“Every profitable mine is alike; every struggling mine is unprofitable in its own way,” as Leo Tolstoy didn’t quite say.
We don’t yet know what specifically caused the Minto mine to cease operations last weekend. But since then, the newswires have hummed with bad news for Yukon workers, suppliers, the Selkirk First Nation and the Yukon government.
Over the weekend, the Yukon government took control of the mine. Monday, trading in the shares of Minto Metals (TSXV: MNTO) was suspended. Tuesday, directors and senior management announced their resignations.
Flipping through Minto’s latest investor presentation from last month, it appears the mine had a lot going for it. Among 20 other mines the company selected as comparisons, Minto had the highest grade resources. Converting its copper, gold, silver and molybdenum into “copper equivalent,” it claimed a grade of 1.9 per cent. That is almost quadruple the median mine in the peer group.
It boasted “three supportive, long term, major shareholders,” “outstanding exploration potential” on its property and nearby and a program underway to boost production and cut costs. The company highlighted its investments in new water treatment facilities, its Cooperation Agreement with the Selkirk First Nation and its new reclamation plan. The latter adopted a “more collaborative, natural revegetation approach.”
Parts of the mine property were already poised for reclamation, which would allow the company to reduce security costs and future liability. Meanwhile, it offered investors the opportunity to share the profits of a five-year plan to extend the mine life to between 12 and 15 years.
Pembridge Resources acquired the Minto property in 2019. The new management pointed to a range of achievements in 2022: a 12.5 per cent increase in production over 2021, a “tele-remote scooptram” operating underground but controlled from the surface and the identification of two new ore bodies. The mine is located on Selkirk First Nation land and set aside $5.8 million for royalties in 2022.
So what went wrong? We are still in the first moves of the game of mining Clue, but we can already rule out a couple of suspects.
Unlike many previous mine closures, it was not copper prices. Copper is around US$3.75 per pound. That’s down from recent peaks over US$4 per pound, but well above the late 2010s when the metal bounced between US$2-3 per pound. With the climate transition boosting global demand for copper-heavy equipment such as electric vehicles, the long-term outlook for copper is solid. The mine had a long-term contract with a blue chip Japanese buyer.
Nor does it appear that rising interest rates were the villain, or at least not the principal one. Minto reported that most of its debt was fixed rate and that its debt ratio, measured by debt to earnings before interest, tax, depreciation and amortization over the previous 12 months, was in the middle of the pack of mining companies Minto compares itself to.
One possibility is geological and operational challenges as the mine executed a complex plan to shift production to new ore bodies on its property. The company’s first quarter results, announced April 27, referred to “a slow start to 2023 with a challenging and disappointing first quarter. Limited mining horizons combined with geotechnical constraints in the Cu-Keel zone has had an adverse effect on the production in the first quarter as we transition from predominantly mining in the Copper-Keel zone into Area-2 and Minto East 152 zones.”
Water treatment is another possibility. Remember how much snow we had in 2022? The snow pack was 417 per cent above normal, according to Minto, and they had to process twice as much water as in the previous seven years combined. As of April of this year, the mine was out of compliance with two mining licenses due to high water levels. Water treatment investments cost Minto $8 million in 2022 and another $12 million was planned for 2023.
The mine also faced disruption getting its copper to Japan. Skagway’s ore dock will be closed for at least two years as it is redeveloped, obliging Minto to ship its concentrate out of Stewart, British Columbia. That adds 850 kilometres of trucking costs.
In addition, there is an ongoing disagreement with the Yukon government over the reclamation and closure deposit. In 2022, the Yukon government raised Minto’s security from $72 million to $104 million. After Minto deferred its Ridgetop Open Pit and took other measures, the figure was reduced to $94 million. The mine says that “actual closure costs are significantly less than what YG is requesting.” However, Minto reported in April it had been “unable to obtain a Surety Bond” to close the remaining gap of more than $20 million.
This is a much longer and complex set of issues than most Yukoners have to deal with at work, underlining how challenging the mining business is.
From the outside, it’s impossible to know which of these problems proved insurmountable. Perhaps it was all of them occurring at once.
Looking forward, it will take time to determine if the mine will close permanently or if new investors can be found to make another try. The latter may be a challenge. A new owner would still have to deal with the issues mentioned above. The Yukon government is also in the process of planning major revisions to our mineral laws, which back in February the minister responsible said may take some years. This is an uncertainty which may deter some investors.
In any case, a closed mine will pay neither salaries to its staff nor royalties to the Selkirk First Nation. Nor does a closed mine top up outstanding payments on its reclamation and closure deposit. Yukon businesses with outstanding bills to the mine may face significant losses.
There is much we still don’t know about the situation. But we do know the news from Minto will cause real hardship for many in our community.
Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.