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Dominion Diamond sues partner in Diavik mine for breach of contract, other allegations

One of the N.W.T.'s largest employers alleges the management of the jointly owned Diavik diamond mine has crippled its finances and hindered its recovery.

Troubled company alleges the management of the joint venture diamond mine is crippling it

The open pit at the Diavik diamond mine in the Northwest Territories on May 2, 2016. Dominion Diamond is suing its partner in the mine. The company alleges breach of contract, among other claims. (Ben Nelms/Bloomberg/Getty Images)

Dominion Diamond Mines has filed a lawsuit accusing Diavik Diamond Mines (2012) Inc. — its 60 per cent partner in the Diavik diamond mine in the Northwest Territories — of managing the mine to the benefit of its majority owner, Rio Tinto, and to the detriment of Dominion. 

The civil lawsuit, filed Tuesday with the Supreme Court of British Columbia (where Dominion is incorporated), claims Diavik Diamond Mines (DDMI) has continued to make cash calls from Dominion "knowing that Dominion has no ability to pay for such cash calls."

Cash calls are basically requests from Dominion's partner in the mine to cover its share of operating costs or other obligations.

It also states that Diavik has failed to meet production targets while running significantly over budget, and without regard for the negative economic climate created by the global COVID-19 pandemic.

These and other factors, Dominion claims, have "created a liquidity crisis for Dominion that rendered it insolvent."

Dominion owns a 40 per cent stake in the Diavik mine, which is managed by DDMI, a wholly-owned subsidiary of global mining giant Rio Tinto. It funds its business by selling raw diamonds produced at the mine, as well as at the Ekati mine. Dominion sought creditor protection earlier this year, citing an inability to sell raw diamonds during the COVID-19 crisis, which has shuttered polishing plants around the world. 

"Without Dominion being able to generate revenues due to COVID-19 related impacts on the diamond market and Dominion's business operations, the [Diavik] cash call payments have drained Dominion's cash reserves and contributed to Dominion's liquidity crisis," the statement of claim reads in part.

Court filings following creditor protection had already revealed a growing rift between the two companies. The creditor protection sought included $16 million Dominion owed DDMI at the time.

Dominion is seeking damages, costs, and a ruling that the joint venture agreement has been broken. No cash value was given in the filing.

Rio Tinto says Dominion's allegations 'baseless'

The Ekati diamond mine, which Dominion holds a 90 per cent stake in, suspended operations on March 19, citing concerns around the novel coronavirus.

In an email to CBC News on Tuesday, a spokesperson for Rio Tinto described Dominion's allegations as "baseless."

"Rio Tinto has managed the Diavik diamond mine successfully for over fifteen years for the benefit of its owners, the Northwest Territories, local communities, governments, employees and suppliers," the spokesperson stated in the email.

"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."

It now remains for DDMI to file a response to the civil claim.

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