Playing the blame game at Jericho
Agreement conditions with AANDC slows Shear's search for refinancing
Lyndsay Herman
Northern News Services
Published Saturday, December 21, 2013
NUNAVUT
A sign of life is fluttering at Jericho Diamond Mine after a prolonged silence from the project's operators.
Shear Diamonds Ltd. is potentially looking for a new operator for the Jericho Diamond Mine. - NNSL file photo
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Thomas Pladsen is the face that has appeared from the shadows as chief restructuring officer for Shear Diamonds Ltd. and Shear Diamonds Nunavut Corp., with a letter to the Nunavut Impact Review Board on Dec. 4.
The letter is in response to two letters sent by the review board and the board's Site Visit Report for Jericho Mine.
He states the lack of progress on the Jericho project since Shear ran out of money is the fault of Aboriginal Affairs and Northern Development Canada.
"As I have ... indicated to AANDC, we are committed to finding a resolution here, however we have been significantly delayed by the lack of cooperation from AANDC."
What Shear is waiting on is AANDC's approval of a new creditor, according to Pladsen's letter.
AANDC has a subordination agreement with Shear, which puts its demands on security payments secondary to Shear's debt to Tache Company N.V., which gave Shear some cash to get started on extracting diamonds from stockpiles left behind by Jericho's previous owners.
"Canada holds debentured security interest over most of the Jericho Mine assets," explains Valerie Hache, a media relations spokesperson for Aboriginal Affairs and Northern Development Canada, in an email to News/North. "In 2011, Canada agreed to subordinate its security interest to (Tache) to facilitate Tache's loan to Shear Diamonds to finance it's pre-production operations at Jericho.
"Under the terms of the subordination agreement, the debt owed by Shear Diamonds to Tache may only be assigned to another creditor with AADNC's consent."
Shear had an arrangement with Tache Company N.V. that entitled Shear to a $2 million term loan repayable in 12 equal month instalments and a $3 million revolving credit, once the company began selling diamonds. Tache announced Shear had defaulted on certain terms of the loan in October 2012, about a month and a half after Shear announced it was suspending production at the site due to soft diamond prices that hit the market late in the summer of 2012.
The subordination agreement with AANDC expires Dec. 30.
While Pladsen describes AANDC's response as uncooperative, the federal department says it's Shear's lack of contact that has held up the process.
"AANDC's consent to the reassignment of Shear Diamond's debt held by Tache to a new creditor was requested in late June 2013," states Hache. "After changes to Shear Diamond's corporate status and structure, AANDC was finally able to engage with Shear Diamonds in discussions regarding the refinancing of Jericho in October 2013. AANDC outlined the conditions required for Canada to consent to this assignment of Shear Diamonds' debt, currently held by Tache, to both Shear Diamonds and their creditor. Those conditions have not been met and therefore the debt has not be re-assigned."
Pladsen states refinancing and potentially finding another operator for the mine can't happen until the reassignment is completed.
Pladsen and Rappaport could not be reached by News/North for comment.
Leadership change
Pladsen is not new to the Jericho Mine project.
He was chief restructuring officer for Tehera Diamond Corp. and Benachee Resource Inc., as president of 2208932 Ontario Inc., when the bankrupt companies sold Jericho to Shear Diamonds in August 2010.
In the Dec. 4 letter to the Nunavut Impact Review Board, Pladsen explains he was appointed chief restructuring officer, through the company 2208932 Ontario Inc. of which he is president, by Manuel Rappaport.
Rappaport was the final director standing for Shear Diamonds Ltd. and it's wholly owned subsidiary Shear Nunavut Corp.
Rappaport is a financial consultant and was first appointed a Shear director in August, 2012. He was concurrently a financial and operational consultant for Tache Company N.V., Shear's creditor.
Pladsen confirms Julie Lassonde-Gray, president and chief executive officer of the company as of March 2012, resigned from her role at Shear in the letter.
Shear's founder, Pamela Strand, had stepped down from president and chief executive officer roles for Shear in prior to Lassonde-Gray taking over and resigned from the board of directors in November 2012, along with David Prince and chief financial officer Greg Powell.
Their departure was credited to "other significant time commitments," according to a press release issued by Shear on Nov. 15, 2012.
Responsibility hot potato
Shear and the federal government are also debating whose responsibility the Jericho Mine currently is.
Pladsen requests the Nunavut Impact Review Board direct questions relating to care and maintenance at the mine to AANDC, since Shear has no money to pay for it.
"Until such consent (to debt reassignment) is received, we are unable to take any steps to consider whether any remediation is possible at this time, including the rectification of any defaults with respect to the Jericho Project Certificate, including those listed in the 2013 Report," states Pladsen. "Since AANC currently has control of the Mine, I ask that you direct the 2013 Report to a representative of AANDC."
AANDC is firm in its stance that it has not assumed control of the project, but is only house-sitting until Shear returns to its responsibilities.
"AANDC is conducting periodic monitoring and taking steps to ensure environmental protection of the site," states Hache. "AANDC is ensuring that the environmental integrity of the site is maintained."
On Dec. 13, the Nunavut Impact Review Board requested both AANDC and the KIA confirm who is responsible for Jericho Mine, but had not received a response by press deadline.
According to Hache, remediation of the Jericho Mine site would cost about $12 million.
