'All bets are off' as Dominion Diamond Mines faces severe cash crunch
Alberta court grants Dominion's protection order, company cites COVID-19 pandemic as a factor
Dominion Diamond Mines has been granted a reprieve after filing for insolvency protection, the company announced Wednesday in a press release.
According to the release, the company and some of its affiliates "have filed for insolvency protection under the Companies' Creditors Arrangement Act (CCAA)" and has received an order from the Alberta Court of Queen's Bench granting protection to the company under the act.
"Dominion intends to use the CCAA process to engage in discussions with its lenders, creditors, equity owner and other stakeholders and to solicit and evaluate strategic alternatives to restructure the company financially and operationally, and position it for long-term success when global economic and industry conditions improve," the press release states.
Dominion Diamond is the controlling owner of the Ekati Diamond mine, and is a 40 per cent partner with Rio Tinto PLC in the Diavik Diamond mine — both in the Northwest Territories, approximately 300 kilometres northeast of Yellowknife.
Operations at the Ekati mine have been suspended since March 19 in light of the COVID-19 pandemic, while production at Diavik continues.
Dominion Diamond owes its creditors $550 million. That bill is due in 2022. Credit agencies were already skeptical that it would actually pay this off.
Seattle-based Washington Companies is the equity owner of Dominion Diamonds and, according to the press release, has offered to provide sufficient cash to see the company through the CCAA process. In exchange, Dominion Diamond would agree to a memorandum of understanding regarding the sale of its assets to a Washington Companies affiliate.
The company shouldered the immediate cause of its financial problems on the COVID-19 outbreak.
"The CCAA filing was necessitated primarily by the impact of the COVID-19 pandemic," states the press release.
"Although the company has strong diamond inventory, sorting houses and diamond markets are closed. These are key channels to facilitate the sale of the company's inventory, so currently there is no ability to generate sufficient revenue to support Dominion's ongoing financial obligations."
A 'big deal for the North'
"I was shocked. I wasn't expecting this at all," Tom Hoefer, executive director of the N.W.T. and Nunavut Chamber of Mines, told CBC News late Wednesday.
"I guess we'll have to see how long it takes for them to get through this CCAA protection and what comes out the other end. It seems like their plan is to restructure, which doesn't sound like a mine closure but … all bets are off right now because we just don't know what the future is going to look like in the diamond markets, and so we'll have to wait and see," Hoefer said.
I was shocked. I wasn't expecting this at all.- Tom Hoefer, N.W.T. and Nunavut Chamber of Mines
"But I think their plan is to emerge out of this healthy and, in a sense, able to do something, but what that will be we just don't know."
In an interview with Cabin Radio on Wednesday evening, N.W.T. Finance Minister Caroline Wawzonek said the territorial government received little advance notice of the announcement, saying they only learned of it that same day.
According to the N.W.T. Bureau of Statistics, diamond mining was responsible for approximately $1.7 billion of the territory's GDP, or 35 per cent of GDP by industry type.
"It's a big deal for the North because it's the biggest mine, the biggest diamond mine, and it's contributed a heck of a lot to our economy just from that one mine," Hoefer said.
"At the same time, we got Diavik which is still talking [about] its closure in 2025, and that's not gone away … It's got big implications."
Dominion Diamond stated that it expects to return the Ekati mine to operation once the COVID-19 pandemic eases and diamond markets reopen.
"Dominion continues to believe in the long-term viability of its assets and expects to emerge stronger and better able to deliver value to all stakeholders," its press release states.
The company also stated it expects to "arrange for sufficient liquidity to meet its post-CCAA filing obligations to current employees and suppliers of goods and services."
FTI Consulting Inc. is the court-appointed CCAA proceedings monitor.
With files from Hilary Bird and Donna Lee