Dominion Diamond creditors worried about proposed deal
Diavik says Dominion overstated impact COVID-19 has had on diamond industry
Dominion Diamond Mines' biggest creditors are nervous about a proposal to bring the company out of creditor protection and resume operations.
The creditors financed the purchase of Dominion for $1.2 billion US by the Montana-based Washington Companies three years ago. In court filings they say Dominion now owes them $800 million.
Dominion filed for creditor protection in April. The company said it could not pay its debts — including to the creditors who financed the purchase — because the COVID-19 pandemic has essentially shut down the diamond industry.
The company has a 90 per cent stake in the Ekati diamond mine and owns 40 per cent of the Diavik diamond mine.
A subsidiary of the Washington Companies is offering to buy Dominion's assets for about $126 million US, plus loan it enough money to continue operating until it comes out of creditor protection.
In an affidavit earlier this month, a representative of the creditors says the bid is unfair because the Washington Companies have access to confidential information about Dominion that other stakeholders do not have. The creditors say the deal is "highly unusual and can lead to abuses and inequities without proper checks and balances."
Former Yellowknifer leading figure in Dominion's restructuring
One person pushing the deal is former N.W.T. cabinet minister Brendan Bell, who is also a former CEO of Dominion. Acting as an independent director of Dominion, Bell says the offer from Washington is being made to set a minimum price for the company.
"I am of the view that Dominion's business has value and is deserving of being restructured and saved," said Bell in a May 21 affidavit. "I say that considering not only the best interests of Dominion Diamond but also taking into consideration the interests of various stakeholders, including but not limited to, northern communities, employees, contractors, the environment, and creditors."
Bell noted that the offer by the Washington Companies will only be decided on after the end of a sales process aimed at soliciting bids and proposals from other potential buyers. Bell, who now lives in Kelowna, B.C., says Washington's bid "provides in my view significant value by setting a 'floor price' that will potentially be bested by any bids received."
The sales process proposed requires interested potential buyers to signal their intent to bid by June 26 and submit binding offers by Aug. 7.
Diavik says pandemic has not shut down industry
Dominion's controlling partner in the Diavik diamond mine, Diavik Diamond Mine Inc. (DDMI), was worried about being paid for Dominion's 40 per cent share of the operating costs for Diavik.
One of the reasons Dominion filed for creditor protection was that it could not pay a $16 million instalment on those operating costs that was due in April. DDMI says Dominion's share of operating costs is estimated to increase by an additional $141 million by July 17.
DDMI, which is owned by mining giant Rio Tinto, also says Dominion overstated the impact COVID-19 is having on the diamond trade when it said in court documents that the virus effectively shut down the industry. Dominion shut down operations at the Ekati mine in March to, it said, reduce the chance of spreading the COVID-19 virus.
Pointing the courts to a CBC story on COVID-19 and mining, it says other northern mines have continued to operate and do business. DDMI says it would have lost more than $100 million if it had shut down operations at Diavik because of the virus.
Earlier this month, an Alberta judge ordered DDMI to turn over to Dominion all diamonds processed at Diavik between April 1 and April 15. The judge also ordered that Dominion's share of diamonds from Diavik after April 15 will be held at a Yellowknife facility for the time being.