Dominion Diamond analysts say shareholder concerns are overblown

Mining analysts say Dominion Diamond Corporation is not doing nearly as badly as a small group of the company's shareholders is suggesting.

The shareholders say Dominion, which owns stakes in two diamond mines northeast of Yellowknife, is not doing enough to rein in expenses. They also say the company should have used some of its $300 million in cash to buy back its shares.

Such action typically results in a short term increase in stock prices. But that would be a bad move, said John Kaiser, a diamond industry analyst.

"Using cash on hand in the worst bear [slow] market ever for resource companies is a foolish suggestion because of the difficulty in raising fresh capital from a market that has written off the commodities sector for the next 12 to 18 months," said Kaiser.

Kaiser instead recommended that Dominion use its cash to buy other mining properties.

Edward Sterck, with BMO Capital Markets, said Dominion is a good investment.

"The outlook is very attractive. The potential cash generation is very good. It just takes time to get to that point."

Dominion's share price has dropped from around $23 last spring to less than $14.

The company refused to comment on the shareholder criticism.