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Dominion Diamond Corp. is proving it can operate a diamond mine in the harsh Arctic conditions of Canada’s remote Northwest Territories after selling the luxury Harry Winston jewelry brand last year.
The Ekati mine, acquired last year from BHP Billiton Ltd., is Toronto-based Dominion’s first attempt at running an excavation. With a promise of higher returns for unpolished stones, Ekati, about 200 kilometers (124 miles) below the Arctic Circle, offers the challenge of improving results in tough conditions.
“Inevitably when you buy something that you’ve only really been able to see on paper you hold your breath a little bit,” Chairman and Chief Executive Officer Robert Gannicott said in a phone interview last week. “It’s worked pretty well for us.”
Dominion is increasing recovery at Ekati by capturing more smaller diamonds from crushed ore, Gannicott said. The company plans to make those adjustments permanent and Gannicott believes more improvements can be achieved.
Last week, Dominion said it agreed to buy out one of Ekati’s minority partners, Chuck Fipke, for about $67 million. Fipke and Stewart Blusson, who still has an interest in Ekati, discovered the deposit in 1991.
Initial results have been encouraging, according to Edward Sterck, an analyst at Bank of Montreal.
“Pretty consistently, on a quarter-by-quarter basis, diamond production in carat terms has been ahead of my forecasts,” Sterck said in a July 10 phone interview from London.
Unrewarded Gains
The gains have yet to be rewarded by investors. Dominion shares have risen 2.3 percent in the past 12 months. Smaller producer Petra Diamonds Ltd. has increased 63 percent in London, while Gem Diamonds Ltd. rose 30 percent. De Beers, owned by Anglo American Plc, and Russia’s OAO Alrosa are the two largest producers.
Dominion sold the Harry Winston brand to Swatch Group AG for $1 billion. It also owns 40 percent of the nearby Diavik mine, which is controlled and run by Rio Tinto Group.
While Dominion has underperformed rivals, Sterck said he sees potential for it to catch up. The shares may have suffered as investors that bought the stock for jewelry exposure sold positions after the Harry Winston sale. Others hoping for a special dividend were disappointed that the money was used elsewhere, he said.
“They certainly look very underpriced at the moment versus the peers,” Sterck said.
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