Canada’s North-West Territories (NWT) government has agreed to provide loan guarantees for one of Yellowknife’s largest diamond cutting companies just two weeks after forcing it into receivership.

 

Finance Minister Floyd Roland said on Wednesday that loan guarantees would continue for another five years under a deal that brings in new partners for the plant and pays off the bank.

“Because they're going through this phase, there's still this support for it,” he said. “Everybody's a little bit nervous about the industry so we've agreed to back up any loans they've put in place.”

 

Last Friday, a deal was reached for a subsidiary of Montreal-based Basal Diamonds to pay C$9.2 million ($6.74 million) for 75 per cent of Arslanian's plant. The bank loan is to be paid by the end of the week.

 

Arslanian was one of two Yellowknife diamond-cutters forced into receivership. Arslanian and Sirius Diamonds Ltd. had bank loans totaling C$17.2 million ($12.6) backed by the NWT.

 

Roland said the new deal is better for the NWT government because the new guarantees will be based on a percentage of the restructured plant's assets. The percentage is still being negotiated and no limit has been set on the amount of the guarantee.

 

The new owners will also add their personal guarantees to any loans.

 

“Those loans would be margined against the assets of the company,” Roland said. “It's not going to be as wide open as it was and there's a timeline to this now.”

 

Roland defended the decision to force Arslanian into receivership, saying it was intended to protect taxpayers’ money.

 

Meanwhile, Sirius Diamonds has been successful in its application for a 30-day period to protect itself from creditors while it holds negotiations with two prospective new partners.

 

An interim receiver was appointed two weeks ago in a move that threw into doubt whether the region could continue to be home to a successful diamond polishing industry.

 

The NWT government said it applied for a receiver after receiving a demand from the Royal Bank for immediate payment of the loans, which it claimed were in default. Sirius owed $5.9 million.

 

The companies denied they were in arrears with their loans. Senior officials at both firms said the government might have been panicked into making the decision after a local tour bus operator went bust owing the government $1.4 million.