Dominion Diamond Mines files for insolvency protection
Dominion Diamond Mines, owner of the NWT’s Ekati mine and major stakeholder in its neighbour, Diavik, has filed for insolvency protection.
In a news release on Wednesday afternoon, the company said it had obtained an order from the Alberta Court of Queen’s Bench granting creditor protection.
The decision follows months of worsening news for Dominion, including several bleak outlooks from credit rating agencies.
The company, which owes almost $800 million, blamed the Covid-19 pandemic. “Dominion is currently unable to meet its obligations as they generally become due,” stated a report on the company’s financial condition made public as part of Wednesday’s court filing.
The Ekati mine has suspended work since March as a response to the Covid-19 pandemic. Diavik remains in operation.
Ekati employees, including those recently laid off following the suspension at Ekati, were informed of the decision via recorded message earlier on Wednesday.
That message stated the mine will remain in care-and-maintenance mode for the foreseeable future.
Dominion expects to lose a further $39 million between now and July as it goes through the creditor protection process. Even after pandemic-related layoffs, the company is still paying a little over $1.5 million in payroll every two weeks.
The Ekati mine is the NWT’s largest and at the centre of the territory’s economy, more than a third of which is driven by mining.
More than a thousand jobs are directly or indirectly attached to the mine’s fate.
“I’m a bit gobsmacked here, learning of this,” said Tom Hoefer, executive director of the NWT and Nunavut Chamber of Mines. “I’m wondering what it’s going to mean.”
The chamber had been lobbying the federal government to give financial support to the territory’s mines during the Covid-19 pandemic.
“We’re expecting Diavik to close in five years, all sights were around that, worrying about getting new mines to replace that loss,” said Hoefer. “That doesn’t change, Diavik’s on that trajectory. Now we have this ahead of it, so it’s a double whammy.”
Julie Green, the Yellowknife Centre MLA, described a “feeling of dread as our economy takes another step down” on Twitter.
“We are already reeling from the pandemic,” she added.
The territory’s finance minister, Caroline Wawzonek, told Cabin Radio: “We got a heads-up today. We didn’t really get much of a heads-up, [but] this is a private company and they are going to take care of themselves in the way that they have to.
“This is still a very viable mine site. There are obviously some cash challenges they are facing. This doesn’t necessarily mark the end, it may mark a restructuring or some other investment of cash.
“They made a real point of saying they are going to take care of their employees and I think, for now, that should be good news for everybody.”
Sorting houses, diamond markets closed
Insolvency protection does not mean Dominion is bankrupt or in receivership, and is designed to avoid those eventualities.
Being granted protection allows the company to temporarily avoid repaying creditors while coming up with a plan to either restructure, track down new investment, or find a buyer.
Before recent layoffs, Dominion had 634 employees. Last year, it used the services of an additional 425 contract workers.
Around of quarter of people receiving work at Ekati were northern, Indigenous employees or contractors.
In 2018 and 2019 combined, the company says it spent $524 million with northern businesses, of which $319 million went to Indigenous businesses. The company made more than half a billion dollars in diamond sales in the last financial year alone.
As well as owning and operating Ekati, Dominion holds a 40-percent stake in the Diavik mine. Rio Tinto, which holds the remaining 60 percent and operates Diavik, declined to comment for this article.
In Wednesday’s news release, Dominion says the Covid-19 pandemic triggered the need for creditor protection.
“Although the company has strong diamond inventory, sorting houses and diamond markets are closed,” Dominion wrote. Dominion supplies diamonds to the global market through sorting operations in Mumbai, India and a sales centre in Antwerp, Belgium.
“These are key channels to facilitate the sale of the company’s inventory,” the compay continued, “so currently there is no ability to generate sufficient revenue to support Dominion’s ongoing financial obligations.”
‘If this is done, it’s a huge loss’
The news release states Dominion is considering using money from an affiliate of its owner, the Washington Companies – which bought Dominion for $1.2 billion in 2017 – to provide “sufficient liquidity” through the creditor protection process.
The news release suggests the same Washington Companies affiliate is set to become a “stalking-horse bidder.” A stalking-horse bid is effectively a reserve bid, set at the start of the process to ensure the company cannot sell for less than a certain value.
Dominion said creditor protection was the only remaining option after attempting to cut costs.
“I don’t know what the outcome is going to be,” said Hoefer. “Is it an opportunity for this to be sold to somebody else and open again and operate? Or is this a done project?
“If this is done, then it’s a huge loss to the economy. If you pull the largest mine out, that is hugely significant.”
Sarah Pruys contributed reporting.