Canadian diamond enterprise Harry Winston Diamond Corporation, with assets in the mining and retail segments of the diamond industry, reported that consolidated sales for the fourth quarter, ending January 31, 2010, totaled $133.7 million, a 13% increase compared to sales of $118.4 million in the comparable quarter of the prior year.
Rough diamond sales for the quarter totaled $63.5 million compared to $51.1 million in the comparable quarter of the prior year resulting from a combination of a 12% increase in the company's achieved rough diamond prices and an 11% increase in volume of carats sold.
Rough diamond production during the quarter was significantly lower than the comparable quarter of the prior year due to a planned reduction in mining activity to reflect the softness in the rough diamond market earlier in the year, the company said in its fiscal 2010 annual report.
Retail sales for the fourth quarter were $70.2 million compared to $67.3 million for the comparable quarter of the prior year, an increase of 4%, "reflecting the strength of the Asian market and offsetting continuing slowness in the US," the company said.
During the first half of fiscal 2010, the rough diamond market experienced substantial price weakness as the industry was significantly impacted by the global financial crisis and the resulting economic slowdown. Stability returned to the rough diamond market during the third quarter of the year and prices strengthened considerably. This recovery continued in the fourth quarter, with rough diamond prices closing the year only slightly below the market highs achieved in fiscal 2009. Sustained demand from the Far East and India was coupled with a cautious renewal of interest from US retailers. The availability of credit improved as banks responded to the positive diamond market by reducing the tight credit restrictions imposed during the global financial crisis.
"The price of polished diamonds, which experienced a less significant decline than rough diamond prices, has almost returned to previous levels and even surpassed these in certain popular ranges.
"The outlook for the diamond market for fiscal 2011 is positive, with evidence of increased consumer demand in the Far East and India, coupled with the reawakening of the US retail sector, providing the basis for continued expected price growth in rough diamonds," said the company in its fiscal 2010 report.
Harry Winston recorded a fourth quarter consolidated net loss of $3.4 million compared to a net loss of $73.0 million in the fourth quarter of the prior year.
The company recorded a consolidated net loss of $73.2 million for fiscal 2010, compared to net earnings of $70.1 million in the prior year. Consolidated sales were $412.9 million for the year compared to $609.2 million for the prior year.
For the full fiscal year, the mining segment recorded sales of $187.9 million, a 43% decrease from $328.2 million in the prior year. Harry Winston's share of rough diamond production for the calendar year was 2.2 million carats compared to 3.7 million carats in the prior year. As a response to the softness in the rough diamond market, production was reduced through a planned six-week summer shutdown from July 14, 2009 to August 24, 2009 and a general reduction in mining activity throughout the rest of the year. The significant reduction in sales resulted in a loss from operations for the year of $6.3 million.
Sales for the fiscal year ended January 31, 2010, totaled $225 million and a loss from operations of $15.7 million for the year, compared to $281.0 million and $2.5 million, respectively, in the prior year. Sales in Asia increased 11% to $77.0 million, US sales decreased 22% to $72.9 million and European sales decreased 36% to $75.1 million.
"We end the year with a quarter that reflects recovery in both the rough diamond and jewelry businesses, but in a diamond business significantly changed from the years before the downturn," said Robert Gannicott, Chairman and Chief Executive Officer.
"Prior to the downturn, diamond mine production was at extreme capacity and is not capable of returning to those levels, at least in the near-term. Rough diamond prices have already reacted and are back near the peaks of mid-2008. We anticipate further price increases as recovery in the US, and probably later in Europe, is added to ongoing growth in demand from China and India."
Continued Gannicott: "In 2007 barely 5% of our retail sales were to Asian customers outside of Japan. For this last year that same group accounts for 18% of our sales with an increase of nearly 200% between this and the prior fourth quarters. The momentum in retail sales has continued and accelerated into the new-year."
The Retail Jewelry Market
The luxury diamond jewelry market was also negatively affected by the depth and duration of the global economic recession. During the third quarter of the year, signs of recovery began to appear, particularly in Asia. In the US, many retailers reported a stronger holiday season than in the previous year as overall consumer sentiment appears to be more positive. The global economy continues to recover from the recession at varying rates depending on the region. During fiscal 2011, consumer demand for luxury diamond jewelry is expected to be strong in Asia, but the US and European markets are expected to experience a more modest recovery.
Mining Cost of Sales
For the fiscal year ended January 31, 2010, cost of sales was $174.7, compared to a cost of sales of $139.8 million in the prior year. The company attributes the increase in cost of sales to mining costs, resulting primarily from the costs associated with preparing the A-418 kimberlite pipe for commercial production being capitalized in the first half of the prior year. Also included in cost of sales is $9.8 million related to goods carried in inventory at January 31, 2009, which were sold subsequent to year end.
The company said that it expects that results for its mining segment will continue to fluctuate depending on the seasonality of production at the Diavik Diamond Mine, the number of sales events conducted at each sales location during the quarter, rough diamond prices and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine in each quarter.
Annual production during the calendar year 2009 at the Diavik Diamond Mine was 5.5 million carats, consisting of 3.4 million carats produced from 0.58 million tonnes of ore from the A-154 South kimberlite pipe and 2.1 million carats produced from 0.78 million tonnes of ore from the A-418 kimberlite pipe. Annual production was 9.2 million carats during calendar 2008. The lower production in the current calendar year resulted from the six-week summer shutdown from July 14, 2009 to August 24, 2009 and a planned reduction in mining activity to reflect the softness in the rough diamond market.
Ore production for the fourth calendar quarter consisted of 1.0 million carats produced from 0.16 million tonnes of ore from the A-154 South kimberlite pipe and 0.6 million carats produced from 0.21 million tonnes of ore from the A-418 kimberlite pipe. Rough diamond production was significantly lower than the comparable calendar quarter of the prior year due to a planned reduction in mining activity to reflect the softness in the rough diamond market earlier in the year. Average grade decreased to 4.2 carats per tonne in the fourth calendar quarter from 4.6 carats per tonne in the comparable quarter of the prior year. The decrease in average grade was primarily driven by a decrease in the proportion of ore sourced from the A-154 South kimberlite pipe.
Mining Segment Outlook
A mine plan and budget for calendar 2010 has been approved by Rio Tinto plc, the operator of the Diavik Diamond Mine, and the Company. The plan for calendar 2010 foresees Diavik Diamond Mine production of approximately 7.8 million carats from the processing of 2.1 million tonnes of ore.
According to Harry Winston, "the rough diamond market continues to experience a robust recovery from the extreme market lows seen in the first quarter of the year and pricing has improved significantly. Future sustained price growth is anticipated in the rough diamond market during a period of diminishing rough diamond supply."