Market Overview

Dominion Diamond Reports Fiscal 2018 Second Quarter Results

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Dominion Diamond Corporation (TSX:DDC, NYSE:DDC) (the "Company" or
"Dominion") today reported its second quarter operational and financial
results for the three and six months ending July 31, 2017. Unless
otherwise indicated, all references to "second quarter," "Q2 fiscal
2018" and "Q2 2018" refer to the three months ended July 31, 2017, and
all references to "Q2 fiscal 2017" and "Q2 2017" refer to the three
months ended July 31, 2016. All financial information is presented in US
dollars.

Highlights

  • Strategic review process completed by entering into an agreement to
    be acquired by The Washington Companies ("Washington")
    • An entity affiliated with Washington will acquire all of the
      Company's outstanding common shares for $14.25 per share in cash
      pursuant to a plan of arrangement (the "Arrangement") under the
      Canada Business Corporations Act.
  • Rebound in demand for lower-value diamonds contributes to
    improvement in financial results
    • Adjusted EBITDA(1) of $115.2 million and free cash flow
      of $42.8 million in Q2 fiscal 2018, compared to $38.6 million and
      ($20.9) million, respectively, in Q2 fiscal 2017.
  • Solid operating performance with production increase driven by the
    Ekati Diamond Mine ("Ekati mine")
    • In line with expectations, consolidated carats produced increased
      72% to 2.6 million carats in Q2 fiscal 2018 from 1.5 million
      carats in Q2 fiscal 2017 due to higher tonnes processed and a
      focus on high-grade Misery Main ore at the Ekati mine, with steady
      performance at the Diavik Diamond Mine ("Diavik mine").
  • Project pipeline progressing
    • Fox Deep preliminary economic assessment ("PEA") completed in
      September, and pre-feasibility study ("PFS") underway; Misery Deep
      approved for construction in June; and Jay water licence received
      Ministerial approval in July.
  • Refocus on exploration
    • Summer exploration program in progress on the Ekati leases; three
      pipes drilled at Diavik.
  • Strong balance sheet
    • Total unrestricted cash resources of $199.4 million, no debt and
      $157.4 million available under the revolving credit facility at
      July 31, 2017.
  • Financial and operating guidance updated
    • Fiscal 2018 sales expected to be between $895 and $955 million and
      Adjusted EBITDA between $465 and $515 million; mid-point of
      consolidated capital expenditure guidance range lowered by 8% to
      approximately $278 million.
(1)   The terms EBITDA (earnings before interest, taxes, depreciation and
amortization) and "free cash flow" are non-IFRS measures. Adjusted
EBITDA removes from EBITDA the effects of impairment charges,
foreign exchange gains (losses), exploration costs, the gain on the
sale of the Toronto office building and transaction costs associated
with the Arrangement. The Company defines "free cash flow" as net
cash from operating activities, less sustaining capital expenditure
and less growth and exploration capital expenditure. See "Non-IFRS
Measures" for additional information.

"As expected, we continue to see the benefit of our transition to
high-value production at Ekati, and stable performance at Diavik," said
Jim Gowans, Chairman of the Board. "The transaction that we announced in
July with The Washington Companies will support continued mine
development and operation, benefitting Dominion's stakeholders over the
long-term."

Consolidated Performance Review (Ekati mine
100% basis and Diavik mine 40% basis)

Financial Summary

         
(in millions of US dollars, except where otherwise noted)   Three months ended July 31   Six months ended July 31
     

2017

      2016      

2017

      2016  
Sales   $ 239.8   $ 160.0   $ 450.8   $ 338.2
Carats sold (000s) 3,643 1,341 5,976 3,940
Average price per carat sold ($/carat)   $ 66     $ 119     $ 75     $ 86  
Cash cost of sales per carat sold(1) ($/carat)   $ 32     $ 74     $ 37     $ 58  
Gross margin $ 37.7 $ 0.9 $ 68.4 $ (18.0 )
Gross margin (%)     16 %     1 %     15 %     (5 %)
Selling, general and administrative expenses $ 7.4 $ 9.2 $ 15.6 $ 17.2
Mine standby costs $ $ 22.0 $ $ 22.0
Transaction costs $ 11.2 $ $ 11.2 $
Current and deferred income tax expense (recovery) $ (15.2 ) $ $ 3.9 $ (30.6 )
Net (loss) income   $ 31.1     $ (37.9 )   $ 23.2     $ (43.2 )
Adjusted EBITDA $ 115.2 $ 38.6 $ 212.2 $ 92.9
Adjusted EBITDA margin(1) (%) 48 % 24 % 47 % 27 %
Depreciation and amortization $ 85.1 $ 62.6 $ 160.9 $ 124.1
Earnings (loss) per share attributable to shareholders ($/share) $ 0.39 $ (0.39 ) $ 0.29 $ (0.40 )
Cash from operating activities before changes in non-cash operating
working capital (1)
$ 63.9 $ 23.9 $ 137.4 $ 35.1
Free cash flow   $ 42.8     $ (20.9 )   $ 27.3     $ (110.9 )
(1)   The terms "cash cost of sales per carat sold", "Adjusted EBITDA
margin" and "cash from operating activities before changes in
non-cash operating working capital" do not have a standardized
meaning according to IFRS. The Company defines cash cost of sales
per carat sold as the cash component of cost of sales, excluding
depreciation and amortization, divided by the total carats sold.
"Adjusted EBITDA margin" is defined as Adjusted EBITDA divided by
total sales. "Cash from operating activities before changes in
non-cash operating working capital" is defined as net cash from
operating activities less changes in non-cash operating working
capital. See "Non-IFRS Measures" for additional information.

Financial Performance

Net income (loss)

In Q2 fiscal 2018, the Company reported consolidated net income
attributable to shareholders of $31.9 million, or $0.39 per share. This
includes a foreign currency exchange impact on income tax resulting in
an income tax recovery of $23.8 million, or $0.29 earnings per share,
and transaction costs of $11.2 million or $0.10 loss per share after
tax, relating to the strategic review and the Arrangement. Relative to
Q2 fiscal 2017, financial performance was also impacted by:

  • A return in demand for smaller diamonds following a disruption in
    normal trading activity in this segment of the market due to
    demonetization of the Indian rupee in November 2016. The average price
    per carat sold was $66 in Q2 fiscal 2018 compared to $119 in Q2 fiscal
    2017, reflecting the improved demand for smaller diamonds and a higher
    proportion of diamonds sold from the Misery Main pipe at the Ekati
    mine, which has a relatively low price per carat.
  • The sale of diamonds from higher-value kimberlite pipes at the Ekati
    mine, and an auction of approximately $19 million of high-value fancy
    coloured and large diamonds, contributed to a 50% increase in sales to
    $239.8 million and an increase of $36.8 million in gross margin to
    $37.7 million. Dominion holds 10 sales per year and there were three
    sales in each of Q2 2018 and Q2 2017. Gross margin in Q2 fiscal 2017
    was negatively impacted by an impairment charge of $6.4 million
    reflective of the lower-value production from the Misery Satellites at
    the Ekati mine.
  • An expected increase in process plant availability at the Ekati mine,
    which was impacted in Q2 fiscal 2017 by the shutdown following the
    process plant fire on June 23, 2016.
  • An increase in depreciation associated with the Misery Main
    pre-stripping asset as the related goods were processed and sold.

Adjusted EBITDA, Cash Flow and Balance Sheet

  • Q2 fiscal 2018 Adjusted EBITDA almost tripled to $115.2 million from
    $38.6 million in Q2 fiscal 2017, reflecting a significant increase in
    gross margin.
  • Cash from operating activities before changes in non-cash operating
    working capital was $63.9 million in Q2 fiscal 2018, an increase of
    167% from $23.9 million in Q2 fiscal 2017 primarily due to the
    increase in sales combined with stable cash cost of production at both
    the Ekati and Diavik mines. These were partly offset by a higher
    income and mining royalty tax payment of $45.3 million in Q2 fiscal
    2018 compared to $3.2 million in Q2 fiscal 2017, due to timing
    differences.
  • In connection with the Arrangement, the Company suspended the
    declaration and payment of dividends, and terminated the normal course
    issuer bid on July 15, 2017.
  • Free cash flow was $42.8 million in Q2 fiscal 2018, a significant
    improvement over the negative free cash flow of $20.9 million in Q2
    fiscal 2017, after accounting for the higher tax payment in Q2 fiscal
    2018. In Q2 fiscal 2018, capital expenditures included significant
    investments in the A-21 project at the Diavik mine, and in the Sable
    project and in production stripping at the Lynx and Pigeon open pits
    at the Ekati mine.
  • As at July 31, 2017, the Company had total unrestricted cash and cash
    equivalents of $199.4 million, no debt and $157.4 million available
    under its revolving credit facility.

Operational Summary

         
(in US dollars, except where otherwise noted)   Three months ended July 31   Six months ended July 31
      2017     2016     2017     2016
Carats produced (000s)   2,564   1,488   4,710   3,318
Cash cost per tonne processed (1) ($/tonne) $ 74 $ 82 $ 79 $ 81
Total cost per tonne processed (1) ($/tonne) $ 136 $ 141 $ 142 $ 134
Cash cost per carat produced (1) ($/carat) $ 36 $ 47 $ 41 $ 51
Total cost per carat produced (1) ($/carat)   $ 64   $ 77   $ 70   $ 81
(1)   "Cash cost per tonne processed" and "cash cost per carat produced"
are non-IFRS measures, and are calculated by dividing cash cost of
production by total tonnes processed and total carats produced,
respectively. "Cash cost of production" is a non-IFRS measure, and
includes mine site operating costs such as mining, processing and
administration, other cash costs relating to sorting and valuation
activities and private royalties, but is exclusive of amortization,
capital, and exploration and development costs. "Total cost of
production" is a non-IFRS measure and comprises cash cost of
production plus depreciation and amortization. "Total cost per tonne
processed" and "total cost per carat produced" are non-IFRS
measures, and are calculated by dividing total cost of production by
total tonnes processed and total carats produced, respectively. See
"Non-IFRS Measures" for additional information.
  • During Q2 fiscal 2018, 2.6 million carats were produced, an increase
    of 72% from Q2 fiscal 2017, during which 1.5 million carats were
    produced. The increase in Q2 fiscal 2018 is primarily due to the
    increase in tonnes processed; additionally, significant quantities of
    higher-grade ore from the Misery Main kimberlite pipe at the Ekati
    mine were processed during the quarter.
  • Cash cost per tonne processed in Q2 fiscal 2018 decreased compared to
    Q2 fiscal 2017 due to an increase in tonnes processed at both the
    Ekati and Diavik mines, combined with strong cost controls at both
    mines. In Q2 fiscal 2018, total cost per tonne processed reflects a
    decrease in total cost per tonne processed at the Diavik mine,
    partially offset by an increase at the Ekati mine.
  • Cash cost per carat produced decreased in Q2 fiscal 2018 compared to
    Q2 fiscal 2017 primarily due to the increase in carats produced. Total
    cost per carat produced decreased less than cash cost per carat
    produced due to higher depreciation of the Misery Main pre-stripping
    asset.

Diamond Market and Price Update

  • The momentum of demand in the rough diamond market that was evident in
    the first quarter of calendar 2017 continued into the second quarter
    and then slowed for the traditionally quieter summer period. One
    notable area of demand in the rough market was for the commercial and
    cheaper ranges of goods, as factories returned to full production
    after the disruption caused by the demonetization of the Indian rupee
    in November 2016, and the ensuing hiatus in trading activity.
  • The challenges in the US retail market continued to cause some concern
    despite a positive JCK Las Vegas Jewelry show, which was driven by the
    more active smaller chains and independents rather than the larger
    chains that are going through a period of restructuring. While demand
    remained flat in the US, demand from both China and India continues to
    grow. In China and Hong Kong, sales have improved significantly which
    bodes well for the business in the third and fourth quarters, and
    Indian retail is ramping up to what is expected to be a positive
    Diwali and wedding season from October until January.
  • Between the February 2017 sale and the July 2017 sale, average prices
    increased by approximately 3% for the Ekati mine and were flat on
    average for the Diavik mine. In the first half of fiscal 2018, full
    trading activity returned to all segments of the market as the effects
    of the demonetization of the Indian rupee abated. Prices for
    higher-value goods were not as significantly influenced by
    demonetization, and have remained relatively stable. Prices of brown
    goods exhibited very strong price appreciation from depressed levels
    earlier in the year. Lastly, prices have partially recovered for
    smaller white goods, although not to the same extent as for brown
    goods.
  • In addition to changes in market prices, the average prices per carat
    by process plant feed type are periodically updated as a result of
    production trials whereby diamonds are recovered from batch processing
    of unblended ore in order to monitor their average volume, size and
    quality distribution. Production trials were completed for Pigeon and
    Misery Main in fiscal 2017 and for Koala in May 2017. The results of
    the Koala-only trial (stone frequency and quality distributions) were
    finalized in August 2017. The results of the trial indicated that the
    quality assortment and overall volume (grade) of Koala underground
    diamonds recovered were as expected. However, the relative volume of
    carats in the smaller size categories was higher than expected. As a
    result of the production trial, the average price per carat for Koala
    underground for the remainder of fiscal 2018 was revised to $207 per
    carat.

Ekati Mine Performance Review (100% basis)

Financial Performance

         
(in millions of US dollars, except where

otherwise noted)

  Three months ended July 31   Six months ended July 31
     

2017

      2016      

2017

      2016  
Sales   $ 152.2     $ 83.3   $ 289.9     $ 188.4
Carats sold (000s) 2,626 668 4,460 2,213
Average price per carat sold ($/carat) $ 58 $ 125 $ 65 $ 85
Cash cost of sales per carat sold ($/carat)   $ 32     $ 99     $ 35     $ 71  
Gross margin $ 7.6 $ (22.8 ) $ 17.3 $ (54.6 )
Gross margin (%)    

5%

 

   

(27%

)

   

6%

 

   

(29%

)

Mine standby costs $ $ 22.0 $ $ 22.0
Adjusted EBITDA $ 68.1 $ 4.1 $ 132.4 $ 30.0
Adjusted EBITDA margin (%)

45%

 

5%

 

46%

 

16%

 

Depreciation and amortization   $ 62.0     $ 43.5     $ 118.0     $ 82.4  
  • Sales increased in Q2 fiscal 2018 compared to Q2 fiscal 2017 due to an
    almost four-fold year-over-year increase in carats sold reflecting the
    sale of goods from the higher-value Misery Main and Koala pipes,
    including an auction of approximately $19 million of high-value fancy
    coloured and large diamonds, primarily from the Ekati mine. The
    average price per carat sold decreased due to the higher proportion of
    Misery Main goods sold and the relatively low price per carat for
    these goods.
  • Cash cost of sales per carat sold decreased in Q2 fiscal 2018 compared
    to Q2 fiscal 2017 primarily due to a 54% decrease in the average price
    per carat sold; an impairment charge of $6.4 million was recorded in
    cost of sales in Q2 fiscal 2017 as a result of the recovery of goods
    from low-value Misery Satellites in that quarter. As costs are
    allocated to goods sold on the basis of their relative value, cash
    cost of sales per carat sold typically moves in accordance with the
    average price per carat sold.

Operational Performance

       

 

For the three months ended July 31, 2017

  For the three months ended July 31, 2016
Tonnes     Tonnes    
Pipe Processed

Carats(1)

Grade(1)

Processed

Carats(1)

Grade(1)

  (000s)   (000s)   (carats/tonne)   (000s)   (000s)   (carats/tonne)
Koala 397 167 0.42 205 116 0.57
Misery Main 358 1,522 4.26 135 459 3.41
Pigeon 209 79 0.38 157 64 0.41

Misery Satellites(2)

23   50   2.21   104   217   2.08
Total(3) 987   1,818   1.84   601   856   1.43
(1)   As different kimberlite sources are blended during processing,
carats and grade per pipe are estimated using the block models for
the tonnes processed from each pipe, adjusted for the overall
reconciliation of total carats produced against the model. The total
carats produced include all incremental production arising as a
result of the changes made to the Ekati process plant to improve
diamond liberation.
(2) The Misery Satellites include the Misery South and Southwest
satellite pipes, which are inferred mineral resources, and Misery
Northeast material. During the three months ended July 31, 2017,
there was minimal production from the Misery Satellites. During the
three months ended July 31, 2016, approximately 0.2 million carats
were produced from the processing of approximately 0.1 million
tonnes of material from Misery South and Southwest extension pipes.
(3) Figures may not add due to rounding.
         
    For the six months ended July 31, 2017   For the six months ended July 31, 2016
  Tonnes       Tonnes    
Pipe processed Carats

Grade(1)

Processed Carats Grade
    (000s)   (000s)   (carats/tonne)   (000s)   (000s)   (carats/tonne)
Koala 897 388 0.43 518 313 0.60
Misery Main 616 2,637 4.28 209 663 3.17
Pigeon 357 132 0.37 406 173 0.43
Misery Satellites(2)   23   50   2.21   440   783   1.78
Total(3)   1,893   3,207   1.69   1,573   1,932   1.23
(1)   As different kimberlite sources are blended during processing,
carats and grade per pipe are estimated using the block models for
the tonnes processed from each pipe, adjusted for the overall
reconciliation of total carats produced against the model. The total
carats produced include all incremental production arising as a
result of the changes made to the Ekati process plant to improve
diamond liberation.
(2) The Misery Satellites include the Misery South and Southwest
satellite pipes, which are inferred mineral resources, and Misery
Northeast material. During the six months ended July 31, 2017, there
was minimal production from the Misery Satellites. During the six
months ended July 31, 2016, approximately 0.8 million carats were
produced from the processing of approximately 0.4 million tonnes of
material from Misery South, Southwest extension and Northeast pipes.

(3)

Figures may not add due to rounding.
         
(in US dollars, except where otherwise noted)   Three months ended July 31   Six months ended July 31
   

2017

  2016  

2017

  2016
Waste tonnes mined (000s)   6,404   5,021   13,228   10,427
Kimberlite tonnes mined (000s) 1,259 1,447 2,122 3,098
Tonnes processed (000s) 987 601 1,893 1,573
Carats produced (000s) 1,818 856 3,207 1,932
Grade (carats/tonne) 1.84 1.43 1.69 1.23
Cash cost per tonne processed ($/tonne) $ 65 $ 63 $ 69 $ 65
Total cost per tonne processed ($/tonne) $ 122 $ 112 $ 125 $ 107
Cash cost per carat produced ($/carat) $ 36 $ 45 $ 42 $ 54
Total cost per carat produced ($/carat)   $ 66   $ 79   $ 74   $ 87
  • During Q2 fiscal 2018, the Ekati mine produced, on a 100% basis, 1.8
    million carats from 1.0 million tonnes processed, compared to 0.9
    million carats produced from 0.6 million tonnes processed in Q2 fiscal
    2017.
  • Carat production in Q2 fiscal 2018 increased by 112% compared to Q2
    fiscal 2017, due mainly to the increase in tonnes processed and the
    continued processing of a large proportion of high-grade Misery Main
    ore. Tonnes processed and carat production in Q2 fiscal 2017 were
    adversely impacted by the process plant fire on June 23, 2016, which
    resulted in three-month plant shutdown.
  • Mining activities in Q2 fiscal 2018 were focused at Misery, Pigeon and
    Lynx open pits and at Koala underground. Approximately 1.9 million
    tonnes of kimberlite material remained in stockpiles at the end of Q2
    fiscal 2018, primarily from Misery Satellites, Pigeon and Lynx.
  • A fines dense media separation unit was commissioned in Q4 fiscal 2017
    in order to improve the recovery of small diamonds. In Q1 fiscal 2018,
    the unit ramped up to its design throughput, however, the recovery of
    small diamonds, which have low values per carat, did not initially
    meet expectations. With continuing adjustments to the recovery circuit
    to improve performance, recovery improved in Q2 fiscal 2018, and the
    unit is expected to achieve planned recovery at the end of the fourth
    quarter.

Diavik Mine Performance Review (40% basis)

Financial Performance

         
(in millions of US dollars, except where

otherwise noted)

  Three months ended July 31   Six months ended July 31
     

2017

    2016    

2017

    2016
Sales   $ 87.6   $ 76.7   $ 160.9   $ 149.8
Carats sold (000s) 1,017 673 1,516 1,727
Average price per carat sold ($/carat)   $ 86   $ 114   $ 106   $ 87
Cash cost of sales per carat sold ($/carat)   $ 34   $ 50   $ 45   $ 42
Gross margin $ 30.1 $ 23.7 $ 51.1 $ 36.7
Gross margin (%)     34%     31%     32%     25%
Adjusted EBITDA $ 52.9 $ 42.0 $ 93.2 $ 76.5
Adjusted EBITDA margin (%) 60% 55% 58% 51%
Depreciation and amortization   $ 22.7   $ 19.2   $ 42.2   $ 41.6
  • Sales in Q2 fiscal 2018 were $87.6 million, an increase of 14% from Q2
    fiscal 2017, as a 51% increase in carats sold was partly offset by a
    25% decrease in average price per carat sold. In Q2, sales were
    strengthened by a return in demand for smaller diamonds following
    demonetization of the Indian rupee in November 2016.
  • The cash cost of sales per carat sold decreased 32% to $34 per carat
    in Q2 fiscal 2018 from $50 per carat in Q2 fiscal 2017 due to the
    decrease in average price per carat sold. As noted above, relatively
    low-value goods were sold in Q2 fiscal 2018 as compared to Q2 fiscal
    2017. As costs are allocated to goods sold on the basis of their
    relative value, cash cost of sales per carat sold typically moves in
    accordance with the average price per carat sold.

Operational Performance

         

 

 

For the three months ended June 30, 2017

  For the three months ended June 30, 2016
  Tonnes       Tonnes    
Processed Carats Grade Processed Carats Grade
Pipe  

(000s tonnes)

 

(000s)

 

(carats/tonne)

 

(000s tonnes)

 

(000s)

 

(carats/tonne)

A-154 South 53 177 3.34 57 164 2.85
A-154 North 68 173 2.54 64 146 2.29
A-418 101 396 3.92 92 308 3.33
COR         1   14  
Total (1)   222   746   3.36(2)   214   632  

2.89(2)

(1)

 

Figures may not add due to rounding

(2)

Grade has been adjusted to exclude COR

         

 

 

For the six months ended June 30, 2017

  For the six months ended June 30, 2016
  Tonnes       Tonnes    
Processed Carats Grade Processed Carats Grade
Pipe  

(000s tonnes)

 

(000s)

 

(carats/tonne)

 

(000s tonnes)

 

(000s)

 

(carats/tonne)

A-154 South 94 309 3.30 106 306 2.88
A-154 North 130 336 2.59 135 312 2.32
A-418 210 842 4.00 195 738 3.79
COR   1   16     1   30  
Total (1)   435   1,503   3.43(2)   437   1,386   3.11(2)

(1)

 

Figures may not add due to rounding

(2)

Grade has been adjusted to exclude COR

         
(in US dollars, except where otherwise noted)   Three months ended June 30   Six months ended June 30
   

2017

  2016  

2017

    2016
Waste tonnes mined (000s)   40   32   80   67
Kimberlite tonnes mined (000s) 232 233 464 442
Tonnes processed (000s) 222 214 435 437
Carats produced (000s) 746 632 1,503 1,386
Grade (carats/tonne) (1) 3.36 2.89 3.43 3.11
Cash cost per tonne processed ($/tonne) $ 117 $ 136 $ 125 $ 138
Total cost per tonne processed ($/tonne) $ 199 $ 222 $ 216 $ 232
Cash cost per carat produced ($/carat) $ 35 $ 49 $ 39 $ 46
Total cost per carat produced ($/carat)   $ 59   $ 75   $ 62   $ 73

(1)

 

Grade has been adjusted to exclude COR

  • During Q2 calendar 2017, on a 40% basis, the Diavik mine produced 0.7
    million carats from 0.2 million tonnes processed, compared to 0.6
    million carats produced from 0.2 million tonnes processed in Q2
    calendar 2016.
  • Carat production in Q2 calendar 2017 was higher than in Q2 calendar
    2016 due to the positive impact of processing a relatively high
    proportion of higher-grade A-418 ore, and consistent tonnes processed
    compared to the prior year, reflecting steady ore availability.
  • Mining activities in Q2 calendar 2017 were focused at the A-154 South,
    A-154 North and A-418 underground operations.

Diamond Inventory

 
(in millions of US dollars, except where otherwise noted)
  July 31,   April 30,   January 31,
    2017   2017   2017

Consolidated Diamond Inventory (Ekati mine 100%, Diavik mine
40%)

Carats in inventory available-for-sale (000s) 2,439 3,551 3,674
Estimated market value of inventory available-for-sale $ 170 $ 200 $ 212
Estimated average market value per carat available-for-sale ($/carat) $ 70 $ 56 $ 58
Cost of inventory available-for-sale   $ 149   $ 159   $ 182

Ekati Diamond Inventory (100% basis)

Carats in inventory available-for-sale (000s) 1,784 2,491 3,046
Estimated market value of inventory available-for-sale $ 124 $ 125 $ 156
Estimated average market value per carat available-for-sale ($/carat) $ 70 $ 50 $ 51
Cost of inventory available-for-sale   $ 122   $ 115   $ 143

Diavik Diamond Inventory (40% basis)

Carats in inventory available-for-sale (000s) 655 1,060   628
Estimated market value of inventory available-for-sale $ 46 $ 75 $ 56
Estimated average market value per carat available-for-sale ($/carat) $ 70 $ 71 $ 89
Cost of inventory available-for-sale   $ 27   $ 44   $ 38
  • Consolidated carats in inventory available-for-sale decreased 31% from
    3.6 million at April 30, 2017 to 2.4 million at July 31, 2017,
    reflecting 2.5 million carats transferred to available-for-sale during
    the quarter compared to 3.6 million carats sold. The estimated market
    value decreased 15% during this period to approximately $170 million
    at July 31, 2017, primarily as a result of strong sales in the quarter.
  • Carats in inventory available-for-sale from the Ekati mine decreased
    28% from 2.5 million at April 30, 2017, to 1.8 million at July 31,
    2017, reflecting 1.9 million carats transferred to available-for-sale
    during the quarter compared to 2.6 million carats sold. At July 31,
    2017, there were approximately 0.5 million carats of rough diamond
    inventory that was work-in-progress (April 30, 2017 – 0.6 million
    carats), and that were primarily from Misery Main and Koala
    underground. Inventory available-for-sale at July 31, 2017, had an
    estimated market value of approximately $124 million, relatively
    consistent with the value at April 30, 2017, reflecting strong sales
    of brown goods and smaller white goods.
  • Carats in inventory available-for-sale from the Diavik mine decreased
    38% from 1.1 million at April 30, 2017, to 0.7 million at July 31,
    2017, reflecting 0.6 million carats transferred to available-for-sale
    during the quarter compared to 1.0 million carats sold. At July 31,
    2017, there were approximately 0.1 million carats of rough diamond
    inventory that was work-in-progress (April 30, 2017 – nil carats). The
    estimated market value decreased by 39% during this period to
    approximately $46 million at July 31, 2017, as a result of strong
    sales in the quarter, and a lower-than-averge value per carat of $70
    for the remaining goods in available-for-sale inventory.

Development Projects

Jay

  • On July 7, 2017, the Minister of Environment and Natural Resources,
    Government of the Northwest Territories ("GNWT"), approved the Type A
    Water Licence for the Ekati mine, including the Jay project.
  • Construction of early works is also progressing. In June 2017,
    crushing of Lynx waste rock was started in order to produce road base
    material, and construction of the access road to the project site
    subsequently commenced.
  • Due to the incorporation of Misery Deep into the life-of-mine plan
    following the Misery Deep PFS, the Company has extended the schedule
    for the Jay project by one year. In calendar 2018, laydowns will be
    constructed at the project site, and equipment will be mobilized for
    dike construction, which is now scheduled to begin in July 2019 and
    continue for three open-water seasons from 2019 to 2021. In calendar
    2022, it is expected that dike construction and instrumentation will
    be completed, and dewatering will begin.
  • This change enables underground mining beneath the Misery pit for an
    additional year, prior to the use of this pit as a mine-water
    management facility for the Jay project. The revised project schedule
    defers all remaining capital expenditures on the project by a year,
    with the exception of access road construction which is proceeding as
    scheduled in the Jay Feasibility Study. The revised project schedule
    does not affect the estimated cost to complete the project.

Sable

  • Final site infrastructure at the Sable pipe at the Ekati mine is
    nearing completion, and the estimated initial development capital
    remains approximately 25% below the pre-feasibility investment case of
    $142 million. Pre-stripping commenced in July 2017, significantly
    ahead of the schedule outlined in the pre-feasibility study.
  • Following waste stripping, the first production of high-value carats
    from the Sable pipe is anticipated in fiscal 2020.

Misery Deep

  • In May 2017, a positive pre-feasibility study was completed on the
    development of an underground operation below the Misery Main open pit
    at the Ekati mine. The pre-feasibility study is based on the mining of
    Misery Deep between calendar years 2018 and 2022, and a probable
    mineral reserve of 1.8 million tonnes of kimberlite and 8.7 million
    carats, on a 100% basis. Construction of the project has been approved
    by the Board of Directors. In August 2017, a water licence amendment
    and land use permit application was filed with the Wek'èezhìi Land and
    Water Board for the development of the project.

Fox Deep

  • Work continues on the evaluation of an underground mine below the
    mined-out Fox open pit at the Ekati mine. A PEA on the project was
    completed in September 2017. The PEA is based on the mining of Fox
    Deep from calendar 2032 to calendar 2041 and involves the extraction
    of 31.3 million tonnes of kimberlite and 11.0 million carats. A PFS is
    scheduled for completion by the end of the fiscal year. If successful,
    this project has the potential to extend the life of the Ekati mine
    significantly.

A-21

  • Development of the A-21 pipe continues to progress ahead of schedule
    and on budget, with the completion of the dike and the start of
    de-watering expected in late calendar 2017. The start of waste
    stripping is now expected in late calendar 2017, concurrent with
    de-watering. Following waste stripping, processing of ore from the
    A-21 pipe is expected to commence in calendar 2018.

Exploration Program

Ekati

  • A renewed brownfield exploration program commenced in calendar 2017.
  • In May 2017, a maiden inferred mineral resource of 51 million tonnes
    and 16 million carats, on a 100% basis, was announced at the Leslie
    pipe, and a concept study is planned this calendar year.
  • A summer exploration program on the Ekati mining leases was in
    progress at the end of the second quarter and included ground
    geophysics, Unmanned Aerial Vehicle ("UAV") magnetic survey and
    diamond drilling.
  • Three diamond drill holes were completed during the quarter, including
    a vertical diamond drill hole at the Kodiak pipe, which is located
    close to existing infrastructure and has not been bulk sampled, and
    two exploration drill holes on new targets. Approximately 530
    kilograms of Kodiak kimberlite drill core was submitted for
    microdiamond analysis, with results expected in the third quarter of
    fiscal 2018. Pending the results of this program, a reverse
    circulation bulk sample program may be planned for winter 2018. At the
    end of the second quarter, two exploration targets had been drilled,
    with no kimberlite intersections.

Diavik

  • Exploration activities have resumed in 2017. Three priority
    kimberlites – C42, T29 and A61 – have been highlighted for additional
    work based on potential size and proximity to the existing
    infrastructure. Drilling was performed at these three kimberlites
    resulting in collection of samples which were submitted for
    microdiamond analysis. Sample results are pending.

Capital Expenditures (Ekati mine 100% and
Diavik mine 40%)

         
(in millions of US dollars)   Three months ended July 31   Six months ended July 31
    2017     2016     2017     2016  
Ekati sustaining capital expenditures   $ 5.1   $ 4.3   $ 21.7   $ 22.9
Ekati production stripping expenditures 22.5 14.0 49.5 17.1
Diavik sustaining capital expenditures   4.9     4.0       9.2       10.0  

Total sustaining capital expenditures

  $ 32.5     $ 22.3     $ 80.4     $ 50.0  
Sable expenditures 7.8 16.4 18.8 26.4
Lynx expenditures 4.4 3.4 18.1
Jay expenditures 5.2 3.1 7.6 26.5
Misery expenditures 0.4 10.3 0.4 30.1
A-21 expenditures 9.4 9.0 18.6 21.0
Other expenditures   4.2     3.0       7.5       8.2  

Total growth capital expenditures

  $ 27.0     $ 46.2     $ 56.3     $ 130.3  
Reconciliation to capital cash additions:
Capitalized depreciation (2.4 ) (2.9 ) (5.8 ) (5.7 )
Capital accruals   (0.4 )   (2.7 )     (2.0 )      

Total cash capital additions

  $ 56.7     $ 62.9     $ 128.9     $ 174.6  

During the second quarter, the Company invested $56.7 million in
property, plant and equipment, of which $41.8 million related to the
Ekati mine and $14.9 million related to the Diavik mine. Expenditures
related primarily to construction and development of new kimberlite
pipes at both mines, as well as excess waste stripping in open pits
which is capitalized as production stripping.

On June 5, 2017, an agreement was reached with Archon Minerals Limited,
to convert its participating interest in the Buffer Zone at the Ekati
mine to a royalty equal to 2.3% of all future gross revenue from
diamonds produced from the Buffer Zone. As a result of this transaction,
Dominion's ownership interest in the Buffer Zone increased to 100%.

Updated Fiscal 2018 Guidance

The financial, production and capital expenditure guidance for fiscal
2018 has been adjusted to reflect actual performance in the first half
of the fiscal year, and the Company's current expectations for
production, sales, operating costs and capital expenditures for the
remainder of the fiscal year.

Fiscal 2018 Financial Guidance

         
Financial Guidance   Revised   Original
(in millions of US dollars, except per carat amounts)   Ekati(1)   Diavik(2)   Consolidated   Ekati(1)   Diavik(2)   Consolidated
Sales(3)   595 - 625(3)   300 - 330   895 - 955   575 - 645(3)   300 - 330   875 - 975
Adjusted EBITDA 300 - 330 185 - 205 465 - 515(4) 315 - 370 180 - 210 475 - 560(4)
Depreciation and amortization 225 - 250 85 - 95 310 - 345 225 - 265 85 - 100 310 - 365
Average price per carat sold   60 - 75   90 - 105   70 - 85   60 - 80   90 - 110   70 - 90
(1)   Ekati figures are presented on a 100% basis.
(2) Diavik figures are presented on a 40% basis.
(3) Sales guidance for fiscal 2018 includes production from the Misery
Southwest pipe (this is the Operating Case). Misery Southwest pipe
is currently an inferred resource. The mine plan for fiscal 2018
foresees approximately 0.2 million carats produced from Misery
Southwest, with an estimated market value of approximately $8
million. Mineral resources that are not mineral reserves do not have
demonstrated economic viability. Inferred mineral resources are
considered too speculative geologically to have economic
considerations applied to them that would enable them to be
categorized as mineral reserves. There is no certainty that the
Operating Case will be realized.
(4) Consolidated Adjusted EBITDA includes corporate G&A.

Sales are expected to be between $895 million and $955 million with
strong sales experienced in the first half of the year continuing
throughout the remainder of fiscal 2018. Previous guidance for sales for
fiscal 2018 was between $875 million and $975 million. Sales are
expected to continue to benefit from a return in demand for the
commercial and cheaper ranges of goods experienced in the first half of
fiscal 2018 as well as ongoing sales of fancy coloured diamonds
recovered from the Ekati mine. These positive developments have been
offset by a downward revision of the estimated average value per carat
for diamonds recovered from Koala underground. This reduction in average
value per carat results in a corresponding reduction in estimated sales
in the remainder of fiscal 2018. In line with the improvement in demand
for smaller and brown goods experienced in the first half of fiscal
2018, the volume of sales in these segments is expected to be higher
than originally planned, with a corresponding reduction in the expected
average price per carat sold for both Ekati and Diavik mines.

Adjusted EBITDA is expected to be between $465 million and $515 million,
compared to the original guidance of between $475 million and $560
million. Guidance for Adjusted EBITDA for the Ekati segment has been
reduced by a downward revision of the estimated value per carat for
Koala underground, influencing both gross margin and Adjusted EBITDA in
that segment. For the Diavik segment, the guidance range for Adjusted
EBITDA has been tightened. Guidance ranges reflect continued strong cost
controls at both the Ekati and Diavik mines.

Production Guidance

         
Production Guidance   Revised   Original
(in millions)   Ekati(1)

Fiscal 2018

  Diavik(1)

Calendar 2017

  Consolidated(2)   Ekati(1)

Fiscal 2018

  Diavik(1)

Calendar 2017

  Consolidated(2)
Tonnes mined   28 - 30   2.1 - 2.3     27 - 30   2.1 - 2.3  
Tonnes processed 3.7 - 4.0 2.0 - 2.2 4.5 - 4.9 3.7 - 4.0 2.0 - 2.2 4.5 - 4.9
Carats produced (Base Case)

7.4 - 7.9

5.0 - 5.6
Carats produced(3) (Operating Case)   7.5 - 8.0   7.2 - 7.6   10.4 - 11.0   6.3 - 7.0   7.1 - 7.6   9.1 - 10.0
(1)   Ekati and Diavik figures are presented on a 100% basis.
(2) Consolidated production includes 100% of Ekati production in fiscal
2018 and 40% of Diavik production in calendar 2017.
(3) Reflects the Operating Case at Ekati mine; this includes the Misery
Southwest pipe which is currently an inferred mineral resource.
Mineral resources that are not mineral reserves do not have
demonstrated economic viability. Inferred mineral resources are
considered too speculative geologically to have economic
considerations applied to them that would enable them to be
categorized as mineral reserves. There is no certainty that the
Operating Case will be realized.

At the Ekati mine in fiscal 2018, it is expected that between 28 and 30
million total tonnes will be mined, and between 7.5 and 8.0 million
carats will be produced from 3.7 to 4.0 million tonnes processed, on a
100% basis. Construction at the Sable pipe was completed significantly
ahead of schedule and waste stripping activities have been prioritized
at that pipe in the second half of fiscal 2018 with a corresponding
reduction in waste stripping activities at the Lynx and Pigeon pipes.
Based on the results of a positive PFS and following a decision in June
2017 to proceed with the development of an underground operation below
the Misery Main open pit, the processing plan has been revised for the
remainder of fiscal 2018 and it is expected that more high-value Misery
Main and Koala ore will be processed in the second half of the fiscal
year, displacing lower-value Pigeon and Misery Southwest material. As
Misery Main is a higher-grade ore source, this has resulted in an
increase in expected carats produced in fiscal 2018. Processing of Lynx
ore commenced in August 2017 and the recovery of diamonds from the Lynx
pipe is expected to be completed in Q3 fiscal 2018.

At the Diavik mine, underground mining will continue at A-418, A-154
South and A-154 North pipes. In calendar 2017, it is expected that
between 2.1 and 2.3 million tonnes will be mined, and between 7.2 and
7.6 million carats will be produced from 2.0 to 2.2 million tonnes
processed, on a 100% basis.

Unit cost production guidance for each of the Ekati and Diavik mines is
indicated in the table below. Per carat metrics in any particular
quarter may vary from the annual guidance due to variations in the ore
blend.

                         
Unit Cost Guidance       Revised           Original    
(in US dollars)   Ekati   Diavik   Consolidated   Ekati   Diavik   Consolidated
Cash cost per tonne processed ($/tonne)   60 - 70   120 - 130   70 - 80   60 - 70   120 - 130   70 - 80
Total cost per tonne processed ($/tonne) 120 - 135 220 - 235 140 - 155 120 - 135 220 - 235 140 - 155
Cash cost per carat produced ($/carat) 30 - 35 35 - 40 35 - 40 35 - 40 35 - 40 35 - 40
Total cost per carat produced ($/carat)   60 - 70   60 - 70   60 - 70   65 - 75   60 - 70   65 - 75

Unit cost production guidance on a tonnes processed basis remains
unchanged for fiscal 2018, reflecting strong cost control at both the
Ekati and Diavik mines. Cash cost per tonne processed at the Ekati mine
has been near the upper end of the range in the first half of fiscal
2018 as a result of unplanned maintenance, and to a lesser extent,
seasonal weather-related material handling challenges experienced in the
first quarter of fiscal 2018. However, mitigation of some of this
shortfall occurred in the second quarter, and is expected to continue in
the second half of fiscal 2018. Unit cost production guidance on a carat
produced basis remains unchanged for the Diavik mine and has been
reduced for the Ekati mine, reflecting the expected increase in carats
produced as a result of changes in the ore blend in the remainder of
fiscal 2018.

Capital Expenditure Guidance

         
Capital Expenditure Guidance(1)   Revised   Original
(in millions of US dollars)   Ekati(2)

Fiscal 2018

  Diavik(3)

Calendar 2017

  Consolidated(4)   Ekati(2)

Fiscal 2018

  Diavik(3)

Calendar 2017

  Consolidated(4)
Growth capital   90 - 100   35 - 40   125 - 140   90 - 110   25 - 30   115 - 140
Sustaining capital(5), (6) 120 - 130 13 - 15 140 - 150 140 - 170 13 - 15 160 - 190

Total capital expenditures(5),(6)

  210 - 230   48 - 55   265 - 290   230 - 280   38 - 45   275 - 330
(1)   For additional information on capital expenditures at the Ekati and
Diavik mines, refer to the technical report entitled "Ekati Diamond
Mine, Northwest Territories, Canada, NI 43-101 Technical Report"
with an effective date of July 31, 2016, and the technical report
for Diavik entitled "Diavik Diamond Mine, Northwest Territories,
Canada, NI 43-101 Technical Report" with an effective date of
January 31, 2017.
(2) Ekati figures are presented on a 100% basis.
(3) Diavik figures are presented on a 40% basis.
(4) Consolidated figures include Ekati on a 100% basis in fiscal 2018
and Diavik on a 40% basis in calendar 2017.
(5) Sustaining capital expenditures include capitalized production
stripping at Ekati and underground mine development at Diavik.
(6) Consolidated sustaining capital includes corporate capital
expenditures.

The capital expenditures at the Ekati mine (100% basis) for fiscal 2018
are expected to be between approximately $210 million and $230 million
compared to the original guidance of between $230 million and $280
million. The expected decrease from the original guidance is due to
lower sustaining capital expenditures as a result of the deferral of
waste stripping activities at the Lynx and Pigeon open pits, and to a
lesser extent, the deferral of certain projects. This decrease was
partially offset by an increase in growth capital due to the
acceleration of initial waste stripping at the Sable project and the
addition of the Misery underground project, approved in June 2017.

The capital expenditures at the Diavik mine (40% basis) for calendar
2017 are expected to be between approximately $48 million and $55
million compared to the original guidance of between $38 million and $45
million. Expenditure on the A-21 project remains on budget, but due to
the accelerated project schedule, additional expenditure is expected to
be incurred in calendar 2017, with a corresponding reduction in future
periods.

As a result of the revisions to planned capital expenditures at the
Ekati and Diavik mines in fiscal 2018, the mid-point of the guidance
range for consolidated capital expenditures is approximately $278
million, a decrease of 8% from the mid-point of the original guidance
range.

Management's Discussion and Analysis and
Financial Statements

Complete Management's Discussion and Analysis and Financial Statements
can be found on Dominion's website at: http://www.ddcorp.ca/investors/reports/quarterly-reports.

Condensed Consolidated Interim Balance Sheets

             
 

July 31,

 

January 31,

(unaudited) (expressed in thousands of US dollars)

   

2017

   

2017

ASSETS
Current assets
Cash and cash equivalents (note 4) $ 199,393 $ 136,168
Accounts receivable 14,617 13,946
Inventory and supplies (note 5) 385,637 412,227
Other current assets 21,776 29,765
Income taxes receivable     22,189       17,720  
643,612 609,826
Property, plant and equipment 1,295,413 1,295,584
Restricted cash (note 4) 65,742
Other non-current assets 20,785 21,362
Deferred income tax assets     14,481       11,362  
Total assets   $ 1,974,291     $ 2,003,876  
 
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables $ 106,902 $ 108,866
Employee benefit plans 2,939 1,192
Income taxes payable 44,492 54,710
Current portion of loans and borrowings           10,556  
154,333 175,324
Deferred income tax liabilities 147,742 155,380
Employee benefit plans 20,089 15,911
Provisions     334,010       328,356  
Total liabilities     656,174       674,971  
Equity
Share capital (note 11) 479,973 478,526
Contributed surplus 25,535 31,667
Retained earnings 753,023 718,298
Accumulated other comprehensive loss     (9,628 )     (9,622 )
Total shareholders' equity 1,248,903 1,218,869
Non-controlling interest     69,214       110,036  
Total equity     1,318,117       1,328,905  
Total liabilities and equity   $ 1,974,291     $ 2,003,876  

The notes are an integral part of these condensed consolidated interim
financial statements.

Condensed Consolidated Interim Statements of Income (Loss)

                     
  Three months   Three months   Six months   Six months
(unaudited) (expressed in thousands of ended ended ended July ended July
US dollars)   July 31, 2017   July 31, 2016     31, 2017     31, 2016
Sales $ 239,782 $ 159,970 $ 450,760 $ 338,229
Cost of sales     202,123       159,108       382,328       356,185  
Gross margin 37,659 862 68,432 (17,956 )
Selling, general and administrative expenses 7,355 9,175 15,635 17,211
Mine standby costs 22,028 22,028
Restructuring costs (note 12) 1,476 3,751
Transaction costs (note 1)     11,167             11,167        
Operating profit 17,661 (30,341 ) 37,879 (57,195 )
Finance expenses (3,476 ) (2,476 ) (7,107 ) (4,964 )
Exploration costs (1,536 ) (1,447 ) (2,272 ) (5,028 )
Finance and other income 1,328 806 2,317 1,178
Foreign exchange (loss) gain     1,935       (4,446 )     (3,630 )     (7,804 )
Profit (loss) before income taxes 15,912 (37,904 ) 27,187 (73,813 )
Current income tax expense 7,145 10,139 28,284 16,814
Deferred income tax recovery     (22,309 )     (10,094 )     (24,335 )     (47,380 )
Net income (loss)   $ 31,076     $ (37,949 )   $ 23,238     $ (43,247 )
Net income (loss) attributable to
Shareholders $ 31,862 $ (32,931 ) $ 23,952 $ (33,970 )
Non-controlling interest     (786 )     (5,018 )     (714 )     (9,277 )
Earnings (loss) per share
Basic $ 0.39 $ (0.39 ) $ 0.29 $ (0.40 )
Diluted     0.39       (0.39 )     0.29       (0.40 )
Basic weighted average number of shares outstanding     81,272,085       85,329,701       81,212,288       85,323,314  

The notes are an integral part of these condensed consolidated interim
financial statements.

Condensed Consolidated Interim Statement of Cash Flows

                 
  Three months   Three months   Six months   Six months
(unaudited) (expressed in thousands of US ended ended ended July ended
dollars)   July 31, 2017   July 31, 2016   31, 2017   July 31, 2016
Cash provided by (used in)
OPERATING

 

Net income (loss) $ 31,076 $ (37,949 ) $ 23,238 $ (43,247 )
Depreciation and amortization 85,087 57,176 160,896 115,620
Deferred income tax recovery (22,309 ) (10,094 ) (24,335 ) (47,380 )
Current income tax expense 7,145 10,139 28,284 16,814
Finance expenses 3,476 2,476 7,107 4,964
Stock-based compensation 363 360 (43 ) 1,177
Other non-cash items 4,682 (568 ) (7,088 ) 2,962
Deferred tax impact of increase in participating interest in Buffer
Zone
(12,343 )

(15,053

)

Unrealized foreign exchange gain (loss) 12,165 (469 ) 10,027 8,867
Gain on disposition of assets 259 494
Impairment losses on inventory 6,414 26,017
Interest paid (121 ) (653 ) (198 ) (747 )
Income and mining taxes paid (45,285 ) (3,170 ) (45,384 ) (50,455 )
Change in non-cash operating working capital, excluding taxes and
finance expenses
    35,571       9,951       18,731       16,746  
Net cash from operating activities     99,507       33,872       156,182       51,832  
FINANCING
Repayment of interest-bearing loans and borrowings (10,556 ) (10,757 ) (10,556 ) (10,944 )
Distributions to and contributions from minority partners, net

2,314

1,096 2,314 (2,887 )
Issue of common shares, net of issue 14,277 14,539 127
Share repurchase (6,097 ) (19,181 )
Dividends paid     (16,138 )     (17,066 )     (16,138 )     (17,066 )
Cash used in financing activities     (16,200 )     (26,727 )     (29,022 )     (30,770 )
INVESTING
Decrease in restricted cash 51,146 2,392 65,742 2,392
Net proceeds from preproduction sales 8,129 11,870
Purchase of property, plant and equipment (56,705 ) (62,896 ) (128,934 ) (174,552 )
Other non-current assets 347 49 577 1,485
Reclamation expenditures     (270 )           (270 )      
Cash used in investing activities     (5,482 )     (52,326 )     (62,885 )     (158,805 )
Foreign exchange effect on cash balances (9,600 ) (872 ) (1,050 ) (1,894 )
Increase in cash and cash equivalents 68,225 (46,053 ) 63,225 (139,637 )
Cash and cash equivalents, beginning of period     131,168       226,454       136,168       320,038  
Cash and cash equivalents, end of period   $ 199,393     $ 180,401     $ 199,393     $ 180,401  
Change in non-cash operating working capital, excluding taxes and
finance expenses
Accounts receivable 5,779 1,395 2,616 930
Inventory and supplies 55,725 44,186 12,009 31,946
Other current assets 10,627 10,444 7,987 1,668
Trade and other payables (37,525 ) (46,007 ) (5,597 ) (15,792 )
Employee benefit plans     965       (67 )     1,716       (2,006 )
    $ 35,571     $ 9,951     $ 18,731     $ 16,746  

The notes are an integral part of these condensed consolidated interim
financial statements.

Non-IFRS Measures

This news release uses a number of financial measures, including:
cash cost of production, total cost of production, cash cost and total
cost per tonne processed, cash cost and total cost per carat produced,
cash cost of sales per carat sold, Adjusted EBITDA, free cash flow,
sustaining capital expenditure, and growth capital expenditure. These
measures are used to monitor and evaluate the performance of the
Company, are intended to provide additional information and should not
be considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. These measures are not
prescribed by IFRS and will differ from measures determined in
accordance with IFRS. Other companies may calculate these non-IFRS
financial measures differently. These non-IFRS measures should not be
considered as a substitute for, or superior to, measures of financial
performance prepared in accordance with IFRS. Please refer to the
section "Non-IFRS Measures" in the Company's Management's Discussion and
Analysis for the three and six months ended July 31, 2017, for further
details, including a reconciliation of each such measure to its most
directly comparable measure calculated in accordance with IFRS.

Qualified Person

The mine plan for the Ekati Diamond Mine for fiscal 2018 was prepared
and verified by Dominion, operator of the Ekati mine, under the
supervision of Peter Ravenscroft, FAusIMM, of Burgundy Mining Advisors
Ltd., an independent mining consultant, and a Qualified Person within
the meaning of National Instrument 43-101 of the Canadian Securities
Administrators, and the mine plan for the Diavik Mine for calendar 2017
was prepared and verified by DDMI, operator of the Diavik Mine, under
the supervision of Calvin Yip, P.Eng., Principal Advisor, Strategic
Planning of DDMI, who is a Qualified Person within the meaning of
National Instrument 43-101 of the Canadian Securities Administrators.
The other scientific and technical information contained in this press
release has been prepared and verified by Dominion, operator of the
Ekati mine, under the supervision of Chantal Lavoie, P. Eng., Chief
Operating Officer of Dominion, and President of Dominion Diamond Ekati
Corporation (DDEC), and a Qualified Person within the meaning of
National Instrument 43-101 of the Canadian Securities Administrators.

Forward-Looking Information

Information included herein, including information about expected
sales, Adjusted EBITDA, diamond pricing and estimated production from,
and exploration and development activities at, the Ekati mine and the
Diavik mine, and expectations concerning the diamond industry, strategic
review process and the Arrangement constitutes forward-looking
information or statements within the meaning of applicable securities
laws. Forward-looking information is based on certain factors and
assumptions including, among other things, the current mine plan for
each of the Ekati mine and the Diavik mine; mining, production,
construction and exploration activities at the Ekati mine and the Diavik
mine; currency exchange rates; world and US economic conditions; future
diamond prices; and the level of worldwide diamond production.
Forward-looking information is subject to certain factors, including
risks and uncertainties, which could cause actual results to differ
materially from what the Company currently expects. These factors
include, among other things, the uncertain nature of mining activities,
including risks associated with underground construction and mining
operations, risks associated with joint venture operations, risks
associated with the remote location of and harsh climate at the
Company's mining properties, variations in mineral reserve and mineral
resource estimates, grade estimates and expected recovery rates, failure
of plant, equipment or processes to operate as anticipated, risks
associated with regulatory requirements, the risk of fluctuations in
diamond prices and changes in US and world economic conditions, the risk
of fluctuations in the Canadian/US dollar exchange rate, cash flow and
liquidity risks, and uncertainties related to the Company's strategic
review process. Actual results may vary from the forward-looking
information. Readers are cautioned not to place undue importance on
forward-looking information, which speaks only as of the date of this
disclosure, and should not rely upon this information as of any other
date. While the Company may elect to, it is under no obligation and does
not undertake to, update or revise any forward-looking information,
whether as a result of new information, further events or otherwise at
any particular time, except as required by law. Additional information
concerning factors that may cause actual results to materially differ
from those in such forward-looking statements is contained in the
Company's filings with Canadian and United States securities regulatory
authorities and can be found at
www.sedar.com
and
www.sec.gov,
respectively.

About Dominion Diamond Corporation

Dominion Diamond Corporation is a Canadian mining company and one of
the world's largest producers and suppliers of premium rough diamond
assortments to the global market. The Company operates the Ekati Diamond
Mine, in which it owns a controlling interest, and owns 40% of
the Diavik Diamond Mine, both of which are located in the low political
risk environment of the Northwest Territories in Canada. It also has
world-class sorting and selling operations in Canada, Belgium and India.

For more information, please visit www.ddcorp.ca.

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