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Rough diamonds from the Star-Orion South project in Canada, which is the subject of an ongoing dispute between Rio Tinto and Star Diamond Corp.
Rough diamonds from the Star-Orion South project in Canada, which is the subject of an ongoing dispute between Rio Tinto and Star Diamond Corp.

Rio Tinto embroiled in legal battle with mining partner

INCLUDES TIMELINE: Anglo-Australian mining company Rio Tinto is in the midst of a legal conflict with Star Diamond Corp, the joint partner in its Star-Orion South venture.

In March, Star Diamond Corp filed documents in a Canadian court alleging Rio Tinto had engaged in “bad faith predatory practices”, including vastly overspending on exploration costs and failing to share results of drill sampling.

The company also objected to Rio Tinto exercising an early option to acquire a 60 per cent stake in the Star-Orion site, which is located in Fort à la Corne in Saskatchewan, Canada.

"[Rio Tinto’s conduct was] deliberately calculated to take advantage of Star Diamond’s position as the smaller joint venture partner"
Star Diamond Corp legal filing

Rio Tinto gave notice that it intended to purchase the shares for $CAD75 million ($AU82.3 million) in November – five years earlier than anticipated under the terms of the joint venture, which was signed in 2017.

In the filing, legal representatives for Star Diamond Corp claimed that Rio Tinto’s conduct was “deliberately calculated to take advantage of Star Diamond’s position as the smaller joint venture partner… with the ultimate goal of allowing [Rio Tinto] to acquire a greater participating interest for its own benefit.”

Rio Tinto formally denied the allegations as “false, baseless and made in bad faith” in its own court documents, filed in early April, adding that it "at all times, conducted itself in good faith and carried out the operations in a good and workmanlike manner".

It claimed that the withheld sampling results “do not exist” and that Star Diamond Corp had itself improperly retained ownership of mineral dispositions and surface rights. It stated that the exploration costs – totalling $CAD103 million ($AU113 million), incurred between 2017 and 2019 – were not previously disputed by Star Diamond Corp and were “justified in the context of the project”.

Despite the legal dispute, Rio Tinto has commenced processing bulk samples collected from Star-Orion South last year. A preliminary economic assessment of the Star and Orion South kimberlites estimated 66 million carats could be recovered from the sites over 34-year period, generating $CAD3.3 billion ($AU3.6 billion) in revenue.

"[The allegations are] false, baseless and made in bad faith... [Rio Tinto] at all times, conducted itself in good faith and carried out the operations in a good and workmanlike manner"
Rio Tinto Statement of Defence

Recent sampling indicated 27 per cent of the diamonds at the Star kimberlite are Type IIa; pink diamonds always belong to this category. Yellow diamonds have also been unearthed at the site.

Rio Tinto is currently the world’s second-largest metals and mining company. Star Diamond Corp, previously known as Shore Gold, is based in Saskatoon, Saskatchewan and began drilling the Star kimberlite in 1996.

An uncertain future?

Arnaud Soirat, chief executive copper and diamonds Rio Tinto, previously confirmed the company planned to “stay in the diamond business”. Reuters quoted Soirat as saying, “Diamonds is a business we like a lot. It’s a very high-margin business in line with our strategy of value over volume. It makes a lot of sense.”

Alongside the Star-Orion joint venture, Rio Tinto also owns the Argyle Mine in Western Australia, which is the world’s premier source of pink diamonds. However, it is due to close at the end of this year. In addition, Rio Tinto owns a 60 per cent stake in the Diavik Mine in Canada’s Northwest Territories, which is scheduled to cease production in 2025.

However, Diavik is also facing short-term difficulties as Rio Tinto's partner in the venture, Dominion Diamond Mines, recently filed for debtor protection under Canada's Companies Creditors Arrangement Act (CCAA), a form of insolvency that allows businesses to restructure their financial affairs and avoid liquidation. It is roughly equivalent to voluntary administration under Australian law, though it only applies to insolvent companies with debts in excess of $CAD5 million.

Rapaport News reports that Rio Tinto – through its subsidiary Diavik Diamond Mines (DDM) – was not informed that the CCAA protection was being filed. It is now liable to cover 100 per cent of the mine's operating costs. 

According to an affidavit from Thomas Croese, financial manager DDM, Dominion also failed to make a $CAD16 million repayment to DDM due in April, and has not accounted for upcoming repayments totalling $CAD56.3 million, putting the "assets of the joint venture and the operation of the Diavik Mine at risk". 

 

 

HISTORY OF THE STAR-ORION SOUTH PROJECT

1988 First kimberlite is drilled in Fort à la Corne region
Mining giant De Beers is the first company to drill a kimberlite in the Fort à la Corne region of Saskatchewan, Canada.
1992 De Beers forms joint venture for further drilling
De Beers, Cameco and Uranerz form a joint venture to continue drilling for diamonds in the Fort à la Corne region.
1996 Shore Gold begins drilling the Star kimberlite
Saskatoon mining company Shore Gold – which was formerly primarily involved in gold exploration – commences preliminary drilling at the Star kimberlite in Forte à la Corne following the acquisition of mineral claims.
2003 Shore Gold starts bulk sampling at the Star kimberlite
With positive results from the preliminary drilling at the Star kimberlite, Shore Gold commences a 25,000-tonne bulk sample program. The program includes constructing an on-site processing facility and sinking a 250m shaft. Bulk sampling continues on the site until 2007.
2005
 
Shore Gold recovers a 3,000-carat diamond parcel; joins joint venture 
Following continued drilling at the Star kimberlite, Shore Gold recovers a 3,000-carat parcel of diamonds valued at $US130 per carat. The same year, it merges with Kensington Resources and thereby gains a 42.25 per cent interest in the De Beers, Cameco and Uranerz joint venture.
2006
 
Star-Orion South project created
After selecting the Orion kimberlite as the next drilling target, Shore Gold buys out joint venture partners De Beers, Cameco and Uranerz and launches the Star-Orion South project.
2007 Star kimberlite diamonds sent for cutting
Shore Gold sends parcels of diamonds for cutting and polishing in Antwerp and Perth to demonstrate the quality of Star stones. The diamonds range in colour from white to yellow, brown and grey.
2011 

Feasibility study indicates 34 million carat diamond reserves
A feasibility study commissioned by Shore Gold indicates the Star-Orion South kimberlites have a mineable diamond reserve of 34.4 million carats, valued at $US242 per carat. A further 10 million carat potential deposit exists outside of the planned pit mining area.

Shore Gold plans to mine the Star pit first over 12 years, followed by Orion South over eight years. The project is budgeted at $CAD2.5 billion.

 

2015 Drilling program at Orion South kimberlite completed
A core drilling and sampling at the Orion South kimberlite – previously delayed by the Global Financial Crisis of 2008 – is completed. The data gathered allows Shore Gold to update its valuation of diamond parcels from the Star-Orion South project, with prices increasing between 31 and 125 per cent.
2017 

Rio Tinto signs deal with Shore Gold
Shore Gold announces it has signed a deal with international mining company Rio Tinto to develop the Star-Orion South site. Under the terms of the deal, Rio Tinto is entitled to acquire a progressively larger stake in the project by spending money on exploration or paying a fee to Shore Gold; it can also abandon the project at any time.

Ken MacNeill, CEO Shore Gold, calls the deal a “fantastic step”, while chairman Brian Menell says, “We’ve now found a solution to move the project forward.”

Diamond industry analyst Paul Zimnisky calls the Star-Orion South project a “double-edged sword”, explaining, “It’s so big that it has the potential to be a world-class project … but at the same time it’s very cumbersome because of the size and the expense to move something like this forward.”

2018 

Shore Gold changes name to Star Diamond Corp
In honour of the Star kimberlite, Shore Gold formalises its name change to Star Diamond Corp. Shareholders voted for the change in September 2017.

CEO Kenneth MacNeill says, “It was the exploration and evaluation work completed on the Star kimberlite that demonstrated the significant quality, size and value of the contained diamond populations. These high value diamonds facilitated the consolidation and advancement of the [company’s] Fort à la Corne area kimberlites, including the Star-Orion South diamond project.”

2019NOVRio Tinto exercises option to acquire larger stake
Five years ahead of schedule, Rio Tinto exercises its option to acquire 60 per cent of the Star-Orion South project for $CAD75 million. The acquisition is allowed under the terms of the 2017 joint venture agreement. Following the announcement, Star Diamond Corp’s stock price increases 49 per cent.
2020FEB

Star Diamond Corp accuses Rio Tinto of contract breach
Star Diamond Corp notifies Rio Tinto that it considers the company to be in breach of the terms of the joint venture agreement following its early acquisition of a 60 per cent stake in the Star-Orion South project.

“Star Diamond is committed to taking all actions necessary to ensure that the interests of the corporation, its shareholders and its many Saskatchewan-based and other stakeholders are protected in connection with the project, including by enforcing all of Star Diamond’s rights under the agreement,” a statement from the company says, adding that it intends to pursue legal action or “negotiated solution”.

2020MAR

Star Diamond Corp files lawsuit against Rio Tinto
Legal representatives for Star Diamond Corp begin proceedings against Rio Tinto in the Court of Queen’s Bench, Regina. The filing claims that Rio Tinto did not validly exercise its options on the Star-Orion South project and “engaged in bad faith predatory practices… with a view of diluting Star Diamond’s interest in the properties”.

Star Diamond Corp also claims Rio Tinto “failed to prudently manage costs and to appropriately sequence its work” on the project, incurring expenses of $CAD103 million – double its projected costs – in 2019 and falling more than a year behind schedule in making a bulk sampling plant operational.

It also contends that Rio Tinto failed to share key sampling results.

The company seeks damages, an admission of breach, and an interim injunction restraining Rio Tinto from exercising its options.

2020APR

Rio Tinto submits defence against legal proceedings
Rio Tinto formally responds to the allegations made by Star Diamond Corp, denying wrongdoing in a Statement of Defence and launching its own legal proceedings against Star Diamond Corp for improperly retaining mineral dispositions and surface rights.

The company contends that it “at all times, conducted itself in good faith and carried out the operations in a good and workmanlike manner” in accordance with the joint venture agreement and accuses Star Diamond of making “false, baseless” allegations.

It notes that Star Diamond Corp had not previously objected to any expenditure and that allegedly withheld sampling results “do not exist”.

Despite the legal dispute, Rio Tinto commences bulk sampling on the Star-Orion South site in late April.

 

More reading:
Results of 2019 Argyle Diamond Tender revealed
Future of Canadian mining in doubt
Canadian diamonds sparkle in Rio Tinto tender
 











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