Dominion Diamonds says the proposed sale of Ekati is off
Dominion said surety bond users and the purchaser reached an 'impasse in negotiations'
The owner of the Ekati diamond mine in the Northwest Territories says the proposed $166 million dollar sale of the mine to affiliates of the Washington Companies is off.
In a press release Friday Dominion Diamonds said it had stopped negotiations around the proposed sale of certain Dominion assets, including the Ekati mine.
In the press release Dominion said it has been advised that surety bond users and the purchaser reached an "impasse in negotiations" with no reasonable chance of reaching an agreement that is satisfactory to all parties before the deal was set to go before the courts for approval on Oct. 14.
Central to the termination of the proposed sale are $280 million surety bonds posted with the Government of the Northwest Territories. The money is security against eventual reclamation expenses at the Ekati mine site. Surety bonds are a promise to pay a financial obligation on behalf of another individual or company, if that party should fail to meet its financial obligations.
In the press release, Dominion said the prospective purchasers were unable to reach an agreement with three insurance companies that are posting the reclamation securities for the mine.
MLA Kevin O'Reilly, a long time observer of the mining industry, said the collapse of the proposed deal over security is worrying, and said he has concerns about the government accepting surety bonds from insurance companies as security.
"It does raise some questions about what is going on and whether these surety bonds are as secure as people think they are," he said.
O'Reilly said the government previously only accepted irrevocable letters of credit as security. He said those are much easier to cash and transfer compared to surety bonds.
There are also concerns about the company's share of the security for the Diavik mine, of which Dominon is a 40 per cent owner. An affidavit filed in the creditor protection case shows Dominion owes more than $41 million for its share of the security for that mine.
Plan to restart further delayed
Last month, Dominion Diamond Mines ULC said it planned to return the suspended project to full operating status after accepting a "stalking horse bid" by an affiliated buyer to allow it to exit court protection from creditors.
Dominion Diamond Mines ULC said at the time the bid submitted by Canadian Diamond Holdings, LP and CA Canadian Diamond Mines ULC, affiliates of the Washington Companies, was the only qualified bid made under a sales process approved by the Court of Queen's Bench of Alberta.
The offer to purchase was the only bid received for Dominion's assets.
The bid for about US$126 million (C$166 million) in cash provided for the purchase of substantially all of Dominion's assets related to Ekati and the assumption of Ekati-related operating liabilities, which includes offering employment to Dominion's employees and the assumption of pension obligations.
With files from Richard Gleeson