NORTHWEST TERRITORIES
The surety bond negotiated by the territory with Dominion Diamond Ekati Corporation is essentially as good as cash.

Surface mining at Dominion Diamond Corporations Misery extension. The GNWT says the freshly negotiated surety bond between the company and the GNWT is 'substantially' the same as an irrevocable letter of credit. - photo courtesy of Dominion Diamond Corporation

At least that's the take-home message the GNWT wants to communicate to tax payers regarding the $253 million surety bond posted recently by Dominion Diamond Ekati Corporation under the company's water licence security requirements at the Ekati diamond mine.

"These are demand bonds. We can demand them and they have to be paid," said Mark Warren, deputy minister of Lands.

"In that sense, they are cash-like."

The security is against accumulated and anticipated environmental liabilities at the Ekati mine related to ongoing and eventual reclamation requirements.

The security protects the GNWT from footing the bill in the event that Dominion Diamond is unable to fulfill its reclamation obligations.

The form of the security became a public issue this year when Weledeh MLA Bob Bromley questioned the delay between the assignment of a new security amount back in July 2013, and the government's receipt of that security which was not finalized until this month.

Part of the delay was thanks to the shift of responsibilities from the federal to territorial governments that came with devolution this spring.

The larger part of the delay was the negotiation of the form of security to be accepted.

This raised another issue for Bromley.

Previously, cash or irrevocable letters of credit were the norm. But Dominion Diamond wanted to negotiate a surety bond, a permissible financial security instrument under existing territorial legislation.

One of Bromley's concerns was that a surety bond may not be as liquid or easily negotiable as an irrevocable letter of credit (ILOC).

"One of the key factors for the GNWT was to negotiate terms and conditions that are essentially the same," said Carla Conkin, Department of Lands director of liabilities and financial assurances, of the difference between a surety bond and an irrevocable letter of credit.

"We aligned the terms and conditions (of the surety bonds) to the same level of an ILOC. The only difference is that the ILOC would be with a bank and these are with top-rated insurance companies."

Unlike possible scenarios with insurance policies, Conkin said the GNWT would not have prove its case before accessing funds, nor would it become involved in litigation or have to wait in line behind other creditors in the event of company insolvency.

"One of the due diligence elements we ensured we covered was that we're not in a scenario where we are lining up behind banks or behind (the Government of) Canada on outstanding tax issues should something go wrong," Conkin said.

"We get immediate access to the funds to deal with breaches or the issues that the company hasn't dealt with under the water act or under their licensing."

As to why now was the time to negotiate a surety bond, Warren said he couldn't speak directly to Dominion Diamonds interests, but he suggested the request reflected fiscal realities of mine development.

"In the case of Dominion they're looking at expanding their mine," Warren said.

Tying up $253 million in cash may have been a challenge for the company.

"I assume Dominion was able to negotiate something (aligned) to their business needs," Warren said.

The important thing, Warren said, was that the GNWT is confident in the terms and conditions negotiated for the security.

"If we need to access it, it's cash-like," he said.

"We do not have to go through Dominion to get it."