Dominion, in a gamble, agrees to buy 10M litres of fuel for Ekati

Dominion Diamond Mines has committed to purchasing 10 million litres of diesel fuel to restart the NWT’s Ekati diamond mine, court documents suggest.

The purchase is a risk as Dominion is financially troubled and in the process of selling Ekati to a separate company owned by its parent group, Washington.

That separate Washington-owned company has made no commitment to purchase any fuel if its acquisition of Ekati goes ahead, an affidavit filed in an Alberta court states.

There is no date for work to resume at Ekati, which suspended operations in March when the Covid-19 pandemic reached the NWT.

But Dominion believes any chance of Ekati coming back to life in the next year will evaporate if no diesel fuel is sent to the mine when the ice road reopens this winter.

“If Dominion does not arrange for the purchase of additional diesel fuel and the transportation thereof to the Ekati mine during the 2021 ice road season, there will be no ability to restart the Ekati mine until 2022,” reads an affidavit filed by Brendan Bell, a director of Dominion.

Bell says Dominion made the deal with an unnamed supplier on September 25. Shipment of the fuel by rail will begin in around two weeks’ time.

Bell’s affidavit states the first payment is required “15 days after delivery,” which would be beyond the November 7 deadline by which Dominion’s sale of its Ekati assets is supposed to be complete.

Given the company buying those assets has made no commitment to pay for any fuel, the deal represents a risk not only for Dominion but for the supplier, too.

Bell states 10 million litres is “only a portion” of what is needed to run the mine, but was “the maximum amount that the supplier would permit on these purchase terms.”

He concludes: “In the circumstances, it was determined that proceeding with this purchase was the prudent thing to do.”

Clash over sale process

Hundreds of workers are waiting to return to Ekati having been furloughed for the past six months, while local suppliers have also felt the financial impact of work stopping and Dominion entering creditor protection pending sale of its mine assets. (Creditor protection allows Dominion to pause repayment of many debts, including those owed to a range of NWT companies.)

Dominion last week terminated the employment of more than a dozen staff, some of them managers, who were offered no severance. The company said that action was responsible in its financial predicament.

Bell’s statements regarding the agreement to purchase fuel are not only an indication of what he believes is necessary to restart the mine, but also appear to put pressure on the court in the broader context of Ekati’s sale.

The Court of Queen’s Bench of Alberta will be asked next week to approve the sale of Dominion’s Ekati assets to the Washington-owned subsidiary that bid for them.

Dominion and Washington want that process to wrap up as soon as possible.

However, the only other group to come close to bidding for those assets – a collective of Dominion’s creditors – says the deal is being hurried through and its attempts to file a competing bid were frustrated.

In that light, Bell’s affidavit suggests any further delay will imperil the likelihood of Ekati reopening soon, as the 10 million litres may not be promptly paid for and delivery during the ice road season may be jeopardized.

Bell states Ekati could lose staff, contractors, suppliers, customers, and the goodwill of communities and Indigenous groups with any further delay – such as if the court chooses not to approve the deal on the table.

That deal would see the Washington-owned subsidiary acquire Dominion’s Ekati assets for US$126 million and the assumption of the mine’s debts.

Both Bell’s document and another affidavit – each filed in support of the existing bid – suggest the group of creditors have their own actions to blame for missing an extended bidding deadline.

The creditors’ lawyers say Dominion didn’t make enough effort to help them put together a meaningful bid. They say the sales process should be reopened and modified.

A court is due to hear from all parties on October 14.