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A FAILED VENTURE – The Wolverine mine suspended operations in January 2015, after three straight years of losing more than $100 million a year.

Judge reserves decision on mine bankruptcy

Justice Suzanne Duncan of the Supreme Court of Yukon reserved her decision on several issues argued last week regarding the bankrupt Wolverine Mine.

By Chuck Tobin on February 7, 2020

Justice Suzanne Duncan of the Supreme Court of Yukon reserved her decision on several issues argued last week regarding the bankrupt Wolverine Mine.

The Yukon government is asking the court to find the government does have a case to claim $35.5 million through bankruptcy proceedings to cover the government’s cost if has to ultimately reclaim and close down the mine site.

It’s asking the court to rule that its claim ranks above all other claims in the bankruptcy proceedings.

Court documents indicate it’s unlikely the Wolverine Mine and associated assets would sell for more than $15 million even if a buyer could be found. But a marketing and sales plan has been prepared.

Among the issues Duncan was asked to consider during the three days of hearings was the proposal to sell the mine southeast of Ross River and other assets of the Yukon Zinc Corp.

PricewaterhouseCoopers was appointed last fall as the receiver and trustee to oversee the sale of assets owned by Yukon Zinc, a private Chinese company whose sole shareholder is Jinduicheng Canada Resources Corp.

Yukon Zinc is opposing the government’s application on a couple of key points. For one, it argues the government can’t claim the $35.5 million as a debt owed because it hasn’t spent any of its own money at the site so far. The law, the company argues, does not support the Yukon’s claim.

Secondly, the government can’t claim rights to Yukon Zinc’s 2,495 mineral claims because they’re not real property or an asset associated with the mine.

The marketing and sales plan was filed with the court by PricewaterhouseCoopers before the proceedings began last week.

Court documents prepared by the Yukon government indicate what’s left of Yukon Zinc’s reclamation security deposit could all be spent by June looking after the mine site, leaving Yukoners to bear the cost of caring for the site from then on.

John Fox, the assistant deputy minister of Energy, Mines and Resources, said in interview Wednesday having the money run out by June is the worst case scenario.

The government is planning to stretch it out to the end of October if it has to so that it can continue looking after the site and treating contaminated water in the tailings pond for release to the environment, he said.

He said they need to ensure there is room in the pond to handle any unforeseen weather events to avoid having contaminated water spill over the top.

Fox said the overriding intent of the marketing plan is to have the Wolverine Mine sold before June.

“We have worked with the receiver on the development of the plan,” he said. “We would like to see it sold as soon as possible.”

Fox noted when Yukon Zinc was still in control of the mine, the company had a couple of potential buyers interested, potential buyers that the government did meet with.

“We believe that in discussions with the receiver that there are interested parties out there,” he said. “We believe with the mine in the hands of the receiver rather than the company, it will actually be easier to sell.”

The Wolverine Mine, an underground lead-zinc mine, began production in 2012. It suspended operations in January 2015, after three straight years of losing more than $100 million a year.

Yukon Zinc applied for and received court protection from creditors in March 2015.

In the subsequent months, many companies inside and outside the Yukon received 11 cents for every dollar they were owed. The company held onto the property but it also had to bring its reclamation security up to date by posting the full $10.6 million required in late 2015.

From 2016 through 2018, the Yukon government reassessed the amount of reclamation security that needed to be posted, and came up with $35.5 million, including the $10.6 million already secured, according to the court documents.

The documents suggested the liability grew substantially because of inaction by Yukon Zinc in carrying out obligations set out in its plan for temporary closure.

It did not, for instance, treat water coming out of the mine portal for release into the environment but rather redirected the water to the tailings pond, the documents say. They say the company failed to address issues with the pond’s liner.

Since taking over the property in October 2018, the Yukon government has drawn the security down by $5.8 million to repair the liner, bring in a new water treatment plant and so forth.

“It is anticipated that the balance of the security held by Yukon will cover the cost of environmental protection and care and maintenance activities only until June 2020, at which time Yukon will incur costs to address the significant adverse environmental effects left by YZC,” reads a Yukon government submission filed with the court prior to last week’s hearing.

Court documents say as a condition of the sale, the purchaser would also have to post any outstanding security – $25 million.

But the documents also note it’s unlikely the value of the mine and associated Yukon Zinc assets is greater than $15 million.

Under the marketing and sales plan prepared for the court’s review, the sale process was to begin Jan. 30 with the approval of the court.

It would ultimately end up with PricewaterhouseCoopers reporting on the results of the marketing and sales effort no later than May 29, unless the date was extended by the court.

The document notes that any delay in getting the process underway as outlined would simply shift the deadlines identified in the plan.

A Jan. 16 report to the court by PricewaterhouseCoopers notes conditions at the mine have fallen into a state of disrepair since 2015.

Of the vehicles on site, all but one have been locked down by the Yukon’s Workers’ Compensation Health and Safety Board for safety reasons.

When PricewaterhouseCoopers took over control in the fall, only two of the 10 diesel generators on site were operable, and one of them was deemed a fire hazard after inspection, reads the Jan. 16 report.

A failure in the heat trace system allowed pipes in the camp to freeze.

“Under the supervision of the receiver, a short-term solution was achieved, which avoided the entire camp from being shut down,” says the report.

The Yukon government’s policy to require a reclamation security deposit was implemented in 2003 when it took over responsibility for licensing new mines as part of the transfer of federal authority to the Yukon government.

The policy is intended to ensure the amount of security kept pace with growing liability associated with continued operations of the mine, such as an open pit getting larger and larger as the years go by.

The policy was intended to ensure there was always enough money in the bank to reclaim a mine site if a company went bankrupt, thus avoiding a situation like the Faro mine hangover.

To date, for instance, the Minto Mine has $49.2 million in security posted under the Quartz Mining Act and another $23 million posted under the Waters Act, for a total of $72.2 million.

Comments (17)

Up 0 Down 0

Wilf Carter on Feb 13, 2020 at 5:54 pm

The person behind this mess gave Liberal party of Yukon $50,000. This mine should have not opened because of the structure but a mine person from Vancouver took the Chinese in and made $16 million in the process.

Up 4 Down 0

Who cannot be named on Feb 12, 2020 at 9:12 am

The territorial government’s total lack of incompetence in the management of Wolverine is evidence that YG contributed to the false idea that the company could continue operating. YG doesn't understand mining economics nor operations. YG supported the company’s continued hiring of contractors since 2015 who have now lost money! YG should be at the end of the line for compensation and have to find the money from elsewhere in their budgets. Accountability is the only mechanism that will drive YG to act more responsibly for the public. EMR should be exposed for the money they have wasted and not bailed out by the court saying, "pay the pitiful managers at YG for enabling Yukon Zinc at the expense of Canadians." YG approved the water diversion to the TSF for #$$%^ sake! The poor decisions and failure of governance lie with YG. That is their job and YG should file for bankruptcy!

Up 11 Down 4

Wes on Feb 11, 2020 at 8:00 am

Yukon gov will be upgrading the CanTung road for the benefit of the Golden Predator project....
Wonder what else we could do with that cash? Maybe a hemodialysis unit for the hospital?
Things get mighty cosy between ministers and private sector mining promoters who used to be colleagues.
Yessir, might cosy.

Up 15 Down 5

Miles Epanhauser on Feb 10, 2020 at 3:35 pm

It sometimes seems that with building and maintaining roads and then paying for the monitoring and cleanup if we would be further ahead to just buy the claims and have the industry ply their trade elsewhere

Up 23 Down 1

Resident on Feb 10, 2020 at 2:38 pm

Funny how government encourages local business to support mining but when the mine goes belly-up, the government makes sure it's the first to be paid at the expense of the little guy.

Up 26 Down 2

Oya on Feb 10, 2020 at 12:06 pm

Did YG not learn a lesson from the Cypress Anvil mine? Did YG not learn a lesson from BYG?
WTF does it take to ensure sufficient remediation funds are in place before approving a mine so as to protect Yukoners and the Yukon environment? I'd rather have a long-term sustainable environment over a couple of short-term jobs any day.
Sickened to see our tax dollars spent on shmoozing at mining conferences for the sake of a few short-term jobs and a guarantee that our environment will never be the same again.
The government, whether Liberal, Cons or otherwise, NEEDS to ensure these mine owners are on the hook to clean up after themselves!

Up 22 Down 2

Anie on Feb 10, 2020 at 10:21 am

Wes, in answer to your question, for decades water use licenses, and more recently mining land use permits, have had security requirements based on the principle that security had to cover planned impacts, in advance. And for decades, senior inspection staff at the highest level, at DIAND and (after devolution) at Gov Yukon have chosen not to enforce because mining companies argued they could not afford to pay and keep operating. Inspectors on the ground didn't like it, permit issuers didn't like it, the public would not like it if they had known. Government needs a policy that takes away enforcement discretion, and political meddling, when it comes to security.

Up 21 Down 3

Davis on Feb 10, 2020 at 9:23 am

Here we go again...Like usual, YG will probably not be able to get any money out of the company and tax payers will be left with the clean-up bill. Remind me again how mining has a positive impact on the Yukon economy? The crazy thing about this is that we never seem to learn! We do this to ourselves again and again and again...

Up 8 Down 2

F. Bomm on Feb 9, 2020 at 8:50 pm

Good roundabout point on language Jonathan Colby - Adherents of Yukonomics have a condition of economic-myopia coupled with Semantic Satiation syndrome. Or, perhaps it is simply just economic dyslexia? Anyway, whichever government is in power they all seem to do the same thing - Externalize profits while internalizing costs either in the short-term or their long term stupidities...

But for the fact that they are voted in... And the ballots symbolic of the practice of a papal-indulgence like absolution... One might be forgiven the suggestion that the church and state should unite during the oath of office so that as they leave the chamber some religious figure would say something like: Forgive them ..... for they know not what they do....

Up 20 Down 0

BnR on Feb 9, 2020 at 6:41 pm

Privatize the profit, socialize the risk.
Somebody made some money of this project.

Up 22 Down 3

Woodcutter on Feb 9, 2020 at 6:22 pm

Let's spend oodles of cash and get all the folks to the roundup, spend more cash for Yukon night for free food and free booze and tell the world the Yukon is open for business anyone can come and help themselves just as long as there is enough virtue signaling, jobs jobs jobs, as if the labour market is not already maxed out. Contracting opportunities, never mind eventually they skip town and leave a trail of unpaid Bill's. Don't worry about the mess, we got an entire department in the Yukon government that needs work and this is what they do, clean up messes.

Great business plan for the folks at the mining association to sell out the Yukon, as long as they get a junket to Vancouver at the end of January.

Up 38 Down 5

Old Timer on Feb 8, 2020 at 3:28 pm

This (again) illustrates why now mining should not be allowed unless adequate security has been provided, in particular when the investors are from certain countries that are known for non-compliance with remediation requirements. But no, the moment that some mining project gets tabled, about everyone in the Yukon gets money drunk and shuts their eyes to the long term consequences.

Up 29 Down 8

Jonathan Colby on Feb 8, 2020 at 3:23 pm

They're called externalities, folks, and the Yukon will always have a legacy of bankrupt mining companies leaving environmental disasters. Why anybody touts this sort of Industrial Development as sustainable is beyond me.

But just remember folks, when it comes to generating profits for corporations, government and Industry will always bend over backwards to externalize costs as much as possible, and also, when it comes to generating their money, your money is no object.

Up 43 Down 6

Wes on Feb 8, 2020 at 7:59 am

So why isn't there enough money in the security to take care of the remediation?
There really should be a full inquiry into this. Some minister in the Yukon government allowed this to happen.

Up 41 Down 1

JC on Feb 7, 2020 at 5:30 pm

It's miners like this that ruin the mining industry in the Yukon. If this mine owes money to the Yukon Govt. , then the govt better do something to get it back.

Up 32 Down 8

Walter on Feb 7, 2020 at 4:54 pm

It has been stated that the Wolverine mine is the Yukon Party's legacy while the Coffee Gold project will be the Liberal legacy.

Up 38 Down 5

Chase on Feb 7, 2020 at 4:25 pm

Before its yours, it's mined.

After it's mined, it's your mess to cleanup.

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