Dominion Diamond Mines, which operates the Ekati diamond mine and is a minority owner Diavik Diamond Mine, has filed for insolvency protection according to a Businesswire.
The filed action was made under the Companies’ Creditors Arrangement Act and obtained through the Alberta Court of Queen’s Bench, according to the news release.
Ekati, about 300 kilometres northeast of Yellowknife, has been in production since 1998. In October, Bloomberg Press reported that diamond sales for De Beers’ global operations, which includes Gahcho Kue in the NWT, had tumbled 39 per cent from a year earlier.
“Dominion has received and is considering a proposal from an affiliate of The Washington Companies, Dominion’s current equity owner, to provide debtor-in-possession (“DIP”) financing, which would help provide sufficient liquidity through the CCAA process,” states the news release.
“This proposal is conditional upon Dominion agreeing to: (i) a Memorandum of Understanding (MOU) regarding a possible sale of its assets to an affiliate of The Washington Companies, as a stalking horse bidder; and (ii) bidding procedures for the solicitation of competing offers to such asset sale, either to purchase the Company’s assets or to make an investment in the Company. If the Washington proposal is agreed to by Dominion, the DIP financing, MOU for an asset sale and bidding procedures will be subject to approval from the Court with notice to interested parties.”
The news release states that the CCAA filing was “primarily” done because of the economic impacts from the covid-19 pandemic.
“Although the company has strong diamond inventory, sorting houses and diamond markets are closed,” the news release states. “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.”
The news release states that the pandemic and its associated health and safety restrictions has created a “rapidly evolving environment” that has presented uncertainty. This has included “market dislocation” and “continued capital calls from the Diavik joint venture.”
“The company believes that filing for protection under the CCAA is the most prudent course of action,” the release reads.
The full news release can be read below:
Employment and economic impact
Of Ekati’s 1,625 employees in 2018, 715 (44 per cent) were Northerners, and 408 (25 per cent) were Northern Indigenous. Among the latter workforce, two people were listed as managers, one as a professional, 97 as skilled employees, 199 as semi-skilled and 110 as entry-level. Women occupied 226 positions, or 14 per cent of the total workforce.
The NWT’s three diamond mines have collectively spent close to $14.5 billion with Northern businesses since 1996, which represents nearly 70 per cent of their total procurement, according to the 2018 GNWT socio-economic report. Close to $6.5 billion has been spent with Northern Indigenous businesses since 1996.
Mining accounted for nearly $1.8 billion of the NWT’s $4.95 billion gross domestic product in 2018, or approximately 36 per cent. The GNWT has collected an average of nearly $100 million in yearly revenue – primarily taxes and royalties – from diamond mines over the past decade, a 2018 GNWT socio-economic report states.
Ekati’s $302 million allocated to Northern businesses accounted for 57.6 per cent of its overall $524 million in spending in 2018. Half of the Northern spend, or $151 million, went to Indigenous enterprises.
NWT Cabinet and MLA reaction
Caroline Wawzonek, minister of finance said on Cabin Radio, that she had only been given the news about Dominion on Wednesday afternoon and that Cabinet had no advanced warning.
“This is still a very viable mine site and there are obviously cash challenges they’re facing,” she said. “This doesn’t necessarily mark the end. It may mark restructuring or some other sort of investing of cash.
“I don’t have this information and it isn’t really mine to be getting into.”
Wawzonek said she was pleased to see based on the news release that the company would continue paying their employees and continuing to maintaining the site.
“That’s not to say we are not disappointed to see this news, obviously.”
Katrina Nokleby, minister of industry, tourism and investment provided a statement to Northern News Services on Wednesday night stating she was disheartened by the announcement.
“The mining sector is the biggest source of private sector jobs and income for our residents and has been part of our landscape for almost 100 years,” she stated. “Despite the economic challenges faced during this pandemic, I remain committed to ensuring this sector has the tools it needs to endure and rebound. All sectors of the global economy are suffering from the impacts of COVID-19. Many are being forced to make difficult decisions like the one Dominion had to make today, but the Government of the Northwest Territories will continue to collaborate with industry to overcome the challenges ahead.”
City of Yellowknife
City of Yellowknife Mayor Rebecca Alty the news is “very” disappointing given the company’s role in the city.
“It’s such an important part of our economy and it creates a lot of jobs in Yellowknife and a lot of business spent here,” she said. “Anytime you see news like this it hurts. I hope it is the pause they need to restructure and coming out of the Covid-19 restrictions, they will be up and running again.”
Alty said that from discussions she has had with the company the pandemic has led to the inability to sell product.
“From my understanding in talking to Dominion this (filing for insolvency protection) was the option they would like to take to deal with one of the Covid challenges that they are facing which was being unable to sell their product,” Alty said. “With their India and Antwerp offices still closed, they do have their diamonds but they just can’t sell them. So they can’t make their debts.”
Todd Parsons, president of the Union of Northern Workers, who represents more than 400 workers with the company said the news came as a surprise, especially as the union had been in contact with the company shortly before the news release was issued. He added that the union is disappointed as it does add “another extra layer of stress” to members who have been dealing with the impacts of Covid-19.
“Our initial reaction was that we were very surprised because we had no indication prior to being advised by the employer that there were any concerns around solvency for the company,” he said. So we were caught off guard.
“We had no indication and no reason to give thought that there were solvency issues for this company.”
Parsons said the union is currently reviewing the court affidavit submitted on behalf of the employer. Once that process is done, he said the union will have a better understanding of what the full impacts will be to members and how to approach them.
Town halls planned by the company are schedule for employees to ask questions and are something the union wants to be involved in, he added.
The biggest priority is to ensure members have job security as the company works through its restructuring while avoiding bankruptcy.
“We’re hoping to be a part of that process and we have submitted a request to take part,” he said. “For the union, we are going to continue to protect our members and all of their benefits and their rights that are under the current collective agreement and labour law in general.”
Michael McLeod, Member of Parliament for the Northwest Territories said he has been in contact with the Northwest Territories and Nunavut Chamber of Mines as well as northern chambers of commerce in recent weeks and there were signs that the industry was struggling. It was hoped that such bad news could have been avoided, he said.
“We knew that this downturn in the economy and downturn in the market sales for diamonds along with the effects of the pandemic could lead to this,” he said
“I think a lot of people are going to lose jobs if we’re not able to turn the situation around and if the markets and the industry doesn’t allow for it to turn around,” McLeod said.
Asked if the federal government has a role to bailout or financially support the mineral industry, he said several departments have been in contact with the company as a working group to find resolutions, but he was non-committal on funding assistance.
“I think for this mine, the future is going to be dependent on whether it restructure or sell. We also have to wait and see how well the diamond sales resume after we get through the pandemic.”