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Dominion Diamond leadership change should be smooth

An aerial view of Ekati diamond mine in Canada.

Well, that didn’t take long. Just over three weeks after a group of activist investors called for change at Dominion Diamond Corp., the two sides have reached a standstill agremeent. Dominion has appointed mining veteran Jim Gowans and activist fund manager Josef Vejvoda to its board, and plans to make Gowans its next chairman. He will replace Robert Gannicott by the end of April.

“Whilst a change in board leadership can be disruptive, the appointment of Mr. Gowans as a director and non-executive chairman in waiting provides some comfort that the transition should be smooth,” BMO Capital Markets analyst Edward Sterck said in a note.

Sterck noted that Gowans has extensive experience within the mining industry, and the diamond sector in particular. He was formerly the chief executive of De Beers Canada and chairman of the Mining Association of Canada.

Given that the activists expressed concern about Dominion’s capital allocation decisions and overall business strategy, Sterck expects the board to review spending on the “Jay” pipe at the Ekati mine in the Northwest Territories. Yellowknife-based Dominion hopes to proceed with development of this pipe, which could extend the mine life by a decade or more.

“In our view, this (review) does not mean that Jay will not be developed in the future, simply that a more complete and public analysis is likely,” he said.

Sterck also suggested there are opportunities to extend the mine’s life that do not involve the Jay pipe. Theoretically, these could be pursued in the shorter term to allow a deeper analysis of Jay, he said.

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