Aber Reports First Quarter 2005 Results TORONTO, June 3
/PRNewswire-FirstCall/ -- ABER DIAMOND CORPORATION (TSE- ABZ,
NASDAQ-ABER) HIGHLIGHTS - During the quarter ended April 30, 2004
the Company generated sales of $52.3 million of which $10.1 million
represents sales from Harry Winston. - Aber's pre-tax earnings for
the quarter was $11.7 million as compared to $4.6 million for the
fourth quarter and $7.5 million for the first quarter of the
preceding year. The pre-tax earnings was offset by an income tax
expense of $8.9 million, which included a cumulative, non-cash
future tax expense of $3.3 million, relating to an increase in the
Northwest Territories corporate tax rate from 12% to 14%. - In
April 2004, the Company completed the acquisition of 51% interest
in Harry Winston Inc., one of the world's leading luxury jewelry
and watch retailers. The Company has an option to purchase the
remaining 49% interest of Harry Winston on the sixth anniversary of
the closing at the then fair market value of such interest. Mr.
Thomas J. O'Neill has been appointed as Chief Executive Office of
Harry Winston Inc. and President of Aber and Mr. Robert A.
Gannicott will continue to lead the Company as Chief Executive
Officer. - In March 2004, the Company successfully completed the
refinancing of its Project Loan Facility to a combined secured term
and revolving credit facility. - In February 2004, the Company
completed an offering of 1,500,000 common shares generating net
proceeds to the Company of CDN $71.6 million (US $53.6 million). -
At April 30, 2004, Aber had unrestricted cash of $98.9 million
which represents 45% of total debt outstanding. The Company
anticipates that cash balances will be substantially equal to the
outstanding debt level at year end absent of any additional cash
requirements such as dividends or accelerated capital requirements.
CONSOLIDATED FINANCIAL RESULTS The following is a summary of the
Company's consolidated results of operations for April 30, 2004,
under the basis of presentation utilized in its Canadian GAAP
financial statements: (expressed in thousands of United States
dollars, except per share amounts) Unaudited Three months ended
April 30, 2004 2003 Sales $ 52,269 $ - Cost of sales 28,591 -
-------------------------- 23,678 - Selling, general and
administrative expenses 8,714 2,286 --------------------------
Earnings (loss) from operations 14,964 (2,286)
-------------------------- Interest and financing expenses 2,912
146 Other income - 227 Gain on sale of other assets - 338 Foreign
exchange gain (loss) (349) 9,367 --------------------------
Earnings (loss) before income taxes 11,703 7,500 Income taxes
(recovery) 8,862 2,337 -------------------------- Earnings (loss)
per share $ 2,841 $ 5,163 --------------------------
-------------------------- Basic earnings (loss) per share $ 0.05 $
0.09 Diluted earnings (loss) per share $ 0.05 $ 0.09 Total assets $
817,980 $ 577,855 Total long-term liabilities $ 320,749 $ 284,648
Net Earnings Three months ended April 30, 2004 Aber's net earnings
for the quarter ended April 30, 2004 totalled $2.8 million or $0.05
per share, compared to net earnings of $5.2 million or $0.09 per
share in the first quarter of the preceding year which was prior to
the commencement of commercial production at the Diavik Mine. The
first quarter earnings represent a decrease of $0.4 million or
$0.01 per share from the fourth quarter results of $3.2 million or
$0.06 per share. The decrease in earnings results primarily from
the following: - Income tax expense of $8.9 million was recorded
during the quarter compared to $2.3 million in the preceding year
and $1.2 million in the preceding quarter. The current period's tax
expense reflects a cumulative non-cash income tax expense relating
to the revaluation of future income tax liabilities to reflect an
increase of 2% in future income tax rates in the Northwest
Territories, as substantively enacted during the quarter. The
Company's effective tax rate on regular operating income, excluding
Harry Winston, is 45% for the current fiscal year. - Prior to the
commencement of commercial production (August 1, 2003) at the
Diavik Mine, all interest costs were recorded as deferred mineral
property costs. Other factors contributing to the decrease in
earnings are as follows: - Selling, general and administrative
expenses (SG&A) amounted to $8.7 million during the first
quarter, which includes SG&A expenses of $4.7 million on sales
of $10.1 million for Harry Winston. - During the first quarter, the
A154 South ore grade was affected by the mud-rich material
surrounding the pipe. It is expected that this material will
continue to affect ore grade for the remainder of the year. -
Aber's rough diamond sales are based on a traditional five week
cycle, during the first quarter, only two open market sales events
were conducted at the Company's rough diamond sales centre in
Antwerp. This is comparable to the preceding quarter. Aber expects
that its quarterly results will continue to fluctuate depending in
part upon the number of sales events conducted during the quarter.
Cash Flow from Operations During the quarter ended April 30, 2004,
Aber generated $37.7 million in cash from operations, compared to
$22.8 million in the previous quarter. Included in cash from
operations is $16.1 million generated by Harry Winston for the
month of April. Variations in revenues and operating cash flows are
to a certain degree inherent in the Company's diamond marketing
activity due to the cyclical nature of the Company's open market
sales sight activities and retail sales, and accordingly the
Company expects that such variability will continue to occur on a
quarter over quarter basis. Working Capital During the quarter,
working capital increased to $135.6 million from $60.3 million in
the previous quarter primarily as a result of the addition of
merchandise inventory in conjunction with the acquisition of Harry
Winston and due to the funds received from the net equity raise of
$53.6 million. In addition to contingency cash collateral and
reserve amounts totalling $15.2 million Aber also had $98.9 million
in unrestricted cash and cash equivalents at April 30, 2004, of
which $8.0 million was held at the Diavik Mine and $4.6 million was
held at Harry Winston. This compares to unrestricted cash and cash
equivalents of $23.6 million and contingency cash collateral and
reserves of $100.1 million as at January 31, 2004, of which $7.2
million was held at the Diavik Mine. RESULTS OF OPERATIONS During
the first quarter, Aber implemented its retail investment strategy
with the acquisition of a majority interest of Harry Winston, the
premier retailer of fine, diamond-focused jewelry in the United
States, Japan and Europe, has marked a strategic expansion of
Aber's activities. Aber's move into the luxury retail market has
been complemented by the appointment of Mr. Thomas J. O'Neill as
Chief Executive Officer of Harry Winston and President of Aber,
with Mr. Ronald Winston continuing as Chairman of Harry Winston and
Mr. Robert A. Gannicott continuing as Chief Executive Officer of
Aber. Mr. O'Neill, who joins the Aber organization from Burberry
& Co., has an extensive career history in both diamond jewelry
and luxury goods retailing, having previously held senior positions
with both Tiffany and Co. and LVMH Moet Hennessy Louis Vuitton.
Operations from the Diavik Mine continued to perform well during
the first quarter, with the process plant working comfortably ahead
of design capacity rates of 1.5 million tons per annum. Grades
continue to reflect the processing of mud-rich material that
surrounds the kimberlite ore at the Diavik Mine. The Diavik Mine
completed its winter road-shipping season during which
approximately 1,500 loads of fuel and other supplies were trucked
over the seasonal ice road to the mine site. Among the shipments
were three new additional Komastsu 830E haul trucks, which will be
assembled on site and commissioned in the next few months, thereby
significantly augmenting operations. Mine Production Production
information from the Diavik Mine, Aber's 40% share:
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Three months Three months ended ended March 31, December 31, 2004
2003
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Diamonds recovered ('000 carats) 615 440
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Grade (carats/tonne) 3.9 3.7
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Operating costs, cash ($ millions) 15.0 14.8
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Operating costs per carat, cash ($) 24 34
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Cash operating costs decreased by $10 per carat from the preceding
quarter as a result of the Diavik Mine's continued progress towards
full production. Segmented Analysis The operating segments of the
Company include mining and retail segments. (expressed in thousands
of United States dollars) Mining Unaudited Three months ended April
30, 2004 2003 Sales $ 42,153 $ - Cost of sales 23,521 -
--------------------------- 18,632 - Selling, general and
administrative expenses 3,996 2,286 ---------------------------
Earnings (loss) from operations $ 14,636 $ (2,286)
--------------------------- --------------------------- Mining
segment includes the production and sale rough diamonds. Sales for
the first quarter totalled $42.2 million compared to $41.6 million
in the preceding quarter and $4.1 million in the comparable quarter
of the prior year. Sales from the first quarter of the preceding
year were realized prior to commercial production and were credited
against deferred mineral property costs prior to August 1, 2003.
The Company combined two of its sales sights in the first quarter
of this year due to the lower quantity of product available to be
sold resulting from the processing of low grade stockpiles. Cost of
sales includes cash operating costs of $14.7 million, non cash
operating costs of $8.0 million and private production royalties of
$0.8 million. A substantial portion of cost of sales is mining
operating costs which are incurred at the Joint Venture level. Cost
of sales also include sorting costs which is comprised of Aber's
cost of handling and assorting product in preparation of sales to
third parties. Non cash costs include amortization and
depreciation, the majority of which is recorded on a unit of
production method over estimated proven and probable reserves.
Private production royalties are recorded based on actual
production during each accounting period. The first quarter gross
margin was 44% compared to 37% in the preceding quarter and $nil in
the preceding year which was prior to the commencement of
commercial production. The gross margin realized on cash operating
costs was 63% in the first quarter compared to 58% in the preceding
quarter and $nil in the preceding year. The increase in gross
margins resulted from lower per unit cash costs as a result of
increased production. Stock option and restricted and deferred
share unit expense of $1.0 million was recorded during the first
quarter, compared to $0.6 million in the preceding quarter and $0.6
million from the preceding year. Depreciation and amortization was
$1.4 million during the first quarter, $1.6 million in the
preceding quarter and $0.2 million in the preceding year. Certain
costs associated with the acquisition of Harry Winston of $0.3
million, $0.4 million in the preceding quarter and $1.7 million in
the preceding year were expensed during the quarter. Retail
Unaudited One month ended April 30, 2004 2003 Sales $ 10,116 $ -
Cost of sales 5,070 - --------------------------- 5,046 - Selling,
general and administrative expenses 4,718 -
--------------------------- Earnings (loss) from operations $ 328 $
- --------------------------- --------------------------- Aber
completed a 51% acquisition of Harry Winston during the quarter.
The segmented retail figures represent only sales for the month of
April 2004 from six salons located in New York, Beverly Hills,
Paris, Geneva, Tokyo and Osaka. Sales for this month were $10.1
million. Gross margins were 50% and selling, general and
administrative expenses were $4.7 million. Direct sales through the
salons saw an increase across a range of products with jewelry
sales over $100,000 being particularly strong. The major factor was
the resurgence of the United States market driven by economic
recovery and increased tourist traffic. Sales in Europe and Japan
were broadly in line with the previous year. New salon openings in
Las Vegas, USA and Taipei, Taiwan are planned for the third quarter
of this year. The wholesale watch business continued its strong
year of growth with the United States market leading the charge.
Orders were significantly higher for Harry Winston limited watches
at the Basle Watch and Jewelry fair, the key trade show for the
wholesale watch business. Harry Winston Acquisition On April 2,
2004, the Company announced the acquisition of a 51% share of Harry
Winston Inc., a luxury jewelry and watch retailer. The Company
purchased its interest for $85.0 million, of which $20.3 million
was in the form of a direct equity investment in Harry Winston. The
total purchase price payable before transaction costs by the
Company is payable in installments, with $40.0 million including
the direct equity paid on closing of the transaction and the
balance to be paid over the one year period following closing. The
Company also has the option to purchase the remaining 49% interest
in Harry Winston on the sixth anniversary of the closing at the
then fair market value of such interest, failing which the other
principal shareholders of Harry Winston will have the ability to
institute a process for the sale of Harry Winston as an entity
(including the Company's 51% interest). The preliminary allocation
of the purchase price over the fair value of assets acquired and
liabilities assumed is $63.4 million. This amount is currently
reflected on the balance sheet as goodwill and intangible assets.
The finalization of the purchase price allocations is pending the
completion of the valuation of the goodwill and intangible assets.
OUTLOOK 2004 diamond production at the Diavik Mine, based on the
2004 production forecast, is expected to be in the mid to upper
range of 7.0 to 8.0 million carats, based on an annual processing
capacity of 1.7 million tonnes. Current rates of ore processing are
at or exceeding this level. Operating efficiencies continue to
expand the capacity of the processing plant beyond its nameplate
capacity of 1.5 million tonnes. An annual production rate of 1.7
million tonnes may be viewed as a conservative estimate of
sustainable capacity, and the operator does not consider the plant
to have yet achieved its full potential. Mining operations in the
A154S pit are proceeding smoothly, and with the expansion of the
haulage fleet during the first quarter, diamond production is not
currently restricted by ore supply. The low-grade mud-rich unit
surrounding the A154S ore body continues to have a dilutive effect
on recovered grade. This grade dilution is expected to continue
until the end of the year as mining advances to the 320m bench
level, beyond which the mud unit is not observed. Currently,
drilling is ongoing to better delineate the shape of the A418 pipe
and the nature of the diamond resource at depth in A154N. The
results of this work are expected at year end. Two rough diamond
sales are scheduled for the second quarter. Given the expected
shortage of rough available in the market during the second half of
the year, the outlook for this period, and the remainder of the
year, remains positive. Harry Winston plans to open two new retail
salons in the next six months bring the total number of salons to
eight. One salon will be in Las Vegas at the Forum Shops. The other
salon will be in Taipei, Taiwan and will be the first salon in Asia
beyond the existing locations in Japan. The outlook for the
remainder of the year is positive, although it is highly dependant
on economic conditions. Aber intends to return a substantial
portion of its earnings to its shareholders in the form of
dividends at such time that a stable and sustainable dividend
stream can be established. The Diavik mine plan revisions, with a
reliable schedule of capital requirements and production rates,
must be reviewed before a dividend policy can be formulated later
this year. ABER DIAMOND CORPORATION Consolidated Balance Sheets
April 30, 2004 and January 31, 2004 (expressed in thousands of
United States dollars) April 30, January 31, 2004 2004 (unaudited)
Assets Current assets: Cash and cash equivalents $ 98,898 $ 23,628
Cash collateral 15,226 100,091 Accounts receivable 11,602 3,549
Inventory 126,819 22,177 Advances and prepaid expenses 10,911 2,130
------------- ------------- 263,456 151,575 -------------
------------- Deferred mineral property costs 202,478 206,073
Capital assets 269,984 263,442 Goodwill and intangibles 63,425 -
Other assets 18,637 11,678 ------------- ------------- $ 817,980 $
632,768 ------------- ------------- ------------- -------------
Liabilities and Shareholders' Equity Current liabilities: Accounts
payable and accrued liabilities $ 57,789 $ 18,478 Promissory note
49,765 - Current portion of long-term debt 20,295 72,805
------------- ------------- 127,849 91,283 -------------
------------- Long term debt 200,992 150,270 Future income tax
liability 84,008 67,492 Other long-term liabilities 14,449 12,065
Minority interest 21,300 - Shareholders' equity: Share capital
286,642 232,897 Stock options 6,882 6,096 Retained earnings 59,872
57,031 Cumulative Translation Adjustment 15,986 15,634
------------- ------------- 369,382 311,658 -------------
------------- ------------- ------------- $ 817,980 $ 632,768
------------- ------------- ------------- ------------- ABER
DIAMOND CORPORATION Consolidated Statements of Earnings and
Retained Earnings For the Quarter ending: April 30, 2004 (expressed
in thousands of United States dollars) (unaudited) APRIL 30, APRIL
30, 2004 2003 Sales $ 52,269 $ - Cost of sales 28,591 -
------------- ------------- 23,678 - ------------- -------------
Selling, general and administrative expenses 8,714 2,286
------------- ------------- Earnings from operations 14,964 (2,286)
------------- ------------- Interest and financing expenses 2,912
146 Other income - 227 Gain on sale of other assets - 338 Foreign
exchange (349) 9,367 ------------- ------------- Earnings before
income taxes 11,703 7,500 Income taxes 8,862 2,337 -------------
------------- Earnings 2,841 5,163 Retained earnings, beginning of
period 57,031 - ------------- ------------- Retained earnings, end
of period $ 59,872 $ 5,163
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Earnings per share Basic $ 0.05 $ 0.09
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Fully diluted $ 0.05 $ 0.09
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ABER DIAMOND CORPORATION Consolidated Statements of Cash Flows
Quarter Ending April 30, 2004 (expressed in thousands of United
States dollars) (unaudited) April 30, April 30, 2004 2003 Cash
provided by (used in): Operating: Net earnings for the period $
2,841 $ 5,162 Items not involving cash: Amortization 7,188 190
Future income taxes 6,912 1,994 Stock based compensation 786 574
Foreign exchange 440 (9,367) Gain on sale of other assets - (338)
Change in non-cash operating working capital 19,502 (1,807)
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37,669 (3,592) Financing: Issuance of long term debt - 29,069
Repayment of long term debt (56,384) (63) Deferred financing
(4,220) (170) Issue of common shares, for cash 53,745 673
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(6,859) 29,509
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Investing: Cash collateral and cash reserve 84,865 - Deferred
mineral property costs (851) (13,749) Capital assets (5,708)
(11,101) Deferred charges (2,719) (22) Purchase of Harry Winston
(net of opening cash) (29,962) - Proceeds on sale of other assets -
366
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45,625 (24,506)
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Foreign exchange effect on cash balances (1,165) (239)
Increase/(decrease) in cash and cash equivalents 75,270 1,172 Cash
and cash equivalents, beginning of period 23,628 24,450
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Cash and cash equivalents, end of period $ 98,898 $ 25,622
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Change in non-cash operating working capital: Accounts receivable $
22,544 $ (280) Prepaid expenses 719 (1) Inventory (5,149) -
Accounts payable and accrued liabilities 1,388 (1,526)
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$ 19,502 $ (1,807)
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Included in this news release are "forward-looking statements"
within the meaning of the US Private Securities Litigation Reform
Act of 1995. When used in this release, words such as "estimate",
"intend", "expect", "anticipate", "projected" and similar
expressions are intended to identify forward-looking statements --
which are, by their very nature, not guarantees of Aber's future
operational or financial performance, and are subject to risks and
uncertainties. All forward-looking statements are based on Aber's
current beliefs as well as assumptions made by and information
currently available to the Company and relate to, among other
things, anticipated financial performance, business prospects,
strategies, regulatory developments, market forces and commitments.
This forward-looking information mainly concerns Aber's plans for
its diamond initiatives and is based on the conclusions of
management. With respect to Aber's future revenues from its
marketing activities, differences may result from developments in
world diamond markets, diamond valuations, risks relating to the
Company's entry into luxury diamond and jewelry retailing through
the acquisition of a 51% interest in Harry Winston and other
factors. With respect to the Diavik Diamond Mine (known as the
Diavik Project prior to the commencement of Commercial Production),
differences may result from additional drilling, sampling, diamond
valuations, engineering and construction timetables and problems,
unanticipated problems with mine operations and production,
revisions to mining plans and other operational decisions taken by
Aber's Joint Venture partner, fluctuations in energy, labour and
other input costs, financial arrangements, local, regional or
national political developments in Canada, fluctuations in the
Canadian dollar relative to the US dollar and other factors. With
respect to other projects, actual events may differ from current
expectations due to exploration results, new exploration
opportunities, changing budget priorities of Aber or its Joint
Venture partner and other factors. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date of this release. Due to risks and
uncertainties, including the risks and uncertainties identified
above and elsewhere in this Interim Report, actual events may
differ materially from current expectations. The Company disclaims
any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise. 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.
Aber's Annual Meeting of Shareholders will be held on June 22,
2004, at 10:00AM at the TSX Conference Centre, The Exchange Tower,
130 King Street West, Toronto, Ontario. The meeting will be
broadcast on the internet at http://www.aber.ca/ About Aber Aber
Diamond Corporation is a diamond marketing company supplying a
Canadian product to the global diamond market. The Company's wholly
owned subsidiary, Aber Diamond Mines Ltd., holds a 40% joint
venture interest in Canada's second diamond mine, the Diavik
Diamond Mine located off Lac de Gras in Canada's Northwest
Territories. The Diavik Diamond Mine is operated by Diavik Diamond
Mines Inc. ("DDMI") (60%), a wholly owned subsidiary of Rio Tinto
plc. of London, England. DATASOURCE: Aber Diamond Corporation
CONTACT: please contact: Robert A. Gannicott, President and Chief
Executive Officer - (416) 362- 2237 (ext. 225); Amir Kalman,
Manager, Investor Relations - (416) 362-2237 (ext. 244)
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