Aber Diamond Corp. dazzles with second quarter results

Robust sales at Aber Diamond Corp.s (ABZ-T, ABER-Q) prestigious Harry Winston jewelry salons, coupled with solid production at its Diavik diamond mine in Canadas Northwest Territories, pushed second-quarter sales up 24% over the year-earlier period.

Consolidated sales rose to US$173.3 million, up from US$140 in the second quarter of last year, while earnings from operations climbed 27% to US$56.2 million, up from US$44.3 million.

Aber Diamond owns 40% of Diavik, which boasts three of the richest diamond ore bodies in the world. Through its ownership interest, Aber controls about 3% of the worlds production of diamonds by value.

Aber also owns Harry Winston Inc., one of the most exclusive jewelry and watch retailers in the world. It bought a majority of the jeweler in April 2004, increasing its ownership to a full 100% in September 2006. (Harry Winston earned overnight acclaim when it donated the worlds most famous gemstone, the Hope Diamond, to the Smithsonian Institute.)

Harry Winston has a global network of 15 salons, including a new outlet in Beijing that opened in the second quarter, and plans to add three more to its stable this year: Hong Kong, Chicago and Nagoya, Japan.

Harry Winston posted a 41% increase in second-quarter sales from its worldwide retail network, on the back of continued strength in the luxury good sector.

The fact that the Harry Winston business is continuing to show increasing levels of critical mass is good to see, said Steven Butler, senior precious metals analyst at Canaccord Capital, who has upgraded the stock from a hold to a buy.

Butler said the results were a little higher than expected from the point of view of Harry Winston, given that they came so far ahead of the peak buying season in December.

Butler also attributed the strong showing to good production and grades at Diavik. Rough diamond production increased significantly in the quarter due to grade enhancements from improvements in the diamond recovery process.

Sales from the mining segment rose by a year-on-year 15%, rising to $105.1 million from $91.5 million. Earnings from mining operations of $53 million represented a 21% increase over the comparable quarter in 2006.

Abers share of diamonds from Diavik reached 1.3 million carats in the three months ended June 30, up from 1.1 million carats in the same quarter in 2006.

The company forecasts this years production of rough diamonds to meet or exceed 10 million carats primarily sourced from its A-154 south pipe. Production in the first half of the year reached 5.9 million carats well ahead of the current plan.

That was due to a combination of improvements to the processing circuit (enhancing the recovery of small diamonds), and the recovery of larger stones that were not anticipated by the 1994/1995 large diameter core sampling that formed the basis of the resource model.

Operating experience has shown that the volume, and therefore tonnage, of A-154 South mined to date has been on the order of 10% greater than the resource block model for this pipe, Aber said in its press release announcing the results.

Diavik is Canadas second diamond mine and began producing diamonds in November 2002. The mine is a joint venture between Aber and Diavik Diamond Mines Inc. (DDMI), a wholly owned subsidiary of London-based Rio Tinto (RTP-N, RIO-L, RIO-A).

Under the partnership, Aber pays 40% of the operating and capital costs, earning the right to receive and market 40% of the diamond production. Rio Tinto operates the mine.

The market remains strong for diamonds and prices for rough diamonds rose significantly in the second quarter due to a continued imbalance between supply and demand.

Prices for polished diamonds also rose in the quarter driven by strong consumer demand in virtually all markets, but in particular across Asia. And despite concerns about a liquidity crunch and a downturn in the U.S. housing market, U.S. market demand for diamonds remained resilient, the company noted.

Aber held three diamond sales in the second quarter and expects to hold two more in the third quarter and three in the fourth quarter.

In Toronto, Abers stock price climbed 0.29 to close at $38.51 per share, on a volume of 91,751 shares traded.