Whitehorse Daily Star

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PROPOSAL EXPLAINED – Representatives of the Yukon Zinc Corp. and PricewaterhouseCoopers were in Whitehorse Monday to explain the proposal to pay out creditors of Yukon Zinc’s financially strapped Wolverine Mine. From left to right, mining consultant Malcolm Swallow, PricewaterhouseCoopers executive Michael Vermette, Vancouver lawyer Kibben Jackson representing Yukon Zinc, Yukon Zinc CEO Jing You Lu and Yukon Zinc corporate lawyer Sandy Wang. Inset Paramjit Sidhu

‘It took 10 years out of my life to help them’

A meeting held Monday for creditors owed money by the financially strapped Yukon Zinc Corp. and its Wolverine Mine was testy at times.

By Chuck Tobin on September 1, 2015

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.

Comments (27)

Up 0 Down 0

Burrows on Oct 4, 2015 at 2:06 am

No news whatsoever still - can any of the creditors verify whether they have been paid or not? The deadline was last Friday - 2 days ago.

Up 2 Down 0

Burrows on Sep 9, 2015 at 9:10 pm

I have heard that Yukon Zinc might be unable to pay the creditors as they still have not secured a $20 million loan as yet. Can anyone confirm?

Up 4 Down 3

Just Sayin' on Sep 5, 2015 at 10:42 am

@Arthur, Please go donate your computer to someone who will be more useful to society as you seem like a complete utter waste.

Yep, Sidhu should have never let the bill get that high, either should have AFD or Alkan Air. They should have stopped working with them immediately. To say it hasn't taken years off his life is wrong; The only people who know what the financials of a company are, are the owners and the people they owe money too. You Arthur, are similar to those who ran Yukon Zinc, who went, 'okay they must have money to burn because they keep giving us stuff.' Good job, Arthur; I think you met the criteria to be a deputy minister or even a minister in YTG!

P.S. Sidhu trucking still has to pay their bills, they don't get to give the people a severance package. The parent company is getting 600 million out of 650, how is that fair? The Yukon Government gets their money for reclamation? bahahahah. Abandoned mines can spend $$$ like no other. They can spend 3 million in 6 months for stupid things. Go to the Faro Mine and do a tour, you will see nothing has been reclaimed, but 48 million + has gone into that mine in 4 YEARS with nothing completed! So, what is 3 mill going to do for YZ in reclamation? Force the 600 million dollars to be used to reclaim the site and pay the creditors. Who cares about the parent company!!! The parent company should have to pay and any monies left over can be theirs! They should have to take the bigger hit. If you are not paying attention to your child and you let them get away with this then the parent company should have to pay! Just like a parent who lets their kid out at night and they vandalize something, the parents are going to be held accountable.

Up 3 Down 2

Realist on Sep 4, 2015 at 9:44 pm

Yukoner, you obviously have a problem with the government. Which by the way feeds the funds that filter down and keeps everyone in this territory afloat one way or other. I get a chuckle out of people who b---- about government but they are the first ones to belly up to the gravy train of gov contracts, or work for those who do, or rely on passed down spent govy money going into thier pockets. You should be on your knees thanking the gravy train of gov money that makes Yukon exist.

Up 15 Down 4

Yukoner on Sep 3, 2015 at 9:04 pm

Must be lots of gov workers commenting here, like Arthur.
Why are you guys slagging Sidhu? Do you even know him? He has, and does work harder than almost anyone I know. So what if his daughter won 3 mil along with some coworkers, what does that have to do with anything, besides your jealousy. Sidhu employs a lot of Yukoners, and here he is getting screwed, and people think that he deserves this. Good god. I still can't believe the original comment by that Derrick T. Another gov worker too no doubt, with no idea what it's like to run a business up here.

Up 8 Down 19

Arthur on Sep 3, 2015 at 3:08 pm

CJ - it has nothing to do with mean-ness whatsoever. Half a million of a hit ( which by the way may well yet be recoverable at a later date , as a preferential creditor ) , is virtually nothing when you have the financial resources of Sidhu and his clan . ( Have you already forgotten that they reaped a three million dollar windfall last year for all that hard back-breaking work done in scratching a lottery card? ). Add to that the tens of thousands they gleaned through the Nominee Program over the years , until they were investigated and banned last year. Shed no tears there if you have any moral outrage to vent .

Up 35 Down 16

CJ on Sep 3, 2015 at 12:04 pm

@Arthur, that's an idiotic remark. So $600,000 is chump change to Sidhu? If the debt was $20,000, $10,000, it's still money a business needs to operate. Do you work for free? Sell stuff for free? Trying to deal with that kind of gap in your cash flow probably makes it hard to complete contracts on time.

As for extending credit -- sure, the company should have been shut out of credit. But these big companies have a way of minimizing the fact of their debt. "We really want to keep working with you, there's lots of business coming down the pike" -- blah, blah, blah.

I will concede though, that Yukon companies need to show more backbone about putting up with these creeps, before their own business is compromised. But they're getting no help psychologically from the government, which keeps insisting it's these deadbeat mining companies who are making the economy so great. And the banks probably don't mind extending credit with that amount outstanding. Look at how long Bernie Madoff got away with his scam. You really think we're smarter in the Yukon?

What a mean comment though. Sidhu doesn't deserve it. Sometimes the sheer mean-ness of this town gets to me. The one skill some people have developed here is kicking people when they're down.

Up 21 Down 15

Arthur on Sep 3, 2015 at 9:12 am

Dreadful sequence of mismanagement and misfortune ( on commodity prices ), but spare us the BS drama about 'Ten Years of My Life'. Sidhu Trucking would do better to get its bridge-related YTG contract bids in on time, instead of past the stated deadline, and then it's 500K, or 600K losses ( whichever one they are claiming ) would be recouped. If you invest or extend credit to the extent that these truckers did, then you take the hit when the market turns down. Business Management 101.

Up 12 Down 3

Max Mack on Sep 2, 2015 at 5:30 pm

Seems to be a lot of confusion about MinQuest's offer judging by comments on this story.

MinQuest is only interested in the production assets (e.g. the mill and tailings facilities). They allegedly are not interested in the remaining ore body or the other mine assets. What they want is to acquire a mine -- that cost more than $600 million to put into production -- on the cheap, for pennies on the dollar.

As for those condemning the Chinese, do you think a "Western" corporation would operate any differently? This is how corporations work in most Western economies.

Up 38 Down 25

What? on Sep 2, 2015 at 11:02 am

How does this whole scenario not reek of fraud? The numbers do not make any sense.

How does Jinduicheng Canada (who are owed SIX HUNDRED MILLION by Yukon Zinc), put at least $600 million into a mine, and then just walk away? How and WHY did this company make that insane of an investment over the past 5-7 years, just to walk away now. I am sure Jinduicheng Canada are better mine operators and investors than that. Even more so that they knew the limited life of the mine, as stated above.

MinQuest, the Australian company, has pegged the value of the mine at $18 million. Seems a bit more appropriate for a mine in the middle of the Yukon.
This doesn't make any sense, and the losers here are the local contractors. Really sad.

Up 44 Down 22

Wundering on Sep 2, 2015 at 8:52 am

Tell us again about the benefits of these "welfare mines."

Up 26 Down 3

Politico on Sep 2, 2015 at 7:16 am

"Matt" Ethical mining brought to you by the Yukon Gov and the Gov of China. Even though the Yukon Gov got all the money from Yukon Zinc, whose going to pay for the on going maintenance and cleanup. Three guesses and only the first one counts!

Up 14 Down 2

Seth on Sep 2, 2015 at 4:33 am

The backup plan through Minquest may be worthwhile. They own the Fyre Lake copper resource which is only 25km from Wolverine and is in need of processing. That should bring up more jobs for the community.

Up 14 Down 0

Max on Sep 2, 2015 at 3:26 am

Yukon zinc load of nonsense. Accept the minquest offer, minquest are genuine and the real deal, yukon zinc even has the same directors as JDC and they are asking creditors to accept an offer to which they don't even have finance in place to pay them out, only it's agreed we'll get funding, like saying the mine they want to keep it in production and letting it flood. The only truth here is they don't want to go back to china with a monster write down, the minquest offer will reinvigorate the community again they will have the finance once the court stops gagging them and give them a unconditional offer

Up 33 Down 5

Harperman Fan on Sep 2, 2015 at 12:22 am

Hey Harperman is going to be in town Thursday and I think he can straighten this whole mess out. He knows how to underwrite a deficit to a 5 billion surplus overnight. Creative book keeping is all that is needed here and the man to juggle the numbers will be right here. Golden opportunity.

Up 36 Down 13

Burrows on Sep 1, 2015 at 11:20 pm

Minquest can easily get a loan to buy out Wolverine. Why? Because the mine, plant and tenements are all there and Minquest will be able to use the full asset as security.

Those involved in this saga should consider taking Minquest's deal. These guys are dinki di aussies with a fair go attitude, unlike the Chinese who thought they could get whatever they wanted. In my opinion the Australians will get the ball rolling again for the Yukon locals.

Up 27 Down 12

Neil Alex Geddy on Sep 1, 2015 at 10:15 pm

I would much rather see the Australian outfit buy the place. Loads of mining expertise in Australia, China well not so much.

There is lots of ore in that region but you have to think outside the box a little bit. The mill will run again but the bulk of the ore going through the plant won't be from that claim.

Up 20 Down 4

Just Sayin' on Sep 1, 2015 at 8:22 pm

Here is an idea, you pay your debts! I hope no one takes the deal. This is another Faro Mine waiting to happen. The people who suffer are the Yukoner's. Perhaps, all the other companies can go to CRA and ask to pay 0.03 cents on the dollar they earn like Golden Hill ( Cobalt) or perhaps companies like P.S. Sidhu Trucking and AFD can actually get money from CRA for having to take a loss. They still have to pay their employee's and their bills. Do not take the deal. Better to have it that everyone suffer!

Up 30 Down 12

jaymanic on Sep 1, 2015 at 6:06 pm

How about get the Chinese companies out of here. Sell off their epuipment and assets to pay these people back. Those people in suits look like they can afford to fix it. Why not?

Up 73 Down 15

matt on Sep 1, 2015 at 5:44 pm

How to run a mining company in the Yukon (into the ground).
1. Set up a corporation. This limits the liability to the (foreign national) shareholder’s.
2. Easily obtain necessary documentation/permits from YTG.
3. Start mining! Jobs! Production! Economy gets a boost! Everyone is happy! Make BIG money on high commodity prices.
4. Pay your friends big salaries for silly jobs, or hire them as “directors”. Pay out dividends to shareholders. This is what Yukon Zinc did, just look at their management team: http://www.yukonzinc.com/en/company_management_dGuo.cfm
5. Rack up a bunch of debt, and pay it off only as needed. Who cares, it’s not like the (foreign national) shareholders are actually liable.
6. Wait until commodity prices fall and stop operations.
7. Declare bankruptcy.
8. Run away leaving piles of debt and mining cleanup behind. It’s ok, the Canadian taxpayer will pay for it.

Up 77 Down 14

matt on Sep 1, 2015 at 5:43 pm

Out of complete boredom, I looked it up.
Why would JDC Canada lend over $600 million to Yukon Zinc? It doesn't make any sense, unless JDC Canada knew that they would never recover that money.

The parent company of Yukon Zinc, is "JDC Canada, or Jinduicheng Xise Canada Co., Ltd". JDC Canada is a private company, or not publicly listed.
However, JDC Canada is a subsidiary of Jinduicheng Molybdenum Group Co., Ltd. This means that JDC Canada is at least 50% owned by Jinduicheng Molybdenum Group Co., Ltd.,

Jinduicheng Molybdenum Group Co., Ltd. is a publicly listed company on the Shanghai Stock Exchange, with $734 million in US dollars CASH available at December 31, 2014.
Huh, wow. It's almost like it was a semi-elaborate scheme to suck millions of dollars out of Canada, and leave a bunch of debt back in Canada.

Sources:
http://www.yukonzinc.com/en/company_index.cfm
http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=59456941
http://www.bloomberg.com/research/stocks/financials/financials.asp?ticker=601958:CH&dataset=balanceSheet&period=A¤cy=US%20Dollar

Up 187 Down 0

moe on Sep 1, 2015 at 5:43 pm

I also noted the Wolverine Mine's assertation that what went wrong was that they did not use their own labour. Does this mean they wish to import labour from China, like the Tumbler Ridge coal mine is doing?

Buy Canadian mines, use Chinese labour and ship raw materials to China. That is the way they do it in Africa.
Over 1 million Chinese citizens have moved to Africa in the past 20 years. Common grievances by Africans with Chinese owned mines are environmental concerns and labour mistreatment including low standards of health and safety.

http://www.cfr.org/china/china-africa/p9557

The Chinese government does in fact own the Wolverine mine as the parent company is owned by the Chinese government. So let's not play games here saying it is owned by 'shareholders'.
A balanced article on Chinese owned mines in Africa, by the New Yorker:

http://www.newyorker.com/news/news-desk/china-in-africa-the-new-imperialists

The wild drive by our Yukon Party government and our Conservative Party government to get China to buy up Canada's natural resources is ill thought out and this 11.5 cents on the dollar is just the start of it, I think. I take this all as a warning of things to come.

Up 7 Down 13

Yukoner on Sep 1, 2015 at 5:25 pm

Derrick T
I reckon you must not work in any sort of industrial or trades related field, because you apparently have no idea what you are talking about.

Up 115 Down 2

Mike T on Sep 1, 2015 at 5:00 pm

Yet the Yukon Party says mining is a positive element in Yukon economy.

Idiots.

Up 27 Down 11

Matt on Sep 1, 2015 at 4:52 pm

Take the money and run boys, the best it is going to get.

Up 78 Down 32

matt on Sep 1, 2015 at 4:49 pm

It's amazing that the debt to JDC Canada (parent company, or related party) is $600 of the $650 million.

If JDC Canada has the funds to lend a broke Yukon Zinc over $600 million (and pay $20 million in restructuring), you would think they could afford to pay another $4.2 million to the Yukon companies.

Oh ya, they don't have to, so they won't.

Up 69 Down 21

Derrick Tecumseh on Sep 1, 2015 at 4:49 pm

"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."

LOL. That is code words for "we wish we could have brought in cheap foreign labour from China to run this mine". A part of me feels bad for the people owed money, but apart of me feels that they were blinded by their own greed and they got burned. When local people with money want to hire contractors, we get quoted outrageous rates because these people are used to working for government or mines that don't care about the prices. The average Joe loses in this environment. Governments can do it because it's not their money (its ours) and mines can do it because they don't intend to pay anyway. The average Joe can't get away with that but we have to pay the high prices anyway.

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