Dominion Diamond resists takeover offer
U.S. company makes proposal to buy up diamond corporation's stock
Jessica Davey-Quantick
Northern News Services
Wednesday, March 22, 2017
SOMBA K'E/YELLOWKNIFE
A U.S. company has its eye on a takeover of Dominion Diamond Corporation, a move Dominion is calling "unsolicited" and "highly opportunistic."
An American company has issued an expression of interest to buy all of the outstanding common shares of Dominion Diamond Corporation. Dominion operates the Ekati Diamond Mine and owns 40 per cent of the Diavik Diamond Mine, shown here. - photo courtesy of Diavik Diamond Mines Inc.
Projects sales of close to $1 billion
Dominion Diamond Corporation is looking forward to a rosy 2018.
The company has projected sales of between US$875 and $975 million for 2018, a 62 per cent increase over sales for the 2017 fiscal year, according to statistics released on March 16.
Dominion operates the Ekati Diamond Mine and owns 40 per cent of the Diavik Diamond Mine. These two mines are expected to produce between 9.1 and 10 million carats in 2018.
Jim Gowans, chairman of the Dominion board of directors, attributes the forecast to high value ore recovered from the Misery Main and Koala underground pipes at Ekati.
"The cash flow generated by Ekati and Diavik during this period is expected to be ample to fund our pipeline of attractive growth projects and a renewed focus on exploration," he stated in the news release.
On tap is the Jay project, which is in the final stage of permitting, with a water licence expected this summer. The Lynx project is also expected to produce high value carats this year, while the per-feasibility study at Fox Deep will also be completed this year as well. The Fox kimberlite pipe could have 35.2 million tonnes of rock, containing 11.6 million carats of diamonds.
Looking forward even further, the company has several projects in line for 2020, including the Misery Deep project, currently in the pre-feasibility stage to see if an underground operation below the planned open pit is possible.
While the projections aren't statistics yet, it gives Tom Hoefer, executive director of the NWT & Nunavut Chamber of Mines, hope for the future.
"Everybody's had a tough few years here, and we're not out of the bad times yet, although the markets are changing, which is a good thing," he said. "(Dominion has) been in a period of building for the future." |
The Washington Corporations, a group of companies in the U.S. and western Canada that range from marine and rail transportation to heavy equipment distribution, environmental remediation and mining, proposed to acquire 100 per cent of the outstanding common shares of Dominion at US $13.50 per share in cash - 36 per cent more than Dominion's closing stock price earlier this month.
In a news release issued this week, Washington president Lawrence R. Simkins described the proposal as "clearly in the best interests of communities and employees," adding that if Dominion accepts the proposal, it would offer shareholders a "substantial cash premium."
"What we do is buy assets that we really want to keep for a very long time," he said in an interview with Yellowknifer. "And this seemed like a perfect opportunity for us to continue to invest."
The business entity originally issued the conditional and non-binding expression of interest on Feb. 21, but both companies revealed the proposal on Sunday in dueling news releases.
Simkins said Washington "didn't have any other choice" but to release the proposal publicly.
"We thought that shareholders should know ... to express their concern to the board," he said.
In a news release, Dominion described the proposal as a "three-page, mostly boilerplate" letter.
The Dominion board of directors met with the company on March 9, despite concerns about Washington's lack of credibility or experience in the diamond industry.
Simkins dismissed these concerns.
"We didn't have expertise in the railroad industry either when we started getting into railroads, or when we first got into our copper mines," he said.
The company owns and operates Montana Resources, an open pit copper and molybdenum mine in Butte, Montana.
"What we do is hire world-class management to run these businesses when we purchase them," said Simkins.
According to Dominion, Washington continues to demand a period of exclusivity, and the right to veto the board's new choice of CEO. In January, current Dominion CEO Brendan Bell announced he would be exiting the role.
Dominion CEO Brendan Bell was unavailable for comment.
Simkins said the term veto wasn't strictly accurate, but he said it "just didn't make sense" for Dominion to hire somebody while Washington was looking to buy the company.
Washington explained in the proposal letter the business intends to continue to develop the Ekati Mine Jay pipe and follow the existing mining plan.
To move from expression of interest to actual offer, Washington wants a peek behind Dominion's corporate curtain in the interest of due diligence - the proposal was created based on publicly available information.
"In other words, WashCorps is seeking a self-interested 'free option' to learn of Dominion's business and prospects, while paralyzing the company," stated the Dominion news release, adding the board is "more than willing" to consider opportunities, but said it will not do so to the detriment of shareholders and stakeholders.
Dominion stated it would agree to the "extensive due diligence on Dominion's unique assets and growth potential" if Washington agreed to a "customary standstill."
That would mean it couldn't use any of the confidential information it discovered about Dominion to try to acquire control of the company.
Simkins told Yellowknifer he felt his company's request for information wasn't out of the ordinary.
"We felt they were normal," he said. "In fact, we felt we even went aways to be even more accommodating on several things."
When the two parties couldn't agree on terms to open the books, the process stalled, with both parties waiting by the phone for the other's next move.
Simkins said the ball is now in Dominion's court.
"We'll just wait to hear from them," he said. "Absolutely, we'd still like the opportunity."
Jack Bourassa, regional executive vice-president of Public Service Alliance of Canada, said the possible buyout shouldn't affect Dominion's staff in the territory.
"If a company comes in and they buy up all the equipment, they buy the labour force that was with it up to and including the collective agreements that have already been signed," he said.
The expression of interest could even be a good sign for the industry, which has seen rough times, according to Tom Hoefer, executive director of the NWT & Nunavut Chamber of Mines.
He said proposals like this are not unheard of in the industry and the interest could be a sign that others are seeing value in Dominion's projects.
"They're starting to build that value and they're seeing their efforts being rewarded," said Hoefer.
