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Dominion Diamond Corporation reports Fiscal 2015 Second Quarter Results

September 03,2014

TORONTO, Sept. 3, 2014 /PRNewswire/ - Dominion Diamond Corporation (TSX: DDC, NYSE: DDC) (the "Company" or "Dominion") reports that the Ekati Diamond Mine and the Diavik Diamond Mine performed exceptionally well in the second fiscal quarter of 2015 (May through July). Rough diamond production, sales and pricing have all exceeded plan. Unless otherwise indicated, all financial information is presented in U.S. dollars.

The Company recorded a second quarter consolidated net income attributable to shareholders of $26.6 million or $0.31 per share.

Robert Gannicott, Chairman and Chief Executive Officer stated: "It is a pleasure to be able to report another quarter that exceeds expectations. We have embedded improvements to diamond recovery, rough diamond marketing and cost control efficiencies to deliver a story that continues to improve."

Diamond Market
The first six months of fiscal 2015 saw continuing growth in diamond jewellery sales in the United States and the mass market in China, which together account for over half of the world's diamond jewellery sales, resulting in rough diamond prices rising approximately 8%.

Highlights
The Company continues to focus on delivering enhanced value from its world class diamond mines, the Ekati Diamond Mine (in which the Company owns an 80% interest) and the Diavik Diamond Mine (in which the Company owns a 40% interest).

  • Carats recovered in the first six months of fiscal 2015 at the Ekati Diamond Mine were estimated to be 30% ahead of plan due to higher than expected grades coupled with operational improvements to the processing plant implemented by the Company over the last 10 months.
  • Stripping at the Misery pipe pushback is proceeding according to plan. A total of $121 million of capital expenditure remains to be spent before the Misery Main pipe, at 4.0 carats per tonne and $105 per carat (as of January 31, 2014), comes into production in December, 2015.
  • During the second quarter, the Company promoted the Misery South and Southwest satellite ("Misery Satellite") pipes to inferred mineral resources.  An updated Ekati Mine plan, including the inferred resource at Misery South and Southwest, was published on July 21, 2014.
  • On July 9, 2014, the Company entered into a share purchase agreement with C. Fipke Holdings Ltd. (FipkeCo) to acquire, subject to the rights of first refusal set out in the applicable joint venture agreements, FipkeCo's 10% participating interests in the Core Zone and Buffer Zone of the Ekati Diamond Mine at a price equivalent to the price paid to BHP Billiton in 2013 for its interests. It is anticipated that completion of the transactions will occur in September, 2014.
  • The Company intends to complete both the Developers Assessment Report ("DAR") and the pre-feasibility study for the Jay project at the Ekati Diamond Mine by the end of November, 2014.  The submission of the DAR report is the next important step in the Environmental Assessment process for the Jay project.
  • During this fiscal year, the Company has expensed $15.5 million on the Jay Project which involves the development of the largest diamondiferous resource in North America. The open pit portion of the Jay Pipe has the potential to extend the operating life of the Ekati Diamond Mine by a further 10 years beyond the currently scheduled closure in 2019 with the potential for an underground mine beyond that.
  • In June, the Company received the amended Ekati Water License for the Lynx pipe.
  • The Company has received the final approvals to proceed with the development of the Pigeon pipe. The mining of kimberlite ore from the Pigeon pipe is expected to commence in fiscal 2016.

Financial Summary

  • The Company has a strong balance sheet and is well-funded to achieve its growth objectives. As of July 31, 2014, the Company held total cash and cash equivalents of $384 million ($268 million of cash and $116 million of restricted cash).

Consolidated Financial Highlights                          
(in millions of US dollars except earnings per share
and where otherwise noted)
      Three months
ended July 31,
2014
    Three months
ended July 31,
2013
    Six months
ended July 31,
2014
    Six months
ended July 31,
2013
Sales       277.3     261.8     452.8     370.6
Cost of Sales       221.2     231.1     358.9     312.6
Gross Margin       56.1     30.7     93.9     58.0
Gross Margin (%)       20.2%     11.7%     20.7%     15.7%
Selling general & administration       9.6     15.1     16.8     31.9
Operating profit from continuing operations       46.5     15.7     77.2     26.1
EBITDA from continuing operations       109.6     48.3     179.2     79.0
EBITDA Margin (%)       40%     18%     40%     21%
Earnings per share       0.31     (0.16)     0.48     (0.12)

Excluded from the Ekati sales recorded in the second quarter were carats produced and sold from the processing of material from the Misery Satellite pipes. During the second quarter, the Company sold an estimated 0.13 million carats of production from the Misery Satellite pipes for estimated proceeds of $10.6 million for an average price per carat of $79, which includes the incremental diamond recovery from processing improvements.

For the six months ended July 31, 2014, the Company sold an estimated 0.23 million carats of production from the Misery Satellite pipes for estimated proceeds of $17.4 million for an average price per carat of $77, which includes the incremental diamond recovery from processing improvements.

The Company expects the Misery Satellite pipes to commence commercial production (for accounting purposes) on September 1, 2014.

Exploration expense of $6.8 million was incurred during the second quarter ($3.1 million in the comparable quarter of the prior year); all of which was incurred for work on the Jay pipe within the Buffer Zone at the Ekati Diamond Mine.

       
Cash Flow      
Q2 Fiscal 2015
(in millions of US dollars except where otherwise noted)
     
Opening net cash at April 30, 2014     328.1
Cash flow from operations for the period     108.5
Capital expenditures for the period     (45.8)
Cash tax paid for the period     (6.9)
Net interest paid during the period     (0.2)
Other     0.3
Closing net cash at July 31, 2014     384.0

Cash Flow      
H1 Fiscal 2015
(in millions of US dollars except where otherwise noted)
     
Opening net cash at January 31, 2014     338.4
Cash flow from operations for the period     157.3
Capital expenditures for the period     (101.8)
Cash tax paid for the period     (27.6)
Net interest paid during the period     (0.6)
Other     18.3  
Closing net cash at July 31, 2014     384.0

Operational Summary
For the second consecutive quarter, diamond production at the Ekati Diamond Mine was substantially ahead of plan due to higher than expected grades coupled with operational improvements to the processing plant implemented by the Company over the last 10 months.

Ore processed at the Diavik Diamond Mine for the calendar quarter was 17% higher than compared to the same quarter of the prior year (29% ahead of plan for the three months ended July 31, 2014). This was predominately due to greater ore availability as a result of higher mining rates and improved equipment availability, equipment efficiencies and utilization of the processing plant.

Rough Diamond Production     Three months
ended July 31,
2014
  Three months
ended July 31,
2013
  Six months
ended July 31,
2014
  April 10 to July
31,
20131
Ekati Diamond Mine (100%)                  
Tonnes processed ('000's)     1,061   1,105   2,022   1,311
Carats Recovered ('000's)     802   483   1,362   565
Grade (carats per tonne)     0.76   0.44   0.67   0.43
                   
Diavik Diamond Mine (40%)2     Three months
ended June 30,
2014
  Three months
ended June 30,
2013
  Six months
ended June 30,
2014
  Six months
ended June 30,
2013
Tonnes processed ('000's)     247   211   482   412
Carats Recovered ('000's)     860   624   1,606   1,402
Grade (carats per tonne)3     3.47   2.82   3.20   3.24
Represents the period for the Ekati Diamond Mine from April 10, 2013 (the date of acquisition by
the Company of its interest in the Ekati Diamond Mine) to July 31, 2013.
2 The Diavik Diamond Mine reports on a calendar quarter, whereas the Ekati Diamond Mine reports
to the Company's fiscal quarter. For the three months ended July 31, 2014, the Diavik Diamond
Mine (on a 40% basis) produced 870,000 carats from the processing of 248,000 tonnes of ore.
The last month of this production is not included in the Company's second quarter financial results,
as the Company reports Diavik results on a one-month lag.
Grade adjusted to exclude Coarse Ore Rejects (COR). COR is not included in the reserves and
is therefore incremental production.

Segmented Summary

Ekati and Diavik Summary
(in millions of US dollars, except carats sold)
      Three months
ended July 31,
2014
  Three months
ended July 31,
2013
  Six months
ended July 31,
2014
  Six months
ended July 31,
20131
Ekati Diamond Mine (100%)                    
Sales2       170.3   170.5   263.1   190.5
Carats sold ('000's)       552   589   811   601
Cash Cost of Production       77.2   94.3   167.1   111.5
Cost of Sales       142.5   162.8   223.9   182.4
Gross Margin       27.8   7.8   39.2   8.1
Gross Margin (%)       16.3%   4.6%   14.9%   4.2%
Operating Profit       26.9   7.1   36.8   6.9
Depreciation & amortization       35.4   10.5   55.6   10.5
EBITDA       62.3   17.6   92.4   17.4
EBITDA Margin (%)       37%   10%   35%   9%
Capital Expenditures       42.0   28.2   91.2   37.0
Diavik Diamond Mine (40%)                    
Sales       107.0   91.3   189.7   180.2
Carats sold ('000's)       959   703   1,541   1,486
Cash Cost of Production       37.1   38.9   76.3   81.8
Cost of Sales       78.8   68.3   135.0   130.2
Gross Margin       28.3   22.9   54.7   50.0
Gross Margin (%)       26.4%   25.1%   28.8%   27.7%
Operating Profit       27.2   21.5   52.7   47.4
Depreciation & amortization       27.4   21.8   45.8   41.7
EBITDA       54.7   43.3   98.5   89.1
EBITDA Margin (%)       51%   47%   52%   49%
Capital Expenditures       3.8   5.6   10.6   16.5

Represents the period for the Ekati Diamond Mine from April 10, 2013 (the date of acquisition by the Company
of its interest in the Ekati Diamond Mine) to July 31, 2013.
2 Excluded from the Ekati sales recorded in the second quarter were carats produced and sold from the processing
of material   from the Misery Satellite pipes. During the second quarter, the Company sold an estimated 0.13 million
carats of production from the Misery Satellite pipes for estimated proceeds of $10.6 million for an average price per
carat of $79, which includes the recovery of small diamonds. For the six months ended July 31, 2014, the Company
sold an estimated 0.23 million carats of production from the Misery Satellite pipes for estimated proceeds of $17.4
million for an average price per carat of $77, which includes the incremental diamond recovery from processing
improvements.  The Company now expects the Misery Satellite pipes to commence commercial production (for
accounting purposes) on September 1, 2014.

Diamond Sales
Three rough diamond sales were completed by the Company during the second quarter. The substantial increases in diamond production at both the Ekati and Diavik Diamond Mines during the second quarter of fiscal 2015, together with the decision to keep a consistent blend of Ekati and Diavik goods to supply customers under the new sales contracts (which commenced in August 2014), has resulted in an increase in the diamonds held in inventory at the end of the period.

At July 31, 2014, the Company held rough diamond inventory with an estimated market value of approximately $315 million of which approximately $195 million represented inventory available for sale, including $45 million of discretionary inventory with the balance being work in progress.

Diamond Inventory
(in millions of US dollars, except carats)
July 31,
2014
 January 31,
2014
Ekati Diamond Mine (100%) Carats (million) 0.9 0.5
  At Cost 150 130
  Estimated Market Value 250 140
Diavik Diamond Mine (40%) Carats (million) 0.5 0.4
  At Cost 40 50
  Estimated Market Value 65 65
Consolidated Diamond Inventory Estimated Market Value of
Total Inventory1
315 205
1 Includes an estimated $45 million (at market value) of discretionary stock held back
from sale at July 31, 2014.

Diamond Prices
July 2014 Average Price per Carat (in US dollars) 
Diavik Ore Type Ekati Ore Type1
A-154 South $145 Koala $395
A-154 North $190 Koala North $440
A-418 $105 Fox $315
Coarse Ore Rejects $50 Misery Satellite Pipes $90
    Coarse Ore Rejects $65 - 120
Rough Diamond Prices  January to July, 2014 +8% Recovered Small Diamonds $70 - 100
1   The Ekati prices do not reflect the increased recovery of small diamonds from the
improvements in processing so as to be consistent with the Company's current
reserve estimates.  The rough diamond price of the additional recovered small
diamonds at Ekati is estimated at between $70 and $100 per carat.

 
Had the Company sold only the last production shipped in the second quarter, the estimated price based on the
prices achieved in the July 2014 sale, would have been:
Ekati Diamond Mine (100%) approximately $281 per carat
Diavik Diamond Mine (40%) approximately $131 per carat

Full Year Guidance
(in millions of US dollars)1
Cash Costs2 Depreciation &
Amortization
Cost of Sales Capital Expenditures2
Ekati Diamond Mine (100%) 355 125 475 170
Diavik Diamond Mine (40%) 150 95 275 22
1   Assuming an average Canadian/US dollar exchange rate of $1.10.
2   The guidance on capital expenditures and cash costs of production for Diavik are for the
calendar year ending December 31, 2014; all others are for the fiscal year ending January
31, 2015.

See "Caution Regarding Forward-Looking Information" in the Company's Second Quarter Management's Discussion and Analysis for additional information with respect to guidance on projected capital expenditure requirements and expected cost of sales, depreciation & amortization and cash operating costs for the Ekati Diamond Mine and Diavik Diamond Mine.

Non-IFRS Measures
The terms EBITDA, EBITDA margin and cash cost of production do not have standardized meanings according to International Financial Reporting Standards. See "Non-IFRS Measures" in the Company's Second Quarter Management's Discussion and Analysis for additional information.

Conference Call and Webcast
Beginning at 8:30AM (ET) on Thursday, September 4, the Company will host a conference call for analysts, investors and other interested parties. Listeners may access a live broadcast of the conference call on the Company's web site at www.ddcorp.ca or by dialing 877-415-3179 within North America or 857-244-7322 from international locations and entering passcode 71421503.

An online archive of the broadcast will be available by accessing the Company's web site at www.ddcorp.ca. A telephone replay of the call will be available one hour after the call through 11:00PM (ET), Thursday, September 18, 2014, by dialing 888-286-8010 within North America or 617-801-6888 from international locations and entering passcode 24190095.

About Dominion Diamond Corporation
Dominion Diamond Corporation is a Canadian diamond mining company with ownership interests in two major producing diamond mines.  Both mines are located in the low political risk environment of the Northwest Territories in Canada.

The Company operates the Ekati Diamond Mine through its 80% ownership as well as a 58.8% ownership in the surrounding areas containing additional resources, and also owns 40% of the Diavik Diamond Mine. It supplies rough diamonds to the global market through its sorting and selling operations in Canada, Belgium and India and is the world's third largest producer of rough diamonds by value.

Highlights

(All figures are in United States dollars unless otherwise indicated)

CONSOLIDATED FINANCIAL HIGHLIGHTS
(expressed in millions of United States dollars, except per share amounts and where otherwise noted)
(unaudited)
      Three months
ended July 31,
2014
  Three months
ended July 31,
2013
  Six months
ended July 31,
2014
  Six months
ended July 31,
2013
Sales   $ 277.3 $ 261.8 $ 452.8 $ 370.6
Cost of sales     221.2   231.1   358.9   312.6
Gross margin     56.1   30.7   93.9   58.0
Gross margin (%)     20.2%   11.7%   20.7%   15.7%
Selling, general and administration     9.6   15.1   16.8   31.9
Operating profit from continuing operations     46.5   15.7   77.2   26.1
EBITDA from continuing operations     109.6   48.3   179.2   79.0
EBITDA margin (%)     40%   18%   40%   21%
Net income (loss) from continuing operations attributable to
shareholders
    26.6   (13.9)   41.3   (10.4)
Earnings per share attributable to shareholders     0.31   (0.16)   0.48   (0.12)

SECOND QUARTER RESULTS
Dominion Diamond Corporation (the "Company") recorded a consolidated net profit attributable to shareholders of $26.6 million or $0.31 per share for the quarter, compared to a net loss attributable to shareholders of $13.9 million or $(0.16) per share in the second quarter of the prior year.

Consolidated sales from continuing operations were $277.3 million for the quarter, compared to $261.8 million for the comparable quarter of the prior year, resulting in an operating profit of $46.5 million, compared to an operating profit of $15.7 million in the comparable quarter of the prior year. Consolidated EBITDA from continuing operations was $109.6 million, compared to $48.3 million in the comparable quarter of the prior year. During the second quarter, the Company recorded sales from the Diavik Diamond Mine of $107.0 million, compared to $91.3 million in the comparable quarter of the prior year. The Company sold approximately 1.0 million carats from the Diavik Diamond Mine for an average price per carat of $112, compared to 0.7 million carats for an average price per carat of $130 in the comparable quarter of the prior year. The 14% decrease in the achieved average rough diamond prices and 36% increase in volume of carats sold versus the comparable quarter of the prior year resulted from the sale of the lower value inventory carried over at April 30, 2014. The Diavik segment generated gross margins and EBITDA margins as a percentage of sales of 26.4% and 51%, respectively, compared to 25.1% and 47%, respectively, in the comparable quarter of the prior year. At July 31, 2014, the Company had 0.5 million carats of Diavik Diamond Mine produced inventory with an estimated market value of approximately $65 million.

During the second quarter, the Ekati Diamond Mine recorded sales of $170.3 million, compared to $170.5 million for the comparable period of the prior year. The Company sold approximately 0.6 million carats for an average price per carat of $308, compared to 0.6 million carats for an average price per carat of $289 for the comparable quarter of the prior year. Excluded from sales recorded in the second quarter were carats produced and sold from the processing of satellite material from the Misery South & Southwest kimberlite pipes as this material was excavated during the pre-stripping operations of the Misery Main pipe. The Ekati Diamond Mine generated gross margins and EBITDA margins as a percentage of sales of 16.3% and 37%, respectively, compared to 4.6% and 10%, respectively, for the prior year. The prior year results include the purchase of inventory at market values as part of the acquisition of the Ekati Diamond Mine (the "Ekati Diamond Mine Acquisition"). The Company estimates that gross margins and EBITDA margins for the second quarter would have been approximately 19.4% and 39%, respectively, if the carats sold from material excavated from the Misery South & Southwest kimberlite pipes were recognized as revenue. During pre-production, sales of Misery South & Southwest carats have been applied as a reduction of mining assets. At July 31, 2014, the Company had 0.9 million carats of Ekati Diamond Mine produced inventory with an estimated market value of approximately $250 million. Included in ending inventory was an estimated 0.2 million carats produced from Misery South & Southwest with an estimated market value of approximately $15 million.

The Corporate segment, which includes all costs not specifically related to the operations of the Diavik and Ekati mines, recorded selling, general and administrative expenses of $7.6 million, compared to $13.0 million in the comparable quarter of the prior year. Prior year results included $6.0 million of restructuring costs at the Antwerp, Belgium office related to the Ekati Diamond Mine Acquisition.

DIAVIK DIAMOND MINE (40%)
(expressed in millions of United States dollars, except per share amounts and where otherwise noted)
(unaudited)
      Three months
ended July 31,
2014
  Three months
ended July 31,
2013
  Six months
ended July 31,
2014
  Six months
ended July 31,
2013
Sales   $ 107.0 $ 91.3 $ 189.7 $ 180.2
Carats sold ('000s)     959   703   1,541   1,486
Cost of sales     78.8   68.3   135.0   130.2
Gross margin     28.3   22.9   54.7   50.0
Gross margin (%)     26.4%   25.1%   28.8%   27.7%
Operating profit     27.2   21.5   52.7   47.4
Cash cost of production     37.1   38.9   76.3   81.8
Depreciation and amortization     27.4   21.8   45.8   41.7
EBITDA     54.7   43.3   98.5   89.1
EBITDA margin (%)     51%   47%   52%   49%
Capital expenditures     3.8   5.6   10.6   16.5

EKATI DIAMOND MINE (100%)
(expressed in millions of United States dollars, except per share amounts and where otherwise noted)
(unaudited)
      Three months
ended July 31,
2014
  Three months
ended July 31,
2013
  Six months
ended July 31,
2014
  Six months
ended July 31,
2013
Sales   $ 170.3 $ 170.5 $ 263.1 $ 190.5
Carats sold ('000s)     552   589   811   601
Cost of sales     142.5   162.8   223.9   182.4
Gross margin     27.8   7.8   39.2   8.1
Gross margin (%)     16.3%   4.6%   14.9%   4.2%
Operating profit     26.9   7.1   36.8   6.9
Cash cost of production     77.2   94.3   167.1   111.5
Depreciation and amortization     35.4   10.5   55.6   10.5
EBITDA     62.3   17.6   92.4   17.4
EBITDA margin (%)     37%   10%   35%   9%
Capital expenditures     42.0   28.2   91.2   37.0

Management's Discussion and Analysis
Prepared as of September 3, 2014 (all figures are in United States dollars unless otherwise indicated)

Basis of Presentation
The following is management's discussion and analysis ("MD&A") of the results of operations for Dominion Diamond Corporation for the three and six months ended July 31, 2014, and its financial position as at July 31, 2014. This MD&A is based on the Company's unaudited interim condensed consolidated financial statements prepared in accordance with International Accounting Standard 34 ("IAS 34"), as issued by the International Accounting Standards Board ("IASB"), and should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto for the three and six months ended July 31, 2014, and the audited consolidated financial statements for the year ended January 31, 2014. Unless otherwise specified, all financial information is presented in United States dollars. Unless otherwise indicated, all references to "second quarter" refer to the three months ended July 31, 2014.

Caution Regarding Forward-Looking Information
Certain information included in this MD&A constitutes forward-looking information within the meaning of Canadian and United States securities laws. Forward-looking information can generally be identified by the use of terms such as "may", "will", "should", "could", "would", "expect", "plan", "anticipate", "foresee", "appears", "believe", "intend", "estimate", "predict", "potential", "continue", "objective", "modeled", "hope", "forecast" or other similar expressions concerning matters that are not historical facts. Forward-looking information relates to management's future outlook and anticipated events or results, and can include statements or information regarding plans for mining, development, production and exploration activities at the Company's mineral properties, projected capital expenditure requirements, liquidity and working capital requirements, estimated production from the Ekati Diamond Mine and Diavik Diamond Mine, expectations concerning the diamond industry, and expected cost of sales and cash operating costs. Forward-looking information included in this MD&A includes the anticipated completion of the Company's acquisition from C. Fipke Holdings Ltd. ("FipkeCo") of a 10% interest in the Core Zone and Buffer Zone of the Ekati Diamond Mine, the current production forecast, cost of sales and cash cost of production estimates and planned capital expenditures for the Diavik Diamond Mine and other forward-looking information set out under "Diavik Operations Outlook", and the current production forecast, cost of sales and cash cost of production estimates and planned capital expenditures for the Ekati Diamond Mine and other forward-looking information set out under "Ekati Operations Outlook".

Forward-looking information is based on certain factors and assumptions described below and elsewhere in this MD&A including, among other things, the current mine plans for each of the Ekati Diamond Mine and the Diavik Diamond Mine; mining, production, construction and exploration activities at the Company's mineral properties; currency exchange rates; and world and US economic conditions. 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 the Company currently expects. 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, the risk that the operator of the Diavik Diamond Mine may make changes to the mine plan and other risks arising because of the nature of joint venture activities, risks associated with the remote location of and harsh climate at the Company's mineral property sites, risks resulting from the Eurozone financial crisis and macro economic uncertainty in other financial markets, risks associated with regulatory requirements, the risk of fluctuations in diamond prices and changes in US and world economic conditions, the risk of fluctuations in the Canadian/US dollar exchange rate and cash flow and liquidity risks. Please see page 25 of this MD&A, as well as the Company's current Annual Information Form, available at www.sedar.com and www.sec.gov, respectively, for a discussion of these and other risks and uncertainties involved in the Company's operations. Actual results may vary from the forward-looking information.

Readers are cautioned not to place undue importance on forward-looking information, which speaks only as of the date of this MD&A, and should not rely upon this information as of any other date. Due to assumptions, risks and uncertainties, including the assumptions, risks and uncertainties identified above and elsewhere in this MD&A, actual events may differ materially from current expectations. The Company uses forward-looking statements because it believes such statements provide useful information with respect to the currently expected future operations and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. 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, future events or otherwise at any particular time, except as required by law.

SUMMARY DISCUSSION
Dominion Diamond Corporation is focused on the mining and marketing of rough diamonds to the global market. The Company supplies rough diamonds to the global market from its operation of the Ekati Diamond Mine, which the Company controls, and its 40% ownership interest in the Diavik Diamond Mine. Both mineral properties are located at Lac de Gras in Canada's Northwest Territories.

The Company controls the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium. The Company acquired its interest in the Ekati Diamond Mine on April 10, 2013 (the "Ekati Diamond Mine Acquisition"). The Ekati Diamond Mine consists of the Core Zone (in which the Company owns 80%), which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer Zone (in which the Company owns 58.8%), an adjacent area hosting kimberlite pipes having both development and exploration potential, such as the Jay kimberlite pipe and the Lynx kimberlite pipe. The Company controls and consolidates the Ekati Diamond Mine and minority shareholders are presented as non-controlling interests in the consolidated financial statements.

The Company has an ownership interest in the Diavik group of mineral claims. The Diavik Joint Venture (the "Diavik Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines (2012) Inc. ("DDMI") (60%) and Dominion Diamond Diavik Limited Partnership ("DDDLP") (40%) where DDDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. Both DDMI and DDDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England. The Company receives 40% of the diamond production from the Diavik Diamond Mine.

On July 9, 2014, the Company entered into an agreement with FipkeCo, subject to the rights of first refusal set out in the applicable joint venture agreements, to acquire FipkeCo's 10% interest in the Core Zone and Buffer Zone of the Ekati Diamond Mine. FipkeCo will sell its 10% interest in the Core Zone and Buffer Zone for an aggregate purchase price of US $67 million (subject to certain adjustments to reflect joint venture contributions and distributions since June 30, 2012, as well as interest from that date), which represents the equivalent price paid to BHP Billiton in 2013 for its interests. It is anticipated that completion of the transactions would occur in September 2014.

MARKET COMMENTARY
The rough diamond market remained steady during the second fiscal quarter after the advances made in the first few months of the year. In recent years there has been a seasonal slowdown in rough diamond demand in this quarter which failed to materialize this year due to the strength in the polished diamond markets. Demand has been steady for rough diamonds that produce a 0.5 to 1 carat polished diamond in the lower ranges of colour and quality. Better-quality goods were less in demand over the second quarter and prices in this range weakened slightly both for rough and polished.

The retail jewelry market in the United States has remained confident as has the mass market sector of Chinese retail. The luxury end of the business in the Chinese market has slowed but there are indications of a return to a more positive direction in these ranges as the calendar year end approaches. The Indian retail jewelry market welcomed the constructive attitude towards business that the newly elected government has shown and the Company expects to see this translate into a return to growth as the Diwali season approaches.

CONSOLIDATED FINANCIAL RESULTS
The following is a summary of the Company's consolidated quarterly results for the eight quarters ended July 31, 2014.

(expressed in thousands of United States dollars except per share amounts and where otherwise noted)
(unaudited)  
    2015   2015   2014   2014   2014   2014   2013   2013   Six months
ended
July 31,
2014
  Six months
ended
July 31,
2013
    Q2   Q1   Q4   Q3   Q2   Q1   Q4   Q3    
Sales $ 277,314 $ 175,522 $ 233,163 $ 148,138 $ 261,803 $ 108,837 $ 110,111 $ 84,818 $ 452,835 $ 370,640
Cost of sales   221,240   137,680   202,030   136,221   231,086   81,535   79,038   71,663   358,922   312,621
Gross margin   56,074   37,842   31,133   11,917   30,717   27,302   31,073   13,155   93,913   58,019
Gross margin (%)   20.2%   21.6%   13.4%   8.0%   11.7%   25.1%   28.2%   15.5%   20.7%   15.7%
Selling, general and
administrative expenses
  9,606   7,148   10,117   7,408   15,056   16,843   10,086   7,581   16,754   31,899
Operating profit from continuing
operations
  46,468   30,694   21,016   4,509   15,661   10,459   20,987   5,574   77,159   26,120
Finance expenses   (3,206)   (3,310)   (3,553)   (3,136)   (17,921)   (2,742)   (2,382)   (2,308)   (6,516)   (20,663)
Exploration costs   (6,846)   (9,044)   (3,290)   (7,074)   (3,145)   (1,039)   (306)   (673)   (15,890)   (4,184)
Finance and other income   933   2,827   491   825   1,032   804   601   60   3,761   1,836
Foreign exchange gain (loss)   816   (947)   (7,917)   1,122   (2,814)   732   116   (301)   (133)   (2,082)
Profit (loss) before income taxes
from continuing operations
  38,165   20,220   6,747   (3,754)   (7,187)   8,214   19,016   2,352   58,381   1,027
Income tax expense   13,969   9,533   19,018   2,792   8,655   5,042   6,977   1,583   23,503   13,697
Net profit (loss) from continuing
operations
$ 24,196 $ 10,687 $ (12,271) $ (6,546) $ (15,842) $ 3,172 $ 12,039 $ 769 $ 34,878 $ (12,670)
Net profit (loss) from discontinued
operations
  -   -   -   -   -   502,656   2,802   3,245   -   502,656
Net profit (loss) $ 24,196 $ 10,687 $ (12,271) $ (6,546) $ (15,842) $ 505,828 $ 14,841 $ 4,014 $ 34,878 $ 489,986
Net profit (loss) from continuing
operations attributable to
                                       
Shareholders $ 26,586 $ 14,671 $ (7,802) $ (4,794) $ (13,884) $ 3,504 $ 12,146 $ 152 $ 41,252 $ (10,380)
Non-controlling interest   (2,390)   (3,984)   (4,469)   (1,752)   (1,958)   (332)   (107)   617   (6,374)   (2,290)
Net profit (loss) attributable to                                        
Shareholders $ 26,586 $ 14,671 $ (7,802) $ (4,794) $ (13,884) $ 506,160 $ 14,948 $ 3,397 $ 41,252 $ 492,277
Non-controlling interest   (2,390)   (3,984)   (4,469)   (1,752)   (1,958)   (332)   (107)   617   (6,374)   (2,290)
Earnings (loss) per share -
continuing operations
attributable to shareholders
                                       
  Basic $ 0.31 $ 0.17 $ (0.09) $ (0.06) $ (0.16) $ 0.04 $ 0.14 $ 0.00 $ 0.48 $ (0.12)
  Diluted $ 0.31 $ 0.17 $ (0.09) $ (0.06) $ (0.16) $ 0.04 $ 0.14 $ 0.00 $ 0.48 $ (0.12)
Earnings (loss) per share
attributable to shareholders
                                       
  Basic $ 0.31 $ 0.17 $ (0.09) $ (0.06) $ (0.16) $ 5.96 $ 0.18 $ 0.04 $ 0.48 $ 5.79
  Diluted $ 0.31 $ 0.17 $ (0.09) $ (0.06) $ (0.16) $ 5.89 $ 0.18 $ 0.04 $ 0.48 $ 5.69
Cash dividends declared per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Total assets(i) $ 2,356 $ 2,361 $ 2,305 $ 2,305 $ 2,295 $ 2,412 $ 1,710 $ 1,733 $ 2,356 $ 2,295
Total long-term liabilities(i) $ 668 $ 676 $ 691 $ 688 $ 696 $ 695 $ 269 $ 682 $ 668 $ 696
Operating profit from continuing
operations
$ 46,468 $ 30,694 $ 21,016 $ 4,509 $ 15,661 $ 10,459 $ 20,987 $ 5,574 $ 77,159 $ 26,120
Depreciation and amortization(ii)   63,164   38,885   55,228   31,978   32,644   20,211   24,346   20,588   102,051   52,855
EBITDA from continuing
operations(iii)
$ 109,632 $ 69,579 $ 76,244 $ 36,487 $ 48,305 $ 30,670 $ 45,333 $ 26,162 $ 179,210 $ 78,975
(i)  Total assets and total long-term liabilities are expressed in millions of United States dollars.
(ii)  Depreciation and amortization included in cost of sales and selling, general and administrative expenses.
(iii)  Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 23.

Three Months Ended July 31, 2014, Compared to Three Months Ended July 31, 2013
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a second quarter consolidated net income attributable to shareholders of $26.6 million or $0.31 per share, compared to net loss attributed to shareholders of $13.9 million or $(0.16) per share in the second quarter of the prior year.

CONSOLIDATED SALES
Consolidated sales for the second quarter totalled $277.3 million, consisting of Diavik rough diamond sales of $107.0 million and Ekati rough diamond sales of $170.3 million. This compares to sales of $261.8 million in the comparable quarter of the prior year (Diavik rough diamond sales of $91.3 million and Ekati rough diamond sales of $170.5 million).

The Company expects that results for its mining operations will fluctuate depending on the seasonality of production at its mineral properties, the number of sales events conducted during the quarter, rough diamond prices and the volume, size and quality distribution of rough diamonds delivered from the Company's mineral properties and sold by the Company in each quarter. See "Segmented Analysis" on page 11 for additional information.

CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's second quarter cost of sales was $221.2 million resulting in a gross margin of 20.2%, compared to a cost of sales of $231.1 million and a gross margin of 11.7% for the comparable quarter of the prior year. The Company's cost of sales includes costs associated with mining and rough diamond sorting activities. See "Segmented Analysis" on page 11 for additional information.

CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $14.0 million during the second quarter, compared to a net income tax expense of $8.7 million in the comparable quarter of the prior year. The Company's combined federal and provincial statutory income tax rate for the quarter is 26.5%. There are a number of items that can significantly impact the Company's effective tax rate, including foreign currency exchange rate fluctuations, the Northwest Territories mining royalty, earnings subject to tax different than the statutory rate and unrecognized tax benefits. As a result, the Company's recorded tax provision can be significantly different than the expected tax provision calculated based on the statutory tax rate.

The recorded tax provision is particularly impacted by foreign currency exchange rate fluctuations. The Company's functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. During the second quarter, the Canadian dollar strengthened against the US dollar. As a result, the Company recorded an unrealized foreign exchange loss of $1.1 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange gain of $4.2 million in the comparable quarter of the prior year. The unrealized foreign exchange loss is recorded as part of the Company's deferred income tax expense, and is not deductible for Canadian income tax purposes. During the second quarter, the Company also recognized a deferred income tax recovery of $0.7 million for temporary differences arising from the difference between the historical exchange rate and the current exchange rate translation of foreign currency non-monetary items. This compares to a deferred income tax expense of $7.4 million recognized in the comparable quarter of the prior year. The recorded tax provision during the quarter also included a net income tax recovery of $1.5 million relating to foreign exchange differences between income in the currency of the country of origin and US dollars. This compares to net income tax expense of $1.2 million recognized in the comparable period of the prior year.

Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company's effective tax rate will fluctuate in future periods.

CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of selling, general and administrative ("SG&A") expenses include expenses for salaries and benefits, professional fees, consulting and travel. The Company incurred SG&A expenses of $9.6 million for the second quarter, compared to $15.1 million in the comparable quarter of the prior year. The prior year SG&A expenses included $6.0 million in additional costs related to the Ekati Diamond Mine Acquisition. See "Segmented Analysis" on page 11 for additional information.

CONSOLIDATED FINANCE EXPENSES
Finance expense for the second quarter was $3.2 million, compared to finance expense of $17.9 million for the comparable quarter of the prior year. $14.0 million of finance expenses included in the comparable quarter of the prior year relate to the cancellation of the credit facilities that had been previously arranged in connection with the Ekati Diamond Mine Acquisition. Also included in consolidated finance expense is accretion expense of $3.0 million (three months ended July 31, 2013 - $2.7 million) related to future site restoration liabilities at the Diavik Diamond Mine and the Ekati Diamond Mine.

CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $6.8 million was incurred during the second quarter, compared to $3.1 million in the comparable quarter of the prior year. Included in exploration expense for the second quarter is $6.8 million of exploration work on the Jay pipe within the Buffer Zone at the Ekati Diamond Mine.

CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $0.9 million was recorded during the second quarter, compared to $1.0 million in the comparable quarter of the prior year.

CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange gain of $0.8 million was recognized during the second quarter, compared to a net foreign exchange loss of $2.8 million in the comparable quarter of the prior year. The Company does not currently have any significant foreign exchange derivative instruments outstanding.

Six Months Ended July 31, 2014, Compared to Six Months Ended July 31, 2013
CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded consolidated net income attributable to shareholders of $41.3 million or $0.48 per share, for the six months ended July 31, 2014, compared to $492.3 million or $5.79 per share in the comparable period of the prior year. Included in the six-month period ended July 31, 2013 amount is the net profit from discontinued operations of $502.7 million recognized on the sale of Harry Winston, Inc. (the "Luxury Brand Segment").

CONSOLIDATED SALES
Consolidated sales totalled $452.8 million for the six months ended July 31, 2014, consisting of Diavik rough diamond sales of $189.7 million and Ekati rough diamond sales of $263.1 million. This compares to sales of $370.6 million in the comparable period of the prior year (Diavik rough diamond sales of $180.2 million and Ekati rough diamond sales of $190.5 million). The Ekati rough diamond sales are for the period from April 10, 2013, which was the date the Ekati Diamond Mine Acquisition was completed, to July 31, 2013.

See "Segmented Analysis" on page 11 for additional information.

CONSOLIDATED COST OF SALES AND GROSS MARGIN
The Company's cost of sales was $358.9 million for the six months ended July 31, 2014, resulting in a gross margin of 20.7%, compared to a cost of sales of $312.6 million and a gross margin of 15.7% for the comparable period of the prior year. The Company's cost of sales includes costs associated with mining and rough diamond sorting activities.

CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $23.5 million during the six months ended July 31, 2014, compared to a net income tax expense of $13.7 million in the comparable period of the prior year. The Company's combined federal and provincial statutory income tax rate for the six months ended July 31, 2014 is 26.5%. There are a number of items that can significantly impact the Company's effective tax rate, including foreign currency exchange rate fluctuations, the Northwest Territories mining royalty, earnings subject to tax different than the statutory rate and unrecognized tax benefits. As a result, the Company's recorded tax provision can be significantly different than the expected tax provision calculated based on the statutory tax rate.

The recorded tax provision is particularly impacted by foreign currency exchange rate fluctuations. The Company's functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. During the six months ended July 31, 2014, the Canadian dollar strengthened against the US dollar. The Company recorded an unrealized foreign exchange loss of $5.0 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability during the six months ended July 31, 2014. This compares to unrealized foreign exchange gain of $6.0 million recorded in the comparable period of the prior year. The unrealized foreign exchange loss is recorded as part of the Company's deferred income tax expense, and is not deductible for Canadian income tax purposes. During the six months ended July 31, 2014, the Company recognized a deferred income tax recovery of $6.1 million for temporary differences arising from the difference between the historical exchange rate and the current exchange rate translation of foreign currency non-monetary items. This compares to a deferred income tax expense of $10.5 million recognized in the comparable period of the prior year. The recorded tax provision during the six months ended July 31, 2014 also included a net income tax expense of $1.3 million relating to foreign exchange differences between income in the currency of the country of origin and the US dollar. This compares to no tax expense or recovery recognized in the comparable period of the prior year.

Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company's effective tax rate will fluctuate in future periods.

CONSOLIDATED SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The principal components of SG&A expenses include expenses for salaries and benefits, professional fees, consulting and travel. The Company incurred SG&A expenses of $16.8 million during the six months ended July 31, 2014, compared to $31.9 million in the comparable period of the prior year. The prior year SG&A expenses included $17.2 million of transaction costs related to the Ekati Diamond Mine Acquisition. See "Segmented Analysis" on page 11 for additional information.

CONSOLIDATED FINANCE EXPENSES
Finance expense was $6.5 million for the six months ended July 31, 2014, compared to finance expense of $20.7 million for the comparable period of the prior year. $14.0 million of finance expenses included in the comparable period of the prior year relate to the cancellation of the credit facilities that had been previously arranged in connection with the Ekati Diamond Mine Acquisition. Also included in finance expense is accretion expense of $5.9 million (six months ended July 31, 2013 - $3.4 million) related to future site restoration liabilities at the Diavik Diamond Mine and the Ekati Diamond Mine.

CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $15.9 million was incurred during the six months ended July 31, 2014, compared to $4.2 million in the comparable period of the prior year. Included in exploration expense for the year is $15.5 million of exploration work on the Jay pipe within the Buffer Zone at the Ekati Diamond Mine and $0.4 million of exploration work on the Company's claims in the Northwest Territories.

CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $3.8 million was recorded during the six months ended July 31, 2014, compared to $1.8 million in the comparable period of the prior year. Included in the current period was a gain on sale of an asset of $2.4 million.

CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange loss of $0.1 million was recognized during the six months ended July 31, 2014, compared to a net foreign exchange loss of $2.1 million in the comparable period of the prior year. The Company does not currently have any significant foreign exchange derivative instruments outstanding.

SEGMENTED ANALYSIS
The operating segments of the Company include the Diavik Diamond Mine, the Ekati Diamond Mine and the Corporate segment. The Corporate segment captures costs not specifically related to operating the Diavik and Ekati mines.

Diavik Diamond Mine
This segment includes the production, sorting and sale of rough diamonds from the Diavik Diamond Mine.

(expressed in thousands of United States dollars)
(unaudited)   
        2015   2015   2014   2014   2014   2014   2013   2013   Six months
ended
July 31,
  Six months
ended
July 31,
        Q2   Q1   Q4   Q3   Q2   Q1   Q4   Q3   2014   2013
Sales                                            
  North America     $ - $ - $ 511 $ - $ - $ 6,179 $ 4,604 $ 7,697 $ - $ 6,179
  Europe       94,858   73,918   112,001   45,088   80,530   61,642   84,346   57,438   168,776   142,172
  India       12,175   8,757   6,704   7,818   10,737   21,095   21,161   19,683   20,931   31,832
Total sales       107,033   82,675   119,216   52,906   91,267   88,916   110,111   84,818   189,707   180,183
Cost of sales       78,751   56,232   87,690   40,018   68,328   61,888   79,038   71,663   134,984   130,216
Gross margin       28,282   26,443   31,526   12,888   22,939   27,028   31,073   13,155   54,723   49,967
Gross margin (%)       26.4%   32.0%   26.4%   24.4%   25.1%   30.4%   28.2%   15.5%   28.8%   27.7%
Selling, general and  
administrative expenses
      1,067   975   1,122   1,123   1,409   1,110   1,860   1,279   2,042   2,518
Operating profit     $ 27,215 $ 25,468 $ 30,404 $ 11,765 $ 21,530 $ 25,918 $ 29,213 $ 11,876 $ 52,681 $ 47,449
Depreciation and  
amortization(i)
      27,435   18,389   28,885   12,434   21,768   19,906   24,042   20,283   45,825   41,674
EBITDA(ii)     $ 54,650 $ 43,857 $ 59,289 $ 24,199 $ 43,298 $ 45,824 $ 53,255 $ 32,159 $ 98,506 $ 89,123
(i)  Depreciation and amortization included in cost of sales and selling, general and administrative expenses.
(ii)  Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 23.

Three Months Ended July 31, 2014, Compared to Three Months Ended July 31, 2013
DIAVIK SALES
During the second quarter, the Company sold approximately 1.0 million carats from the Diavik Diamond Mine for a total of $107.0 million for an average price per carat of $112, compared to 0.7 million carats for a total of $91.3 million for an average price per carat of $130 in the comparable quarter of the prior year. The 14% decrease in the achieved average rough diamond prices and 36% increase in volume of carats sold versus the comparable quarter of the prior year resulted from the sale of the lower value inventory carried over at April 30, 2014. At July 31, 2014, the Company had 0.5 million carats of Diavik Diamond Mine produced inventory with an estimated market value of approximately $65 million, which is consistent with the inventory held at the end of the comparable quarter of the prior year.

Had the Company sold only the last production from the Diavik Diamond Mine shipped in the second quarter, the estimated achieved price would have been approximately $131 per carat based on the prices achieved in the July 2014 sale.

DIAVIK COST OF SALES AND GROSS MARGIN
The Company's second quarter cost of sales for the Diavik Diamond Mine was $78.8 million resulting in a gross margin of 26.4%, compared to a cost of sales of $68.3 million and a gross margin of 25.1% in the comparable quarter of the prior year. Cost of sales for the second quarter included $27.3 million of depreciation and amortization, compared to $21.6 million in the comparable quarter of the prior year. The Diavik segment generated gross margins and EBITDA margins of 26.4% and 51%, respectively, compared to 25.1% and 47%, respectively, in the comparable quarter of the prior year. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices.

A substantial portion of consolidated cost of sales is mining operating costs incurred at the Diavik Diamond Mine. During the second quarter, the Diavik cash cost of production was $37.1 million, compared to $38.9 million in the comparable quarter of the prior year. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.

The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Diavik Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Diavik Diamond Mine's cost of sales disclosed for the three months ended July 31, 2014 and 2013.

             
(expressed in thousands of United States dollars)   Three months ended
July 31, 2014
  Three months ended
July 31, 2013
Diavik cash cost of production $ 37,101   $ 38,887
Private royalty   2,046     1,730
Other cash costs   762     889
Total cash cost of production   39,909     41,506
Depreciation and amortization   26,170     18,539
Total cost of production   66,079     60,045
Adjusted for stock movements   12,672     8,283
Total cost of sales $ 78,751   $ 68,328

DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Diavik Diamond Mine segment during the second quarter were $1.1 million, compared to $1.4 million in the comparable quarter of the prior year.

Six Months Ended July 31, 2014, Compared to Six Months Ended July 31, 2013
DIAVIK SALES
During the six months ended July 31, 2014, the Company sold approximately 1.5 million carats from the Diavik Diamond Mine for a total of $189.7 million for an average price per carat of $123, compared to 1.5 million carats for a total of $180.2 million for an average price per carat of $121 in the comparable period of the prior year. The 2% increase in the achieved average rough diamond prices resulted primarily from increased market prices for rough diamonds in the current period.

DIAVIK COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Diavik Diamond Mine for the six months ended July 31, 2014 was $135.0 million resulting in a gross margin of 28.8%, compared to a cost of sales of $130.2 million and a gross margin of 27.7% in the comparable period of the prior year. Cost of sales for the six months ended July 31, 2014 included $45.6 million of depreciation and amortization, compared to $41.2 million in the comparable quarter of the prior year. The Diavik segment generated gross margins and EBITDA margins of 28.8% and 52%, respectively, compared to 27.7% and 49%, respectively, in the comparable period of the prior year. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices.

A substantial portion of consolidated cost of sales is mining operating costs incurred at the Diavik Diamond Mine. During the six months ended July 31, 2014, the Diavik cash cost of production was $76.3 million, compared to $81.8 million in the comparable period of the prior year. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.

The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Diavik Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Diavik Diamond Mine's cost of sales disclosed for the six months ended July 31, 2014 and 2013.

             
(expressed in thousands of United States dollars)   Six months ended
July 31, 2014
  Six months ended
July 31, 2013
Diavik cash cost of production $ 76,295   $ 81,806
Private royalty   3,472     2,924
Other cash costs   1,475     1,959
Total cash cost of production   81,242     86,689
Depreciation and amortization   46,902     41,448
Total cost of production   128,144     128,137
Adjusted for stock movements   6,839     2,079
Total cost of sales $ 134,983   $ 130,216

DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Diavik Diamond Mine segment during the six months ended July 31, 2014 were $2.0 million, compared to $2.5 million in the comparable period of the prior year.

OPERATIONAL UPDATE
During the second quarter of the calendar year 2014, the Diavik Diamond Mine produced (on a 100% basis) 2.2 million carats from 0.6 million tonnes of ore processed, compared to 1.6 million carats from 0.5 million tonnes of ore processed in the comparable period of the prior year. Total production includes coarse ore rejects ("COR"), which are not included in the Company's reserves and resource statement and are therefore incremental to production.

Processing volumes in the second quarter of calendar 2014 were 17% higher than the prior year's comparable quarter as a result of continuing improvements in mining rates as the underground ramp up progressed to full production from all six kimberlite pipes. Carat production during the second quarter of calendar 2014 was 38% higher, compared to the comparable quarter of the prior year, primarily as a result of greater ore availability as a result of higher mining rates and improved equipment availability, equipment efficiencies and utilization of the processing plant.

DOMINION DIAMOND DIAVIK LIMITED PARTNERSHIP'S 40% SHARE OF DIAVIK DIAMOND MINE PRODUCTION
(reported on a one-month lag)

For the three months ended June 30, 2014

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
A-154 South     67     260   3.88
A-154 North     88     194   2.21
A-418     92     401   4.36
COR     0.2     6   -
Total     247     860   3.47(a)
(a)  Grade has been adjusted to exclude COR.

For the three months ended June 30, 2013

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
A-154 South     61     229   3.79
A-154 North     69     130   1.89
A-418     80     232   2.89
COR     1     33   -
Total     211     624   2.82(a)
(a)  Grade has been adjusted to exclude COR.

For the six months ended June 30, 2014

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
A-154 South     103     395   3.84
A-154 North     190     421   2.21
A-418     185     715   3.86
COR     3     75   -
Total     482     1,606   3.20(a)
(a)  Grade has been adjusted to exclude COR.

For the six months ended June 30, 2013

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
A-154 South     120     524   4.36
A-154 North     138     296   2.15
A-418     151     506   3.35
COR     3     76   -
Total     412     1,402   3.24(a)
(a)  Grade has been adjusted to exclude COR.

For the period from May 1 to July 31, 2014(a)

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
A-154 South     64     249   3.87
A-154 North     82     175   2.12
A-418     101     442   4.36
COR     -     5   -
Total     248     870   3.49(b)
(a)  The last month of this production was not included
in the Company's second quarter financial results,
as the Company reports Diavik Diamond Mine
results on a one-month lag.
(b)  Grade has been adjusted to exclude COR.

For the period from May 1 to July 31, 2013(a)

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
A-154 South     55     217   3.96
A-154 North     79     156   1.98
A-418     72     195   2.70
COR     1     34   -
Total     207     602   2.76(b)
(a)  The last month of this production was not included
in the Company's second quarter financial results
for fiscal 2014, as the Company reports Diavik
Diamond Mine results on a one-month lag.
(b)  Grade has been adjusted to exclude COR.

For the period from February 1 to July 31, 2014(a)

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
A-154 South     112     417   3.71
A-154 North     179     393   2.19
A-418     191     753   3.94
COR     2     42   -
Total     484     1,605   3.24(b)
(a)  The last month of this production is not included
in the Company's second quarter financial results,
as the Company reports Diavik Diamond Mine
results on a one-month lag.
(b)  Grade has been adjusted to exclude COR.

For the period from February 1 to July 31, 2013(a)

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
    Grade
(carats/tonne)
A-154 South     113     461     4.07
A-154 North     146     292     2.00
A-418     155     489     3.15
COR     2     74     -
Total     417     1,317     3.00(b)
(a)  The last month of this production was not included
in the Company's second quarter financial results
for fiscal 2014, as the Company reports Diavik
Diamond Mine results on a one-month lag.
(b)  Grade has been adjusted to exclude COR.

Diavik Operations Outlook
PRODUCTION
The full-year production target for calendar 2014 foresees Diavik Diamond Mine production (on a 100% basis) of approximately 6.5 million carats from the mining of approximately 2.0 million tonnes of ore and processing of approximately 2.2 million tonnes of material from both mining and stockpiles. Mining activities will be exclusively underground with approximately 0.7 million tonnes expected to be sourced from A-154 North, approximately 0.5 million tonnes from A-154 South and approximately 0.8 million tonnes from A-418 kimberlite pipes. The 8% increase in expected carat production from run of mine ore compared to the original mine plan results primarily from an increase in ore processed as a result of improvements in the availability and utilization of the processing plant. In addition to the 6.5 million carats produced from run of mine ore there will be production from COR. This additional production is not included in the Company's ore reserves, and is therefore incremental. Based on historical recovery rates, the tonnage of this material which is planned to be processed during calendar 2014 would produce 0.3 million carats from COR.

PRICING
Based on the average prices per carat achieved by the Company in the latest sale which was held in July 2014, the Company has modeled the approximate rough diamond price per carat for each of the Diavik kimberlite process plant feed types in the table that follows:

Ore type         July 2014
sales cycle
Average price
per carat
(in US dollars)
A-154 South $       145
A-154 North         190
A-418         105
COR         50

COST OF SALES AND CASH COST OF PRODUCTION
Based on the current mine plan for the Diavik Diamond Mine for calendar 2014, the Company currently expects cost of sales for the Diavik Diamond Mine in fiscal 2015 to be approximately $275 million (including depreciation and amortization of approximately $95 million). The Company's 40% share of the cash cost of production at the Diavik Diamond Mine for calendar 2014 is expected to be approximately $150 million at an assumed average Canadian/US dollar exchange rate of $1.10.

CAPITAL EXPENDITURES
The Company currently expects DDDLP's 40% share of the planned capital expenditures for the Diavik Diamond Mine in fiscal 2015 to be approximately $22 million, assuming an average Canadian/US dollar exchange rate of 1.10. During the second quarter, DDDLP's share of capital expenditures was $3.8 million ($10.6 million for the six months ended July 31, 2014).

The Company and Rio Tinto plc are currently finalizing the feasibility study of the A-21 project, which provides a window of opportunity to extract value of the Diavik Diamond Mine before the end of its mine life. Internal reviews of the study are being completed with the plan to finalize the study by the end of the year.

Ekati Diamond Mine
This segment includes the production, sorting and sale of rough diamonds from the Ekati Diamond Mine.

(expressed in thousands of United States dollars)
(unaudited)
                                       
        2015   2015   2014   2014   2014   2014   2013   2013   Six
months
ended
July 31,
  Period
April 10
to July
31,
        Q2   Q1   Q4   Q3   Q2   Q1   Q4   Q3   2014   2013
Sales                                            
North America     $ - $ - $ 413 $ - $ - $ - $ - $ - $ - $ -
Europe       160,667   88,469   111,542   95,232   170,536   19,921   -   -   249,136   190,457
India       9,614   4,378   1,992   -   -   -   -   -   13,992   -
Total sales       170,281   92,847   113,947   95,232   170,536   19,921   -   -   263,128   190,457
Cost of sales       142,489   81,448   114,340   96,202   162,758   19,647   -   -   223,938   182,405
Gross margin       27,792   11,399   (393)   (970)   7,778   274   -   -   39,190   8,052
Gross margin (%)       16.3%   12.3%   (0.3%)   (1.0%)   4.6%   1.4%   -%   -%   14.9%   4.2%
Selling, general and
administrative expenses
      941   1,475   1,120   362   676   520   -   -   2,416   1,196
Operating profit (loss)     $ 26,851 $ 9,924 $ (1,513) $ (1,332) $ 7,102 $ (246) $ - $ - $ 36,774 $ 6,856
Depreciation and amortization(i)       35,438   20,154   25,892   19,166   10,513   -   -   -   55,592   10,513
EBITDA(ii)     $ 62,289 $ 30,078 $ 24,379 $ 17,834 $ 17,615 $ (246) $ - $ - $ 92,366 $ 17,369
(i)  Depreciation and amortization included in cost of sales and selling, general and administrative expenses. All sales of inventory purchased as part of the Ekati
Diamond Mine Acquisition are accounted for as cash cost of sales.
(ii)  Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 23.

Three Months Ended July 31, 2014, Compared to Three Months Ended July 31, 2013
EKATI SALES
During the second quarter, the Company sold approximately 0.6 million carats from the Ekati Diamond Mine for a total of $170.3 million for an average price per carat of $308. Excluded from sales recorded in the second quarter were carats produced and sold from the processing of satellite material from the Misery South & Southwest kimberlite pipes as this material was excavated during the pre-stripping operations of the Misery Main pipe. The diamonds that have been recovered to date from this material display similar characteristics to diamonds from the Misery Main kimberlite pipe. During the second quarter, the Company sold an estimated 0.1 million carats of production from the Misery South & Southwest kimberlite pipe material for estimated proceeds of $10.5 million for an average price per carat of $79, which includes the recovery of small diamonds. During pre-production, sales of diamonds recovered from the Misery South & Southwest material have been applied as a reduction of mining assets. At July 31, 2014, the Company had 0.9 million carats of Ekati Diamond Mine produced inventory with an estimated market value of approximately $250 million, compared to 0.4 million carats with an estimated market value of approximately $135 million at the end of the comparable quarter of the prior year. Included in ending inventory is an estimated 0.2 million carats produced from Misery South & Southwest with an estimated market value of approximately $15 million.

Had the Company sold only the last production from the Ekati Diamond Mine shipped in the second quarter, the estimated achieved price would have been approximately $281 per carat based on the prices achieved in the July 2014 sale.

EKATI COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Ekati Diamond Mine during the second quarter was $142.5 million, resulting in a gross margin of 16.3% and an EBITDA margin of 37%, compared to a cost of sales of $162.8 million, a gross margin of 4.6% and an EBITDA margin of 10% in the comparable period in prior year. Cost of sales for the second quarter of the prior year reflected the purchase of inventory at market values as part of the Ekati Diamond Mine Acquisition. Cost of sales for the comparable quarter of the prior year would have been approximately $152 million excluding the market value adjustment made as part of the Ekati Diamond Mine Acquisition. There was no impact during the second quarter of the current fiscal year. At July 31, 2014, the Company had approximately $10 million remaining of inventory acquired as part of the Ekati Diamond Mine Acquisition, the majority of which is made up of production samples. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices.

Consolidated cost of sales includes mining operating costs incurred at the Ekati Diamond Mine. During the second quarter, the Ekati cash cost of production was $77.2 million, compared to $94.3 million in the comparable quarter of the prior year. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the straight-line method over the remaining mine life.

The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Ekati Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Ekati Diamond Mine's operations' cost of sales disclosed for the three months ended July 31, 2014.

             
(expressed in thousands of United States dollars)   Three months ended
July 31, 2014
  Three months ended
July 31, 2013
Ekati cash cost of production $ 77,235   $ 94,281
Other cash costs   1,282     1,837
Total cash cost of production   78,517     96,118
Depreciation and amortization   34,913     25,286
Total cost of production   113,430     121,404
Adjusted for stock movements   29,059     41,354
Total cost of sales $ 142,489   $ 162,758

EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Ekati Diamond Mine segment for the second quarter were $0.9 million, compared to $0.7 million for the period of April 10 to July 31, 2013.

Six Months Ended July 31, 2014, Compared to Period from April 10 to July 31, 2013
EKATI SALES
During the six months ended July 31, 2014, the Company sold approximately 0.8 million carats from the Ekati Diamond Mine for a total of $263.1 million for an average price per carat of $324, compared to 0.6 million carats for a total of $190.5 million for an average price of $317 in the period from April 10 to July 31, 2013. Excluded from sales recorded in this period were carats produced and sold from the processing of satellite material from the Misery South & Southwest kimberlite pipes as this material was excavated during the pre-stripping operations of the Misery Main pipe. During the six months ended July 31, 2014, the Company sold an estimated 0.2 million carats of production from the Misery South & Southwest kimberlite pipes for estimated proceeds of $17.4 million for an average price per carat of $77, which includes the recovery of small diamonds. During pre-production, sales of diamonds recovered from the Misery South & Southwest material have been applied as a reduction of mining assets.

EKATI COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Ekati Diamond Mine during the six months ended July 31, 2014 was $223.9 million, resulting in a gross margin of 14.9% and an EBITDA margin of 35%, compared to a cost of sales of $182.4 million, a gross margin of 4.2% and an EBITDA margin of 9% for the period from April 10 to July 31, 2013. Cost of sales for the period from April 10 to July 31, 2013 reflected the purchase of inventory at market values as part of the Ekati Diamond Mine Acquisition. Cost of sales for the period from April 10 to July 31, 2013 would have been approximately $169 million excluding the market value adjustment made as part of the Ekati Diamond Mine Acquisition. There was no impact during the second quarter of the current fiscal year. At July 31, 2014, the Company had approximately $10 million remaining of inventory acquired as part of the Ekati Diamond Mine Acquisition, the majority of which is made up of production samples. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices.

Consolidated cost of sales includes mining operating costs incurred at the Ekati Diamond Mine. During the six months ended July 31, 2014, the Ekati cash cost of production was $167.1 million, compared to $111.5 million in the comparable period of the prior year. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the straight-line method over the remaining mine life.

The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well the Ekati Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS. The following table provides a reconciliation of cash cost of production to the Ekati Diamond Mine's operations' cost of sales disclosed for the six months ended July 31, 2014.

             
(expressed in thousands of United States dollars)   Six months ended
July 31, 2014
  Period April 10 to
July 31, 2013
Ekati cash cost of production $ 167,094   $ 111,491
Other cash costs   2,280     165,603
Total cash cost of production   169,374     277,094
Depreciation and amortization   66,514     31,830
Total cost of production   235,888     308,923
Adjusted for stock movements   (11,950)     (126,518)
Total cost of sales $ 223,938   $ 182,405

EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Ekati Diamond Mine segment for the six months ended July 31, 2014 were $2.4 million, compared to $1.2 million for the period from April 10 to July 31, 2013.

OPERATIONAL UPDATE
During the second quarter of fiscal 2015, the Ekati Diamond Mine produced (on a 100% basis) 0.4 million carats from the processing of 0.7 million tonnes of ore from the reserves. Mining activities during the quarter were focused on ore production from the Fox open pit and Koala underground and pre-stripping operations at the Misery pushback open pit. The Company recovered 0.1 million carats from the processing of 0.1 million tonnes of inferred resources from the Koala North and Koala underground mines, 0.1 million carats from the processing of 0.1 million tonnes of COR and an additional 0.2 million carats from the processing of 0.2 million tonnes of satellite material excavated from the Misery South Pipe, Southwest Extension and Northeast pipe during the pre-stripping of the Misery Main pipe. These diamond recoveries are not included in the Company's reserves statement and are therefore incremental to production.

The Company estimates that process plant improvements to date have increased the recovered grade during the six months ended July 31, 2014 by approximately 15% compared to the mine plan. Most of this incremental recovery is in smaller diamonds not currently included in reserves. Historically, the Ekati Diamond Mine had bypassed the recrush circuit in order to maximize process plant throughput and did not recover the entrained diamonds within the coarse fraction of the tail rejects. The recrush circuit will likely be re-established by year end to further improve diamond recovery. Once the process improvements have been substantially completed the Company intends to incorporate the higher recovery rate into an updated reserves statement.

EKATI DIAMOND MINE PRODUCTION (100% SHARE)
For the three months ended July 31, 2014

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
Koala     231     306   1.32
Koala North     48     45   0.94
Fox     528     185   0.35
Misery South & Southwest     184     211   1.14
COR     69     55   0.80
Total     1,061     802   0.76

For the three months ended July 31, 2013

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
Koala     111     87   0.79
Koala North     92     66   0.72
Fox     821     284   0.35
Misery South & Southwest     40     38   0.97
COR     42     7   0.17
Total     1,105     483   0.44

For the six months ended July 31, 2014

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
Koala     384     478   1.25
Koala North     131     117   0.89
Fox     1,198     416   0.35
Misery South & Southwest     241     297   1.23
COR     69     55   0.80
Total     2,022     1,362   0.67

For the period from April 10 to July 31, 2013

Pipe     Ore processed
(000s tonnes)
    Carats
(000s)
  Grade
(carats/tonne)
Koala     133     103   0.78
Koala North     114     87   0.77
Fox     983     329   0.33
Misery South & Southwest     40     38   0.97
COR     42     7   0.17
Total     1,311     565   0.43

Ekati Operations Outlook
PRODUCTION
In fiscal 2015, the Ekati Diamond Mine expects to recover approximately 1.2 million carats from the processing of approximately 2.4 million tonnes of mineral reserves. This includes approximately 1.6 million tonnes from the Fox pipe (including stockpiles) and approximately 0.8 million tonnes from the Koala underground operation (combined Koala phases 5, 6 and 7). As part of the Koala mining, a small portion of inferred mineral resource is extracted along with the reserves. This material is not included in the current production estimate, but will be processed along with the reserve ore and will be incremental to production. Mineral resources that are not reserves do not have demonstrated economic viability. Additional plant feed to keep the processing plant at full capacity for the period will be sourced from the Misery South and Southwest satellite pipes, Misery Northeast, Koala North and coarse ore rejects (COR). It is expected that approximately 0.3 million tonnes of Koala North, 0.8 million tonnes of Misery South & Southwest, 0.1 million tonnes of Misery Northeast, and 0.5 million tonnes of COR material will be processed during fiscal 2015.

PRICING
Based on the average prices per carat achieved by the Company in the latest sale which was held in July 2014, the Company has modeled the approximate rough diamond price per carat for the Ekati kimberlite process plant feed types below. The Ekati prices do not reflect the increased recovery of small diamonds from the improvements in processing so as to be consistent with the Company's current reserve estimates. The rough diamond price of the additional recovered small diamonds at Ekati is estimated at between $70 and $100 per carat.

Ore type       July 2014
sales cycle
Average price
per carat
(in US dollars)
Koala     $ 395
Koala North       440
Fox       315
Misery South & Southwest       90
COR       65-120
Recovered Small Diamonds       70-100

COST OF SALES AND CASH COST OF PRODUCTION
Based on the current mine plan for the Ekati Diamond Mine for fiscal 2015, the Company currently expects cost of sales at the Ekati Diamond Mine in fiscal 2015 to be approximately $475 million (including depreciation and amortization of approximately $125 million). The cash cost of production at the Ekati Diamond Mine for fiscal 2015 is expected to be approximately $355 million (on a 100% basis) at an assumed average Canadian/US dollar exchange rate of $1.10.

CAPITAL EXPENDITURES
The planned capital expenditures for the Core Zone at the Ekati Diamond Mine for fiscal 2015 are expected to be approximately $170 million at an assumed average Canadian/US dollar exchange rate of $1.10. The planned capital expenditures include approximately $80 million for the continued development of the Misery Pipe, consisting largely of mining costs to achieve ore release, and approximately $30 million towards the development of the Pigeon Pipe. During the second quarter, the Ekati Diamond Mine incurred capital expenditures of $42 million ($91 million for the six months ended July 31, 2014).

Corporate

The Corporate segment captures costs not specifically related to the operations of the Diavik and Ekati Diamond Mines.

(expressed in thousands of United States dollars)
(quarterly results are unaudited)  
    2015   2015   2014   2014   2014   2014   2013   2013   Six months
ended July
31,
  Six months
ended July
31,
    Q2   Q1   Q4   Q3   Q2   Q1   Q4   Q3   2014   2013
Sales $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Cost of sales   -   -   -   -   -   -   -   -   -   -
Gross margin   -   -   -   -   -   -   -   -   -   -
Gross margin (%)   -%   -%   -%   -%   -%   -%   -%   -%   -%   -%
Selling, general and  
administrative expenses
  7,598   4,698   7,875   5,924   12,971   15,213   8,227   6,302   12,296   28,184
Operating loss $ (7,598) $ (4,698) $ (7,875) $ (5,924) $ (12,971) $ (15,213) $ (8,227) $ (6,302) $ (12,296) $ (28,184)
Depreciation and amortization(i)   291   342   451   378   363   305   304   306   634   668
EBITDA(ii) $ (7,307) $ (4,356) $ (7,424) $ (5,546) $ (12,608) $ (14,908) $ (7,923) $ (5,996) $ (11,662) $ (27,516)
(i)  Depreciation and amortization included in cost of sales and selling, general and administrative expenses.
(ii)  Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 23.

Three Months Ended July 31, 2014, Compared to Three Months Ended July 31, 2013
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Corporate segment during the quarter decreased by $5.4 million from the comparable quarter of the prior year, which were higher primarily due to $6.0 million of restructuring costs incurred during the prior year's quarter at the Antwerp, Belgium office, relating to the Ekati Diamond Mine Acquisition.

Six Months Ended July 31, 2014, Compared to Six Months Ended July 31, 2013
CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Corporate segment during the six months ended July 31, 2014 decreased by $15.9 million from the comparable period of the prior year, which were higher primarily due to $11.2 million of transaction costs and $6.0 million of restructuring related to the Ekati Diamond Mine Acquisition in the prior year.

Liquidity and Capital Resources
Working Capital
As at July 31, 2014, the Company had unrestricted cash and cash equivalents of $267.8 million and restricted cash of $116.1 million, compared to $224.8 million and $113.6 million at January 31, 2014. The restricted cash is used to support letters of credit to the Government of the Northwest Territories of CDN $127 million in support of the reclamation obligations for the Ekati Diamond Mine. During the quarter ended July 31, 2014, the Company reported cash flow from operations of $101.4 million, compared to $105.1 million in the comparable period of the prior year.

As at July 31, 2014, the Company had 1.3 million carats of rough diamond inventory with an estimated market value of approximately $315 million, of which approximately $195 million represented inventory available for sale, with the remaining $120 million being sorted.

Working capital increased to $615.3 million at July 31, 2014 from $572.1 million at January 31, 2014. During the quarter, the Company decreased accounts receivable from continuing operations by $12.4 million, increased other current assets from continuing operations by $20.3 million, decreased inventory and supplies from continuing operations by $39.5 million, decreased trade and other payables from continuing operations by $36.4 million and increased employee benefit plans from continuing operations by $0.7 million.

On July 9, 2014, the Company entered into an agreement with FipkeCo, subject to the rights of first refusal set out in the applicable joint venture agreements, to acquire FipkeCo's 10% interest in the Core Zone and Buffer Zone of the Ekati Diamond Mine. FipkeCo will sell its 10% interest in the Core Zone and Buffer Zone for an aggregate purchase price of US $67 million (subject to certain adjustments to reflect joint venture contributions and distributions since June 30, 2012, as well as interest from that date), which represents the equivalent price paid to BHP Billiton in 2013 for its interests. The Company plans to satisfy the agreement with cash on hand. It is anticipated that completion of the transactions would occur in September 2014.

The Company's liquidity requirements fluctuate year over year and quarter over quarter depending on, among other factors, the seasonality of production at the Company's mineral properties, seasonality of mine operating expenses, capital expenditure programs, the number of rough diamond sales events conducted during the year, and the volume, size and quality distribution of rough diamonds delivered from the Company's mineral properties and sold by the Company in the year.

The Company assesses liquidity and capital resources on a consolidated basis. The Company's requirements are for cash operating expenses, working capital, contractual debt requirements and capital expenditures. The Company believes that it will generate sufficient liquidity to meet its anticipated requirements for the next 12 months.

Financing Activities
As at July 31, 2014, $nil was outstanding under the Company's revolving financing facility relating to its Belgian subsidiary, Dominion Diamond International NV, and its Indian subsidiary, Dominion Diamond (India) Private Limited, compared to $nil at July 31, 2013.

There were no significant transactions to note during the second quarter.

Investing Activities
During the second quarter, the Company purchased property, plant and equipment of $45.8 million for its continuing operations, of which $3.8 million was purchased for the Diavik Diamond Mine and $42.0 million for the Ekati Diamond Mine.

Contractual Obligations
The Company has contractual payment obligations with respect to interest-bearing loans and borrowings and, through its participation in the Diavik Joint Venture and the Ekati Diamond Mine, future site restoration costs at both the Ekati and Diavik Diamond Mine level. Additionally, at the Diavik Joint Venture level, contractual obligations exist with respect to operating purchase obligations, as administered by DDMI, the operator of the mine. In order to maintain its 40% ownership interest in the Diavik Diamond Mine, DDDLP is obligated to fund 40% of the Diavik Joint Venture's total expenditures on a monthly basis. Not reflected in the table below are currently estimated capital expenditures for the calendar years 2014 to 2018 of approximately $78 million in the aggregate assuming a Canadian/US average exchange rate of $1.10 for each of the five years, representing DDDLP's projected share of the currently planned capital expenditures (excluding the A-21 pipe) at the Diavik Diamond Mine. Also not reflected in the table below are currently estimated capital expenditures for the fiscal years 2015 to 2019 of approximately $400 million in the aggregate assuming a Canadian/US average exchange rate of $1.10 for each of the five years, representing the current planned capital expenditures (excluding the Jay pipe) at the Ekati Diamond Mine. The most significant contractual obligations for the ensuing five-year period can be summarized as follows:

CONTRACTUAL OBLIGATIONS           Less than     Year     Year     After
(expressed in thousands of United States dollars)
(unaudited)
    Total     1 year     2-3     4-5     5 years
Interest-bearing loans and borrowings (a)(b)   $ 4,693   $ 1,126   $ 2,253   $ 1,314   $ -
Environmental and participation agreements incremental commitments (c)     182,831     61,253     1,123     4,350     116,105
Operating lease obligations (d)     11,722     10,141     1,581     -     -  
Total contractual obligations   $ 199,246   $ 72,520   $ 4,957   $ 5,664   $ 116,105

(a)      (i) Interest-bearing loans and borrowings presented in the foregoing table include current and long-term portions.
   
  (ii) The Company has available a $45.0 million revolving financing facility (utilization in either US dollars or Euros) with Antwerp Diamond Bank for inventory and receivables funding in connection with marketing activities through its Belgian subsidiary, Dominion Diamond International NV, and its Indian subsidiary, Dominion Diamond (India) Private Limited. Borrowings under the Belgian facility bear interest at the bank's base rate plus 1.5%. Borrowings under the Indian facility bear an interest rate of 14.5%. At July 31, 2014, $nil was outstanding under this facility relating to Dominion Diamond International NV and Dominion Diamond (India) Private Limited. The facility is guaranteed by Dominion Diamond Corporation.
   
  (iii) The Company's first mortgage on real property has scheduled principal payments of approximately $0.2 million quarterly, may be prepaid at any time, and matures on September 1, 2018. On July 31, 2014, $4.0 million was outstanding on the mortgage payable.
   
(b)  Interest on loans and borrowings is calculated at various fixed and floating rates. Projected interest payments on the current debt outstanding were based on interest rates in effect at July 31, 2014, and have been included under interest-bearing loans and borrowings in the table above. Interest payments for the next 12 months are approximated to be $0.3 million.
   
(c)  Both the Diavik Joint Venture and the Ekati Diamond Mine, under environmental and other agreements, must provide funding for the Environmental Monitoring Advisory Board, and the Independent Environmental Monitoring Agency, respectively. These agreements also state that the mines must provide security deposits for the performance of their reclamation and abandonment obligations under all environmental laws and regulations. The operator of the Diavik Joint Venture has fulfilled such obligations for the security deposits by posting letters of credit, of which DDDLP's share as at July 31, 2014 was $59 million based on its 40% ownership interest in the Diavik Diamond Mine. There can be no assurance that the operator will continue its practice of posting letters of credit in fulfillment of this obligation, in which event DDDLP would be required to post its proportionate share of such security directly, which would result in additional constraints on liquidity. The requirement to post security for the reclamation and abandonment obligations may be reduced to the extent of amounts spent by the Diavik Joint Venture on those activities. In June 2013, the Wek'èezhii Land and Water Board ("WLWB") adjusted the total reclamation liability for the Ekati Diamond Mine (inclusive of the Sable property) to reflect the revised Interim Closure and Reclamation Plan, and this liability is currently set at CDN $264 million. The Company has as at July 31, 2014 posted letters of credit of CDN $127 million with the Government of the Northwest Territories supported by restricted cash in support of the reclamation obligations for the Ekati Diamond Mine, and has provided a proposal to the Government of the Northwest Territories on an appropriate form of security. The Company has provided a guarantee of CDN $20 million for other obligations under the environmental agreement. Both the Diavik and Ekati Diamond Mines have also signed participation agreements with various native groups. These agreements are expected to contribute to the social, economic and cultural well-being of area Aboriginal bands. The actual cash outlay for obligations of the Diavik Joint Venture under these agreements is not anticipated to occur until later in the life of the mine. The actual cash outlay in respect of the Ekati Diamond Mine under these agreements includes annual payments and special project payments during the operation of the Ekati Diamond Mine.
   
(d)  Operating lease obligations represent future minimum annual rentals under non-cancellable operating leases at the Ekati Diamond Mine.

Non-IFRS Measures

In addition to discussing earnings measures in accordance with IFRS, the MD&A provides the following non-IFRS measures, which are also used by management to monitor and evaluate the performance of the Company.

Cash Cost of Production
The MD&A refers to cash cost of production, a non-IFRS performance measure, in order to provide investors with information about the measure used by management to monitor performance. This information is used to assess how well each of the Diavik Diamond Mine and Ekati Diamond Mine is performing compared to the mine plan and prior periods. Cash cost of production includes mine site operating costs such as mining, processing and administration, but is exclusive of amortization, capital, and exploration and development costs. Cash cost of production does not have any standardized meaning prescribed by IFRS and differs from measures determined in accordance with IFRS. This performance measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. This measure is not necessarily indicative of net profit or cash flow from operations as determined under IFRS.

EBITDA and EBITDA Margin
The term EBITDA (earnings before interest, taxes, depreciation and amortization) is a non-GAAP financial measure, which is defined as sales minus cost of sales and selling, general and administrative expenses, meaning it represents operating profit before depreciation and amortization. EBITDA margin is calculated by dividing EBITDA over total sales for the period.

Management believes that EBITDA and EBITDA margin are important indicators commonly reported and widely used by investors and 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 and is a measurement for cash margins. The intent of EBITDA and EBITDA margin is to provide additional useful information to investors and analysts and such measures do not have any standardized meaning under IFRS. These measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate EBITDA and EBITDA margins differently.

CONSOLIDATED                                        
(expressed in thousands of United States dollars)
(unaudited)
                                       
    2015   2015   2014   2014   2014   2014   2013   2013 Six months
ended
July 31,
Six months
ended
July 31,
    Q2   Q1   Q4   Q3   Q2   Q1   Q4   Q3   2014   2013
Operating profit from continuing operations $ 46,468 $ 30,694 $ 20,016 $ 4,509 $ 15,661 $ 10,459 $ 20,987 $ 5,574 $ 77,159 $ 26,120
Depreciation and amortization   63,164   38,885   55,228   31,978   32,644   20,211   24,346   20,588   102,051   52,855
EBITDA from continuing operations $ 109,632 $ 69,579 $ 75,244 $ 36,487 $ 48,305 $ 30,670 $ 45,333 $ 26,162 $ 179,210 $ 78,975
                                         
DIAVIK DIAMOND MINE SEGMENT                                        
(expressed in thousands of United States dollars)
(unaudited)
                                       
    2015   2015   2014   2014   2014   2014   2013   2013 Six months
ended
July 31,
Six months
ended
July 31,
    Q2   Q1   Q4   Q3   Q2   Q1   Q4   Q3   2014   2013
Operating profit $ 27,215 $ 25,468 $ 30,404 $ 11,765 $ 21,530 $ 25,918 $ 29,213 $ 11,876 $ 52,681 $ 47,449
Depreciation and amortization   27,435   18,389   28,885   12,434   21,768   19,906   24,042   20,283   45,825   41,674
EBITDA $ 54,650 $ 43,857 $ 59,289 $ 24,199 $ 43,298 $ 45,824 $ 53,255 $ 32,159 $ 98,506 $ 89,123
                                         
EKATI DIAMOND MINE SEGMENT                                        
(expressed in thousands of United States dollars)
(unaudited)
                                       
    2015   2015   2014   2014   2014   2014   2013   2013 Six months
ended
July 31,
Period April
10 to
July 31,
    Q2   Q1   Q4   Q3   Q2   Q1   Q4   Q3   2014   2013
Operating profit (loss) $ 26,851 $ 9,924 $ (1,513) $ (1,332) $ 7,102 $ (246) $ - $ - $ 36,774 $ 6,856
Depreciation and amortization   35,438   20,154   25,892   19,166   10,513   -   -   -   55,592   10,513
EBITDA $ 62,289 $ 30,078 $ 24,379 $ 17,834 $ 17,615 $ (246) $ - $ - $ 92,366 $ 17,369
                                         
CORPORATE SEGMENT                                        
(expressed in thousands of United States dollars)
(unaudited)
                                       
    2015   2015   2014   2014   2014   2014   2013   2013 Six months
ended
July 31,
Six months
ended
July 31,
    Q2   Q1   Q4   Q3   Q2   Q1   Q4   Q3   2014   2013
Operating profit (loss) $ (7,598) $ (4,698) $ (7,875) $ (5,924) $ (12,971) $ (15,213) $ (8,227) $ (6,302) $ (12,297) $ (28,184)
Depreciation and amortization   291   342   451   378   363   305   304   306   634   668
EBITDA $ (7,307) $ (4,356) $ (7,424) $ (5,546) $ (12,608) $ (14,908) $ (7,923) $ (5,996) $ (11,663) $ (27,516)

Risk and Uncertainties

The Company is subject to a number of risks and uncertainties as a result of its operations. In addition to the other information contained in this MD&A and the Company's other publicly filed disclosure documents, readers should give careful consideration to the following risks, each of which could have a material adverse effect on the Company's business prospects or financial condition.

Nature of Mining
The Company's mining operations are subject to risks inherent in the mining industry, including variations in grade and other geological differences, unexpected problems associated with required water retention dikes, water quality, surface and underground conditions, processing problems, equipment performance, accidents, labour disputes, risks relating to the physical security of the diamonds, force majeure risks and natural disasters. Particularly with underground mining operations, inherent risks include variations in rock structure and strength as it impacts on mining method selection and performance, de-watering and water handling requirements, achieving the required crushed rock-fill strengths, and unexpected local ground conditions. Hazards, such as unusual or unexpected rock formations, rock bursts, pressures, collapses, flooding or other conditions, may be encountered during mining. Such risks could result in personal injury or fatality; damage to or destruction of mining properties, processing facilities or equipment; environmental damage; delays, suspensions or permanent reductions in mining production; monetary losses; and possible legal liability.

The Company's mineral properties, because of their remote northern location and access only by winter road or by air, are subject to special climate and transportation risks. These risks include the inability to operate or to operate efficiently during periods of extreme cold, the unavailability of materials and equipment, and increased transportation costs due to the late opening and/or early closure of the winter road. Such factors can add to the cost of mine development, production and operation and/or impair production and mining activities, thereby affecting the Company's profitability.

Nature of Interest in Diavik Diamond Mine
DDDLP holds an undivided 40% interest in the assets, liabilities and expenses of the Diavik Diamond Mine and the Diavik group of mineral claims. The Diavik Diamond Mine and the exploration and development of the Diavik group of mineral claims is a joint arrangement between DDMI (60%) and DDDLP (40%), and is subject to the risks normally associated with the conduct of joint ventures and similar joint arrangements. These risks include the inability to exert influence over strategic decisions made in respect of the Diavik Diamond Mine and the Diavik group of mineral claims, including the inability to control the timing and scope of capital expenditures, and risks that DDMI may change the mine plan. By virtue of DDMI's 60% interest in the Diavik Diamond Mine, it has a controlling vote in all Diavik Joint Venture management decisions respecting the development and operation of the Diavik Diamond Mine and the development of the Diavik group of mineral claims. Accordingly, DDMI is able to determine the timing and scope of future project capital expenditures, and therefore is able to impose capital expenditure requirements on DDDLP that the Company may not have sufficient cash to meet. A failure to meet capital expenditure requirements imposed by DDMI could result in DDDLP's interest in the Diavik Diamond Mine and the Diavik group of mineral claims being diluted.

Diamond Prices and Demand for Diamonds
The profitability of the Company is dependent upon the Company's mineral properties and the worldwide demand for and price of diamonds. Diamond prices fluctuate and are affected by numerous factors beyond the control of the Company, including worldwide economic trends, worldwide levels of diamond discovery and production, and the level of demand for, and discretionary spending on, luxury goods such as diamonds. Low or negative growth in the worldwide economy, renewed or additional credit market disruptions, natural disasters or the occurrence of terrorist attacks or similar activities creating disruptions in economic growth could result in decreased demand for luxury goods such as diamonds, thereby negatively affecting the price of diamonds. Similarly, a substantial increase in the worldwide level of diamond production or the release of stocks held back during recent periods of lower demand could also negatively affect the price of diamonds. In each case, such developments could have a material adverse effect on the Company's results of operations.

Cash Flow and Liquidity
The Company's liquidity requirements fluctuate from quarter to quarter and year to year depending on, among other factors, the seasonality of production at the Company's mineral properties, the seasonality of mine operating expenses, exploration expenses, capital expenditure programs, the number of rough diamond sales events conducted during the quarter, and the volume, size and quality distribution of rough diamonds delivered from the Company's mineral properties and sold by the Company in each quarter. The Company's principal working capital needs include investments in inventory, prepaid expenses and other current assets, and accounts payable and income taxes payable. There can be no assurance that the Company will be able to meet each or all of its liquidity requirements. A failure by the Company to meet its liquidity requirements could result in the Company failing to meet its planned development objectives, or in the Company being in default of a contractual obligation, each of which could have a material adverse effect on the Company's business prospects or financial condition.

Economic Environment
The Company's financial results are tied to the global economic conditions and their impact on levels of consumer confidence and consumer spending. The global markets have experienced the impact of a significant US and international economic downturn since autumn 2008. A return to a recession or weak recovery, due to recent disruptions in financial markets in the United States, the Eurozone or elsewhere, budget policy issues in the United States and political upheavals in the Middle East and Ukraine, and economic sanctions against Russia, could cause the Company to experience revenue declines due to deteriorated consumer confidence and spending, and a decrease in the availability of credit, which could have a material adverse effect on the Company's business prospects or financial condition. The credit facilities essential to the diamond polishing industry are largely underwritten by European banks that are currently under stress. The withdrawal or reduction of such facilities could also have a material adverse effect on the Company's business prospects or financial condition. The Company monitors economic developments in the markets in which it operates and uses this information in its continuous strategic and operational planning in an effort to adjust its business in response to changing economic conditions.

Currency Risk
Currency fluctuations may affect the Company's financial performance. Diamonds are sold throughout the world based principally on the US dollar price, and although the Company reports its financial results in US dollars, a majority of the costs and expenses of the Company's mineral properties are incurred in Canadian dollars. Further, the Company has a significant deferred income tax liability that has been incurred and will be payable in Canadian dollars. The Company's currency exposure relates to expenses and obligations incurred by it in Canadian dollars. The appreciation of the Canadian dollar against the US dollar, therefore, will increase the expenses of the Company's mineral properties and the amount of the Company's Canadian dollar liabilities relative to the revenue the Company will receive from diamond sales. From time to time, the Company may use a limited number of derivative financial instruments to manage its foreign currency exposure.

Licences and Permits
The Company's mining operations require licences and permits from the Canadian and Northwest Territories governments, and the process for obtaining and renewing such licences and permits often takes an extended period of time and is subject to numerous delays and uncertainties. Such licences and permits are subject to change in various circumstances. Failure to comply with applicable laws and regulations may result in injunctions, fines, criminal liability, suspensions or revocation of permits and licences and other penalties. There can be no assurance that DDMI, as the operator of the Diavik Diamond Mine, or the Company has been or will be at all times in compliance with all such laws and regulations and with its applicable licences and permits, or that DDMI or the Company will be able to obtain on a timely basis or maintain in the future all necessary licences and permits that may be required to explore and develop their properties, commence construction or operation of mining facilities and projects under development or to maintain continued operations.

Regulatory and Environmental Risks
The operation of the Company's mineral properties are subject to various laws and regulations governing the protection of the environment, exploration, development, production, taxes, labour standards, occupational health, waste disposal, mine safety and other matters. New laws and regulations, amendments to existing laws and regulations, or more stringent implementation or changes in enforcement policies under existing laws and regulations could have a material adverse effect on the Company by increasing costs and/or causing a reduction in levels of production from the Company's mineral properties.

Mining is subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mining operations. To the extent that the Company's operations are subject to uninsured environmental liabilities, the payment of such liabilities could have a material adverse effect on the Company.

The environmental agreements relating to the Diavik Diamond Mine and the Ekati Diamond Mine require that security be provided to cover estimated reclamation and remediation costs. The operator of the Diavik Joint Venture has fulfilled such obligations for the security deposits by posting letters of credit, of which DDDLP's share as at July 31, 2014 was $59 million based on its 40% ownership interest in the Diavik Diamond Mine. There can be no assurance that the operator will continue its practice of posting letters of credit in fulfillment of this obligation, in which event DDDLP would be required to post its proportionate share of such security directly, which would result in additional constraints on liquidity. In June 2013, the WLWB adjusted the total reclamation liability for the Ekati Diamond Mine (inclusive of the Sable property) to reflect the revised Interim Closure and Reclamation Plan, and this liability is currently set at CDN $264 million. The Company has as at July 31, 2014 posted letters of credit of CDN $127 million with the Government of the Northwest Territories supported by restricted cash in support of the reclamation obligations for the Ekati Diamond Mine, and has provided a proposal to the Government of the Northwest Territories on an appropriate form of security. The Company has provided a guarantee of CDN $20 million for other obligations under the environmental agreement for the Ekati Diamond Mine. As reclamation and remediation cost estimates are updated and revised, the Company expects that it will be required to post additional security for those obligations, which could result in additional constraints on liquidity.

Climate Change
The Canadian government has established a number of policy measures in response to concerns relating to climate change. While the impact of these measures cannot be quantified at this time, the likely effect will be to increase costs for fossil fuels, electricity and transportation; restrict industrial emission levels; impose added costs for emissions in excess of permitted levels; and increase costs for monitoring and reporting. Compliance with these initiatives could have a material adverse effect on the Company's results of operations.

Resource and Reserve Estimates
The Company's figures for mineral resources and ore reserves are estimates, and no assurance can be given that the anticipated carats will be recovered. The estimation of reserves is a subjective process. Forecasts are based on engineering data, projected future rates of production and the timing of future expenditures, all of which are subject to numerous uncertainties and various interpretations. The Company expects that its estimates of reserves will change to reflect updated information as well as to reflect depletion due to production. Reserve estimates may be revised upward or downward based on the results of current and future drilling, testing or production levels, and on changes in mine design. In addition, market fluctuations in the price of diamonds or increases in the costs to recover diamonds from the Company's mineral properties may render the mining of ore reserves uneconomical.

Mineral resources that are not mineral reserves do not have demonstrated economic viability. Due to the uncertainty that may attach to inferred mineral resources, there is no assurance that mineral resources will be upgraded to proven and probable ore reserves. Inferred mineral resources are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves.

Insurance
The Company's business is subject to a number of risks and hazards, including adverse environmental conditions, industrial accidents, labour disputes, unusual or unexpected geological conditions, risks relating to the physical security of diamonds held as inventory or in transit, changes in the regulatory environment, and natural phenomena such as inclement weather conditions. Such occurrences could result in damage to the Company's mineral properties, personal injury or death, environmental damage to the Company's mineral properties, delays in mining, monetary losses and possible legal liability. Although insurance is maintained to protect against certain risks in connection with the Company's mineral properties and the Company's operations, the insurance in place will not cover all potential risks. It may not be possible to maintain insurance to cover insurable risks at economically feasible premiums.

Fuel Costs
The expected fuel needs for the Company's mineral properties are purchased periodically during the year for storage, and transported to the mine site by way of the winter road. These costs will increase if transportation by air freight is required due to a shortened "winter road season" or unexpected high fuel usage.

The cost of the fuel purchased is based on the then prevailing price and expensed into operating costs on a usage basis. The Company's mineral properties currently have no hedges for their future anticipated fuel consumption.

Reliance on Skilled Employees
Production at the Company's mineral properties is dependent upon the efforts of certain skilled employees. The loss of these employees or the inability to attract and retain additional skilled employees may adversely affect the level of diamond production.

The Company's success in marketing rough diamonds is dependent on the services of key executives and skilled employees, as well as the continuance of key relationships with certain third parties, such as diamantaires. The loss of these persons or the Company's inability to attract and retain additional skilled employees or to establish and maintain relationships with required third parties may adversely affect its business and future operations in marketing diamonds.

Labour Relations
The Company is party to a collective bargaining agreement at its Ekati Diamond Mine operation which was due to expire on August 31, 2014. The Company had entered into negotiations on August 6th and concluded these negotiations on August 26th with a Memorandum of Understanding which suspended negotiations until the latter part of February 2015. As a result of this, all provisions in the Company's current agreement remain unchanged. If the Company is ultimately unable to renew this agreement, or if the terms of any such renewal are materially adverse to the Company, then this could result in work stoppages and other labour disruptions, or otherwise materially impact the Company, all of which could have a material adverse effect on the Company's business, results from operations and financial condition.

Changes in Internal Controls over Financial Reporting
During the second quarter of fiscal 2015, there were no changes in the Company's disclosure controls and procedures or internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's disclosure controls and procedures or internal control over financial reporting.

Critical Accounting Estimates
Management is often required to make judgments, assumptions and estimates in the application of IFRS that have a significant impact on the financial results of the Company. Certain policies are more significant than others and are, therefore, considered critical accounting policies. Accounting policies are considered critical if they rely on a substantial amount of judgment (use of estimates) in their application, or if they result from a choice between accounting alternatives and that choice has a material impact on the Company's financial performance or financial position.

The critical accounting estimates applied in the preparation of the Company's unaudited interim condensed consolidated financial statements are consistent with those applied and disclosed in the Company's MD&A for the year ended January 31, 2014.

Changes in Accounting Policies

(a)      New Accounting Standards Effective in 2014
   
  IFRIC 21 - Levies
In May 2013, the IASB issued International Financial Reporting Interpretations Committee (IFRIC) 21, Levies. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014 and is to be applied retrospectively. IFRIC 21 provides guidance on accounting for levies in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation defines a levy as an outflow from an entity imposed by a government in accordance with legislation and confirms that an entity recognizes a liability for a levy only when the triggering event specified in the legislation occurs. The Company has performed an assessment of the impact of IFRIC 21 and concluded it did not have a significant impact on its consolidated financial statements.
   
(b)      New Accounting Standards Issued but Not Yet Effective
   
  IFRS 9 - Financial Instruments
In November 2009, the IASB issued IFRS 9, Financial Instruments, as the first step in its project to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on an entity's business model and the contractual cash flows of the financial asset. Classification is made at the time the financial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument. Requirements for classification and measurement of financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, except that fair value changes due to an entity's own credit risk for liabilities designated at fair value through profit or loss would generally be recorded in other comprehensive income ("OCI") rather than the statement of income. In November 2013, IFRS 9 was amended to include guidance on hedge accounting.
   
  In July 2014, the IASB issued the final version of IFRS 9. This standard is effective for annual periods beginning on or after January 1, 2018, however, early adoption of the new standard is permitted. The Company is currently assessing the impact of the standard on its consolidated financial statements.
   
  IFRS 15 - Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers ("IFRS 15"). IFRS 15 is effective for periods beginning on or after January 1, 2017 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue from contracts with customers. The Company intends to adopt IFRS 15 in its financial statements for the annual period beginning February 1, 2017. The extent of the impact of adoption of IFRS 15 has not yet been determined.

Outstanding Share Information

As at August 31, 2014                      
Authorized                     Unlimited
Issued and outstanding shares                     85,134,480
Options outstanding                     2,695,819
Fully diluted                     87,830,299

Additional Information
Additional information relating to the Company, including the Company's most recently filed Annual Information Form, can be found on SEDAR at www.sedar.com, and is also available on the Company's website at www.ddcorp.ca.

Condensed Consolidated Balance Sheets
(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
                       
              July 31, 2014       January 31, 2014
ASSETS                      
Current assets                      
Cash and cash equivalents (note 4)           $ 267,819     $ 224,778
Accounts receivable             13,062       20,879
Inventory and supplies (note 5)             472,765       440,853
Other current assets             35,743       27,156
              789,389       713,666
Property, plant and equipment             1,440,739       1,469,557
Restricted cash (note 4)             116,135       113,612
Other non-current assets             4,271       4,737
Deferred income tax assets             5,716       3,078
Total assets           $ 2,356,250     $ 2,304,650
                       
LIABILITIES AND EQUITY                      
Current liabilities                      
Trade and other payables           $ 109,565     $ 103,653
Employee benefit plans             2,153       3,643
Income taxes payable             61,478       33,442
Current portion of interest-bearing loans and borrowings             843       794
              174,039       141,532
Interest-bearing loans and borrowings             3,149       3,504
Deferred income tax liabilities             213,596       242,563
Employee benefit plans             14,028       14,120
Provisions             436,874       430,968
Total liabilities             841,686       832,687
Equity                      
Share capital             508,570       508,523
Contributed surplus             24,320       23,033
Retained earnings             816,671       775,419
Accumulated other comprehensive income             (3,560)       (2,447)
Total shareholders' equity             1,346,001       1,304,528
Non-controlling interest             168,563       167,435
Total equity             1,514,564       1,471,963
Total liabilities and equity           $ 2,356,250     $ 2,304,650
                       
The accompanying notes are an integral part of these consolidated financial statements.

                                       
Condensed Consolidated Statements of Income
(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS)
                                       
              Three months
ended
July 31, 2014
      Three months
ended
July 31, 2013
(Recast -
note 12)
      Six months
ended
July 31, 2014
      Six months
ended
July 31, 2013
(Recast -
note 12)
Sales           $ 277,314     $ 261,803     $ 452,835     $ 370,640
Cost of sales             221,240       231,086       358,922       312,621
Gross margin             56,074       30,717       93,913       58,019
Selling, general and administrative expenses             9,606       15,056       16,754       31,899
Operating profit             46,468       15,661       77,159       26,120
Finance expenses             (3,206)       (17,921)       (6,516)       (20,663)
Exploration costs             (6,846)       (3,145)       (15,890)       (4,184)
Finance and other income             933       1,032       3,761       1,836
Foreign exchange gain (loss)             816       (2,814)       (133)       (2,082)
Profit (loss) before income taxes             38,165       (7,187)       58,381       1,027
Income tax expense              13,969       8,655       23,503       13,696
Net profit (loss) from continuing operations             24,196       (15,842)       34,878       (12,669)
Net profit from discontinued operations (note 6)             -       -       -       502,656
Net profit (loss)           $ 24,196     $ (15,842)     $ 34,878     $ 489,987
Net profit (loss) from continuing operations attributable to                                      
Shareholders           $ 26,586     $ (13,884)     $ 41,252     $ (10,379)
Non-controlling interest             (2,390)       (1,958)       (6,374)       (2,290)
Net profit (loss) attributable to                                      
Shareholders           $ 26,586     $ (13,884)     $ 41,252     $ 492,276
Non-controlling interest             (2,390)       (1,958)       (6,374)       (2,290)
Earnings (loss) per share - continuing operations                                      
Basic           $ 0.31     $ (0.16)     $ 0.48     $ (0.12)
Diluted              0.31       (0.16)       0.48       (0.12)
Earnings (loss) per share                                        
Basic             0.31       (0.16)       0.48       5.79
Diluted              0.31       (0.16)       0.48       5.69
Weighted average number of shares outstanding             85,134,476       85,007,262       85,130,056       84,949,508
                                       
The accompanying notes are an integral part of these consolidated financial statements.

                                   
Condensed Consolidated Statements of Comprehensive Income
(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
                                   
          Three months
ended
July 31, 2014
      Three
months ended
July 31, 2013
(Recast -
note 12)
      Six months
ended
July 31, 2014
      Six months
ended
July 31, 2013
(Recast -
note 12)
Net profit (loss)       $ 24,196     $ (15,842)     $ 34,878     $ 489,987
Other comprehensive income                                  
Items that may be reclassified to profit                                  
Net loss on translation of net foreign operations (net of tax of $nil)         (308)       (314)       89       (11,049)
Items that will not be reclassified to profit                                  
Actuarial loss on employee benefit plans (net of tax of $0.5 million)         (1,202)       -       (1,202)       -
Other comprehensive loss, net of tax         (1,510)       (314)       (1,113)       (11,049)
Total comprehensive income (loss)       $ 22,686     $ (16,156)     $ 33,765     $ 478,938
Comprehensive income (loss) from continuing operations       $ 22,686     $ (16,156)     $ 33,765     $ (13,113)
Comprehensive income from discontinued operations         -       -       -       492,051
Comprehensive income (loss) attributable to                                  
Shareholders       $ 25,076     $ (14,198)     $ 40,139     $ 481,228
Non-controlling interest         (2,390)       (1,958)       (6,374)       (2,290)
                                   
The accompanying notes are an integral part of these consolidated financial statements.

                       
Condensed Consolidated Statements of Changes in Equity
(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
                       
              Six months ended
July 31, 2014
      Six months ended
July 31, 2013
(Recast - note 12)
Common shares:                      
Balance at beginning of period           $ 508,523     $ 508,007
Issued during the period             47       516
Balance at end of period             508,570       508,523
Contributed surplus:                      
Balance at beginning of period             23,033       20,387
Stock-based compensation expense             1,300       1,228
Exercise of stock options             (13)       -
Balance at end of period             24,320       21,615
Retained earnings:                      
Balance at beginning of period             775,419       295,738
Net profit attributable to common shareholders             41,252       492,276
Balance at end of period             816,671       788,014
Accumulated other comprehensive income:                      
Balance at beginning of period             (2,447)       6,357
Items that may be reclassified to profit                      
   Net loss on translation of net foreign operations (net of tax of $nil)             89       (11,049)
Items that will not be reclassified to profit                      
   Actuarial loss on employee benefit plans (net of tax of $0.5 million)             (1,202)       -
Balance at end of period             (3,560)       (4,692)
Non-controlling interest:                      
Balance at beginning of period             167,435       763
Net loss attributed to non-controlling interest             (6,374)       (2,290)
Contributions made by minority partners             7,502       152,797
Balance at end of period             168,563       151,270
Total equity           $ 1,514,564     $ 1,464,730
                       
The accompanying notes are an integral part of these consolidated financial statements.

                                   
Condensed Consolidated Statements of Cash Flows
(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
                                   
          Three months
ended July 31,
2014
      Three months
ended July 31,
2013
(Recast - note 12)
      Six months
ended July 31,
2014
      Six months
ended July 31,
2013
(Recast - note
12)
Cash provided by (used in)                                  
Operating                                  
Net profit (loss)       $ 24,196     $ (15,842)     $ 34,878     $ 489,987
Depreciation and amortization         63,164       32,644       102,051       52,855
Deferred income tax recovery         (8,048)       (3,441)       (31,243)       (11,838)
Current income tax expense         22,017       12,096       54,746       25,534
Finance expenses         3,206       17,921       6,516       20,663
Stock-based compensation         802           192       1,300       1,228
Other non-cash items         9,121           (1,601)       12,236       (2,460)
Foreign exchange (gain) loss         (1,735)       813       (1,945)       (224)
Loss (gain) on disposition of assets         (111)       -       751       362
Gain on sale of asset         -       -       (2,375)       -
Change in non-cash operating working capital, excluding taxes and
finance expenses
        (4,081)      
83,126
      (19,649)                    54,453
Cash provided by (used in) operating activities         108,531       125,908       157,266       630,560
Interest paid         (240)       (3,861)       (624)       (5,073)
Income and mining taxes paid         (6,903)       (16,906)       (27,582)       (27,155)
Cash provided by (used in) operating activities - continuing operations         101,388       105,141       129,060       598,332
Cash provided by (used in) operating activities - discontinued operations         -       -       -       (502,656)
Net cash from (used in) operating activities         101,388       105,141       129,060       95,676
FINANCING                                  
Decrease in interest-bearing loans and borrowings         (202)       (196)       (396)       (392)
Increase in revolving credit         -       -       -       27,863
Decrease in revolving credit         -       (27,863)       -       (28,991)
Repayment of senior secured credit facility         -       (50,000)       -       (50,000)
Contributed from non-controlling interest         -       -       10,817        
Issue of common shares, net of issue costs         -       122       34       516
Cash provided from (used in) financing activities                       (202)       (77,937)       10,455       (51,004)
Investing                                  
Acquisition of Ekati         -       -       -       (490,925)
Proceeds from sale of assets         -       -       3,725       -
Property, plant and equipment         (45,759)       (33,784)       (101,783)       (53,502)
Net proceeds from sale of property, plant and equipment         57       -       642       1,796
Other non-current assets         122       76       795       (3,049)
Cash used in investing activities - continuing operations         (45,580)       (33,708)       (96,621)       (545,680)
Cash provided from investing activities - discontinued operations         -       -       -       746,738
Cash provided from (used in) investing activities         (45,580)       (33,708)       (96,621)       201,058
Foreign exchange effect on cash balances         327       (2,755)       2,670       (2,399)
Increase (decrease) in cash and cash equivalents         55,933       (9,259)       45,564       243,331
Cash and cash equivalents, beginning of period         328,021       356,903       338,390       104,313
Cash and equivalents, end of period         383,954       347,644       383,954       347,644
Less cash and equivalents of discontinued operations, end of period         -       -       -       -
Cash and cash equivalents of continuing operations, end of period       $ 383,954     $ 347,644     $ 383,954     $ 347,644
Change in non-cash operating working capital, excluding taxes and
  finance expenses
                                 
Accounts receivable         12,460       602       5,076       (2,581)
Inventory and supplies         39,472       98,420       (19,183)       67,408
Other current assets         (20,330)       576       (8,591)       2,356
Trade and other payables         (36,418)       (16,248)       4,657       (11,513)
Employee benefit plans         735       (224)       (1,608)       (1,217)
        $ (4,081)     $ 83,126     $ (19,649)     $ 54,453
                                   
The accompanying notes are an integral part of these consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

JULY 31, 2014 WITH COMPARATIVE FIGURES
(TABULAR AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT AS OTHERWISE NOTED)

Note 1:
Nature of Operations
Dominion Diamond Corporation is focused on the mining and marketing of rough diamonds to the global market.

The Company is incorporated and domiciled in Canada and its shares are publicly traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol "DDC". The address of its registered office is Toronto, Ontario.

The Company has ownership interests in the Diavik and the Ekati group of mineral claims. The Diavik Joint Venture (the "Diavik Joint Venture") is an unincorporated joint arrangement between Diavik Diamond Mines (2012) Inc. ("DDMI") (60%) and Dominion Diamond Diavik Limited Partnership ("DDDLP") (40%) where DDDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England, and DDDLP is a wholly owned subsidiary of Dominion Diamond Corporation. The Company records its interest in the assets, liabilities and expenses of the Diavik Joint Venture in its consolidated financial statements with a one-month lag. The accounting policies described below include those of the Diavik Joint Venture.

On April 10, 2013, the Company completed the $553.1 million acquisition from BHP Billiton Canada Inc. and its various affiliates of all of BHP Billiton's diamond assets, including assuming control over the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium (the "Ekati Diamond Mine Acquisition"). The Ekati Diamond Mine consists of the Core Zone, which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer Zone, an adjacent area hosting kimberlite pipes having both development and exploration potential. As a result of the completion of the Ekati Diamond Mine Acquisition the Company acquired an 80% interest in the Core Zone and a 58.8% interest in the Buffer Zone. The Company controls and consolidates the Ekati Diamond Mine and minority shareholders are presented as non-controlling interests within the consolidated financial statements.

On July 9, 2014, the Company entered into an agreement with FipkeCo, subject to the rights of first refusal set out in the applicable joint venture agreements, to acquire FipkeCo's 10% interest in the Core Zone and Buffer Zone of the Ekati Diamond Mine. FipkeCo will sell its 10% interest in the Core Zone and Buffer Zone for an aggregate purchase price of US $67 million (subject to certain adjustments to reflect joint venture contributions and distributions since June 30, 2012, as well as interest from that date), which represents the equivalent price paid to BHP Billiton in 2013 for its interests. It is anticipated that completion of the transactions will occur in September 2014.

On March 26, 2013, the Company completed the sale of Harry Winston, Inc. (the "Luxury Brand Segment") to Swatch Group. The operations of the Luxury Brand Segment have been presented as discontinued operations for reporting purposes. See note 6.

Note 2:
Basis of Preparation

(a)      Statement of compliance
      These unaudited interim condensed consolidated financial statements ("interim financial statements") have been prepared in accordance with IAS 34, Interim Financial Reporting ("IAS 34"). The accounting policies applied in these unaudited interim financial statements are consistent with those used in the annual audited consolidated financial statements for the year ended January 31, 2014, except as disclosed in note 3.
       
      These interim financial statements do not include all disclosures required by International Financial Reporting Standards ("IFRS") for annual audited consolidated financial statements and accordingly should be read in conjunction with the Company's annual audited consolidated financial statements for the year ended January 31, 2014 prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").
       
(b)      Currency of presentation
      These interim financial statements are expressed in United States dollars, which is the functional currency of the Company. All financial information presented in United States dollars has been rounded to the nearest thousand.
       
(c)      Use of estimates, judgments and assumptions
      The preparation of the interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities and contingent liabilities at the date of the interim financial statements, and the reported amounts of sales and expenses during the reporting period. Estimates and assumptions are continually evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

Note 3:
Significant Accounting Policies

(a)      New accounting standards effective in 2014
   
  IFRIC 21 - Levies
In May 2013, the IASB issued International Financial Reporting Interpretations Committee (IFRIC) 21, Levies. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014 and is to be applied retrospectively. IFRIC 21 provides guidance on accounting for levies in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation defines a levy as an outflow from an entity imposed by a government in accordance with legislation and confirms that an entity recognizes a liability for a levy only when the triggering event specified in the legislation occurs. The Company has performed an assessment of the impact of IFRIC 21 and concluded it did not have a significant impact on its consolidated financial statements.
   
(b)      New accounting standards issued but not yet effective
   
  IFRS 9 - Financial Instruments
In November 2009, the IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on an entity's business model and the contractual cash flows of the financial asset. Classification is made at the time the financial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument. Requirements for classification and measurement of financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, except that fair value changes due to an entity's own credit risk for liabilities designated at fair value through profit or loss would generally be recorded in OCI rather than the statement of income. In November 2013, IFRS 9 was amended to include guidance on hedge accounting.
   
  In July 2014, the IASB issued the final version of IFRS 9. This standard is effective for annual periods beginning on or after January 1, 2018; however, early adoption of the new standard is permitted. The Company is currently assessing the impact of the standard on its consolidated financial statements.
   
  IFRS 15 - Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS 15). IFRS 15 is effective for periods beginning on or after January 1, 2017 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue from contracts with customers. The Company intends to adopt IFRS 15 in its financial statements for the annual period beginning February 1, 2017. The extent of the impact of adoption of IFRS 15 has not yet been determined.

Note 4:
Cash and Cash Equivalents

                                 
                        July 31, 2014       January 31, 2014
Cash on hand and balances with banks                 $     267,819     $ 224,778
Restricted cash                       116,135       113,612
Total cash and cash equivalents                 $     383,954     $ 338,390

The Company has provided CDN $127 million in letters of credit to the Government of the Northwest Territories, supported by restricted cash for the reclamation obligations for the Ekati Diamond Mine.

Note 5:
Inventory and Supplies

                           
                  July 31, 2014       January 31, 2014
Stockpile ore           $     25,818     $ 38,475
Rough diamonds - work in progress                 69,905       139,520
Rough diamonds - finished goods (available for sale)                 119,614       35,573
Supplies inventory                 257,428       227,285
Total inventory and supplies           $     472,765     $ 440,853

Total inventory and supplies is net of a provision for obsolescence of $0.5 million ($0.6 million at January 31, 2014).

Note 6: Assets Held for Sale (Discontinued Operations)

On March 26, 2013, the Company completed the sale of Harry Winston Inc. to Swatch Group. Continuing operations no longer includes the operations of the Luxury Brand Segment and the results of this segment are now treated as discontinued operations for reporting purposes.

Results of the discontinued operations are presented separately as net profit from discontinued operations in the unaudited interim consolidated statements of income, and comparative periods have been adjusted accordingly.

                Period ended
March 26, 2013
(Recast - note 12)
Sales             $ 63,799
Cost of sales               (31,355)
Other expenses               (30,964)
Other income and foreign exchange gain (loss)               (1,551)
Net income tax (expense) recovery               (186)
Net profit (loss) from discontinued operations before gain             $ (257)
Gain on sale             $ 502,913
Net profit from discontinued operations             $ 502,656
Earnings per share - discontinued operations                
Basic               5.91
Diluted                5.85

Note 7:
Diavik Joint Venture

The following represents DDDLP's 40% interest in the net assets and operations of the Diavik Joint Venture as at June 30, 2014 and December 31, 2013:

                               
                      June 30, 2014       December 31, 2013
Current assets                   $ 100,280     $ 97,078
Non-current assets                     581,325       618,141
Current liabilities                     26,766       31,296
Non-current liabilities and participant's account                     654,839       683,923
                               
                               
      Three months
ended June 30,
2014
      Three months
ended June 30,
2013
      Six months
ended June 30,
2014
      Six months
ended June 30,
2013
Expenses net of interest income(a)   $ 63,457     $ 59,036     $ 122,552     $ 125,683
Cash flows used in operating activities     (44,383)       (45,352)       (83,901)       (90,180)
Cash flows resulting from financing activities     46,951       50,435       91,544       103,594
Cash flows used in investing activities     (3,301)       (4,692)       (8,377)       (15,403)
(a) The Joint Venture only earns interest income.

DDDLP is contingently liable for DDMI's portion of the liabilities of the Diavik Joint Venture, and to the extent DDDLP's participating interest has increased because of the failure of DDMI to make a cash contribution when required, DDDLP would have access to an increased portion of the assets of the Diavik Joint Venture to settle these liabilities. Additional information on commitments and contingencies related to the Diavik Joint Venture is found in note 9.

Note 8:
Related Party Disclosure

There were no material related party transactions in the three and six months ended July 31, 2014 other than compensation of key management personnel.

Operational information
The Company had the following investments in significant subsidiaries at July 31, 2014:

Name of company           Effective interest         Country of incorporation
Dominion Diamond Holdings Ltd.           100%         Canada
Dominion Diamond Diavik Limited Partnership           100%         Canada
Dominion Diamond (India) Private Limited           100%         India
Dominion Diamond International N.V.           100%         Belgium
Dominion Diamond Marketing Corporation           100%         Canada
Dominion Diamond (UK) Limited           100%         England
6019838 Canada Inc.           100%         Canada
Dominion Diamond Ekati Corporation           100%         Canada
Dominion Diamond Resources Corporation           100%         Canada
Dominion Diamond Marketing N.V.           100%         Belgium

Note 9:
Commitments and Guarantees

Contractual Obligations                     Less than           Year           Year       After
              Total       1 year           2-3           4-5       5 years
Interest-bearing loans and borrowings           $ 4,693     $ 1,126     $     2,253     $     1,314     $ -
Environmental and participation agreements incremental commitments (a)(b)             182,831       61,253           1,123           4,350       116,105
Operating lease obligations (c)             11,722       10,141           1,581           -       -
Total contractual obligations           $ 199,246     $ 72,520     $     4,957     $     5,664     $ 116,105

(a)  Environmental agreements
  Through negotiations of environmental and other agreements, both the Diavik Joint Venture and the Ekati Diamond Mine must provide funding for the Environmental Monitoring Advisory Board and the Independent Environmental Monitoring Agency, respectively. Further funding will be required in future years; however, specific amounts have not yet been determined. These agreements also state that the mines must provide security for the performance of their reclamation and abandonment obligations under all environmental laws and regulations. DDDLP's share of the letters of credit outstanding posted by the operator of the Diavik Joint Venture with respect to the environmental agreements as at July 31, 2014 was $59 million. The agreement specifically provides that these funding requirements will be reduced by amounts incurred by the Diavik Joint Venture on reclamation and abandonment activities. The Company has posted letters of credit of CDN $127 million with the Government of the Northwest Territories supported by restricted cash in support of the reclamation obligations for the Ekati Diamond Mine.
   
  The Company has provided a guarantee of CDN $20 million to the Government of the Northwest Territories for other obligations under the environmental agreement in respect of the Ekati Diamond Mine.
   
(b)  Participation agreements
  Both the Diavik Joint Venture and the Ekati Diamond Mine have signed participation agreements with various native groups. These agreements are expected to contribute to the social, economic and cultural well-being of the Aboriginal bands. The Diavik participation agreements are each for an initial term of twelve years and shall be automatically renewed on terms to be agreed upon for successive periods of six years thereafter until termination. The Diavik participation agreements terminate in the event that the Diavik Diamond Mine permanently ceases to operate. The Ekati Diamond Mine participation agreements are in place during the life of the Ekati Diamond Mine and the agreements terminate in the event the mine ceases to operate.
   
(c)  Operating lease commitments
  The Company has entered into non-cancellable operating leases for the rental of fuel tanks and office premises for the Ekati Diamond Mine, which expire at various dates through 2016. The leases have varying terms, escalation clauses and renewal rights. Any renewal terms are at the option of the lessee at lease payments based on market prices at the time of renewal. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease, including any periods of free rent.

Note 10:
Financial Instruments

The Company has various financial instruments comprising cash and cash equivalents, accounts receivable, trade and other payables, and interest-bearing loans and borrowings.

Cash and cash equivalents consist of cash on hand and balances with banks and short-term investments held in overnight deposits with a maturity on acquisition of less than 90 days. Cash and cash equivalents, which are designated as held-for-trading, are carried at fair value based on quoted market prices and are classified within Level 1 of the fair value hierarchy established by the IASB.

The fair value of accounts receivable is determined by the amount of cash anticipated to be received in the normal course of business from the financial asset.

The Company's interest-bearing loans and borrowings are for the most part fully secured, hence the fair values of these instruments at July 31, 2014 and January 31, 2014 are considered to approximate their carrying value.

The carrying values and estimated fair values of these financial instruments are as follows:

                                           
            July 31, 2014     January 31, 2014
              Estimated
fair value
        Carrying
value
      Estimated
fair value
        Carrying
value
Financial assets                                          
Cash and cash equivalents, including restricted cash           $ 383,954     $   383,954     $ 338,390     $   338,390
Accounts receivable             13,062         13,062       20,879         20,879
            $ 397,016     $   397,016     $ 359,269     $   359,269
Financial liabilities                                          
Trade and other payables           $ 109,565     $   109,565     $ 103,653     $   103,653
Interest-bearing loans and borrowings             3,992         3,992       4,298         4,298
            $ 113,557     $   113,557     $ 107,951     $   107,951

Note 11:
Segmented Information

The reportable segments are those operations whose operating results are reviewed by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance provided those operations pass certain quantitative thresholds. Operations whose revenues, earnings or losses, or assets exceed 10% of the total consolidated revenue, earnings or losses, or assets are reportable segments.

In order to determine reportable segments, management reviewed various factors, including geographical locations and managerial structure. It was determined by management that the Company operates in three segments within the diamond industry - Diavik Diamond Mine, Ekati Diamond Mine and Corporate - for the three and six months ended July 31, 2014.

The Diavik segment consists of the Company's 40% ownership interest in the Diavik group of mineral claims and the sale of rough diamonds. The Ekati segment consists of the Company's ownership interest in the Ekati group of mineral claims and the sale of rough diamonds. The Corporate segment captures all costs not specifically related to the operations of the Diavik and Ekati Diamond Mines.

                                       
For the three months ended July 31, 2014             Diavik       Ekati       Corporate       Total
Sales                                      
  North America           $ -     $ -     $ -     $ -
Europe             94,858       160,667       -       255,525
India             12,175       9,614       -       21,789
Total sales             107,033       170,281       -       277,314
Cost of sales                                      
Depreciation and amortization             27,335       35,438       -       62,773
All other costs             51,416       107,051       -       158,467
Total cost of sales             78,751       142,489       -       221,240
Gross margin             28,282       27,792       -       56,074
Gross margin (%)             26.4%       16.3%       -%       20.2%
Selling, general and administrative expenses                                      
Selling and related expenses             1,067       941       -       2,008
Administrative expenses             -       -       7,598       7,598
Total selling, general and administrative expenses             1,067       941       7,598       9,606
Operating profit (loss)             27,215       26,851       (7,598)       46,468
Finance expenses             (793)       (2,413)       -       (3,206)
Exploration costs             (9)       (6,837)       -       (6,846)
Finance and other income             411       522       -       933
Foreign exchange gain (loss)             (166)       982       -       816
Segmented profit (loss) before income taxes           $ 26,658     $ 19,105     $ (7,598)     $ 38,165
Segmented assets as at July 31, 2014                                      
Canada           $ 912,446     $ 1,355,690     $ -     $ 2,268,136
Other foreign countries             29,345       58,769       -       88,114
            $ 941,791     $ 1,414,459     $ -     $ 2,356,250
Capital expenditures           $ 3,778     $ 41,981     $ -     $ 45,759
Inventory             108,282       364,483       -       472,765
Total liabilities             13,523       828,163       -       841,686
Other significant non-cash items:                                      
Deferred income tax recovery           $ (236)     $ (7,812)     $ -     $ (8,048)
                                       
For the three months ended July 31, 2013
(Recast - note 12)
            Diavik       Ekati       Corporate       Total
Sales                                      
  North America           $ -     $ -     $ -     $ -
Europe             80,530       170,536       -       251,066
India             10,737       -       -       10,737
Total sales             91,267       170,536       -       261,803
Cost of sales                                      
Depreciation and amortization             21,645       10,513       -       32,158
All other costs             46,683       152,245       -       198,928
Total cost of sales             68,328       162,758       -       231,086
Gross margin             22,939       7,778       -       30,717
Gross margin (%)             25.1%       4.6%       -%       11.7%
Selling, general and administrative expenses                                      
Selling and related expenses             1,409       676       -       2,085
Administrative expenses             -       -       12,971       12,971
Total selling, general and administrative expenses             1,409       676       12,971       15,056
Operating profit (loss)             21,530       7,102       (12,971)       15,661
Finance expenses             (15,710)       (2,211)       -       (17,921)
Exploration costs             (2,210)       (935)       -       (3,145)
Finance and other income             767       265       -       1,032
Foreign exchange loss             (1,044)       (1,770)       -       (2,814)
Segmented profit (loss) before income taxes           $ 3,333     $ 2,451     $ (12,971)     $ (7,187)
Segmented assets as at July 31, 2013                                      
Canada           $ 1,052,351     $ 1,212,621     $ -     $ 2,264,972
Other foreign countries             30,011       3,606       -       33,617
            $ 1,082,362     $ 1,216,227     $ -     $ 2,298,589
Capital expenditures           $ 5,553     $ 28,231     $ -     $ 33,784
Inventory             120,696       251,727       -       372,423
Total liabilities             189,921       645,704       -       835,625
Other significant non-cash items:                                      
Deferred income tax expense (recovery)           $ 4,063     $ (7,504)     $ -     $ (3,441)
                                       
                                       
For the six months ended July 31, 2014             Diavik       Ekati       Corporate       Total
Sales                                      
  North America           $ -     $ -     $ -     $ -
Europe             168,776       249,136       -       417,912
India             20,931       13,992       -       34,923
Total sales             189,707       263,128       -       452,835
Cost of sales                                      
Depreciation and amortization             45,622       55,592       -       101,215
All other costs             89,362       168,346       -       257,707
Total cost of sales             134,984       223,938       -       358,922
Gross margin             54,723       39,190       -       93,913
Gross margin (%)             28.8%       14.9%       -%       20.7%
Selling, general and administrative expenses                                      
Selling and related expenses             2,042       2,416       -       4,458
Administrative expenses             -       -       12,296       12,296
Total selling, general and administrative expenses             2,042       2,416       12,296       16,754
Operating profit (loss)             52,681       36,774       (12,296)       77,159
Finance expenses             (1,698)       (4,818)       -       (6,516)
Exploration costs             (362)       (15,528)       -       (15,890)
Finance and other income             3,333       428       -       3,761
Foreign exchange gain (loss)             (260)       127       -       (133)
Segmented profit (loss) before income taxes           $ 53,694     $ 16,983     $ (12,296)     $ 58,381
Segmented assets as at July 31, 2014                                      
Canada           $ 912,446     $ 1,355,690     $ -     $ 2,268,136
Other foreign countries             29,345       58,769       -       88,114
            $ 941,791     $ 1,414,459     $ -     $ 2,356,250
Capital expenditures           $ 10,557     $ 91,226     $ -     $ 101,783
Inventory             108,282       364,483       -       472,765
Total liabilities             13,523       828,163       -       841,686
Other significant non-cash items:                                      
Deferred income tax recovery           $ (12,277)     $ (18,966)     $ -     $ (31,243)
                                       
Sales to one customer totalled $50 million for the six months ended July 31, 2014.
                                       
For the six months ended July 31, 2013
(Recast - note 12)
            Diavik       Ekati       Corporate       Total
Sales                                      
  North America           $ 6,179     $ -     $ -     $ 6,179
Europe             142,172       190,457       -       332,629
India             31,832       -       -       31,832
Total sales             180,183       190,457       -       370,640
Cost of sales                                      
Depreciation and amortization             41,187       10,513       -       51,700
All other costs             89,029       171,892       -       260,921
Total cost of sales             130,216       182,405       -       312,621
Gross margin             49,967       8,052       -       58,019
Gross margin (%)             27.7%       4.2%       -%       15.7%
Selling, general and administrative expenses                                      
Selling and related expenses             2,518       1,196       -       3,714
Administrative expenses             -       -       28,184       28,185
Total selling, general and administrative expenses             2,518       1,196       28,184       31,899
Operating profit (loss)             47,449       6,856       (28,184)       26,120
Finance expenses             (17,729)       (2,934)       -       (20,663)
Exploration costs             (3,249)       (935)       -       (4,184)
Finance and other income             1,307       529       -       1,836
Foreign exchange gain (loss)             516       (2,598)       -       (2,082)
Segmented profit (loss) before income taxes           $ 28,294     $ 918     $ (28,184)     $ 1,027
Segmented assets as at July 31, 2013                                      
Canada           $ 1,052,351     $ 1,212,621     $ -     $ 2,264,972
Other foreign countries             30,011       3,606       -       33,617
            $ 1,082,362     $ 1,216,227     $ -     $ 2,298,589
Capital expenditures           $ 16,491     $ 37,011     $ -     $ 53,502
Inventory             120,696       251,727       -       372,423
Total liabilities             189,921       645,704       -       835,625
Other significant non-cash items:                                      
Deferred income tax recovery           $ (412)     $ (11,426)     $ -     $ (11,838)

Note 12:
Recast

As a result of reflecting the final purchase price adjustments relating to the Ekati Diamond Mine Acquisition retrospectively, the interim financial statements for the three and six months ended July 31, 2013 have been recast.

For the three months ended July 31, 2013, cost of sales decreased by $3.3 million, finance expense decreased by $1.7 million, whereas income tax expense increased by $1.7 million. As a result, net profit attributed to common shareholders increased by $2.5 million and net loss attributed to non-controlling interest increased by $0.8 million.

For the six months ended July 31, 2013, cost of sales decreased by $3.3 million, finance expense decreased by $3.0 million, whereas income tax expense increased by $2.1 million. In addition, the Company has reclassified $5.3 million to gain on sale of the Luxury Brand Segment from other comprehensive income in connection with the actuarial losses that should not have been reclassified to profit. As a result, net profit attributed to common shareholders increased by $8.5 million and net loss attributed to non-controlling interest increased by $1.0 million. 

SOURCE Dominion Diamond Corporation

For more information, please visit www.ddcorp.ca 

Mr. Richard Chetwode, Vice President, Corporate Development - +44 (0) 7720-970-762 or rchetwode@ddcorp.ca

Ms. Kelley Stamm, Manager, Investor Relations - (416) 205-4380 or kstamm@ddcorp.ca