The diamond industry changed last year when Harry Winston Diamond Corp. sold its luxury jewelry and timepiece business and became a mining company called Dominion Diamond (NYSE: DDC). Harry Winston Diamond already had a 40% stake in the Diavik mine, operated by Rio Tinto (RIO 0.74%). The new company retained that stake and purchased the Ekati mine from BHP Billiton, giving Dominion Diamond interest in two major Canadian diamond mines.

Over the course of the year, Dominion Diamond has claimed the title of third-largest diamond producer by value. Investors have barely flinched, but are they missing a sparkling opportunity?

What's going on at Diavik?
Investors can find comfort in Dominion Diamond's stake in Diavik for at least two reasons. First, the property is fully operated by Rio Tinto, a highly experienced diversified mining company. Rio Tinto does all the work and tosses Dominion Diamond its share of the diamonds. All Dominion Diamond has to do is pay 40% of the bills.

Second, Diavik is a free cash flow generator that is expected to be in production until 2023, given current reserves. At this point, there aren't any major projects under way requiring a large capex budget. All that's needed is a bit of sustaining capital, which for Dominion Diamond totaled $6.8 million during the first quarter of its 2015 fiscal year, compared to sales of $82.7 million.

And Rio Tinto appears to be putting the money Dominion Diamond spends on the mine to good use. Ongoing optimization efforts have led to lower costs and higher margins. The company recently reported a 38% increase in diamond recovery compared to the second calender quarter of last year. Since the mine is exceeding planned production, Rio Tinto has updated its forecast to 6.5 million carats as opposed to previous plans for 6.1 million carats this year.

How is Dominion Diamond doing at Ekati?
Dominion Diamond took over operations of Ekati last year after the purchase. Since then, the company hasn't been slacking. During Q1 2015, Dominion Diamond plucked more small diamonds from the ore, meaning its flagship mine is also ahead of production estimates. The company fetched a higher than expected average carat price, reporting better than expected sales of $92.8 million. During the quarter, Dominion Diamond also earned, but excluded, an additional $6.9 million for diamonds recovered from excavation material.

Meanwhile, Dominion Diamond is busy investing in bringing new sources of production online at the mine.

Current diamond reserves are expected to be depleted by 2019, but the company expects its Jay project to be the future beyond that. The Jay pipe is projected to be larger and contain more carats of diamonds than any pipe mined at Ekati thus far. It's expected to add about 10 years to Ekati's mine life, and Dominion Diamond claims to have a new plan for the project that will allow it be built faster and with less environmental impact. According to that plan, construction could begin in 2016 and production will coincide with the depletion of the current reserves in 2019.

What about Dominion Diamond's finances?
Dominion Diamond has a sharp balance sheet and a history of savvy financial management. Instead of using debt to acquire Ekati, Dominion Diamond turned its back on available credit lines and used cash. The company currently has a $45 million revolving credit facility with Antwerp Diamond Bank, which had a zero balance as of last quarter.

This new diamond miner reported $212.5 million in cash and cash equivalents, $115 million of restricted cash (required by the government for future reclamation efforts), and a rough diamond inventory valued at $285 million, as of the end of Q1 2015.

During that quarter, in which the company booked a $10.7 million net profit, earnings per share more than tripled, jumping to $0.17 from $0.04 a year earlier. Dominion Diamond is currently trading at 2.5 times earnings. Yet over the past year, its shares have languished, failing to maintain a push above $15, and are currently hovering in the red.

Keep Dominion Diamond on the radar
Dominion Diamond appears highly overlooked, underestimated, and undervalued. Investors shouldn't sleep on this stock. Granted, it may seem a like a leap of faith to believe a company can successfully jump from jewelry to mining, but Dominion Diamond is pulling it off, and the future looks bright as the company's results are continually improving.

Analysts are bullish; eight have a buy rating on the shares alongside one who has a hold, according to Bloomberg data. If you aren't ready to jump on board, at least put Dominion Diamond on your watchlist. Its second fiscal quarter of 2015 ends this month, so be on the lookout for the results.