Dominion Diamond Mines sues DDMI over Diavik operations

Dominion Diamond Mines is suing its partner at the NWT’s Diavik mine, DDMI, alleging breach of contract and breach of fiduciary duty.

Dominion filed the lawsuit in the Supreme Court of British Columbia. Rio Tinto subsidiary DDMI owns 60 percent of Diavik, while Dominion owns the other 40 percent.

The lawsuit states DDMI has operated Diavik in a manner demonstrating “willful misconduct and gross negligence.” DDMI has yet to respond to the allegation.

The two companies are already wrapped up in separate legal proceedings relating to Dominion entering creditor protection.

Dominion said it had to enter creditor protection – which allows it to pause payments on a range of debts while it restructures – as it doesn’t have the money to keep operating the Ekati diamond mine, a neighbouring mine to Diavik. Dominion owns 90 percent of Ekati.

Ongoing discussions about how Dominion should be sold or restructured, and what should happen to its share in Diavik, have seen relations between the two companies worsen.

The latest court filings by Dominion’s lawyers in the creditor protection process noted: “It is abundantly clear that the applicants and DDMI do not see eye-to-eye and have not done so for some period of time.

“While not only direct competitors, litigation appears inevitable.”

What does Dominion allege?

At Diavik, DDMI runs the mine while taking regular payments from Dominion to cover Dominion’s 40-percent share of the costs. The two companies then split up the diamonds mined at Diavik and make whatever money they can with their share.

Dominion’s lawsuit alleges DDMI’s operation of Diavik “is significantly over budget and production has failed to meet targets.”

The lawsuit continues: “DDMI’s poor performance preceded the impact of Covid-19 and has continued to deteriorate.”

Dominion says DDMI is asking for increasingly large sums of money to cover Diavik’s running costs, without adequate diamond production to show for it.

“Despite repeated requests for information, DDMI has refused or neglected to provide all relevant current information to Dominion,” the lawsuit continues.

“At the direction of Rio [Tinto, its parent], DDMI has been and continues to prioritize the interests of DDMI and Rio in its management of the Diavik mine – to the detriment of Dominion and the joint venture as a whole.”

Dominion says DDMI chose to keep Diavik open during the Covid-19 pandemic “without taking into account the disruptions to the diamond industry [and] Dominion’s circumstances.”

The lawsuit claims DDMI kept Diavik open knowing that Dominion would not be able to keep paying its share of the running costs during the pandemic, as Dominion has had trouble moving and selling its diamonds while various travel and health restrictions are in place.

Dominion has previously said it can’t move diamonds from Canada to its plants in India, while diamond trading floors in Belgium were closed during the pandemic. DDMI, by contrast, has stated it has maintained an ability to sell its diamonds.

Latest clash of NWT mining giants

The two companies have already clashed over their differing philosophies during the pandemic.

In earlier court documents related to Dominion’s financial crisis, a DDMI employee questioned Dominion’s decision to shut down the Ekati mine at the pandemic’s onset, suggesting the suspension of work showed “no regard for the welfare and vulnerability” of NWT businesses, employees, and communities.

DDMI has claimed Dominion’s financial trouble, and its decisions during the creditor protection process, could ultimately “have the effect of closing the Diavik mine.”

No allegations have been proven in court.

“Rio Tinto has managed the Diavik diamond mine successfully for over 15 years for the benefit of its owners, the Northwest Territories, local communities, governments, employees, and suppliers,” Rio Tinto said in a statement.

“We are confident that we have acted appropriately at all times and will be vigorously defending these baseless claims by Dominion, just as we continue to protect Diavik’s interests in Dominion’s insolvency proceedings.”

A plan to sell Dominion’s assets to its parent company, the Washington group, is still moving through the creditor protection legal process. The next court date is this Friday.