Defaults by Canadian Factories Don’t Blur the Overall Vision

Brendan Bell, the energetic and very business-minded Minister of Resources, Wildlife and Economic Development in the Northwest Territories of Canada has a vision. Actually, that vision is shared by the entire government under the premiership of Joe Handley.

There is a determination “that the Northwest Territories will become North America’s Diamond Center. In the coming years, more than 15% of the world’s rough diamonds by value will be mined here. There will be sorting and selling facilities. Polished diamonds will be produced from a number of processing facilities. Our jewelry will combine northern and aboriginal designs and themes with our own diamonds and gold. We will be recognized as a Center of Excellence for diamond training and knowledge. Tourists will visit North America’s Diamond Center to learn about diamonds and to purchase them. Government certified polished diamonds and northern jewelry will be recognized in North America and around the world as unique, high-quality products. Diamond companies will be a valued part of the Northwest Territories, providing benefits and opportunities to ensure the sustainable development of our resources.”

That is the vision. Life isn’t always that easy, and achieving the objectives may also have to overcome setbacks. This week there was a setback. At the request of the Government of the Northwest Territories, a Yellowknife Court has appointed an Interim Receiver to attend at the Arslanian Cutting Works (NWT) Ltd, Sirius Diamonds Ltd and Sirius Diamonds (NWT) Ltd factories and operations to preserve and protect security for loan guarantees the Government has provided the Royal Bank in favor of the Arslanian Cutting Works and Sirius Diamonds manufacturing operations.

This action was deemed necessary by the government due to defaults by Arslanian Cutting Works and Sirius Diamonds of the guarantee and indemnity agreements between the government and the manufacturing companies. The companies have been served with the default notices and the government’s intention to enforce security. The nature of the defaults cannot be publicly disclosed due to confidentiality covenants and privacy legislation.

Though defaults are never a good thing, the government action must be seen as mostly a technical matter. The government wants to implement its vision and the Sirius and Arslanian factories are very much part of it. When the companies were at default, this triggered demands by the Royal Bank, which had issued certain government-backed guarantees, for the government to make immediate payment of the guaranteed amounts to the bank. The guaranteed amounts are C$9.2 million for Arslanian Cutting Works and C$8.0 million for Sirius Diamonds. The diamond manufacturing companies have a prescribed period of time in which to reimburse the government for these amounts.

The government made great efforts to stress that the appointment of an Interim Receiver is a normal business precaution in these types of circumstances. The Interim Receiver will not interfere with the normal operations of these companies, which are free to continue business operations. Speaking to Parliament, Minister Bell stressed that “we recognize there will be ups and downs, as well as challenges we cannot yet foresee. However, I believe that if we stay the course we will realize our vision for the diamond industry in the Northwest Territories. While on a global scale, our four diamond-manufacturing facilities barely make an impact now; they are extremely significant for northerners and Canada. We are now adding value to our raw resources before exporting them. We are working to ensure that the Northwest Territories and Canada obtains as much benefit as possible from the extraction and development of our natural resources.”

The difficulty faced by two of the four local factories doesn’t diminish the enthusiasm and the faith of the government. Says Bell: “Canada and the Northwest Territories can be leaders in the global diamond industry. Our residents can become significant participants in all stages of this industry, from exploration to retail sales of diamond jewelry. But only if we work together to ensure substantial training, employment, business and investment opportunities in all stages from exploration to retail sales of diamond jewelry are available for all Canadians.”

There is every indication that the factories involved in the court order will continue to operate and – ultimately – will succeed in settling their debts. It must have been difficult for the government to take the steps it took – but at the same time it made it clear that this does not affect the overall vision for the future. And both Sirius and Arslanian are an integral part of that vision.