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Dominion’s 3Q Profit -90% As Ekati Margins Slump
Dec 13, 2015 8:38 AM
By Rapaport News
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RAPAPORT... Dominion
Diamond Corporation reported a 90 percent drop in profit year on year to $3.4
million in the third quarter that ended on October 31, 2015 as margins declined
at the company’s Canadian mines. As the group reported in
November, overall revenue declined 35 percent, mainly due to a large drop in
the average price per carat of sales from the Ekati Diamond Mine.
Gross margin declined 23 percentage points to 11 percent as a result of
decreased production at Ekati in the previous three months and a cautious
market which impacted diamond prices, according to a statement December 10.
Rough sales were restrained by difficult polished market conditions and were
further impacted by a drop in the level of rough diamond manufacturing
capacity, Dominion said. The company lowered prices at the August sale and
prices at the second sale of the quarter were flat.
While
sales from Ekati fell 38 percent to $88.2 million, the cost of sales decreased
by only 3.8 percent, driving the gross margin down 36 percentage points to
negative 2.9 percent, according to the company. The mine made an operating loss of $4.3 million compared
with a profit of $47 million in the same period last year. The mine plan has
shifted from higher-value production from the Koala, Koala North and Fox ore
bodies to lower-value material from Misery Satellite and Coarse Ore Rejects.
The higher-value Misery Main and Pigeon open pits are currently undergoing
pre-stripping.
Sales by volume from Ekati increased 4.8
percent to 480,000 carats, but average price per carat slumped 41 percent to
$184 because of a change in ore mix, with more production coming from sources
with a lower average price. Margins were also damaged by lower production
volumes due to a planned eight-day maintenance shutdown in May 2015.
The decrease in profitability at the Diavik Diamond Mine, in which
Dominion holds a 40% share, was gentler as the gap between the revenue decline
and the drop in costs was smaller. Sales fell 29 percent to $56.9 million and
the cost of sales declined 28 percent to $38.1 million, meaning the gross
margin slipped only 1.7 percentage points to 33 percent. Nonetheless, the
operating profit fell 33 percent to $18.1 million. Carats sold from the Diavik
mine decreased 55 percent to $315 million and the average price per carat
increased 56 percent to $181 due to the company holding back lower-than-average
priced inventory during the quarter in response to market conditions.
The polished diamond market has also remained subdued with only
the US retail market showing positive demand, the company added. China is weak
as major retailers sell down their inventory and Indian retail has remained
flat.
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Tags:
Canada, Diavik Diamond mine, Dominion Diamond Corporation, Ekati Diamond Mine, mining, Rapaport News
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