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The Diavik Diamond Mine, located on Lac de Gras in Canada's Northwest Territories, is the subject of a legal dispute between Dominion Diamond Mines and Rio Tinto.
The Diavik Diamond Mine, located on Lac de Gras in Canada's Northwest Territories, is the subject of a legal dispute between Dominion Diamond Mines and Rio Tinto.

Rio Tinto faces further legal challenges in Canadian mining venture

Dominion Diamond Mines (Dominion) has filed a civil claim against a subsidiary of Rio Tinto, alleging it has breached the terms of a joint-venture agreement relating to the Diavik Diamond Mine in Canada's Northwest Territories.

In documents filed with the Supreme Court of British Columbia on 16 June, Dominion claims DDM – which has a 60 per cent stake in the mine and is wholly responsible for its operation – has mismanaged the site, withheld information, and pursued its own interests to the detriment of Dominion and the joint-venture itself.

"[DDM]’s operation of the Diavik Mine is significantly over budget, and production has failed to meet targets. [DDM]’s poor performance preceded the impact of COVID-19 and has continued to deteriorate"
Dominion Diamond Mines civil claim

“[DDM]’s operation of the Diavik Mine is significantly over budget, and production has failed to meet targets. [DDM]’s poor performance preceded the impact of COVID-19 and has continued to deteriorate,” the claim states, adding that costs increased 7 per cent in 2019, while total carats recovered were 8.5 per cent lower than projected.

In the first quarter of 2020, Dominion alleges costs increased by more than 19 per cent above projections, with recovered carats 13.6 per cent lower than forecast.

Additionally, it claims DDM has “continually demanded that Dominion satisfy increasingly large cash calls” – totalling $CAD101.9 million in 2020 – compounding the company’s fragile financial position.

“Without Dominion being able to generate revenues due to COVID-19 related impacts on the diamond market and Dominion’s business operations, the [DDM] cash call payments have drained Dominion's cash reserves and contributed to Dominion’s liquidity crisis. The continued cash calls will also negatively impact Dominion’s restructuring efforts,” the claim states.

On April 22, Dominion was granted initial 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.

In its proceedings against its joint-venture partner, Dominion is seeking damages, interest and legal costs, as well as a declaration confirming DDM has conducted operations in breach of or inconsistent with the joint-venture agreement.

"We regret Dominion filing what are baseless claims against us and will be defending ourselves in court vigorously. [DDM] has at all times acted appropriately"
Rio Tinto spokesperson

In response to the Dominion filing, a Rio Tinto spokesperson told Jeweller, “Rio Tinto has successfully managed the Diavik Diamond Mine for more than 15 years – for the benefit of its owners, the Northwest Territories, local communities, governments, employees, and suppliers. We regret Dominion filing what are baseless claims against us and will be defending ourselves in court vigorously.

“[DDM] has at all times acted appropriately. We remain focused on managing the mine safely just as we continue to protect [DDM]’s interests in Dominion’s insolvency proceedings and the jobs of the more than 1,120 people who work at Diavik.”

An insolvency hearing for Dominion is due to take place this week.

Further complications in Canada

Rio Tinto is also embroiled in a legal battle with Star Diamond Corp, the junior partner in its other Canadian mining venture, the Star-Orion South project.

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.

Rio Tinto formally denied the allegations as “false, baseless and made in bad faith” in its own court documents, filed in early April. The Court of Queen’s Bench for Saskatchewan is scheduled to hear the case on 29–30 June.

Rio Tinto's only other diamond mining venture, the Argyle Mine in Western Australia, is due to close at the end of 2020.

 

More reading:
Rio Tinto embroiled in legal battle with mining partner
 











Jesse-Leigh Elford Photography
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