RBC Adjust Forecasts for Harry Winston Diamond Co

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Post Date: 12 May 2009    Viewed: 727

RBC Capital Markets said on Thursday it had adjusted its forecasts for Harry Winston Diamond Corp. to reflect the effects of lower diamond production, higher costs and also evidence that rough diamond prices have improved slightly from their lows in the first quarter of this year.

 

The announcement comes following the release by Harry Winston earlier this week of details about the new mine plan at the Diavik diamond mine.

“RBC Capital Markets is shifting its valuation forward to use F2011 estimates and increasing the multiple to NAV used to derive RBC Capital Markets’ target price from 0.5x to 0.75x, reflecting its view that the worst of the global economic slowdown may now be behind us, and that the market is now looking at the longer-term value of the Diavik diamond mine,” RBC said in a research note to clients.

 

“RBC Capital Markets is maintaining a 5x multiple to F2011E CFPS given the ongoing lack of visibility surrounding operating and financial performance in the near-term. Netting these effects, RBC Capital Markets is increasing its target price from $5.00/sh to $6.00/sh and maintaining a Sector Perform, Speculative Risk rating on Harry Winston.”

 

Previously, Harry Winston announced that the Diavik diamond mine will be shut for 6-weeks starting July 14, 2009, and again for 6 weeks starting December 1, 2009. In addition, the development of underground diamond mining has been pushed from late 2009, likely to late 2010.

 

Fine jeweler Harry Winston and Rio Tinto now plan for diamond production of 5.4 million carats this year on a 100% basis.  This is below RBC Capital Markets’ previous estimate of 6.1 million carats.

 

“It is now expected that the Diavik diamond mine will process about 1.5 million tons of ore per year at a steady state, significantly lower than design capacity of 2.3 to 2.4 million tons,” RBC said.

 

RBC said that despite two diamond production shutdowns in 2009 and lower costs for consumables such as fuel, Harry Winston’s expectations for cost of sales were about 10% higher at the $185 million level for this year, significantly higher than RBC Capital Markets had expected.

 

In addition, Harry Winston forecast its share of capital expenditure to complete underground diamond mine development over the next three years to total $130 million. "Well above RBC Capital Markets’ previous estimate of $94 million," it said.