UPDATE 2-Dominion Diamond working with bankers, open to talks with hedge fund K2

Tue Dec 22, 2015 1:42pm EST
 
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(Adds detail from sources, background, updates share price move)

By Mike Stone and Euan Rocha

NEW YORK/TORONTO Dec 22 (Reuters) - Dominion Diamond Corp has been working with its long-time banker Rothschild & Co to find ways to boost shareholder value including a potential sale, according to a source familiar with the matter.

The Canadian diamond miner, whose share price has been hurt by a weak diamond market, said Tuesday it looked forward to having an open dialogue with a group of investors led by hedge fund K2, who believe that Dominion's policies have unduly hurt its share price.

The move to retain Rothschild, who advised Dominion on its transformation from miner-and-jewellery retailer into a pure-play diamond miner, came long before the activist pressure that was made public Monday, said two sources, who declined to be named as they were not authorized to publicly discuss the situation. The bank has been working on the issue with Dominion for more than six months.

In a securities filing on Monday, a group of investors led by Toronto-based K2 & Associates said they had requested for a meeting with Dominion's independent directors as the company's "share price has suffered excessively and unnecessarily as a result of misguided policies and missed opportunities."

In a letter to the company's lead director, the group, which together owns a 5.4 percent stake in Dominion, said the company had so far failed to articulate a clear plan of action.

The move sent Dominion's shares surging over 20 percent in New York and Toronto trading on Tuesday.

A sale is among several options being explored, said the first source, adding that the final outcome of the process was unclear at this time.   Continued...