The same federally backed corporation that already loaned Ekati $175 million is offering up another $60 million to keep the lights on while the insolvent diamond mine tries to find a buyer.
Ekati owner Arctic Canadian Diamond Company (ACDC), a subsidiary of Australian-owned Burgundy, entered creditor protection at the start of the month with huge debts.
The mine is still operational but forecast to lose tens of millions of dollars in the months ahead because natural diamond prices have cratered.
In fresh court documents made public on Monday, ACDC began trying to find someone to buy Ekati – and the federal government put up a fresh $60-million loan to keep the mine running while that happens over the next half a year.
As a result, Ottawa is now both the mine’s largest creditor and the lifeline keeping it open.
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More than $200 million in taxpayer money has been committed to Ekati in the past six months, but the situation has only worsened so far. Jobs have been lost and the cash flow picture for the next half a year is grim – the mine expects to burn through almost the entire $60 million in new financing just to keep operating through November.
The British Columbia court in charge of the insolvency process has extended a stay until late July, meaning the mine has until at least that time to show progress in rearranging its finances. Creditors can’t make claims while the stay is in place.
The stay buys ACDC and a court-appointed monitor – FTI Consulting – time to shop Ekati around for a buyer. A timeline presented to the court expects final bids by September 25 and a deal to close by November 6, assuming a serious bidder can be found.
In an affidavit, Burgundy head of finance Brent Mierau acknowledged the pool of possible buyers is “relatively limited.” He said another federally backed loan was “the most viable option” available for the time being.
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Environmental warning
The Canada Enterprise Emergency Funding Corporation – the entity that has issued all of Ekati’s federally backed loans – plans to send the latest $60 million in chunks, starting with up to $10 million available from this week.
The remaining $50 million is only released if CEEFC is satisfied with initial letters of intent received from prospective bidders by July 10.
The loan comes with a 14.5-percent interest rate. The terms associated with it also give CEEFC considerable input into the coming sale process.
Meanwhile, the court documents’ wording is becoming increasingly pointed around the potential environmental consequences at Ekati.
Mierau, in his affidavit, stated: “Without the injection of this working capital, the value of the Ekati Mine will erode rapidly and there is a risk of significant environmental issues.”
Estimates in earlier documents suggested the security set aside to remediate Ekati, about $327 million, is some $100 million short of the actual cost of the work.
The NWT government is understood not to have had the opportunity to independently assess the mine’s math on that front.
