Moody's loses confidence in Dominion Diamond's ability to pay back $550M bond

The murky future for two diamond mines in the Northwest Territories has led a major credit ratings agency to doubt whether the company that owns those mines will pay off a $550-million bond it owes creditors. 

Credit ratings agency Moody's has downgraded Northwest Acquisitions ULC, a subsidiary of the conglomerate that owns parts of the Ekati and Diavik diamond mines.  

Earlier this month, Moody's changed its rating on a $550-million bond down to CAA1 from B3. It also changed its outlook from stable to negative. This means the agency is less confident that Northwest will be able to pay off the bond when it comes due in November 2022.

"The difference between a B and a CAA, that seems to be a cutoff in the market within that speculative or junk bond grade," said Jamie Koutsoukis, a vice-president and senior analyst with Moody's Canada. 

"There's even less credibility when it moves to a CAA."  

Though the Northwest bond has always been classified as a risky investment by Moody's standards, this downgrade is a significant step, she said. Moody's best possible rating is AAA, which is reserved for what it sees as the safest investments, such as government bonds. 

Little information on future of mines

Forecasting the future of the Ekati and Diavik diamond mines has become difficult since the Dominion Diamond Corporation was purchased by the Washington Companies in 2017. 

"There's no plan in place to extend the mine life at a time when the debt is coming closer and closer to coming due," explained Koutsoukis. 

"We continue to see a contraction in the time they have to develop this mine plan." 

There's no plan in place to extend the mine life at a time when the debt is coming closer and closer to coming due.- Jamie Koutsoukis, Moody's Canada 

Northwest Acquisitions purchased all of the shares in the company and the corporation is now the privately-owned Dominion Diamond Mines. 

As a private company ultimately owned by the Roy Dennis Washington Trust, Dominion is now subject to fewer public reporting requirements than companies that are publicly traded on the stock market. 

It remains silent on whether it has plans to extend the life of its mines, which are some of the territory's most significant employers. Projections suggest Diavik is expected to close within the next decade and Ekati would need significant expansion to continue producing into the 2030s. 

One possible expansion, of the Jay pipe at Ekati, was put on hold in May 2018.  At the time, a spokesperson for Dominion Diamond Mines said it was to study whether the project could make enough money. There has been no information on that project since. 

Emails seeking comment from Dominion Diamond Mines for this story and an update on the expansion were not immediately returned to CBC News. 

Paul Zimnisky, a diamond-industry analyst based in New York, says the markets are in the dark as well, waiting for an announcement on the company's plans. 

"Dominion is probably going to have to make a decision relatively soon," he said in an email. "The economics of the potential expansion options are probably OK-to-good, but not great, which is why there has not been a decision yet." 

To the markets, either Dominion extends the life of Ekati or it doesn't, he said. Whatever decision it makes would affect how much money the company has to pay back its creditors and whether it will be able to pay off its debt.