Harry Winston reports Q1 loss of US$45.1 million.

Whether 2008 was terrible, tough or very-very bad, one thing is certain: diamond miner and retailer Harry Winston Diamond (HW-T, HWD-N) did not have a good year in 2008, and the latest quarter wasn’t any better.

The company posted a net loss of US$45.1 million, or 68¢ per share, in the first quarter, ending April 30, compared to earnings of US$21.3 million for the same period in 2008.

“This was certainly a very, very bad year,” said Harry Winston Diamond CEO Bob Gannicott, who had the synonyms for “bad” out in full force during today’s annual general meeting at the Royal York Hotel in Toronto.

The year started off with high expectations for the Diavik diamond mine (operated by 60% owner Rio Tinto) in the Northwest Territories. Harry holds the remaining 40% but now has only a 31% economic interest in the mine.

Enter the world financial crisis, which paralyzed the industry and left Harry Winston struggling to survive. Rough diamond prices collapsed in half, hurting the mining side of the company and people around the world tightened their purse strings with full force, wounding the retail side. The dire situation continued strong into 2009, with no one knowing how low prices could go, but is now finally showing signs of improvement.

Sales in the first quarter were US$109.6 million with rough diamond sales down 29% at US$57.7 million and retails sales 30% lower at US$51.9 million.

Rough diamond prices were at their lowest level since the mine opened in 2003 over the quarter. The company got especially-low prices for its diamonds since it carried over fourth quarter production of low-value stones with hopes of price improvements.

Also owing to the poor results was a non-cash dilution loss of US$34.2 million (52¢ per share) due to a US$150 million investment by gold miner Kinross Gold (K-T). The deal gave Kinross 19.9% of Harry Winston and 22.5% of the Harry Winston Diamond Limited Partnership, giving Kinross a 9% indirect interest in the Diavik mine. Harry Winston had no choice, the company had US$75 million in debt coming due over the course of the year and no way to pay it.

There was also a US$5.8 million net foreign exchange loss and an after-tax gain on an insurance settlement (for a robbery in Paris last year) of US$1.9 million.

The companies produced 1.1 million carats during the quarter from 170,000 tonnes of ore from the A-154 South pipe and 0.7 million carats from 260,000 tonnes of ore from the A-418 pipe.

Rio Tinto has a flexible plan for the rest of the year that will take advantage of higher grade ore if prices improve, but if they don’t it plans to mine the lower grade ore and could include two six-week shutdowns. Production is forecast at 5.4 million carats from 1.3 million tonnes of ore.