Wolverine’s woes undermine industry’s tall talk

Boosters of mining like to say that their industry's bad old days are behind us, and that today's regulations ensure that taxpayers won't be left on the hook for pricey environmental clean-ups.

Boosters of mining like to say that their industry’s bad old days are behind us, and that today’s regulations ensure that taxpayers won’t be left on the hook for pricey environmental clean-ups. The unravelling of Yukon Zinc’s Wolverine mine may stand as a lasting example otherwise.

While it may still be premature to write the mine’s obituary, prospects do not look good for the operation to re-open anytime soon. The company recently received creditor protection for $646 million in debt. The mine itself has been shuttered since late January, citing plummeting mineral prices. Now its underground workings are slowly flooding, because the cash-starved company cannot afford to operate its pumping and ventilation equipment.

What’s more, the mine’s operators seem more eager to point fingers at the Yukon government and workers compensation board than accept responsibility for the mess they find themselves in, if the first report by the court-appointed monitor is any indication.

That report states that the company stopped operating the mine’s pumping and ventilation equipment due to safety concerns. However, this claim is contradicted by the WCB, which says it was told by the company that it stopped the equipment because it ran out of fuel.

Those safety concerns seem to be in reference to a stop-work order that the WCB issued in early February that deemed an underground ramp unsafe. However, a spokesman for the compensation board says this order wouldn’t prevent the mine from accessing its pumping and ventilation equipment by an alternate route.

The report also indicates that the mine is waiting for consultations with the Yukon government before it works out the cost of firing back up the pumps and ventilation systems. The implication is that the ball is in the government’s court. Yet the territory says it has been waiting for the company to move on the matter.

Following the company’s move into creditor protection, the government has taken matters into its own hands and hired its own consultants to assess the extent of the flooding. In the meantime, nobody knows the extent of the damage. While the flooding violates the terms of the company’s mining licence, Yukon Zinc says it wants to negotiate with the territory to loosen that condition.

Maybe the first sign that things were getting seriously weird with the mine occurred in early February, when the mine sued its main contractor, Procon, for defamation. Procon had put a lien on the mine for nearly $18 million in outstanding payments. Yukon Zinc countered that it owed Procon only a tiny fraction of that, and accused the contractor of being part of a strange, racist conspiracy. Needless to say, the financial wranglings of mining companies are not supposed to be this colourful.

Yukon Premier Darrell Pasloski has so far declined to comment on the Wolverine mess. But it’s worth noting that the mine’s parent company is essentially the crown corporation of our Chinese sister province, Shaanxi. It wasn’t long ago when Pasloski visited the province in September 2012 to forge that relationship. So far, it seems we don’t have much to show for it.

Rather than back-stop the debt, the Chinese parent company instead seems content to cut free its debt-ridden child. Indeed, Yukon Zinc’s owners have joined the queue of creditors hoping to be paid.

That must be galling to Yukon creditors. The mine’s owners knew they were taking a gamble with their money when they bought the property. The same cannot be said about local businesses that agreed to provide fuel and other supplies to the site. It would be manifestly unfair if the parent company, which is owed the lion’s share of debt, somehow ended up at the front of the line to be paid.

The Yukon government is also owed $3 million, for the fund to be used to eventually clean-up the mine site. It’s starting to look likely that the territory will instead have to step in to pay that bill.

The company was originally supposed to pay up the money by July 2014, but the mine haggled with the territory to create a new, staggered payment schedule. The company missed its payments at the end of October and January. Now the territory is threatening the company with fines. It seems a little late for that.

Regulators presumably didn’t want to be accused of pushing an operating mine that faced financial difficulties over the brink by refusing to show flexibility. Yet, with hindsight, had the government acted tougher, maybe the public would not face the prospect of being owed so much money now. It’s fair to ask at this point whether the Yukon Party’s enthusiasm for mining may partly be to blame.

If the company does go bust, it will be the first hardrock operation to do so under the Yukon government’s own watch, after the federal government’s devolution of resource responsibilities. Wolverine will have done so without having paid a dime in royalties to the territory, while leaving taxpayers on the hook for several million dollars for the site’s clean-up. We should also remember the territory spent public funds to upgrade roads to help support the operation.

It’s true that the mine has provided some good-paying jobs to Yukoners during its five-year life. Yet the mine has also seen two workplace fatalities during its existence. Taken altogether, it’s hard to see how this has been a fair trade-off for the territory.

Given all this, Yukoners should be prepared to have a serious talk about how we avoid making the same mistake in the future.