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Dominion Diamond gains on Q3 beat, plans for dividend

Last updated: 10:44 12 Dec 2014 EST, First published: 11:44 12 Dec 2014 EST

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Dominion Diamond (TSE:DDC) climbed after the company reported better-than-expected third quarter financials and said it would initiate a dividend after its year-end results are released in April.

The diamond producer reported cash flow per share of C$1.40, well above Street estimates of 66 cents, and adjusted earnings per share of 44 Canadian cents, on $222 million of revenue and production of 1.36 million carats.

Dundee Capital Markets has a buy rating and a C$23.00 price target on Dominion Diamond, with analyst Matthew O'Keefe saying that positive momentum should continue for the company based on yesterday's strong financial results and commitment to initiate a dividend.

The amount of the dividend is to be determined after year-end results in April. Dundee said the dividend announcement is earlier than anticipated, after the company recently freed up as much as C$253 million after the government of Northwest Territories accepted a surety bond to cover the reclamation liability for its Ekati mine last month.

"With its restricted cash freed up, the company should be able to fund its growth capex plans internally. Should the company choose to offer a recurring dividend, we estimate a 2% dividend should be sustainable given its planned upcoming capex at Misery, Jay and A-21," O'Keefe wrote in his report released Friday.

"Based on our estimates, we do not see Dominion's cash balance falling below US$200MM, which opens the possibility for a one-time special dividend."

The capital markets firm also highlighted the Diavik mine's better-than-estimated on-site cash costs of US$156 per tonne, and in line costs at Ekati. 

The company also decreased its annual cost of sales guidance at Diavik by $15 million to $260 million, and reduced Ekati cost guidance by $5 million to $470 million. 

At the end of third quarter, Dominion had seen an average 4 percent increase to diamond prices, noting that despite being a traditionally quiet period for the industry ahead of the Diwali holiday in India, it saw strong sales in rough diamonds in the latest quarter.

Dundee's O'Keefe said that aside from the dividend, other positive catalysts awaiting the company include a prefeasibility study for Jay (an expansion project for the company's Ekati mine) later this quarter, an updated resource for Ekati in Q1, and the possibility of a technical study for A-21 at Diavik in the first half of 2015.

The A-21 pipe is expected to fill excess mill capacity, improve margins and revive an otherwise declining production profile at the Diavik mine in the Northwest Territories.

Shares of Dominion advanced almost 4 percent to C$20.76 as of 11:25am ET. 

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