Dominion Diamond Corporation Reports Fiscal 2014 Second Quarter Results

TORONTO, Sept. 6, 2013 /PRNewswire/ -- Dominion Diamond Corporation (TSX:DDC, NYSE:DDC) (the "Company") today announced its second quarter results for the period ending July 31, 2013.

Robert Gannicott, Chairman and Chief Executive Officer, commented, "We are well pleased with the performance of our new acquisition, the Ekati Mine, which has delivered an adjusted EBITDA margin of thirty percent for the quarter. Grades and diamond sales are ahead of our purchase model while costs are modestly lower. At Diavik the "Reshaping Diavik" initiative by Rio Tinto has delivered cost savings and production increases compared with the current mine plan. Diamond sales have exceeded expectations in a market place that has held its ground during the last six months despite the financial troubles of India and China. Looking to the future, we have already defined a concept for the mining of the Jay Pipe with the potential to add 10 to 15 years of production beyond the current Ekati Mine Plan."

Second Quarter Summary

-- Consolidated rough diamond sales from the Diavik and Ekati Diamond Mines for the second quarter were $261.8 million, resulting in an operating profit of $12.4 million.

-- The Diavik Diamond Mine generated gross margin of 25.1% and an EBITDA margin of 47% during the second quarter.

-- The Ekati Diamond Mine gross margin would have been 11% and the EBITDA margin would have been 30%, if the effect of the market value adjustment to inventory made as part of the acquisition was excluded.

-- Included in the consolidated net loss attributable to shareholders for the quarter was $5.4 million (after-tax) of restructuring costs at the Antwerp, Belgium office and $10.6 million (after-tax) of expenses relating to the cancellation of the credit facility that had been previously arranged for the acquisition of the Ekati Diamond Mine. Excluding these two items and the impact of the sale of opening acquisition inventory that was included at market value in the Ekati cost of sales, the Company's consolidated net profit attributable to shareholders for the quarter would have been $11.1 million or $0.13 per share.

-- Company recorded a consolidated net loss attributable to shareholders of $16.3 million or $(0.19) per share for the quarter.

Diavik Diamond Mine

-- Production for the second calendar quarter at the Diavik Diamond Mine was 1.6 million carats on a 100% basis.

-- During the second quarter, the Company sold approximately 0.7 million carats from the Diavik Diamond Mine for a total of $91.3 million for an average price per carat of $130.

-- At July 31, 2013, the Company had 0.5 million carats of Diavik Diamond Mine produced inventory with an estimated market value of approximately $65 million.

Ekati Diamond Mine

-- The Ekati Diamond Mine performed ahead of the Company's expectations for grade and diamond sales for the quarter, with modestly lower costs than expected. Production for the second calendar quarter at the Ekati Diamond Mine was 0.4 million carats on a 100% basis.

-- During the second quarter, the Company sold approximately 0.6 million carats from the Ekati Diamond Mine for a total of $170.5 million for an average price per carat of $289.

-- At July 31, 2013, the Company had 0.4 million carats of Ekati Diamond Mine produced inventory with an estimated market value of approximately $135 million.

-- A detailed valuation study of opening inventory held at the time of the Ekati acquisition has determined that the inventory, which was valued at market prices as of April 10th, had a value of $154 million, an increase of $19.4 million over the original estimate. This increased the amount of inventory available for sale in the second quarter. At the end of the second quarter, the Company had $15 million of this inventory remaining.

-- The Company has completed the restructuring of the additional sales and marketing premises that it acquired as part of the Ekati Diamond Mine, and has now integrated the marketing and sales operations for Ekati with those for Diavik into a single location.

-- A Project Description Report for the Lynx Pipe is expected to be submitted by the Company in mid-September as a precursor for the Jay project. The report for which will be filed in mid-October. The development of the Jay Pipe has the potential to add a further ten to fifteen years of production beyond the current Ekati mine plan.

Conference Call and Webcast

Beginning at 8:30AM (ET) on Thursday, September 5th, the Company will host a conference call for analysts, investors and other interested parties. Listeners may access a live broadcast of the conference call on the Company's web site at

www.ddcorp.ca or by dialing 866-270-6057 within North America or 617-213-8891 from international locations and entering passcode 66211452.

An online archive of the broadcast will be available by accessing the Company's web site at www.ddcorp.ca. A telephone replay of the call will be available one hour after the call through 11:00PM (ET), Thursday, September 19th, 2013 by dialing 888-286-8010 within North America or 617-801-6888 from international locations and entering passcode 15589624.

About Dominion Diamond Corporation

Dominion Diamond Corporation is a Canadian diamond mining company with ownership interests in two of the world's most valuable diamond mines. Both mines are located in the low political risk environment of the Northwest Territories of Canada. The Company is the fourth largest diamond producer by value globally and the largest diamond mining company by market capitalization, listed on the Toronto and New York stock exchanges.

The Company operates the Ekati Diamond Mine through its 80% ownership as well as a 58.8% ownership in the surrounding areas containing prospective resources. It also sells diamonds from its 40% ownership in the Diavik Diamond Mine.

For more information, please visit www.ddcorp.ca

Highlights

(ALL FIGURES ARE IN UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED)

Dominion Diamond Corporation, the ("Company") recorded a consolidated net loss attributable to shareholders of $16.3 million or $(0.19) per share for the quarter, compared to a net profit attributable to shareholders of $4.8 million or $0.06 per share in the second quarter of the prior year. Net loss from continuing operations attributable to shareholders (which now represents the Diavik and Ekati mining segments) was $16.3 million or $(0.19) per share compared to a net profit from continuing operations of $4.0 million or $0.05 per share in the comparable quarter of the prior year. Continuing operations includes all costs related to the Company's mining operations. Prior year numbers relate only to results from the Diavik Diamond Mine. Included in the consolidated net loss attributable to shareholders for the quarter was $5.4 million (after-tax) of restructuring costs at the Antwerp, Belgium office and $10.6 million (after-tax) of expenses related to the cancellation of the credit facilities that had been previously arranged in connection with the Ekati Diamond Mine Acquisition. Excluding these two items and the impact of the sale of opening acquisition inventory that was included at market value in Ekati cost of sales, the Company's estimated consolidated net profit attributable to shareholders for the quarter would have been $11.1 million or $0.13 per share.

Consolidated sales from continuing operations were $261.8 million for the quarter compared to $61.5 million for the comparable quarter of the prior year, resulting in an operating profit of $12.4 million compared to an operating profit of $8.9 million in the comparable quarter of the prior year. Consolidated EBITDA from continuing operations was $45.0 million compared to $22.1 million in the comparable quarter of the prior year.

During the second quarter, the Company recorded sales from the Diavik Diamond Mine of $91.3 million compared to $61.5 million in the comparable quarter of the prior year. The Company sold approximately 0.7 million carats from the Diavik Diamond Mine for an average price per carat of $130, compared to 0.4 million carats for an average price per carat of $142 in the comparable quarter of the prior year. The 62% increase in volume of Diavik Diamond Mine carats sold versus the comparable quarter of the prior year resulted primarily from the decision in that prior quarter to hold some Diavik Diamond Mine inventory from all price ranges until stability returned to the rough diamond market. The 9% decrease in the Company's achieved average rough diamond prices for the Diavik Diamond Mine as compared to the second quarter of the prior year resulted primarily from the sale during the second quarter of the prior year of higher priced Diavik Diamond Mine goods that had originally been held back by the Company in the first quarter of fiscal 2013 due to a then observed imbalance in the rough and polished diamond prices for these goods. This segment generated gross margins and EBITDA margins of sales of 25.1% and 47%, respectively, compared to 23.9% and 43%, respectively, in the comparable quarter of the prior year.

During the second quarter, the Ekati Diamond Mine recorded sales of $170.5 million and sold approximately 0.6 million carats for an average price per carat of $289. This segment generated gross margins and EBITDA margins of 2.6% and 8%, respectively. The Company estimates that gross margins and EBITDA margins would have been approximately 11.0% and 30%, respectively, if the effect of the market value adjustment to inventory made as part of the Ekati Diamond Mine Acquisition was excluded.

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 $13.0 million, compared to $4.7 million in the comparable quarter of the prior year. The increase from the comparable quarter of the prior year was primarily due to $6.0 million of restructuring costs at the Antwerp, Belgium office related to the acquisition of the Ekati Diamond Mine on April 10, 2013.

Management's Discussion and Analysis

PREPARED AS OF SEPTEMBER 4, 2013 (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, 2013, and its financial position as at July 31, 2013. This MD&A is based on the Company's unaudited interim condensed consolidated financial statements prepared in accordance with IAS 34 "Interim Financial Reporting", as issued by the International Accounting Standards Board, 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, 2013, and the audited consolidated financial statements for the year ended January 31, 2013. 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.

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", "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, expectations concerning the diamond industry, and expected cost of sales and cash operating costs. Forward-looking information included in this MD&A includes the current production forecast, cost of sales and cash cost of production estimates and planned capital expenditures for the Diavik Diamond Mine and other forward-looking information set out under "Diavik Operations Outlook", and the current production forecast, cost of sales and cash cost of production estimates and planned capital expenditures for the Ekati Diamond Mine and other forward-looking information set out under "Ekati Operations Outlook".

Forward-looking information is based on certain factors and assumptions described below and elsewhere in this MD&A including, among other things, the current mine plans for each of the Diavik Diamond Mine and the Ekati 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, 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 21 of this MD&A, as well as the Company's current Annual Information Form, available at www.sedar.com and www.sec.gov, respectively, for a discussion of these and other risks and uncertainties involved in the Company's operations. Actual results may vary from the forward-looking information.

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

Summary Discussion

Dominion Diamond Corporation is focused on the mining and marketing of rough diamonds to the global market. The Company supplies rough diamonds to the global market from its operation of the Ekati Diamond Mine (in which it owns a controlling interest) and its 40% ownership interest in the Diavik Diamond Mine, both located in Canada'sNorthwest Territories.

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 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.

The Company has a controlling interest in 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 (80% interest), which includes the current operating mine and other permitted kimberlite pipes, as well as the Buffer Zone (58.8% interest), an adjacent area hosting kimberlite pipes having both development and exploration potential. The Company controls and consolidates the Ekati Diamond Mine and minority shareholders are presented as non-controlling interests on the unaudited interim condensed consolidated financial statements.

Market Commentary

Diamond market sentiment was mixed in the second quarter. The US remained a solid market and showed potential for stronger growth in the second half of the fiscal year. The demand from the US retail market remains focused on the mid-range of polished diamonds, where prices remained stable throughout the quarter. Japan has also seen significant growth in jewelry demand as economic stimulus bolstered retail activity. However, restricted demand for higher end polished diamonds, especially from China, has led to discounting in these ranges. Nonetheless, levels of retail diamond stock in China are low and the diamond market anticipates an improvement in the third fiscal quarter as the market fundamentals return to more normal levels. In addition, the market remains cautious due to continued concerns around macroeconomic uncertainty combined with worsening economic conditions in India related to the weakening of the rupee and tightened liquidity.

The rough diamond market has mirrored the polished diamond market with activity centered on lower price ranges while the market for higher end diamonds remains flat. Toward the end of the quarter it was evident that there was a shortage of supply in the lower price ranges of rough diamond inventory and it is expected that there will be upward pressure on the price of these goods as polishers restock. The rough diamond market expects the second half of the year to see a return to more normal trading conditions and anticipates resurgence in demand in the lead up to the Asian wedding and year-end holiday seasons.

Consolidated Financial Results

The Company's consolidated results from continuing operations relate solely to its mining operations, which include the production, sorting and sale of rough diamonds. The results of the Company's luxury brand segment, which it disposed of on March 26, 2013, are treated as discontinued operations for accounting and reporting purposes and current and prior period results have been recast accordingly. The following is a summary of the Company's consolidated quarterly results for the eight quarters ended July 31, 2013.

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

2014

2014

2013

2013

2013

2013

2012

2012

Six months

ended

July 31,

Six months

ended

July 31,

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

2013

2012

Sales $ 261,803$ 108,837$ 110,111$ 84,818$ 61,473$ 89,009$ 102,232$ 36,239$ 370,640$ 150,482

Cost of sales

234,372

81,535

79,038

71,663

46,784

70,099

72,783

34,112

315,907

116,883

Gross margin

27,431

27,302

31,073

13,155

14,689

18,910

29,449

2,127

54,733

33,599

Gross margin (%)

10.5%

25.1%

28.2%

15.5%

23.9%

21.2%

28.8%

5.9%

14.8%

22.3%

Selling, general and

administrative expenses

15,056

16,843

10,086

7,581

5,750

6,739

5,464

5,390

31,898

12,489

Operating profit (loss) from continuing

operations

12,375

10,459

20,987

5,574

8,939

12,171

23,985

(3,263)

22,835

21,110

Finance expenses

(19,637)

(3,994)

(2,382)

(2,308)

(2,151)

(2,242)

(1,616)

(2,691)

(23,631)

(4,393)

Exploration costs

(3,145)

(1,039)

(306)

(673)

(568)

(254)

(177)

(600)

(4,185)

(822)

Finance and other income

1,032

804

601

60

67

52

51

256

1,836

119

Foreign exchange gain (loss)

(2,814)

732

116

(301)

1,048

(370)

680

285

(2,083)

678

Profit (loss) before income taxes from

continuing operations

(12,189)

6,962

19,016

2,352

7,335

9,357

22,923

(6,013)

(5,228)

16,692

Income tax expense (recovery)

6,913

4,699

6,977

1,583

3,386

3,330

10,281

(1,574)

11,611

6,716

Net profit (loss) from continuing

operations $ (19,102)$ 2,263$ 12,039$ 769$ 3,949$ 6,027$ 12,642$ (4,439)$ (16,839)$ 9,976

Net profit (loss) from discontinued

operations

-

497,385

2,802

3,245

804

5,583

3,946

(292)

497,385

6,387

Net profit (loss) $ (19,102)$ 499,648$ 14,841$ 4,014$ 4,753$ 11,610$ 16,588$ (4,731)$ 480,546$ 16,363

Net profit (loss) from continuing

operations attributable to

Shareholders $ (16,304)$ 2,822$ 12,146$ 152$ 3,951$ 6,027$ 12,654$ (4,436)$ (13,481)$ 9,978

Non-controlling interest

(2,798)

(559)

(107)

617

(2)

-

(12)

(3)

(3,358)

(2)

Net profit (loss) attributable to

Shareholders $ (16,304)$ 500,207$ 14,948$ 3,397$ 4,755$ 11,610$ 16,600$ (4,728)$ 483,904$ 16,365

Non-controlling interest

(2,798)

(559)

(107)

617

( 2)

-

( 12)

( 3)

(3,358)

( 2)

Earnings (loss) per share - continuing

operations

Basic $ (0.19)$ 0.03$ 0.14$ 0.00$ 0.05$ 0.07$ 0.15$ (0.05)$ (0.16)

0.12

Diluted $ (0.19)$ 0.03$ 0.14$ 0.00$ 0.05$ 0.07$ 0.15$ (0.05)$ (0.16)

0.12

Earnings (loss) per share

Basic $ (0.19)$ 5.89$ 0.18$ 0.04$ 0.06$ 0.14$ 0.20$ (0.06)$ 5.70

0.19

Diluted $ (0.19)$ 5.82$ 0.18$ 0.04$ 0.06$ 0.14$ 0.19$ (0.06)$ 5.65

0.19

Cash dividends declared per share $ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00$ 0.00

0.00

Total assets(i) $ 2,295$ 2,412$ 1,710$ 1,733$ 1,660$ 1,716$ 1,607$ 1,656$ 2,295

1,660

Total long-term liabilities(i) $ 696$ 695$ 269$ 682$ 461$ 472$ 641$ 661$ 696

461

Operating profit (loss) from continuing

operations $ 12,375$ 10,459$ 20,987$ 5,574$ 8,939$ 12,171$ 23,985$ (3,263)$ 22,835$ 21,110

Depreciation and amortization(ii)

32,644

20,211

24,346

20,588

13,160

22,172

24,284

19,933

52,855

35,332

EBITDA from continuing operations(iii) $ 45,019$ 30,670$ 45,333$ 26,162$ 22,099$ 34,343$ 48,269$ 16,670$ 75,690$ 56,442

(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 20.

Three Months Ended July 31, 2013 Compared to Three Months Ended July 31, 2012

CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The Company recorded a second quarter consolidated net loss attributable to shareholders of $16.3 million or $(0.19) per share compared to a net profit attributable to shareholders of $4.8 million or $0.06 per share in the second quarter of the prior year. Net loss from continuing operations attributable to shareholders was $16.3 million or $(0.19) per share compared to a net profit from continuing operations of $4.0 million or $0.05 per share in the comparable quarter of the prior year. Included in the consolidated net loss attributable to shareholders for the quarter was $5.4 million (after-tax) of restructuring costs at the Antwerp, Belgium office and $10.6 million (after-tax) of expenses related to the cancellation of the credit facilities that had been previously arranged in connection with the Ekati Diamond Mine Acquisition. Excluding these two items and the impact of the sale of opening acquisition inventory that was included at market value in Ekati cost of sales, the Company's estimated consolidated net profit attributable to shareholders for the quarter would have been $11.1 million or $0.13 per share.

CONSOLIDATED SALES

Sales for the second quarter totaled $261.8 million, consisting of Diavik rough diamond sales of $91.3 million and Ekati rough diamond sales of $170.5 million. This compares to sales of $61.5 million in the comparable quarter of the prior year (Diavik rough diamond sales of $61.5 million and Ekati rough diamond sales of $nil).

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 10 for additional information.

CONSOLIDATED COST OF SALES AND GROSS MARGIN

The Company's second quarter cost of sales was $234.4 million resulting in a gross margin of 10.5% compared to a cost of sales of $46.8 million and a gross margin of 23.9% 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 10 for additional information.

CONSOLIDATED INCOME TAXES

The Company recorded a net income tax expense of $6.9 million during the second quarter, compared to a net income tax expense of $3.4 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 weakened against the US dollar. As a result, the Company recorded an unrealized foreign exchange gain of $4.2 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability. This compares to an unrealized foreign exchange gain of $3.0 million in the comparable quarter of the prior year. The unrealized foreign exchange gain is recorded as part of the Company's deferred income tax recovery, and is not taxable for Canadian income tax purposes. During the second quarter, the Company also recognized a deferred income tax expense of $7.4 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 $4.0 million recognized in the comparable quarter of the prior year. The recorded tax provision during the quarter also included a net income tax expense of $1.2 million relating to foreign exchange differences between income in the currency of the country of origin and US dollars. This compares to no income tax expense or recovery recognized in the comparable quarter 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 $15.1 million for the second quarter, compared to $5.8 million in the comparable quarter of the prior year. The increase from the comparable quarter of the prior year was primarily due to $6.0 million of restructuring costs at the Antwerp, Belgium office, related in each case to the Ekati Diamond Mine Acquisition. See "Segmented Analysis" on page 10 for additional information.

CONSOLIDATED FINANCE EXPENSES FROM CONTINUING OPERATIONS

Finance expenses for the second quarter were $19.6 million compared to $2.2 million for the comparable quarter of the prior year. The increase was due primarily to the expensing of approximately $14.0 million relating to the cancellation of the credit facilities that had been previously arranged in connection with the Ekati Diamond Mine Acquisition. The Company ultimately determined to fund the Ekati Diamond Mine Acquisition by way of cash on hand and did not draw on these credit facilities which were subsequently cancelled in the second quarter. Also included in consolidated finance expense is accretion expense of $4.5 million (three months ended July 31, 2012 - $0.6 million) related to future site restoration liabilities at the Diavik Diamond Mine and the Ekati Diamond Mine.

CONSOLIDATED EXPLORATION EXPENSE FROM CONTINUING OPERATIONS

Exploration expense of $3.1 million was incurred during the second quarter compared to $0.6 million in the comparable quarter of the prior year. The increase was due to $2.1 million of exploration work on the Company's claims in the Northwest Territories and $0.9 million of exploration work on the Jay pipe within the Buffer Zone at the Ekati Diamond Mine.

CONSOLIDATED FINANCE AND OTHER INCOME FROM CONTINUING OPERATIONS

Finance and other income of $1.0 million was recorded during the second quarter compared to $0.1 million in the comparable quarter of the prior year.

CONSOLIDATED FOREIGN EXCHANGE FROM CONTINUING OPERATIONS

A net foreign exchange loss of $2.8 million was recognized during the second quarter compared to a net foreign exchange gain of $1.0 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, 2013 Compared to Six Months Ended July 31, 2012

CONSOLIDATED NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The Company recorded a consolidated net profit attributable to shareholders of $483.9 million or $5.70 per share for the six months ended July 31, 2013 compared to a net profit attributable to shareholders of $16.4 million or $0.19 per share in the comparable period of the prior year. Included in this amount is a $497.6 million gain on the sale of the luxury brand segment on March 26, 2013. Net loss from continuing operations attributable to shareholders was $13.5 million or $(0.16) per share compared to a net profit from continuing operations attributable to shareholders of $10.0 million or $0.12 per share in the comparable period of the prior year. Discontinued operations represented $497.4 million of net profit or $5.86 per share compared to $6.4 million or $0.08 per share in the comparable period of the prior year.

CONSOLIDATED SALES

Sales totaled $370.6 million for the six months ended July 31, 2013, consisting of Diavik rough diamond sales of $180.2 million and Ekati rough diamond sales of $190.5 million. This compares to sales of $150.5 million in the comparable period of the prior year (Diavik rough diamond sales of $150.5 million and Ekati rough diamond sales of $nil). 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.

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 10 for additional information.

CONSOLIDATED COST OF SALES AND GROSS MARGIN

The Company's cost of sales was $315.9 million for the six months ended July 31, 2013, resulting in a gross margin of 14.8% compared to a cost of sales of $116.9 million and a gross margin of 22.3% for the comparable period 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 10 for additional information.

CONSOLIDATED INCOME TAXES

The Company recorded a net income tax expense of $11.6 million during the six months ended July 31, 2013, compared to a net income tax expense of $6.7 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, 2013 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, 2013, the Canadian dollar weakened against the US dollar. The Company recorded an unrealized foreign exchange gain of $6.0 million on the revaluation of the Company's Canadian dollar denominated deferred income tax liability during the six months ended July 31, 2013. This compares to no unrealized foreign exchange gain or loss recorded in the comparable period of the prior year. During the six months ended July 31, 2013, the Company recognized a deferred income tax expense of $10.5 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 $2.5 million recognized in the comparable period of the prior year. The recorded tax provision during the six months ended July 31, 2013 did not include any net income tax expense or recovery relating to foreign exchange differences between income in the currency of the country of origin and the US dollar. This compares to a tax recovery of $2.0 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 Company incurred SG&A expenses of $31.9 million during the six months ended July 31, 2013, compared to $12.5 million in the comparable period of the prior year. The increase from the comparable period of the prior year was primarily due to $11.2 million of transaction costs and $6.0 million of restructuring costs at the Antwerp, Belgium office, related in each case to the Ekati Diamond Mine Acquisition. See "Segmented Analysis" on page 10 for additional information.

CONSOLIDATED FINANCE EXPENSES FROM CONTINUING OPERATIONS

Finance expenses were $23.6 million for the six months ended July 31, 2013 compared to $4.4 million for the comparable period of the prior year. The increase was due primarily to the expensing of approximately $14.0 million relating to the cancellation of the credit facilities that had previously been arranged in connection with the Ekati Diamond Mine Acquisition. The Company ultimately determined to fund the Ekati Diamond Mine Acquisition by way of cash on hand and did not draw on these credit facilities which were subsequently cancelled. Also included in consolidated finance expense is accretion expense of $6.7 million (six months ended July 31, 2012 - $1.3 million) related to future site restoration liabilities at the Diavik Diamond Mine and the Ekati Diamond Mine.

CONSOLIDATED EXPLORATION EXPENSE FROM CONTINUING OPERATIONS

Exploration expense of $4.2 million was incurred during the six months ended July 31, 2013 compared to $0.8 million in the comparable period of the prior year. The increase was due to $3.1 million of exploration work on the Company's claims in the Northwest Territories and $0.9 million of exploration work on the Jay pipe within the Buffer Zone at the Ekati Diamond Mine.

CONSOLIDATED FINANCE AND OTHER INCOME FROM CONTINUING OPERATIONS

Finance and other income of $1.8 million was recorded during the six months ended July 31, 2013, compared to $0.1 million in the comparable period of the prior year.

CONSOLIDATED FOREIGN EXCHANGE FROM CONTINUING OPERATIONS

A net foreign exchange loss of $2.1 million was recognized during the six months ended July 31, 2013, compared to a net foreign exchange gain of $0.7 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)

2014

2014

2013

2013

2013

2013

2012

2012

Six

months

ended

July 31,

Six

months

ended

July 31,

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

2013

2012

Sales

North America

$ - $ 6,179$ 4,604$ 7,697$ 2,269$ 7,432$ 2,727$ 8,835$ 6,179$ 9,701

Europe

80,530

61,642

84,346

57,438

50,514

54,370

78,846

21,993

142,172

104,884

India

10,737

21,095

21,161

19,683

8,690

27,207

20,659

5,411

31,832

35,897

Total sales

91,267

88,916

110,111

84,818

61,473

89,009

102,232

36,239

180,183

150,482

Cost of sales

68,328

61,888

79,038

71,663

46,784

70,099

72,783

34,112

130,216

116,883

Gross margin

22,939

27,028

31,073

13,155

14,689

18,910

29,449

2,127

49,967

33,599

Gross margin (%)

25.1%

30.4%

28.2%

15.5%

23.9%

21.2%

28.8%

5.9%

27.7%

22.3%

Selling, general and

administrative expenses

1,409

1,110

1,860

1,279

1,050

972

1,308

1,026

2,518

2,023

Operating profit

$ 21,530$ 25,918$ 29,213$ 11,876$ 13,639$ 17,938$ 28,141$ 1,101$ 47,449$ 31,576

Depreciation and amortization(i)

21,768

19,906

24,042

20,283

12,874

21,876

23,849

19,709

41,674

34,750

EBITDA(ii)

$ 43,298$ 45,824$ 53,255$ 32,159$ 26,513$ 39,814$ 51,990$ 20,810$ 89,123$ 66,326

(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 Measure" on page 20.

Three Months Ended July 31, 2013 Compared to Three Months Ended July 31, 2012

DIAVIK Sales

During the second quarter, the Company sold approximately 0.7 million carats from the Diavik Diamond Mine for a total of $91.3 million for an average price per carat of $130, compared to 0.4 million carats for a total of $61.5 million for an average price per carat of $142 in the comparable quarter of the prior year. The 62% increase in volume of carats sold versus the comparable quarter of the prior year resulted primarily from the decision in that prior quarter to hold some inventory from all price ranges until stability returned to the rough diamond market. The 9% decrease in the Company's achieved average rough diamond prices as compared to the second quarter of the prior year resulted primarily from the sale during the second quarter of the prior year of higher priced Diavik Diamond Mine goods that had originally been held back by the Company in the first quarter of fiscal 2013 due to a then observed imbalance in the rough and polished diamond prices for these goods. At July 31, 2013, the Company had 0.5 million carats of Diavik Diamond Mine produced inventory with an estimated market value of approximately $65 million.

Had the Company sold only the last production shipped in the second quarter, the estimated achieved price would have been approximately $132 per carat based on the prices achieved in the July 2013 sale.

DIAVIK COST OF SALES AND GROSS MARGIN

The Company's second quarter cost of sales for the Diavik Diamond Mine was $68.3 million resulting in a gross margin of 25.1% compared to a cost of sales of $46.8 million and a gross margin of 23.9% in the comparable quarter of the prior year. Cost of sales for the second quarter included $21.6 million of depreciation and amortization compared to $12.4 million in the comparable quarter of the prior year. The increase in depreciation and amortization is due in part to the higher costs associated with underground mining. This segment generated gross margins and EBITDA margin of 25.1% and 47%, respectively, compared to 23.9% and 43%, 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, which are incurred at the Diavik Diamond Mine. During the second quarter, the Diavik cash cost of production was $38.9 million compared to $40.6 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, 2013 and 2012.

(expressed in thousands of United States dollars)

Three months ended

July 31, 2013

Three months ended

July 31, 2012

Diavik cash cost of production

$ 38,887

$ 40,594

Private royalty

1,730

1,089

Other cash costs

889

602

Total cash cost of production

41,506

42,285

Depreciation and amortization

18,539

16,015

Total cost of production

60,045

58,300

Adjusted for stock movements

8,283

(11,516)

Total cost of sales

$ 68,328

$ 46,784

DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses for the Diavik Diamond Mine segment during the quarter was $1.4 million compared to $1.1 million in the comparable quarter of the prior year.

Six Months Ended July 31, 2013 Compared to Six Months Ended July 31, 2012

DIAVIK SALES

During the six months ended July 31, 2013, the Company sold approximately 1.5 million carats from the Diavik Diamond Mine for a total of $180.2 million for an average price per carat of $121 compared to 1.4 million carats for a total of $150.5 million for an average price per carat of $104 in the comparable period of the prior year. The 17% increase in the Company's achieved average rough diamond prices resulted primarily from the sale during the first quarter of the prior year of almost all of the remaining lower priced goods originally held back in inventory by the Company at October 31, 2011 due to an oversupply in the market at that time. The 3% increase in volume of carats sold was due primarily to two offsetting factors that impacted the comparable period of the prior year: first, an increase in volume of carats sold from the sale during the first quarter of the prior year of almost of all of the remaining lower priced goods originally held back in inventory at October 31, 2011; and second, a decrease in volume of carats sold due to the decision in the second quarter of the prior year to hold some inventory from all price ranges until stability returned to the rough diamond market.

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, 2013, was $130.2 million resulting in a gross margin of 27.7% compared to a cost of sales of $116.9 million and a gross margin of 22.3% in the comparable period of the prior year. Cost of sales for the six months ended July 31, 2013 included $41.2 million of depreciation and amortization compared to $34.0 million in the comparable period of the prior year. This segment generated gross margins and EBITDA margins of sales of 27.7% and 49%, respectively, compared to 22.3% and 44%, 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, which are incurred at the Diavik Diamond Mine. During the six months ended July 31, 2013, the Diavik cash cost of production was $81.8 million compared to $84.6 million in the comparable period of the prior year. Cost of sales also includes sorting costs, which consists of the Company's cost of handling and sorting product in preparation for sales to third parties, and depreciation and amortization, the majority of which is recorded using the 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, 2013 and 2012.

(expressed in thousands of United States dollars)

Six months ended

July 31, 2013

Six months ended

July 31, 2012

Diavik cash cost of production

$ 81,806

$ 84,630

Private royalty

2,924

3,727

Other cash costs

1,959

2,031

Total cash cost of production

86,689

90,388

Depreciation and amortization

41,448

29,786

Total cost of production

128,137

120,174

Adjusted for stock movements

2,079

(3,291)

Total cost of sales

$ 130,216

$ 116,883

DIAVIK SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses for the Diavik Diamond Mine segment for the six months ended July 31, 2013 was $2.5 million compared to $2.0 million in the comparable period of the prior year.

OPERATIONAL UPDATE

Production for the second calendar quarter at the Diavik Diamond Mine was 1.6 million carats (at 100%) compared to 1.8 million in the second calendar quarter of the prior year. Total production includes reprocessed plant rejects ("RPR"), which are not included in the Company's reserves and resource statement and are therefore incremental to production.

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, 2013

Pipe

Ore Processed

(000s tonnes)

Carats

(000s)

Grade

(carats/tonne)

A-154 South

61

229

3.79

A-154 North

69

130

1.89

A-418

80

232

2.89

RPR

1

33

-

Total

211

624

2.82(a)

(a)Grade has been adjusted to exclude RPR

For the three months ended June 30, 2012

Pipe

Ore Processed

(000s tonnes)

Carats

(000s)

Grade

(carats/tonne)

A-154 South

13

54

4.28

A-154 North

28

58

2.04

A-418

174

604

3.47

RPR

-

-

-

Total

215

716

3.33(a)

(a)Grade has been adjusted to exclude RPR

For the six months ended June 30, 2013

Pipe

Ore Processed

(000s tonnes)

Carats

(000s)

Grade

(carats/tonne)

A-154 South

120

524

4.36

A-154 North

138

296

2.15

A-418

151

506

3.35

RPR

3

76

-

Total

412

1,402

3.24(a)

(a)Grade has been adjusted to exclude RPR

For the six months ended June 30, 2012

Pipe

Ore Processed

(000s tonnes)

Carats

(000s)

Grade

(carats/tonne)

A-154 South

28

104

3.70

A-154 North

69

128

1.85

A-418

329

1,095

3.33

RPR

1

32

-

Total

427

1,359

3.12(a)

(a)Grade has been adjusted to exclude RPR

Diavik Operations Outlook

PRODUCTION

The approved and updated mine plan for the Diavik Diamond Mine for calendar 2013 currently foresees production of approximately 7.3 million carats from the mining of approximately 1.8 million tonnes of ore and the processing of approximately 2.2 million tonnes of material from both mining and stockpiles. The approximately 22% increase in carats in expected production for calendar 2013, as compared to the original plan of approximately 6 million carats, results from both the expected processing of more stockpiled ore and an increase in underground mining velocity during the calendar year. Planned 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 0.6 million tonnes from A-418 kimberlite pipes. Included in the estimated production for calendar 2013 is approximately 0.4 million carats from RPR and 0.1 million carats from the improved recovery process for small diamonds. These RPR and small diamond recoveries are not included in the Company's reserves and resource statement and are therefore incremental to production.

PRICING

Based on prices from the Company's rough diamond sales during the second quarter and the current diamond recovery profile of the Diavik processing plant, the Company has modeled the current approximate rough diamond price per carat for each of the Diavik ore types in the table that follows:

Ore type

Sales cycle ended

July 2013

average price per

carat

(in US dollars)

A-154 South

$ 140

A-154 North

180

A-418

100

RPR

50

COST OF SALES AND CASH COST OF PRODUCTION

Based on the current mine plan for the Diavik Diamond Mine for calendar 2013, the Company currently expects cost of sales for the Diavik Diamond Mine in fiscal 2014 to be approximately $280 million (including depreciation and amortization of approximately $95 million). The Company's share of the cash cost of production at the Diavik Diamond Mine for calendar 2013 is expected to be approximately $170 million at an assumed average Canadian/US dollar exchange rate of $1.02.

CAPITAL EXPENDITURES

Based on the current mine plan for the Diavik Diamond Mine for calendar 2013, the Company currently expects DDDLP's 40% share of the planned capital expenditures for the Diavik Diamond Mine in fiscal 2014 to be approximately $26 million, assuming an average Canadian/US dollar exchange rate of $1.02. During the second quarter, DDDLP's share of capital expenditures was $5.6 million ($16.5 million for the six months ended July 31, 2013).

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)

2014

2014

2013

2013

2013

2013

2012

2012

Six

months

ended

July 31,

Six

months

ended

July 31,

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

2013

2012

Sales

Europe

$ 170,536$ 19,921 $ - $ - $ - $ - $ - $ - $ 190,457 $ -

Total sales

170,536

19,921

-

-

-

-

-

-

190,457

-

Cost of sales

166,044

19,647

-

-

-

-

-

-

185,691

-

Gross margin

4,492

274

-

-

-

-

-

-

4,766

-

Gross margin (%)

2.6%

1.4%

-%

-%

-%

-%

-%

-%

2.5%

-%

Selling, general and

administrative expenses

676

520

-

-

-

-

-

-

1,196

-

Operating profit (loss)

$ 3,816$ (246) $ - $ - $ - $ - $ - $ - $ 3,570 $ -

Depreciation and amortization(i)

10,513

-

-

-

-

-

-

-

10,513

-

EBITDA(ii)

$ 14,329$ (246) $ - $ - $ - $ - $ - $ - $ 14,083 $ -

(i) Depreciation and amortization included in cost of sales and selling, general and administrative expenses. All sales are related to inventory purchased as a part of the Ekati Diamond Mine Acquisition, and accordingly are accounted for as cash cost of sales.

(ii) Earnings before interest, taxes, depreciation and amortization ("EBITDA"). See "Non-IFRS Measure" on page 20.

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 $170.5 million for an average price per carat of $289. The volume of carats sold during the quarter was higher than what the Company would anticipate going forward as a result of the shortening during the quarter of the sorting and selling cycle that had been in place at the time of the Ekati Diamond Mine Acquisition, which increased the volume of carats available for sale. At July 31, 2013, the Company had 0.4 million carats of Ekati Diamond Mine produced inventory with an estimated market value of approximately $135 million.

EKATI COST OF SALES AND GROSS MARGIN

The Company's cost of sales for the Ekati Diamond Mine during the second quarter was $166.0 million, resulting in a gross margin of 2.6%. Cost of sales for the second quarter was impacted by the sale of inventory that was recorded at market value as a result of the Ekati Diamond Mine Acquisition. The Company estimates the cost of sales would have been approximately $152 million during the second quarter if the effect of the market value adjustment made as part of the Ekati Diamond Mine Acquisition was excluded. The Company estimates that gross margins and EBITDA margin would have been 11.0% and 30%, respectively if the effect of the market value adjustment made as part of the Ekati Diamond Mine Acquisition was excluded. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter, rough diamond prices and the continued sale of inventory purchased at market values as part of the Ekati Diamond Mine Acquisition.

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 $94.1 million. 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 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, 2013.

(expressed in thousands of United States dollars)

Three Months Ended

July 31, 2013

Ekati cash cost of production

$ 94,128

Other cash costs including inventory acquisition

1,837

Total cash cost of production

95,965

Depreciation and amortization

25,286

Total cost of production

121,251

Adjusted for stock movements

44,793

Total cost of sales

$ 166,044

EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses for the Ekati Diamond Mine segment for the quarter were $0.7 million.

Period from April 10 to July 31, 2013

EKATI SALES

During the period from April 10 to July 31, 2013, the Company sold approximately 0.6 million carats from the Ekati Diamond Mine for a total of $190.5 million for an average price per carat of $317.

Had the Company sold only the last production shipped in the second quarter, the estimated achieved price would have been approximately $304 per carat based on the prices achieved in the July 2013 sale.

EKATI COST OF SALES AND GROSS MARGIN

The Company's cost of sales for the Ekati Diamond Mine for the period from April 10 to July 31, 2013, was $185.7 million, resulting in a gross margin of 2.5%. Cost of sales was impacted by the sale of inventory that was recorded at market value as a result of the Ekati Diamond Mine Acquisition. The Company estimates that the cost of sales would have been approximately $169 million during the period if the effect of the market value adjustment made as part of the Ekati Diamond Mine Acquisition was excluded. The Company estimates that gross margins and EBITDA margins of sales would have been 11.1% and 30%, respectively if the effect of the market value adjustment made as part of the Ekati Diamond Mine Acquisition was excluded. The gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter, rough diamond prices and the continued sale of inventory purchased at market values as part of the Ekati Diamond Mine Acquisition.

A substantial portion of consolidated cost of sales is mining operating costs, which are incurred at the Ekati Diamond Mine. During the period from April 10 to July 31, 2013, the Ekati cash cost of production was $111.5 million. 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 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 period April 10 to July 31, 2013.

(expressed in thousands of United States dollars)

Period April 10 to

July 31, 2013

Ekati cash cost of production

$ 111,509

Other cash costs including inventory acquisition

155,849

Total cash cost of production

267,358

Depreciation and amortization

31,830

Total cost of production

299,188

Adjusted for stock movements

(113,497)

Total cost of sales

$ 185,691

EKATI SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses for the Ekati Diamond Mine segment for the period from April 10 to July 31, 2013 were $1.2 million.

OPERATIONAL UPDATE

Production for the second calendar quarter at the Ekati Diamond Mine was 0.4 million carats at 100%. The development of the Misery Pipe is continuing. As of July 31, 2013, the Company had processed approximately 0.04 million tonnes of material excavated as part of the waste stripping for advancing the pit profile of the Misery Pipe, and has recovered approximately 0.04 million carats of diamonds from this material. These diamond recoveries, all of which occurred after June 30, 2013, are not included in the Company's reserves and resource statement and are therefore incremental to production.

EKATI DIAMOND MINE PRODUCTION (80% SHARE)

(this table reported on a one-month lag)

For the period from April 10, 2013 (date of acquisition) to June 30, 2013

Pipe

Ore Processed

(000s tonnes)

Carats

(000s)

Grade

(carats/tonne)

Koala Phase 5

50

19

0.38

Koala Phase 6

26

34

1.30

Koala North

75

59

0.78

Fox

613

199

0.33

Total

764

311

0.41

Ekati Operations Outlook

PRODUCTION

The approved and updated mine plan and budget for the Ekati Diamond Mine foresees production (on a 100% basis) for the period from April 10, 2013 to the calendar 2013 year-end of approximately 1.0 million carats from the mining of approximately 3.6 million tonnes from mineral reserve, and the processing of approximately 3.3 million tonnes, with some material being made up of diamond bearing kimberlite from a satellite body in the Misery open pit that is excavated as part of the waste stripping as the pit profile is advanced. Planned mining activities include approximately 0.3 million tonnes expected to be sourced from Koala Phase 5, approximately 0.3 million tonnes from Koala Phase 6, approximately 0.3 million tonnes from Koala North and approximately 2.7 million tonnes from Fox.

PRICING

Based on prices from the Company's rough diamond sales during July and the current diamond recovery profile of the Ekati processing plant, the Company has modeled the current approximate rough diamond price per carat for each of the Ekati ore types in the table that follows:

Ore type

Sales cycle ended

July 2013

average price per

carat

(in US dollars)

Koala Phase 5

$ 350

Koala Phase 6

405

Koala North

420

Fox

305

COST OF SALES AND CASH COST OF PRODUCTION

Based on the current mine plan for the Ekati Diamond Mine for the period from April 10, 2013 to the fiscal 2014 year-end, the Company currently expects cost of sales at the Ekati Diamond Mine in fiscal 2014 to be approximately $405 million (including depreciation and amortization of approximately $50 million). The cash cost of production at the Ekati Diamond Mine for fiscal 2014 is expected to be approximately $320 million at an assumed average Canadian/US dollar exchange rate of $1.02.

CAPITAL EXPENDITURES

The planned capital expenditures for the Ekati Diamond Mine for the period from April 10, 2013 to the fiscal 2014 year-end are expected to be approximately $85 million at an assumed average Canadian/US dollar exchange rate of $1.02. The currently expected capital expenditures include approximately $40 million for the continued development of the Misery Pipe, consisting largely of mining costs to achieve ore release. During the second quarter, capital expenditures were approximately $28.2 million ($37.0 million for the period from April 10, 2013 to July 31, 2013).

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) (unaudited)

2014

2014

2013

2013

2013

2013

2012

2012

Six months

ended July 31,

Six months

ended July 31,

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

2013

2012

Sales $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -

Cost of sales

-

-

-

-

-

-

-

-

-

-

Gross margin

-

-

-

-

-

-

-

-

-

-

Gross margin (%)

-%

-%

-%

-%

-%

-%

-%

-%

-%

-%

Selling, general and

administrative expenses

12,971

15,213

8,227

6,302

4,700

5,767

4,153

4,364

28,184

10,467

Operating loss $ (12,971)$ (15,213)$ (8,227)$ (6,302)$ (4,700)$ (5,767)$ (4,153)$ (4,364)$ (28,184)$ (10,467)

Depreciation and amortization(i)

363

305

304

306

286

296

434

223

668

582

EBITDA(ii) $ (12,608)$ (14,908)$ (7,923)$ (5,996)$ (4,414)$ (5,471)$ (3,719)$ (4,141)$ (27,516)$ (9,885)

(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 Measure" on page 20.

Three Months Ended July 31, 2013 Compared to Three Months Ended July 31, 2012

CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses for the Corporate segment during the quarter increased by $8.3 million from the comparable quarter of the prior year. The increase from the comparable quarter of the prior year was primarily due to $6.0 million of restructuring costs at the Antwerp, Belgium office, related to the Ekati Diamond Mine Acquisition.

Six Months Ended July 31, 2013 Compared to Six Months Ended July 31, 2012

CORPORATE SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses for the Corporate segment during the six months ended July 31, 2013 increased by $17.7 million from the comparable period of the prior year. The increase from the comparable period of the prior year was primarily due to $11.2 million of transaction costs and $6.0 million of restructuring costs at the Antwerp, Belgium office, related in each case to the Ekati Diamond Mine Acquisition.

DISCONTINUED OPERATIONS

On March 26, 2013, the Company completed the disposition of its luxury brand segment to Swatch Group. As a result, the Company's consolidated results no longer include the operations of the luxury brand segment and the results of the luxury brand segment are now treated as discontinued operations for reporting purposes. Current and prior period results have been restated to reflect this change.

Liquidity and Capital Resources

Working Capital

As at July 31, 2013, the Company had unrestricted cash and cash equivalents of $224.2 million and restricted cash of $123.4 million compared to $104.3 million and $nil at January 31, 2013. The restricted cash is used to support letters of credit to the Government of Canada of CDN $127 million in support of the reclamation obligations for the Ekati Diamond Mine. During the quarter ended July 31, 2013, the Company reported cash from operations of $105.1 million compared to $8.6 million in the comparable period of the prior year.

Working capital increased to $490.0 million at July 31, 2013 from $361.5 million at January 31, 2013. During the quarter, the Company decreased accounts receivable from continuing operations by $0.6 million, decreased other current assets from continuing operations by $0.6 million, decreased inventory and supplies from continuing operations by $101.7 million, decreased trade and other payables from continuing operations by $16.2 million and decreased employee benefit plans from continuing operations by $0.2 million.

The Company's liquidity requirements fluctuate from quarter to 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 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 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 twelve months.

Financing Activities

On May 31, 2013, the Company repaid its senior secured revolving credit facility with Standard Chartered Bank and cancelled this facility.

In connection with the Ekati Diamond Mine Acquisition on April 10, 2013, the Company arranged new secured credit facilities with The Royal Bank of Canada and Standard Chartered Bank consisting of a $400 million term loan, a $100 million revolving credit facility and a $140 million letter of credit facility (expandable to $265 million in aggregate). The Company ultimately determined to fund the Ekati Diamond Mine Acquisition by way of cash on hand and did not draw on these new facilities. These credit facilities were cancelled during the second quarter.

As at July 31, 2013, $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 and $1.1 million, respectively, at January 31, 2013.

Investing Activities

During the second quarter, the Company purchased property, plant and equipment of $33.8 million for its continuing operations, of which $5.6 million was purchased for the Diavik Diamond Mine and $28.2 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 2013 to 2017 of approximately $70 million in the aggregate assuming a Canadian/US average exchange rate of $1.00 for each of the five years and representing DDDLP's current projected share of the currently planned capital expenditures (excluding the A-21 pipe) at the Diavik Diamond Mine. Also not reflected are any capital expenditures for 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)

Total

1 year

2-3

4-5

5 years

Interest-bearing loans and borrowings (a)(b)

$ 6,179

$ 1,196

$ 2,392

$ 2,392

$ 199

Environmental and participation agreements incremental commitments (c)

215,690

206,438

4,677

-

4,575

Operating lease obligations (d)

18,945

5,040

9,847

4,058

-

Total contractual obligations

$ 240,814

$ 212,674

$ 16,916

$ 6,450

$ 4,774

(a) (i) Interest-bearing loans and borrowings presented in the foregoing table include current and long-term portions. The Company does not have any credit facilities.

(ii) The Company has available a $45.0million 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 13.5%. At July 31, 2013, $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 mortgageon 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, 2013, $5.1 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, 2013, and have been included under interest-bearing loans and borrowings in the table above. Interest payments for the next twelve months are approximated to be $0.4million.

(c) Both the Diavik Joint Venture and Ekati Diamond Mine, under environmental and other agreements, must provide funding for the Environmental Monitoring Advisory Board. 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. Theoperator 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, 2013 was $63million 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. The Company has posted letters of credit of CDN $127 million with the Government of Canada supported by restricted cash in support of the reclamation obligations for the Ekati Diamond Mine. 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

The term EBITDA (earnings before interest, taxes, depreciation and amortization) does not have a standardized meaning according to IFRS and therefore may not be comparable to similar measures presented by other issuers. The Company defines EBITDA as sales minus cost of sales and selling, general and administrative expenses, meaning it represents operating profit before depreciation and amortization.

EBITDA and EBITDA margin are measures 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.

CONSOLIDATED

(expressed in thousands of United States dollars)

(unaudited)

2014

2014

2013

2013

2013

2013

2012

2012

Six

months

ended

July 31,

Six

months

ended

July 31,

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

2013

2012

Operating profit (loss) from continuing

operations

$ 12,375$ 10,459$ 20,987$ 5,574$ 8,939$ 12,171$ 23,985$ (3,263)$ 22,835$ 21,110

Depreciation and amortization

32,644

20,211

24,346

20,588

13,160

22,172

24,284

19,933

52,855

35,332

EBITDA from continuing operations

$ 45,019$ 30,670$ 45,333$ 26,162$ 22,099$ 34,343$ 48,269$ 16,670$ 75,690$ 56,442

DIAVIK DIAMOND MINE SEGMENT

(expressed in thousands of United States dollars)

(unaudited)

2014

2014

2013

2013

2013

2013

2012

2012

Six

months

ended

July 31,

Six

months

ended

July 31,

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

2013

2012

Operating profit

$ 21,530$ 25,918$ 29,213$ 11,876$ 13,639$ 17,938$ 28,141$ 1,101$ 47,449$ 31,576

Depreciation and amortization

21,768

19,906

24,042

20,283

12,874

21,876

23,849

19,709

41,674

34,750

EBITDA

$ 43,298$ 45,824$ 53,255$ 32,159$ 26,513$ 39,814$ 51,990$ 20,810$ 89,123$ 66,326

EKATI DIAMOND MINE SEGMENT

(expressed in thousands of United States dollars)

(unaudited)

2014

2014

2013

2013

2013

2013

2012

2012

Six

months

ended

July 31,

Six

months

ended

July 31,

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

2013

2012

Operating profit (loss)

$ 3,816$ (246) $ - $ - $ - $ - $ - $ - $ 3,570 $ -

Depreciation and amortization

10,513

-

-

-

-

-

-

-

10,513

-

EBITDA

$ 14,329$ (246) $ - $ - $ - $ - $ - $ - $ 14,083 $ -

CORPORATE SEGMENT

(expressed in thousands of United States dollars)

(unaudited)

2014

2014

2013

2013

2013

2013

2012

2012

Six

months

ended

July 31,

Six

months

ended

July 31,

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

2013

2012

Operating loss

$ (12,971)$ (15,213)$ (8,227)$ (6,302)$ (4,700)$ (5,767)$ (4,153)$ (4,364)$ (28,184)$ (10,467)

Depreciation and amortization

363

305

304

306

286

296

434

223

668

582

EBITDA

$ (12,608)$ (14,908)$ (7,923)$ (5,996)$ (4,414)$ (5,471)$ (3,719)$ (4,141)$ (27,516)$ (9,885)

Risks and Uncertainties

Dominion Diamond Corporation 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 virtually 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 US, the Eurozone or elsewhere, budget policy issues in the US and upheavals in the Middle East, 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 licenses and permits from the Canadian and Northwest Territories governments, and the process for obtaining and renewing of such licenses and permits often takes an extended period of time and is subject to numerous delays and uncertainties. Such licenses 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 licenses 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 licenses and permits, or that DDMI or the Company will be able to obtain on a timely basis or maintain in the future all necessary licenses 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, 2013 was $63 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 Company has as at July 31, 2013 posted letters of credit of CDN $127 million with the Government of Canada supported by restricted cash in support of the reclamation obligations 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.

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.

Changes in Internal Control over Financial Reporting

Limitation on Scope of Design

Management has limited the scope of design of its disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures of entities acquired as part of the Ekati Diamond Mine Acquisition.

Since the acquisition was closed 20 days prior to the end of the first quarter of fiscal 2014, management was unable to adequately test the internal control systems in place. While management believes that internal controls were operating effectively, since it was unable to test these systems, it elected to exclude them from the scope of certification as allowed by NI 52-109. Management intends performing such testing by April 10, 2014.

The chart below presents the summary financial information for entities acquired as part of the Ekati Diamond Mine Acquisition included in the Company's unaudited interim condensed consolidated financial statements:

As at July 31, 2013

Current assets

374,798

Long-term assets

838,144

Current liabilities

85,846

Long-term liabilities

558,975

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, 2013.

Changes in Accounting Policies

The International Accounting Standards Board ("IASB") has issued a new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). IFRS 9 provides guidance on the classification and measurement of financial assets and financial liabilities. This standard becomes effective for the Company's fiscal year end beginning February 1, 2015. The Company is currently assessing the impact of the new standard on its financial statements.

(a) New Accounting Standards

(i) IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

IFRS 10, "Consolidated Financial Statements" ("IFRS 10") replaces the consolidation requirements in SIC-12, "Consolidation - Special Purpose Entities" and IAS 27, "Consolidated and Separate Financial Statements". The new standard establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and provides guidance to assist in the determination of control where it is difficult to assess. IFRS 10 did not have a material impact on the Company's consolidated financial statements upon its adoption on February 1, 2013.

(ii) IFRS 11 - JOINT ARRANGEMENTS

IFRS 11, "Joint Arrangements" ("IFRS 11") replaces IAS 31, "Interest in Joint Ventures". The new standard applies to the accounting for interests in joint arrangements where there is joint control. Under IFRS 11, joint arrangements are classified as either joint ventures or joint operations. The structure of the joint arrangement will no longer be the most significant factor in determining whether a joint arrangement is either a joint venture or a joint operation. For a joint venture, proportionate consolidation will no longer be allowed and will be replaced by equity accounting. IFRS 11 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(iii) IFRS 13 - FAIR VALUE MEASURMENT

IFRS 13, "Fair Value Measurement" ("IFRS 13") generally makes IFRS consistent with generally accepted accounting principles in the United States ("US GAAP") on measuring fair value and related fair value disclosures. The new standard creates a single source of guidance for fair value measurements. The adoption of IFRS 13 did not have a material effect on the Company's unaudited interim condensed consolidated financial statements. The disclosure requirements of IFRS 13 will be incorporated in the Company's annual consolidated financial statements for the year ended January 31, 2014. This will include disclosures about fair values of financial assets and liabilities measured on a recurring basis and non-financial assets and liabilities measured on a non-recurring basis. The Company will also include disclosures about assumptions used in calculating fair value less cost of disposal for its annual goodwill impairment test.

(iv) IFRIC 20 - STRIPPING COSTS IN THE PRODUCTION PHASE OF A SURFACE MINE

The International Financial Reporting Interpretations Committee ("IFRIC") issued IFRIC 20, "Stripping Costs in the Production Phase of a Surface Mine" ("IFRIC 20"), which clarifies the requirements for accounting for stripping costs associated with waste removal in surface mining, including when production stripping costs should be recognized as an asset, how the asset is initially recognized, and subsequent measurement. IFRIC 20 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(v) IAS 19 - EMPLOYEE BENEFITS

Amendments to IAS 19, "Employee Benefits" ("IAS 19") eliminates the option to defer the recognition of actuarial gains and losses through the "corridor" approach, revises the presentation of changes in assets and liabilities arising from defined benefit plans and enhances the disclosures for defined benefit plans. IAS 19 is effective for the Company's fiscal year end beginning February 1, 2013, with early adoption permitted. IAS 19 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(vi) IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS

Amendments to IAS 1, "Presentation of Financial Statements" ("IAS 1") have been adopted by the Company on February 1, 2013, with retrospective application. The amendments to IAS 1 require the grouping of items within other comprehensive income that may be reclassified to profit or loss and those that will not be reclassified. The Company has amended its consolidated statement of comprehensive income for all periods presented in these unaudited interim condensed consolidated financial statements to reflect the presentation changes required under the amended IAS 1. Since these changes are reclassifications within the statement of comprehensive income, there is no net impact on the Company's comprehensive income.

Outstanding Share Information

As at August 31, 2013

Authorized

Unlimited

Issued and outstanding shares

85,023,031

Options outstanding

2,003,000

Fully diluted

87,026,031

Additional Information

Additional information relating to the Company, including the Company's most recently filed Annual Information Form, can be found on SEDAR at

www.sedar.com, and is also available on the Company's website at www.ddcorp.ca.

Condensed Consolidated Balance Sheets

(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

July 31, 2013

January 31, 2013

ASSETS

Current assets

Cash and cash equivalents

$

224,239

$ 104,313

Accounts receivable

7,603

3,705

Inventory and supplies (note 5)

369,137

115,627

Other current assets

27,633

29,486

Assets held for sale (note 6)

-

718,804

628,612

971,935

Property, plant and equipment

1,508,713

727,489

Restricted cash (note 7)

123,405

-

Goodwill

28,687

-

Other non-current assets

1,913

6,937

Deferred income tax assets

3,973

4,095

Total assets

$

2,295,303

$ 1,710,456

LIABILITIES AND EQUITY

Current liabilities

Trade and other payables

$

103,117

$ 39,053

Employee benefit plans (note 9)

1,347

2,634

Income taxes payable

33,332

32,977

Current portion of interest-bearing loans and borrowings (note 10)

827

51,508

Liabilities held for sale (note 6)

-

484,252

138,623

610,424

Interest-bearing loans and borrowings (note 10)

4,238

4,799

Deferred income tax liabilities

237,173

181,427

Employee benefit plans (note 9)

21,399

3,499

Provisions (note 4)

433,309

79,055

Total liabilities

834,742

879,204

Equity

Share capital

508,523

508,007

Contributed surplus

21,615

20,387

Retained earnings

779,642

295,738

Accumulated other comprehensive income

579

6,357

Total shareholders' equity

1,310,359

830,489

Non-controlling interest

150,202

763

Total equity

1,460,561

831,252

Total liabilities and equity

$

2,295,303

$ 1,710,456

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

Condensed Consolidated Income Statements

(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS)

Three

months

ended

July 31,

2013

Three

months

ended

July 31,

2012

Six

months

ended

July 31,

2013

Six

months

ended

July 31,

2012

Sales

$ 261,803

$ 61,473

$ 370,640

$ 150,482

Cost of sales

234,372

46,784

315,907

116,883

Gross margin

27,431

14,689

54,733

33,599

Selling, general and administrative expenses

15,056

5,750

31,898

12,489

Operating profit

12,375

8,939

22,835

21,110

Finance expenses

(19,637)

(2,151)

(23,631)

(4,393)

Exploration costs

(3,145)

(568)

(4,185)

(822)

Finance and other income

1,032

67

1,836

119

Foreign exchange gain (loss)

(2,814)

1,048

(2,083)

678

Profit (loss) before income taxes

(12,189)

7,335

(5,228)

16,692

Income tax expense

6,913

3,386

11,611

6,716

Net profit (loss) from continuing operations

(19,102)

3,949

(16,839)

9,976

Net profit from discontinued operations (note 6)

-

804

497,385

6,387

Net profit (loss)

$ (19,102)

$ 4,753

$ 480,546

$ 16,363

Net profit (loss) from continuing operations attributable to

Shareholders

$ (16,304)

$ 3,951

$ (13,481)

$ 9,978

Non-controlling interest

(2,798)

(2)

(3,358)

(2)

Net profit (loss) attributable to

Shareholders

$ (16,304)

4,755

483,904

16,365

Non-controlling interest

(2,798)

$ (2)

$ (3,358)

$ (2)

Earnings (loss) per share - continuing operations

Basic

$ (0.19)

$ 0.05

$ (0.16)

$ 0.12

Diluted

(0.19)

0.05

(0.16)

0.12

Earnings (loss) per share

Basic

(0.19)

0.06

5.70

0.19

Diluted

(0.19)

0.06

5.65

0.19

Weighted average number of shares outstanding

85,007,262

84,874,781

84,949,508

84,874,781

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

Condensed Consolidated Statements ofComprehensiveIncome

(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

Three

months

ended July

31, 2013

Three

months

ended July

31, 2012

Six

months

ended July

31, 2013

Six

months

ended July

31, 2012

Net profit (loss)

$ (19,102)

$ 4,753

$ 480,546

$ 16,363

Other comprehensive income

Items that may be reclassified to profit

Net loss on translation of net foreign operations

(net of tax of nil)

(314)

(6,106)

(11,049)

(5,969)

Items that will not be reclassified to profit

Reversal of actuarial loss on employee benefit plans

(net of tax of $0.7 million)

-

-

5,271

-

Other comprehensive loss, net of tax

(314)

(6,106)

(5,778)

(5,969)

Total comprehensive income (loss)

$ (19,416)

$ (1,353)

$ 474,768

$ 10,394

Comprehensive income (loss) from continuing operations

$ (19,416)

$ 3,616

$ (17,283)

$ 9,932

Comprehensive income from discontinued operations

-

(4,969)

492,051

462

Comprehensive income (loss) attributable to

Shareholders

$ (16,618)

$ (1,351)

$ 478,126

$ 10,396

Non-controlling interest

(2,798)

(2)

(3,358)

(2)

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

Condensed Consolidated Statements ofChangesinEquity

(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

Six months ended

July 31, 2013

Six months ended

July 31, 2012

Common shares:

Balance at beginning of period

$ 508,007

$ 507,975

Issued during the period

516

-

Balance at end of period

508,523

507,975

Contributed surplus:

Balance at beginning of period

20,387

17,764

Stock-based compensation expense

1,228

854

Balance at end of period

21,615

18,618

Retained earnings:

Balance at beginning of period

295,738

261,028

Net profit attributable to common shareholders

483,904

16,365

Balance at end of period

779,642

277,393

Accumulated other comprehensive income:

Balance at beginning of period

6,357

10,086

Other comprehensive income

Items that may be reclassified to profit

Net loss on translation of net foreign operations (net of tax of nil)

(11,049)

(5,969)

Items that will not be reclassified to profit

Reversal of actuarial loss on employee benefit plans (net of tax of $0.7 million)

5,271

-

Balance at end of period

579

4,117

Non-controlling interest:

Balance at beginning of period

763

255

Non-controlling interest

149,439

(2)

Balance at end of period

150,202

253

Total equity

$ 1,460,561

$ 808,356

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

Condensed Consolidated Statements of Cash Flows

(UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

Three months

ended July 31,

2013

Three months

ended July 31,

2012

Six months

ended July 31,

2013

Six months

ended July 31,

2012

Cash provided by (used in)

OPERATING

Net profit (loss)

$ (19,102)

$ 3,949

$ 480,546

$ 9,976

Depreciation and amortization

32,644

13,160

52,855

35,332

Deferred income tax recovery

(4,287)

(1,592)

(13,028)

(4,161)

Current income tax expense

11,200

4,978

24,639

10,877

Finance expenses

19,637

2,151

23,631

4,393

Stock-based compensation

192

448

1,228

854

Other non-cash items

(1,601)

(2,105)

(2,460)

(2,105)

Foreign exchange (gain) loss

813

(1,334)

(224)

(491)

Loss (gain) on disposition of assets

-

-

362

(330)

Net loss on discontinued operations

-

-

257

-

Gain on sale of luxury brand segment

-

-

(497,642)

-

Change in non-cash operating working capital, excluding taxes

and finance expenses

86,412

(4,520)

57,740

(13,126)

Cash provided by (used in) operating activities

125,908

15,135

127,904

41,219

Interest paid

(3,861)

(1,019)

(5,073)

(2,277)

Income and mining taxes paid

(16,906)

(7,986)

(27,155)

(14,860)

Cash provided by (used in) operating activities - continuing

operations

105,141

6,130

95,676

24,082

Cash provided by (used in) operating activities - discontinued

operations

-

2,430

-

9,424

Net cash from (used in) operating activities

105,141

8,560

95,676

33,506

FINANCING

Decrease in interest-bearing loans and borrowings

(196)

(185)

(392)

(370)

Increase in revolving credit

-

-

27,863

27,542

Decrease in revolving credit

(27,863)

(24,682)

(28,991)

(25,177)

Repayment of senior secured credit facility

(50,000)

-

(50,000)

-

Issue of common shares, net of issue costs

122

-

516

-

Cash provided from financing activities - continuing operations

(77,937)

(24,867)

(51,004)

1,995

Cash provided from financing activities - discontinued operations

-

771

-

2,632

Cash provided from financing activities

(77,937)

(24,096)

(51,004)

4,627

INVESTING

Acquisition of Ekati

-

-

(490,925)

-

Cash proceeds from sale of luxury brand

-

-

746,738

-

Property, plant and equipment - Diavik

(5,553)

(15,788)

(16,491)

(33,937)

Property, plant and equipment - Ekati

(28,231)

-

(37,011)

-

Net proceeds from sale of property, plant and equipment

-

-

1,796

2,619

Other non-current assets

76

186

(3,049)

273

Cash provided in investing activities - continuing operations

(33,708)

(15,602)

201,058

(31,045)

Cash provided in investing activities - discontinued operations

-

(2,353)

-

(7,329)

Cash used in investing activities

(33,708)

(17,955)

201,058

(38,374)

Foreign exchange effect on cash balances

(2,755)

(4,738)

(2,399)

(3,286)

Increase in cash and cash equivalents

(9,259)

(38,229)

243,331

(3,527)

Cash and cash equivalents, beginning of period

356,903

112,818

104,313

78,116

Cash and equivalents, end of period

347,644

74,589

347,644

74,589

Less cash and equivalents of discontinued operations, end of period

-

20,556

-

20,556

Cash and cash equivalents of continuing operations, end of period

$ 347,644

$ 54,033

$ 347,644

$ 54,033

Change in non-cash operating working capital, excluding taxes

and finance expenses

Accounts receivable

602

(1,562)

(2,581)

(277)

Inventory and supplies

101,706

9,099

70,695

(14,192)

Other current assets

576

3,752

2,356

5,013

Trade and other payables

(16,248)

(15,096)

(11,513)

(4,350)

Employee benefit plans

(224)

(713)

(1,217)

680

$ 86,412

$ (4,520)

$ 57,740

$ (13,126)

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

Notes to Condensed Consolidated Financial Statements

JULY 31, 2013 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. 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 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 unaudited interim condensed 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 its controlling interest in 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 on April 10, 2013, 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 on the condensed consolidated balance sheet.

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 condensed consolidated financial statements are consistent with those used in the annual audited consolidated financial statements for the year ended January 31, 2013, except as disclosed in Note 3.

These unaudited interim condensed 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, 2013 prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").

(b) Currency of presentation

These unaudited interim condensed consolidated 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 unaudited interim condensed consolidated 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 unaudited interim condensed consolidated 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

These unaudited interim condensed consolidated financial statements have been prepared following the same accounting policies and methods of computation as the annual audited consolidated financial statements for the year ended January 31, 2013, except for the following accounting standards that apply as a result of the Ekati Diamond Mine Acquisition and new accounting standards and amendment to standards and interpretations, which were effective February 1, 2013, and applied in preparing these unaudited interim condensed consolidated financial statements. The Company evaluated the impact to its unaudited interim condensed consolidated financial statements as a result of the new standards. These are summarized as follows:

(a) Accounting Standards Applied on Ekati Diamond Mine Acquisition

(i) STRIPPING COSTS

Mining costs associated with stripping activities in an open pit mine are expensed unless the stripping activity can be shown to represent a betterment to the mineral property, in which case the stripping costs would be capitalized and included in mining assets. Capitalized stripping costs are charged against earnings on a unit-of-production basis over the life of the mineral reserves.

(ii) EMPLOYEE BENEFIT PLANS

The Company operates defined benefit pension plans, which require contributions to be made to separately administered funds. The cost of providing benefits under the defined benefit plans is determined separately using the projected unit credit valuation method by qualified actuaries. Actuarial gains and losses are recognized immediately in other comprehensive income.

The defined benefit asset or liability comprises the present value of the defined benefit obligation, less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

(b) New Accounting Standards

(i) IFRS 10 - CONSOLIDATED FINANCIAL STATEMENTS

IFRS 10, "Consolidated Financial Statements" ("IFRS 10") replaces the consolidation requirements in SIC-12, "Consolidation - Special Purpose Entities" and IAS 27, "Consolidated and Separate Financial Statements". The new standard establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and provides guidance to assist in the determination of control where it is difficult to assess. IFRS 10 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(ii) IFRS 11 - JOINT ARRANGEMENTS

IFRS 11, "Joint Arrangements" ("IFRS 11") replaces IAS 31, "Interest in Joint Ventures". The new standard applies to the accounting for interests in joint arrangements where there is joint control. Under IFRS 11, joint arrangements are classified as either joint ventures or joint operations. The structure of the joint arrangement will no longer be the most significant factor in determining whether a joint arrangement is either a joint venture or a joint operation. For a joint venture, proportionate consolidation will no longer be allowed and will be replaced by equity accounting. IFRS 11 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(iii) IFRS 13 - FAIR VALUE MEASURMENT

IFRS 13, "Fair Value Measurement" ("IFRS 13") generally makes IFRS consistent with generally accepted accounting principles in the United States ("US GAAP") on measuring fair value and related fair value disclosures. The new standard creates a single source of guidance for fair value measurements. The adoption of IFRS 13 did not have a material effect on the Company's unaudited interim condensed consolidated financial statements. The disclosure requirements of IFRS 13 will be incorporated in the Company's annual consolidated financial statements for the year ended January 31, 2014. This will include disclosures about fair values of financial assets and liabilities measured on a recurring basis and non-financial assets and liabilities measured on a non-recurring basis. The Company will also include disclosures about assumptions used in calculating fair value less cost of disposal for its annual goodwill impairment test.

(iv) IFRIC 20 - STRIPPING COSTS IN THE PRODUCTION PHASE OF A SURFACE MINE

The International Financial Reporting Interpretations Committee ("IFRIC") issued IFRIC 20, "Stripping Costs in the Production Phase of a Surface Mine" ("IFRIC 20"), which clarifies the requirements for accounting for stripping costs associated with waste removal in surface mining, including when production stripping costs should be recognized as an asset, how the asset is initially recognized, and subsequent measurement. IFRIC 20 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(v) IAS 19 - EMPLOYEE BENEFITS

Amendments to IAS 19, "Employee Benefits" ("IAS 19") eliminates the option to defer the recognition of actuarial gains and losses through the "corridor" approach, revises the presentation of changes in assets and liabilities arising from defined benefit plans and enhances the disclosures for defined benefit plans. IAS 19 is effective for the Company's fiscal year end beginning February 1, 2013, with early adoption permitted. IAS 19 did not have a material impact on the Company's unaudited interim condensed consolidated financial statements upon its adoption on February 1, 2013.

(vi) IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS

Amendments to IAS 1, "Presentation of Financial Statements" ("IAS 1") have been adopted by the Company on February 1, 2013, with retrospective application. The amendments to IAS 1 require the grouping of items within other comprehensive income that may be reclassified to profit or loss and those that will not be reclassified. The Company has amended its consolidated statement of comprehensive income for all periods presented in these unaudited interim condensed consolidated financial statements to reflect the presentation changes required under the amended IAS 1. Since these changes are reclassifications within the statement of comprehensive income, there is no net impact on the Company's comprehensive income.

Note 4:

Acquisition

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 its controlling interest in the Ekati Diamond Mine as well as the associated diamond sorting and sales facilities in Yellowknife, Canada, and Antwerp, Belgium.

Acquisitions are accounted for under the acquisition method of accounting, and the results of operations since the respective dates of acquisition are included in the statement of comprehensive income. From time to time, as a result of the timing of acquisitions in relation to the Company's reporting schedules and the availability of information, certain information relating to the purchase allocations and valuations may not be finalized at the time of reporting. Purchase price allocations are completed after the vendor's final financial statements and income tax returns have been prepared and accepted by the Company within one year of acquisition. Such preliminary purchase price allocations are based on management's best estimates of the fair value of the acquired asset and liabilities. Upon finalization, adjustments to the initial estimates may be required. The preliminary allocation of the purchase price to the fair values of assets acquired and liabilities assumed is set forth below. In accordance with IFRS 3, "Business Combinations" ("IFRS 3"), the provisional price allocations at acquisition have been revised to reflect revisions to fair values during the second quarter. The final purchase price allocation is expected to be finalized by the end of fiscal 2014.

Provisional fair

values

Further

adjustments

Fair values at

July 31, 2013

Consideration

$ 553,142

$

$ 553,142

Cash and cash equivalents

$ 62,217

$

$ 62,217

Accounts receivable and other current assets

7,465

7,465

Inventory and supplies

300,248

19,365

319,613

Property, plant and equipment

800,741

800,741

Trade and other payables

(70,618)

(70,618)

Income taxes payable

(6,085)

(6,085)

Provisions, future site restoration costs

(348,230)

(348,230)

Deferred income tax liabilities

(62,985)

(5,848)

(68,833)

Other long-term liabilities

(19,017)

(19,017)

Non-controlling interest

(152,798)

(152,798)

Total net identifiable assets acquired

510,938

13,517

524,455

Goodwill

42,204

(13,517)

28,687

$ 553,142

$ -

$ 553,142

In accordance with the requirements of IFRS 3, the Company's purchase price allocation has been restated to incorporate adjustments to fair values made during the second quarter. No adjustment has been made to the Company's income statement for the quarter ended April 30, 2013, as the effect was not material. The main adjustments to the provisional fair value relates to the fair value attributed to rough diamond inventory acquired as part of the Ekati Diamond Mine Acquisition and related tax adjustment.

From the closing date of the acquisition, revenues of $190.5 million and a net loss of $13.1 million were generated by Ekati's operations. If the acquisition had taken place at the beginning of the fiscal year, the Company's pro forma revenue from the Ekati mining segment would have been $299.1 million and pro forma net loss would have been $4.8 for the six months ended July 31, 2013. The Company has incurred total transaction costs of $14.4 million related to the Ekati Diamond Mine Acquisition, of which $11.2 million has been expensed during the current year, with the balance of $3.2 million expensed in fiscal 2013.

Provisions

Future site restoration costs

At April 10, 2013 (date of acquisition)

$

348,230

Accretion

5,749

At July 31, 2013

$

353,979

The undiscounted estimated expenditures required to settle the obligation totals approximately $435 million through 2048 at an assumed average Canadian/US dollar exchange rate of $1.00. The expenditures are discounted using a credit-adjusted risk-free rate of 3.5%. The Company is required to provide security for future site closure and reclamation costs for the Ekati Diamond Mine's operations and for various permits and licenses. As at July 31, 2013, the Company provided CDN $127 million in letters of credit as security with various regulatory authorities.

Note 5:

Inventory and Supplies

July 31, 2013

January 31, 2013

Rough diamonds

$ 162,396

$ 45,467

Supplies inventory

206,741

70,160

Total inventory and supplies

$ 369,137

$ 115,627

Total inventory and supplies is net of a provision for obsolescence of $0.1 million ($0.4 million at January 31, 2013).

Note 6:

Assets Held for Sale (Discontinued Operations)

On March 26, 2013, the Company completed the sale of the Luxury Brand Segment to Swatch Group. As a result of the sale, the Company's corporate group underwent name changes to remove references to "Harry Winston". The Company's name was changed to "Dominion Diamond Corporation" and its common shares trade on both the Toronto and New York stock exchanges under the symbol "DDC".

The major classes of assets and liabilities of the discontinued operations were as follows at the date of disposal:

March 26,

2013

Cash and cash equivalents

$ 25,914

Accounts receivable and other current assets

61,080

Inventory and supplies

403,157

Property, plant and equipment

76,700

Intangible assets, net

126,779

Other non-current assets

7,478

Deferred income tax assets

54,017

Trade and other payables

(96,246)

Income taxes payable

(2,465)

Interest-bearing loans and borrowings

(292,709)

Deferred income tax liabilities

(106,137)

Other long-term liabilities

(8,472)

Net assets

$ 249,096

Consideration received, satisfied in cash

$ 746,738

Cash and cash equivalents disposed of

(25,914)

Net cash inflow

$ 720,824

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

Period ended

March 26,

2013

Six months

ended July 31,

2012

Sales

$ 63,799

$ 218,876

Cost of sales

(31,355)

(106,945)

Other expenses

(30,964)

(101,514)

Other income and foreign exchange gain (loss)

(1,551)

(853)

Net income tax (expense) recovery

(186)

(3,177)

Net profit (loss) from discontinued operations before gain

$ (257)

$ 6,387

Gain on sale

497,642

-

Net profit from discontinued operations

497,385

6,387

Earnings per share - discontinued operations

Basic

$ 5.86

$ 0.08

Diluted

5.80

0.07

Note 7:

Restricted Cash

The Company provides letters of credit to the Government of Canada of CDN $127 million, supported by restricted cash for the reclamation obligations for the Ekati Diamond Mine.

Note 8:

Diavik Joint Venture

The following represents DDDLP's 40% interest in the Diavik Joint Venture as at June 30, 2013 and December 31, 2012:

July 31, 2013

January 31, 2013

Current assets

$

100,544

$ 102,299

Non-current assets

651,682

677,808

Current liabilities

25,198

30,517

Non-current liabilities and participant's account

727,028

749,590

Three months

ended July 31,

2013

Three months

ended July 31,

2012

Six months

ended July 31,

2013

Six months

ended July 31,

2012

Expenses net of interest income(a)(b)

$ 59,036

$ 58,585

$ 125,683

$ 115,323

Cash flows used in operating activities

(45,352)

(55,022)

(90,180)

(97,375)

Cash flows resulting from financing activities

50,435

50,668

103,594

112,200

Cash flows used in investing activities

(4,692)

(3,958)

(15,403)

(19,141)

(a) The Joint Venture only earns interest income.

(b) Expenses net of interest income for the three and six months ended July 31, 2013 of $nil and $0.1 million (three and six months ended July 31, 2012 of $nil and $0.1 million).

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 12.

Note 9:

Employee Benefit Plans

The employee benefit obligation reflected in the unaudited interim condensed consolidated balance sheet is as follows:

July 31, 2013

January 31, 2013

Post-retirement benefit plan - Diavik Diamond Mine (c)

$

748

$ 699

Defined benefit plan obligation - Ekati Diamond Mine (a)

17,978

-

Defined contribution plan obligation - Ekati Diamond Mine (b)

200

-

Defined contribution plan obligation - the Company's head office (b)

151

-

RSU and DSU plans (d)

3,669

5,434

Total employee benefit plan obligation

$

22,746

$ 6,133

July 31, 2013

January 31, 2013

Non-current

$

21,399

$ 3,499

Current

1,347

2,634

Total employee benefit plan obligation

$

22,746

$ 6,133

(a) Defined benefit pension plan

Dominion Diamond Ekati Corporation sponsors a non-contributory defined benefit registered pension plan covering employees in Canada who were employed by BHP Billiton Canada Inc. and employed in its diamond business prior to June 30, 2004. As a result of the Ekati Diamond Mine Acquisition, the plan was assigned to Dominion Diamond Ekati Corporation and renamed the Dominion Diamond Ekati Corporation Defined Benefit Pension Plan. Pension benefits are based on the length of service and highest average covered earnings. Any benefits in excess of the maximum pension limit for registered pension plans under the Income Tax Act accrue for the employee, via an unfunded supplementary retirement plan. New employees could not become members of this defined benefit pension arrangement after June 30, 2004.

(i) NET BENEFIT OBLIGATION:

July 31, 2013

Accrued benefit obligation

$ 81,402

Plan assets

63,424

Funded status - plan deficit

$ (17,978)

(ii) PLAN ASSETS

Canadian plan assets represented approximately 95% of total plan assets at July 31, 2013.

The asset allocation of pension assets at July 31 was as follows:

July 31, 2013

ASSET CATEGORY

Cash equivalents

2%

Equity securities

10%

Fixed income securities

88%

Total

100%

(iii) THE SIGNIFICANT ASSUMPTIONS USED FOR THE PLAN ARE AS FOLLOWS:

July 31, 2013

ACCRUED BENEFIT OBLIGATION

Discount rate

4.50%

Expected long-term rate of return

4.00%

BENEFIT COSTS FOR THE YEAR

Discount rate

4.10%

Expected long-term rate of return on plan assets

3.85%

Rate of compensation increase

4.25%

(b) Defined contribution plan

The Diavik Joint Venture sponsors a defined contribution plan whereby the employer contributes 6% of the employee's salary.

Dominion Diamond Corporation sponsors a defined contribution plan for Canadian employees whereby the employer contributes to a maximum of 6% of the employee's salary to the maximum contribution limit under Canada's Income Tax Act. The total defined contribution plan liability at July 31, 2013 was $0.2 million ($nil at January 31, 2013).

Dominion Diamond Ekati Corporation sponsors a defined contribution arrangement for its employees who are not members of the defined benefit pension plan referred to in 9(a) above. The employer contributes 8% of earnings up to 2.5 times the Year's Maximum Pensionable Earnings (as defined under the Canada Pension Plan), and 12% of earnings above 2.5 times YMPE. The employer also matches additional contributions made by an employee up to 3% of earnings. Employer contributions in excess of the maximum contribution limit for defined contribution plans under Canada's Income Tax Act are credited by the employer to a notional (unfunded) supplementary retirement plan. The defined contribution plan liability at July 31, 2013 was $0.2 million. (Supplemental plan liability has been included in the accrued benefit obligation disclosed in 9(a) above.)

(c) Post-retirement benefit plan

The Diavik Joint Venture provides non-pension post-retirement benefits to retired employees. The post-retirement benefit plan liability was $0.7 million at July 31, 2013 ($0.7 million at January 31, 2013).

(d) RSU and DSU plans

Grants under the RSU Plan are on a discretionary basis to employees of the Company and its subsidiaries subject to Board of Directors approval. The RSUs granted vest one-third on March 31 and one-third on each anniversary thereafter. The vesting of grants of RSUs is subject to special rules for a change in control, death and disability. The Company shall pay out cash on the respective vesting dates of RSUs and redemption dates of DSUs.

Only non-executive directors of the Company are eligible for grants under the DSU Plan. Each DSU grant vests immediately on the grant date.

The expenses related to the RSUs and DSUs are accrued based on fair value. This expense is recognized on a straight-line basis over each vesting period.

Note 10:

Interest-Bearing Loans and Borrowings

July 31,

2013

January 31,

2013

Credit facilities

$

-

$ 49,560

First mortgage on real property

5,065

5,619

Bank advances

-

1,128

Total interest-bearing loans and borrowings

5,065

56,307

Less current portion

(827)

(51,508)

$

4,238

$ 4,799

Currency

Nominal

interest

rate

Date of maturity

Carrying amount at

July 31, 2013

Face value at

July 31, 2013

Borrower

First mortgage on real property

CDN

7.98%

September 1, 2018

$5.1 million

$5.1 million

6019838 Canada Inc.

On May 31, 2013, the Company repaid the $50.0 million outstanding on its secured bank loan.

Note 11:

Related Party Disclosure

(a) Operational information

The Company had the following investments in significant subsidiaries at July 31, 2013:

Name of company

Effective interest

Country of incorporation

Dominion Diamond Holdings Ltd.

100%

Canada

Dominion Diamond Diavik Limited Partnership

100%

Canada

Dominion Diamond (India) Private Limited

100%

India

Dominion Diamond International NV

100%

Belgium

Dominion Diamond Marketing Corporation.

100%

Canada

6019838 Canada Inc.

100%

Canada

Dominion Diamond Ekati Corporation

100%

Canada

Dominion Diamond Resources Corporation

100%

Canada

Dominion Diamond Marketing NV

100%

Belgium

Note 12:

Commitments and Guarantees

(a) Environmental agreements

Through negotiations of environmental and other agreements, both the Diavik Joint Venture and 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, 2013, was $63 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 Canada supported by restricted cash in support of the reclamation obligations for the Ekati Diamond Mine.

(b) Participation agreements

Both the Diavik Joint Venture and 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. Dominion Diamond Corporation's share of the Diavik Joint Venture's participation agreements as at July 31, 2013 was $1.1 million. The Ekati Diamond Mine participation agreements are in place during the life of the Ekati Diamond Mine and the agreements terminate in the event of 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. Future minimum lease payments under non-cancellable operating leases as at July 31, 2013 are as follows:

Within one year

$

5,040

After one year but not more than five years

9,847

More than five years

4,058

$

18,945

Note 13:

Capital Management

The Company's capital includes cash and cash equivalents, current and non-current interest-bearing loans and borrowings and equity, which includes issued common shares, contributed surplus and retained earnings.

The Company's primary objective with respect to its capital management is to ensure that it has sufficient cash resources to maintain its ongoing operations, to provide returns to shareholders and benefits for other stakeholders, and to pursue growth opportunities. To meet these needs, the Company may from time to time raise additional funds through borrowing and/or the issuance of equity or debt or by securing strategic partners, upon approval by the Board of Directors. The Board of Directors reviews and approves any material transactions out of the ordinary course of business, including proposals on acquisitions or other major investments or divestitures, as well as annual capital and operating budgets.

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 twelve months.

Note 14:

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 International Accounting Standards Board.

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, 2013 are considered to approximate their carrying value.

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

July 31, 2013

January 31, 2013

Estimated

fair value

Carrying

value

Estimated

fair value

Carrying

value

Financial assets

Cash and cash equivalents

$

347,644

$

347,644

$

104,313

$

104,313

Accounts receivable

7,603

7,603

3,705

3,705

$

355,247

$

355,247

$

108,018

$

108,018

Financial liabilities

Trade and other payables

$

103,117

$

103,117

$

39,053

$

39,053

Interest-bearing loans and borrowings

5,065

5,065

56,307

56,307

$

108,182

$

108,182

$

95,360

$

95,360

Note 15:

Segmented Information

The Company operates in three segments within the diamond industry - Diavik Diamond Mine, the Ekati Diamond Mine and Corporate - for the three months ended July 31, 2013.

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, 2013

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

155,531

-

202,214

Total cost of sales

68,328

166,044

-

234,372

Gross margin

22,939

4,492

-

27,431

Gross margin (%)

25.1%

2.6%

-%

10.5%

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

3,816

(12,971)

12,375

Finance expenses

(15,710)

(3,927)

-

(19,637)

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

$ (2,551)

$

(12,971)

$ (12,189)

Segmented assets as at July 31, 2013

Canada

$ 1,052,351

$ 1,209,335

$

-

$ 2,261,686

Other foreign countries

30,011

3,606

-

33,617

$ 1,082,362

$ 1,212,941

$

-

$ 2,295,303

Capital expenditures

$ 5,553

$ 28,231

$

-

$ 33,784

Inventory

120,696

248,441

-

369,137

Other significant non-cash items:

Deferred income tax expense (recovery)

$ 4,063

$ (8,350)

$

-

$ (4,287)

For the three months ended July 31, 2012

Diavik

Ekati

Corporate

Total

Sales

North America

$ 2,269

$ -

$

-

$ 2,269

Europe

50,514

-

-

50,514

India

8,690

-

-

8,690

Total sales

61,473

-

-

61,473

Cost of sales

Depreciation and amortization

12,449

-

-

12,449

All other costs

34,335

-

-

34,335

Total cost of sales

46,784

-

-

46,784

Gross margin

14,689

-

-

14,689

Gross margin (%)

23.9%

-%

23.9%

Selling, general and administrative expenses

Selling and related expenses

1,050

-

-

1,050

Administrative expenses

-

-

4,700

4,700

Total selling, general and administrative expenses

1,050

-

4,700

5,750

Operating profit (loss)

13,639

-

(4,700)

8,939

Finance expenses

(2,151)

-

-

(2,151)

Exploration costs

(568)

-

-

(568)

Finance and other income

67

-

-

67

Foreign exchange gain

1,048

-

-

1,048

Segmented profit (loss) before income taxes

$ 12,035

$ -

$

(4,700)

$ 7,335

Segmented assets as at July 31, 2012

Canada

$ 937,687

$ -

$

-

$ 937,687

Other foreign countries

22,682

-

-

22,682

$ 960,369

$ -

$

-

$ 960,369

Capital expenditures

$ 15,788

$ -

$

-

$ 15,788

Inventory

141,678

-

-

141,678

Other significant non-cash items:

Deferred income tax recovery

$ (1,592)

$ -

$

-

$ (1,592)

For the six months ended July 31, 2013

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

175,178

-

264,207

Total cost of sales

130,216

185,691

-

315,907

Gross margin

49,967

4,766

-

54,733

Gross margin (%)

27.7%

2.5%

-%

14.8%

Selling, general and administrative expenses

Selling and related expenses

2,518

1,196

-

3,714

Administrative expenses

-

-

28,184

28,184

Total selling, general and administrative expenses

2,518

1,196

28,184

31,898

Operating profit (loss)

47,449

3,570

(28,184)

22,835

Finance expenses

(17,729)

(5,902)

-

(23,631)

Exploration costs

(3,250)

(935)

-

(4,185)

Finance and other income

1,307

529

-

1,836

Foreign exchange gain (loss)

516

(2,599)

-

(2,083)

Segmented profit (loss) before income taxes

$ 28,293

$ (5,337)

$

(28,184)

$ (5,228)

Segmented assets as at July 31, 2013

Canada

$ 1,052,351

$ 1,209,335

$

-

$ 2,261,686

Other foreign countries

30,011

3,606

-

33,617

$ 1,082,362

$ 1,212,941

$

-

$ 2,295,303

Capital expenditures

$ 16,491

$ 37,011

$

-

$ 53,502

Inventory

120,696

248,441

-

369,137

Other significant non-cash items:

Deferred income tax recovery

$ (412)

$ (12,616)

$

-

$ (13,028)

Sales to one customer totaled $49.0 million for the six months ended July 31, 2013.

For the six months ended July 31, 2012

Diavik

Ekati

Corporate

Total

Sales

North America

$

9,701

$

-

$

-

$

9,701

Europe

104,884

-

-

104,884

India

35,897

-

-

35,897

Total sales

150,482

-

-

150,482

Cost of sales

Depreciation and amortization

33,954

-

-

33,954

All other costs

82,929

-

-

82,929

Total cost of sales

116,883

-

-

116,883

Gross margin

33,599

-

-

33,599

Gross margin (%)

22.3%

-%

22.3%

Selling, general and administrative expenses

Selling and related expenses

2,023

-

-

2,023

Administrative expenses

-

-

10,467

10,467

Total selling, general and administrative expenses

2,023

-

10,467

12,489

Operating profit (loss)

31,576

-

(10,467)

21,110

Finance expenses

(4,393)

-

-

(4,393)

Exploration costs

(822)

-

-

(822)

Finance and other income

119

-

-

119

Foreign exchange gain

678

-

-

678

Segmented profit (loss) before income taxes

$

27,158

$

-

$

(10,467)

$

16,692

Segmented assets as at July 31, 2012

Canada

$

937,687

$

-

$

-

$

937,687

Other foreign countries

22,682

-

-

22,682

$

960,369

$

-

$

-

$

960,369

Capital expenditures

$

33,937

$

-

$

-

$

33,937

Inventory

141,678

-

-

141,678

Other significant non-cash items:

Deferred income tax recovery

$

(4,161)

$

-

$

-

$

(4,161)

For further information:

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

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

SOURCE Dominion Diamond Corporation