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Dominion Diamond Corporation reports Fiscal 2015 Third Quarter Results

December 11,2014

TORONTO, December 12, 2014 /PRNewswire/ --

Dominion Diamond Corporation (TSX: DDC, NYSE: DDC) (the "Company" or "Dominion") reports that the Ekati Diamond Mine and the Diavik Diamond Mine continued to perform well in the third fiscal quarter of 2015 (August through October). Rough diamond production and sales have all exceeded plan. Unless otherwise indicated, all financial information is presented in U.S. dollars.

The Company recorded a third quarter consolidated net income attributable to shareholders of $25.5 million or $0.30 per share. For the nine months ended October 31, 2014, consolidated net income attributable to shareholders totalled $66.7 million or $0.78 per share.

Brendan Bell, Acting Chief Executive Officer stated: "While we continue to focus on the strategic development of our future resources, we are also taking a very disciplined approach to executing on our current mine plan. This disciplined approach is apparent in these strong results."

The Company is pleased to announce that it intends to initiate a dividend following the release of its year-end results in April with the amount to be determined at that time.

Dan Jarvis, Acting Chairman stated: "This decision by the board is based on our confidence that we can both fund our expansion plans for the business as well as sustain regular distributions to our shareholders."

Diamond Markets

The U.S. market for diamond jewellery represents 40% of global consumption and anecdotal evidence of sales in the important fourth calendar quarter has been very encouraging. Underlying demand for wedding jewellery on Mainland China remains strong. However the overall macro-economic challenges facing both China and Japan have dampened market expectations. Rough diamond prices moderated during the quarter but the Company's average rough diamond prices remained approximately 4% higher to the end of the third fiscal quarter.

Highlights

The Company continues to deliver enhanced value from its world class diamond mines, the Ekati Diamond Mine (in which the Company owns an 88.9% interest) and the Diavik Diamond Mine (in which the Company owns a 40% interest).

  • Diamond production at the Ekati Diamond Mine continued to exceed plan, driven by both higher than expected grades and operational improvements to the processing plant.
  • The Company estimates that process plant improvements to date at the Ekati Diamond Mine have increased the recovered grade during the nine months ended October 31, 2014 by approximately 15% compared to the mine plan. The resulting additional diamonds are not currently included in the Company's reserve statement and mine plan, and are therefore incremental to production. During the quarter, physical modifications to the plant were substantially completed with commissioning expected to take place before the Company's fiscal year-end. Once the process improvements have been completed, the Company intends to incorporate these higher recovery rates into an updated reserve statement.
  • During the third quarter, the consolidated EBITDA margin has increased to 52% driven by increased diamond recoveries, increased efficiencies and careful control of costs. The EBITDA margin in the third quarter of the prior year was only 25% primarily as a result of the cost of sales at Ekati reflecting the purchase of inventory at market value as part of the Ekati Diamond Mine acquisition.
  • Stripping at the Misery pipe pushback is proceeding according to plan. A total of approximately $100 million of capital expenditure remains to be spent before the first ore from the Misery Main pipe, estimated at 4.0 carats per tonne and $105 per carat (as of January 31, 2014), is put through the processing plant in early calendar 2016.
  • On November 6, 2014, the Company filed the Developers Assessment Report ("DAR") for the Jay Project and we anticipate a ministerial decision in late 2015. Once this decision is issued, the water license and land-use permitting process will take approximately a further 6 months. The Jay Project, which features the open pit development of the largest diamondiferous resource in North America, 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. Through the nine months ended October 31, 2014, the Company has expensed $22.9 million on the Project.
  • A bulk sample drilling program is planned on the fully permitted Sable Pipe at the Ekati Diamond Mine in calendar 2015. Upon completion of the program, which is expected in the summer of 2015, a decision will be made regarding next steps of the project.
  • On November 26, 2014 the Company announced that Rio Tinto plc, approved the development of the A-21 pipe at the Diavik Diamond Mine. A-21 production is expected to begin in late calendar 2018. The development of the A-21 pipe post the depletion of the rich A-154 South pipe in 2020 ensures that the plant will be filled for the remainder of the mine life and allows flexibility for the sourcing of ore.
  • On November 6, 2014, the Company announced that Dominion Diamond Ekati Corporation, the operator of the Ekati Diamond Mine, posted surety bonds with the Government of the Northwest Territories (the "GNWT") in the aggregate amount of CDN$253,473,000 to secure the obligation under its Water Licence to reclaim the Ekati mine site.
  • On October 15, 2014, the Company completed the previously announced acquisition of the interests of Fipke Holdings Ltd. (FipkeCo) in the Ekati Diamond Mine. The Company now holds an 88.889% interest in the Core Zone and a 65.3% interest in the Buffer Zone.

Financial Summary 

  • The Company has a strong balance sheet and is well-funded to achieve its growth objectives. As of October 31, 2014, the Company held total cash and cash equivalents of $401 million ($289 million of cash and $112 million of restricted cash). As a result of the posting of the surety bonds which occurred after the quarter end, the Company has received back letters of credit in the amount of approximately CDN$82.6 million previously posted as security. Letters of credit in the amount of approximately CDN$42.7 million continue to be held by the GNWT pending completion of a review by the GNWT of duplication between the security required under the Water Licence and security held by the GNWT under the Environmental Agreement.
  • The Company has approximately $45 million of interest-bearing loans and borrowings, primarily in the form of promissory notes, relating to its acquisition of the interests of FipkeCo in the Ekati Diamond Mine.


                                             Three                     Nine
                                            months                   months
    Consolidated Financial Highlights        ended                    ended
    (in millions of US dollars except          Oct    Three months      Oct     Nine months
     earnings per share                         31,   ended Oct 31,      31,   ended Oct 31,
     and where otherwise noted)               2014            2013     2014           2013

    Sales                                    222.3           148.1    675.2          518.8
    Cost of Sales(1)                         147.0           136.2    505.9          448.8
    Gross Margin                              75.3            11.9    169.3           70.0
    Gross Margin (%)                          33.9%            8.0%    25.1%          13.5%
    Selling general & administration           7.9             7.4     24.7           39.3
    Operating profit from continuing
    operations                                67.5             4.5    144.6           30.6
    EBITDA from continuing operations(2)     115.4            36.5    294.6          115.5
    EBITDA Margin (%)(3)                        52%             25%      44%            22%
    Earnings per share                        0.30           (0.06)    0.78          (0.18)


    1 Cost of sales for the Ekati Diamond Mine for the three and nine months ended October
      31, 2014 reflected the purchase of
      inventory at market values as part of the acquisition of the Ekati Diamond Mine.
    2 The term EBITDA (earnings before interest, taxes, depreciation and amortization)
      does not have a standardized meaning
      according to International Financial Reporting Standards ("IFRS"). See "Non-IFRS
      Measures" below for additional information.
    3 The term EBITDA margin does not have a standardized meaning according to IFRS. See
      "Non-IFRS Measures" below for
      additional information

Excluded from the Ekati sales recorded in the third quarter were carats produced and sold from the processing of material from the Misery Satellite pipes. During the third quarter, the Company sold an estimated 0.2 million carats of production from the Misery Satellite pipes for estimated proceeds of $13.6 million for an average price per carat of $79, which includes the recovery of small diamonds.

For the nine months ended October 31, 2014, the Company sold an estimated 0.4 million carats of production from the Misery Satellite pipes for estimated proceeds of $31.0 million for an average price per carat of $78, which includes the recovery of small diamonds.

Sales of diamonds recovered during pre-production from the Misery Satellite pipes have been applied as a reduction of mining assets. The Misery Satellite pipes commenced commercial production (for accounting purposes) on September 1, 2014.

Exploration expense of $7.4 million was incurred during the third quarter ($7.1 million in the comparable quarter of the prior year); all exploration activity in the current year was incurred on the Jay pipe within the Buffer Zone at the Ekati Diamond Mine.



    Cash Flow
    Q3 Fiscal 2015
    (in millions of US dollars except where otherwise noted)

    Opening cash at July 31, 2014                                                    384.0
    Cash flow from operations for the period                                          72.3
    Capital expenditures for the period (net of Misery preproduction revenue)        (22.8)
    Cash tax paid for the period                                                      (1.2)
    Net interest paid during the period                                               (0.5)
    Acquisition of additional interest in Ekati                                      (27.5)
    Other                                                                             (3.5)
    Closing cash at October 31, 2014                                                 400.8



    Cash Flow
    Nine months ended 31 October 2015
    (in millions of US dollars except where otherwise noted)

    Opening cash at January 31, 2014                                                 338.4
    Cash flow from operations for the period                                         218.0
    Capital expenditures for the period (net of Misery preproduction revenue)       (112.9)
    Cash tax paid for the period                                                     (28.8)
    Net interest paid during the period                                               (1.2)
    Acquisition of additional interest in Ekati                                      (27.5)
    Other                                                                             14.8
    Closing cash at October 31, 2014                                                 400.8

Operational Summary

For the third 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 13 months.

At the Diavik Diamond Mine, processing volumes in the third quarter of calendar 2014 were 2% higher than the prior year's comparable quarter. Diamonds recovered in the third calendar quarter at the Diavik Diamond Mine were consistent with the same quarter of the prior year. Through the third quarter, initiatives associated with improving availabilities, removing plant bottlenecks and increasing utilization of equipment were maintained, which have contributed to the significant improvement in tonnage processed and carats recovered on a year-to-date basis. On the mining front, continued efforts around mining equipment and shift utilization and increasing payload on equipment translated into better than expected ore production.



                           Three months     Three months      Nine months      April 10 to
    Rough Diamond          ended Oct 31,    ended Oct 31,    ended Oct 31,          Oct 31,
    Production                     2014             2013             2014          2013[1]
    Ekati Diamond
    Mine (100%)
    Tonnes processed
    ('000's)                      1,142            1,132            3,164            2,444
    Carats Recovered
    ('000's)                        975              609            2,337            1,173
    Grade (carats
    per tonne)                     0.85             0.54             0.74             0.48

                           Three months     Three months      Nine months      Nine months
    Diavik Diamond        ended Sept 30,   ended Sept 30,   ended Sept 30,   ended Sept 30,
    Mine (40%)[2]                  2014             2013             2014             2013
    Tonnes processed
    ('000's)                        224              219              707              631
    Carats Recovered
    ('000's)                        669              669            2,275            2,071
    Grade (carats
    per tonne)[3]                  2.98             2.91             3.13             3.13



    [1] 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 October
        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 October
        31, 2014, the Diavik Diamond Mine (on a 40% basis) produced 589,000 carats from
        the processing of 207,000 tonnes of ore. The last month of this production is not
        included in the Company's third quarter financial results, as the Company
        reports Diavik results on a one-month lag.
    [3] 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        Three months    Three months     Nine months     Nine months
    dollars, except           ended Oct 31,   ended Oct 31,   ended Oct 31,   ended Oct 31,
    carats sold)                      2014            2013            2014         2013(1)

    Ekati Diamond Mine (100%)
    Sales(2)                         141.9            95.2           405.1           285.7
    Carats sold ('000's)               458             365           1,269             966
    Cost of Sales(3)                  94.3            96.2           318.3           278.6
    Gross Margin                      47.6           (1.0)            86.8             7.1
    Gross Margin (%)                 33.5%          (1.0%)           21.4%            2.5%
    Operating Profit                  47.0           (1.3)            83.8             5.5
    Cash Cost of
    Production(4)                     86.3            91.1           253.3           202.6
    Depreciation &
    amortization                      27.3            19.2            82.9            29.7
    EBITDA(5)                         74.3            17.8           166.7            35.2
    EBITDA Margin
    (%)(6)                             52%             19%             41%             12%
    Capital Expenditures              27.0            28.3           118.2            65.3

    Diavik Diamond Mine (40%)
    Sales                             80.4            52.9           270.1           233.1
    Carats sold ('000's)               695             447           2,236           1,933
    Cost of Sales                     52.6            40.0           187.6           170.2
    Gross Margin                      27.8            12.9            82.5            62.9
    Gross Margin (%)                 34.6%           24.4%           30.5%           27.0%
    Operating Profit                  26.9            11.8            79.6            59.2
    Cash Cost of
    Production(4)                     35.4            37.6           111.7           119.4
    Depreciation &
    amortization                      20.4            12.4            66.2            54.1
    EBITDA(5)                         47.3            24.2           145.8           113.3
    EBITDA Margin
    (%)(6)                             59%             46%             54%             49%
    Capital Expenditures               4.6             6.9            15.2            23.4



    1   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
        October 31, 2013.
    2   Excluded from the Ekati sales recorded in the third quarter were carats produced
        and sold from the processing of material from the Misery Satellite pipes. During
        the third quarter, the Company sold an estimated 0.2 million carats of production
        from the Misery Satellite pipes for estimated proceeds of $13.6 million for an
        average price per carat of $79, which includes the recovery of small diamonds.
        For the nine months ended October 31, 2014, the Company sold an estimated 0.4
        million carats of production from the Misery Satellite pipes for estimated
        proceeds of $31.0 million for an average price per carat of $78, which includes
        the recovery of small diamonds. The Misery Satellite pipes commenced commercial
        production (for accounting purposes) on September 1, 2014.
    3   Cost of sales for the Ekati Diamond Mine for the three and nine months ended
        October 31, 2014 reflected the purchase of inventory at market values as part
        of the acquisition of the Ekati Diamond Mine.
    4   The term cash cost of production does not have a standardized meaning according
        to IFRS. See "Non-IFRS Measures" below for additional information.
    5   The term EBITDA (earnings before interest, taxes, depreciation and amortization)
        does not have a standardized meaning according to IFRS. See "Non-IFRS Measures"
        below for additional information.
    6   The term EBITDA margin does not have a standardized meaning according to IFRS.
        See "Non-IFRS Measures" below for additional information.

Diamond Sales

The Company held two rough diamond sales during the quarter (in August and September) and despite it being a traditionally quiet period for the industry ahead of the important Diwali holiday in India, the Company achieved strong sales. With no sale being held in October, the Company had an increase in the diamonds held in inventory at the end of the period. The Company plans to hold three rough diamond sales in the fourth fiscal quarter of 2015.



    Diamond Inventory                                                October       January
    (in millions of US dollars, except                                    31,           31,
    carats)                                                             2014          2014

    Ekati Diamond Mine (100%)            Carats (million)                1.2           0.5
                                         At Cost                         180           130
                                         Estimated Market Value          265           140
    Diavik Diamond Mine (40%)            Carats (million)                0.7           0.4
                                         At Cost                          55            50
                                         Estimated Market Value           85            65
                                         Estimated Market Value
                                         of
    Consolidated Diamond Inventory       Total Inventory[1]              350           205



    [1] The inventory amount is comprised of approximately $185 million of rough diamonds
        available for sale at market value, which includes approximately $60 million of
        rough diamonds held back from sale in Q3 and an additional $15 million of rough
        diamonds which are primarily samples used in the sorting process. The balance of
        approximately $165 million of rough diamonds represents work in progress.



    Diamond Prices
    November 2014 Average Price per Carat (in
    US dollars)

    Diavik Ore Type                                      Ekati Ore Type[1]
    A-154 South                                  $145    Koala                        $390
    A-154 North                                  $190    Koala North                  $435
    A-418                                        $105    Fox                          $310
                                                         Misery Satellite
    COR                                           $50    Pipes                         $90
                                                         COR                     $65 - 120
    Rough Diamond Prices January to November             Recovered Small
    2014                                          +4%    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 third quarter,
    the estimated price based on the prices achieved in the November 2014 sale,
    would have been:

    Ekati Diamond Mine (100%)               approximately $203 per carat
    Diavik Diamond Mine (40%)               approximately $118 per carat



    Full Year Guidance
    (in millions of                         Depreciation &                        Capital
    US dollars)[1]            Cash Costs[2]   Amortization  Cost of Sales  Expenditures[2]

    Ekati Diamond Mine (100%)          345             125            470             160
    Diavik Diamond Mine (40%)          150              90            260              22



    [1] Assuming an average Canadian/US dollar exchange rate of 1.11.
    [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 Third 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 Third Quarter Management's Discussion and Analysis for additional information.

Conference Call and Webcast

Beginning at 8:30AM (ET) on Friday, December 12, 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 http://www.ddcorp.ca or by dialing 877-280-4956 within North America or 857-244-7313 from international locations and entering passcode 63623975.

An online archive of the broadcast will be available by accessing the Company's web site at http://www.ddcorp.ca. A telephone replay of the call will be available one hour after the call through 11:00PM (ET), Friday, December 26, 2014, by dialing 888-286-8010 within North America or 617-801-6888 from international locations and entering passcode 37985542.

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 88.9% ownership as well as a 65.3% 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  Three months   Nine months   Nine months
                                         ended         ended         ended         ended
                                    October 31,   October 31,   October 31,   October 31,
                                          2014          2013          2014          2013

    Sales                              $ 222.3       $ 148.1       $ 675.2       $ 518.8
    Cost of sales                        147.0         136.2         505.9         448.8
    Gross margin                          75.3          11.9         169.3          70.0
    Gross margin (%)                      33.9%          8.0%         25.1%         13.5%
    Selling, general and administration    7.9           7.4          24.7          39.3
    Operating profit from
    continuing operations                 67.5           4.5         144.6          30.6
    EBITDA from continuing operations(i) 115.4          36.5         294.6         115.5
    EBITDA margin (%)(ii)                   52%           25%           44%           22%
    Net income (loss) from continuing
    operations attributable
    to shareholders                       25.5          (4.8)         66.7         (15.2)
    Earnings (loss) per share
    attributable to shareholders          0.30         (0.06)         0.78         (0.18)


    (i)  The term EBITDA (earnings before interest, taxes, depreciation and amortization)
         does not have a standardized meaning according to IFRS. The Company defines
         EBITDA as sales minus cost of sales and selling, general and administrative
         expenses, meaning it represents operating profit before depreciation and
         amortization. See "Non-IFRS Measures" for additional information.
    (ii) The term EBITDA margin does not have a standardized meaning according to IFRS.
         See "Non-IFRS Measures" for additional information

THIRD QUARTER RESULTS

Dominion Diamond Corporation (the "Company") recorded a consolidated net profit attributable to shareholders of $25.5 million or $0.30 per share for the quarter, compared to a net loss attributable to shareholders of $4.8 million or $(0.06) per share in the third quarter of the prior year.

Consolidated sales from continuing operations were $222.3 million for the quarter, compared to $148.1 million for the comparable quarter of the prior year, resulting in an operating profit of $67.5 million, compared to an operating profit of $4.5 million in the comparable quarter of the prior year. Consolidated EBITDA from continuing operations was $115.4 million, compared to $36.5 million in the comparable quarter of the prior year.

During the third quarter, the Company recorded sales from the Diavik Diamond Mine of $80.4 million, compared to $52.9 million in the comparable quarter of the prior year. The Company sold approximately 0.7 million carats from the Diavik Diamond Mine for an average price per carat of $116, compared to 0.4 million carats for an average price per carat of $118 in the comparable quarter of the prior year. The 56% increase in volume of carats sold versus the comparable quarter of the prior year resulted primarily from the decision in the third quarter of the prior year to hold back some inventory from sale due to a weakening of the rough diamond market resulting from macroeconomic uncertainty in India and to the change in the Company's sales schedule resulting from a change in its rough diamond sales platform. The Diavik segment generated gross margins and EBITDA margins as a percentage of sales of 34.6% and 59%, respectively, compared to 24.4% and 46%, respectively, in the comparable quarter of the prior year. Cost of sales and gross margins in the current quarter were positively impacted by the increased production during the second quarter as a result of greater processing volumes. Increased production results in a lower cost per carat as operating costs that are largely fixed are spread over a greater volume of production. At October 31, 2014, the Company had 0.7 million carats of Diavik Diamond Mine produced inventory with an estimated market value of approximately $85 million, compared to 0.8 million carats with an estimated market value of $110 million in the comparable quarter of the prior year.

During the third quarter, the Company recorded sales from the Ekati Diamond Mine of $141.9 million, compared to $95.2 million for the comparable period of the prior year. The Company sold approximately 0.5 million carats from the Ekati Diamond Mine for an average price per carat of $310, compared to 0.4 million carats for an average price per carat of $261 in the comparable quarter of the prior year. Excluded from sales recorded in the third 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 33.5% and 52%, respectively, compared to (1.0%) and 19%, respectively, in the comparable quarter of 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"). Cost of sales and gross margins in the current quarter were positively impacted by the increased production during the second quarter as a result of improvements in diamond recoveries and greater processing volumes. Increased production results in a lower cost per carat as operating costs that are largely fixed are spread over a greater volume of production. The Company estimates that gross margins and EBITDA margins for the third quarter would have been approximately 42.4% and 60%, 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. The Misery South & Southwest pipes commenced commercial production (for accounting purposes) on September 1, 2014. At October 31, 2014, the Company had 1.2 million carats of Ekati Diamond Mine produced inventory with an estimated market value of approximately $265 million, compared to 0.6 million carats with an estimated market value of approximately $141 million at the end of the comparable quarter of the prior year. Included in ending inventory is an estimated 0.1 million carats produced from Misery South & Southwest with an estimated market value of approximately $10 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 $6.5 million, compared to $5.9 million in the comparable quarter of the prior year.



                                       DIAVIK DIAMOND MINE (40%)
               (expressed in millions of United States dollars, except per share amounts
                                      and where otherwise noted)
                                              (unaudited)
                        Three months       Three months       Nine months       Nine months
                               ended              ended             ended             ended
                          October 31,        October 31,       October 31,       October 31,
                                2014               2013              2014              2013
    Sales             $         80.4     $         52.9     $       270.1     $       233.1
    Carats sold
    (000s)                       695                447             2,236             1,933
    Cost of sales               52.6               40.0             187.6             170.2
    Gross margin                27.8               12.9              82.5              62.9
    Gross margin
    (%)                         34.6%              24.4%             30.5%             27.0%
    Operating
    profit                      26.9               11.8              79.6              59.2
    Cash cost of
    production[(i)]             35.4               37.6             111.7             119.4
    Depreciation
    and
    amortization                20.4               12.4              66.2              54.1
    EBITDA[(ii)]                47.3               24.2             145.8             113.3
    EBITDA margin
    (%)(iii)                      59%                46%               54%               49%
    Capital
    expenditures                 4.6                6.9              15.2              23.4

                                       EKATI DIAMOND MINE (100%)
               (expressed in millions of United States dollars, except per share amounts
                                      and where otherwise noted)
                                              (unaudited)

                        Three months       Three months       Nine months       Nine months
                               ended              ended             ended             ended
                          October 31,        October 31,       October 31,       October 31,
                                2014               2013              2014              2013
    Sales             $        141.9     $         95.2     $       405.1     $       285.7
    Carats sold
    (000s)                       458                365             1,269               966
    Cost of sales               94.3               96.2             318.3             278.6
    Gross margin                47.6              (1.0)              86.8               7.1
    Gross margin
    (%)                         33.5%             (1.0%)             21.4%              2.5%
    Operating
    profit (loss)               47.0              (1.3)              83.8               5.5
    Cash cost of
    production(i)               86.3               91.1             253.3             202.6
    Depreciation
    and
    amortization                27.3               19.2              82.9              29.7
    EBITDA(ii)                  74.3               17.8             166.7              35.2
    EBITDA margin
    (%)(iii)                      52%                19%               41%               12%
    Capital
    expenditures                27.0               28.3             118.2              65.3


    (i)   The term cash cost of production does not have a standardized meaning according
          to IFRS. See "Non-IFRS Measures" for additional information.
    (ii)  The term EBITDA (earnings before interest, taxes, depreciation and amortization)
          does not have a standardized meaning according to IFRS. The Company defines
          EBITDA as sales minus cost of sales and selling, general and administrative
          expenses, meaning it represents operating profit before depreciation
          and amortization. See "Non-IFRS Measures" for additional information.
    (iii) The term EBITDA margin does not have a standardized meaning according to IFRS.
          See "Non-IFRS Measures" for additional information.

Management's Discussion and Analysis 

PREPARED AS OF DECEMBER 11, 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 nine months ended October 31, 2014, and its financial position as at October 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 nine months ended October 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 "third quarter" refer to the three months ended October 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 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 that 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, risks associated with the estimates related to the capital expenditures required to bring the A-21 pipe into production, 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 macroeconomic uncertainty in other financial markets, risks associated with regulatory requirements and the ability to obtain all necessary regulatory approvals, 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 27 of this MD&A, as well as the Company's current Annual Information Form, available at http://www.sedar.com and http://www.sec.gov, 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, Mumbai, India and Antwerp, Belgium. The Company acquired its initial interest in the Ekati Diamond Mine on April 10, 2013. The Ekati Diamond Mine consists of the Core Zone (in which the Company owns 88.9%), which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer Zone (in which the Company owns 65.3%), 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; 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 November 26, 2014, the Company announced that Rio Tinto plc had approved the development of the A-21 pipe at the Diavik Diamond Mine. A-21 production is planned to begin in late calendar 2018.

On November 20, 2014, the Company's Board of Directors granted Robert Gannicott, Chairman and Chief Executive Officer of the Company, medical leave of absence to undergo important treatment which is expected to continue until mid-February 2015. During this period, lead director Dan Jarvis assumed the role of Acting Chairman (who will be supported in this role by Audit Committee Chairman Ollie Oliveira) and Brendan Bell assumed the role of Acting Chief Executive.

MARKET COMMENTARY
In the third fiscal quarter, the rough diamond market felt the impact of tighter credit and lower than expected demand from the retail markets in India and China and approached the annual Diwali holiday shutdown in a cautious mood. Demand for rough diamonds that produce the commercial ranges of polished diamonds remained resilient but demand for the better quality ranges failed to improve, causing prices to weaken further.

The retail jewelry market in the United States continued its growth and was the focus of activity for the bulk of the Company's clients and expectations for the Christmas season are favourable. Demand in the Far East was disrupted by the political events in Hong Kong over the Golden week in China, but the Chinese mass market has remained resilient. Retail demand in India failed to meet expectations in the run-up to Diwali but demand for the wedding season, which starts in December, is more encouraging.

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



     (expressed in thousands of United States dollars except per share amounts and where
                                      otherwise noted)
                                         (unaudited)



                                          2015       2015       2015        2014       2014
                                            Q3         Q2         Q1          Q4         Q3
    Sales                            $ 222,336  $ 277,314  $ 175,522  $  233,163  $ 148,138
    Cost of sales                      146,951    221,240    137,680     202,030    136,221
    Gross margin                        75,385     56,074     37,842      31,133     11,917
    Gross margin (%)                      33.9%      20.2%      21.6%       13.4%       8.0%
    Selling, general and
    administrative expenses              7,904      9,606      7,148      10,117      7,408
    Operating profit from
    continuing operations               67,481     46,468     30,694      21,016      4,509
    Finance expenses                    (3,389)    (3,206)    (3,310)     (3,553)    (3,136)
    Exploration costs                   (7,360)    (6,846)    (9,044)     (3,290)    (7,074)
    Finance and other income               781        933      2,827         491        825
    Foreign exchange gain (loss)         1,864        816      (947)     (7,917)      1,122
    Profit (loss) before income
    taxes from continuing
    operations                          59,377     38,165     20,220       6,747    (3,754)
    Income tax expense                  25,757     13,969      9,533      19,018      2,792
    Net profit (loss) from
    continuing operations            $  33,620  $  24,196  $  10,687  $ (12,271)  $ (6,546)
    Net profit from discontinued
    operations                               -          -          -           -          -
    Net profit (loss)                $  33,620  $  24,196  $  10,687  $ (12,271)  $ (6,546)
    Net profit (loss) from
    continuing operations
    attributable to
                      Shareholders   $  25,478  $  26,586  $  14,671  $  (7,802)  $ (4,794)
                      Non-controlling
                      interest           8,142    (2,390)    (3,984)     (4,469)    (1,752)
    Net profit (loss) attributable to
                      Shareholders   $  25,478  $  26,586  $  14,671  $  (7,802)  $ (4,794)
                      Non-controlling
                      interest           8,142    (2,390)    (3,984)     (4,469)    (1,752)
    Earnings (loss) per share
    from continuing operations
    attributable to shareholders
                      Basic          $    0.30  $    0.31  $    0.17  $   (0.09)  $  (0.06)
                      Diluted        $    0.30  $    0.31  $    0.17  $   (0.09)  $  (0.06)
    Earnings (loss) per share
    attributable to shareholders
                      Basic          $    0.30  $    0.31  $    0.17  $   (0.09)  $  (0.06)
                      Diluted        $    0.30  $    0.31  $    0.17  $   (0.09)  $  (0.06)
    Cash dividends declared
    per share                        $    0.00  $    0.00  $    0.00  $     0.00  $    0.00
    Total assets[(i)]                $   2,390  $   2,356  $   2,361  $    2,305  $   2,305
    Total long-term liabilities(i)   $     702  $     668  $     676  $      691  $     688
    Operating profit from
    continuing operations            $  67,481  $  46,468  $  30,694  $   21,016  $   4,509
    Depreciation and amortization(ii)   47,898     63,164     38,885      55,228     31,978
    EBITDA from continuing
    operations(iii)                  $ 115,379  $ 109,632  $  69,579  $   76,244  $  36,487

Table continued



                                                                 Nine months   Nine months
                                                                       ended         ended
                                    2014       2014       2013    October 31,   October 31,
                                      Q2         Q1         Q4          2014          2013
    Sales                     $  261,803  $ 108,837  $ 110,111    $  675,171    $  518,778
    Cost of sales                231,086     81,535     79,038       505,872       448,842
    Gross margin                  30,717     27,302     31,073       169,299        69,936
    Gross margin (%)                11.7%      25.1%      28.2%         25.1%         13.5%
    Selling, general and
    administrative expenses       15,056     16,843     10,086        24,658        39,308
    Operating profit from
    continuing operations         15,661     10,459     20,987       144,641        30,628
    Finance expenses             (17,921)    (2,742)    (2,382)       (9,905)      (23,797)
    Exploration costs             (3,145)    (1,039)      (306)      (23,250)      (11,260)
    Finance and other income       1,032        804        601         4,542         2,661
    Foreign exchange gain (loss)  (2,814)       732        116         1,732          (961)
    Profit (loss) before income
    taxes from continuing
    operations                    (7,187)     8,214     19,016       117,760        (2,729)
    Income tax expense             8,655      5,042      6,977        49,259        16,488
    Net profit (loss) from
    continuing operations      $ (15,842) $   3,172  $  12,039    $   68,501     $ (19,217)
    Net profit from
    discontinued
    operations                         -    502,656      2,802             -       502,656
    Net profit (loss)          $ (15,842) $ 505,828  $  14,841    $   68,501     $ 483,439
    Net profit (loss) from
    continuing operations
    attributable to
             Shareholders      $ (13,884) $   3,504  $  12,146    $   66,732     $ (15,175)
             Non-controlling
             interest             (1,958)      (332)      (107)        1,769        (4,042)
    Net profit (loss)
    attributable to
             Shareholders      $ (13,884) $ 506,160  $  14,948    $   66,732     $ 487,479
             Non-controlling
             interest             (1,958)      (332)      (107)        1,769        (4,042)
    Earnings (loss) per share
    from continuing operations
    attributable to shareholders
             Basic             $   (0.16) $    0.04  $    0.14    $     0.78     $   (0.18)
             Diluted           $   (0.16) $    0.04  $    0.14    $     0.78     $   (0.18)
    Earnings (loss) per share
    attributable to shareholders
             Basic             $   (0.16) $    5.96  $    0.18    $     0.78     $    5.74
             Diluted           $   (0.16) $    5.89  $    0.18    $     0.78     $    5.63
    Cash dividends declared
    per share                  $    0.00  $    0.00  $    0.00    $     0.00     $    0.00
    Total assets(i)            $   2,295  $   2,412  $   1,710    $    2,390     $   2,308
    Total long-term
    liabilities(i)             $     696  $     695  $     269    $      702     $     692
    Operating profit from
    continuing operations      $  15,661  $  10,459  $  20,987    $  144,641     $  30,628
    Depreciation and
    amortization(ii)              32,644     20,211     24,346       149,949        84,833
    EBITDA from continuing
    operations(iii)            $  48,305  $  30,670  $  45,333    $  294,590     $ 115,461



    (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"). The
          term EBITDA does not have a standardized meaning according to IFRS. See
          "Non-IFRS Measures" on page 25.

Three Months Ended October 31, 2014, Compared to Three Months Ended October 31, 2013 

CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded a third quarter consolidated net income attributable to shareholders of $25.5 million or $0.30 per share, compared to net loss attributed to shareholders of $4.8 million or $(0.06) per share in the third quarter of the prior year.

CONSOLIDATED SALES
Consolidated sales for the third quarter totalled $222.3 million, consisting of Diavik rough diamond sales of $80.4 million and Ekati rough diamond sales of $141.9 million. This compares to sales of $148.1 million in the comparable quarter of the prior year (Diavik rough diamond sales of $52.9 million and Ekati rough diamond sales of $95.2 million). The 50% increase in consolidated sales versus the comparable quarter of the prior year resulted primarily from the decision in the third quarter of the prior year to hold back some inventory due to a weakening of the rough diamond market resulting from macroeconomic uncertainty in India and to the change in the Company's sales schedule resulting from a change in its rough diamond sales platform.

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 third quarter cost of sales was $147.0 million resulting in a gross margin of 33.9%, compared to a cost of sales of $136.2 million and a gross margin of 8.0% for the comparable quarter of the prior year. The Company's cost of sales includes costs associated with mining and rough diamond sorting activities. Consolidated cost of sales and gross margins in the current quarter were positively impacted by the increased production during the second quarter from both mines. Increased production results in a lower cost per carat as operating costs that are largely fixed are spread over a greater volume of production. Cost of sales for the prior year reflected the purchase of inventory at market values as part of the Ekati Diamond Mine Acquisition. See "Segmented Analysis" on page 11 for additional information.

CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $25.8 million during the third quarter, compared to a net income tax expense of $2.8 million in the comparable quarter of the prior year. The Company's combined federal and provincial statutory income tax rate for the quarter was 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 third quarter, the Canadian dollar weakened against the US dollar. As a result, the Company recorded an unrealized foreign exchange gain of $6.9 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange gain of $3.5 million in the comparable quarter of the prior year. The unrealized foreign exchange gain is recorded as part of the Company's deferred income tax recovery, and is not taxable for Canadian income tax purposes. During the third quarter, the Company also recognized a deferred income tax expense of $10.3 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 $6.4 million recognized in the comparable quarter of the prior year. The recorded tax provision during the quarter also included a net income tax expense of $1.1 million relating to foreign exchange differences between income in the currency of the country of origin and US dollars. This compares to a net income tax recovery of $0.5 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 $7.9 million in the third quarter, compared to $7.4 million in the comparable quarter of the prior year.

CONSOLIDATED FINANCE EXPENSES
Finance expense in the third quarter was $3.4 million, compared to finance expense of $3.1 million in the comparable quarter of the prior year. Included in consolidated finance expense is accretion expense of $3.0 million (three months ended October 31, 2013 - $2.8 million) related to future site restoration liabilities at the Diavik Diamond Mine and the Ekati Diamond Mine.

CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $7.4 million was incurred during the third quarter, compared to $7.1 million in the comparable quarter of the prior year. Included in exploration expense for the third quarter is $7.4 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 $0.8 million was recorded during the third quarter, compared to $0.8 million in the comparable quarter of the prior year.

CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange gain of $1.9 million was recognized during the third quarter, compared to a net foreign exchange loss of $1.1 million in the comparable quarter of the prior year. The Company does not currently have any significant foreign exchange derivative instruments outstanding.

Nine Months Ended October 31, 2014, Compared to Nine Months Ended October 31, 2013 

CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The Company recorded consolidated net income attributable to shareholders of $66.7 million, or $0.78 per share, for the nine months ended October 31, 2014, compared to $487.5 million or $5.74 per share in the comparable period of the prior year. Included in the amount recorded in the nine-month period ended October 31, 2013 was 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 $675.2 million for the nine months ended October 31, 2014, consisting of Diavik rough diamond sales of $270.1 million and Ekati rough diamond sales of $405.1 million. This compares to consolidated sales of $518.8 million in the comparable period of the prior year (Diavik rough diamond sales of $233.1 million and Ekati rough diamond sales of $285.7 million). The Ekati rough diamond sales for the prior year are for the period from April 10, 2013, which was the date the Ekati Diamond Mine Acquisition was completed, to October 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 $505.9 million in the nine months ended October 31, 2014, resulting in a gross margin of 25.1%, compared to a cost of sales of $448.8 million and a gross margin of 13.5% in the comparable period of the prior year. The Company's cost of sales includes costs associated with mining and rough diamond sorting activities. Consolidated cost of sales and gross margins in the current quarter were positively impacted by the increased production during the second quarter from both mines. Increased production results in a lower cost per carat as operating costs that are largely fixed are spread over a greater volume of production. Cost of sales for the prior year reflected the purchase of inventory at market values as part of the Ekati Diamond Mine Acquisition.

CONSOLIDATED INCOME TAXES
The Company recorded a net income tax expense of $49.3 million during the nine months ended October 31, 2014, compared to a net income tax expense of $16.5 million in the comparable period of the prior year. The Company's combined federal and provincial statutory income tax rate for the nine months ended October 31, 2014 was 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 nine months ended October 31, 2014, the Canadian dollar weakened against the US dollar. As a result, the Company recorded an unrealized foreign exchange gain of $1.8 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability during the nine months ended October 31, 2014. This compares to an unrealized foreign exchange gain of $9.5 million recorded in the comparable period of the prior year. The unrealized foreign exchange gain is recorded as part of the Company's deferred income tax recovery, and is not taxable for Canadian income tax purposes. During the nine months ended October 31, 2014, the Company also recognized a deferred income tax expense of $4.2 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 $16.9 million recognized in the comparable period of the prior year. The recorded tax provision during the nine months ended October 31, 2014 included a net income tax expense of $2.4 million relating to foreign exchange differences between income in the currency of the country of origin and the US dollar. This compares to a net income tax recovery of $0.6 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 SG&A expenses include expenses for salaries and benefits, professional fees, consulting and travel. The Company incurred SG&A expenses of $24.7 million during the nine months ended October 31, 2014, compared to $39.3 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 $9.9 million in the nine months ended October 31, 2014, compared to finance expense of $23.8 million in 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. Included in finance expense for the period is accretion expense of $8.9 million (nine months ended October 31, 2013 - $6.5 million) related to future site restoration liabilities at the Diavik Diamond Mine and the Ekati Diamond Mine.

CONSOLIDATED EXPLORATION EXPENSE
Exploration expense of $23.3 million was incurred during the nine months ended October 31, 2014, compared to $11.3 million in the comparable period of the prior year. Included in exploration expense for the period is $22.9 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 mining claims in the Northwest Territories.

CONSOLIDATED FINANCE AND OTHER INCOME
Finance and other income of $4.5 million was recorded during the nine months ended October 31, 2014, compared to $2.7 million in the comparable period of the prior year. Included in the current period was a gain on the sale of an asset of $2.4 million.

CONSOLIDATED FOREIGN EXCHANGE
A net foreign exchange gain of $1.7 million was recognized during the nine months ended October 31, 2014, compared to a net foreign exchange loss of $1.0 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      2015       2014      2014
                                    Q3         Q2        Q1         Q4        Q3
    Sales
    North America             $      -  $       -  $      -  $     511  $      -
    Europe                      74,310     94,858    73,918    112,001    45,088
    India                        6,094     12,175     8,757      6,704     7,818
    Total sales                 80,404    107,033    82,675    119,216    52,906
    Cost of sales               52,619     78,751    56,232     87,690    40,018
    Gross margin                27,785     28,282    26,443     31,526    12,888
    Gross margin (%)             34.6%      26.4%     32.0%      26.4%     24.4%
    Selling, general and
    administrative expenses        851      1,067       975      1,122     1,123
    Operating profit          $ 26,934  $  27,215  $ 25,468  $  30,404  $ 11,765
    Depreciation and
    amortization(i)             20,336     27,435    18,389     28,885    12,434
    EBITDA(ii)                $ 47,270  $  54,650  $ 43,857  $  59,289  $ 24,199

Table continued



                                                              Nine months     Nine months
                                                                    ended           ended
                                  2014      2014       2013    October 31,     October 31,
                                    Q2        Q1         Q4          2014            2013
    Sales
    North America             $      -  $  6,179  $   4,604     $       -       $   6,179
    Europe                      80,530    61,642     84,346       243,086         187,260
    India                       10,737    21,095     21,161        27,026          39,650
    Total sales                 91,267    88,916    110,111       270,112         233,089
    Cost of sales               68,328    61,888     79,038       187,603         170,234
    Gross margin                22,939    27,028     31,073        82,509          62,855
    Gross margin (%)             25.1%     30.4%      28.2%         30.5%           27.0%
    Selling, general and
    administrative expenses      1,409     1,110      1,860         2,893           3,642
    Operating profit          $ 21,530  $ 25,918  $  29,213     $  79,616       $  59,213
    Depreciation and
    amortization(i)             21,768    19,906     24,042        66,161          54,108
    EBITDA(ii)                $ 43,298  $ 45,824  $  53,255     $ 145,777       $ 113,321



    (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 25.

Three Months Ended October 31, 2014, Compared to Three Months Ended October 31, 2013 

DIAVIK SALES
During the third quarter, the Company sold approximately 0.7 million carats from the Diavik Diamond Mine for a total of $80.4 million for an average price per carat of $116, compared to 0.4 million carats for a total of $52.9 million for an average price per carat of $118 in the comparable quarter of the prior year. The 56% increase in volume of carats sold versus the comparable quarter of the prior year resulted primarily from the decision in the third quarter of the prior year to hold back some inventory due to a weakening of the rough diamond market resulting from macroeconomic uncertainty in India and to the change in the Company's sales schedule resulting from a change in its rough diamond sales platform. At October 31, 2014, the Company had 0.7 million carats of Diavik Diamond Mine produced inventory with an estimated market value of approximately $85 million, compared to 0.8 million carats with an estimated market value of $110 million in the comparable quarter of the prior year.

Had the Company sold only the last production from the Diavik Diamond Mine shipped in the third quarter, the estimated achieved price would have been approximately $118 per carat based on the prices achieved in the last sale in November 2014.

DIAVIK COST OF SALES AND GROSS MARGIN
The Company's third quarter cost of sales for the Diavik Diamond Mine was $52.6 million resulting in a gross margin of 34.6%, compared to a cost of sales of $40.0 million and a gross margin of 24.4% in the comparable quarter of the prior year. Cost of sales in the third quarter included $20.2 million of depreciation and amortization, compared to $12.4 million in the comparable quarter of the prior year. The Diavik segment generated gross margins and EBITDA margins of 34.6% and 59%, respectively, compared to 24.4% and 46%, respectively, in the comparable quarter of the prior year. Cost of sales and gross margins in the current quarter were positively impacted by the increased production during the second quarter as a result of greater processing volumes. Increased production results in lower cost per carat as operating costs that are largely fixed are spread over a greater volume of production. 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 third quarter, the Diavik cash cost of production was $35.4 million, compared to $37.6 million in the comparable quarter of the prior year. Cost of sales also includes sorting costs, which consist 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 October 31, 2014 and 2013.





    (expressed in thousands of                     Three months ended    Three months ended
     United States dollars)                          October 31, 2014      October 31, 2013

    Diavik cash cost of production                        $    35,439           $    37,558
    Private royalty                                             1,509                 1,006
    Other cash costs                                            1,474                   759
    Total cash cost of production                              38,422                39,323
    Depreciation and amortization                              20,957                19,318
    Total cost of production                                   59,379                58,641
    Adjusted for stock movements                               (6,760)              (18,623)
    Total cost of sales                                   $    52,619           $    40,018

DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Diavik Diamond Mine segment during the third quarter were $0.9 million, compared to $1.1 million in the comparable quarter of the prior year.

Nine Months Ended October 31, 2014, Compared to Nine Months Ended October 31, 2013 

DIAVIK SALES
During the nine months ended October 31, 2014, the Company sold approximately 2.2 million carats from the Diavik Diamond Mine for a total of $270.1 million for an average price per carat of $121, compared to 1.9 million carats for a total of $233.1 million for an average price per carat of $121 in the comparable period of the prior year. The 16% increase in volume of carats sold versus the comparable period of the prior year resulted primarily from the decision in the third quarter of the prior year to hold back some inventory from sale due to the change in the Company's sales schedule resulting from a change in its rough diamond sales platform.

DIAVIK COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Diavik Diamond Mine for the nine months ended October 31, 2014 was $187.6 million resulting in a gross margin of 30.5%, compared to a cost of sales of $170.2 million and a gross margin of 27.0% in the comparable period of the prior year. Cost of sales for the nine months ended October 31, 2014 included $65.9 million of depreciation and amortization, compared to $53.5 million in the comparable period of the prior year. The Diavik segment generated gross margins and EBITDA margins of 30.5% and 54%, respectively, compared to 27.0% 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 nine months ended October 31, 2014, the Diavik cash cost of production was $111.7 million, compared to $119.4 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 nine months ended October 31, 2014 and 2013.





    (expressed in thousands of                     Nine months ended     Nine months ended
     United States dollars)                         October 31, 2014      October 31, 2013

    Diavik cash cost of production                       $   111,735           $   119,364
    Private royalty                                            4,980                 3,930
    Other cash costs                                           2,950                 2,717
    Total cash cost of production                            119,665               126,011
    Depreciation and amortization                             67,859                60,766
    Total cost of production                                 187,524               186,777
    Adjusted for stock movements                                  79               (16,543)
    Total cost of sales                                  $   187,603           $   170,234

DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Diavik Diamond Mine segment during the nine months ended October 31, 2014 were $2.9 million, compared to $3.6 million in the comparable period of the prior year.

Operational Update
During the third quarter of the calendar year 2014, the Diavik Diamond Mine produced (on a 100% basis) 1.7 million carats from 0.6 million tonnes of ore processed, compared to 1.7 million carats from 0.6 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 third quarter of calendar 2014 were 2% higher than in the prior year's comparable quarter. Carat production during the third quarter of calendar 2014 was consistent with the comparable quarter of the prior year.

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



    For the three months ended September
    30, 2014
                                                 Ore processed     Carats            Grade
    Pipe                                         (000s tonnes)     (000s)   (carats/tonne)
    A-154 South                                             52        189             3.62
    A-154 North                                             90        186             2.08
    A-418                                                   82        292             3.56
    COR                                                    0.1          1                -
    Total                                                  224        669          2.98(i)



    (i) Grade has been adjusted to exclude COR.

 



    For the three months ended September
    30, 2013
                                                 Ore processed     Carats            Grade
    Pipe                                         (000s tonnes)     (000s)   (carats/tonne)
    A-154 South                                             56        233             4.15
    A-154 North                                             81        165             2.04
    A-418                                                   81        236             2.91
    COR                                                      1         35                -
    Total                                                  219        669          2.91(i)


    (i) Grade has been adjusted to exclude COR.



    For the nine months ended September 30,
    2014
                                                 Ore processed     Carats            Grade
    Pipe                                         (000s tonnes)     (000s)   (carats/tonne)
    A-154 South                                            156        584             3.76
    A-154 North                                            280        607             2.17
    A-418                                                  268      1,008             3.77
    COR                                                      3         77                -
    Total                                                  707      2,275          3.13(i)


    (i) Grade has been adjusted to exclude COR.



    For the nine months ended September 30, 2013
                                                            Ore
                                                      processed
                                                          (000s     Carats            Grade
    Pipe                                                tonnes)     (000s)   (carats/tonne)
    A-154 South                                             176        757             4.29
    A-154 North                                             219        462             2.11
    A-418                                                   232        741             3.20
    COR                                                       4        111                -
    Total                                                   631      2,071          3.13(i)


    (i) Grade has been adjusted to exclude COR.



    For the period from August 1 to October
    31, 2014(i)
                                                 Ore processed     Carats            Grade
    Pipe                                         (000s tonnes)     (000s)   (carats/tonne)
    A-154 South                                             47        174             3.72
    A-154 North                                             86        174             2.03
    A-418                                                   74        235             3.17
    COR                                                      -          6                -
    Total                                                  207        589         2.82(ii)


    (i)  The last month of this production is not included in the Company's third quarter
         financial results, as the Company reports Diavik Diamond Mine results on a
         one-month lag.
    (ii) Grade has been adjusted to exclude COR.



    For the period from August 1 to October
    31, 2013(i)
                                                 Ore processed     Carats            Grade
    Pipe                                         (000s tonnes)     (000s)   (carats/tonne)
    A-154 South                                             63        266             4.24
    A-154 North                                             70        152             2.19
    A-418                                                   77        274             3.52
    COR                                                      1         34                -
    Total                                                  211        727         3.29(ii)


    (i)  The last month of this production was not included in the Company's third
         quarter financial results for fiscal 2014, as the Company reports Diavik
         Diamond Mine results on a one-month lag.
    (ii) Grade has been adjusted to exclude COR.



    For the period from February 1 to October
    31, 2014(i)
                                                           Ore
                                                     processed
                                                         (000s     Carats            Grade
    Pipe                                               tonnes)     (000s)   (carats/tonne)
    A-154 South                                            159        592             3.72
    A-154 North                                            265        566             2.14
    A-418                                                  265        988             3.72
    COR                                                      2         48                -
    Total                                                  691      2,194         3.11(ii)


    (i)  The last month of this production is not included in the Company's third quarter
         financial results, as the Company reports Diavik Diamond Mine results on a
         one-month lag.
    (ii) Grade has been adjusted to exclude COR.



    For the period from February 1 to October 31, 2013(i)
                                                  Ore processed     Carats            Grade
    Pipe                                           (000s tonnes)     (000s)   (carats/tonne)
    A-154 South                                             175        740             4.23
    A-154 North                                             216        450             2.08
    A-418                                                   233        747             3.20
    COR                                                       4        108                -
    Total                                                   628      2,045         3.10(ii)


    (i)  The last month of this production was not included in the Company's third
         quarter financial results for fiscal 2014, as the Company reports Diavik
         Diamond Mine results on a one-month lag.
    (ii) 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 6.9 million carats from the mining of approximately 2.1 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 0.8 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 15% 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 7.0 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 that is planned to be processed during calendar 2014 would produce 0.2 million carats from COR.

A new mine plan and budget for calendar 2015 is under review by Rio Tinto plc and the Company. The plan for calendar 2015 foresees Diavik Diamond Mine production of approximately 6.7 million carats from the mining and processing of approximately 2.1 million tonnes of ore. Mining activities will be exclusively underground with approximately 0.8 million tonnes expected to be sourced from A-154 North, approximately 0.4 million tonnes from A-154 South and approximately 0.9 million tonnes from A-418 kimberlite pipes. In addition to the 6.7 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 that is planned to be processed during calendar 2015 would produce 0.3 million carats from COR.

The aforementioned mine plan for the Diavik Diamond Mine was prepared by DDMI, operator of the Diavik Diamond Mine, under the supervision of Calvin Yip, P. Eng., Principal Advisor, Strategic Planning of DDMI, and a Qualified Person within the meaning of National Instrument 43-101 of the Canadian Securities Administrators.

On November 26, 2014, the Company announced that Rio Tinto plc, the parent company of the operator of DDMI, has approved the development of the A-21 pipe at the Diavik Diamond Mine. A-21 production is expected to begin in late calendar 2018.

PRICING
Based on the average prices per carat achieved by the Company in the latest sale held in November 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:



                              November 2014
                                sales cycle
                              average price
                                  per carat
    Ore type                (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 current sales expectations for the Diavik Diamond Mine segment for the balance of fiscal 2015, the Company currently expects cost of sales to be approximately $260 million (including depreciation and amortization of approximately $90 million). Based on the current mine plan for the Diavik Diamond Mine for calendar 2014, the Company's 40% share of the cash cost of production at the Diavik Diamond Mine is expected to be approximately $150 million at an estimated average Canadian/US dollar exchange rate of $1.11.

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, at an estimated an average Canadian/US dollar exchange rate of 1.11. During the third quarter, DDDLP's share of capital expenditures was $4.6 million ($15.2 million for the nine months ended October 31, 2014).

DDMI has estimated the total capital cost for the development of the recently approved A-21 pipe to be approximately $350 million (on a 100% basis) at the Company's estimated Canadian/US dollar exchange rate of $1.11, with the Company's share being approximately $140 million.

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      2015       2014       2014
                                            Q3         Q2        Q1         Q4         Q3
    Sales
    North America                    $       -  $       -  $      -  $     413  $       -
    Europe                             137,769    160,667    88,469    111,542     95,232
    India                                4,163      9,614     4,378      1,992          -
    Total sales                        141,932    170,281    92,847    113,947     95,232
    Cost of sales                       94,332    142,489    81,448    114,340     96,202
    Gross margin                        47,600     27,792    11,399      (393)      (970)
    Gross margin (%)                     33.5%      16.3%     12.3%     (0.3%)     (1.0%)
    Selling, general and
    administrative expenses                557        941     1,475      1,120        362
    Operating profit (loss)          $  47,043  $  26,851  $  9,924  $ (1,513)  $ (1,332)
    Depreciation and
    amortization(i)                     27,269     35,438    20,154     25,892     19,166
    EBITDA(ii)                       $  74,312  $  62,289  $ 30,078  $  24,379  $  17,834



                                                                        Nine          Nine
                                                                      months        months
                                                                       ended         ended
                                                                     October       October
                                       2014      2014     2013           31,           31,
                                         Q2        Q1       Q4          2014          2013
    Sales
    North America                 $       -  $      -  $     -  $             $          -
    Europe                          170,536    19,921        -       386,905       285,689
    India                                 -         -        -        18,154             -
    Total sales                     170,536    19,921        -       405,059       285,689
    Cost of sales                   162,758    19,647        -       318,269       278,608
    Gross margin                      7,778       274        -        86,790         7,081
    Gross margin (%)                   4.6%      1.4%       -%         21.4%          2.5%
    Selling, general and
    administrative expenses             676       520        -         2,972         1,559
    Operating profit (loss)       $   7,102  $  (246)  $     -  $     83,818  $      5,522
    Depreciation and
    amortization(i)                  10,513         -        -        82,861        29,679
    EBITDA(ii)                    $  17,615  $  (246)  $     -  $    166,679  $     35,201



    (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"). The
         term EBITDA does not have a standardized meaning according to IFRS. See
         "Non-IFRS Measures" on page 25.

Three Months Ended October 31, 2014, Compared to Three Months Ended October 31, 2013 

EKATI SALES
During the third quarter, the Company sold approximately 0.5 million carats from the Ekati Diamond Mine for a total of $141.9 million for an average price per carat of $310. Excluded from sales recorded in the third 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 third quarter, the Company sold an estimated 0.2 million carats of production from the Misery South & Southwest kimberlite pipe material for estimated proceeds of $13.6 million for an average price per carat of $79, which includes the recovery of small diamonds. Sales of diamonds recovered during pre-production from the Misery South & Southwest material have been applied as a reduction of mining assets. The Misery South & Southwest pipes commenced commercial production (for accounting purposes) on September 1, 2014. At October 31, 2014, the Company had 1.2 million carats of Ekati Diamond Mine produced inventory with an estimated market value of approximately $265 million, compared to 0.6 million carats with an estimated market value of approximately $141 million at the end of the comparable quarter of the prior year. Included in ending inventory is an estimated 0.1 million carats produced from Misery South & Southwest with an estimated market value of approximately $10 million.

Had the Company sold only the last production from the Ekati Diamond Mine shipped in the third quarter, the estimated achieved price would have been approximately $203 per carat based on the prices achieved in the latest sale held in November 2014.

EKATI COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Ekati Diamond Mine during the third quarter was $94.3 million, resulting in a gross margin of 33.5% and an EBITDA margin of 52%, compared to a cost of sales of $96.2 million, a gross margin of (1.0)% and an EBITDA margin of 19% in the comparable period of the prior year. Cost of sales and gross margins in the current quarter were positively impacted by the increased production during the second quarter as a result of improvements in diamond recoveries and greater processing volumes. Increased production results in lower cost per carat as operating costs that are largely fixed are spread over a greater volume of production. Cost of sales in the third quarter of the prior year reflected the purchase of inventory at market values as part of the Ekati Diamond Mine Acquisition. Cost of sales in the comparable quarter of the prior year would have been approximately $95.7 million excluding the market value adjustment made as part of the Ekati Diamond Mine Acquisition. There was no impact during the third quarter of the current fiscal year. At October 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 third quarter, the Ekati cash cost of production was $86.3 million, compared to $91.1 million in the comparable quarter of the prior year. Cost of sales also includes sorting costs, which consist 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 October 31, 2014.




                                                                              Three months
    (expressed in thousands of United States        Three months ended               ended
    dollars)                                          October 31, 2014    October 31, 2013

    Ekati cash cost of production                       $       86,255         $    91,091
    Other cash costs                                               791               1,137
    Total cash cost of production                               87,046              92,228
    Depreciation and amortization                               35,419              26,129
    Total cost of production                                   122,465             118,357
    Adjusted for stock movements                               (28,133)            (22,155)
    Total cost of sales                                 $       94,332         $    96,202

EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Ekati Diamond Mine segment for the third quarter were $0.6 million, compared to $0.4 million in the comparable quarter of the prior year.

Nine Months Ended October 31, 2014, Compared to Period from April 10 to October 31, 2013 

EKATI SALES
During the nine months ended October 31, 2014, the Company sold approximately 1.3 million carats from the Ekati Diamond Mine for a total of $405.1 million for an average price per carat of $319, compared to 1.0 million carats for a total of $285.7 million for an average price of $296 in the period from April 10 to October 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 nine months ended October 31, 2014, the Company sold an estimated 0.4 million carats of production from the Misery South & Southwest kimberlite pipes for estimated proceeds of $31.0 million for an average price per carat of $78, which includes the recovery of small diamonds. Sales of diamonds recovered during pre-production from the Misery South & Southwest material have been applied as a reduction of mining assets. The Misery South & Southwest pipes commenced commercial production (for accounting purposes) on September 1, 2014.

EKATI COST OF SALES AND GROSS MARGIN
The Company's cost of sales for the Ekati Diamond Mine during the nine months ended October 31, 2014 was $318.3 million, resulting in a gross margin of 21.4% and an EBITDA margin of 41%, compared to a cost of sales of $278.6 million, a gross margin of 2.5% and an EBITDA margin of 12% for the period from April 10 to October 31, 2013. Cost of sales for the period from April 10 to October 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 October 31, 2013 would have been approximately $261.9 million excluding the market value adjustment made as part of the Ekati Diamond Mine Acquisition. There was no impact during the nine months ended October 31, 2014. At October 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 nine months ended October 31, 2014, the Ekati cash cost of production was $253.3 million, compared to $202.6 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 nine months ended October 31, 2014.




    (expressed in thousands of United              Nine months ended    Period April 10 to
    States dollars)                                 October 31, 2014      October 31, 2013

    Ekati cash cost of production                        $   253,349           $   202,581
    Other cash costs                                           3,070               166,740
    Total cash cost of production                            256,419               369,321
    Depreciation and amortization                            101,934                57,959
    Total cost of production                                 358,353               427,280
    Adjusted for stock movements                             (40,084)             (148,673)
    Total cost of sales                                  $   318,269           $   278,607

EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Ekati Diamond Mine segment for the nine months ended October 31, 2014 were $3.0 million, compared to $1.6 million for the period from April 10 to October 31, 2013.

Operational Update
During the third quarter of fiscal 2015, the Ekati Diamond Mine produced (on a 100% basis) 0.4 million carats from the processing of 0.5 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 operation 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, 0.2 million carats from the processing of 0.3 million tonnes of COR, and an additional 0.3 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 nine months ended October 31, 2014 by approximately 15% compared to the mine plan. The resulting additional diamonds are not currently included in the reserves and the mine plan. During the quarter, physical modifications to the plant were substantially completed, with commissioning expected to take place before the fiscal year end. Once the process improvements have been completed, the Company intends to incorporate these higher recovery rates into an updated reserve statement.

EKATI DIAMOND MINE PRODUCTION (100% SHARE)



    For the three months ended October 31, 2014
                                                           Ore
                                                     processed
                                                         (000s     Carats            Grade
    Pipe                                               tonnes)     (000s)   (carats/tonne)
    Koala                                                  282        353             1.25
    Koala North                                             68         57             0.83
    Fox                                                    291         88             0.30
    Misery South & Southwest                               211        285             1.35
    COR                                                    290        192             0.66
    Total                                                1,142        975             0.85



    For the three months ended October 31, 2013
                                                  Ore processed     Carats            Grade
    Pipe                                          (000s tonnes)     (000s)   (carats/tonne)
    Koala                                                   160        146             0.91
    Koala North                                              61         43             0.70
    Fox                                                     773        215             0.28
    Misery South & Southwest                                138        205             1.48
    COR                                                       -          -                -
    Total                                                 1,132        609             0.54




    For the nine months ended October 31, 2014
                                                  Ore processed     Carats            Grade
    Pipe                                          (000s tonnes)     (000s)   (carats/tonne)
    Koala                                                   666        831             1.25
    Koala North                                             199        174             0.87
    Fox                                                   1,489        503             0.34
    Misery South & Southwest                                452        582             1.29
    COR                                                     358        247             0.69
    Total                                                 3,164      2,337             0.74




    For the period from April 10 to October 31, 2013
                                                  Ore processed     Carats            Grade
    Pipe                                          (000s tonnes)     (000s)   (carats/tonne)
    Koala                                                   293        249             0.85
    Koala North                                             176        131             0.74
    Fox                                                   1,755        543             0.31
    Misery South & Southwest                                178        243             1.37
    COR                                                      42          7             0.17
    Total                                                 2,444      1,173             0.48

Ekati Operations Outlook 

PRODUCTION
In fiscal 2015, the Ekati Diamond Mine expects to recover approximately 1.6 million carats from the processing of approximately 2.6 million tonnes of mineral reserves. This includes approximately 1.6 million tonnes from the Fox pipe (including stockpiles) and approximately 1.0 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 & Southwest satellite pipes, Misery Northeast, Koala North and coarse ore rejects (COR). It is expected that approximately 0.3 million tonnes of Koala North, 0.6 million tonnes of Misery South & Southwest, 0.1 million tonnes of Misery Northeast, and 0.7 million tonnes of COR material will be processed during fiscal 2015.

A new mine plan and budget for fiscal 2016 is under review by the Company. The plan for fiscal year 2016 foresees Ekati Diamond Mine production of approximately 1.1 million carats from the mining and processing of approximately 1.9 million tonnes of mineral reserves (the base case). This includes approximately 1.1 million tonnes from the Koala underground operation (combined Koala phases 5, 6 and 7) and approximately 0.8 million tonnes from the Pigeon open pit.

In addition to the mineral reserves noted above, the plan for fiscal year 2016 also contemplates processing the inferred resources from the Misery South & Southwest kimberlite that are made available as the Misery reserves are accessed (the operating case). When this additional resource material from the Misery South & Southwest pipes is included, the plan for fiscal year 2016 foresees Ekati Diamond Mine production of approximately 2.9 million carats from the mining and processing of approximately 3.0 million tonnes of mineral reserves and resources, which includes approximately 1.1 million tonnes from Misery South & Southwest kimberlite. The Company cautions that this assessment is preliminary in nature and is based on inferred resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Accordingly, there is no certainty that this assessment will be realized.

The reserves and resources that are planned to be processed during fiscal 2016 do not fully utilize the Ekati processing plant's capacity of up to approximately 4.35 million tonnes per year. The Company plans to use the spare capacity to process additional material from Koala North, Misery Northeast and coarse ore rejects (COR), but has not included this additional material in the above mentioned mine plan. It is expected that approximately 0.1 million tonnes of Koala North, 0.1 million tonnes of Misery Northeast, and 1.1 million tonnes of COR material will be processed during fiscal 2016. In addition, 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.

The foregoing scientific and technical information for the Ekati Diamond Mine was prepared under the supervision of Mats Heimersson, P. Eng., an employee of the Company, and a Qualified Person within the meaning of NI 43-101 of the Canadian Securities Administrators.

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



                                           November 2014
                                             sales cycle
                                           average price
                                               per carat
    Ore type                             (in US dollars)

    Koala                              $             390
    Koala North                                      435
    Fox                                              310
    Misery South & Southwest                          90
    COR                                           65-120
    Recovered small diamonds                      70-100

COST OF SALES AND CASH COST OF PRODUCTION
Based on current sales expectations for the Ekati Diamond Mine segment for the balance of fiscal 2015, the Company currently expects cost of sales to be approximately $470 million (including depreciation and amortization of approximately $125 million). Based on the current mine plan for the Ekati Diamond Mine for fiscal 2015, the cash cost of production at the Ekati Diamond Mine is expected to be approximately $345 million (on a 100% basis) at an estimated average Canadian/US dollar exchange rate of $1.11.

CAPITAL EXPENDITURES AND EXPLORATION
The planned capital expenditures for the Core Zone at the Ekati Diamond Mine for fiscal 2015 are expected to be approximately $160 million at an estimated average Canadian/US dollar exchange rate of $1.11. The planned capital expenditures include approximately $85 million for the continued development of the Misery pipe, consisting largely of mining costs to achieve ore release, and approximately $25 million towards the development of the Pigeon pipe. During the third quarter, the Ekati Diamond Mine incurred capital expenditures of $27.0 million ($118.0 million for the nine months ended October 31, 2014).

The planned exploration expenditures for the Buffer Zone at the Ekati Diamond Mine for fiscal 2015 are expected to be approximately $26 million at an estimated average Canadian/US dollar exchange rate of $1.11. Exploration activity is expected to be solely on the Jay pipe. During the third quarter, the Ekati Diamond Mine incurred exploration expenses of $7.0 million ($23.0 million for the nine months ended October 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       2015       2014       2014
                                             Q3         Q2         Q1         Q4         Q3
    Sales                             $       -  $       -  $       -  $       -  $       -
    Cost of sales                             -          -          -          -          -
    Gross margin                              -          -          -          -          -
    Gross margin (%)                         -%         -%         -%         -%         -%
    Selling, general and
    administrative expenses               6,496      7,598      4,698      7,875      5,924
    Operating loss                    $ (6,496)  $ (7,598)  $ (4,698)  $ (7,875)  $ (5,924)
    Depreciation and amortization(i)        293        291        342        451        378
    EBITDA(ii)                        $ (6,203)  $ (7,307)  $ (4,356)  $ (7,424)  $ (5,546)




                                                                 Nine months  Nine months
                                                                       ended        ended
                                    2014        2014       2013   October 31,  October 31,
                                      Q2          Q1         Q4         2014         2013
    Sales                      $       -   $       -   $      -    $       -    $       -
    Cost of sales                      -           -          -            -            -
    Gross margin                       -           -          -            -            -
    Gross margin (%)                   -%          -%         -%           -%           -%
    Selling, general and
    administrative expenses       12,971      15,213      8,227       18,793       34,107
    Operating loss             $ (12,971)  $ (15,213)  $ (8,227)   $ (18,793)   $ (34,107)
    Depreciation and
    amortization(i)                  363         305        304          927        1,046
    EBITDA(ii)                 $ (12,608)  $ (14,908)  $ (7,923)   $ (17,866)   $ (33,061)



    (i)  Depreciation and amortization included in cost of sales and selling, general and
         administrative expenses.
    (ii) Earnings before interest, taxes, depreciation and amortization ("EBITDA"). The
         term EBITDA does not have a standardized meaning according to IFRS.
         See "Non-IFRS Measures" on page 25.

Three Months Ended October 31, 2014, Compared to Three Months Ended October 31, 2013 

CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Corporate segment during the quarter increased by $0.6 million from the comparable quarter of the prior year.

Nine Months Ended October 31, 2014, Compared to Nine Months Ended October 31, 2013 

CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the Corporate segment during the nine months ended October 31, 2014 decreased by $15.3 million from the comparable period of the prior year. SG&A expenses were higher during the comparable prior year period primarily due to $11.2 million of transaction costs and $6.0 million of restructuring related to the Ekati Diamond Mine Acquisition.

Liquidity and Capital Resources 

Working Capital
As at October 31, 2014, the Company had unrestricted cash and cash equivalents of $288.8 million and restricted cash of $112.0 million, compared to $224.8 million and $113.6 million, respectively, 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. On November 6, 2014, the Company posted surety bonds with the Government of the Northwest Territories in the aggregate amount of CDN $253 million to secure the obligations under its Water Licence to reclaim the Ekati Diamond Mine. As a result of the posting of the surety bonds, the Government of the Northwest Territories has released and returned to the Company letters of credit in the amount of CDN $83 million previously posted as security for reclamation activities at the Ekati Diamond Mine. Letters of credit in the amount of CDN $43 million continue to be held by the Government of the Northwest Territories as security for reclamation and related activities at the Ekati Diamond Mine pending completion of a review by the Government of the Northwest Territories of duplication between the security required under the Water Licence and security held by the Government of the Northwest Territories under the environmental agreement. The surety bonds were issued by a consortium of insurance companies. The Company has agreed to indemnify these insurers against liabilities arising under these surety bonds. During the quarter ended October 31, 2014, the Company reported cash flow from operations of $70.5 million, compared to $6.6 million in the comparable period of the prior year.

As at October 31, 2014, the Company had 1.9 million carats of rough diamond inventory with an estimated market value of approximately $350 million, of which approximately $185 million represented inventory available for sale, with the remaining $165 million being sorted.

Working capital increased to $629.5 million at October 31, 2014 from $572.1 million at January 31, 2014. During the quarter, the Company increased accounts receivable from continuing operations by $5.6 million, decreased other current assets from continuing operations by $10.3 million, increased inventory and supplies from continuing operations by $31.8 million, decreased trade and other payables from continuing operations by $10.1 million and increased employee benefit plans from continuing operations by $0.7 million.

On October 15, 2014, the Company completed the acquisition of the interests of Fipke Holdings Ltd. ("FipkeCo") in the Ekati Diamond Mine. Each of Dr. Stewart Blusson and Archon exercised their rights of first refusal to acquire their proportionate share of the interests in the Core Zone and Buffer Zone, respectively, being sold by FipkeCo. As a consequence, the Company acquired an additional 8.889% participating interest in the Core Zone and an additional 6.53% in the Buffer Zone, increasing its interest in the Core Zone and Buffer Zone to 88.9% and 65.3%, respectively. The base purchase price for the acquired Core Zone interest was US$42.2 million, plus purchase price adjustments of US$13.2 million for a total amount payable of US$55.4 million. The purchase price adjustments were paid in cash at closing, and the base purchase price was satisfied by a promissory note payable in instalments over 31 months. The Company has the right, but not the obligation, to satisfy one or more instalments due under the promissory note in common shares of the Company. The base purchase price for the acquired Buffer Zone interest was US$11.1 million plus purchase price adjustments of US$3.2 million, for a total amount paid in cash at closing of US$14.3 million.

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 October 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 October 31, 2013.

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

Investing Activities
During the third quarter, the Company purchased property, plant and equipment of $31.6 million for its continuing operations, of which $4.6 million was purchased for the Diavik Diamond Mine and $27.0 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 $80 million in the aggregate assuming a Canadian/US average exchange rate of $1.11 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. On November 26, 2014, the Company announced that Rio Tinto plc, the parent company of the operator (DDMI) of the Diavik Diamond Mine, had approved the development of the A-21 pipe at the Diavik Diamond Mine. DDMI has estimated the total capital cost for the development of the recently approved A-21 pipe to be approximately $350 million (on a 100% basis) at the Company's estimated Canadian/US dollar exchange rate of $1.11, with the Company's share being approximately $140 million, which is not reflected in the table below. Also not reflected in the table below are currently estimated capital expenditures at the Ekati Diamond Mine for the fiscal years 2015 to 2019 of approximately $380 million in the aggregate, assuming a Canadian/US average exchange rate of $1.11 for each of the five years, representing the currently planned capital expenditures (excluding the Jay pipe). The most significant contractual obligations for the ensuing five-year period can be summarized as follows:



    CONTRACTUAL OBLIGATIONS
    (expressed in thousands of
     United States dollars)                      Less than       Year       Year      After
    (unaudited)                         Total       1 year        2-3        4-5    5 years
    Interest-bearing loans and
    borrowings (a)(b)               $  46,491  $     1,090  $  44,402  $     999  $       -
    Environmental and participation
    agreements incremental
    commitments (c)                   176,879       59,258      1,087      4,209    112,325
    Operating lease obligations (d)     9,889        8,529      1,360          -          -
    Total contractual obligations   $ 233,259  $    68,877  $  46,849  $   5,208  $ 112,325



    (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 the 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 October 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 October 31, 2014, $3.7 million was outstanding on
        the mortgage payable.

        (iv) The Company issued a promissory note in the amount of US$42.2 million in
        connection with its acquisition of an additional 8.889% participating interest in
        the Core Zone and an additional 6.53% in the Buffer Zone. The promissory note is
        payable in instalments over 31 months and the Company has the right, but not the
        obligation, to satisfy one or more installments due under the promissory note in
        common shares of the Company.

    (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 October 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 October 31, 2014 was $57 million based on its 40%
        ownership interest in the Diavik Diamond Mine. The Company expects that the
        operator of the Diavik Joint Venture will in the future require DDDLP to post its
        proportionate share of such security directly. 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. The Company has as
        at October 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. On November 6, 2014,
        the Company posted surety bonds with the Government of the Northwest Territories
        in the aggregate amount of CDN $253 million to secure the obligations under its
        Water Licence to reclaim the Ekati Diamond Mine. As a result of the posting of the
        surety bonds, the Government of the Northwest Territories has released and
        returned to the Company letters of credit in the amount of CDN $83 million
        previously posted as security for reclamation activities at the Ekati Diamond
        Mine. Letters of credit in the amount of CDN $43 million continue to be held by
        the Government of the Northwest Territories as security for reclamation and
        related activities at the Ekati Diamond Mine pending completion of a review by the
        Government of the Northwest Territories of duplication between the security
        required under the Water Licence and security held by the Government of the
        Northwest Territories under the environmental agreement. The Company has also
        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      2015      2014      2014
                                              Q3         Q2        Q1        Q4        Q3
    Operating profit from
    continuing operations              $  67,481  $  46,468  $ 30,694  $ 20,016  $  4,509
    Depreciation and amortization         47,898     63,164    38,885    55,228    31,978
    EBITDA from continuing
    operations                         $ 115,379  $ 109,632  $ 69,579  $ 75,244  $ 36,487

 

Table continued



                                                               Nine months     Nine months
                                                                     ended           ended
                                    2014      2014      2013    October 31,     October 31,
                                      Q2        Q1        Q4          2014            2013
    Operating profit from
    continuing operations       $ 15,661  $ 10,459  $ 20,987     $ 144,641       $  30,628
    Depreciation and
    amortization                  32,644    20,211    24,346       149,949          84,833
    EBITDA from continuing
    operations                  $ 48,305  $ 30,670  $ 45,333     $ 294,590       $ 115,461

DIAVIK DIAMOND MINE SEGMENT



    (expressed in thousands of United States dollars)
    (unaudited)



                                        2015      2015      2015      2014      2014
                                          Q3        Q2        Q1        Q4        Q3
    Operating profit                $ 26,934  $ 27,215  $ 25,468  $ 30,404  $ 11,765
    Depreciation and amortization     20,336    27,435    18,389    28,885    12,434
    EBITDA                          $ 47,270  $ 54,650  $ 43,857  $ 59,289  $ 24,199

Table continued



                                                                  Nine months  Nine months
                                                                        ended        ended
                                        2014      2014      2013   October 31,  October 31,
                                          Q2        Q1        Q4         2014         2013
    Operating profit                $ 21,530  $ 25,918  $ 29,213    $  79,616    $  59,213
    Depreciation and amortization     21,768    19,906    24,042       66,161       54,108
    EBITDA                          $ 43,298  $ 45,824  $ 53,255    $ 145,777    $ 113,321

EKATI DIAMOND MINE SEGMENT



    (expressed in thousands of United States dollars)
    (unaudited)



                                        2015      2015      2015       2014       2014
                                          Q3        Q2        Q1         Q4         Q3
    Operating profit (loss)         $ 47,043  $ 26,851  $  9,924  $ (1,513)  $ (1,332)
    Depreciation and amortization     27,269    35,438    20,154     25,892     19,166
    EBITDA                          $ 74,312  $ 62,289  $ 30,078  $  24,379  $  17,834

Table continued



                                                              Nine months   For the period
                                                                    ended      April 10 to
                                    2014      2014     2013    October 31,      October 31,
                                      Q2        Q1       Q4          2014             2013
    Operating profit (loss)     $  7,102  $  (246)  $     -     $  83,818        $   5,522
    Depreciation and
    amortization                  10,513         -        -        82,861           29,679
    EBITDA                      $ 17,615  $  (246)  $     -     $ 166,679        $  35,201

CORPORATE SEGMENT



    (expressed in thousands of United States dollars)
                       (unaudited)



                                         2015       2015       2015       2014       2014
                                           Q3         Q2         Q1         Q4         Q3
    Operating profit (loss)         $ (6,496)  $ (7,598)  $ (4,698)  $ (7,875)  $ (5,924)
    Depreciation and amortization         293        291        342        451        378
    EBITDA                          $ (6,203)  $ (7,307)  $ (4,356)  $ (7,424)  $ (5,546)



                                                              Nine months      Nine months
                                                                    ended            ended
                             2014        2014       2013      October 31,      October 31,
                               Q2          Q1         Q4             2014             2013
    Operating profit
    (loss)             $ (12,971)  $ (15,213)  $ (8,227)       $ (18,793)       $ (34,107)
    Depreciation and
    amortization              363         305        304              927            1,046
    EBITDA             $ (12,608)  $ (14,908)  $ (7,923)       $ (17,866)       $ (33,061)

Risks 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 a weak recovery, due to recent disruptions in financial markets in the United States, the Eurozone or elsewhere, budget policy issues in the United States, 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 their 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 operations 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. Letters of credit in the amount of CDN $43 million are currently held by the Government of the Northwest Territories as security under the environmental agreement relating to the Ekati Diamond Mine. The operator of the Diavik Joint Venture has fulfilled such obligations for the security deposits in respect of the Diavik Diamond Mine by posting letters of credit, of which DDDLP's share as at October 31, 2014 was $57.0 million based on its 40% ownership interest in the Diavik Diamond Mine. The Company does not expect that the operator of the Diavik Joint Venture will continue its practice of posting letters of credit in fulfillment of this obligation. Accordingly, the Company expects that DDDLP will be required to post its proportionate share of such security directly, which would result in additional constraints on liquidity. In June 2013, the Wek'èezhìi 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. On November 6, 2014, the Company posted surety bonds with the Government of the Northwest Territories in the aggregate amount of CDN $253 million to secure the obligations under its Water Licence to reclaim the Ekati Diamond Mine. The letters of credit held under the environmental agreement for the Ekati Diamond Mine continue to be held by the Government of the Northwest Territories pending completion of a review by the Government of the Northwest Territories of duplication between this security and the security required under the Water License. The Company also has provided a guarantee of CDN $20 million for other obligations under the environmental agreement for the Ekati Diamond Mine.

The reclamation and remediation plans for the Ekati Diamond Mine and the Diavik Diamond Mine, as well as the costs of such plans, are subject to periodic regulatory review, which could result in an increase to the amount of security required to be posted in connection with the operation of each of the Ekati Diamond Mine and the Diavik Diamond Mine. This 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. Estimates made at a given time may change significantly in the future when new information becomes available. 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. Any material changes in the quantity of mineral reserves or resources or the related grades may affect the economic viability of the Company's mining operations and could have a material adverse effect on the Company's business, financial condition, results of operations or prospects.

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.

On November 20, 2014, the Company's Board of Directors granted Robert Gannicott, Chairman and Chief Executive Officer of the Company, medical leave of absence to undergo important treatment which is expected to continue until mid-February 2015. During this period, lead director Dan Jarvis assumed the role of Acting Chairman (who will be supported in this role by Audit Committee Chairman Ollie Oliveira) and Brendan Bell assumed the role of Acting Chief Executive.

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 entered into negotiations on August 6; and on August 26,a Memorandum of Understanding was signed which suspended negotiations until the latter part of February 2015 and continued unchanged all provisions in the current collective bargaining agreement. 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 third 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; 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 the adoption of IFRS 15 has not yet been determined.

Outstanding Share Information 



       As at November 30, 2014
    Authorized                               Unlimited
    Issued and outstanding shares           85,134,480
    Options outstanding                      2,884,030
    Fully diluted                           88,018,510

Additional Information 

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



                            Condensed Consolidated Balance Sheets
                (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

                                                   October 31, 2014       January 31, 2014
    ASSETS
    Current assets
    Cash and cash equivalents (note 4)         $          288,836     $          224,778
    Accounts receivable                                    14,372                 20,879
    Inventory and supplies (note 5)                       513,851                440,853
    Other current assets                                   25,418                 27,156
                                                            842,477                713,666
    Property, plant and equipment                         1,415,728              1,469,557
    Restricted cash (note 4)                                111,966                113,612
    Other non-current assets                                  4,360                  4,737
    Deferred income tax assets                               15,653                  3,078
    Total assets                                 $        2,390,184     $        2,304,650

    LIABILITIES AND EQUITY
    Current liabilities
    Trade and other payables                   $          100,047     $          103,653
    Employee benefit plans                                  2,683                  3,643
    Income taxes payable                                  109,424                 33,442
    Current portion of
    interest-bearing loans and
    borrowings                                                  832                    794
                                                            212,986                141,532
    Interest-bearing loans and
    borrowings                                               45,055                  3,504
    Deferred income tax liabilities                         205,169                242,563
    Employee benefit plans                                   12,474                 14,120
    Provisions                                              439,396                430,968
    Total liabilities                                       915,080                832,687
    Equity
    Share capital                                         508,573                508,523
    Contributed surplus                                    25,029                 23,033
    Retained earnings                                     835,954                775,419
    Accumulated other comprehensive
    income                                                  (4,476)                (2,447)
    Total shareholders' equity                          1,365,080              1,304,528
    Non-controlling interest                              110,024                167,435
    Total equity                                          1,475,104              1,471,963
    Total liabilities and equity                 $        2,390,184     $        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                             Nine
                                  months      Three months         months       Nine months
                                   ended             ended          ended             ended
                                 October        October 31,       October        October 31,
                                     31,              2013            31,              2013
                                    2014 (Recast - note 12)          2014 (Recast - note 12)
    Sales                   $    222,336      $    148,138   $    675,171      $    518,778
    Cost of sales                146,951           136,221        505,872           448,842
    Gross margin                  75,385            11,917        169,299            69,936
    Selling, general
    and administrative
    expenses                       7,904             7,408         24,658            39,308
    Operating profit              67,481             4,509        144,641            30,628
    Finance expenses             (3,389)           (3,136)        (9,905)          (23,797)
    Exploration costs            (7,360)           (7,074)       (23,250)          (11,260)
    Finance and other
    income                           781               825          4,542             2,661
    Foreign exchange
    gain (loss)                    1,864             1,122          1,732             (961)
    Profit (loss)
    before income
    taxes                         59,377           (3,754)        117,760           (2,729)
    Income tax expense            25,757             2,792         49,259            16,488
    Net profit (loss)
    from continuing
    operations                    33,620           (6,546)         68,501          (19,217)
    Net profit from
    discontinued
    operations (note
    6)                                 -                 -              -           502,656
    Net profit (loss)       $     33,620      $    (6,546)   $     68,501      $    483,439
    Net profit (loss)
    from continuing
    operations
    attributable to
    Shareholders          $     25,478      $    (4,794)    $     66,732      $   (15,175)
    Non-controlling
    interest                      8,142            (1,752)           1,769          (4,042)
    Net profit (loss)
    attributable to
    Shareholders          $     25,478      $    (4,794)    $     66,732      $   487,482
    Non-controlling
    interest                      8,142            (1,752)           1,769          (4,042)
    Earnings (loss)
    per share from
    continuing
    operations
    Basic                 $       0.30      $     (0.06)    $       0.78      $     (0.18)
    Diluted                       0.30            (0.06)            0.78            (0.18)
    Earnings (loss)
    per share
    Basic                         0.30            (0.06)            0.78             5.74
    Diluted                       0.30            (0.06)            0.78             5.63
    Weighted average
    number of shares
    outstanding              85,134,476        85,055,716       85,130,056       84,984,911

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)

                                                                   Nine
                                              Three months       months        Nine months
                           Three months              ended        ended              ended
                                  ended         October 31,     October         October 31,
                             October 31,              2013           31,              2013
                                   2014  (Recast - note 12)        2014  (Recast - note 12)
    Net profit (loss)      $     33,620         $   (6,546)   $  68,501        $   483,439
    Other comprehensive
    income
      Items that may be
      reclassified to
      profit
        Net loss on
        translation of net
        foreign operations
        (net of tax of
        $nil)                      (916)              (40)         (827)           (11,089)
      Items that will not be
      reclassified
      to profit
        Actuarial loss on
        employee benefit
        plans
        (net of tax of
        $0.5 million)                 -                 -        (1,202)                 -
    Other comprehensive
    loss, net of tax               (916)              (40)       (2,029)           (11,089)
    Total comprehensive
    income (loss)         $      32,704        $   (6,586)    $  66,472        $   472,350
    Comprehensive income
    (loss) from
    continuing operations $      32,704        $   (6,586)    $  66,472        $   (19,701)
    Comprehensive income
    from discontinued
    operations                        -                 -             -            492,051
    Comprehensive income
    (loss) attributable to
      Shareholders        $      24,562        $   (4,834)    $  64,703        $   476,392
      Non-controlling
      interest                    8,142            (1,752)        1,769             (4,042)

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)

                                                                                       Nine
                                                                                     months
                                                                       Nine           ended
                                                                     months         October
                                                                      ended        31, 2013
                                                                    October       (Recast -
                                                                   31, 2014        note 12)
    Common shares:
    Balance at beginning of period                              $   508,523     $   508,007
    Issued during the period                                             50             516
    Balance at end of period                                        508,573         508,523
    Contributed surplus:
    Balance at beginning of period                                   23,033          20,387
    Stock-based compensation expense                                  2,009           2,168
    Exercise of stock options                                           (13)              -
    Balance at end of period                                         25,029          22,555
    Retained earnings:
    Balance at beginning of period                                  775,419         295,738
    Net profit attributable to common shareholders                   66,732         487,482
    Acquisition of additional interest in Ekati                      (6,197)              -
    Balance at end of period                                        835,954         783,220
    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)                       (827)        (11,089)
          Items that will not be reclassified to profit
                 Actuarial (gain) loss on employee benefit
                 plans (net of tax of $0.5 million)                  (1,202)              -
    Balance at end of period                                         (4,476)         (4,732)
    Non-controlling interest:
    Balance at beginning of period                                  167,435             763
    Net profit (loss) attributed to non-controlling interest          1,769          (4,042)
    Acquisition of additional interest in Ekati                     (71,074)        152,797
    Contributions made by minority partners                          11,894               -
    Balance at end of period                                        110,024         149,518
    Total equity                                                $ 1,475,104     $ 1,459,084

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       Three months                     Nine months
                                  ended              ended  Nine months              ended
                                October         October 31,       ended         October 31,
                                     31,              2013   October 31,              2013
                                   2014  (Recast - note 12)        2014  (Recast - note 12)
    Cash provided by (used in)
    Operating
    Net profit (loss)        $   33,620         $   (6,546) $    68,501        $   483,439
      Depreciation and
      amortization               47,898             31,978      149,949             84,833
      Deferred income tax
      recovery                  (25,905)            (6,454)     (57,148)           (18,292)
      Current income tax
      expense                    51,662              9,246      106,407             34,780
      Finance expenses            3,389              3,136        9,905             23,799
      Stock-based compensation      709                939        2,009              2,168
      Other non-cash items       (2,956)             1,069       (2,252)            (1,391)
      Foreign exchange
      (gain) loss                   277              3,097       (1,668)             2,873
      Loss (gain) on
      disposition of assets          21                  -          772                361
      Gain on sale of assets          -                  -       (2,375)                 -
    Change in non-cash operating
    working capital, excluding
    taxes and finance expenses  (36,460)           (26,763)     (56,108)            27,690
    Cash provided by (used in)
    operating activities         72,255              9,702      217,992            640,260
      Interest paid                (527)              (922)      (1,151)            (5,955)
      Income and mining
      taxes paid                 (1,189)            (2,200)     (28,771)           (29,355)
    Cash provided by (used in)
    operating activities -
    continuing operations        70,539              6,580      188,070            604,950
    Cash provided by (used in)
    operating activities -
    discontinued operations           -                  -            -           (502,656)
    Net cash from (used in)
    operating activities         70,539              6,580      188,070            102,294
    FINANCING
    Decrease in interest-bearing
    loans and borrowings           (203)              (198)        (598)              (590)
    Increase in revolving credit      -                  -            -             27,863
    Decrease in revolving credit      -                  -            -            (28,991)
    Repayment of senior secured
    credit facility                   -                  -            -            (50,000)
    Contributed from
    non-controlling interest      4,392                990       15,209                990
    Issue of common shares,
    net of issue costs                -                  -           34                516
    Cash provided from (used in)
    financing activities          4,189                792       14,645            (50,212)
    Investing
    Acquisition of Ekati
    including additional
    interest                    (27,512)                 -      (27,512)          (490,925)
    Proceeds from sale of assets      -                  -        3,725            746,738
    Net proceeds from Misery
    preproduction sales           8,841                  -       20,374                  -
    Purchase of property, plant
    and equipment               (31,571)           (35,186)    (133,353)           (88,688)
    Net proceeds from sale of
    property, plant and equipment     -                115          642              1,911
    Other non-current assets       (111)               394          684             (2,655)
    Cash used in investing
    activities - continuing
    operations                  (50,353)           (34,677)    (135,440)           166,381
    Cash provided from
    investing activities -
    discontinued operations           -                  -            -                  -
    Cash provided from (used in)
    investing activities        (50,353)           (34,677)    (135,440)           166,381
    Foreign exchange effect
    on cash balances             (7,527)            (2,656)      (4,863)            (5,093)
    Increase (decrease) in cash
    and cash equivalents         16,848            (29,961)      62,412            213,370
    Cash and cash equivalents,
    beginning of period         383,954            347,644      338,390            104,313
    Cash and cash equivalents,
    end of period               400,802            317,683      400,802            317,683
    Less cash and cash
    equivalents of discontinued
    operations, end of period         -                  -            -                  -
    Cash and cash equivalents
    of continuing operations,
    end of period            $  400,802        $   317,683   $  400,802        $   317,683
    Change in non-cash
    operating working capital,
    excluding taxes and
    finance expenses
    Accounts receivable          (5,616)           (5,739)         (540)            (8,320)
    Inventory and supplies      (31,786)          (36,219)      (50,969)            31,189
    Other current assets         10,332             3,766         1,741              6,122
    Trade and other payables    (10,058)           10,573        (5,400)              (940)
    Employee benefit plans          668               856          (940)              (361)
                              $ (36,460)       $  (26,763)   $  (56,108)       $    27,690

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Condensed Consolidated Financial Statements 

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

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; minority shareholders are presented as non-controlling interests within the consolidated financial statements.

On October 15, 2014, the Company completed the previously announced acquisition of the interests of Fipke Holdings Ltd. ("FipkeCo") in the Ekati Diamond Mine. Each of Dr. Stewart Blusson and Archon Minerals Limited ("Archon") exercised their rights of first refusal to acquire their proportionate share of the interests in the Core Zone and Buffer Zone, respectively, being sold by FipkeCo. As a consequence, the Company acquired an additional 8.889% participating interest in the Core Zone and an additional 6.53% in the Buffer Zone, increasing its interest in the Core Zone and Buffer Zone to 88.9% and 65.3%, respectively. The base purchase price for the acquired Core Zone interest was US$42.2 million, plus purchase price adjustments of US$13.2 million for a total amount payable of US$55.4 million. The purchase price adjustments were paid in cash at closing, and the base purchase price was satisfied by a promissory note payable in instalments over 31 months. The Company has the right, but not the obligation, to satisfy one or more instalments due under the promissory note in common shares of the Company. The base purchase price for the acquired Buffer Zone interest was US$11.1 million, plus purchase price adjustments of US$3.2 million for a total amount paid in cash at closing of US$14.3 million.

On November 26, 2014, the Company announced that Rio Tinto plc had approved the development of the A-21 pipe at the Diavik Diamond Mine. A-21 production is planned to begin in late calendar 2018.

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, 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; 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 the adoption of IFRS 15 has not yet been determined.

Note 4:
Cash and Cash Equivalents 




                                                October 31, 2014     January 31, 2014

    Cash on hand and balances with banks      $          288,836   $          224,778
    Restricted cash                                      111,966              113,612
    Total cash and cash equivalents           $          400,802   $          338,390

As at October 31, 2014, 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. On November 6, 2014, the Company posted surety bonds with the Government of the Northwest Territories in the aggregate amount of CDN $253 million to secure the obligations under its Water Licence to reclaim the Ekati Diamond Mine. As a result of the posting of the surety bonds, the Government of the Northwest Territories has released and returned to the Company letters of credit in the amount of CDN $83 million previously posted as security for reclamation activities. Letters of credit in the amount of CDN $43 million continue to be held by the Government of the Northwest Territories as security for reclamation and related activities at the Ekati Diamond Mine pending completion of a review by the Government of the Northwest Territories of duplication between the security required under the Water Licence and security held by the Government of the Northwest Territories under the environmental agreement.

Note 5:
Inventory and Supplies 




                                                             October 31,        January 31,
                                                                   2014               2014

    Stockpile ore                                     $          16,431   $         38,475
    Rough diamonds - work in progress                           111,181            139,520
    Rough diamonds - finished goods (available
    for sale)                                                   124,853             35,573
    Supplies inventory                                          261,386            227,285
    Total inventory and supplies                      $         513,851   $        440,853

Total inventory and supplies are net of a provision for obsolescence of $4.1 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 (loss) gain                                   (1,551)
    Net income tax (expense) recovery                                                 (186)
    Net profit (loss) from discontinued operations before
    gain on sale                                                      $               (257)
    Gain on sale                                                      $            502,913
    Net profit from discontinued operations                           $            502,656
    Earnings per share from 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 September 30, 2014 and December 31, 2013:



                                                             September 30,     December 31,
                                                                     2014             2013

    Current assets                                         $       89,558   $       97,078
    Non-current assets                                            565,505          618,141
    Current liabilities                                            33,055           31,296
    Non-current liabilities and participant's account             622,008          683,923




                        Three months      Three months       Nine months       Nine months
                               ended             ended             ended             ended
                        September 30,     September 30,     September 30,     September 30,
                                2014              2013              2014              2013
    Expenses net
    of interest
    income(i)        $        55,537   $        58,155   $       178,089   $       183,838
    Cash flows
    used in
    operating
    activities               (21,304)          (30,426)         (105,205)         (120,606)
    Cash flows
    resulting
    from
    financing
    activities                26,079            33,507           117,622           137,101
    Cash flows
    used in
    investing
    activities                (4,040)           (3,466)          (12,417)          (18,869)


    (i) 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 nine months ended October 31, 2014 other than compensation of key management personnel.

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



                                                       Effective                Country of
    Name of company                                     interest             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 (a)           $  46,491   $     1,090   $ 44,402   $     999   $       -
    Environmental and
    participation agreements
    incremental commitments(b)(c)  176,879        59,258      1,087       4,209     112,325
    Operating lease
    obligations (d)                  9,889         8,529      1,360           -           -
    Total contractual
    obligations                  $ 233,259   $    68,877   $ 46,849   $   5,208   $ 112,325


    (a) Promissory note
        The Company issued a promissory note in the amount of US$42.2 million in
        connection with its acquisition of an additional 8.889% participating interest in
        the Core Zone and an additional 6.53% in the Buffer Zone. The promissory note is
        payable in instalments over 31 months and the Company has the right, but not the
        obligation, to satisfy one or more installments due under the promissory note in
        common shares of the Company.

    (b) 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 for the Diavik Diamond Mine as at
        October 31, 2014 was $57 million. The agreements specifically provide that these
        funding requirements will be reduced by amounts incurred by the Diavik Joint
        Venture on reclamation and abandonment activities. As at October 31, 2014, 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. On November 6, 2014, the Company posted surety bonds with the
        Government of the Northwest Territories in the aggregate amount of CDN $253
        million to secure the obligations under its Water Licence to reclaim the Ekati
        Diamond Mine. As a result of the posting of the surety bonds, the Government of
        the Northwest Territories has released and returned to the Company letters of
        credit in the amount of CDN $83 million previously posted as security for
        reclamation activities. Letters of credit in the amount of CDN $43 million
        continue to be held by the Government of the Northwest Territories as security for
        reclamation and related activities at the Ekati Diamond Mine pending completion of
        a review by the Government of the Northwest Territories of duplication between the
        security required under the Water Licence and security held by the Government of
        the Northwest Territories under the environmental agreement.

    (c) 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.

    (d) 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 October 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:




                                           October 31, 2014                 January 31, 2014
                                Estimated                        Estimated
                                     fair          Carrying           fair          Carrying
                                    value             value          value             value
    Financial assets
    Cash and cash
    equivalents,
    including
    restricted cash           $   400,802        $  400,802    $   338,390        $  338,390
    Accounts
    receivable                     14,372            14,372         20,879            20,879
                              $   415,174        $  415,174    $   359,269        $  359,269
    Financial
    liabilities
    Trade and other
    payables                  $   100,047        $  100,047    $   103,653        $  103,653
    Interest-bearing
    loans and
    borrowings                     45,887            45,887          4,298             4,298
                              $   145,934        $  145,934    $   107,951        $  107,951

Note 11:
Segmented Information 

The reportable segments are those operations whose operating results are reviewed by the Chief Operating Decisionmakers 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. Management determined that the Company operates in three segments within the diamond industry - Diavik Diamond Mine, Ekati Diamond Mine and Corporate - for the three and nine months ended October 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
    October 31, 2014                     Diavik         Ekati     Corporate         Total
    Sales
    North America                    $        -   $         -   $         -   $         -
      Europe                             74,310       137,769             -       212,079
      India                               6,094         4,163             -        10,257
      Total sales                        80,404       141,932             -       222,336
    Cost of sales
      Depreciation and
      amortization                       20,232        27,269             -        47,501
      All other costs                    32,387        67,063             -        99,450
      Total cost of sales                52,619        94,332             -       146,951
    Gross margin                         27,785        47,600             -        75,385
    Gross margin (%)                      34.6%         33.5%            -%         33.9%
    Selling, general and
    administrative expenses
      Selling and related
      expenses                              851           557             -         1,408
      Administrative expenses                 -             -         6,496         6,496
      Total selling, general and
      administrative expenses               851           557         6,496         7,904
    Operating profit (loss)              26,934        47,043        (6,496)       67,481
    Finance expenses                       (813)       (2,576)            -        (3,389)
    Exploration costs                        52        (7,412)            -        (7,360)
    Finance and other income                445           336             -           781
    Foreign exchange gain                   554         1,310             -         1,864
    Segmented profit (loss) before
    income taxes                     $   27,172   $    38,701   $    (6,496)  $    59,377
    Segmented assets as at October
    31, 2014
      Canada                         $  861,820   $ 1,387,622   $         -   $ 2,249,442
      Other foreign countries            67,305        73,437             -       140,742
                                     $  929,125   $ 1,461,059   $         -   $ 2,390,184
    Capital expenditures             $   (4,620)  $   (26,951)  $         -   $   (31,571)
    Inventory                           123,164       390,687             -       513,851
    Total liabilities                    23,422       891,658             -       915,080
    Other significant non-cash
    items:
     Deferred income tax
     recovery                       $  (15,999)  $    (9,906)  $         -   $   (25,905)

    For the three months ended
    October 31, 2013                     Diavik         Ekati     Corporate         Total
    Sales
    North America                    $        -   $         -   $         -   $         -
     Europe                             45,088        95,232             -       140,320
     India                               7,818             -             -         7,818
     Total sales                        52,906        95,232             -       148,138
    Cost of sales
     Depreciation and
      amortization                       12,323        19,166             -        31,490
     All other costs                    27,695        77,036             -       104,731
     Total cost of sales                40,018        96,202             -       136,221
    Gross margin                         12,888          (970)            -        11,917
    Gross margin (%)                      24.4%         (1.0%)            -%         8.0%
    Selling, general and
    administrative expenses
      Selling and related
      expenses                            1,123           362             -         1,484
      Administrative expenses                 -             -         5,924         5,924
      Total selling, general and
      administrative expenses             1,123           362         5,924         7,408
    Operating profit (loss)              11,765        (1,332)       (5,924)        4,509
    Finance expenses                       (770)       (2,366)            -        (3,136)
    Exploration costs                    (1,074)       (6,000)            -        (7,074)
    Finance and other income                743            82             -           825
    Foreign exchange (loss) gain           (818)        1,940             -         1,122
    Segmented profit (loss) before
    income taxes                     $    9,846   $    (7,676)   $   (5,924)   $   (3,754)
    Segmented assets as at October
    31, 2013
      Canada                         $1,016,364   $ 1,216,810   $         -   $ 2,233,174
      Other foreign countries            71,116         3,235             -        74,351
                                     $1,087,480   $ 1,220,045   $         -   $ 2,307,525
    Capital expenditures             $   (6,872)  $   (28,314)  $         -   $   (35,186)
    Inventory                           145,761       278,730             -       424,491
    Total liabilities                   194,803       645,301             -       840,104
    Other significant non-cash
    items:
     Deferred income tax expense
      (recovery)                    $   (6,561)  $       107   $         -   $    (6,454)

    For the nine months ended
    October 31, 2014                      Diavik         Ekati     Corporate         Total
    Sales
    North America                    $         -   $         -   $         -   $         -
      Europe                             243,086       386,905             -       629,991
      India                               27,026        18,154             -        45,180
      Total sales                        270,112       405,059             -       675,171
    Cost of sales
      Depreciation and
      amortization                        65,855        82,846             -       148,701
      All other costs                    121,748       235,423             -       357,171
      Total cost of sales                187,603       318,269             -       505,872
    Gross margin                          82,509        86,790             -       169,299
    Gross margin (%)                       30.5%         21.4%            -%         25.1%
    Selling, general and
    administrative expenses
      Selling and related
      expenses                             2,893         2,972             -         5,865
      Administrative expenses                  -             -        18,793        18,793
      Total selling, general and
      administrative expenses              2,893         2,972        18,793        24,658
    Operating profit (loss)               79,616        83,818       (18,793)      144,641
    Finance expenses                      (2,511)       (7,394)            -        (9,905)
    Exploration costs                       (310)      (22,940)            -       (23,250)
    Finance and other income               3,778           764             -         4,542
    Foreign exchange gain (loss)             294         1,438             -         1,732
    Segmented profit (loss) before
    income taxes                     $    80,867   $    55,686   $   (18,793)  $   117,760
    Segmented assets as at October
    31, 2014
      Canada                         $   861,820   $ 1,387,622   $         -   $ 2,249,442
      Other foreign countries             67,305        73,437             -       140,742
                                     $   929,125   $ 1,461,059   $         -   $ 2,390,184
    Capital expenditures             $   (15,177)   $ (118,176)  $         -   $  (133,353)
    Inventory                            123,164       390,687             -       513,851
    Total liabilities                     23,422       891,658             -       915,080
    Other significant non-cash
    items:
      Deferred income tax
      recovery                       $   (28,276)   $  (28,872)  $         -   $   (57,148)


    For the nine months ended
    October 31, 2013
    (Recast - note 12)                    Diavik         Ekati     Corporate         Total
    Sales
      North America                  $     6,179   $         -   $         -   $     6,179
      Europe                             187,260       285,689             -       472,949
      India                               39,650             -             -        39,650
    Total sales                          233,089       285,689             -       518,778
    Cost of sales
      Depreciation and
      amortization                        53,510        29,679             -        83,189
      All other costs                    116,724       248,929             -       365,653
      Total cost of sales                170,234       278,608             -       448,842
    Gross margin                          62,855         7,081             -        69,936
    Gross margin (%)                       27.0%          2.5%            -%         13.5%
    Selling, general and
    administrative expenses
      Selling and related
      expenses                             3,642         1,559             -         5,201
      Administrative expenses                  -             -        34,107        34,107
      Total selling, general and
    administrative expenses                3,642         1,559        34,107        39,308
    Operating profit (loss)               59,213         5,522       (34,107)       30,628
    Finance expenses                     (18,497)       (5,300)            -       (23,797)
    Exploration costs                     (4,324)       (6,935)            -       (11,260)
    Finance and other income               2,050           611             -         2,661
    Foreign exchange gain (loss)            (302)         (659)            -          (961)
    Segmented profit (loss) before
    income taxes                     $    38,140   $    (6,761)   $  (34,107)  $    (2,729)
    Segmented assets as at October
    31, 2013
      Canada                         $ 1,016,364   $ 1,216,810    $        -   $ 2,233,174
      Other foreign countries             71,116         3,235             -        74,351
                                     $ 1,087,480   $ 1,220,045    $        -   $ 2,307,525
    Capital expenditures             $   (23,363)   $  (65,325)   $        -   $   (88,688)
    Inventory                            145,761       278,730             -       424,491
    Total liabilities                    194,803       645,301             -       840,104
    Other significant non-cash
    items:
      Deferred income tax
      recovery                      $    (6,973)   $  (11,319)   $        -   $   (18,292)

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 nine months ended October 31, 2013 were recast.

For the three months ended October 31, 2013, sales decreased by $3.5 million, cost of sales increased by $2.6 million, whereas finance expense decreased by $2.5 million, and income tax expense decreased by $1.1 million. As a result, net loss attributed to common shareholders increased by $1.9 million and net loss attributed to non-controlling interest increased by $0.6 million.

For the nine months ended October 31, 2013, sales decreased by $3.5 million, cost of sales decreased by $0.6 million, finance expense decreased by $5.5 million, and income tax expense increased by $1.0 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 loss attributed to common shareholders decreased by $1.2 million and net loss attributed to non-controlling interest decreased by $0.4 million.

For further information:

please visit  http://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 - +1-416-205-4380 or kstamm@ddcorp.ca

 

SOURCE Dominion Diamond Corporation