Dominion Diamond-related bond woes fuel worries about NWT industry

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A $550-million bond issued through an entity related to Dominion Diamond Mines has been downgraded multiple times and has reached a level that ratings agency Moody’s deems as “of poor standing” and is “subject to very high credit risk.”

This chart shows the dramatic decline in the value of Northwest Acquisition’s $550-million bond over the past year, tumbling 48.8 per cent. image courtesy of Business Insider

Northwest Acquisitions ULC, controlled by the Washington Group, issued the bond two years ago. Moody’s ratings of the fixed-income security have fallen from Ba3, outlook stable, to Caa1, outlook negative.

The bond, which has lost 48.8 per cent of its value over the past year, has an interest rate of 7.125 per cent. It’s due to mature on Nov. 1, 2022.

Dominion Diamond Mines, the majority owner of the Ekati diamond mine, which also has a 40 per cent stake in the Diavik diamond mine, was purchased by the Washington Group in 2017.

Dominion Diamond Mines put expansion of the Jay pipe on hold in May 2018 as the company studies ways to optimize the project’s economics. The Jay pipe would help extend the life of the mine by several years. Ekati, which began production in 1998, employs close to 1,600 people, including contractors.

A Dominion Diamond Mines spokesperson told NNSL Media earlier this month that the project “is still under review at this time.”

No comment from the mining company was forthcoming on Monday in regards to the bond’s performance.

Paul Zimnisky, an independent diamond industry analyst based in New York, acknowledged that Dominion has been “quite tight lipped about their future plans with Ekati.”

Rough diamonds from Ekati. Photo courtesy of Dominion Diamond Mines

“Both Ekati and Diavik have been very profitable mines over their life, the question becomes is it worth investing in expansion projects that are not as economically robust as the original ore bodies at a time when future diamond prices are especially difficult to predict,” Zimnisky stated.

De Beers’ sales data from Oct. 3 revealed a 39 per cent decrease in sales compared to a year earlier. De Beers is the owner of the Gahcho Kue, the third diamond mine operating in the NWT.

“There has been a global oversupply of diamonds for the last 18 months or so which has put pressure on market prices,” said Zimnisky. “In Canada’s North, diamond mines tend to be very capital intensive compared to other parts of the world. These mines provide a lot of leverage to diamond prices and can be very profitable when diamond prices are at an economic level, however, softer prices can of course lead to an opposite effect.”

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