Dominion Diamond hits its stride

Boding well for its upcoming quarterly financial results, Dominion Diamond’s (TSX: DDC; NYSE: DDC) third-quarter production and sales figures beat market expectations, sending its share price up $1.35, or more than 8%, to $17.73.

The company recorded US$222.3 million in sales for the quarter, beating BMO Capital Markets mining analyst Edward Sterck’s forecast by 25%, and last year’s figure (US$148.1 million) by 50%.

The numbers reflect strong production from Dominion’s mines and higher-than-expected sale prices for diamonds from its Ekati mine. 

The miner owns 88.9% of the Ekati mine in the Northwest Territories, and 40% of the nearby Diavik mine with operator Rio Tinto (NYSE: RIO).

During the third quarter, Ekati produced nearly 1 million carats of diamonds from 1.1 million tonnes of ore grading 0.85 carat per tonne, beating Sterck’s forecast by 23%. By comparison, the mine produced 609,000 carats from 1.1 million tonnes grading 0.54 carat in last year’s third quarter.

The company credits higher-than-expected grades (especially at the Fox and Koala kimberlites) and operational improvements at the processing plant for the higher numbers. Dominion estimates that plant improvements, which began 13 months ago, have boosted recovered grades by 15% this year.

At Diavik, production attributable to Dominion totalled 589,000 carats from 207,000 tonnes of ore grading 2.82 carats per tonne for the period, down from 727,000 carats in 211,000 tonnes grading 3.29 carats per tonne in last year’s comparable quarter. While production declined due to processing a lower proportion of higher-grade A-154-South ore, both mining and processing are ahead of plans for the year.

During the quarter, Dominion sold 458,000 carats of Ekati diamonds at US$310 per carat for the quarter versus BMO’s forecast of 594,000 carats at US$203 per carat.

At Diavik, Dominion sold its attributable production of 696,000 carats at US$116 per carat, compared with BMO’s forecast of 445,000 carats at US$128 per carat.

The company held diamond inventory worth US$350 million at the end of the period, up from US$315 million at the end of the previous quarter.

Dominion’s third-quarter financial results are due in early December.

Just before Dominion released its third-quarter production figures, the company announced that chairman and CEO Robert Gannicott will be taking a medical leave to receive treatment for an undisclosed illness. The treatment is expected to continue until February.

In Gannicott’s absence, executive vice-president Brendan Bell will become acting CEO, and lead director Dan Jarvis will become acting chairman. The company has also hired a new vice-president responsible for the Jay project and business development.

A prefeasibility study for the Jay project at Ekati, which could extend the mine’s life by a decade, is due out shortly.

BMO’s Sterck has an “outperform” rating on Dominion with a $20 target price. The stock has traded in a 52-week range of $13.10 to $17.09, and the company has 85.1 million shares outstanding.