Dominion Diamond Mines is suing Diavik Diamond Mines Inc. (DDMI) for alleged violations under the two companies’ joint venture agreement.
The lawsuit alleges that Diavik, a subsidiary of Rio Tinto, has breached its contract and fiduciary duties under the joint venture, according to the civil claim filed on Tuesday in the Supreme Court of British Columbia.
The two companies operate the Diavik mine located about 300 kilometres northeast of Yellowknife, with Dominion holding a 40 per cent interest and DDMI holding a 60 per cent interest.
Among the varied issues raised in the claim, one section concerns DDMI’s requests for more money, or “cash calls.”
The claim alleges that DDMI’s operation of Diavik has been over budget and failed to meet production targets, even before the Covid-19 pandemic began.
“In 2019, costs rose approximately 7 per cent above the stretch plan, while total carats recovered were 8.5 per cent below plan. In November 2019, DDMI committed to achieving its stretch plan and embarking on a program that would focus on cost reduction, among other initiatives. However, in the first quarter of 2020, cash costs were more than 19 per cent above DDMI’s stretch plan, while at the same time carats recovered were 13.6 per cent below plan,” the claim said.
The cash calls have been in the millions of dollars, the suit said.
“In the first three months of 2020 alone, those cash calls totaled $68.9 million. In April 2020, DDMI issued further cash calls to Dominion totaling approximately $33 million,” the filing said.
The company has allegedly failed, even refused to provide all relevant information to Dominion related to resource and reserve reports and an ongoing reclamation feasibility study that has all been financed by joint venture funds.
Amid the global disruptions to the diamond industry resulting from the Covid-19 pandemic, DDMI has maintained full operations at Diavik with the knowledge that Dominion can’t pay for the cash calls, the lawsuit claims.
The lawsuit comes almost two months after the financially-troubled Dominion filed for insolvency.
Another section of the civil suit titled “DDMI’s Breaches” outlines several negligent actions of the company, including its alleged failure to develop proper models for the economic development of resources, not basing management decisions on “sound engineering, mining and economic principles” and its failure to disclose all relevant information to Dominion.
The court document states that Dominion seeks as relief a declaration from DDMI that it has breached the joint venture agreement or acted in a manner inconsistent with it, as well as unspecified interest, damages and costs.
NNSL Media has inquired with Dominion on the details of the relief sought and is awaiting a response.
Diavik regrets the “baseless claims” against the company and it plans to defend itself in court, said Rio Tinto spokesperson Matthew Klar.
“Diavik has at all times acted appropriately. We remain focused on managing the mine safely just as we continue to protect Diavik’s interests in Dominion’s insolvency proceedings and the jobs of the more than 1,120 people who work at Diavik,” he said.
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