The outlook for Toronto-based gem miner and retailer Harry Winston Diamond Corp. will be less than crystal clear until its partner in the Diavik diamond mine in Canada's extreme north decides what to do with the massive pit.
The operator of the Harry Winston chain of luxury retail stores reported a healthy profit in the fiscal fourth quarter, but it disappointed investors by saying it would hold off on releasing a new and much anticipated life-of-mine plan for its 40 per cent-owned Diavik mine.
Diavik will transition fully to an underground model in 2012 and investors and analysts had eagerly awaited more details when Harry Winston reported earnings this week. The plan was to provide a road map for output and costs through the rest of its productive life.
"Obviously, until we get that clarity, I think it's difficult to really have the highest level of confidence in one's forecast," said Edward Sterck, a London-based analyst with BMO Capital Markets.
By late morning on Thursday, Harry Winston stock was down 2.5 per cent on the Toronto Stock Exchange.
The life-of-mine plan includes details on the move to underground mining at Diavik and underscores a world where diamonds are in peak supply and producers are driven to spend more to dig deeper pits to maximize output from existing mines because there are no new major discoveries on the horizon. Mines in Canada and Russia are moving underground now and No. 1 producer Botswana is expected to follow suit within the decade.
Harry Winston says it deferred a release of the new plan on the request of 60 per cent-owner and operator Rio Tinto, which said last week that it was reviewing a potential sale of its stake as it considers an exit from the global diamond mining business.
The announcement came just months after rival mining behemoth BHP Billiton, which owns Canada's flagship Ekati diamond mine, said it might leave the diamond mining industry.
Both companies say the margins in diamond mining are too low, especially compared to the bulk commodities that make up most of their business.
On a conference call with analysts on Thursday, Harry Winston Chairman and Chief Executive Robert Gannicott did not say whether his company will exercise its right of first refusal on Rio's Diavik stake.
"Obviously we are interested in any assets like that that are relevant to our sphere of expertise ... Brownfields projects, greenfields projects, as long as they're well-defined, we're certainly interested," Gannicott said while reiterating Harry Winston's focus on acquiring pre-production assets.
Harry Winston reported fiscal fourth quarter of (US) $16.6 million or 20 U.S. cents per share, up from (US) $13.7 million in the same period last year, as the company benefitted from stabilizing prices and demand for its rough diamonds. The average price per carat during the quarter was $120, compared to $110 in the comparable quarter of the prior year.
The company is also a premier diamond jeweler and luxury retailer in locations including New York, Paris, London, Beijing, Shanghai, Hong Kong, Singapore, Tokyo and Beverly Hills.
Global diamond prices stabilized this year after plummeting half way through 2011, driven lower as the economic crisis in Europe accelerated. Immediately prior to that prices hit all-time highs as speculators stocked up on diamonds in anticipation of a stronger economic recovery amid lack of new supply and booming demand from Asian markets.
Canadian diamonds gained popularity with the discovery of BHP Billiton's Ekati, which went into production in the late 1990s and coincided with a consumer backlash against the so-called "blood diamonds" produced in war zones in regions of Africa, where much of the world's diamond wealth originates.