividends and share repurchases.
Ekati Process Plant Fire
A fire occurred at the Ekati mine process plant on June 23, 2016. Following repairs, the process plant resumed operations at full capacity on September 21, 2016 with a total estimated cost of repairs of $17 million. Cost savings measures were implemented subsequent to the fire including pausing mining at Pigeon and Lynx open pits for the duration of the shutdown. Mining continued at the higher value Misery Main open pit and Koala underground with the stockpiling of this higher value ore. A $6.7 million estimated insurance recovery for property damage was recorded in Q3 fiscal 2017, of which CDN $2.5 million was received in Q4 fiscal 2017. The company holds business interruption insurance covering losses as a result of the fire, but due to the complex nature of this claim, amounts receivable under the business interruption claim cannot be determined at this time.
Office Building Sale
In September 2016, the company sold its downtown Toronto office building for CDN $84.8 million, recognizing a pre-tax gain on the sale of $44.8 million ($0.46 per share after tax).
The diamond market ended the year on a positive note despite the divergence between the resilient market for larger better goods and the more challenging situation for smaller cheaper goods. The Christmas season in the United States failed to meet market expectations, but this was balanced out by renewed retail activity over the Chinese New Year, resulting in an anticipated rise in polished demand from China in the first quarter of fiscal 2018.
Prices decreased in the fourth quarter of fiscal 2017 by an average of 7% over third-quarter performance, reflecting the disruption in normal trading activity following the demonetization of the Indian rupee in November 2016. Much of the manufacturing sector in India that focuses on lower priced rough diamonds was brought to a standstill by the demonetization.
However, the segment of the manufacturing sector that focuses on higher priced rough diamonds, and produces primarily for the export market, has been less disrupted. Demonetization was expected to have a significant adverse impact on the Indian retail jewelry market; however, demand has proved to be more resilient and a return to normal business conditions is expected in the second quarter of fiscal 2018.
(i) The term “Adjusted EBITDA” does not have a standardized meaning according to International Financial Reporting Standards (IFRS). Dominion defines EBITDA as earnings before interest expense (income), income taxes, and depreciation and amortization. Adjusted EBITDA removes from EBITDA the effects of impairment charges, foreign exchange gains (losses), exploration costs, and the gain on the sale of the company’s Toronto office building. For more information on non-IFRS measures, and for Technical Reports, please see our website at ddcorp.ca.