Dominion Diamond Corp downgraded at RBC

Dominion Diamond Corp. was cut to sector perform from outperform at RBC Capital Markets due to the challenging outlook for its Jay Project and the lacklustre diamond market.

Analyst Des Kilalea noted that while a feasibility study for Jay (an expansion of the Ekati Diamond Mine) could be ready by mid-July, achieving the company’s minimum 15 per cent internal rate of return appears to be proving difficult.

He suggested that delaying the project for a year or more, and using the benefits of deferred mine rehabilitation liabilities at Ekati, may help Dominion bridge the gap. However, the analyst pointed out that the company will still likely need rough diamond prices to rise.

“On the rough market, our view is that prices will soften in the summer with, hopefully, slight firming later in the year,” Kilalea told clients. “But with a leading bank looking to pull back further from mid-stream funding, risks remain.”

The analyst also noted that with the Misery Southwest Extension at Ekati now commercially commissioned, he’s changing his price target methodology to match that of other producers such as Petra Diamonds Ltd., Gem Diamonds Ltd. and Lucara Diamond Corp.

That resulted in a price target cut to $11 per share from $13 on Dominion, as well as the downgrade.

“With Misery now completed, and ahead of time, focus will swing to the prospects for Q2 and progress on building Jay, as well as the diamond market,” he said.

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Read the original at News – Financial Post.