What to do next on Yukon Zinc

Yukon Zinc's creditor protection court documents make for grim reading, with bad news for pretty much everyone involved.

Yukon Zinc’s creditor protection court documents make for grim reading, with bad news for pretty much everyone involved.

Chinese state-owned mining company Jinduicheng, the main shareholder, will likely have to write off a big chunk of its equity investment. It also lent big bucks to Yukon Zinc, and is the biggest creditor on the list to the tune of $595 million.

Other creditors, including a long list of Yukon businesses and government agencies, are owed another roughly $50 million. This includes some First Nation organizations.

It is also more bad news for the approximately 220 employees and contractors put on “temporary layoff” in January.

The Yukon government also has plenty of exposure. Whatever figures it had pencilled in for corporate income taxes, employee personal income taxes and royalties for this and coming years will need to be slashed. Ditto for businesses serving the mine, as they see revenue fall and possibly also have to write off bad debts.

The Yukon government is also owed a reported $3 million that Yukon Zinc is supposed to pay as security for its reclamation and closure plans. The company is now out of compliance with its mining license for failing to pay the full amount. The total security is about $10.5 million.

This is based on a reclamation and closure plan submitted by the company and approved by government regulators. One hopes $10.5 million is enough to reclaim and close a mine located in the bush several hundred kilometres from Whitehorse, especially since even here in Whitehorse we struggle to build a high school for less than $40 million.

If further bad news arrives and the Yukon government ends up holding the bag, there is a risk that costs could be much higher. Especially since the court documents confirm that the company is in violation of its temporary closure plan and not been able to “access the underground mine areas since mid-January 2015 due to safety concerns. As a result, the underground areas have not been dewatered nor ventilated.”

So there you have it: a financially struggling mine with underground safety issues owned by a distant superpower government in violation of its mining license and temporary closure plan, unventilated and slowly filling with water.

Even the people who write Yukon government press releases may not be able to put a shine on this one.

And in the “closing the barn door after the horse bolted” department, people working at other mining companies must know that the Yukon public and regulators will dial their scrutiny up to 11 on future applications.

So what is to be done with this mess?

The first thing is to follow the money. The trail leads back to China. Chinese state-owned companies have the full backing of the state when they go overseas and invest. This cuts both ways. We should press them not to hide behind legal entity structures and watch if one of their companies fails to meet its legal, environmental and business obligations.

Jinduicheng is based in Shaanxi province. Yukon Premier Darrell Pasloski and Shaanxi Governor Zhao Zhengyong signed the Yukon-Shaanxi sister province agreement in 2012, complete with a nice photo op. Governor Zhao is not just governor but also, probably more importantly, deputy secretary of the Shaanxi Communist Party. He also got his degree in mining and metallurgy so will be a quick brief on this file.

Time for that awkward phone call.

It is also time for our MP and senator to get their Conservative colleagues in government in Ottawa to lean on the Chinese embassy. One suspects that the Chinese ambassador is not keen that Chinese state-owned companies get a lot of bad press for being out of compliance with mining regulations. As Prime Minister Stephen Harper noted during the controversy over state-owned companies acquiring Canadian resources, “purchases of Canadian assets by foreign governments through state-owned enterprises are not the same as other transactions.”

We don’t know the power politics between Jinduicheng and the Shaanxi Communist Party and provincial government, nor their relationship with Beijing and the other big Chinese state-owned companies active in Canada. Maybe the China desk at the Department of Foreign Affairs could help connect the dots, or at least look up everyone on the Chinese version of Google for us.

One of the few points of leverage for the Yukon may be that officials in Shaanxi probably don’t want this to blow up into a national issue that affects Canada-China relations and the other Chinese state-owned companies in Canada, and therefore attracts the scrutiny of their bosses in Beijing.

Closer to home, the Yukon government will have to manage the file aggressively to make sure short-term actions by the company do not come back to haunt us. As the News reported last week, government inspectors ordered the company on February 13 to continue dewatering the mine. Apparently, the pumps are still off. This will require close scrutiny, as will the company’s plan indicated in the court documents to ask the Yukon government to let it change its temporary closure plan to make it cheaper. This is worrying.

We do not want Yukon taxpayers and the Yukon environment to end up paying the price for this fiasco. The ultimate owners of the mine, who would have benefited from its profits and output, need to meet their obligations. Our Yukon and federal political leaders need to be vocal and aggressive in making sure that they do. I haven’t heard much out of them so far.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Channel 9’s “Yukonomist” show or Twitter @hallidaykeith