DDC Enterprise Ltd T.DDC

TD Maintains $18 USD Target

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Dominion Diamond Corp. (DDC-N) US$9.21 Q4 Sales Affected by Indian Currency Crisis; Production Strong Event Dominion reported its Q4/F17 (fiscal quarter ended January 31) diamond sales, Ekati production results, and FY2018 guidance. Impact: SLIGHTLY NEGATIVE Diamond sales weaker than expected: Dominion reported Q4 sales of $130mm, well below our estimate of $226mm, reflecting lower-than-expected diamond sales, with the company opting to hold back stones until there is more robust demand. Total carats sold were 1.4 million, well below our estimate of 2.5 million. Although this will result in a weaker Q4, it is clearly a timing issue, in our opinion, and is consistent with what we have seen across the industry, with the market in India virtually seizing up, particularly for low-end diamonds, following the demonetization crisis and the jewellers' strike. Strong production from Ekati: Production of 2.3mm carats at Ekati was a record result for the company, with the mill running smoothly and production coming from the high-grade Misery Main deposit. This was right in line with our estimate. Only 30% of Ekati's production was sold in the quarter. Diamond pricing in line with expectations: For the carats which Dominion did sell, it received a price of $95/carat, slightly above our average estimate of $91/ carat. 2018 Ekati mine plan shows significant growth: The company is guiding for diamond production of 6.3mm to 7.0mm carats in F2018, in line with our current estimate of 6.8mm carats. In Q1/F18, the company expects to process a greater proportion of high-value ore from the Koala underground and Misery Main pipes. We have updated our model for the Q4 results and the 2018 guidance for Ekati. Our estimates decline for Q4 and remain unchanged for FY2018. TD Investment Conclusion We are maintaining our BUY recommendation and US$18.00 target price. With results expected to improve significantly in the coming quarters with the mill now 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.