GNWT still owed $5.8 million by diamond cutting company
Northern News Services
Published Friday, December 3, 2010
Until November 2006, the GNWT guaranteed a line of credit of up to $9 million to Arslanian Cutting Works, which has the same shareholders as Montreal-based Polar Ice Diamonds.
The latter company went into receivership two weeks ago with approximately $42.4 million yet to be repaid to a lengthy list of creditors.
Arslanian used the territorial government's money to purchase rough diamonds from the NWT's three diamond mines.
"At the time, (Arslanian) indicated they wanted to increase purchases and had found another lender that would provide them with an increased source of financing," said Drew Williams, press secretary to the premier and cabinet, via e-mail.
"(They) requested that the GNWT refinance the $9-million guarantee into a promissory note (a legal IOU). The GNWT agreed but required (Arslanian) to first pay down the line of credit
guaranteed by the GNWT."
In December 2006, Arslanian paid the GNWT $3.1 million and entered into a promissory note for the rest - $5.9 million to be paid over 82 monthly instalments at 5.06% interest per year.
The Arslanian plant, which last employed 35 people and polished as many as 4,000 diamonds a month, closed late last year.
As of March of this year, Arslanian still owed the GNWT $5.8 million, stated Williams. While the company paid the GNWT $150,000 in the last eight months, "This (has) largely gone towards accrued interest, so the balance is still $5.8 million," he stated.
According to Ontario Supreme Court documents dated Nov. 3, Polar Ice's primary creditor, ABN Amro Bank, is owed $21.6 million; the Business Development Corporation of Canada, approximately $459,000.
The documents state, "(ABN) has learned that the value of the diamonds held by (Polar Ice and Polar Bear Diamonds) as inventory is substantially less than previously reported to the bank."
The documents also highlight concerns raised by the bank regarding Polar Ice's accounting of its inventoried diamonds.
"Approximately $4.5 million worth of diamonds were taken by Ronen Basal (former officer and current shareholder of both companies) on consignment in his capacity as a salesperson and 're-consigned' to other individuals or businesses. Mr. Basal has not yet provided a detailed listing of the location of such diamonds to the bank."
In addition, "approximately $3 million worth of diamonds was purportedly being held at (an) outside location where proper documentation has not been supplied by the bank."
Williams declined to comment on whether the GNWT expects to recoup its investment, saying, "We cannot speculate on that because it is a matter that is now up to the courts."
Arslanian isn't the first instance in which the GNWT has invested in a diamond polishing and cutting plant that has fallen on hard times.
In March 2005, when Polar Ice purchased the Sirius Diamonds plant from the GNWT, then-finance minister Floyd Roland told Yellowknifer that losses from the Sirius plant had mounted to more than $3 million.
The Deton'Cho Corporation, the financial arm of the Yellowknives Dene First Nation, endured similar hardships when it entered the diamond polishing arena with Deton'Cho Diamonds, later renamed Canada Dene Diamonds. The plant closed in 2006.
"That almost cost us our business," said Roy Erasmus, Jr., president of Deton'Cho Corporation, to attendees of the recent 38th annual Geoscience Forum. "We took a big hit when that failed and we had to rebuild our company."