An Alberta judge has given Rio Tinto subsidiary DDMI the right to temporarily hold back some diamonds belonging to Dominion Diamond Mines.
DDMI owns 60 percent of the NWT’s Diavik diamond mine while Dominion owns 40 percent. The companies are in court because Dominion can’t currently pay its share of Diavik’s operating costs.
Dominion says it has run out of money because it can’t sell diamonds during the Covid-19 pandemic. The company has been in creditor protection since April.
Creditor protection means Dominion can pause many of its financial obligations while it finds a buyer, acquires new investment, or restructures.
Dominion and DDMI operate Diavik as a joint venture. The agreement is that DDMI pays all the costs, then Dominion makes regular payments to cover its share.
But Dominion hasn’t been able to make those payments since April 22 and is now in no position to resume paying.
By July, Dominion – which also owns and operates the Ekati mine, where work is suspended owing to Covid-19 – will owe DDMI around $60 million as a result.
As a result, DDMI went to court asking for permission to hold back the 40-percent share of diamonds from Diavik ordinarily due to Dominion. DDMI said those diamonds would act as additional security and, when Dominion makes up the missed payments, the diamonds will be handed over.
Dominion, by contrast, argued the existing agreement governing how Diavik is managed already gives DDMI first right to all of the mine’s assets in these circumstances, and that should be security enough.
On Friday, Court of Queen’s Bench Justice Kristine Eidsvik said Dominion’s share of diamonds from April should be delivered to the company as normal, but ruled the May diamond delivery could be held back by DDMI.
Dominion’s share of Diavik’s May production will now be kept at a diamond sorting facility in Yellowknife. DDMI will not be allowed to sell any of those diamonds.
The order is temporary. Justice Eidsvik said the order would be revisited if (most likely, when) Dominion applies to extend its time in creditor protection, which currently expires on June 1.
Eidsvik agreed with DDMI that as Dominion said it can’t currently sell diamonds – the pandemic is preventing its movement of diamonds from Canada to facilities in India, while diamond trading floors in Belgium are closed – then withholding diamonds should make no difference for the time being.
Differing Covid-19 approaches
Meanwhile, we could know more about Dominion’s future – and any potential new owner, investor, or lender – as soon as next week.
In court documents, the independent monitor appointed to oversee Dominion’s insolvency protection process says “it is likely that an application may be filed as early as the week ending May 22, 2020 to approve an interim financing facility and a sales and investment solicitation process.”
The monitor continues: “At that time, the identity of the interim lender selected by [Dominion] will be known, along with additional details about the timing and likely path of [the creditor protection] proceedings.”
Dominion’s interim chief executive has repeatedly sought to assure staff at the Ekati mine that the company is not going bankrupt. Hundreds of staff have been sent home since the mine was shut down in March over fears about the pandemic and its health effects at remote work sites.
Diavik, however, has remained operational.
The views of DDMI and Dominion on the wisdom of diamond mines staying open appear to sharply differ, despite their partnership in operating Diavik.
In court documents earlier this month, DDMI finance manager Thomas Croese said Dominion had kept DDMI in the dark about its plan to go into creditor protection. He claimed Dominion’s plans could ultimately “have the effect of closing the Diavik mine” – as well as Ekati – unless the court intervened.
Croese said in an affidavit that shutting down Ekati had deprived Dominion’s workers, and their communities, of important economic benefits. He said Dominion’s approach to creditor protection showed “no regard for the welfare and vulnerability” of NWT employees, contractors, and communities.
Dominion maintains putting Ekati into care-and-maintenance mode was the safe thing to do.
“As the spread of Covid-19 subsides and diamond markets reopen, Dominion plans to resume mining operations at Ekati and safely recall its furloughed workers,” the company told Cabin Radio in April.
“Furloughed employees will continue to receive the benefits they have been provided while they are not working. Our commitments to employees and local communities remain a top priority for Dominion,” that statement continued.
“We expect in the coming months to reach an agreement on a comprehensive plan that will reduce our long-term debt and best position the company financially and operationally for long-term success when global economic and industry conditions improve.”