Diamond Co. digs into Chapter 11 bankruptcy

End-game complications in McKenzie Bay International’s bid to purchase Kelsey Lake diamond mine has forced the mine’s operating entity, Diamond Co. NL of Fort Collins, to file for Chapter 11 bankruptcy.

The bankruptcy motion on Jan. 19, agreed upon by both buyer and seller, was a necessary detour made in response to Diamond Co. creditors opposing the sale, reported Gary Westerholm, manager of U.S. operations for McKenzie Bay.

“Its not a big deal,” he said. “We had a couple of creditors causing problems on the takeover, and we went Chapter 11 to get by those people. It’s something to facilitate the close. It’s not a negative. If anything, it’s positive.”

Kelsey Lake mine, carved out in the wilderness west of U.S. Highway 287 on the border of Wyoming and Colorado, shut down its operation in January 1999. McKenzie Bay, an Ontario, Canada-based mining company, is paying $1.4 million for the mine, with $1.2 million of the sum going to creditors of its previous owner, Redaurum Ltd.

Beyond the purchase investment, McKenzie Bay intends to “invest substantially in improving Kelsey Lake” and will consider acquiring other prospective diamond properties in North America, Westerholm told The Business Report in September 1999.

Following a settlement on the purchase, McKenzie Bay will also change the name of the mine’s operating entity to Great Western Diamond Co.

Working diamond mines are all but extinct in North America: When Kelsey Lake returns to operation, it will be the last. Diamonds found in the mine are extracted from so-called kimberlite “pipes” — veins of ore weighing over an

estimated 18 million tons that descend to depths of 350 feet below the surface.

The majority of gems found at Kelsey Lake are clear gem-quality and many — including the renowned “Colorado Diamond” (a 28.3-carat gem found in 1996) — are one or more carats in size. The quantity of high-quality gems unearthed at the mine are expected to significantly increase with upcoming improvements proposed by the new owners, mine manager Mike Hobbs said in a September interview.

Plans to reopen the mine in the spring of 2000 with 30 to 35 workers and new equipment have not changed, said Westerholm, who speculated the deal will close sometime in February or early March, though “it’s hard to say, when you’re in bankruptcy court.”