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CANADIAN DIAMOND MINING COMPANY GETS A REPRIEVE, BUT ITS LONG-TERM FUTURE STILL CLOUDY

 

Slowly, a sense of normality appears to be returning to the diamond industry. On November 13, Dominion Diamond Mines announced that 60 of its employees would be heading back to the Ekati mine, 300 kilometers northeast of Yellowknife in Canada’s Northwest Territories, after a more than a half-year of activities being suspended at the site.

According to a report broadcast on Cabin Radio, Dominion would be recalling the staff “to prepare for an anticipated restart” in early December, as soon appropriate health safety measures are in place. The company had shut the mine in mid-March due to the COVID-19 pandemic.

It is only a start, however, as more than 300 of Dominion’s employees remain furloughed, and the company itself is still in creditor protection. In late-September Dominion reportedly began laying off some workers.

Furthermore, the opening of the mine also does not really mean that risk of the pandemic is subsiding. COVID-19 infections are spiking across across southern Canada, where many of the mine’s workers will be headquartered.

EARLIER RESTRUCTURING DEAL FALLS APART

Dominion’s creditor protection arrangement, which it entered into in April, shortly after placing Ekati on care and maintenance in March, had been due to expire in early November, but it was extended to December 15, 2020.

In a statement released the day after the return to work was reported, Dominion said it has been informed by the banks and an ad hoc group of holders of its loans that they expected to be able to shortly reach a binding agreement to restructure the debt and funding of the company.

“In anticipation of the parties reaching such an agreement, Dominion has determined to recall these employees given necessary lead times required to mobilize the workforce while adequately complying with covid-19 isolation protocols,” it said.

Dominion said that after a complete halt to its diamond sales, which caused it to lose $180 million in April at the height of the lockdown, revenues have slowly returned.

But the future of Dominion, while apparently stable over the short term, remains uncertain.  

The Ekati Mine, which was shut down temporarily in March because of the COVID crisis.

An earlier proposal from an affiliate of the Washington Companies, its current equity owner, to provide debtor-in-possession financing, which would have helped provide sufficient liquidity to survive the bankruptcy process, fell apart in October.

The Washington Companies had proposed an asset sale, with which Dominion would pay or otherwise satisfy, among other things, all obligations to employees and governmental authorities, and all obligations under the company’s agreements with the First Nations and aboriginal groups in Canada.

But on October 9, three insurance companies that were underwriting a guarantee to the government of the Northwest Territories that Ekati could be closed safely and reclaimed once the mine closes permanently, declared they reached “an impasse” in negotiations. The Washington Companies sale had been subject to a condition that the insurance companies and the purchaser would reached an agreement.

The Diavik mine, in which Dominion holds a 40 percent share.

DIAVIK OPERATOR LOOKS TO SELL DIAMONDS HELD AS COLLATERAL

Dominion has with ownership interests in two major producing diamond mines the Northwest Territories – the Ekati Diamond Mine, in which it owns a controlling interest, and the Diavik mine, in which holds a 40 percent share.

In a related development, the Diavik mine’s management has appealed to the Canadian courts for permission to sell off tens of millions of dollars’ worth of diamonds it holds as collateral for money it is owed by Dominion. According to documents filed by Diavik Diamond Mines Inc. (DMMI), Dominion has not been paying its share of the operating costs of Diavik and the outstanding bill now stands at Can. $119.5 million plus interest of Can. $2.37 million.

On November 4, the judge in Calgary overseeing Dominion’s creditor protection case agreed to the sell-off, but said if an appraisal of the diamonds finds them to be valued at more than the debt owed, the excess diamonds must be turned over to Dominion.

DDMI is appealing the decision, saying that the appraisal would not take into account the costs it would incur to clean, market, transport and sell the diamonds. It has also argued that it should be able to sell the goods and recover its debt, before returning any excess funds to Dominion.

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