Harry Winston Diamond Corporation. Investor Presentation February 2013

Transcription

1 Harry Winston Diamond Corporation Investor Presentation February 2013

2 Forward-Looking Information Certain information included in this presentation that is not current or historical factual information may constitute forward-looking information or statements within the meaning of applicable securities laws. Forward-looking information is based on certain factors and assumptions regarding, among other things, mining, production, grade and tonnage, construction and exploration activities at the Diavik Diamond Mine, world and US economic conditions, the worldwide demand for luxury goods, the level of worldwide diamond production and the ability to obtain the necessary regulatory approvals to complete the proposed sale of the luxury brand diamond jewelry and timepiece division of Harry Winston Diamond Corporation ( The Company ) and the Ekati transactions and the time frame required to do so and to satisfy the other conditions to closing of these transactions. Specifically, in making statements regarding expected diamond prices and expectations concerning the diamond industry the Company has made assumptions regarding, among other things, world and US economic conditions, diamond supply and demand for luxury goods. 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 Diavik Diamond Mine, future mining activities and processing at the Diavik Diamond Mine, projected capital expenditure requirements and the funding thereof, liquidity and working capital requirements and sources, estimated reserves and resources at, and production from, the Diavik Diamond Mine, the number and timing of expected rough diamond sales, demand for rough diamonds, expected diamond prices and expectations concerning the diamond industry and the demand for luxury goods, expected cost of sales and gross margin trends in the mining segment, expected sales trends and market conditions for luxury goods and the timeline and funding for completion the of the Ekati transactions and the timeline for the completion of the sale of the luxury brand segment. Actual results may vary from the forward-looking information. While the Company considers these assumptions to be reasonable based on the information currently available to it, they may prove to be incorrect. 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, risks that the operator for the Diavik Diamond Mine may decide not to proceed with mining the A-21 pipe, or may otherwise change the mine plan, risks associated with the remote location of and harsh climate at the Diavik Diamond Mine site, risks associated with regulatory requirements, fluctuations in diamond prices and changes in US and world economic conditions, risks resulting from the Euro zone financial crisis, the risk of fluctuations in the Canadian/US dollar exchange rate, cash flow and liquidity risks, risks relating to the timing of and the ability to obtain necessary regulatory approvals for and to satisfy the other conditions of the Ekati transactions and the mining segment s related new financing facilities and risks related to the timing of, and ability to satisfy, the necessary conditions to closing (including the receipt of all necessary regulatory approvals) the sale of the luxury brand segment to the Swatch Group Ltd. Readers/viewers are cautioned not to place undue importance on forward-looking information, which speaks only as of the date of this disclosure, and should not rely upon this information as of any other date. 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, further 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 and respectively. Investor Presentation February 2013 Page 2

3 A Canadian Diamond Champion Canada has some of the richest diamond mines in the world in terms of US$ per tonne of revenue in a very stable political and financial environment The diamond industry has undergone a structural change from a supply led industry with margins under pressure due to excess supply to a consumer driven industry The supply / demand fundamentals look increasingly attractive 1993 to 2011 Aber Resources / Harry Winston 40% ownership interest in the Diavik Diamond Mine. Despite strong cashflow, no other diamond assets available at the right price for the Company to grow the diamond mining business 2004: Purchase of a 51% stake in the luxury brand Harry Winston 2006: Acquisition of the remaining interest in the luxury brand Harry Winston that it did not already own 2012 / 2013 Harry Winston / Dominion Diamond Corporation Unique opportunity to build the diamond mining business as BHP Billiton exits the diamond sector Sale of the Luxury Brand segment to the Swatch Group Ltd. for US$750M plus assumption of existing debt Investor Presentation February 2013 Page 3

4 Canada has some of the World s Richest Mines Global Diamond Mines US$ per tonne Source: De Beers, Alrosa, Public Company Reports and Presentations, Bain &Co Industry Report and HW estimates Investor Presentation February 2013 Page 4

5 The Restructuring of Harry Winston 40% ownership of Diavik Diamond Mine in the NWT In November 2012, the Company entered into agreements to purchase BHP Billiton s controlling shareholding in the Ekati Diamond Mine and its associated diamond marketing operations for a total consideration of $US500M. The closing is expected to occur during March 2013 In January 2013, the Company announced it had entered into an agreement to sell its luxury brand segment to The Swatch Group Ltd. for total consideration of US$750M in cash plus the assumption of existing debt. The sale is expected to be completed during April The Company will change its name to Dominion Diamond Corporation on closing of the transaction The Company is one of the world s leading rough diamond suppliers and will continue with its current rough diamond sorting and sales operations Investor Presentation February 2013 Page 5

6 Diavik Diamond Mine Aerial View Canada s largest diamond mine Located in the Northwest Territories 220 KM south of the Arctic Circle Mine includes 4 kimberlite pipes 3 of which are in operation All major capital expenditure projects completed for existing mine reserves including underground operation The development for the A-21 pipe would require major CAPEX contributions to build the dike and capital equipment Strong free-cash flow generation outside of development of A-21 CAPEX contributions Investor Presentation February 2013 Page 6

7 Maximizing the Price Achieved for Rough Diamonds The production from the Diavik mine is sorted into 10,000+ price points And blended into Sales parcels (assortments) as per requirements and market conditions 10 sales a year in Antwerp and Mumbai Regular interface with all components of the market gives us live prices In-depth market knowledge and experience Long-standing relationships with polishers and jewelry manufacturers The agility to produce a parcel of rough that suits their needs and gain a premium Our presence in the market, as both buyers and sellers, allows us to react immediately to market conditions Investor Presentation February 2013 Page 7

8 Ekati Diamond Mine Purchase Agreement On November 13, 2012, the Company announced that it had entered into agreements to purchase BHP Billiton s interests in the Ekati Diamond Mine and its associated diamond marketing operations Those interests comprise 80% of the Core Zone, which includes the current operating mine and other permitted kimberlite pipes, and 58.8% of the Buffer Zone which has both development and exploration potential The agreed purchase price is US$400M for the Core Zone, and US$100M for the Buffer Zone, to be funded by new debt financing and cash resources on hand Closing is currently expected to occur during March 2013 and is subject to the satisfaction of closing conditions, including regulatory approvals Investor Presentation February 2013 Page 8

9 Sale of the Luxury Brand to The Swatch Group Ltd. On January 14, 2013, the Company announced that it had entered into an agreement to sell its luxury brand jewelry and timepiece division to The Swatch Group Ltd. The agreed upon purchase price is US$750M plus the Swatch Group s assumption of up to US$250M of pro forma net debt Upon closing, and as part of the transaction, Harry Winston will change its name to Dominion Diamond Corporation Completion is subject to receipt of a variety of regulatory approvals and other customary closing conditions. Closing is currently expected to occur during April 2013 The agreement contemplates that the Company will retain an ongoing, non-exclusive relationship with the Swatch Group to source polished diamonds for it and its affiliates Investor Presentation February 2013 Page 9

10 Diamonds are Unique Diamonds Are Not a Homogenous Commodity 2011 Global Rough Diamond Supply: Weight: Value: Average price: 123 million carats US$14 billion US$116 per carat Source: 2011 Kimberly Process Annual Global Summary Scotia Mining Conference November 2012 Page 10

11 Why Invest in Diamonds? Attractive Industry Supply/Demand Fundamentals A structural Supply deficit should continue to provide the industry with price upside Source: De Beers Diamond Briefing 2012 Investor Presentation February 2013 Page 11

12 Why Invest in Diamonds? Pricing Upside Future Supply Shortfall expected to drive prices higher 2000 to 2011: The Dynamics that Drove Rough Diamond Pricing 150 DTC Price Index Real Measured against US Consumer Price Index 140 China and India become sizeable consumers of diamond jewelry Source: RBC, US Department of Labour Investor Presentation February 2013 Page 12

13 1990 to 2010 Structural Flaw has led to Poor Historic Returns Source: DeBeers, RBC, US Department of Labor and Industry Sources Scotia Mining Conference November 2012 Page 13

14 Why Invest in Diamonds? The Rise of China 14 million registered marriages forecast in to 2015 registered marriages forecast to grow at CAGR 9.2% Popular Overseas Purchases for Chinese Millionaires Preferred location for purchase of Luxury Goods Source: Chinese Luxury White Paper 2012 Scotia Mining Conference November 2012 Page 14

15 Why Invest in Diamonds? India: One of the Fastest Growing Diamond Jewelry Markets: 2006 to 2011 North Classic Wedding style Jewellery with bigger look SI J-K Colour The West Modern, fine, sophisticated designs VVS-S1, G-H Colour East Traditional Temple Designs, VS-SI, G-H Colour South Traditional ethnic designs, VVS, D to G Colour Source: Gitanjali Jewelers Scotia Mining Conference November 2012 Page 15

16 Why Invest in Diamonds? Retail Diamond Jewelry Sales in Emerging Markets US$BN Source: WWW Diamond Consultants Investor Presentation February 2013 Page 16

17 Why Invest in Diamonds? 2011 and 2016 Consumer Diamond Demand Forecasts Percentage of Demand by Region Based on US$ Polished Wholesale Prices China and India to drive growth in demand relative to US, Japan and ROW USA 2011: 38% 2016: 34% Gulf/TK 2011: 9% 2016: 8% India 2011: 10% 2016: 15% China : 15% 2016: 20% Japan 2011: 10% 2016: 8% Rest of World 2011: 18% 2016: 15% Source: DeBeers 1 Includes Taiwan and Hong Kong Investor Presentation February 2013 Page 17

18 Why Invest in Harry Winston? Exposure to potential increasing rough diamond prices through mine ownership 300 Rough and Polished Price Index Polished 2.5mm D-F/VVS-VS Polished.5 cts E-G/VS1-VS2 Polished 1 cts E-G/VS1-VS2 Polished 3 cts E-G/VS1-VS2 Polished 5 cts E-G/VS1-VS2 Rough Index Index 100 Harry Winston rough sales and polished purchases indexed to January 2008 Investor Presentation February 2013 Page 18

19 Company Overview Fiscal Year Results and Evolution Fiscal 2011, 2012 & YTD are reported under IFRS. Fiscal 2010 is reported under Canadian GAAP (in millions of US dollars) Sales EBITDA 1 $450 $400 $350 $300 $250 $200 $150 $100 $ $140 $120 $100 $80 $60 $40 $20 $0 45 (3) (8) (11) (12) $ YTD $ YTD 2013 Mining Segment Luxury Brand Segment Mining Segment Luxury Brand Segment Corporate Segment 1 See Appendix, which sets out the Company s computation of EBITDA as operating profit before depreciation and amortization. Corporate segment activities (negative EBITDA) have only been reported during fiscal 2011 and fiscal 2012, prior to that corporate segment activities were not separately broken out. 2 Represents Nine Months ended October 31, 2012 Investor Presentation February 2013 Page 19

20 Fiscal Year 2013 Third Quarter & Year to Date Results Consolidated For three and nine months ending October 31 (in millions of United States dollars) FISCAL PERIOD Q Q YOY Change YTD 2012 YTD 2013 YOY Change Consolidated Sales $120 $ % $486 $ % Operating Profit $(2) 2 $10 NM $26 2 $45 +76% EBITDA 1 $21 $35 +64% $90 $ % 1 See Appendix, which sets out the Company s computation of EBITDA as operating profit before depreciation and amortization. 2 Included in the cost of sales was a non-cash $13M charge related to the de-recognition of the paste plant components at the Diavik Diamond Mine. Investor Presentation February 2013 Page 20

21 Fiscal Year 2013 Third Quarter & Year to Date Results By Segment For three and nine months ending Oct 31 (in millions of United States dollars except carat amounts, which are in millions of carats) FISCAL PERIOD Mining Segment Q Q YOY Change 1 See Appendix, which sets out the Company s computation of EBITDA as operating profit before depreciation and amortization 2 Represents 40% share of the Diavik Production on a calendar quarter basis 3 The comparable period of the prior year included high-value transactions in Asia that were not repeated in the current period. During the nine months ended Oct 31, 2012, there were $19M of high-value transactions which carry lower-than-average gross margins, compared with $61M in the comparable period of the prior year 4 Included in the cost of sales was a non-cash $13M charge related to the de-recognition of the paste plant components at the Diavik Mine. YTD 2012 YTD 2013 YOY Change Sales $36 $ % $188 $ % Operating Profit (Loss) $(1) 4 $9 NM $21 4 $37 +75% EBITDA 1 $19 $30 +59% $76 $93 +23% Carats Recovered M 0.77M N/C 2.03M 2.13M +5% Carats Sold 0.23M 0.88M +286% 1.27M 2.33M +84% Luxury Brand Segment Sales $83 $96 +14% $298 3 $ % Operating Profit $1 $5 +265% $13 $20 +62% EBITDA 1 $5 $9 +101% $22 $31 +42% Corporate Operating Profit (Loss) ($2) ($4) -86% ($8) ($12) -53% EBITDA 1 (loss) ($2) ($4) -92% ($8) ($12) -56% Investor Presentation February 2013 Page 21

22 Mining and Rough Diamond Sorting & Sales Investor Presentation February 2013 Page 22

23 Diavik Underground Investor Presentation February 2013 Page 23

24 Fiscal Year 2013 Third Quarter Mining Results For three and nine months ending Oct 31 (in millions of United States dollars) FISCAL PERIOD Q Q YOY Change YTD 2012 YTD 2013 YOY Change Mining Segment Sales $36 $ % $188 $ % Gross Margin $2 3 $ % $33 3 $47 +43% Gross Margin % 5.9% % +960bp 17.4% % +250bp Operating Profit (Loss) $(1) 3 $9 NM $21 3 $37 +75% EBITDA 1 $19 $30 +59% $76 $93 +23% Carats Recovered M 0.77M N/C 2.03M 2.13M +5% Carats Sold 0.23M 0.88M +286% 1.27M 2.33M +84% 1 See Appendix, which sets out the Company s computation of EBITDA as operating profit before depreciation and amortization 2 Represents 40% share of the Diavik Production on a calendar quarter basis 3 Included in the cost of sales was a non-cash $13M charge related to the de-recognition of the paste plant components of the Diavik Mine Investor Presentation February 2013 Page 24

25 Fiscal Year 2013 Third Quarter Mining Results For three-months ending October 31, 2012 Rough diamond sales increased 134% due to a 286% increase in volume of carats sold during the quarter. The increase was primarily the result of the Company s decision in the comparable quarter of the prior year to hold some inventory due to rough diamond market conditions The Company sold approximately 0.88 million carats at an average price of $96 per carat compared to approximately 0.23 million carats for an average price of $159 per carat in the comparable quarter of the prior year The 39% decrease in the Company s achieved average rough diamond prices during the third quarter resulted primarily from the sale of a higher portion of smaller size diamonds due to an improved market for these goods Had the Company sold only the last production shipped in the third quarter, the estimated achieved price would have been approximately $123 per carat based on the prices achieved in the October 2012 sale Investor Presentation February 2013 Page 25

26 Diavik Diamond Mine Fourth Quarter Production Update Calendar Year Q Q YOY Change YOY Change Carats Recovered (100% basis) 1.6M 1.9M 19% 6.7M 7.2M +7% The 19% increase in carats recovered in the quarter was primarily due to improved grades in each of the kimberlite pipes, partially offset by the 17% decline in ore processed in the quarter, which was due to a reduction in processing plant throughput that resulted from changes in the geological composition of the ore The decrease in carats from the original 2012 calendar plan of 8.2M carats was primarily due to deferring the processing and recovery of lower value carats from Reprocessed Plant Rejects in favour of processing underground ore containing higher valued carats Investor Presentation February 2013 Page 26

27 Average Price per Carat (US$) by Ore Type 2011 & 2012 MODELED SALES PRICES 1 (in United States dollars) 2011 March April May June July Dec 2012 Feb Mar/Apr Oct/Dec A-154 South $140 $160 $165 $180 $200 $165 $160 $160 $135 A-154 North $180 $205 $215 $230 $260 $215 $205 $205 $170 A-418 A Type Ore A-418 B Type Ore Reprocessed Plant Rejects $130 $150 $150 $165 $185 $150 $145 $145 $95 2 $90 $105 $105 $110 $120 $100 $100 $100 $95 2 $65 $55 $55 $55 $45 1 Approximate rough diamond price per carat based on the Company s rough diamond sales prices and the current recovery profile at the Diavik processing plant 2 Represents A-418 blended pipe pricing Investor Presentation February 2013 Page 27

28 Diavik Diamond Ore Mix and Average Price 1 100% and Calendar Year Basis. Prices based on December 2012 Sales Prices. 1 Expected ore mix amounts based on the August 2012 mine plan and Company estimates for further years. Average price based on the Company s most recent sales prices for December Prices do not include Reprocessed Plant Rejects (RPR) and small diamond recoveries which are not included on the Company s Reserve and Resources Statement and are therefore incremental to production. Investor Presentation February 2013 Page 28

29 Diavik Kimberlite Pipes Investor Presentation February 2013 Page 29

30 Diavik Mine Mineral Reserves and Resources Statement As of December 31, 2011 (100% basis) PROVEN RESERVES PROBABLE RESERVES PROVEN and PROBABLE M t ct/t M ct M t ct/t M ct M t ct/t M ct A154S A154N A TOTAL Open Pit (A-418) Underground Total Reserves MEASURED INDICATED INFERRED M t ct/t M ct M t ct/t M ct M t ct/t M ct A154S A154N A A Total Resource Note: Totals may not add up due to rounding. As of December 31, The values shown are for 100% of the Diavik Mine The above mineral reserve and mineral resource statement was prepared by Diavik Diamond Mines Inc., operator of the Diavik Diamond Mine, under the supervision of Calvin Yip, P.Eng., Principal Advisor, Strategic Planning of Diavik Diamond Mines Inc., a Qualified Person within the meaning of National Instrument of the Canadian Securities Administrators. For further details and information concerning Harry Winston Diamond Corporation's Mineral Reserves and Resources, readers should reference Harry Winston Diamond Corporation's Annual Information Form available through and Investor Presentation February 2013 Page 30

31 Exploration Potential More than 240,000 hectares (2,400 square kilometers) on the remaining joint venture holdings Harry Winston has staked 226,000 acres (915 square kilometers) southwest of the existing mine site Diavik Claim Known Kimberlite Pipes Regional Known Kimberlite Pipes Drill Hole Kimberlite Intersection Investor Presentation February 2013 Page 31

32 Summary Largest listed diamond mining company Assets located in the politically and financially safe environment of Canada The Ekati and Diavik Diamond Mines are amongst the world s richest diamond mines The Company is in a position to capitalize on rising diamond prices through increasing supply/demand gap Ability to maximize prices achieved for its production from its expertise and understanding of the entire diamond pipeline Growth potential through developing additional resources and diamond mining acquisitions on an opportunistic basis, where pricing and overall market conditions warrant Strong history and track-record: The Company has been involved in the Canadian diamond industry since the discovery of the Diavik Diamond Mine in 1994 Experience and understanding of the operating environment; it has wellestablished relationships with local communities and regional aboriginal organizations Investor Presentation February 2013 Page 32

33 Appendix

34 Luxury Brand Segment: During Past Two Years Increased Sales 83% in value and 68% in Quantity Fiscal Years F F F F2012 vs. F2010 Sales $225M $345M $412M +187M Operating Profit (loss) (-$16M) +$15M +$19M +35M Directly Operated Salons Licensed Salons Quantity of Units Sold +22% +37% +68% 1 Reported under Canadian GAAP 2 Reported under IFRS Investor Presentation February 2013 Page 34

35 EBITDA Non-GAAP Measure The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have a standardized meaning according to International Financial Reporting Standards ( IFRS ). 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 an d 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) (quarterly results are unaudited) CORPORATE SEGMENT (expressed in thousands of United States dollars) (quarterly results are unaudited) Investor Presentation February 2013 Page 35

36 EBITDA Non-GAAP Measure MINING SEGMENT (expressed in thousands of United States dollars) (quarterly results are unaudited) LUXURY BRAND SEGMENT (expressed in thousands of United States dollars) (quarterly results are unaudited) Investor Presentation February 2013 Page 36