2014

Dominion Diamond Corporation Reports Fiscal 2014 First Quarter Results

TORONTO, June 6, 2013 /PRNewswire/ --

Dominion Diamond Corporation (TSX:DDC, NYSE: DDC) (the "Company") today announced its first quarter results for the period ending April 30, 2013.

Robert Gannicott, Chairman and Chief Executive Officer stated:  "Diavik is performing well and we are pleased with what we see at Ekati. We have strengthened the senior management team in a focused effort to deliver value through both extended mine life and enhanced operating efficiencies."

First Quarter Highlights:

During the quarter, the Company completed the acquisition of the Ekati Diamond Mine and the sale of the Harry Winston Luxury Brand Segment to Swatch Group.

  • The acquisition of the Ekati Diamond Mine was completed on April 10, 2013 for a total cash purchase price of approximately $553.1 million. On the date of closing Ekati had cash on hand of approximately $65 million and diamond inventory with an approximate market value of $135 million.
  • The sale of the Harry Winston Luxury Brand Segment was completed on March 26, 2013 for aggregate cash consideration of approximately $746 million, plus the assumption of existing indebtedness by the Swatch Group.

First Quarter Consolidated Operating Highlights

  • The Company recorded a consolidated net profit attributable to shareholders of $500.2 million or $5.89 per share for the quarter, compared to a net profit attributable to shareholders of $11.6 million or $0.14 per share in the first quarter of the prior year. Included in this amount is a $497.6 million gain on the sale of the Luxury Brand Segment.
  • Net profit from continuing operations attributable to shareholders (which now represents the Diavik, Ekati and Corporate segments) was $2.8 million or $0.03 per share compared to $6.0 million or $0.07 per share in the comparable quarter of the prior year.
  • Consolidated rough diamond sales from continuing operations for the first quarter totaled $108.8 million, consisting of Diavik rough diamond sales of $88.9 million and Ekati rough diamond sales of $19.9 million (Ekati rough diamond sales are only from April 10, 2013, the date the Ekati Diamond Mine Acquisition was completed, to April 30, 2013). Gross margin increased 44% to $27.3 million from $18.9 million in the comparable quarter of the prior year.
  • As at April 30, 2013, the Company had unrestricted cash and cash equivalents of $231.2 million and restricted cash of $125.7 million. The restricted cash is being used to support letters of credit to the Government of Canada in the aggregate amount of $126 million in support of the reclamation obligations for the Ekati Diamond Mine.
  • In connection with the Ekati Diamond Mine Acquisition, the Company arranged new secured credit facilities consisting of a $400 million term loan, a $100 million revolving credit facility and a $140 million letter of credit facility (expandable to $265 million in aggregate). The Company ultimately determined to fund the Ekati Diamond Mine Acquisition by way of cash on hand and did not draw on these new facilities.

Diavik Diamond Mine

  • Production for the first calendar quarter at the Diavik Diamond Mine was 1.9 million carats on a 100% basis.  Rough diamond production was 21% higher than the prior calendar quarter primarily due to improved grades in each of the kimberlite pipes.
  • During the first quarter, the Company sold approximately 0.78 million carats from the Diavik Diamond Mine for a total of $88.9 million for an average price per carat of $114 compared to 1.0 million carats for a total of $89.0 million for an average price per carat of $88 in the comparable quarter of the prior year. The 23% decrease in volume and 29% increase in price of carats sold versus the prior quarter resulted primarily from the sale during the first quarter of the prior year of almost all of the remaining lower priced goods originally held back in inventory by the Company at October 31, 2011 due to an oversupply in the market at that time.
  • Had the Company sold only the last production shipped in the first quarter, the estimated achieved price would have been approximately $125 per carat based on the prices achieved in the May 2013 sale.

Ekati Diamond Mine

  • During the period from April 10 to April 30, 2013, the Company sold approximately 0.01 million carats from the Ekati Diamond Mine for a total of $19.9 million for an average price per carat of $1,620. The above-average achieved price per carat resulted from the timing of Ekati sales. Sales in April consisted only of Ekati's high value, high quality diamonds.
  • The Company's cost of sales for the Ekati Diamond Mine for the period from April 10 to April 30, 2013, was $19.6 million, resulting in a gross margin of 1.4% reflecting the purchase of inventory at market values as part of the Ekati Diamond Mine Acquisition. The Company estimates cost of sales would have been approximately $13 million excluding this market value adjustment.
  • Had the Company sold only the last production shipped in the first quarter, the estimated achieved price would have been approximately $350 per carat based on the prices achieved in the May 2013 sale.
  • A new mine plan and budget for the Ekati Diamond Mine for the next operating period is currently under review.

Corporate Segment

  • Corporate Segment Selling, general & administrative expenses for the first quarter included $11.3 million of transaction costs related to the Ekati Diamond Mine Acquisition.

Developments subsequent to the end of the reporting period

  • On May 27, 2013 the Company announced the appointment of Mr. Chantal Lavoie to the position of President and Chief Operating Officer of Dominion Diamond Ekati Corporation. Mr. Lavoie has 25 years of experience in open pit and underground mining.  Amongst his previous roles, he was Chief Operating Officer for De Beers' Canadian mining operations which included the Victor Mine in Ontario and the Snap Lake Mine and the Gahcho Kue project in the Northwest Territories. As of July 1st, Mr. Lavoie will be responsible for the Company's mining operations and will be based in Yellowknife, Northwest Territories.
  • The Company maintains a senior secured revolving credit facility with Standard Chartered Bank. On May 31, 2013, the Company repaid the $50.0 million outstanding.

Conference Call and Webcast
Beginning at 8:30AM (ET) on Thursday, June 6th, the Company will host a conference call for analysts, investors and other interested parties. Listeners may access a live broadcast of the conference call on the Company's investor relations web site at http://www.ddcorp.ca or by dialing 866-271-5140 within North America or +1-617-213-8893 from international locations and entering passcode 21655189.

An online archive of the broadcast will be available by accessing the Company's investor relations web site at http://www.ddcorp.ca. A telephone replay of the call will be available one hour after the call through 11:00PM (ET), Thursday, June 20th, 2013 by dialing 888-286-8010 within North America or +1-617-801-6888 from international locations and entering passcode 85917665.

About Dominion Diamond Corporation 
Dominion Diamond Corporation is a Canadian diamond mining company with ownership interests in two of the world's most valuable diamond mines. Both mines are located in the low political risk environment of the Northwest Territories of Canada. The Company is the fourth largest diamond producer by value globally and the largest diamond mining company by market capitalization, listed on the Toronto and New York stock exchanges.

The Company operates the Ekati Diamond Mine through its 80% ownership as well as a 58.8% ownership in the surrounding areas containing prospective resources.  It also sells diamonds from its 40% ownership in the Diavik Diamond Mine.

For more information, please visit http://www.ddcorp.ca

Highlights
(ALL FIGURES ARE IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED)

During the quarter, Dominion Diamond Corporation (the "Company") completed the acquisition of the Ekati Diamond Mine and the sale of the Luxury Brand Segment to Swatch Group. The acquisition of the Ekati Diamond Mine was completed on April 10, 2013. As a result of the Ekati Diamond Mine acquisition, the Company acquired an 80% interest in the Core Zone, which includes the current operating mine and other permitted kimberlite pipes, as well as a 58.8% interest in the Buffer Zone, an adjacent area hosting kimberlite pipes with both development and exploration potential. The sale of the Luxury Brand Segment was completed on March 26, 2013 and as a result of the sale, the Company's corporate group underwent name changes to remove references to "Harry Winston".  See "Discontinued Operations". Accordingly, the Company's consolidated results from continuing operations are for the Diavik Diamond Mine and Ekati Diamond Mine (from April 10th, the date of acquisition by the Company). Continuing operations no longer include the operations of the Luxury Brand Segment and the results of this segment are now treated as discontinued operations for reporting purposes.

The Company recorded a consolidated net profit attributable to shareholders of $500.2 million or $5.89 per share for the quarter, compared to a net profit attributable to shareholders of $11.6 million or $0.14 per share in the first quarter of the prior year. Included in this amount is a $497.6 million gain on the sale of the Luxury Brand Segment. Net profit from continuing operations attributable to shareholders (which now represents the Diavik and Ekati mining segments) was $2.8 million or $0.03 per share compared to $6.0 million or $0.07 per share in the comparable quarter of the prior year. Continuing operations includes all costs related to the Company's mining operations.

Consolidated sales from continuing operations were $108.8 million for the first quarter compared to $89.0 million for the comparable quarter of the prior year, resulting in an operating profit of $10.5 million compared to an operating profit of $12.2 million in the comparable quarter of the prior year. Gross margin increased 44% to $27.3 million from $18.9 million in the comparable quarter of the prior year. Consolidated EBITDA from continuing operations was $30.7 million compared to $34.3 million in the comparable quarter of the prior year. Prior year numbers relate only to results from the Diavik Diamond Mine.

Included in consolidated sales are $88.9 million for the Diavik Diamond Mine and $19.9 million for the Ekati Diamond Mine. Diavik sales were consistent with the prior quarter. The 29% increase in achieved rough diamond prices as compared to the prior quarter was offset by a 23% decrease in volume of carats sold during the quarter. Diavik rough diamond production during the first calendar quarter was 21% higher than the comparable quarter of the prior year.

The corporate segment, which includes all costs not specifically related to the operations of the Diavik and Ekati mines, recorded selling, general and administrative expenses of $15.2 million, compared to $5.8 million in the comparable quarter of the prior year. The increase from the comparable quarter of the prior year was primarily due to $11.3 million of expenses related to the Ekati Diamond Mine Acquisition.

The net earnings from discontinued operations of $497.4 million are presented separately in the unaudited interim condensed consolidated income statements, and comparative periods have been recast accordingly. Included in this amount is a $497.6 million gain on the sale of the Luxury Brand Segment.

Management's Discussion and Analysis
PREPARED AS OF JUNE 5, 2013 (ALL FIGURES ARE IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED)

On March 26, 2013, Harry Winston Diamond Corporation changed its name to Dominion Diamond Corporation ("Dominion Diamond Corporation" or the "Company"). The following is management's discussion and analysis ("MD&A") of the results of operations for Dominion Diamond Corporation for the three months ended April 30, 2013, and its financial position as at April 30, 2013. This MD&A is based on the Company's unaudited interim condensed consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board, and should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto for the three months ended April 30, 2013, and the audited consolidated financial statements for the year ended January 31, 2013. Unless otherwise specified, all financial information is presented in United States dollars. Unless otherwise indicated, all references to "first quarter" refer to the three months ended April 30.

Certain information included in this MD&A may constitute forward-looking information within the meaning of Canadian and United States securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "foresee", "appears", "believe", "intend", "estimate", "predict", "potential", "continue", "objective", "modeled", "hope", "forecast" or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding plans, timelines and targets for construction, mining, development, production and exploration activities at the Company's mineral properties, future mining and processing at the Company's mineral properties, projected capital expenditure requirements and the funding thereof, liquidity and working capital requirements and sources, estimated reserves and resources at, and production from, the Company's mineral properties, the number and timing of expected rough diamond sales, the demand for rough diamonds, expected diamond prices and expectations concerning the diamond industry, expected cost of sales and gross margin trends. Actual results may vary from the forward-looking information. See "Risks and Uncertainties" on page 17 for material risk factors that could cause actual results to differ materially from the forward-looking information.

Forward-looking information is based on certain factors and assumptions regarding, among other things, mining, production, construction and exploration activities at the Company's mineral properties, world and US economic conditions and diamond supply. In making statements regarding expected diamond prices and expectations concerning the diamond industry, the Company has made assumptions regarding, among other things, the state of world and US economic conditions, and worldwide diamond production levels. While the Company considers these assumptions to be reasonable based on the information currently available to it, they may prove to be incorrect. See "Risks and Uncertainties" on page 17.

Forward-looking information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what we currently expect. 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, including risks associated with the inability to control the timing and scope of future capital expenditures, the risk that the operator of the Diavik Diamond Mine may make changes to the mine plan and other risks arising because of the nature of joint venture activities, risks associated with the remote location of and harsh climate at the Company's mineral property sites, risks resulting from the Eurozone financial crisis, risks associated with regulatory requirements, fluctuations in diamond prices and changes in US and world economic conditions, the risk of fluctuations in the Canadian/US dollar exchange rate and cash flow and liquidity risks. Please see page 17 of this MD&A, as well as the Company's current Annual Information Form, available at http://www.sedar.com and http://www.sec.gov, respectively, for a discussion of these and other risks and uncertainties involved in the Company's operations.

Readers are cautioned not to place undue importance on forward-looking information, which speaks only as of the date of this MD&A, and should not rely upon this information as of any other date. Due to assumptions, risks and uncertainties, including the assumptions, risks and uncertainties identified above and elsewhere in this MD&A, actual events may differ materially from current expectations. The Company uses forward-looking statements because it believes such statements provide useful information with respect to the currently expected future operations and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. 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, future 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 http://www.sedar.com and http://www.sec.gov, respectively.

Summary Discussion
Dominion Diamond Corporation is focused on the mining and marketing of rough diamonds to the global market. The Company supplies rough diamonds to the global market from its operation of the Ekati Diamond Mine (in which it owns a controlling interest) and its 40% ownership interest in the Diavik Diamond Mine, located in Canada's Northwest Territories.

The Company has an ownership interest in the Diavik group of mineral claims. The Diavik Joint Venture (the "Diavik Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI") (60%) and Dominion Diamond Diavik Limited Partnership (formerly known as Harry Winston Diamond Limited Partnership) ("DDDLP") (40%) where DDDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. DDMI and DDDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England.

On April 10, 2013, the Company completed the $553.1 million acquisition from BHP Billiton Canada Inc. and its various affiliates of all of BHP Billiton's diamond assets, including its controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium (the "Ekati Diamond Mine Acquisition"). The Ekati Diamond Mine consists of the Core Zone, which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer Zone, an adjacent area hosting kimberlite pipes having both development and exploration potential. In connection with the Ekati Diamond Mine Acquisition, the Company arranged new secured credit facilities consisting of a $400 million term loan, a $100 million revolving credit facility  and a $140 million letter of credit facility (expandable to $265 million in aggregate). The Company ultimately determined to fund the Ekati Diamond Mine Acquisition by way of cash on hand and did not draw on these new facilities. The Company controls and consolidates the Ekati Diamond Mine and minority shareholders are presented as non-controlling interests on the unaudited interim condensed consolidated financial statements.

On March 26, 2013, the Company completed the disposition of the Luxury Brand Segment to Swatch Group (the "Luxury Brand Divestiture"). As a result of the Luxury Brand Divestiture, the Company's corporate group underwent name changes to remove references to "Harry Winston". On March 26, 2013, the Company's name changed to "Dominion Diamond Corporation" and its common shares trade on both the Toronto and New York stock exchanges under the symbol "DDC".

Market Commentary
The Diamond Market
The quarter began with a stable market for both rough and polished diamonds as a result of improved market conditions at the end of fiscal 2013. Strong polished diamond sales encouraged manufacturers to increase their purchases of rough diamonds at a time of reduced supply, pushing rough diamond prices upwards during the first quarter. Rough diamond supply was impacted by delivery problems at certain diamond mines combined with lower than expected Russian rough diamond supply. However, with the exception of high demand in the lower-priced ranges, polished diamond prices remained flat, restricting the upward movement in rough diamond prices at the end of the quarter. The retail jewelry market outlook remains positive, led by the resilient US market. The East Asian and Indian markets were less positive but the market still anticipates resurgence in demand in the second half of the year as retailers there restock. At the recent show in Basel, Switzerland, better-quality, larger goods sold well, but less interest was evident in the smaller sizes of polished goods commonly used in watches.

Consolidated Financial Results
On March 26, 2013, the Company completed the disposition of the Luxury Brand Segment to Swatch Group. See "Discontinued Operations". Accordingly, the Company's consolidated results from continuing operations relate solely to its mining operations, which include the production, sorting and sale of rough diamonds. The results of the Luxury Brand Segment are treated as discontinued operations for accounting and reporting purposes and current and prior period results have been recast accordingly. The following is a summary of the Company's consolidated quarterly results for the eight quarters ended April 30, 2013.


              (expressed in thousands of United States dollars except per
                       share amounts and where otherwise noted)
                                      (unaudited)
                             2014        2013        2013        2013        2013
                               Q1          Q4          Q3          Q2          Q1
    Sales               $ 108,837   $ 110,111   $  84,818   $  61,473   $  89,009
    Cost of sales          81,535      79,038      71,663      46,784      70,099
    Gross margin           27,302      31,073      13,155      14,689      18,910
    Gross margin (%)        25.1%       28.2%       15.5%       23.9%       21.2%
    Selling, general
    and
    administrative
    expenses               16,843      10,086       7,581       5,750       6,739
    Operating profit
    (loss) from
    continuing
    operations             10,459      20,987       5,574       8,939      12,171
    Finance expenses      (3,994)     (2,382)     (2,308)     (2,151)     (2,242)
    Exploration
    costs                 (1,039)       (306)       (673)       (568)       (254)
    Finance and
    other income              804         601          60          67          52
    Foreign exchange
    gain (loss)               732         116       (301)       1,048       (370)
    Profit (loss)
    before income
    taxes from
    continuing
    operations              6,962      19,016       2,352       7,335       9,357
    Income tax
    expense
    (recovery)              4,699       6,977       1,583       3,386       3,330
    Net profit
    (loss) from
    continuing
    operations          $   2,263   $  12,039   $     769   $   3,949   $   6,027
    Net profit
    (loss) from
    discontinued
    operations            497,385       2,802       3,245         804       5,583
    Net profit
    (loss)              $ 499,648   $  14,841   $   4,014   $   4,753   $  11,610
    Net profit
    (loss) from
    continuing
    operations
    attributable to
    Shareholders        $   2,822   $  12,146   $     152   $   3,951   $   6,027
    Non-controlling
    interest                (559)       (107)         617         (2)           -
    Net profit
    (loss)
    attributable to
    Shareholders        $ 500,207   $  14,948   $   3,397   $   4,755   $  11,610
    Non-controlling
    interest                (559)       (107)         617         (2)           -
    Earnings (loss)
    per share -
    continuing
    operations
             Basic      $    0.03   $    0.14   $     (2)   $    0.05   $    0.07
             Diluted    $    0.03   $    0.14   $     (2)   $    0.05   $    0.07
    Earnings (loss)
    per share
             Basic      $    5.89   $    0.18   $    0.04   $    0.06   $    0.14
             Diluted    $    5.82   $    0.18   $    0.04   $    0.06   $    0.14
    Cash dividends
    declared per
    share               $    0.00   $    0.00   $    0.00   $    0.00   $    0.00
    Total assets (i)    $   2,412   $   1,710   $   1,733   $   1,660   $   1,716
    Total long-term
    liabilities (i)     $     695   $     269   $     682   $     461   $     472
    Operating profit
    (loss) from
    continuing
    operations          $  10,459   $  20,987   $   5,574   $   8,939   $  12,171
    Depreciation and
    amortization
    (ii)                   20,211      24,346      20,588      13,160      22,172
    EBITDA from
    continuing
    operations (iii)    $  30,670   $  45,333   $  26,162   $  22,099   $  34,343



            (expressed in thousands of United States dollars except per share
                           amounts and where otherwise noted)
                                       (unaudited)
                                                                  Three         Three
                                                                 months        months
                                                                  ended         ended
                             2012        2012        2012     April 30,     April 30,
                               Q4          Q3          Q2          2013          2012
    Sales               $ 102,232   $  36,239   $  89,608   $   108,837   $    89,009
    Cost of sales          72,783      34,112      67,613        81,535        70,099
    Gross margin           29,449       2,127      21,995        27,302        18,910
    Gross margin (%)        28.8%        5.9%       24.5%         25.1%         21.2%
    Selling, general
    and
    administrative
    expenses                5,464       5,390       5,709        16,843         6,739
    Operating profit
    (loss) from
    continuing
    operations             23,985     (3,263)      16,286        10,459        12,171
    Finance expenses      (1,616)     (2,691)     (3,787)       (3,994)       (2,242)
    Exploration
    costs                   (177)       (600)       (781)       (1,039)         (254)
    Finance and
    other income               51         256          78           804            52
    Foreign exchange
    gain (loss)               680         285         846           732         (370)
    Profit (loss)
    before income
    taxes from
    continuing
    operations             22,923     (6,013)      12,642         6,962         9,357
    Income tax
    expense
    (recovery)             10,281     (1,574)       4,517        4, 699         3,330
    Net profit
    (loss) from
    continuing
    operations          $  12,642   $ (4,439)   $   8,125   $     2,623   $     6,027
    Net profit
    (loss) from
    discontinued
    operations              3,946       (292)       1,863       497,385         5,583
    Net profit
    (loss)              $  16,588   $ (4,731)   $   9,988   $   499,648   $    11,610
    Net profit
    (loss) from
    continuing
    operations
    attributable to
    Shareholders        $  12,654   $ (4,436)   $   8,123   $     2,822   $     6,027
    Non-controlling
    interest                 (12)         (3)           2         (559)             -
    Net profit
    (loss)
    attributable to
    Shareholders        $  16,600   $ (4,728)   $   9,986   $   500,207   $    11,610
    Non-controlling
    interest                 (12)         (3)           2         (559)             -
    Earnings (loss)
    per share -
    continuing
    operations
             Basic      $    0.15   $  (0.05)   $    0.10   $      0.03   $      0.07
             Diluted    $    0.15   $  (0.05)   $    0.09   $      0.03   $      0.07
    Earnings (loss)
    per share
             Basic      $    0.20   $  (0.06)   $    0.12   $      5.89   $      0.14
             Diluted    $    0.19   $  (0.06)   $    0.12   $      5.82   $      0.14
    Cash dividends
    declared per
    share               $    0.00   $    0.00   $    0.00   $      0.00   $      0.00
    Total assets (i)    $   1,607   $   1,656   $   1,671   $     2,412   $     1,716
    Total long-term
    liabilities (i)     $     641   $     661   $     633   $       695   $       472
    Operating profit
    (loss) from
    continuing
    operations          $  23,985   $ (3,263)   $  16,286   $    10,459   $    12,171
    Depreciation and
    amortization
    (ii)                   24,284      19,933      17,461        20,211        22,172
    EBITDA from
    continuing
    operations (iii)    $  48,269   $  16,670   $  33,747   $    30,670   $    34,343


      (i)      Total assets and total long-term liabilities are expressed in
                           millions of United States dollars.
     (ii)         Depreciation and amortization included in cost of sales and
                     selling, general and administrative expenses.
    (iii)          Earnings before interest, taxes, depreciation and amortization
                      ("EBITDA"). See "Non-IFRS Measures" on page 15.


Three Months Ended April 30, 2013 Compared to Three Months Ended April 30, 2012
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a first quarter consolidated net profit attributable to shareholders of $500.2 million or $5.89 per share compared to a net profit attributable to shareholders of $11.6 million or $0.14 per share in the first quarter of the prior year. Included in this amount is a $497.6 million gain on the sale of the luxury brand segment. Net profit from continuing operations attributable to shareholders was $2.8 million or $0.03 per share compared to $6.0 million or $0.07 per share in the comparable quarter of the prior year. Discontinued operations represented $497.4 million of net profit or $5.86 per share compared to $5.6 million or $0.07 per share in the first quarter of the prior year.

CONSOLIDATED SALES

Sales for the first quarter totalled $108.8 million, consisting of Diavik rough diamond sales of $88.9 million and Ekati rough diamond sales of $19.9 million. This compares to sales of $89.0 million in the comparable quarter of the prior year (Diavik rough diamond sales of $89.0 million and Ekati rough diamond sales of $nil). The Ekati rough diamond sales are for the period from April 10, 2013, which was the date the Ekati Diamond Mine Acquisition was completed, to April 30, 2013.

The Company expects that results for its mining operations will continue to fluctuate depending on the seasonality of production at its mineral properties, the number of sales events conducted during the quarter, rough diamond prices and the volume, size and quality distribution of rough diamonds delivered from the Company's mineral properties and sold by the Company in each quarter. See "Segmented Analysis" on page 8 for additional information.

CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's first quarter cost of sales was $81.5 million resulting in a gross margin of 25.1% compared to a cost of sales of $70.1 million and a gross margin of 21.2% for the comparable quarter of the prior year. The Company's cost of sales includes costs associated with mining and rough diamond sorting activities. See "Segmented Analysis" on page 8 for additional information.

CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $4.7 million during the first quarter, compared to a net income tax expense of $3.3 million in the comparable quarter of the prior year. The Company's combined federal and provincial statutory income tax rate for the quarter is 26.5%.  There are a number of items that can significantly impact the Company's effective tax rate, including foreign currency exchange rate fluctuations, the Northwest Territories mining royalty, and earnings subject to tax different than the statutory rate.  As a result, the Company's recorded tax provision can be significantly different than the expected tax provision calculated based on the statutory tax rate.

The recorded tax provision is particularly impacted by foreign currency exchange rate fluctuations.  The Company's functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. During the first quarter, the Canadian dollar weakened against the US dollar. As a result, the Company recorded an unrealized foreign exchange gain of $1.8 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange loss of $3.0 million in the comparable quarter of the prior year. The unrealized foreign exchange gain is recorded as part of the Company's deferred income tax recovery, and is not taxable for Canadian income tax purposes. During the first quarter, the Company also recognized a deferred income tax expense of $3.1 million for temporary differences arising from the difference between the historical exchange rate and the current exchange rate translation of foreign currency non-monetary items.  This compares to a deferred income tax recovery of $1.5 million recognized in the comparable quarter of the prior year.  The recorded tax provision during the quarter also included a net income tax recovery of $1.2 million relating to foreign exchange differences between income in the currency of the country of origin and US dollars.  This compares to a net income tax recovery of $1.9 million recognized in the comparable quarter of the prior year.

Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company's effective tax rate will fluctuate in future periods.

CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of selling, general and administrative ("SG&A") expenses include expenses for salaries and benefits, professional fees, consulting and travel. The Company incurred SG&A expenses of $16.8 million for the first quarter, compared to $6.7 million in the comparable quarter of the prior year. The increase from the comparable quarter of the prior year was primarily due to $11.3 million of transaction costs related to the Ekati Diamond Mine Acquisition. See "Segmented Analysis" on page 8 for additional information.

CONSOLIDATED FINANCE EXPENSES FROM CONTINUING OPERATIONS
Finance expenses for the first quarter were $4.0 million compared to $2.2 million for the comparable quarter of the prior year. Also included in consolidated finance expense is accretion expense of $2.2 million (three months ended April 30, 2012 - $0.7 million) related to the Diavik Diamond Mine's and Ekati Diamond Mine's future site restoration liabilities.

CONSOLIDATED EXPLORATION EXPENSE FROM CONTINUING OPERATIONS
Exploration expense of $1.0 million was incurred during the first quarter compared to $0.3 million in the comparable quarter of the prior year.

CONSOLIDATED FINANCE AND OTHER INCOME FROM CONTINUING OPERATIONS
Finance and other income of $0.8 million was recorded during the first quarter compared to $0.1 million in the comparable quarter of the prior year.

CONSOLIDATED FOREIGN EXCHANGE FROM CONTINUING OPERATIONS
A net foreign exchange gain of $0.7 million was recognized during the first quarter compared to a net foreign exchange loss of $0.4 million in the comparable quarter of the prior year. The Company does not currently have any significant foreign exchange derivative instruments outstanding.

Segmented Analysis
The operating segments of the Company include the Diavik Diamond Mine, the Ekati Diamond Mine and Corporate segments. The Corporate segment captures costs not specifically related to operating the Diavik and Ekati mines.

Diavik Diamond Mine
This segment includes the production, sorting and sale of rough diamonds from the Diavik Diamond Mine.


    (expressed in thousands of United States dollars)
    (unaudited)
                           2014        2013       2013       2013       2013
                             Q1          Q4         Q3         Q2         Q1
    Sales
            North
            America    $  6,179   $   4,604   $  7,697   $  2,269   $  7,432
            Europe       61,642      84,346     57,438     50,514     54,370
            India        21,095      21,161     19,683      8,690     27,207
    Total sales          88,916     110,111     84,818     61,473     89,009
    Cost of sales        61,888      79,038     71,663     46,784     70,099
    Gross margin         27,028      31,073     13,155     14,689     18,910
    Gross margin
    (%)                   30.4%       28.2%      15.5%      23.9%      21.2%
    Selling,
    general and
    administrative
    expenses              1,110       1,860      1,279      1,050        972
    Operating
    profit (loss)      $ 25,918   $  29,213   $ 11,876   $ 13,639   $ 17,938
    Depreciation
    and
    amortization (i)     19,906      24,042     20,283     12,874     21,876
    EBITDA (ii)        $ 45,824   $  53,255   $ 32,159   $ 26,513   $ 39,814



    (expressed in thousands of United States dollars)
    (unaudited)
                                                              Three         Three
                                                             months        months
                                                              ended         ended
                           2012       2012       2012     April 30,     April 30,
                             Q4         Q3         Q2          2013          2012
    Sales
            North
            America   $   2,727   $  8,835   $    447   $     6,179   $     7,432
            Europe       78,846     21,993     80,131        61,642        54,370
            India        20,659      5,411      9,030        21,095        27,207
    Total sales         102,232     36,239     89,608        88,916        89,009
    Cost of sales        72,783     34,112     67,613        61,888        70,099
    Gross margin         29,449      2,127     21,995        27,028        18,910
    Gross margin
    (%)                   28.8%       5.9%      24.5%         30.4%         21.2%
    Selling,
    general and
    administrative
    expenses              1,308      1,026        889         1,110           972
    Operating
    profit (loss)     $  28,141   $  1,101   $ 21,106   $    25,918   $    17,938
    Depreciation
    and
    amortization
    (i)                  23,849     19,709     17,172        19,906        21,865
    EBITDA (ii)       $  51,990   $ 20,810   $ 38,278   $    45,824   $    39,803


    (i)        Depreciation and amortization included in cost of sales and
                     selling, general and administrative expenses.
    (ii)      Earnings before interest, taxes, depreciation and amortization
                    ("EBITDA"). See "Non-IFRS Measure" on page 15.


Three Months Ended April 30, 2013 Compared to Three Months Ended April 30, 2012
DIAVIK SALES
During the first quarter, the Company sold approximately 0.78 million carats from the Diavik Diamond Mine for a total of $88.9 million for an average price per carat of $114 compared to 1.0 million carats for a total of $89.0 million for an average price per carat of $88 in the comparable quarter of the prior year. The 29% increase in the Company's achieved average rough diamond prices and the 23% decrease in volume of carats sold versus the prior quarter resulted primarily from the sale during the first quarter of the prior year of almost all of the remaining lower priced goods originally held back in inventory by the Company at October 31, 2011 due to an oversupply in the market at that time.

Had the Company sold only the last production shipped in the first quarter, the estimated achieved price would have been approximately $125 per carat based on the prices achieved in the May 2013 sale.

DIAVIK COST OF SALES AND GROSS MARGIN
The Company's first quarter cost of sales for the Diavik Diamond Mine was $61.9 million resulting in a gross margin of 30.4% compared to a cost of sales of $70.1 million and a gross margin of 21.2% in the comparable quarter of the prior year. Cost of sales for the first quarter included $19.5 million of depreciation and amortization compared to $21.5 million in the comparable quarter of the prior year. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices.

A substantial portion of consolidated cost of sales is mining operating costs, which are incurred at the Diavik Diamond Mine. During the first quarter, the Diavik cash cost of production was $42.9 million compared to $44.0 million in the comparable quarter of the prior year. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.

The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Diavik Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is 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. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Diavik Diamond Mine's cost of sales disclosed for the three months ended April 30, 2013 and 2012.

    (expressed in thousands of        Three months ended    Three months ended
    United States dollars)                April 30, 2013        April 30, 2012
    Diavik cash cost of production           $    42,919           $    44,036
    Private royalty                                1,194                 2,638
    Other cash costs                               1,070                 1,429
    Total cash cost of production                 45,183                48,103
    Depreciation and amortization                 22,909                13,772
    Total cost of production                      68,092                61,875
    Adjusted for stock movements                 (6,204)                 8,225
    Total cost of sales                      $    61,888           $    70,100


DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Diavik Diamond Mine segment was $1.1 million compared to $1.0 million in the comparable period of the prior year.

OPERATIONAL UPDATE
Production for first calendar quarter at the Diavik Diamond Mine was 1.9 million carats at 100%.  Total production includes reprocessed plant rejects ("RPR"), which are not included in the Company's reserves and resource statement and are therefore incremental to production. Rough diamond production was 21% higher than the prior calendar quarter due primarily to improved grades in each of the kimberlite pipes.

DOMINION DIAMOND DIAVIK LIMITED PARTNERSHIP'S 40% SHARE OF DIAVIK DIAMOND MINE PRODUCTION
(reported on a one-month lag)

    For the three months ended March 31, 2013
                                          Ore Processed   Carats          Grade
    Pipe                                  (000s tonnes)   (000s)  (carats/tonne)
    A-154 South                                    60      282             4.71
    A-154 North                                    70      162             2.32
    A-418                                          71      291             4.11
    RPR                                             1       43                -
    Total                                         202      778             3.67(a)
    (a) Grade has been adjusted to exclude RPR

    For the three months ended March 31, 2012
                                          Ore Processed   Carats          Grade
    Pipe                                  (000s tonnes)   (000s)  (carats/tonne)
    A-154 South                                    15       49             3.24
    A-154 North                                    40       70             1.73
    A-418                                         155      491             3.17
    RPR                                             1       32                -
    Total                                         211      642             2.90(a)
    (a) Grade has been adjusted to exclude RPR


Diavik Operations Outlook
PRODUCTION
A mine plan and budget for calendar 2013 has been approved by Rio Tinto plc ("Rio Tinto") and the Company. The plan for calendar 2013, which originally included Diavik Diamond Mine production of approximately 6 million carats, currently foresees production of approximately 6.6 million carats from the mining and processing of approximately 1.6 million tonnes of ore and the processing of approximately 2.0 million tonnes of material from both mining and stockpiles. The approximately 11% increase in carats in expected production for calendar 2013, as compared to the previously disclosed plan, relates primarily to the processing of more stockpiled ore during the calendar year.  Mining activities will be exclusively underground with approximately 0.7 million tonnes expected to be sourced from A-154 North, approximately 0.4 million tonnes from A-154 South and approximately 0.5 million tonnes from A-418 kimberlite pipes. Included in the estimated production for calendar 2013 is approximately 0.4 million carats from RPR and 0.2 million carats from the improved recovery process for small diamonds. These RPR and small diamond recoveries are not included in the Company's reserves and resource statement and are therefore incremental to production.

Rio Tinto is continuing its strategic review of its diamond business. It is currently anticipated that a decision to develop the A-21 kimberlite pipe will await a new operating owner for the 60% Diavik interest currently held by Rio Tinto.

PRICING
Based on prices from the Company's rough diamond sales during the first quarter and the current diamond recovery profile of the Diavik processing plant, the Company has modeled the current approximate rough diamond price per carat for each of the Diavik ore types in the table that follows:

                      Sales cycle ended
                               May 2013

                      average price per
                                  carat
    Ore type            (in US dollars)
    A-154 South     $               140
    A-154 North                     180
    A-418                           100
    RPR                              50


COST OF SALES AND CASH COST OF PRODUCTION
The Company currently expects cost of sales for the Diavik Diamond Mine in fiscal 2014 to be approximately $285 million (including depreciation and amortization of approximately $90 million). The Company's share of the cash cost of production at the Diavik Diamond Mine for calendar 2013 is expected to be approximately $175 million at an assumed average Canadian/US dollar exchange rate of $1.00.

CAPITAL EXPENDITURES
During fiscal 2014, DDDLP's 40% share of the planned capital expenditures for the Diavik Diamond Mine is expected to be approximately $28 million at an assumed average Canadian/US dollar exchange rate of $1.00. During the first quarter, DDDLP's share of capital expenditures was $10.2 million.

Ekati Diamond Mine
This segment includes the production, sorting and sale of rough diamonds from the Ekati Diamond Mine.


                      (expressed in thousands of United States dollars)
                                         (unaudited)
                             2013         2012         2012         2012         2012
                               Q1           Q4           Q3           Q2           Q1
    Sales
    North America        $      -       $    -       $    -       $    -       $    -
    Europe                 19,921            -            -            -            -
    India                       -            -            -            -            -
    Total sales            19,921            -            -            -            -
    Cost of sales          19,647            -            -            -            -
    Gross margin              274            -            -            -            -
    Gross margin
    (%)                      1.4%           -%           -%           -%           -%
    Selling,
    general and
    administrative
    expenses                  520            -            -            -            -
    Operating
    profit (loss)        $  (246)       $    -       $    -       $    -       $    -
    Depreciation
    and
    amortization
    (i)                         -            -            -            -            -
    EBITDA (ii)          $  (246)       $    -       $    -       $    -       $    -



                             (expressed in thousands of United States dollars)
                                                (unaudited)
                                                    Three        Three
                                                    months       months
                                                    ended        ended
                      2011     2011    2011       April 30,     April 30,
                        Q4       Q3      Q2         2013          2012
    Sales
    North America   $    -   $    -  $    -        $     -       $     -
    Europe               -        -       -         19,921             -
    India                -        -       -              -             -
    Total sales          -        -       -         19,921             -
    Cost of sales        -        -       -         19,647             -
    Gross margin         -        -       -            274             -
    Gross margin
    (%)                  -%       -%      -%           1.4%            -%
    Selling,
    general and
    administrative
    expenses             -        -       -            520             -
    Operating
    profit (loss)   $    -   $    -  $    -        $  (246)      $     -
    Depreciation
    and
    amortization
    (i)                  -        -       -              -             -
    EBITDA (ii)     $    -   $    -  $    -        $  (246)      $     -


    (i)    Depreciation and amortization included in cost of sales and selling,
             general and administrative expenses. All sales are related to
          inventory purchased as a part of the Ekati Diamond Mine Acquisition,
                and accordingly are accounted for as cash cost of sales.
    (ii)     Earnings before interest, taxes, depreciation and amortization
                     ("EBITDA"). See "Non-IFRS Measure" on page 15.


Period from April 10 to April 30, 2013
EKATI SALES
During the period from April 10 to April 30, 2013, the Company sold approximately 0.01 million carats from the Ekati Diamond Mine for a total of $19.9 million for an average price per carat of $1,620. The above-average achieved price per carat resulted from the timing of Ekati sales. Sales in April consisted only of Ekati's high value, high quality diamonds. Had the Company sold only the last production shipped in the first quarter, the estimated achieved price would have been approximately $350 per carat based on the prices achieved in the May 2013 sale.

EKATI COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Ekati Diamond Mine for the period from April 10 to April 30, 2013, was $19.6 million, resulting in a gross margin of 1.4%. Cost of sales for the first quarter reflected the purchase of inventory at market values as part of the Ekati Diamond Mine Acquisition. Cost of sales would have been approximately $13 million excluding the market value adjustment made as part of the Ekati Diamond Mine Acquisition. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices and the sale of inventory purchased at market values as part of the Ekati Diamond Mine Acquisition.

A substantial portion of consolidated cost of sales is mining operating costs, which are incurred at the Ekati Diamond Mine. During the period from April 10 to April 30, 2013, the Ekati cash cost of production was $17.4 million. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.

The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Ekati Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is 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. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Ekati Diamond Mine's operations' cost of sales disclosed for the period April 10 to April 30, 2013.

                                                           Period April 10 to
    (expressed in thousands of United States dollars)          April 30, 2013
    Ekati cash cost of production                        $             17,381
    Other cash costs including inventory acquisition                  134,647
    Total cash cost of production                                     152,028
    Depreciation and amortization                                       6,544
    Total cost of production                                          158,572
    Adjusted for stock movements                                    (138,925)
    Total cost of sales                                  $             19,647


EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Ekati Diamond Mine segment were $0.5 million.

Ekati Operations Outlook
PRODUCTION
A new mine plan and budget for the Ekati Diamond Mine for the next operating period is currently under review. This plan foresees production (on a 100% basis) for the period from April 10, 2013 (the date of acquisition by the Company of its interest in the Ekati Diamond Mine) to the calendar 2013 year-end of approximately 1.0 million carats from the mining of approximately 3.5 million tonnes from mineral reserve, and the processing of approximately 3.9 million tonnes, with the additional material being made up of diamond bearing kimberlite from a satellite body in the Misery open pit that is excavated as part of the waste stripping as the pit profile is advanced.

PRICING
Based on prices from the Company's rough diamond sales during April and the current diamond recovery profile of the Ekati processing plant, the Company has modeled the current approximate rough diamond price per carat for each of the Ekati ore types in the table that follows:

                        Sales cycle ended
                                 May 2013

                        average price per
                                    carat
    Ore type              (in US dollars)
    Koala Phase 5     $               370
    Koala Phase 6                     430
    Koala North                       450
    Fox                               325


COST OF SALES AND CASH COST OF PRODUCTION
The Company currently expects cost of sales at the Ekati Diamond Mine in fiscal 2014 to be approximately $405 million (including depreciation and amortization of approximately $40 million). The cash cost of production at the Ekati Diamond Mine for fiscal 2014 is expected to be approximately $320 million at an assumed average Canadian/US dollar exchange rate of $1.00.

CAPITAL EXPENDITURES
During fiscal 2014, the planned capital expenditures for the Ekati Diamond Mine are expected to be approximately $85 million at an assumed average Canadian/US dollar exchange rate of $1.00. During the period April 10 to April 30, capital expenditures were approximately $8.8 million.

Corporate

The corporate segment captures costs not specifically related to the operations of the Diavik and Ekati diamond mines.


                  (expressed in thousands of United States dollars)
                                     (unaudited)
                           2014        2013        2013        2013        2013
                             Q1          Q4          Q3          Q2          Q1
    Sales            $        -   $       -   $       -   $       -   $       -
    Cost of sales             -           -           -           -           -
    Gross margin              -           -           -           -           -
    Gross margin
    (%)                      -%          -%          -%          -%          -%
    Selling,
    general and
    administrative
    expenses             15,213       8,227       6,302       4,700       5,767
    Operating loss   $ (15,213)   $ (8,227)   $ (6,302)   $ (4,700)   $ (5,767)
    Depreciation
    and
    amortization
    (i)                     305         304         306         286         296
    EBITDA (ii)      $ (14,908)   $ (7,923)   $ (5,996)   $ (4,414)   $ (5,471)



                   (expressed in thousands of United States dollars)
                                      (unaudited)
                                                                 Three         Three
                                                                months        months
                                                                 ended         ended
                            2012        2012        2012     April 30,     April 30,
                              Q4          Q3          Q2          2013          2012
    Sales              $       -   $       -   $       -   $         -   $         -
    Cost of sales              -           -           -             -             -
    Gross margin               -           -           -             -             -
    Gross margin
    (%)                       -%          -%          -%            -%            -%
    Selling,
    general and
    administrative
    expenses               4,153       4,364       4,820        15,213         5,767
    Operating loss     $ (4,153)   $ (4,364)   $ (4,820)   $  (15,213)   $   (5,767)
    Depreciation
    and
    amortization
    (i)                      434         223         289           305           296
    EBITDA (ii)        $ (3,719)   $ (4,141)   $ (4,531)   $  (14,908)   $   (5,471)


    (i)         Depreciation and amortization included in cost of sales and
                     selling, general and administrative expenses.
    (ii)      Earnings before interest, taxes, depreciation and amortization
                    ("EBITDA"). See "Non-IFRS Measure" on page 15.


Three Months Ended April 30, 2013 Compared to Three Months Ended April 30, 2012
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the corporate segment increased by $9.5 million from the comparable quarter of the prior year primarily due to $11.3 million of transaction costs related to the Ekati Diamond Mine Acquisition.

Discontinued Operations
On March 26, 2013, the Company completed the disposition of the Luxury Brand Segment to Swatch Group. As a result of the Luxury Brand Divestiture, the Company's consolidated results no longer include the operations of the Luxury Brand Segment and the results of the Luxury Brand Segment are now treated as discontinued operations for reporting purposes. Current and prior period results have been restated to reflect this change.

Liquidity and Capital Resources
Working Capital
As at April 30, 2013, the Company had unrestricted cash and cash equivalents of $231.2 million and restricted cash of $125.7 million compared to $104.3 million and $nil at January 31, 2013. The restricted cash is used to support letters of credit to the Government of Canada of $126 million in support of the reclamation obligations for the Ekati Diamond Mine. During the quarter ended April 30, 2013, the Company reported a use of cash from operations of $9.5 million compared to a source of cash of $24.9 million in the comparable period of the prior year.

Working capital increased to $470.4 million at April 30, 2013 from $361.5 million at January 31, 2013. During the quarter, the Company increased accounts receivable from continuing operations by $3.2 million, decreased other current assets from continuing operations by $1.8 million, increased inventory and supplies from continuing operations by $31.0 million, increased trade and other payables from continuing operations by $4.7 million and decreased employee benefit plans from continuing operations by $1.0 million.

The Company's liquidity requirements fluctuate from quarter to quarter depending on, among other factors, the seasonality of production at the Company's mineral properties, seasonality of mine operating expenses, capital expenditure programs, the number of rough diamond sales events conducted during the quarter, and the volume, size and quality distribution of rough diamonds delivered from the Company's mineral properties and sold by the Company in each quarter.

The Company assesses liquidity and capital resources on a consolidated basis. The Company's requirements are for cash operating expenses, working capital, contractual debt requirements and capital expenditures. The Company believes that it will generate sufficient liquidity to meet its anticipated requirements for the next twelve months.

Financing Activities
The Company maintains a senior secured revolving credit facility with Standard Chartered Bank. At April 30, 2013, $50.0 million was outstanding. On May 31, 2013, the Company repaid the $50.0 million outstanding.

In connection with the Ekati Diamond Mine Acquisition, the Company arranged new secured credit facilities with The Royal Bank of Canada and Standard Chartered Bank consisting of a $400 million term loan, a $100 million revolving credit facility and a $140 million letter of credit facility (expandable to $265 million in aggregate). The Ekati Diamond Mine Acquisition was completed on April 10, 2013.  The Company ultimately determined to fund the Ekati Diamond Mine Acquisition by way of cash on hand and did not draw on these new facilities.

As at April 30, 2013, $27.9 million and $nil was outstanding under the Company's revolving financing facility relating to its Belgian subsidiary, Dominion Diamond International NV, and its Indian subsidiary, Dominion Diamond (India) Private Limited, respectively, compared to $nil and $1.1 million at January 31, 2013.

Investing Activities
During the fiscal quarter, the Company purchased property, plant and equipment of $19.7 million for its continuing operations, of which $10.9 million was purchased for the Diavik Diamond Mine and $8.8 million for the Ekati Diamond Mine.

Contractual Obligations
The Company has contractual payment obligations with respect to interest-bearing loans and borrowings and, through its participation in the Diavik Joint Venture and the Ekati Diamond Mine, future site restoration costs at both the Ekati and Diavik Diamond Mine level. Additionally, at the Diavik Joint Venture level, contractual obligations exist with respect to operating purchase obligations, as administered by DDMI, the operator of the mine. In order to maintain its 40% ownership interest in the Diavik Diamond Mine, DDDLP is obligated to fund 40% of the Diavik Joint Venture's total expenditures on a monthly basis. Not reflected in the table below are capital expenditures for the calendar years 2013 to 2017 of approximately $70 million assuming a Canadian/US average exchange rate of $1.00 for each of the five years relating to DDDLP's current projected share of the planned capital expenditures (excluding the A-21 pipe) at the Diavik Diamond Mine. Also not reflected are capital expenditures for Ekati Diamond Mine. The most significant contractual obligations for the ensuing five-year period can be summarized as follows:


        CONTRACTUAL
        OBLIGATIONS

    (expressed in
    thousands of United                Less than      Year     Year      After
    States dollars)           Total       1 year       2-3      4-5    5 years
    Interest-bearing
    loans and borrowings
    (a)(b)                $  84,675  $    79,291  $  2,438  $ 2,438  $     508
    Environmental and
    participation
    agreements
    incremental
    commitments (c)         217,450      208,017     4,768        -      4,665
    Operating lease
    obligations (d)          19,234        4,950    10,115    4,169          -
    Total contractual
    obligations           $ 321,359  $   292,258  $ 17,321  $ 6,607  $   5,173


    (a)  (i) Interest-bearing loans and borrowings presented in the foregoing
         table include current and long-term portions. The Company maintains a
         senior secured revolving credit facility with Standard Chartered Bank
         for $125.0 million. The facility has an initial maturity date of June
         24, 2013, with two one-year extensions at the Company's option. There
         are no scheduled repayments required before maturity. At April 30,
         2013, $50.0 million was outstanding, and was subsequently repaid on
         May 31, 2013. In connection with the Ekati Diamond Mine Acquisition,
         the Company arranged new secured credit facilities with The Royal
         Bank of Canada and Standard Chartered Bank consisting of a $400
         million term loan, a $100 million revolving credit facility and a
         $140 million letter of credit facility (expandable to $265 million in
         aggregate). The Ekati Diamond Mine Acquisition was completed on April
         10, 2013. The Company ultimately determined to fund the Ekati Diamond
         Mine Acquisition by way of cash on hand and did not draw on these new
         facilities.

         (ii) The Company has available a $45.0 million revolving financing
         facility (utilization in either US dollars or Euros) with Antwerp
         Diamond Bank for inventory and receivables funding in connection with
         marketing activities through its Belgian subsidiary, Dominion Diamond
         International NV, and its Indian subsidiary, Dominion Diamond (India)
         Private Limited. Borrowings under the Belgian facility bear interest
         at the bank's base rate plus 1.5%. Borrowings under the Indian
         facility bear an interest rate of 13.5%. At April 30, 2013, $27.9
         million and $nil was outstanding under this facility relating to
         Dominion Diamond International NV and Dominion Diamond (India)
         Private Limited, respectively. The facility is guaranteed by Dominion
         Diamond Corporation.

         (iii) The Company's first mortgage on real property has scheduled
         principal payments of approximately $0.2 million quarterly, may be
         prepaid at any time, and matures on September 1, 2018. On April 30,
         2013, $5.4 million was outstanding on the mortgage payable.

    (b)  Interest on loans and borrowings is calculated at various fixed and
         floating rates. Projected interest payments on the current debt
         outstanding were based on interest rates in effect at April 30, 2013,
         and have been included under interest-bearing loans and borrowings in
         the table above. Interest payments for the next twelve months are
         approximated to be $0.2 million.

    (c)  Both the Diavik Joint Venture and Ekati Diamond Mine, under
         environmental and other agreements, must provide funding for the
         Environmental Monitoring Advisory Board. These agreements also state
         that the mines must provide security deposits for the performance of
         their reclamation and abandonment obligations under all environmental
         laws and regulations. The operator of the Diavik Joint Venture has
         fulfilled such obligations for the security deposits by posting
         letters of credit, of which DDDLP's share as at April 30, 2013 was
         $82.0 million based on its 40% ownership interest in the Diavik
         Diamond Mine. There can be no assurance that the operator will
         continue its practice of posting letters of credit in fulfillment of
         this obligation, in which event DDDLP would be required to post its
         proportionate share of such security directly, which would result in
         additional constraints on liquidity. The requirement to post security
         for the reclamation and abandonment obligations may be reduced to the
         extent of amounts spent by the Diavik Joint Venture on those
         activities. The Company has posted letter of credits of $126 million
         with the Government of Canada supported by restricted cash in support
         of the reclamation obligations for the Ekati Diamond Mine. Both the
         Diavik and Ekati Diamond Mines have also signed participation
         agreements with various native groups. These agreements are expected
         to contribute to the social, economic and cultural well-being of area
         Aboriginal bands. The actual cash outlay for obligations under these
         agreements is not anticipated to occur until later in the life of the
         mines.

    (d)  Operating lease obligations represent future minimum annual rentals
         under non-cancellable operating leases at the Ekati Diamond Mine.


Non-IFRS Measures
In addition to discussing earnings measures in accordance with IFRS, the MD&A provides the following non-IFRS measures, which are also used by management to monitor and evaluate the performance of the Company.

Cash Cost of Production
The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well each of the Diavik Diamond Mine and Ekati Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is 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. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS.

EBITDA
The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have a standardized meaning according to IFRS and therefore may not be comparable to similar measures presented by other issuers. The Company defines EBITDA as sales minus cost of sales and selling, general and administrative expenses, meaning it represents operating profit before depreciation and amortization.

EBITDA is a measure commonly reported and widely used by investors and analysts as an indicator of the Company's operating performance and ability to incur and service debt and as a valuation metric. EBITDA margin is defined as the ratio obtained by dividing EBITDA by sales.

CONSOLIDATED


                         (expressed in thousands of United States dollars)
                                            (unaudited)
                           2014           2013           2013           2013         2013
                             Q1             Q4             Q3             Q2           Q1
    Operating
    profit
    (loss) from
    continuing
    operations         $ 10,459       $ 20,987       $  5,574       $  8,939     $ 12,171
    Depreciation
    and
    amortization         20,211         24,346         20,588         13,160       22,172
    EBITDA from
    continuing
    operations         $ 30,670       $ 45,333       $ 26,162       $ 22,099     $ 34,343



                             (expressed in thousands of United States dollars)
                                                (unaudited)
                                                         Three             Three
                                                         months            months
                                                         ended             ended
                        2012       2012       2012      April 30,         April 30,
                          Q4         Q3         Q2        2013              2012
    Operating
    profit
    (loss) from
    continuing
    operations      $ 23,985   $ (3,263)  $ 16,286    $  10,459         $  12,171
    Depreciation
    and
    amortization      24,284      19,933    17,461       20,211            22,172
    EBITDA from
    continuing
    operations      $ 48,269   $  16,670  $ 33,747    $  30,670         $  34,343


DIAVIK DIAMOND MINE SEGMENT


                (expressed in thousands of United States dollars)
                                   (unaudited)
                            2014       2013       2013       2013       2013
                              Q1         Q4         Q3         Q2         Q1
    Operating profit    $ 25,918   $ 29,213   $ 11,876   $ 13,639   $ 17,938
    Depreciation and
    amortization          19,906     24,042     20,283     12,874     21,876
    EBITDA              $ 45,824   $ 53,255   $ 32,159   $ 26,513   $ 39,814



                (expressed in thousands of United States dollars)
                                   (unaudited)
                                                           Three         Three
                                                          months        months
                                                           ended         ended
                        2012       2012       2012     April 30,     April 30,
                          Q4         Q3         Q2          2013          2012
    Operating
    profit          $ 28,141   $  1,101   $ 21,106   $    25,918   $    17,938
    Depreciation
    and
    amortization      23,849     19,709     17,172        19,906        21,865
    EBITDA          $ 51,990   $ 20,810   $ 38,278   $    45,824   $    39,803


EKATI DIAMOND MINE SEGMENT


                (expressed in thousands of United States dollars)
                                   (unaudited)
                                    2014     2013     2013     2013     2013
                                      Q1       Q4       Q3       Q2       Q1
    Operating profit (loss)      $ (246)   $    -   $    -   $    -   $    -
    Depreciation and
    amortization                       -        -        -        -        -
    EBITDA                       $ (246)   $    -   $    -   $    -   $    -



                (expressed in thousands of United States dollars)
                                   (unaudited)
                                                           Three         Three
                                                          months        months
                                                           ended         ended
                            2012     2012     2012     April 30,     April 30,
                              Q4       Q3       Q2          2013          2012
    Operating profit
    (loss)                $    -   $    -   $    -   $     (246)   $         -
    Depreciation and
    amortization               -        -        -             -             -
    EBITDA                $    -   $    -   $    -   $     (246)   $         -


CORPORATE SEGMENT


                 (expressed in thousands of United States dollars)
                                    (unaudited)
                         2014        2013        2013        2013        2013
                           Q1          Q4          Q3          Q2          Q1
    Operating
    loss           $ (15,213)   $ (8,227)   $ (6,302)   $ (4,700)   $ (5,767)
    Depreciation
    and
    amortization          305         304         306         286         296
    EBITDA         $ (14,908)   $ (7,923)   $ (5,996)   $ (4,414)   $ (5,471)



                  (expressed in thousands of United States dollars)
                                     (unaudited)
                                                               Three         Three
                                                              months        months
                                                               ended         ended
                          2012        2012        2012     April 30,     April 30,
                            Q4          Q3          Q2          2013          2012
    Operating
    loss             $ (4,153)   $ (4,364)   $ (4,820)   $  (15,213)   $   (5,767)
    Depreciation
    and
    amortization           434         223         289           305           296
    EBITDA           $ (3,719)   $ (4,141)   $ (4,531)   $  (14,908)   $   (5,471)


 

Risks and Uncertainties
Dominion Diamond Corporation is subject to a number of risks and uncertainties as a result of its operations. In addition to the other information contained in this MD&A and the Company's other publicly filed disclosure documents, readers should give careful consideration to the following risks, each of which could have a material adverse effect on the Company's business prospects or financial condition.

Nature of Mining
The Company's mineral operations are subject to risks inherent in the mining industry, including variations in grade and other geological differences, unexpected problems associated with required water retention dikes, water quality, surface and underground conditions, processing problems, equipment performance, accidents, labour disputes, risks relating to the physical security of the diamonds, force majeure risks and natural disasters. Particularly with underground mining operations, inherent risks include variations in rock structure and strength as it impacts on mining method selection and performance, de-watering and water handling requirements, achieving the required crushed rock-fill strengths, and unexpected local ground conditions. Hazards, such as unusual or unexpected rock formations, rock bursts, pressures, collapses, flooding or other conditions, may be encountered during mining. Such risks could result in personal injury or fatality; damage to or destruction of mining properties, processing facilities or equipment; environmental damage; delays, suspensions or permanent reductions in mining production; monetary losses; and possible legal liability.

The Company's mineral properties, because of their remote northern location and access only by winter road or by air, are subject to special climate and transportation risks. These risks include the inability to operate or to operate efficiently during periods of extreme cold, the unavailability of materials and equipment, and increased transportation costs due to the late opening and/or early closure of the winter road. Such factors can add to the cost of mine development, production and operation and/or impair production and mining activities, thereby affecting the Company's profitability.

Nature of Interest in Diavik Diamond Mine
DDDLP holds an undivided 40% interest in the assets, liabilities and expenses of the Diavik Diamond Mine and the Diavik group of mineral claims. The Diavik Diamond Mine and the exploration and development of the Diavik group of mineral claims is a joint arrangement between DDMI (60%) and DDDLP (40%), and is subject to the risks normally associated with the conduct of joint ventures and similar joint arrangements. These risks include the inability to exert influence over strategic decisions made in respect of the Diavik Diamond Mine and the Diavik group of mineral claims, including the inability to control the timing and scope of capital expenditures, and risks that DDMI may change the mine plan. By virtue of DDMI's 60% interest in the Diavik Diamond Mine, it has a controlling vote in virtually all Diavik Joint Venture management decisions respecting the development and operation of the Diavik Diamond Mine and the development of the Diavik group of mineral claims. Accordingly, DDMI is able to determine the timing and scope of future project capital expenditures, and therefore is able to impose capital expenditure requirements on DDDLP that the Company may not have sufficient cash to meet. A failure to meet capital expenditure requirements imposed by DDMI could result in DDDLP's interest in the Diavik Diamond Mine and the Diavik group of mineral claims being diluted. Rio Tinto plc, the parent of DDMI, announced a review of its diamond operations in early 2012.

Diamond Prices and Demand for Diamonds
The profitability of the Company is dependent upon the Company's mineral properties and the worldwide demand for and price of diamonds. Diamond prices fluctuate and are affected by numerous factors beyond the control of the Company, including worldwide economic trends, worldwide levels of diamond discovery and production, and the level of demand for, and discretionary spending on, luxury goods such as diamonds. Low or negative growth in the worldwide economy, renewed or additional credit market disruptions, natural disasters or the occurrence of terrorist attacks or similar activities creating disruptions in economic growth could result in decreased demand for luxury goods such as diamonds, thereby negatively affecting the price of diamonds. Similarly, a substantial increase in the worldwide level of diamond production or the release of stocks held back during recent periods of low demand could also negatively affect the price of diamonds. In each case, such developments could have a material adverse effect on the Company's results of operations.

Cash Flow and Liquidity
The Company's liquidity requirements fluctuate from quarter to quarter and year to year depending on, among other factors, the seasonality of production at the Company's mineral properties, the seasonality of mine operating expenses, exploration expenses, capital expenditure programs, the number of rough diamond sales events conducted during the quarter, and the volume, size and quality distribution of rough diamonds delivered from the Company's mineral properties and sold by the Company in each quarter. The Company's principal working capital needs include investments in inventory, prepaid expenses and other current assets, and accounts payable and income taxes payable. There can be no assurance that the Company will be able to meet each or all of its liquidity requirements. A failure by the Company to meet its liquidity requirements could result in the Company failing to meet its planned development objectives, or in the Company being in default of a contractual obligation, each of which could have a material adverse effect on the Company's business prospects or financial condition.

Economic Environment
The Company's financial results are tied to the global economic conditions and their impact on levels of consumer confidence and consumer spending. The global markets have experienced the impact of a significant US and international economic downturn since autumn 2008. A return to a recession or weak recovery, due to recent disruptions in financial markets in the US, the Eurozone or elsewhere, budget policy issues in the US and political upheavals in the Middle East, could cause the Company to experience revenue declines due to deteriorated consumer confidence and spending, and a decrease in the availability of credit, which could have a material adverse effect on the Company's business prospects or financial condition. The credit facilities essential to the diamond polishing industry are largely underwritten by European banks that are currently under stress with the European sovereign debt issue. The withdrawal or reduction of such facilities could also have a material adverse effect on the Company's business prospects or financial condition. The Company monitors economic developments in the markets in which it operates and uses this information in its continuous strategic and operational planning in an effort to adjust its business in response to changing economic conditions.

Currency Risk
Currency fluctuations may affect the Company's financial performance. Diamonds are sold throughout the world based principally on the US dollar price, and although the Company reports its financial results in US dollars, a majority of the costs and expenses of the Company's mineral properties are incurred in Canadian dollars. Further, the Company has a significant deferred income tax liability that has been incurred and will be payable in Canadian dollars. The Company's currency exposure relates to expenses and obligations incurred by it in Canadian dollars. The appreciation of the Canadian dollar against the US dollar, therefore, will increase the expenses of the Company's mineral properties and the amount of the Company's Canadian dollar liabilities relative to the revenue the Company will receive from diamond sales. From time to time, the Company may use a limited number of derivative financial instruments to manage its foreign currency exposure.

Licences and Permits
The Company's mining operations require licences and permits from the Canadian and Northwest Territories governments. The Diavik Diamond Mine Type "A" Water Licence was renewed by the regional Wek'eezhii Land and Water Board to October 31, 2015. While the Company anticipates that DDMI, the operator of the Diavik Diamond Mine, will be able to renew this licence and other necessary permits in the future, there can be no guarantee that DDMI will be able to do so or obtain or maintain all other necessary licences and permits that may be required to maintain the operation of the Diavik Diamond Mine or to further explore and develop the Diavik property. While the Company anticipates it will be able to renew the necessary licences and permits for the Ekati Diamond Mine, there can be no guarantee that it will be able to do so or to obtain or maintain all other necessary licences and permits that may be required to maintain the operation of the Ekati Diamond Mine or to further explore and develop the Ekati property.

Regulatory and Environmental Risks
The operation of the Company's mineral properties are subject to various laws and regulations governing the protection of the environment, exploration, development, production, taxes, labour standards, occupational health, waste disposal, mine safety and other matters. New laws and regulations, amendments to existing laws and regulations, or more stringent implementation or changes in enforcement policies under existing laws and regulations could have a material adverse effect on the Company by increasing costs and/or causing a reduction in levels of production from the Company's mineral properties.

Mining is subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mining operations. To the extent that the Company's operations are subject to uninsured environmental liabilities, the payment of such liabilities could have a material adverse effect on the Company.

Climate Change
The Canadian government has established a number of policy measures in response to concerns relating to climate change. While the impact of these measures cannot be quantified at this time, the likely effect will be to increase costs for fossil fuels, electricity and transportation; restrict industrial emission levels; impose added costs for emissions in excess of permitted levels; and increase costs for monitoring and reporting. Compliance with these initiatives could have a material adverse effect on the Company's results of operations.

Resource and Reserve Estimates
The Company's figures for mineral resources and ore reserves are estimates, and no assurance can be given that the anticipated carats will be recovered. The estimation of reserves is a subjective process. Forecasts are based on engineering data, projected future rates of production and the timing of future expenditures, all of which are subject to numerous uncertainties and various interpretations. The Company expects that its estimates of reserves will change to reflect updated information as well as to reflect depletion due to production. Reserve estimates may be revised upward or downward based on the results of current and future drilling, testing or production levels, and on changes in mine design. In addition, market fluctuations in the price of diamonds or increases in the costs to recover diamonds from the Company's mineral properties may render the mining of ore reserves uneconomical.

Mineral resources that are not mineral reserves do not have demonstrated economic viability. Due to the uncertainty that may attach to inferred mineral resources, there is no assurance that mineral resources will be upgraded to proven and probable ore reserves.

Insurance
The Company's business is subject to a number of risks and hazards, including adverse environmental conditions, industrial accidents, labour disputes, unusual or unexpected geological conditions, risks relating to the physical security of diamonds held as inventory or in transit, changes in the regulatory environment, and natural phenomena such as inclement weather conditions. Such occurrences could result in damage to the Company's mineral properties, personal injury or death, environmental damage to the Company's mineral properties, delays in mining, monetary losses and possible legal liability. Although insurance is maintained to protect against certain risks in connection with the Company's mineral properties and the Company's operations, the insurance in place will not cover all potential risks. It may not be possible to maintain insurance to cover insurable risks at economically feasible premiums.

Fuel Costs
The expected fuel needs for the Company's mineral properties are purchased periodically during the year for storage, and transported to the mine site by way of the winter road. These costs will increase if transportation by air freight is required due to a shortened "winter road season" or unexpected high fuel usage.

The cost of the fuel purchased is based on the then prevailing price and expensed into operating costs on a usage basis. The Company's mineral properties currently have no hedges for their future anticipated fuel consumption.

Reliance on Skilled Employees
Production at the Company's mineral properties is dependent upon the efforts of certain skilled employees. The loss of these employees or the inability to attract and retain additional skilled employees may adversely affect the level of diamond production.

The Company's success in marketing rough diamonds is dependent on the services of key executives and skilled employees, as well as the continuance of key relationships with certain third parties, such as diamantaires. The loss of these persons or the Company's inability to attract and retain additional skilled employees or to establish and maintain relationships with required third parties may adversely affect its business and future operations in marketing diamonds.

Changes in Internal Control over Financial Reporting

Limitation on Scope of Design
Management has limited the scope of design of its disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures of entities acquired as part of the Ekati Diamond Mine Acquisition.

Since the acquisition was closed 20 days prior to the end of the first quarter of fiscal 2014, management was unable to adequately test the internal control systems in place. While management believes that internal controls were operating effectively, since it was unable to test these systems, it elected to exclude them from the scope of certification as allowed by NI 52-109. Management intends performing such testing by the end of fiscal 2014.

The chart below presents the summary financial information for entities acquired as part of the Ekati Diamond Mine Acquisition included in the Company's unaudited interim condensed consolidated financial statements:

    As at April 30, 2013
    Current assets             357,289
    Long-term assets           848,826
    Current liabilities         67,768
    Long-term liabilities      557,583


Critical Accounting Estimates
Management is often required to make judgments, assumptions and estimates in the application of IFRS that have a significant impact on the financial results of the Company. Certain policies are more significant than others and are, therefore, considered critical accounting policies. Accounting policies are considered critical if they rely on a substantial amount of judgment (use of estimates) in their application, or if they result from a choice between accounting alternatives and that choice has a material impact on the Company's financial performance or financial position.

The critical accounting estimates applied in the preparation of the Company's unaudited interim condensed consolidated financial statements are consistent with those applied and disclosed in the Company's MD&A for the year ended January 31, 2013.

Changes in Accounting Policies
The International Accounting Standards Board ("IASB") has issued a new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). IFRS 9 provides guidance on the classification and measurement of financial assets and financial liabilities. This standard becomes effective for the Company's fiscal year end beginning February 1, 2015. The Company is currently assessing the impact of the new standard on its financial statements.

(a) New Accounting Standards

(i) IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS
IFRS 10, "Consolidated Financial Statements" ("IFRS 10") replaces the consolidation requirements in SIC-12, "Consolidation - Special Purpose Entities" and IAS 27, "Consolidated and Separate Financial Statements". The new standard establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and provides guidance to assist in the determination of control where it is difficult to assess. IFRS 10 did not have a material impact on the Company's consolidated financial statements upon its adoption on February 1, 2013.

(ii) IFRS 11 - JOINT ARRANGEMENTS
IFRS 11, "Joint Arrangements" ("IFRS 11") replaces IAS 31, "Interest in Joint Ventures". The new standard applies to the accounting for interests in joint arrangements where there is joint control. Under IFRS 11, joint arrangements are classified as either joint ventures or joint operations. The structure of the joint arrangement will no longer be the most significant factor in determining whether a joint arrangement is either a joint venture or a joint operation. For a joint venture, proportionate consolidation will no longer be allowed and will be replaced by equity accounting. IFRS 11 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(iii) IFRS 13 - FAIR VALUE MEASURMENT
IFRS 13, "Fair Value Measurement" ("IFRS 13") generally makes IFRS consistent with generally accepted accounting principles in the United States ("US GAAP") on measuring fair value and related fair value disclosures. The new standard creates a single source of guidance for fair value measurements. The adoption of IFRS 13 did not have an effect on the Company's unaudited interim condensed consolidated financial statements. The disclosure requirements of IFRS 13 will be incorporated in the Company's annual consolidated financial statements for the year ended January 31, 2014. This will include disclosures about fair values of financial assets and liabilities measured on a recurring basis and non-financial assets and liabilities measured on a non-recurring basis. The Company will also include disclosures about assumptions used in calculating fair value less cost of disposal for its annual goodwill impairment test.

(iv) IFRIC 20 - STRIPPING COSTS IN THE PRODUCTION PHASE OF A SURFACE MINE
The International Financial Reporting Interpretations Committee ("IFRIC") issued IFRIC 20, "Stripping Costs in the Production Phase of a Surface Mine" ("IFRIC 20"), which clarifies the requirements for accounting for stripping costs associated with waste removal in surface mining, including when production stripping costs should be recognized as an asset, how the asset is initially recognized, and subsequent measurement. IFRIC 20 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(v) IAS 19 - EMPLOYEE BENEFITS
Amendments to IAS 19, "Employee Benefits" ("IAS 19") eliminates the option to defer the recognition of actuarial gains and losses through the "corridor" approach, revises the presentation of changes in assets and liabilities arising from defined benefit plans and enhances the disclosures for defined benefit plans. IAS 19 is effective for the Company's fiscal year end beginning February 1, 2013, with early adoption permitted. IAS 19 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(vi) IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS
Amendments to IAS 1, "Presentation of Financial Statements" ("IAS 1") have been adopted by the Company on February 1, 2013, with retrospective application. The amendments to IAS 1 require the grouping of items within other comprehensive income that may be reclassified to profit or loss and those that will not be reclassified. The Company has amended its consolidated statement of comprehensive income for all periods presented in these unaudited interim condensed consolidated financial statements to reflect the presentation changes required under the amended IAS 1. Since these changes are reclassifications within the statement of comprehensive income, there is no net impact on the Company's comprehensive income.

Outstanding Share Information

         As at MAY 31, 2013
    Authorized                          Unlimited
    Issued and outstanding shares      84,990,031
    Options outstanding                 2,036,000
    Fully diluted                      87,026,031


Additional Information
Additional information relating to the Company, including the Company's most recently filed Annual Information Form, can be found on SEDAR at http://www.sedar.com, and is also available on the Company's website at http://www.ddcorp.ca.

                       Condensed Consolidated Balance Sheets
           (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

                                       April 30, 2013          January 31, 2013
    ASSETS

    Current assets
             Cash and cash
             equivalents             $        231,245        $          104,313
             Accounts
             receivable                         8,044                     3,705
             Inventory and
             supplies (note
             5)                               439,786                   115,627
             Other current
             assets                            28,204                    29,486
             Assets held for
             sale (note 6)                          -                   718,804
                                              707,279                   971,935
    Property, plant and
    equipment                               1,519,568                   727,489
    Restricted cash (note 7)                  125,658                         -
    Goodwill                                   42,204                         -
    Other non-current assets                    9,810                     6,937
    Deferred income tax
    assets                                      7,112                     4,095
    Total assets                     $      2,411,631        $        1,710,456

    LIABILITIES AND EQUITY
    Current liabilities
             Trade and other
             payables                $        114,876        $           39,053
             Employee benefit
             plans (note 9)                     1,672                     2,634
             Income taxes
             payable                           41,842                    32,977
             Current portion
             of
             interest-bearing
             loans and
             borrowings (note
             10)                               78,526                    51,508
             Liabilities held
             for sale (note
             6)                                     -                   484,252
                                              236,916                   610,424
    Interest-bearing loans
    and borrowings (note 10)                    4,538                     4,799
    Deferred income tax
    liabilities                               238,687                   181,427
    Employee benefit plans
    (note 9)                                   23,000                     3,499
    Provisions (note 4)                       428,828                    79,055
    Total liabilities                         931,969                   879,204
    Equity
             Share capital                    508,401                   508,007
             Contributed
             surplus                           21,423                    20,387
             Retained
             earnings                         795,945                   295,738
             Accumulated
             other
             comprehensive
             income                               893                     6,357
             Total
             shareholders'
             equity                         1,326,662                   830,489
             Non-controlling
             interest                         153,000                       763
    Total equity                            1,479,662                   831,252
    Total liabilities and
    equity                           $      2,411,631        $        1,710,456
        Subsequent event (note 10)


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


                     Condensed Consolidated Income Statements
          (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS,
                            EXCEPT PER SHARE AMOUNTS)

                                          Three months            Three months
                                                 ended                   ended
                                        April 30, 2013          April 30, 2012
    Sales                             $        108,837        $         89,009
    Cost of sales                               81,535                  70,099
    Gross margin                                27,302                  18,910
    Selling, general and
    administrative expenses                     16,843                   6,739
    Operating profit                            10,459                  12,171
    Finance expenses                           (3,994)                 (2,242)
    Exploration costs                          (1,039)                   (254)
    Finance and other income                       804                      52
    Foreign exchange gain
    (loss)                                         732                   (370)
    Profit before income
    taxes                                        6,962                   9,357
    Income tax expense                           4,699                   3,330
    Net profit from
    continuing operations                        2,263                   6,027
    Net profit from
    discontinued operations
    (note 6)                                   497,385                   5,583
    Net profit                        $        499,648        $         11,610
    Net profit (loss) from
    continuing operations
    attributable to
            Shareholders              $          2,822        $          6,027
            Non-controlling
            interest                             (559)                       -
    Net profit (loss)
    attributable to
            Shareholders              $        500,207                  11,610
            Non-controlling
            interest                             (559)        $              -
    Earnings per share -
    continuing operations
            Basic                     $           0.03        $           0.07
            Diluted                               0.03                    0.07
    Earnings per share
            Basic                                 5.89                    0.14
            Diluted                               5.82                    0.14
    Weighted average number
    of shares outstanding                   84,890,564              84,874,781


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


            Condensed Consolidated Statements of Comprehensive Income
          (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

                                          Three months            Three months
                                                 ended                   ended
                                        April 30, 2013          April 30, 2012
    Net profit                        $        499,648        $         11,610
    Other comprehensive
    income
          Items that may be
          reclassified to
          profit
                   Net gain
                   (loss) on
                   translation
                   of net
                   foreign
                   operations
                   (net of tax
                   of nil)                    (10,735)                     137
          Items that will not
          be reclassified to
          profit
                   Actuarial
                   loss on
                   employee
                   benefit
                   plans (net
                   of tax of
                   $0.7
                   million )                     5,271                       -
    Other comprehensive
    income, net of tax                         (5,464)                     137
    Total comprehensive
    income                            $        494,184        $         11,747
          Comprehensive
          income from
          continuing
          operations                  $          2,133        $          6,012
          Comprehensive
          income from
          discontinued
          operations                           492,051                   5,735
    Comprehensive income
    (loss) attributable to
          Shareholders                $        494,743        $         11,747
          Non-controlling
          interest                               (559)                       -


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


              Condensed Consolidated Statements of Changes in Equity
          (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

                                          Three months            Three months
                                                 ended                   ended
                                        April 30, 2013          April 30, 2012
    Common shares:
    Balance at beginning of
    period                            $        508,007        $        507,975
    Issued during the period                       394                       -

    Balance at end of period                   508,401                 507,975
    Contributed surplus:
    Balance at beginning of
    period                                      20,387                  17,764
    Stock-based compensation
    expense                                      1,036                     406

    Balance at end of period                    21,423                  18,170
    Retained earnings:
    Balance at beginning of
    period                                     295,738                 261,028
    Net profit attributable
    to common shareholders                     500,207                  11,610
    Balance at end of period                   795,945                 272,638
    Accumulated other
    comprehensive income:
    Balance at beginning of
    period                                       6,357                  10,086
    Other comprehensive
    income
          Items that may be
          reclassified to
          profit
                 Net gain
                 (loss) on
                 translation
                 of net
                 foreign
                 operations
                 (net of tax
                 of nil)                      (10,735)                     137
          Items that will not
          be reclassified to
          profit
                 Actuarial
                 loss on
                 employee
                 benefit plans
                 (net of tax
                 of $0.7
                 million )                       5,271                       -
    Balance at end of period                       893                  10,223
    Non-controlling
    interest:
    Balance at beginning of
    period                                         763                     255
    Non-controlling interest                   152,237                       -
    Balance at end of period                   153,000                     255
    Total equity                      $      1,479,662        $        809,261


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


                 Condensed Consolidated Statements of Cash Flows
          (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

                                          Three months            Three months
                                                 ended                   ended
                                        April 30, 2013          April 30, 2012
    Cash provided by (used
    in)
    OPERATING
    Net profit                        $        499,648        $          6,027
               Depreciation
               and
               amortization                     20,211                  22,169
               Deferred income
               tax recovery                    (8,740)                 (2,568)
               Current income
               tax expense                      13,439                   5,898
               Finance
               expenses                          3,994                   2,242
               Stock-based
               compensation                      1,036                     406
               Other non-cash
               items                             (859)                       -
               Foreign
               exchange (gain)
               loss                            (1,037)                     843
               Loss (gain) on
               disposition of
               assets                              362                   (330)
               Net loss on
               discontinued
               operations                          257                       -
               Gain on sale of
               luxury brand
               segment                       (497,642)                       -
    Change in non-cash
    operating working
    capital, excluding taxes
    and finance expenses                      (28,671)                 (8,606)
    Cash provided by (used
    in) operating activities                     1,998                  26,081
               Interest paid                   (1,212)                 (1,258)
               Income and
               mining taxes
               paid                           (10,249)                 (6,874)
    Cash provided by (used
    in) operating activities
    - continuing operations                    (9,463)                  17,949
    Cash provided by (used
    in) operating activities
    - discontinued operations                        -                   6,996
    Net cash from (used in)
    operating activities                       (9,463)                  24,945
    FINANCING
    Decrease in
    interest-bearing loans
    and borrowings                               (196)                   (185)
    Increase in revolving
    credit                                      27,863                  27,542
    Decrease in revolving
    credit                                     (1,128)                   (495)
    Issue of common shares,
    net of issue costs                             394                       -
    Cash provided from
    financing activities -
    continuing operations                       26,933                  26,862
    Cash provided from
    financing activities -
    discontinued operations                          -                   1,861
    Cash provided from
    financing activities                        26,933                  28,723
    INVESTING
    Acquisition of Ekati                     (553,142)                       -
    Cash proceeds from sale
    of luxury brand                            746,738                       -
    Property, plant and
    equipment - Diavik                        (10,938)                (18,149)
    Property, plant and
    equipment - Ekati                          (8,780)                       -
    Net proceeds from sale of
    property, plant and
    equipment                                    1,796                   2,619
    Other non-current assets                   (3,125)                      87
    Cash provided in
    investing activities -
    continuing operations                      172,549                (15,443)
    Cash provided in
    investing activities -
    discontinued operations                          -                 (4,976)
    Cash used in investing
    activities                                 172,549                (20,419)
    Foreign exchange effect
    on cash balances                               354                   1,453
    Increase in cash and cash
    equivalents                                190,373                  34,702
    Cash and cash
    equivalents, beginning of
    period - Ekati                              62,217                       -
    Cash and cash
    equivalents, beginning of
    period - Diavik                            104,313                  78,116
    Cash and equivalents, end
    of period                                  356,903                 112,818
    Less cash and equivalents
    of discontinued
    operations, end of period                        -                  24,579
    Cash and cash equivalents
    of continuing operations,
    end of period                     $        356,903        $         88,239
    Change in non-cash
    operating working
    capital, excluding taxes
    and finance expenses
    Accounts receivable                        (3,182)                   1,285
    Inventory and supplies                    (31,011)                (23,291)
    Other current assets                         1,780                   1,261
    Trade and other payables                     4,735                  10,746
    Employee benefit plans                       (993)                   1,393
                                      $       (28,671)        $        (8,606)


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

Notes to Condensed Consolidated Financial Statements

APRIL 30, 2013 WITH COMPARATIVE FIGURES
(TABULAR AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT AS OTHERWISE NOTED)

Note 1:
Nature of Operations

Effective March 26, 2013, Harry Winston Diamond Corporation changed its name to Dominion Diamond Corporation ("Dominion Diamond Corporation" or the "Company") and its common shares trade on both the Toronto and New York stock exchanges under the symbol "DDC". Dominion Diamond Corporation is focused on the mining and marketing of rough diamonds to the global market.

The Company is incorporated and domiciled in Canada and its shares are publicly traded on the Toronto Stock Exchange and the New York Stock Exchange. The address of its registered office is Toronto, Ontario.

The Company has ownership interests in the Diavik and the Ekati group of mineral claims. The Diavik Joint Venture (the "Diavik Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines Inc. ("DDMI") (60%) and Dominion Diamond Diavik Limited Partnership ("DDDLP") (40%) where DDDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. DDMI and DDDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England, and DDDLP is a wholly owned subsidiary of Dominion Diamond Corporation of Toronto, Canada. The Company records its interest in the assets, liabilities and expenses of the Diavik Joint Venture in its unaudited interim condensed consolidated financial statements with a one-month lag. The accounting policies described below include those of the Diavik Joint Venture.

On April 10, 2013, the Company completed the $553.1 million acquisition from BHP Billiton Canada Inc. and its various affiliates of all of BHP Billiton's diamond assets, including its controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium (the "Ekati Diamond Mine Acquisition"). The Ekati Diamond Mine consists of the Core Zone, which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer Zone, an adjacent area hosting kimberlite pipes having both development and exploration potential. As a result of the completion of the Ekati Diamond Mine Acquisition on April 10, 2013, the Company acquired an 80% interest in the Core Zone and a 58.8% interest in the Buffer Zone. In connection with the Ekati Diamond Mine Acquisition, the Company arranged new secured credit facilities consisting of a $400 million term loan, a $100 million revolving credit facility and a $140 million letter of credit facility (expandable to $265 million in aggregate). The Company ultimately determined to fund the Ekati mine acquisition by way of cash on hand and did not draw on these new facilities. The Company controls and consolidates the Ekati Diamond Mine and minority shareholders are presented as non-controlling interests on the condensed consolidated balance sheet.

On March 26, 2013, the Company completed the sale of the Luxury Brand Segment to Swatch Group (the "Luxury Brand Divestiture"). As a result of the sale, the current and prior period results of the Luxury Brand Segment have been presented as discontinued operations.

Note 2:
Basis of Preparation

(a) Statement of compliance

These unaudited interim condensed consolidated financial statements ("interim financial statements") have been prepared in accordance with IAS 34 "Interim Financial Reporting" ("IAS 34"). The accounting policies applied in these unaudited interim financial statements are consistent with those used in the annual audited consolidated financial statements for the year ended January 31, 2013, except as disclosed in Note 3.

These unaudited interim condensed financial statements do not include all disclosures required by International Financial Reporting Standards ("IFRS") for annual audited consolidated financial statements and accordingly should be read in conjunction with the Company's annual audited consolidated financial statements for the year ended January 31, 2013 prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").

(b) Currency of presentation

These unaudited interim condensed consolidated financial statements are expressed in United States dollars, which is the functional currency of the Company. All financial information presented in United States dollars has been rounded to the nearest thousand.

(c) Use of estimates, judgments and assumptions

The preparation of the unaudited interim condensed consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities and contingent liabilities at the date of the unaudited interim condensed consolidated financial statements, and the reported amounts of sales and expenses during the reporting period. Estimates and assumptions are continually evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

Note 3:
Significant Accounting Policies

These unaudited interim condensed consolidated financial statements have been prepared following the same accounting policies and methods of computation as the annual  audited  consolidated financial statements for the year ended January 31, 2013, except for the following accounting standards that apply as a result of the Ekati Diamond Mine Acquisition and new accounting standards and amendment to standards and interpretations, which were effective February 1, 2013, and applied in preparing these unaudited interim condensed consolidated financial statements.  The Company evaluated the impact to its unaudited interim condensed consolidated financial statements as a result of the new standards.  These are summarized as follows:

(a) Accounting Standards Applied on Ekati Diamond Mine Acquisition

(i) STRIPPING COSTS

Mining costs associated with stripping activities in an open pit mine are expensed unless the stripping activity can be shown to represent a betterment to the mineral property, in which case the stripping costs would be capitalized and included in mining assets.  Capitalized stripping costs are charged against earnings on a unit-of-production basis over the life of the mineral reserves.

(ii) EMPLOYEE BENEFIT PLANS

The Company operates defined benefit pension plans, which require contributions to be made to separately administered funds. The cost of providing benefits under the defined benefit plans is determined separately using the projected unit credit valuation method by qualified actuaries. Actuarial gains and losses are recognized immediately in other comprehensive income.

The defined benefit asset or liability comprises the present value of the defined benefit obligation, less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

(b) New Accounting Standards

(i) IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

IFRS 10, "Consolidated Financial Statements" ("IFRS 10") replaces the consolidation requirements in SIC-12, "Consolidation - Special Purpose Entities" and IAS 27, "Consolidated and Separate Financial Statements". The new standard establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and provides guidance to assist in the determination of control where it is difficult to assess. IFRS 10 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(ii) IFRS 11 - JOINT ARRANGEMENTS

IFRS 11, "Joint Arrangements" ("IFRS 11") replaces IAS 31, "Interest in Joint Ventures". The new standard applies to the accounting for interests in joint arrangements where there is joint control. Under IFRS 11, joint arrangements are classified as either joint ventures or joint operations. The structure of the joint arrangement will no longer be the most significant factor in determining whether a joint arrangement is either a joint venture or a joint operation. For a joint venture, proportionate consolidation will no longer be allowed and will be replaced by equity accounting. IFRS 11 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(iii) IFRS 13 - FAIR VALUE MEASURMENT

IFRS 13, "Fair Value Measurement" ("IFRS 13") generally makes IFRS consistent with generally accepted accounting principles in the United States ("US GAAP") on measuring fair value and related fair value disclosures. The new standard creates a single source of guidance for fair value measurements. The adoption of IFRS 13 did not have an effect on the Company's unaudited interim condensed consolidated financial statements. The disclosure requirements of IFRS 13 will be incorporated in the Company's annual consolidated financial statements for the year ended January 31, 2014. This will include disclosures about fair values of financial assets and liabilities measured on a recurring basis and non-financial assets and liabilities measured on a non-recurring basis. The Company will also include disclosures about assumptions used in calculating fair value less cost of disposal for its annual goodwill impairment test.

(iv) IFRIC 20 - STRIPPING COSTS IN THE PRODUCTION PHASE OF A SURFACE MINE

The International Financial Reporting Interpretations Committee ("IFRIC") issued IFRIC 20, "Stripping Costs in the Production Phase of a Surface Mine" ("IFRIC 20"), which clarifies the requirements for accounting for stripping costs associated with waste removal in surface mining, including when production stripping costs should be recognized as an asset, how the asset is initially recognized, and subsequent measurement. IFRIC 20 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(v) IAS 19 - EMPLOYEE BENEFITS

Amendments to IAS 19, "Employee Benefits" ("IAS 19") eliminates the option to defer the recognition of actuarial gains and losses through the "corridor" approach, revises the presentation of changes in assets and liabilities arising from defined benefit plans and enhances the disclosures for defined benefit plans. IAS 19 is effective for the Company's fiscal year end beginning February 1, 2013, with early adoption permitted. IAS 19 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(vi) IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS

Amendments to IAS 1, "Presentation of Financial Statements" ("IAS 1") have been adopted by the Company on February 1, 2013, with retrospective application. The amendments to IAS 1 require the grouping of items within other comprehensive income that may be reclassified to profit or loss and those that will not be reclassified. The Company has amended its consolidated statement of comprehensive income for all periods presented in these unaudited interim condensed consolidated financial statements to reflect the presentation changes required under the amended IAS 1. Since these changes are reclassifications within the statement of comprehensive income, there is no net impact on the Company's comprehensive income.

Note 4:
Acquisition

On April 10, 2013, the Company completed the $553.1 million acquisition from BHP Billiton Canada Inc. and its various affiliates of all of BHP Billiton's diamond assets, including its controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium.

Acquisitions are accounted for under the acquisition method of accounting, and the results of operations since the respective dates of acquisition are included in the statement of comprehensive income.  From time to time, as a result of the timing of acquisitions in relation to the Company's reporting schedules and the availability of information, certain information relating to the purchase allocations and valuations may not be finalized at the time of reporting.  Purchase price allocations are completed after the vendor's final financial statements and income tax returns have been prepared and accepted by the Company within one year of acquisition.  Such preliminary purchase price allocations are based on management's best estimates of the fair value of the acquired asset and liabilities. Upon finalization, adjustments to the initial estimates may be required. The preliminary allocation of the purchase price to the fair values of assets acquired and liabilities assumed is set forth below. The final purchase price allocation is expected to be finalized in the next fiscal quarter.


    Consideration                                    $   553,142
    Cash and cash equivalents                        $    62,217
    Accounts receivable and other current assets           7,465
    Inventory and supplies                               300,248
    Property, plant and equipment                        800,741
    Trade and other payables                            (70,618)
    Income taxes payable                                 (6,085)
    Provisions, future site restoration costs          (348,230)
    Deferred income tax liabilities                     (62,985)
    Other long-term liabilities                         (19,017)
    Non-controlling interest                           (152,798)
    Total net identifiable assets acquired               510,938
    Goodwill                                              42,204
                                                     $   553,142


From the closing date of the business combination, revenues of $19.9 million and a net loss of $0.1 million were generated by Ekati's operations. The Company has incurred total transaction costs of $14.5 million related to the Ekati Diamond Mine Acquisition, of which $11.3 million has been expensed during the current quarter, with the balance of $3.2 million expensed in fiscal 2013.

Provisions
Future site restoration costs


    At April 10, 2013 (date of acquisition)     $ 348,230
    Accretion of provision                          1,757
    At April 30, 2013                           $ 349,987


The undiscounted estimated expenditures required to settle the obligation totals approximately $435 million through 2048 at an assumed average Canadian/US dollar exchange rate of $1.00. The expenditures are discounted using a credit-adjusted risk-free rate of 3.5%. The Company is required to provide financial guarantees to regulatory authorities as security for future site closure and reclamation costs for the Ekati Diamond Mine's operations and for various permits and licenses. As at April 30, 2013, the Company provided $126 million in letters of credit as security with various regulatory authorities.

Note 5:
Inventory and Supplies


                                      April 30,     January 31,
                                           2013            2013
    Rough diamonds                  $   202,111   $      45,467
    Supplies inventory                  237,675          70,160
    Total inventory and supplies    $   439,786   $     115,627


Total inventory and supplies is net of a provision for obsolescence of $0.1 million ($0.4 million at January 31, 2013).

Note 6:
Assets Held for Sale (Discontinued Operations)

On March 26, 2013, the Company completed the sale of the Luxury Brand Segment to Swatch Group (the "Luxury Brand Divestiture"). As a result of the sale, the Company's corporate group underwent name changes to remove references to "Harry Winston".  The Company's name was changed to "Dominion Diamond Corporation" and its common shares trade on both the Toronto and New York stock exchanges under the symbol "DDC".

The major classes of assets and liabilities of the discontinued operations were as follows at the date of disposal:

                                                         March 26,
                                                           2013
    Cash and cash equivalents                        $    25,914
    Accounts receivable and other current assets          61,080
    Inventory and supplies                               403,157
    Property, plant and equipment                         76,700
    Intangible assets, net                               126,779
    Other non-current assets                               7,478
    Deferred income tax assets                            54,017
    Trade and other payables                            (96,246)
    Income taxes payable                                 (2,465)
    Interest-bearing loans and borrowings              (292,709)
    Deferred income tax liabilities                    (106,137)
    Other long-term liabilities                          (8,472)
    Net assets                                       $   249,096
    Consideration received, satisfied in cash        $   746,738
    Cash and cash equivalents disposed of               (25,914)
    Net cash inflow                                  $   720,824



Results of the discontinued operations are presented separately as net profit from discontinued operations in the unaudited interim condensed consolidated income statements, and comparative periods have been adjusted accordingly.

                                                                 Three months
                                              Period ended              ended
                                            March 26, 2013     April 30, 2012
    Sales                                 $         63,799   $        103,452
    Cost of sales                                 (31,355)           (49,035)
    Other expenses                                (30,964)           (49,568)
    Other income and foreign exchange
    gain (loss)                                    (1,551)                 19
    Net income tax (expense) recovery                (186)                715
    Net profit (loss) from
    discontinued operations before
    gain                                  $          (257)   $          5,583
    Gain on sale                                   497,642                  -
    Net profit from discontinued
    operations                                     497,385              5,583
    Earnings per share - discontinued
    operations
                     Basic                $           5.86   $           0.07
                     Diluted                          5.79               0.07



Note 7:
Restricted Cash

The Company provides letters of credit to the Government of Canada of $126 million in support of the reclamation obligations for the Ekati Diamond Mine.

Note 8:
Diavik Joint Venture

The following represents DDDLP's 40% proportionate interest in the Diavik Joint Venture as at March 31, 2013 and December 31, 2012:


                                           April 30, 2013     January 31, 2013
    Current assets                       $        115,328   $          102,299
    Non-current assets                            664,296              677,808
    Current liabilities                            39,184               30,517
    Non-current liabilities and
    participant's account                         740,440              749,590



                                                         Three months       Three months
                                                                ended              ended
                                                       April 30, 2013     April 30, 2012
    Expenses net of interest income (a) (b)          $         66,647   $         56,738
    Cash flows used in operating activities                  (44,828)           (42,353)
    Cash flows resulting from financing activities             53,159             61,532
    Cash flows used in investing activities                  (10,711)           (15,183)


(a) The Joint Venture only earns interest income.

(b) Expenses net of interest income for the three months ended April 30, 2013 of $nil (three months ended April 30, 2012 of $0.1 million).

DDDLP is contingently liable for DDMI's portion of the liabilities of the Diavik Joint Venture, and to the extent DDDLP's participating interest has increased because of the failure of DDMI to make a cash contribution when required, DDDLP would have access to an increased portion of the assets of the Diavik Joint Venture to settle these liabilities. Additional information on commitments and contingencies related to the Diavik Joint Venture is found in Note 12.

Note 9:
Employee Benefit Plans

The employee benefit obligation reflected in the unaudited interim condensed consolidated balance sheet is as follows:

                                           April 30, 2013     January 31, 2013
    Post-retirement benefit plan -
    Diavik Diamond Mine (c)              $            724   $              699
    Defined benefit plan obligation -
    Ekati Diamond Mine (a)                         19,493                    -
    Defined contribution plan
    obligation - Ekati Diamond Mine
    (b)                                               200                    -
        Defined contribution plan
     obligation - the Company's head
                office (b)                             77                    -
    RSU and DSU plans (d)                           4,178                5,434
    Total employee benefit plan
    obligation                           $         24,672   $            6,133

                                           April 30, 2013     January 31, 2013
    Non-current                          $         23,000   $            3,499
    Current                                         1,672                2,634
    Total employee benefit plan
    obligation                           $         24,672   $            6,133


(a) Defined benefit pension plan

Dominion Diamond Ekati Corporation sponsors a non-contributory defined benefit registered pension plan covering employees in Canada  who were employed by BHP Billiton Canada Inc. and employed in its diamond business prior to 2004. As a result of the Ekati Diamond Mine Acquisition, the plan was assigned to Dominion Diamond Ekati Corporation and renamed the Dominion Diamond Ekati Corporation Defined Benefit Pension Plan.  Pension benefits are based on the length of service and highest average covered earnings.  Any benefits in excess of the maximum pension limit for registered pension plans under the Income Tax Act accrue for the employee, via an unfunded supplementary retirement plan.  New employees could not become members of this defined benefit pension arrangement after 2004.

(i) NET BENEFIT OBLIGATION:

                                       April 30, 2013
    Accrued benefit obligation       $         89,204
    Plan assets                                69,711
    Funded status - plan deficit     $       (19,493)


(ii) PLAN ASSETS

Canadian plan assets represented approximately 95% of total plan assets at April 30, 2013.

The asset allocation of pension assets at April 30 was as follows:

                                April 30, 2013
    ASSET CATEGORY
    Cash equivalents                        5%
    Equity securities                      10%
    Fixed income securities                85%
    Total                                 100%


(iii) THE SIGNIFICANT ASSUMPTIONS USED FOR THE PLAN ARE AS FOLLOWS:


                                      April 30, 2013
    ACCRUED BENEFIT OBLIGATION
    Discount rate                             4.00%
    Expected long-term rate of return         4.00%
    BENEFIT COSTS FOR THE YEAR
    Discount rate                             4.10%
    Expected long-term rate of return
    on plan assets                            3.85%
    Rate of compensation increase             4.00%


(b) Defined contribution plan
The Diavik Joint Venture sponsors a defined contribution plan whereby the employer contributes 6% of the employee's salary.

Dominion Diamond Corporation sponsors a defined contribution plan for Canadian employees whereby the employer contributes to a maximum of 6% of the employee's salary to the maximum contribution limit under Canada's Income Tax Act.  The total defined contribution plan liability at April 30, 2013 was $0.1 million ($nil at January 31, 2013).

Dominion Diamond Ekati Corporation sponsors a defined contribution arrangement for its employees who are not members of the defined benefit pension plan referred to in 9(a) above.  The employer contributes 8% of earnings up to 2.5 times the Year's Maximum Pensionable Earnings (as defined under the Canada Pension Plan), and 12% of earnings above 2.5 times YMPE.  The employer also matches additional contributions made by an employee up to 3% of earnings.  Employer contributions in excess of the maximum contribution limit for defined contribution plans under Canada's Income Tax Act are credited by the employer to a notional (unfunded) supplementary retirement plan. The defined contribution plan liability at April 30, 2013 was $0.2 million. (Supplemental plan liability has been included in the accrued benefit obligation disclosed in 9(a) above.)

(c) Post-retirement benefit plan
The Diavik Joint Venture provides non-pension post-retirement benefits to retired employees. The post-retirement benefit plan liability was $0.7 million at April 30, 2013 ($0.7 million at January 31, 2013).

(d) RSU and DSU plans
Grants under the RSU Plan are on a discretionary basis to employees of the Company and its subsidiaries subject to Board of Directors approval. The RSUs granted vest one-third on March 31 and one-third on each anniversary thereafter. The vesting of grants of RSUs is subject to special rules for a change in control, death and disability. The Company shall pay out cash on the respective vesting dates of RSUs and redemption dates of DSUs.

Only non-executive directors of the Company are eligible for grants under the DSU Plan. Each DSU grant vests immediately on the grant date.

The expenses related to the RSUs and DSUs are accrued based on fair value. This expense is recognized on a straight-line basis over each vesting period.

Note 10:
Interest-Bearing Loans and Borrowings


                                                  April 30,   January 31,
                                                       2013          2013
    Credit facilities                           $    49,836 $      49,560
    First mortgage on real property                   5,365         5,619
    Bank advances                                    27,863         1,128
    Total interest-bearing loans and borrowings      83,064        56,307
    Less current portion                           (78,526)      (51,508)
                                                $     4,538 $       4,799


                                         Nominal
                                        interest                       Carrying amount
                              Currency      rate  Date of maturity     at April 30, 2013
    Secured bank loan               US     3.70%     June 24, 2013      $49.8 million
    First mortgage on real
    property                       CDN     7.98%   September 1, 2018    $5.4 million
    Secured bank advance            US      4.8%     Due on demand      $27.9 million



                                      Face value at
                                     April 30, 2013                             Borrower
    Secured bank loan                 $50.0 million     Dominion Diamond Corporation and
                                                           Dominion Diamond Holdings Ltd.
    First mortgage on real property    $5.4 million                   6019838 Canada Inc.
    Secured bank advance              $27.9 million     Dominion Diamond International NV


On May 31, 2013, the Company repaid the $50.0 million outstanding on its secured bank loan.

Note 11:
Related Party Disclosure

(a) Operational information

The Company had the following investments in significant subsidiaries at April 30, 2013:


    Name of company                           Effective interest  Country of incorporation
    Dominion Diamond Holdings Ltd.                          100%                   Canada
    Dominion Diamond Diavik Limited
     Partnership                                            100%                   Canada
    Dominion Diamond (India) Private Limited                100%                    India
    Dominion Diamond International NV                       100%                  Belgium
    Dominion Diamond Technical Services Inc.                100%                   Canada
    6019838 Canada Inc.                                     100%                   Canada
    Dominion Diamond Ekati Corporation                      100%                   Canada
    Dominion Diamond Resources Corporation                  100%                   Canada
    Dominion Diamond Marketing NV                           100%                  Belgium


Note 12:
Commitments and Guarantees

(a) Environmental agreements

Through negotiations of environmental and other agreements, both the Diavik Joint Venture and Ekati Diamond Mine must provide funding for the Environmental Monitoring Advisory Board, and the Independent Environmental Monitoring Agency, respectively. Further funding will be required in future years; however, specific amounts have not yet been determined. These agreements also state that the  mines must provide security deposits for the performance of their reclamation and abandonment obligations under all environmental laws and regulations. DDDLP's share of the letters of credit outstanding posted by the operator of the Diavik Joint Venture with respect to the environmental agreements as at April 30, 2013, was $81.2 million. The agreement specifically provides that these funding requirements will be reduced by amounts incurred by the Diavik Joint Venture on reclamation and abandonment activities. The Company has posted letters of credit of $126 million with the Government of Canada supported by restricted cash in support of the reclamation obligations for the Ekati Diamond Mine.

(b) Participation agreements

Both the Diavik Joint Venture and Ekati Diamond Mine have signed participation agreements with various native groups. These agreements are expected to contribute to the social, economic and cultural well-being of the Aboriginal bands. The Diavik participation agreements are each for an initial term of twelve years and shall be automatically renewed on terms to be agreed upon for successive periods of six years thereafter until termination. The Diavik participation agreements terminate in the event that the Diavik Diamond Mine permanently ceases to operate. Dominion Diamond Corporation's share of the Diavik Joint Venture's participation agreements as at April 30, 2013 was $1.2 million. The Ekati participation agreements are in place during the life of the Ekati Diamond Mine and the agreements terminate in the event of the mine ceases to operate.

(c) Operating lease commitments

The Company has entered into non-cancellable operating leases for the rental of fuel tanks and office premises for the Ekati Diamond Mine, which expire at various dates through 2016. The leases have varying terms, escalation clauses and renewal rights. Any renewal terms are at the option of the lessee at lease payments based on market prices at the time of renewal. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease, including any periods of free rent. Future minimum lease payments under non-cancellable operating leases as at April 30, 2013 are as follows:



    Within one year                                  $ 4,950
    After one year but not more than five years       10,115
    More than five years                               4,169
                                                    $ 19,234


Note 13:
Capital Management

The Company's capital includes cash and cash equivalents, current and non-current interest-bearing loans and borrowings and equity, which includes issued common shares, contributed surplus and retained earnings.

The Company's primary objective with respect to its capital management is to ensure that it has sufficient cash resources to maintain its ongoing operations, to provide returns to shareholders and benefits for other stakeholders, and to pursue growth opportunities. To meet these needs, the Company may from time to time raise additional funds through borrowing and/or the issuance of equity or debt or by securing strategic partners, upon approval by the Board of Directors. The Board of Directors reviews and approves any material transactions out of the ordinary course of business, including proposals on acquisitions or other major investments or divestitures, as well as annual capital and operating budgets.

The Company assesses liquidity and capital resources on a consolidated basis. The Company's requirements are for cash operating expenses, working capital, contractual debt requirements and capital expenditures. The Company believes that it will generate sufficient liquidity to meet its anticipated requirements for the next twelve months.

Note 14:
Segmented Information

The Company operates in three segments within the diamond industry - Diavik Diamond Mine, the Ekati Diamond Mine and Corporate - for the three months ended April 30, 2013.

The Diavik segment consists of the Company's 40% ownership interest in the Diavik group of mineral claims and the sale of rough diamonds. The Ekati segment consists of the Company's ownership interest in the Ekati group of mineral claims and the sale of rough diamonds. The Corporate segment captures all costs not specifically related to the operations of the Diavik and Ekati mines.


    For the three
    months ended April
    30, 2013                  Diavik         Ekati     Corporate         Total
    Sales
    North America        $     6,179   $         -   $         -   $     6,179
    Europe                    61,642        19,921             -        81,563
    India                     21,095             -             -        21,095
    Total sales               88,916        19,921             -       108,837
    Cost of sales
    Depreciation and
    amortization              19,542             -             -        19,542
    All other costs           42,346        19,647             -        61,993
    Total cost of
    sales                     61,888        19,647             -        81,535
    Gross margin              27,028           274             -        27,302
    Gross margin (%)           30.4%          1.4%            -%         25.1%
    Selling, general
    and administrative
    expenses
    Selling and
    related expenses           1,110           520             -         1,630
    Administrative
    expenses                       -             -        15,213        15,213
    Total selling,
    general and
    administrative
    expenses                   1,110           520        15,213        16,843
    Operating profit
    (loss)                    25,918         (246)      (15,213)        10,459
    Finance expenses         (2,019)       (1,975)             -       (3,994)
    Exploration costs        (1,039)             -             -       (1,039)
    Finance and other
    income                       540           264             -           804
    Foreign exchange
    gain (loss)                1,560         (828)             -           732
    Segmented profit
    (loss) before
    income taxes         $    24,960   $   (2,785)   $  (15,213)   $     6,962
    Segmented assets
    as at April 30,
    2013
    Canada               $ 1,177,853   $ 1,203,112   $         -   $ 2,380,965
    Other foreign
    countries                 27,663         3,003             -        30,666
                         $ 1,205,516   $ 1,206,115   $         -   $ 2,411,631
    Capital
    expenditures         $  (10,154)   $   (8,780)   $     (784)   $  (19,717)
    Inventory                154,561       285,225             -       439,786
    Other significant
    non-cash items:
    Deferred income
    tax recovery         $   (4,474)   $   (4,266)   $         -   $   (8,740)


Sales to one customers totaled $12.6 million for the three months ended April 30, 2013.


    For the three months ended April 30, 2012                Diavik     Ekati
    Sales
    North America                                       $     7,432   $     -
    Europe                                                   54,370         -
    India                                                    27,207         -
    Total sales                                              89,009         -
    Cost of sales
    Depreciation and amortization                            21,876         -
    All other costs                                          48,223         -
    Total cost of sales                                      70,099         -
    Gross margin                                             18,910         -
    Gross margin (%)                                          21.2%        -%
    Selling, general and administrative expenses
    Selling and related expenses                                972         -
    Administrative expenses                                       -         -
    Total selling, general and administrative expenses          972         -
    Operating profit (loss)                                  17,938         -
    Finance expenses                                        (2,242)         -
    Exploration costs                                         (254)         -
    Finance and other income                                     52         -
    Foreign exchange gain                                     (370)         -
    Segmented profit (loss) before income taxes         $    15,124   $     -
    Segmented assets as at April 30, 2012
    Canada                                              $ 1,002,717   $     -
    Other foreign countries                                  10,786         -
                                                        $ 1,013,503   $     -
    Capital expenditures                                $  (18,149)   $     -
    Inventory                                               146,991         -
    Other significant non-cash items:
    Deferred income tax recovery                        $   (2,567)   $     -



    For the three months ended April 30, 2012          Corporate         Total
    Sales
    North America                                    $         -   $     7,432
    Europe                                                     -        54,370
    India                                                      -        27,207
    Total sales                                                -        89,009
    Cost of sales
    Depreciation and amortization                              -        21,876
    All other costs                                            -        48,223
    Total cost of sales                                        -        70,099
    Gross margin                                               -        18,910
    Gross margin (%)                                          -%         21.2%
    Selling, general and administrative expenses
    Selling and related expenses                               -           972
    Administrative expenses                                5,767         5,767
    Total selling, general and administrative
    expenses                                               5,767         6,739
    Operating profit (loss)                              (5,767)        12,171
    Finance expenses                                           -       (2,242)
    Exploration costs                                          -         (254)
    Finance and other income                                   -            52
    Foreign exchange gain                                      -         (370)
    Segmented profit (loss) before income taxes      $   (5,767)   $     9,357
    Segmented assets as at April 30, 2012
    Canada                                           $         -   $ 1,002,717
    Other foreign countries                                    -        10,786
                                                     $         -   $ 1,013,503
    Capital expenditures                             $         -   $  (18,149)
    Inventory                                                          146,991
    Other significant non-cash items:
    Deferred income tax recovery                     $         -   $   (2,567)


For further information:

Contacts:
Mr. Richard Chetwode, Vice President, Corporate Development - +44(0)7720-970-762 or rchetwode@ddcorp.ca
Ms. Kelley Stamm, Manager, Investor Relations - +1-416-205-4380 or kstamm@ddcorp.ca

SOURCE Dominion Diamond Corporation



More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.