Rio Tinto looks for court approval to recover payment

Summary

  • Rio Tinto has sought the Canadian court’s approval for selling its partner’s share of diamond to recover its dues
  • The total amount owed by Dominion and DDMI to Rio Tinto is close to C$120 million
  • Rio Tinto seeks to recover the amount by selling its subsidiary company’s share of diamonds in its northern mine
  • Dominion had sought creditor protection as it was unable to repay the due amount

 

World’s second largest metal and mining company Rio Tinto seems to be facing a tussle with its partners in Canada. The company has reportedly sought the Canadian court’s approval for selling its partner’s share of diamond to recover its dues. The mining giant’s Canadian subsidiary Diavik Diamond Mines Inc (DDMI) and its joint venture firm Dominion Diamonds ULC both owe close to C$119.5 million to Rio Tinto in missed payments and C$2.4 million in fees. 

Rio Tinto owns 60 per cent stake in partner firm Diavik Diamond Mines Inc (DDMI), which in turn has a joint venture with Dominion Diamonds ULC, making it a majority shareholder in the northern mine 300 km north of Yellowknife in Canada. Dominion had applied for creditor protection in April because of the disruption in its business due to Covid- 19. It has made it difficult for Rio to take any concrete legal action on both of these companies. 

Incidentally, DDMI had made a court representation against its JV partner Dominion Diamonds and sought permission to recover dues. It is to be noted that large business disruptions have taken place in the mining operations in the Northern Territories of Canada pushing several local companies into financial distress.

 

Sale of diamonds

It is a case of a larger company laying a claim on its subsidiary and the subsidiary making a claim on its JV partner. DDMI produced 6.7 million carats of diamonds in 2019. The mine’s useful life is slated to end in 2025 after which a cleanup cost will be worth $365.3 million. 

In case Rio Tinto is able to sell the unrealized diamonds to satisfy its claims, the cost of the clean-up will entirely be borne by DDMI and Dominion Diamonds ULC.

Therefore, this is a major roadblock in the settlement of claims between the three concerned parties. Plus, the government of Canada would also be an interested party in this, as it would like to ensure that the cleanup process goes through smoothly. The court in Calgary Alberta Canada has set up a date of 30 October to hear all the concerned parties before it arrives at a judgement.

 

The diamonds industry

Diamonds are different from other precious metals in many ways. One of the most important differences is that while precious metals like gold, silver or platinum have an investment value in the sense that they are accepted in lieu of currency, diamond lacks that. 

Hence, while gold or silver are in demand in times of economic crisis when investors find them as safe investment avenues, diamonds have no such market. Thus, when the pandemic broke out earlier this year, the prices of gold saw a meteoric rise, whereas no such excitement was seen for diamonds. In fact, most of the diamond selling companies saw a fall in their revenues during the global lockdown, as major events showcasing their products got cancelled.

On the mining and production front, except for a few countries like Russia, there were major disruptions due to the coronavirus-led crisis. This was coupled with the lockdown of the diamond polishing facilities across the world. 

Lastly, transportation played a spoilt sport for the industry, as most goods other than essentials were not allowed to be transported within and outside countries. 

 

Latest financials

Rio Tinto plc came out with its first half results of 2020 on 29 July 2020. The consolidated revenues generated by the company for the period amounted to $19.362 billion compared to $20.722 billion reported by the company for H1 2019.

The operating profit of the company for the half yearly period was reported as $5.85 billion (H1 2019: $5.276 billion). The profit before taxation of the company reported for the period amounted to $5.279 billion (H1 2019: $5.186 billion). The profit after tax reported by the company for the period stood at $3.451 billion (H1 2019: $2.931 billion).

The basic earnings per share reported by the company for the period stood at US 205.00 cents (H1 2019: US 252.5 cents). The cash and cash equivalents standing in the books of the company as on 30 June 2020 stood at $6.269 billion (31 December 2019: $8.027 billion). 

On 29 July, the company also declared an interim ordinary dividend of $2.5 billion.

 

Share price performance

Source- Thomson Reuters

As on 26 October, the shares of Rio Tinto plc have been trading at GBX 4509.31 per share (11.28 AM GMT+1) losing 1.5 per cent over the previous day’s close.

Rio Tinto Plc (LON: RIO) is an Anglo-Australian mining and metal corporation based out of Melbourne Australia. Founded in 1873, the company has grown through mergers and acquisitions over the years. It is the world’s foremost producers of aluminium, uranium, copper, iron ore, and diamonds. The company’s operations are mainly concentrated in Canada and Australia.

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