SYS-CON MEDIA Authors: Adine Deford, Cynthia Dunlop, Harry Trott, Xenia von Wedel, Peter Silva

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Dominion Diamond Corporation Reports Fiscal 2015 Second Quarter Results

TORONTO, September 3, 2014 /PRNewswire/ --

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

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

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

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

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

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

Financial Summary 

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

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

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

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

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

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



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

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

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

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


                                Three months   Three months     Six months
                                  ended July     ended July     ended July  April 10 to July
                                         31,            31,            31,               31,
    Rough Diamond Production            2014           2013           2014           2013[1]
    Ekati Diamond Mine
    (100%)
    Tonnes processed
    ('000's)                           1,061          1,105          2,022             1,311
    Carats Recovered
    ('000's)                             802            483          1,362               565
    Grade (carats per tonne)            0.76           0.44           0.67              0.43

                                Three months   Three months     Six months
                                  ended June     ended June     ended June        Six months
    Diavik Diamond Mine                  30,            30,            30,    ended June 30,
    (40%)[2]                            2014           2013           2014              2013
    Tonnes processed
    ('000's)                             247            211            482               412
    Carats Recovered
    ('000's)                             860            624          1,606             1,402
    Grade (carats per
    tonne)[3]                           3.47           2.82           3.20              3.24

[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 July 31, 2013.

[2] The Diavik Diamond Mine reports on a calendar quarter, whereas the Ekati Diamond Mine reports to the Company's fiscal quarter. For the three months ended July 31, 2014, the Diavik Diamond Mine (on a 40% basis) produced 870,000 carats from the processing of 248,000 tonnes of ore. The last month of this production is not included in the Company's second quarter financial results, as the Company reports Diavik results on a one-month lag.
[3] Grade adjusted to exclude Coarse Ore Rejects (COR). COR is not included in the reserves and is therefore incremental production.


    Ekati and Diavik
    Summary
    (in millions of US        Three months    Three months      Six months      Six months
    dollars, except         ended July 31,  ended July 31,  ended July 31,  ended July 31,
    carats sold)                      2014            2013            2014         2013[1]
    Ekati Diamond Mine
    (100%)
    Sales[2]                         170.3           170.5           263.1           190.5
    Carats sold ('000's)               552             589             811             601
    Cash Cost of
    Production                        77.2            94.3           167.1           111.5
    Cost of Sales                    142.5           162.8           223.9           182.4
    Gross Margin                      27.8             7.8            39.2             8.1
    Gross Margin (%)                 16.3%            4.6%           14.9%            4.2%
    Operating Profit                  26.9             7.1            36.8             6.9
    Depreciation &
    amortization                      35.4            10.5            55.6            10.5
    EBITDA                            62.3            17.6            92.4            17.4
    EBITDA Margin (%)                  37%             10%             35%              9%
    Capital Expenditures              42.0            28.2            91.2            37.0
    Diavik Diamond Mine
    (40%)
    Sales                            107.0            91.3           189.7           180.2
    Carats sold ('000's)               959             703           1,541           1,486
    Cash Cost of
    Production                        37.1            38.9            76.3            81.8
    Cost of Sales                     78.8            68.3           135.0           130.2
    Gross Margin                      28.3            22.9            54.7            50.0
    Gross Margin (%)                 26.4%           25.1%           28.8%           27.7%
    Operating Profit                  27.2            21.5            52.7            47.4
    Depreciation &
    amortization                      27.4            21.8            45.8            41.7
    EBITDA                            54.7            43.3            98.5            89.1
    EBITDA Margin (%)                  51%             47%             52%             49%
    Capital Expenditures               3.8             5.6            10.6            16.5

Segmented Summary 

[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 July 31, 2013.

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

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

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


    Diamond Inventory                                        July 31, January 31,
    (in millions of US dollars, except carats)                   2014        2014
    Ekati Diamond Mine (100%)      Carats (million)               0.9         0.5
                                   At Cost                        150         130
                                   Estimated Market Value         250         140
    Diavik Diamond Mine (40%)      Carats (million)               0.5         0.4
                                   At Cost                         40          50
                                   Estimated Market Value          65          65
                                   Estimated Market Value of
    Consolidated Diamond Inventory Total Inventory[1]             315         205

[1] Includes an estimated $45 million (at market value) of discretionary stock held back from sale at July 31, 2014.


    Diamond Prices
    July 2014 Average Price per Carat (in US dollars)
    Diavik Ore Type                                     Ekati Ore Type[1]
    A-154 South                                    $145 Koala                         $395
    A-154 North                                    $190 Koala North                   $440
    A-418                                          $105 Fox                           $315
    Coarse Ore Rejects                              $50 Misery Satellite Pipes         $90
                                                        Coarse Ore Rejects       $65 - 120
    Rough Diamond Prices January to July,               Recovered Small
    2014                                            +8% Diamonds                 $70 - 100

[1] The Ekati prices do not reflect the increased recovery of small diamonds from the improvements in processing so as to be consistent with the Company's current reserve estimates. The rough diamond price of the additional recovered small diamonds at Ekati is estimated at between $70 and $100 per carat. 

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


    Full Year Guidance
    (in millions of US                Depreciation &
    dollars)[1]         Cash Costs[2]   Amortization Cost of Sales Capital Expenditures[2]
    Ekati Diamond Mine
    (100%)                        355            125           475                     170
    Diavik Diamond Mine
    (40%)                         150             95           275                      22

[1] Assuming an average Canadian/US dollar exchange rate of $1.10.
[2] The guidance on capital expenditures and cash costs of production for Diavik are for the calendar year ending December 31, 2014; all others are for the fiscal year ending January 31, 2015.

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

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

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

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

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

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

Highlights

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


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

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

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

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

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


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

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

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

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

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

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

Readers are cautioned not to place undue importance on forward-looking information, which speaks only as of the date of this MD&A, and should not rely upon this information as of any other date. Due to assumptions, risks and uncertainties, including the assumptions, risks and uncertainties identified above and elsewhere in this MD&A, actual events may differ materially from current expectations. The Company uses forward-looking statements because it believes such statements provide useful information with respect to the currently expected future operations and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. While the Company may elect to, it is under no obligation and does not undertake to update or revise any forward-looking information, whether as a result of new information, future events or otherwise at any particular time, except as required by law.

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

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

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

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

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

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

CONSOLIDATED FINANCIAL RESULTS

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


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


                             2015      2015       2014      2014       2014      2014
                               Q2        Q1         Q4        Q3         Q2        Q1
    Sales               $ 277,314 $ 175,522 $  233,163 $ 148,138 $  261,803 $ 108,837
    Cost of sales         221,240   137,680    202,030   136,221    231,086    81,535
    Gross margin           56,074    37,842     31,133    11,917     30,717    27,302
    Gross margin (%)        20.2%     21.6%      13.4%      8.0%      11.7%     25.1%
    Selling, general
    and
    administrative
    expenses                9,606     7,148     10,117     7,408     15,056    16,843
    Operating profit
    from continuing
    operations             46,468    30,694     21,016     4,509     15,661    10,459
    Finance expenses      (3,206)   (3,310)    (3,553)   (3,136)   (17,921)   (2,742)
    Exploration costs     (6,846)   (9,044)    (3,290)   (7,074)    (3,145)   (1,039)
    Finance and other
    income                    933     2,827        491       825      1,032       804
    Foreign exchange
    gain (loss)               816     (947)    (7,917)     1,122    (2,814)       732
    Profit (loss)
    before income
    taxes
    from continuing
    operations             38,165    20,220      6,747   (3,754)    (7,187)     8,214
    Income tax expense     13,969     9,533     19,018     2,792      8,655     5,042
    Net profit (loss)
    from continuing
    operations          $  24,196 $  10,687 $ (12,271) $ (6,546) $ (15,842) $   3,172
    Net profit (loss)
    from discontinued
    operations                  -         -          -         -          -   502,656
    Net profit (loss)   $  24,196 $  10,687 $ (12,271) $ (6,546) $ (15,842) $ 505,828
    Net profit (loss)
    from continuing
    operations
    attributable to
    Shareholders        $  26,586 $  14,671 $  (7,802) $ (4,794) $ (13,884) $   3,504
    Non-controlling
    interest              (2,390)   (3,984)    (4,469)   (1,752)    (1,958)     (332)
    Net profit (loss)
    attributable to
    Shareholders        $  26,586 $  14,671 $  (7,802) $ (4,794) $ (13,884) $ 506,160
    Non-controlling
    interest              (2,390)   (3,984)    (4,469)   (1,752)    (1,958)     (332)
    Earnings (loss)
    per share -
    continuing
    operations
    attributable to
    shareholders
              Basic     $    0.31 $    0.17 $   (0.09) $  (0.06) $   (0.16) $    0.04
              Diluted   $    0.31 $    0.17 $   (0.09) $  (0.06) $   (0.16) $    0.04
    Earnings (loss)
    per share
    attributable to
    shareholders
              Basic     $    0.31 $    0.17 $   (0.09) $  (0.06) $   (0.16) $    5.96
              Diluted   $    0.31 $    0.17 $   (0.09) $  (0.06) $   (0.16) $    5.89
    Cash dividends
    declared per share  $    0.00 $    0.00 $     0.00 $    0.00 $     0.00 $    0.00
    Total assets(i)     $   2,356 $   2,361 $    2,305 $   2,305 $    2,295 $   2,412
    Total long-term
    liabilities(i)      $     668 $     676 $      691 $     688 $      696 $     695
    Operating profit
    from continuing
    operations          $  46,468 $  30,694 $   21,016 $   4,509 $   15,661 $  10,459
    Depreciation and
    amortization(ii)       63,164    38,885     55,228    31,978     32,644    20,211
    EBITDA from
    continuing
    operations(iii)     $ 109,632 $  69,579 $   76,244 $  36,487 $   48,305 $  30,670

[cont'd]


           (expressed in thousands of United States dollars
          except per share amounts and where otherwise noted)
                             (unaudited)
                                                   Six        Six
                                                months     months
                                                 ended      ended
                                              July 31,   July 31,
                             2013      2013       2014       2013
                               Q4        Q3
    Sales               $ 110,111 $  84,818 $  452,835 $  370,640
    Cost of sales          79,038    71,663    358,922    312,621
    Gross margin           31,073    13,155     93,913     58,019
    Gross margin (%)        28.2%     15.5%      20.7%      15.7%
    Selling, general
    and
    administrative
    expenses               10,086     7,581     16,754     31,899
    Operating profit
    from continuing
    operations             20,987     5,574     77,159     26,120
    Finance expenses      (2,382)   (2,308)    (6,516)   (20,663)
    Exploration costs       (306)     (673)   (15,890)    (4,184)
    Finance and other
    income                    601        60      3,761      1,836
    Foreign exchange
    gain (loss)               116     (301)      (133)    (2,082)
    Profit (loss)
    before income
    taxes
    from continuing
    operations             19,016     2,352     58,381      1,027
    Income tax expense      6,977     1,583     23,503     13,697
    Net profit (loss)
    from continuing
    operations          $  12,039 $     769 $   34,878 $ (12,670)
    Net profit (loss)
    from discontinued
    operations              2,802     3,245          -    502,656
    Net profit (loss)   $  14,841 $   4,014 $   34,878 $  489,986
    Net profit (loss)
    from continuing
    operations
    attributable to
    Shareholders        $  12,146 $     152 $   41,252 $ (10,380)
    Non-controlling
    interest                (107)       617    (6,374)    (2,290)
    Net profit (loss)
    attributable to
    Shareholders        $  14,948 $   3,397 $   41,252 $  492,277
    Non-controlling
    interest                (107)       617    (6,374)    (2,290)
    Earnings (loss)
    per share -
    continuing
    operations
    attributable to
    shareholders
              Basic     $    0.14 $    0.00 $     0.48 $   (0.12)
              Diluted   $    0.14 $    0.00 $     0.48 $   (0.12)
    Earnings (loss)
    per share
    attributable to
    shareholders
              Basic     $    0.18 $    0.04 $     0.48 $     5.79
              Diluted   $    0.18 $    0.04 $     0.48 $     5.69
    Cash dividends
    declared per share  $    0.00 $    0.00 $     0.00 $     0.00
    Total assets(i)     $   1,710 $   1,733 $    2,356 $    2,295
    Total long-term
    liabilities(i)      $     269 $     682 $      668 $      696
    Operating profit
    from continuing
    operations          $  20,987 $   5,574 $   77,159 $   26,120
    Depreciation and
    amortization(ii)       24,346    20,588    102,051     52,855
    EBITDA from
    continuing
    operations(iii)     $  45,333 $  26,162 $  179,210 $   78,975

(i) Total assets and total long-term liabilities are expressed in millions of United States dollars.
(ii) Depreciation and amortization included in cost of sales and selling, general and administrative expenses.
(iii) Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 23.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

                                 2015     2015      2014     2014     2014     2014
                                   Q2       Q1        Q4       Q3       Q2       Q1
    Sales
              North
              America       $       - $      - $     511 $      - $      - $  6,179
              Europe           94,858   73,918   112,001   45,088   80,530   61,642
              India            12,175    8,757     6,704    7,818   10,737   21,095
    Total sales               107,033   82,675   119,216   52,906   91,267   88,916
    Cost of sales              78,751   56,232    87,690   40,018   68,328   61,888
    Gross margin               28,282   26,443    31,526   12,888   22,939   27,028
    Gross margin (%)            26.4%    32.0%     26.4%    24.4%    25.1%    30.4%
    Selling, general
    and
    administrative
    expenses                    1,067      975     1,122    1,123    1,409    1,110
    Operating profit        $  27,215 $ 25,468 $  30,404 $ 11,765 $ 21,530 $ 25,918
    Depreciation and
    amortization(i)            27,435   18,389    28,885   12,434   21,768   19,906
    EBITDA(ii)              $  54,650 $ 43,857 $  59,289 $ 24,199 $ 43,298 $ 45,824

[cont'd]


                   (expressed in thousands of United States dollars)
                                     (unaudited)
                                                     Six       Six
                                                  months    months
                                                   ended     ended
                                                    July      July
                                 2013     2013       31,       31,
                                   Q4       Q3      2014      2013
    Sales
              North
              America       $   4,604 $  7,697 $       - $   6,179
              Europe           84,346   57,438   168,776   142,172
              India            21,161   19,683    20,931    31,832
    Total sales               110,111   84,818   189,707   180,183
    Cost of sales              79,038   71,663   134,984   130,216
    Gross margin               31,073   13,155    54,723    49,967
    Gross margin (%)            28.2%    15.5%     28.8%     27.7%
    Selling, general
    and
    administrative
    expenses                    1,860    1,279     2,042     2,518
    Operating profit        $  29,213 $ 11,876 $  52,681 $  47,449
    Depreciation and
    amortization(i)            24,042   20,283    45,825    41,674
    EBITDA(ii)              $  53,255 $ 32,159 $  98,506 $  89,123

   

(i) Depreciation and amortization included in cost of sales and selling, general and administrative expenses.
(ii) Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 23.

 

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

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

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

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

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



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

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

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

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

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

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



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

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

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

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

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

For the three months ended June 30, 2014 


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

(a)Grade has been adjusted to exclude COR.

 

For the three months ended June 30, 2013 


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

(a) Grade has been adjusted to exclude COR.

 

For the six months ended June 30, 2014 


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



(a) Grade has been adjusted to exclude COR.

For the six months ended June 30, 2013

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



(a) Grade has been adjusted to exclude COR.


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


                  Ore processed   Carats           Grade
    Pipe          (000s tonnes)   (000s)  (carats/tonne)
    A-154 South              64      249            3.87
    A-154 North              82      175            2.12
    A-418                   101      442            4.36
    COR                       -        5               -
    Total                   248      870         3.49(b)



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


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


                  Ore processed   Carats           Grade
    Pipe          (000s tonnes)   (000s)  (carats/tonne)
    A-154 South              55      217            3.96
    A-154 North              79      156            1.98
    A-418                    72      195            2.70
    COR                       1       34               -
    Total                   207      602         2.76(b)



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


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


                  Ore processed   Carats           Grade
    Pipe          (000s tonnes)   (000s)  (carats/tonne)
    A-154 South             112      417            3.71
    A-154 North             179      393            2.19
    A-418                   191      753            3.94
    COR                       2       42               -
    Total                   484    1,605         3.24(b)



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


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


                  Ore processed   Carats            Grade
    Pipe          (000s tonnes)   (000s)   (carats/tonne)
    A-154 South             113      461             4.07
    A-154 North             146      292             2.00
    A-418                   155      489             3.15
    COR                       2       74                -
    Total                   417    1,317          3.00(b)



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


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

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


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

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

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

Ekati Diamond Mine

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


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

                                  2015     2015      2014      2014      2014     2014
                                    Q2       Q1        Q4        Q3        Q2       Q1
    Sales
    North America            $       - $      - $     413 $       - $       - $      -
    Europe                     160,667   88,469   111,542    95,232   170,536   19,921
    India                        9,614    4,378     1,992         -         -        -
    Total sales                170,281   92,847   113,947    95,232   170,536   19,921
    Cost of sales              142,489   81,448   114,340    96,202   162,758   19,647
    Gross margin                27,792   11,399     (393)     (970)     7,778      274
    Gross margin (%)             16.3%    12.3%    (0.3%)    (1.0%)      4.6%     1.4%
    Selling, general
    and
    administrative
    expenses                       941    1,475     1,120       362       676      520
    Operating profit
    (loss)                   $  26,851 $  9,924 $ (1,513) $ (1,332) $   7,102 $  (246)
    Depreciation and
    amortization(i)             35,438   20,154    25,892    19,166    10,513        -
    EBITDA(ii)               $  62,289 $ 30,078 $  24,379 $  17,834 $  17,615 $  (246)



[cont'd]


      (expressed in thousands
     of United States dollars)
            (unaudited)
                                                 Six    Period
                                              months     April
                                               ended        10
                                                July   to July
                               2013   2013       31,       31,
                                 Q4     Q3      2014      2013
    Sales
    North America            $    - $    - $       - $       -
    Europe                        -      -   249,136   190,457
    India                         -      -    13,992         -
    Total sales                   -      -   263,128   190,457
    Cost of sales                 -      -   223,938   182,405
    Gross margin                  -      -    39,190     8,052
    Gross margin (%)             -%     -%     14.9%      4.2%
    Selling, general
    and
    administrative
    expenses                      -      -     2,416     1,196
    Operating profit
    (loss)                   $    - $    - $  36,774 $   6,856
    Depreciation and
    amortization(i)               -      -    55,592    10,513
    EBITDA(ii)               $    - $    - $  92,366 $  17,369



(i)
Depreciation and amortization included in cost of sales and selling, general
and administrative expenses. All sales of inventory purchased as part of the
Ekati
Diamond Mine Acquisition are accounted for as cash cost of sales.
(ii)
Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measures" on page 23.


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

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

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

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

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



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



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

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

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

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

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



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



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

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

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

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


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



For the three months ended July 31, 2013


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



For the six months ended July 31, 2014


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



For the period from April 10 to July 31, 2013


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



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

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


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



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

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

Corporate

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


                   (expressed in thousands of United States dollars)
                            (quarterly results are unaudited)

                           2015      2015      2014      2014       2014       2014
                             Q2        Q1        Q4        Q3         Q2         Q1
    Sales             $       - $       - $       - $       - $        - $        -
    Cost of sales             -         -         -         -          -          -
    Gross margin              -         -         -         -          -          -
    Gross margin (%)         -%        -%        -%        -%         -%         -%
    Selling, general
    and
    administrative
    expenses              7,598     4,698     7,875     5,924     12,971     15,213
    Operating loss    $ (7,598) $ (4,698) $ (7,875) $ (5,924) $ (12,971) $ (15,213)
    Depreciation and
    amortization(i)         291       342       451       378        363        305
    EBITDA(ii)        $ (7,307) $ (4,356) $ (7,424) $ (5,546) $ (12,608) $ (14,908)
 


[cont'd]


          (expressed in thousands of United States dollars)
                   (quarterly results are unaudited)
                                                 Six
                                              months
                                               ended   Six months
                                                July   ended July
                           2013      2013        31,          31,
                             Q4        Q3       2014         2013
    Sales             $       - $       - $        - $          -
    Cost of sales             -         -          -            -
    Gross margin              -         -          -            -
    Gross margin (%)         -%        -%         -%           -%
    Selling, general
    and
    administrative
    expenses              8,227     6,302     12,296       28,184
    Operating loss    $ (8,227) $ (6,302) $ (12,296) $   (28,184)
    Depreciation and
    amortization(i)         304       306        634          668
    EBITDA(ii)        $ (7,923) $ (5,996) $ (11,662) $   (27,516)
  


(i) Depreciation and amortization included in cost of sales and selling, general
and administrative expenses.
(ii)
Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See
"Non-IFRS Measures" on page 23.


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

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

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

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

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

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

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

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

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

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

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

Contractual Obligations

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


    CONTRACTUAL OBLIGATIONS                         Less than     Year     Year      After
    (expressed in thousands of United
    States dollars)
    (unaudited)                            Total       1 year      2-3      4-5    5 years
    Interest-bearing loans and
    borrowings (a)(b)                  $   4,693  $     1,126  $ 2,253  $ 1,314  $       -
    Environmental and participation
    agreements incremental
    commitments (c)                      182,831       61,253    1,123    4,350    116,105
    Operating lease obligations (d)       11,722       10,141    1,581        -          -
    Total contractual obligations      $ 199,246  $    72,520  $ 4,957  $ 5,664  $ 116,105
(a)
(i) Interest-bearing loans and borrowings presented in the foregoing table include
current and long-term portions.
(ii)
The Company has available a $45.0 million revolving financing facility
(utilization in either US dollars or Euros) with Antwerp Diamond Bank for inventory and receivables funding in connection with marketing
activities through
its Belgian subsidiary, Dominion Diamond International NV, and its Indian
subsidiary, Dominion Diamond (India) Private Limited. Borrowings under the Belgian
facility bear interest at the bank's base rate plus 1.5%. Borrowings under the
Indian facility bear an interest rate of 14.5%. At July 31, 2014, $nil was
outstanding under this facility relating to Dominion Diamond International NV and
Dominion Diamond (India) Private Limited. The facility is guaranteed by Dominion
Diamond Corporation.
(iii) The Company's first mortgage on real property has scheduled principal
payments of approximately $0.2 million quarterly, may be prepaid at any time, and
matures on September 1, 2018. On July 31, 2014, $4.0 million was outstanding on
the mortgage payable.


(b)
Interest on loans and borrowings is calculated at various fixed and floating rates.
Projected interest payments on the current debt outstanding were based on
interest rates in effect at July 31, 2014, and have been included under interest-bearing loans and borrowings in the table above. Interest payments for
the next 12 months are approximated to be $0.3 million.

(c)
Both the Diavik Joint Venture and the Ekati Diamond Mine, under environmental and
other agreements, must provide funding for the Environmental Monitoring Advisory
Board, and the Independent Environmental Monitoring Agency, respectively. These
agreements also state that the mines must provide security deposits for the performance of their reclamation and abandonment obligations under all
environmental laws and regulations. The operator of the Diavik Joint Venture has
fulfilled such obligations for the security deposits by posting letters of credit,
of which DDDLP's share as at July 31, 2014 was $59 million based on its 40%
ownership interest in the Diavik Diamond Mine. There can be no assurance that the
operator will continue its practice of posting letters of credit in fulfillment of
this obligation, in which event DDDLP would be required to post its proportionate
share of such security directly, which would result in additional constraints on
liquidity. The requirement to post security for the reclamation and abandonment
obligations may be reduced to the extent of amounts spent by the Diavik Joint
Venture on those activities. In June 2013, the Wek'èezhii Land and Water Board
("WLWB") adjusted the total reclamation liability for the Ekati Diamond Mine
(inclusive of the Sable property) to reflect the revised Interim Closure and
Reclamation Plan, and this liability is currently set at CDN $264 million. The
Company has as at July 31, 2014 posted letters of credit of CDN $127 million with
the Government of the Northwest Territories supported by restricted cash in
support of the reclamation obligations for the Ekati Diamond Mine, and has
provided a proposal to the Government of the Northwest Territories on an
appropriate form of security. The Company has provided a guarantee of CDN $20
million for other obligations under the environmental agreement. Both the Diavik
and Ekati Diamond Mines have also signed participation agreements with various
native groups. These agreements are expected to contribute to the social, economic
and cultural well-being of area Aboriginal bands. The actual cash outlay for
obligations of the Diavik Joint Venture under these agreements is not anticipated
to occur until later in the life of the mine. The actual cash outlay in respect of
the Ekati Diamond Mine under these agreements includes annual payments and special
project payments during the operation of the Ekati Diamond Mine.

(d)
Operating lease obligations represent future minimum annual rentals under
non-cancellable operating leases at the Ekati Diamond Mine.


Non-IFRS Measures

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

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

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

Management believes that EBITDA and EBITDA margin are important indicators
commonly reported and widely used by investors and analysts as an indicator of
the Company's operating performance and ability to incur and service debt and as
a valuation metric. EBITDA margin is defined as the ratio obtained by dividing
EBITDA by sales and is a measurement for cash margins. The intent of EBITDA and
EBITDA margin is to provide additional useful information to investors and
analysts and such measures do not have any standardized meaning under IFRS.
These measures should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with IFRS. Other issuers may
calculate EBITDA and EBITDA margins differently.


    CONSOLIDATED
     (expressed
    in thousands
     of United
       States
      dollars)
    (unaudited)
                      2015      2015      2014      2014       2014       2014
                        Q2        Q1        Q4        Q3         Q2         Q1
    Operating
    profit from
    continuing
    operations   $  46,468 $  30,694 $  20,016 $   4,509 $   15,661 $   10,459
    Depreciation
    and
    amortization    63,164    38,885    55,228    31,978     32,644     20,211
    EBITDA from
    continuing
    operations   $ 109,632 $  69,579 $  75,244 $  36,487 $   48,305 $   30,670

       DIAVIK
    DIAMOND MINE
      SEGMENT
     (expressed
    in thousands
     of United
       States
      dollars)
    (unaudited)
                      2015      2015      2014      2014       2014       2014
                        Q2        Q1        Q4        Q3         Q2         Q1
    Operating
    profit       $  27,215 $  25,468 $  30,404 $  11,765 $   21,530 $   25,918
    Depreciation
    and
    amortization    27,435    18,389    28,885    12,434     21,768     19,906
    EBITDA       $  54,650 $  43,857 $  59,289 $  24,199 $   43,298 $   45,824

       EKATI
    DIAMOND MINE
      SEGMENT
     (expressed
    in thousands
     of United
       States
      dollars)
    (unaudited)
                      2015      2015      2014      2014       2014       2014
                        Q2        Q1        Q4        Q3         Q2         Q1
    Operating
    profit
    (loss)       $  26,851 $   9,924 $ (1,513) $ (1,332) $    7,102 $    (246)
    Depreciation
    and
    amortization    35,438    20,154    25,892    19,166     10,513          -
    EBITDA       $  62,289 $  30,078 $  24,379 $  17,834 $   17,615 $    (246)

     CORPORATE
      SEGMENT
     (expressed
    in thousands
     of United
       States
      dollars)
    (unaudited)
                      2015      2015      2014      2014       2014       2014
                        Q2        Q1        Q4        Q3         Q2         Q1
    Operating
    profit
    (loss)       $ (7,598) $ (4,698) $ (7,875) $ (5,924) $ (12,971) $ (15,213)
    Depreciation
    and
    amortization       291       342       451       378        363        305
    EBITDA       $ (7,307) $ (4,356) $ (7,424) $ (5,546) $ (12,608) $ (14,908)



[cont'd]


    CONSOLIDATED
     (expressed
    in thousands
     of United
       States
      dollars)
    (unaudited)
                                       Six months   Six months
                                            ended        ended
                      2013      2013     July 31,     July 31,
                        Q4        Q3         2014         2013
    Operating
    profit from
    continuing
    operations   $  20,987 $   5,574   $   77,159   $   26,120
    Depreciation
    and
    amortization    24,346    20,588      102,051       52,855
    EBITDA from
    continuing
    operations   $  45,333 $  26,162   $  179,210   $   78,975

       DIAVIK
    DIAMOND MINE
      SEGMENT
     (expressed
    in thousands
     of United
       States
      dollars)
    (unaudited)
                                       Six months   Six months
                                            ended        ended
                      2013      2013     July 31,     July 31,
                        Q4        Q3         2014         2013
    Operating
    profit       $  29,213 $  11,876   $   52,681   $   47,449
    Depreciation
    and
    amortization    24,042    20,283       45,825       41,674
    EBITDA       $  53,255 $  32,159   $   98,506   $   89,123

       EKATI
    DIAMOND MINE
      SEGMENT
     (expressed
    in thousands
     of United
       States
      dollars)
    (unaudited)
                                                        Period
                                       Six months        April
                                            ended        10 to
                      2013      2013     July 31,     July 31,
                        Q4        Q3         2014         2013
    Operating
    profit
    (loss)       $       - $       -   $   36,774   $    6,856
    Depreciation
    and
    amortization         -         -       55,592       10,513
    EBITDA       $       - $       -   $   92,366   $   17,369

     CORPORATE
      SEGMENT
     (expressed
    in thousands
     of United
       States
      dollars)
    (unaudited)
                                       Six months   Six months
                                            ended        ended
                      2013      2013     July 31,     July 31,
                        Q4        Q3         2014         2013
    Operating
    profit
    (loss)       $ (8,227) $ (6,302)   $ (12,297)   $ (28,184)
    Depreciation
    and
    amortization       304       306          634          668
    EBITDA       $ (7,923) $ (5,996)   $ (11,663)   $ (27,516)




Risk and Uncertainties

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Changes in Accounting Policies


    (a)                     New Accounting Standards Effective in 2014

                                        IFRIC 21 - Levies
          In May 2013, the IASB issued International Financial Reporting Interpretations
         Committee (IFRIC) 21, Levies. IFRIC 21 is effective for annual periods beginning
            on or after January 1, 2014 and is to be applied retrospectively. IFRIC 21
        provides guidance on accounting for levies in accordance with IAS 37, Provisions,
        Contingent Liabilities and Contingent Assets. The interpretation defines a levy as
         an outflow from an entity imposed by a government in accordance with legislation
           and confirms that an entity recognizes a liability for a levy only when the
        triggering event specified in the legislation occurs. The Company has performed an
         assessment of the impact of IFRIC 21 and concluded it did not have a significant
                         impact on its consolidated financial statements.

    (b)               New Accounting Standards Issued but Not Yet Effective

                                  IFRS 9 - Financial Instruments
        In November 2009, the IASB issued IFRS 9, Financial Instruments, as the first step
             in its project to replace IAS 39, Financial Instruments: Recognition and
            Measurement. IFRS 9 retains but simplifies the mixed measurement model and
          establishes two primary measurement categories for financial assets: amortized
         cost and fair value. The basis of classification depends on an entity's business
          model and the contractual cash flows of the financial asset. Classification is
          made at the time the financial asset is initially recognized, namely when the
             entity becomes a party to the contractual provisions of the instrument.
          Requirements for classification and measurement of financial liabilities were
         added in October 2010 and they largely carried forward existing requirements in
          IAS 39, except that fair value changes due to an entity's own credit risk for
          liabilities designated at fair value through profit or loss would generally be
           recorded in other comprehensive income ("OCI") rather than the statement of
            income. In November 2013, IFRS 9 was amended to include guidance on hedge
                                           accounting.

           In July 2014, the IASB issued the final version of IFRS 9. This standard is
        effective for annual periods beginning on or after January 1, 2018, however, early
        adoption of the new standard is permitted. The Company is currently assessing the
                 impact of the standard on its consolidated financial statements.

                         IFRS 15 - Revenue from Contracts with Customers
        In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers ("IFRS
         15"). IFRS 15 is effective for periods beginning on or after January 1, 2017 and
        is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing
        revenue from contracts with customers. The Company intends to adopt IFRS 15 in its
        financial statements for the annual period beginning February 1, 2017. The extent
                of the impact of adoption of IFRS 15 has not yet been determined.



Outstanding Share Information


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



Additional Information


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

                                                   July 31, 2014          January 31, 2014
    ASSETS
    Current assets
     Cash and cash equivalents
    (note 4)                                     $       267,819        $          224,778
     Accounts receivable                                13,062                    20,879
     Inventory and supplies
    (note 5)                                             472,765                   440,853
     Other current assets                               35,743                    27,156
                                                         789,389                   713,666
    Property, plant and
    equipment                                          1,440,739                 1,469,557
    Restricted cash (note 4)                             116,135                   113,612
    Other non-current assets                               4,271                     4,737
    Deferred income tax assets                             5,716                     3,078
    Total assets                                 $     2,356,250        $        2,304,650

    LIABILITIES AND EQUITY
    Current liabilities
     Trade and other payables                  $       109,565        $          103,653
     Employee benefit plans                              2,153                     3,643
     Income taxes payable                               61,478                    33,442
     Current portion of
    interest-bearing loans and
    borrowings                                               843                       794
                                                         174,039                   141,532
    Interest-bearing loans and
    borrowings                                             3,149                     3,504
    Deferred income tax
    liabilities                                          213,596                   242,563
    Employee benefit plans                                14,028                    14,120
    Provisions                                           436,874                   430,968
    Total liabilities                                    841,686                   832,687
    Equity
     Share capital                                     508,570                   508,523
     Contributed surplus                                24,320                    23,033
     Retained earnings                                 816,671                   775,419
     Accumulated other
    comprehensive income                                 (3,560)                   (2,447)
     Total shareholders'
    equity                                             1,346,001                 1,304,528
     Non-controlling interest                          168,563                   167,435
    Total equity                                       1,514,564                 1,471,963
    Total liabilities and equity                 $     2,356,250        $        2,304,650

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





                            Condensed Consolidated Statements of Income
    (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS)

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

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





                  Condensed Consolidated Statements of Comprehensive Income
                (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

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

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





                    Condensed Consolidated Statements of Changes in Equity
                (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

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

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





                       Condensed Consolidated Statements of Cash Flows
                (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

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

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



Notes to Condensed Consolidated Financial
Statements

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

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

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

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

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

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

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

Note 2:
Basis of Preparation


    (a)                               Statement of compliance
           These unaudited interim condensed consolidated financial statements ("interim
            financial statements") have been prepared in accordance with IAS 34, Interim
              Financial Reporting ("IAS 34"). The accounting policies applied in these
            unaudited interim financial statements are consistent with those used in the
          annual audited consolidated financial statements for the year ended January 31,
                                2014, except as disclosed in note 3.

           These interim financial statements do not include all disclosures required by
              International Financial Reporting Standards ("IFRS") for annual audited
          consolidated financial statements and accordingly should be read in conjunction
          with the Company's annual audited consolidated financial statements for the year
              ended January 31, 2014 prepared in accordance with IFRS as issued by the
                         International Accounting Standards Board ("IASB").

    (b)                               Currency of presentation
          These interim financial statements are expressed in United States dollars, which
           is the functional currency of the Company. All financial information presented
                 in United States dollars has been rounded to the nearest thousand.

    (c)                     Use of estimates, judgments and assumptions
            The preparation of the interim financial statements in conformity with IFRS
          requires management to make judgments, estimates and assumptions that affect the
               application of accounting policies and reported amounts of assets and
            liabilities and contingent liabilities at the date of the interim financial
          statements, and the reported amounts of sales and expenses during the reporting
            period. Estimates and assumptions are continually evaluated and are based on
            management's experience and other factors, including expectations of future
            events that are believed to be reasonable under the circumstances. However,
                          actual outcomes can differ from these estimates.



Note 3:
Significant Accounting Policies


    (a)                     New accounting standards effective in 2014

                                        IFRIC 21 - Levies
          In May 2013, the IASB issued International Financial Reporting Interpretations
         Committee (IFRIC) 21, Levies. IFRIC 21 is effective for annual periods beginning
            on or after January 1, 2014 and is to be applied retrospectively. IFRIC 21
        provides guidance on accounting for levies in accordance with IAS 37, Provisions,
        Contingent Liabilities and Contingent Assets. The interpretation defines a levy as
         an outflow from an entity imposed by a government in accordance with legislation
           and confirms that an entity recognizes a liability for a levy only when the
        triggering event specified in the legislation occurs. The Company has performed an
         assessment of the impact of IFRIC 21 and concluded it did not have a significant
                         impact on its consolidated financial statements.

    (b)               New accounting standards issued but not yet effective

                                  IFRS 9 - Financial Instruments
         In November 2009, the IASB issued IFRS 9 Financial Instruments as the first step
             in its project to replace IAS 39, Financial Instruments: Recognition and
            Measurement. IFRS 9 retains but simplifies the mixed measurement model and
          establishes two primary measurement categories for financial assets: amortized
         cost and fair value. The basis of classification depends on an entity's business
          model and the contractual cash flows of the financial asset. Classification is
          made at the time the financial asset is initially recognized, namely when the
             entity becomes a party to the contractual provisions of the instrument.
          Requirements for classification and measurement of financial liabilities were
         added in October 2010 and they largely carried forward existing requirements in
          IAS 39, except that fair value changes due to an entity's own credit risk for
          liabilities designated at fair value through profit or loss would generally be
        recorded in OCI rather than the statement of income. In November 2013, IFRS 9 was
                         amended to include guidance on hedge accounting.

           In July 2014, the IASB issued the final version of IFRS 9. This standard is
        effective for annual periods beginning on or after January 1, 2018; however, early
        adoption of the new standard is permitted. The Company is currently assessing the
                 impact of the standard on its consolidated financial statements.

                         IFRS 15 - Revenue from Contracts with Customers
        In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS
        15). IFRS 15 is effective for periods beginning on or after January 1, 2017 and is
         to be applied retrospectively. IFRS 15 clarifies the principles for recognizing
        revenue from contracts with customers. The Company intends to adopt IFRS 15 in its
        financial statements for the annual period beginning February 1, 2017. The extent
                of the impact of adoption of IFRS 15 has not yet been determined.



Note 4:
Cash and Cash Equivalents



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



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

Note 5:
Inventory and Supplies



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



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

Note 6: Assets Held for Sale (Discontinued Operations)

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

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


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



Note 7:
Diavik Joint Venture

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



                                                                   June 30,       December
                                                                       2014       31, 2013
    Current assets                                               $  100,280     $   97,078
    Non-current
    assets                                                          581,325        618,141
    Current
    liabilities                                                      26,766         31,296
    Non-current
    liabilities and
    participant's
    account                                                         654,839        683,923

                                                                        Six            Six
                                                                     months         months
                           Three months         Three months          ended          ended
                         ended June 30,       ended June 30,       June 30,       June 30,
                                   2014                 2013           2014           2013
    Expenses net of
    interest
    income(a)          $         63,457     $         59,036     $  122,552     $  125,683
    Cash flows used
    in operating
    activities                 (44,383)             (45,352)       (83,901)       (90,180)
    Cash flows
    resulting from
    financing
    activities                   46,951               50,435         91,544        103,594
    Cash flows used
    in investing
    activities                  (3,301)              (4,692)        (8,377)       (15,403)
                     (a) The Joint Venture only earns interest income.



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

Note 8:
Related Party Disclosure

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

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


                                                       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:


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



Commitments and Guarantees


    (a)                              Environmental agreements
        Through negotiations of environmental and other agreements, both the Diavik Joint
          Venture and the Ekati Diamond Mine must provide funding for the Environmental
          Monitoring Advisory Board and the Independent Environmental Monitoring Agency,
        respectively. Further funding will be required in future years; however, specific
         amounts have not yet been determined. These agreements also state that the mines
          must provide security for the performance of their reclamation and abandonment
          obligations under all environmental laws and regulations. DDDLP's share of the
         letters of credit outstanding posted by the operator of the Diavik Joint Venture
        with respect to the environmental agreements as at July 31, 2014 was $59 million.
           The agreement specifically provides that these funding requirements will be
            reduced by amounts incurred by the Diavik Joint Venture on reclamation and
           abandonment activities. The Company has posted letters of credit of CDN $127
         million with the Government of the Northwest Territories supported by restricted
            cash in support of the reclamation obligations for the Ekati Diamond Mine.

         The Company has provided a guarantee of CDN $20 million to the Government of the
         Northwest Territories for other obligations under the environmental agreement in
                                respect of the Ekati Diamond Mine.

    (b)                              Participation agreements
        Both the Diavik Joint Venture and the Ekati Diamond Mine have signed participation
        agreements with various native groups. These agreements are expected to contribute
           to the social, economic and cultural well-being of the Aboriginal bands. The
         Diavik participation agreements are each for an initial term of twelve years and
         shall be automatically renewed on terms to be agreed upon for successive periods
          of six years thereafter until termination. The Diavik participation agreements
        terminate in the event that the Diavik Diamond Mine permanently ceases to operate.
         The Ekati Diamond Mine participation agreements are in place during the life of
         the Ekati Diamond Mine and the agreements terminate in the event the mine ceases
                                           to operate.

    (c)                            Operating lease commitments
         The Company has entered into non-cancellable operating leases for the rental of
        fuel tanks and office premises for the Ekati Diamond Mine, which expire at various
        dates through 2016. The leases have varying terms, escalation clauses and renewal
        rights. Any renewal terms are at the option of the lessee at lease payments based
          on market prices at the time of renewal. Minimum rent payments under operating
            leases are recognized on a straight-line basis over the term of the lease,
                               including any periods of free rent.



Note 10:
Financial Instruments

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

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

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

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

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



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



Note 11:
Segmented Information

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

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

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



    For the three
    months ended July
    31, 2014                         Diavik           Ekati       Corporate           Total
    Sales
    North America               $         -     $         -     $         -     $         -
     Europe                          94,858         160,667               -         255,525
     India                           12,175           9,614               -          21,789
     Total sales                    107,033         170,281               -         277,314
    Cost of sales
     Depreciation
    and amortization                 27,335          35,438               -          62,773
     All other
    costs                            51,416         107,051               -         158,467
     Total cost of
    sales                            78,751         142,489               -         221,240
    Gross margin                     28,282          27,792               -          56,074
    Gross margin (%)                  26.4%           16.3%              -%           20.2%
    Selling, general
    and
    administrative
    expenses
     Selling and
    related expenses                  1,067             941               -           2,008
     Administrative
    expenses                              -               -           7,598           7,598
     Total selling,
    general and
    administrative
    expenses                          1,067             941           7,598           9,606
    Operating profit
    (loss)                           27,215          26,851         (7,598)          46,468
    Finance expenses                  (793)         (2,413)               -         (3,206)
    Exploration costs                   (9)         (6,837)               -         (6,846)
    Finance and other
    income                              411             522               -             933
    Foreign exchange
    gain (loss)                       (166)             982               -             816
    Segmented profit
    (loss) before
    income taxes                $    26,658     $    19,105     $   (7,598)     $    38,165
    Segmented assets
    as at July 31,
    2014
     Canada                     $   912,446     $ 1,355,690     $         -     $ 2,268,136
     Other foreign
    countries                        29,345          58,769               -          88,114
                                $   941,791     $ 1,414,459     $         -     $ 2,356,250
    Capital
    expenditures                $     3,778     $    41,981     $         -     $    45,759
    Inventory                       108,282         364,483               -         472,765
    Total liabilities                13,523         828,163               -         841,686
    Other significant
    non-cash items:
     Deferred
    income tax
    recovery                    $     (236)     $   (7,812)     $         -     $   (8,048)

    For the three
    months ended July
    31, 2013
    (Recast - note
    12)                              Diavik           Ekati       Corporate           Total
    Sales
    North America               $         -     $         -     $         -     $         -
     Europe                          80,530         170,536               -         251,066
     India                           10,737               -               -          10,737
     Total sales                     91,267         170,536               -         261,803
    Cost of sales
     Depreciation
    and amortization                 21,645          10,513               -          32,158
     All other
    costs                            46,683         152,245               -         198,928
     Total cost of
    sales                            68,328         162,758               -         231,086
    Gross margin                     22,939           7,778               -          30,717
    Gross margin (%)                  25.1%            4.6%              -%           11.7%
    Selling, general
    and
    administrative
    expenses
     Selling and
    related expenses                  1,409             676               -           2,085
     Administrative
    expenses                              -               -          12,971          12,971
     Total selling,
    general and
    administrative
    expenses                          1,409             676          12,971          15,056
    Operating profit
    (loss)                           21,530           7,102        (12,971)          15,661
    Finance expenses               (15,710)         (2,211)               -        (17,921)
    Exploration costs               (2,210)           (935)               -         (3,145)
    Finance and other
    income                              767             265               -           1,032
    Foreign exchange
    loss                            (1,044)         (1,770)               -         (2,814)
    Segmented profit
    (loss) before
    income taxes                $     3,333     $     2,451     $  (12,971)     $   (7,187)
    Segmented assets
    as at July 31,
    2013
     Canada                     $ 1,052,351     $ 1,212,621     $         -     $ 2,264,972
     Other foreign
    countries                        30,011           3,606               -          33,617
                                $ 1,082,362     $ 1,216,227     $         -     $ 2,298,589
    Capital
    expenditures                $     5,553     $    28,231     $         -     $    33,784
    Inventory                       120,696         251,727               -         372,423
    Total liabilities               189,921         645,704               -         835,625
    Other significant
    non-cash items:
     Deferred
    income tax
    expense
    (recovery)                  $     4,063     $   (7,504)     $         -     $   (3,441)

    For the six
    months ended July
    31, 2014                         Diavik           Ekati       Corporate           Total
    Sales
    North America               $         -     $         -     $         -     $         -
     Europe                         168,776         249,136               -         417,912
     India                           20,931          13,992               -          34,923
     Total sales                    189,707         263,128               -         452,835
    Cost of sales
     Depreciation
    and amortization                 45,622          55,592               -         101,215
     All other
    costs                            89,362         168,346               -         257,707
     Total cost of
    sales                           134,984         223,938               -         358,922
    Gross margin                     54,723          39,190               -          93,913
    Gross margin (%)                  28.8%           14.9%              -%           20.7%
    Selling, general
    and
    administrative
    expenses
     Selling and
    related expenses                  2,042           2,416               -           4,458
     Administrative
    expenses                              -               -          12,296          12,296
     Total selling,
    general and
    administrative
    expenses                          2,042           2,416          12,296          16,754
    Operating profit
    (loss)                           52,681          36,774        (12,296)          77,159
    Finance expenses                (1,698)         (4,818)               -         (6,516)
    Exploration costs                 (362)        (15,528)               -        (15,890)
    Finance and other
    income                            3,333             428               -           3,761
    Foreign exchange
    gain (loss)                       (260)             127               -           (133)
    Segmented profit
    (loss) before
    income taxes                $    53,694     $    16,983     $  (12,296)     $    58,381
    Segmented assets
    as at July 31,
    2014
     Canada                     $   912,446     $ 1,355,690     $         -     $ 2,268,136
     Other foreign
    countries                        29,345          58,769               -          88,114
                                $   941,791     $ 1,414,459     $         -     $ 2,356,250
    Capital
    expenditures                $    10,557     $    91,226     $         -     $   101,783
    Inventory                       108,282         364,483               -         472,765
    Total liabilities                13,523         828,163               -         841,686
    Other significant
    non-cash items:
     Deferred
    income tax
    recovery                    $  (12,277)     $  (18,966)     $         -     $  (31,243)

              Sales to one customer totalled $50 million for the six months ended
                                        July 31, 2014.

    For the six
    months ended July
    31, 2013
    (Recast - note
    12)                              Diavik           Ekati       Corporate           Total
    Sales
    North America               $     6,179     $         -     $         -     $     6,179
     Europe                         142,172         190,457               -         332,629
     India                           31,832               -               -          31,832
     Total sales                    180,183         190,457               -         370,640
    Cost of sales
     Depreciation
    and amortization                 41,187          10,513               -          51,700
     All other
    costs                            89,029         171,892               -         260,921
     Total cost of
    sales                           130,216         182,405               -         312,621
    Gross margin                     49,967           8,052               -          58,019
    Gross margin (%)                  27.7%            4.2%              -%           15.7%
    Selling, general
    and
    administrative
    expenses
     Selling and
    related expenses                  2,518           1,196               -           3,714
     Administrative
    expenses                              -               -          28,184          28,185
     Total selling,
    general and
    administrative
    expenses                          2,518           1,196          28,184          31,899
    Operating profit
    (loss)                           47,449           6,856        (28,184)          26,120
    Finance expenses               (17,729)         (2,934)               -        (20,663)
    Exploration costs               (3,249)           (935)               -         (4,184)
    Finance and other
    income                            1,307             529               -           1,836
    Foreign exchange
    gain (loss)                         516         (2,598)               -         (2,082)
    Segmented profit
    (loss) before
    income taxes                $    28,294     $       918     $  (28,184)     $     1,027
    Segmented assets
    as at July 31,
    2013
     Canada                     $ 1,052,351     $ 1,212,621     $         -     $ 2,264,972
     Other foreign
    countries                        30,011           3,606               -          33,617
                                $ 1,082,362     $ 1,216,227     $         -     $ 2,298,589
    Capital
    expenditures                $    16,491     $    37,011     $         -     $    53,502
    Inventory                       120,696         251,727               -         372,423
    Total liabilities               189,921         645,704               -         835,625
    Other significant
    non-cash items:
     Deferred
    income tax
    recovery                    $     (412)     $  (11,426)     $         -     $  (11,838)



Note 12:
Recast

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

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

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

For further information:



For more information, please visit http://www.ddcorp.ca

Mr. Richard Chetwode, Vice President, Corporate Development -
+44(0)7720-970-762 or [email protected]

Ms. Kelley Stamm, Manager, Investor Relations - +1(416)205-4380 or [email protected]

(DDC. DDC)

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An entirely new security model is needed for the Internet of Things, or is it? Can we save some old and tested controls for this new and different environment? In his session at @ThingsExpo, New York's at the Javits Center, Davi Ottenheimer, EMC Senior Director of Trust, reviewed hands-on lessons with IoT devices and reveal a new risk balance you might not expect. Davi Ottenheimer, EMC Senior Director of Trust, has more than nineteen years' experience managing global security operations and asse...
The Internet of Things will greatly expand the opportunities for data collection and new business models driven off of that data. In her session at @ThingsExpo, Esmeralda Swartz, CMO of MetraTech, discussed how for this to be effective you not only need to have infrastructure and operational models capable of utilizing this new phenomenon, but increasingly service providers will need to convince a skeptical public to participate. Get ready to show them the money!