Dermot Desmond Linked to Dominion Shakeup
Issue 153, January 2016
Dermot Desmond, the Irish billionaire behind corporate shakeups at Manchester United and London City Airport, is keeping more than half a beady eye on boardroom upheaval at Dominion Diamond, according to brokers and directors close to the situation.
Dominion co-owns Canada's two largest diamond mines, Diavik and Ekati, but the company came under sudden shareholder pressure last year after its share price dropped with the market, halving its value in less than 6 months.
A dissident shareholder group holding 5 per cent of the stock said investors had “suffered excessively and unnecessarily”, blaming the drop on “misguided policies and missed opportunities.” The group was led by hedge fund K2 & Associates, based in Toronto, and its founder Shawn Kimel, but also included several signatories linked to Dermot Desmond.
Desmond is already the largest shareholder behind Mountain Province, which is currently building the Gahcho Kue diamond mine in Canada, under a joint-venture with De Beers. First production is due later this year, with sizeable annual output budgeted at 4.5m carats.
Patrick Evans, the chief executive of Mountain Province, was one of the signatories calling for an overhaul at Dominion. So were John Tognetti and Kyle McLean from brokerage Haywood Securities, which has a close working relationship with Mountain Province and has previously underwritten its fundraisings.
Evans is understood to have added his name to the list as a private investor, but his moves are very much “guided” by Desmond, according to sources working with both men.
Desmond plans to run Mountain Province as a cash machine, sources say, shunning exploration and capital heavy investment in favour of free cash flow and dividends. The same ethos is now being imposed on Dominion. The company is sitting on $284m in cash, equal to a third of its market cap, but has been ploughing capital into undeveloped diamond pipes, including its Jay Pipe, whilst reporting rising costs and rocky output figures.
The dissident group has taken aim at the Jay Pipe, stressing it remains unproven, and Dominion has quelled the pressure by appointing a new chairman. It has also confirmed reports by Bloomberg that it has hired Rothschild & Co to lead “a number of possible initiatives to maximize shareholder value”, including a possible company sale.
Sources close to Dermot Desmond say the shakeup at Dominion could be “the start of a move” to consolidate Canada's fragmented diamond industry into a major player, on a scale approaching Russia's Alrosa, or De Beers in Botswana. Gahcho Kue is sitting on a sizeable tax loss, making it ideal for amalgamation with a cash-flowing asset.
A former banker and underwriter, Desmond describes himself as an “eclectic investor.” Shares in Dominion last traded at C$14.95, valuing the company at C$1.2bn ($0.9bn).
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