Australia’s Burgundy purchases one of N.W.T.’s 3 diamond mines, giving new life to the troubled Ekati complex

The Ekati complex, a star-crossed diamond mining operation in Northwest Territories, is getting a new life.

Ekati has changed hands several times in the past decade, and has struggled in recent years. But Australia’s Burgundy Diamond Mines Ltd. sees promise, announcing this week that it would pay US$136 million to assume control from Ekati’s current owner, Arctic Canadian Diamond Co. Ltd.

The deal is expected to close in April.

Burgundy, based in Perth and listed on the Australian Stock Exchange, said in a press release that the current life-of-mine plan supports operations until 2028, and that investments could further extend mining. In 2022, Ekati delivered US$494 million in revenue and 4.1 million karats of diamonds were recovered, the press release said.

“The proposed acquisition completes Burgundy’s strategy of becoming truly vertically integrated across the diamond value chain,” the company said in the press release.

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Under the deal, Burgundy would send US$21 million worth of its shares to Arctic Canadian, and take on US$100 million in debt. In addition, Burgundy would pay $15 million cash to Arctic Canadian in December 2023.

Burgundy would also have to make cash payments of US$7.5 million to Arctic Canadian if Ekati’s earnings before interest, taxes and depreciation exceed US$200 million in either 2023 or 2024.

The price marks a huge turnaround for Ekati. Arctic Canadian purchased the mine in February 2021 from Dominion Diamonds ULC, a group of private North American investors, not long after it exited creditor protection, assuming US$70 million in debt.

The value of the mine has fluctuated wildly throughout the years. In 2017, Dominion purchased Ekati for US$1.2 billion along with other assets. Before that, in 2013, the previous owner purchased it from what is now called BHP Mining Co. for US$553 million.

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Canadian Arctic’s chief executive suggested the company’s owners were happy to get a return on the money they invested after the company went bankrupt.

“Basically, the group that owns us, really were in it for the short term,” said Rory Moore. “They saved us from CCAA (Companies’ Creditors Arrangement Act).”

Not counting last year’s US$494 million in revenue, the Ekati complex had been plagued by operational issues in recent years.

In March 2020, the mine was placed on care and maintenance — essentially shut down — with the owners citing both the risks of flying in hundreds of workers during a pandemic, and disruptions to the diamond market itself.

Moore said that the mine had amassed $200 million in diamond inventory that it could not sell because the pandemic had reduced demand for diamonds, and because the diamond market itself shut down.

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Two other diamond mines in N.W.T., including Rio Tinto Mining Plc’s Diavik, which shares a seasonal ice road with Ekati, continued operating, but Rio Tinto acknowledged that the pandemic had seriously disrupted demand for diamonds.

Moore said the diamond market recovered in 2021 when many countries eased social distancing requirements related to the pandemic. “When we started emerging from COVID, everybody was rushing to get engaged,” he said. “There was all that pent-up money from people not doing international vacations.”

A wedding rush spurred demand for diamonds, he said.

Burgundy said it aims to take some of the diamonds from Ekati to its own polishing facilities, but Moore said this likely would represent a tiny fraction of the Canadian operations’ total production — perhaps only several thousand of the 4.1 million karats produced annually.

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“They’re interested in the extremely rare yellow diamonds and high value white diamonds,” he said.

The mine employs about 1,050 people on site, plus an additional 50 split between its head office in Calgary and its sale office in Antwerp, Belgium — still the main market for diamonds.

Moore said that so far the new owners have not made any announcements about changes in the workforce.

Drew Williams, assistant director, policy, planning, communications and analysis at the Northwest Territories’ Ministry of Industry, Tourism and Investment said that the hope is that the new owners will invest to expand the mine life at Ekati.

According to a discussion paper of resource royalties in N.W.T., tabled in March 2022, diamond mines constitute the largest segment of the territory’s gross domestic product, contributing $814 million in 2020.

Since 2014, the three diamond mines have paid a total of $250 million in royalties, and on average $90 million per year in taxes and other fees.

“Overall, the Government of the Northwest Territories sees this acquisition as a good thing,” the government said in a statement, via Williams.

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