Diavik official claims Dominion kept partner in the dark about creditor protection bid

A rift seems to be developing between Dominion Diamond and Diavik Diamond Mines, its partner in the Diavik diamond mine joint venture in the Northwest Territories.

Dominion, one of the largest employers in the Northwest Territories, is beingprotected from its creditors because it cannot pay its bills, particularly a $20 million US interest payment that was due May 1 and a $16 million Cdnpayment due to Diavik as part of their partnership.

It blames ongoing commercial and travel restrictions related to COVID-19 as the reason behind this, saying it's sitting on $180 million US in diamond inventory it can't sell.

As the process plays out in court, the way that thecompany does business is slowly being revealed information about its global supply chain, debts and finances, and how it does business with its partners are available through court documents.

Tom Croese, the top finance official at Diavik, said Dominion kept its partner in the dark as it sought delays for the $16 million payment and creditor protection, according to the latest filings in the case.

Now, Diavik Diamond Mines, a subsidiary of mining giant Rio Tinto, is asking for the courts to let Diavik make Dominion's payments for it and hold Dominion's share of diamonds until the debts are paid up.

To do otherwise, Croese said, could set off a chain reaction that could put the future of the Diavik diamond mine at risk.

Dominion and Diavik's agreement

Croese laid out the arrangement between Dominion and Diavik Diamond Mines in court filings. Under the terms of the joint-venture agreement, Diavik handles the day-to-day operations at the Diavik mine. Meanwhile, every two weeks, Dominion cuts a cheque for 40 per cent of the costs of running the mine.

Diamonds mined at Diavik are sent to a sorting facility in Yellowknife, where they're cleaned, processed and split between the two partners as laid out in their agreement.

The key issue here is the $16 million cash call originally due April 15, Croese said.

Croese told the court that on April 13, Dominion requested that this payment be moved until April 22 and Diavik agreed. But before that payment could happen, Dominion applied for and received creditor protection, leaving Diavik on the hook.

This particular payment is one of the most important of the year, because Diavik is paying for a year's worth of supplies delivered on the winter road in February and March, Croese said.

Diavik is able to cover that, and subsequent payments, Croese said, but it wants to hold Dominion's share of the diamonds as collateral until it gets paid back.

Since Dominion cannot sell diamonds anyways, Croese argued this wouldn't harm Dominion going forward.

To bolster his claims, Creose provided the court with a copy of the joint-venture agreementwhich was subsequently sealedemail correspondence between management at the two companies, and a copy of the unpaid invoice due April 22.

Why Diavik continues to operate

Meanwhile, Croese laid out Diavik's own thinking on why it is keeping the mine open through the COVID-19 pandemic.

Unlike Dominion, Diavik and its owner Rio Tinto are finding ways to sell diamonds in Belgium despite ongoing travel and commercial restrictions.According to company projections, Diavik believes it will make at least $100 million more than if it places the mine into care and maintenance.

It also pledges to continue working with health officials in the Northwest Territories to make sure precautionary measures at Diavik are keeping employees safe. That includes:

• Removing vulnerable employees.

• Increasing cleaning at work stations, lunchrooms and other high-traffic areas.

• Requiring employees work from home where possible.

• Implementing physical distancing.

• Charting flights

• An improved employee mental-health assistance program.

Dominion Diamond's creditor protection continues until at least June 1.