A meeting held Monday for creditors owed money by the financially strapped Yukon Zinc Corp. and its Wolverine Mine was testy at times.
How Yukon Zinc and its Chinese-owned parent company could leave several Yukon companies in a financial lurch was “shameful, absolutely shameful,” a couple of creditors said out loud.
The gathering was hosted by representatives of Yukon Zinc and PricewaterhouseCoopers, the court-appointed monitor helping the company to restructure its Wolverine Mine operation.
They were in Whitehorse to explain the proposal to settle with creditors and keep the mine in a care and maintenance mode until market conditions rebound.
The creditors’ vote on the restructuring proposal will take place Wednesday.
Fewer than 20 creditors were in attendance Monday.
The company suspended operations last January. It sought and received court protection from creditors last March.
Paramjit Sidhu of P.S. Sidhu Trucking Ltd. told the representatives the mine will never operate again, especially since there are only three years of mine life left.
If it couldn’t make a profit when gold was at $1,800 an ounce and silver was selling at $40 an ounce, how can Yukon Zinc expect to make any money down the road, suggested Sidhu, whose trucking company is owed $541,458.
“It took 10 years out of my life to help them,” he said tersely, before walking out of the meeting noticeably agitated.
Sidhu Trucking is one of three Yukon companies owed in excess of $500,000.
The other two are AFD Petroleum Ltd., which is owed slightly more than $2.2 million, and Finning Canada, which is owed $642,755.
There are approximately 52 Yukon companies owed a total of more than $4.2 million.
Under the restructuring proposal, Yukon Zinc will pay 100 per cent of the debt to all companies owed $5,000 or less.
Companies owed in excess of $5,000 can opt to reduce their claim to $5,000 and be paid the $5,000 or elect to receive 11.5 cents on the dollar.
Approximately 28 of the 52 Yukon creditors are owed $5,000 or less and five are owed between $5,000 and $10,000, according to the list of creditors.
Eleven are owed between $10,000 and $100,000 and five are owed between $100,000 and $500,000, such as Alkan Air, which is owed $127,728.
Michael Vermette of PricewaterhouseCoopers said companies owed $43,500 or less would be best to take the $5,000 and companies owed more would be better off taking the 11.5 cents on the dollar.
For Sidhu Trucking’s debt of $541,458, for instance, the 11.5 cents on the dollar would result in a settlement of $62,267, representing a net loss for Sidhu of $479,191.
The Alkan Air debt of $127,728 would result in a payment of $14,688, representing a loss of $113,040.
Vermette explained in order for the restructuring proposal to pass, more than 50 per cent of creditors representing two-thirds of the outstanding value of debt must vote in favour of the proposal.
Under circumstances when a company seeks court protection from creditors or goes into bankruptcy, nobody ever comes out happy, he said.
Vermette said it is notable that the Chinese parent company, Jinduicheng Canada or JDC Canada, has agreed to fund the restructuring.
In many cases like this, the major shareholder, no matter how wealthy, simply cuts its losses and walks away, and none of the unsecured creditors get anything, he explained.
He said if Yukon Zinc is forced into bankruptcy, it could still retain ownership of the mine by paying off those secured creditors who are ahead of the company in terms of priority and leave nothing for the unsecured creditors.
Proceeding through bankruptcy would cost JDC Canada less than the restructuring proposal, he said.
Vermette emphasized under the proposal, all former employees will be paid in full, as will the companies owed $5,000 or less.
In addition to this, the Yukon government will be paid the $3 million it’s owed to bring the company’s reclamation security deposit up to the required $10 million, and the Ross River Dena Council will receive its full $137,208.
Yukon Zinc CEO Jing You Lu, who was at the meeting, would only be receiving 11.5 cents on dollar for the $116,858 that he is owed, Vermette noted.
In an interview after the meeting, Lu explained through interpretation by Yukon Zinc lawyer Sandy Wang that he spent many long days in China lobbying JDC Canada to fund the restructuring proposal.
It was important to Lu to ensure employees were paid, the security deposit was brought up to date, and to protect the reputation of Yukon Zinc, he said.
Lu said through Wang that before Yukon Zinc’s financial problems, the company did bring significant benefits to the Yukon, and it did attract other Chinese investment in the territory.
But creditors at the meeting suggested they didn’t fear providing goods and services to the Wolverine Mine because they believed China, as the ultimate owner of the mine, would make good on any debts.
Lu explained afterwards, however, that Yukon Zinc is not a Chinese company; it’s a Yukon company with Chinese shareholders. And he’s not a representative of the Chinese government, he’s the CEO of Yukon Zinc, Lu said.
He emphasized even representatives of the Yukon government spent time in China lobbying JDC to fund the restructuring.
Wolverine, said Lu, can be a profitable mine under the right conditions.
And he said he’s convinced it will operate again.
Kibben Jackson, another lawyer representing Yukon Zinc, estimates the restructuring proposal will cost JDC in excess of $20 million to fund.
In addition, the cost of maintaining the mine site will be several hundred thousand dollars a month, he said.
Of the total cost of restructuring, approximately $15 million is being paid out to secured and unsecured creditors, Vermette said.
He told the audience the biggest mistake Yukon Zinc made was hiring a private contractor to do the underground mining instead of having its own underground miners on staff.
The official list of creditors shows Yukon Zinc owes $647 million, of which $595 million is owed to the parent company. Vermette said the debt to JDC Canada has climbed to about $602 million.
Vermette also explained there is an offer on the table from an Australian company to purchase the mine for $18 million. MinQuest has indicated its purchase offer would also provide creditors with a similar settlement.
The problem with the offer is that MinQuest doesn’t have any money – it would have to raise the $18 million-plus operating cash in a depressed investment market that is proving to be tough if not impossible to crack these days, he suggested.
It was noted at the meeting while there are two or three years of mine life left, given the known ore reserves, there is also the possibility of expanding those reserves through further exploration.
Vermette said if creditors approve the restructuring proposal, the matter would be back in B.C. Supreme Court for the court approval, and it’s expected the cheques for creditors would be issued on Oct. 2.