NYSEAM:DDC - Post by User
Post by
scissors14on Sep 09, 2016 7:10pm
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Post# 25224029
TD Maintains $19 USD Target
TD Maintains $19 USD TargetDominion Diamond Corp. (DDC-N) US$8.71 Mill Shutdown Nearing Completion; Positive Catalysts Coming Event Dominion reported Q2/17 financial results; there were no surprises, with production and sales previously released. Impact: NEUTRAL Adjusted EBITDA of $35.4mm (adjusted for $6.4mm impairment charge) was above our estimate of $27.1mm, reflecting lower costs. Looking forward, we expect continued depressed results in Q3 as the final transition material is processed and with the mill still off-line for two-thirds of the period due to the fire. However, the outlook improves significantly thereafter, with cash flow benefiting from high-value Misery Main production and the mill back on-line. First diamond sale from Misery Main confirms pricing assumptions: With commercial production declared at Misery in May 2016, Q2 marked the first sale of these diamonds. Pricing was consistent with our modelled pricing and supports expectations of continued mining of high-value material in H2/17, which is expected to bolster cash flow. Ekati mill repairs nearing completion: The plant is expected to restart on or about September 21, 2016, with total costs of repairs tallying to $15mm. The company has stockpiled high-value material to be processed upon restart, which is expected to offset the negative impacts of the repairs and downtime. We have incorporated the Q2 results and made minor revisions to our forecasts; our NAV declines to $13.30/share from $13.40/share, largely reflecting working capital. Conference call: 8:30 a.m. ET today (September 9). Dial-in: 844-249-9383 or 270-823-1531 (code: 6186632). TD Investment Conclusion We are maintaining our BUY recommendation and US$19.00 target price. Our target is based on 1.0x NAV and 5.0x F2018E EBITDA. In our view, the solid operating track record, favourable near-term growth profile, strong cash flow, and stable jurisdiction make this an attractive investment in a space that has few quality alternatives. With results expected to improve significantly in the coming quarters with the mill coming back on-line and Misery Main production starting up, along with moves expected to address an over-capitalized balance sheet, we believe that there are significant positive catalysts on the horizon.