FRANCOIS MORI
Harry Winston Diamond Corp. said Thursday a non-cash loss related to an investment by Kinross Gold Corp. coupled with initial weakness in the diamond market because of the global recession contributed to a net loss in the latest quarter.
The Toronto-based diamond producer, which reports its financial results in U.S. dollars, said it booked a net loss of $45.1-million (U.S.) or 68 cents per share during the quarter ended April 30, the first quarter of the company's 2010 fiscal year. That reversed year-earlier profits of $21.3-million or 35 cents per share.
The company owns 40 per cent of the Diavik Mines joint venture, Canada's second major diamond project in the Far North. Global mining giant Rio Tinto PLC operates and owns 60 per cent of the project in the Northwest Territories.
In addition, Harry Winston's retail division sells jewellery and luxury watches through high-end stores in New York, Paris, London, Beijing, Tokyo, and Beverly Hills, Calif.
In its financial report, the company noted its retail arm posted a 30 per cent decrease in sales to $51.9-million, with a loss from operations of $5-million in the quarter. Like most luxury goods retailers, the company has been squeezed by the recession, weaker consumer spending and the global credit crunch.
Harry Winston, formerly known as Aber Diamond Corp., said part of the slide into the red could be attributed to a $34.2-million non-cash dilution loss as a result of Kinross' investment in the company and its Diavik diamond mine.
In March, Kinross bought an interest in the mine and a 20 per cent stake in Harry Winston itself for $150-million.
Meanwhile, Harry Winston booked a $5.8-million net foreign exchange loss in the quarter, mainly because of the rising Canadian dollar, as well as an after-tax insurance settlement gain of $1.9-million.
Excluding the non-cash losses and one-time charges and gains, the diamond company would have lost $6.9-million or 10 cents a share in the quarter.
Harry Winston said the poor market conditions and low diamond prices that prevailed at the beginning of the quarter helped drag down overall sales, though the company noted the situation improved by the end of April and predicted a more positive sales environment for the second quarter.
Harry Winston said overall sales slid to $109.6-million from $156.1-million reported during the corresponding quarter of fiscal 2009. The sales slump led to a loss from operations of $10.1-million.
"We began this quarter with a rough diamond market that could see no bottom and retail sales effectively stalled," Harry Winston chief executive Robert Gannicott said in a statement before the company's annual meeting in Toronto.
"Rough diamond prices fell to levels not seen since the inception of the Diavik project seven years ago. We ended the quarter with consistent improvement in rough diamond prices and the return of customers to our retail stores. This improvement has continued through May in both of our business In early trading Thursday on the Toronto Stock Exchange, Harry Winston shares rose 29 cents (Canadian) to $7.56, a gain of 4 per cent.