Canada's Dominion Diamond Seeks Sweeter Deal From Montana Billionaire

  • Canada diamond miner first got $1.1 billion offer in February
  • Dominion sought other buyers to billionaire Dennis Washington

Canada’s Dominion Diamond Corp. is hoping Montana billionaire Dennis Washington will cough up a little more cash to buy the world’s third-largest producer of rough diamonds by value.

However, the company -- which has put itself on the block twice in the past two years -- says there’s no guarantee a deal will take place.

Dennis Washington

Photographer:Ty Wright/Bloomberg

“The company has not made any decisions related to strategic alternatives at this time and there can be no assurance that the exploration of strategic alternatives will result in any transaction or change in strategy,” Dominion said in a statement Friday. “As previously disclosed, interested parties, including Washington Corporations, have executed confidentiality agreements with the company.”

The statement came after shares of Dominion were halted Friday as rumors swirled about a possible takeover. A person with knowledge of the negotiations said Dominion is in exclusive talks with Washington Cos. over a higher takeover offer than $13.50 a share. That was the bid underpinning the $1.1 billion proposal Dominion received on Feb. 21 from the billionaire’s mining-to-transportation conglomerate before it went out to seek alternative suitors.

The final price tag is still being discussed and a deal could be announced early next week, according to the person, who asked not to be named because the matter is private. The revised bid could be $14 to $15 a share, RBC analyst Richard Hatch said in a note to clients. The talks on a sweeter offer were reported earlier Friday by Reuters.

Washington Cos. didn’t respond to voice mails seeking comment.

Iconic Canadian

Diavik Diamond Mine in the North Slave Region of the Northwest Territories, Canada.

Photographer: Ben Nelms/Bloomberg

Dominion has stakes in two diamond mines, both in Canada’s Northwest Territories, home to some of the richest -- and most remote -- diamond deposits in the world. Ekati, in which it holds a controlling interest, has been producing for almost two decades and is Canada’s first diamond mine. Diavik, in which Dominion holds a 40 percent stake, is located nearby and is operated by joint venture partner Rio Tinto Group.

If Washington’s bid is successful, the deal would bring together a colorful tycoon with an iconic Canadian company.

The 82-year-old industrialist grew up in a government housing project in Washington state, contracting polio when he was eight, before his parents divorced and he was passed around to live with relatives, according to his biography. By the age of 14, he was financially self-sufficient, earning money boxing groceries and shining shoes.

Industrial Empire

A day after graduating from high school, Washington headed to Alaska where he became a heavy crane operator, according to 2013 profile by Forbes. By his early 30s, he had founded Missoula, Montana-based Washington Cos. and began building an industrial empire across the U.S. and Canada that includes holdings in railways, one of North America’s largest open-pit copper mines in Butte, and container ship owner Seaspan Corp.

Buying Ekati would add another storied company to that portfolio. Discovered in the 1980s by famed prospectors Chuck Fipke and Stewart Blusson, the deposit sparked a diamond rush that transformed the region. Located about 130 miles (209 kilometers) south of the Arctic Circle, the mine had produced almost 68 million carats of diamonds as of the January. Last year, Dominion decided to move forward with the Jay Pipe expansion that’s projected to extend the mine’s life by 10 years to 2033, with production expected to start in 2022.

Skeptics of the project say it won’t make money without significantly higher diamond prices.

“I don’t think Jay, as it stands at the moment is a particularly high-quality project,” Edward Sterck, an analyst with BMO Capital Markets in London, said in an interview this spring. “What it offers is extending the mine life, provides time to explore and evaluate other opportunities, and pushes back the reclamation liabilities.”

Shareholder Revolt

Mines in this part of the world face unparalleled logistical challenges. Although Canada’s political stability and deep mining roots are seen as global advantages, the harsh geography of the Northwest Territories is not.

Temperatures range from minus 50 degrees Celsius in winter to 35 degrees in summer, and miners must be flown into sites as there are no roads. Heavy equipment and fuel are moved via temporary ‘ice roads’ that are reconstructed every winter across landscape that is as much frozen lake as rock.

There are only three operating mines in the Northwest Territories. Rio Tinto’s Diavik mine is practically next door to Ekati in the Lac de Gras region. Further south, newly opened Gahcho Kue is majority owned by De Beers in a joint venture with Mountain Province Diamonds Inc. A fourth De Beers’ mine, Snap Lake, was shuttered in 2015 and flooded earlier this year.

In 2015, Dominion hired Rothschild & Co. explore a sale. At the time the company was also the target of a shareholder revolt.

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