The Yukon government is beginning to face the real costs of permitting mines that don’t work out.
On Nov. 14, the Yukon Supreme Court heard that a sale of the Wolverine mine was unlikely, and that the receiver, PricewaterhouseCoopers, intends to transfer the severely challenged mine back to the Yukon government by fall of 2022.
PricewaterhouseCoopers (PwC) were in Yukon Supreme Court to authorize an additional borrowing charge of $850,000, on top of previously approved charges of $14.5 million that are needed to carry the derelict mine through to March 2022.
The news that PricewaterhouseCooper’s meticulously planned, 8-month long sale process was unsuccessful, means that the Yukon government (YG) is finding itself without a way around the prospect of owning the long-troubled mine.
The price of Yukon mining permits
Wolverine was one of the early mines permitted by YG after devolution, and, as a result of that transfer of responsibility from the federal to the territorial government, it means that the Yukon government is totally responsible for clean-up costs for all mines they permit. Since devolution in 2003, there is no federal government backstop.
Wolverine was contentious from the very start with its distant ownership by a quasi-state/private Chinese company, Yukon Zinc Corporation (YZC). They had acquired the Wolverine claims and commenced production in 2012. In January 2015, lacking financial means and wherewithal, they shut the operations down, leaving two employees on site. The mine fell into the quagmire status of “temporary care and maintenance.”
Things first started to fall apart at the mine site shortly after, but YG took refuge in YZC’s promise of a pending sale and new ownership for the beleaguered mine.
Court documents show how between 2016 and 2018, conditions worsened — the underground mine flooded, the water became contaminated and then it was diverted but barely contained. Berms and water treatment facilities had not been built. The government reviewed the reclamation and closure plan, reviewed the dam safety and increased the amount of security by an additional $35 million in 2018. Yukon Zinc was unable to pay the increase, and conditions worsened.
In August 2019, YG filed for the appointment of a receiver for the mine, PricewaterhouseCoopers. Documents show that the receivers had three purposes in the agreement: to stabilize the mine, run a sale process and transition the mine to a new owner.
Since the receiver took over, PwC says that the costs of the care and maintenance of the mine alone are currently running at about $350,000 per month or $4.2 million per year. To carry the mine through to March 2022, PwC expects to spend $15.4 million for care and maintenance, legal operations and fees. They notified the court of their intention to begin to transfer the mine back to the Yukon government by fall, if all goes as planned.
Lessons learned
In 2019 Price Waterhouse Cooper highlighted the timeline of the various project “fail points” in an attempt to understand what went wrong.
They identified “two key deficiencies” in the framework: that a risk-benefit assessment wasn’t required prior to licensing and that inspectors aren’t required to report risks outside of direct environmental risks.
In other words, not assessing the financial viability of a company as part of the permitting process limits government’s understanding of possibilities of financial distress. PwC added that this information could also contribute to improve the determination of security deposit amounts.
The second point relates to internal communications, and without direct communications between managers and inspectors, any sense of the urgency regarding risk of financial failure or of rising water levels were lost. Recommendations for berms and water treatment plants were put off, pending prospects of a rescue/fire sale of the mine.
A sale didn’t happen then, and doesn’t appear to be happening now.
It’s not a shiny object
The sales process started in earnest in mid-April 2021. The conditions were “where is, as is,” and as such Wolverine is proving itself a hard property to sell.
PWCs report notes that in retrospect, YZC was a high risk company — it was small, foreign-owned and its profitability was highly sensitive.
Assets left behind at the mine site include: about 3,000 quartz mineral claims; access road, air strip, mill processing building, warehouse, seepage recovery dam (24.5 metres high;) tailings pond, ditches spillway, tax losses, quartz mining license, expired land use permit expired water perming, land treatment facility permit; a waste management permit; as well as a 60 per cent joint venture with Almaden Minerals for some claims and 550,000 shares in Blue Moon Zinc/Metals (currently valued at .04 cents/share).
Tax losses are considered an asset in the mining industry. This category of YZC’s assets may or may not include any unused federal tax credits which serve to make northern mining interests more desirable.
In court, the lawyer for the receiver said that there had been interest from groups interested in the mine, and that a broad range of proposals were received, but they had “ultimately concluded that there was not an acceptable offer for the majority of the Company’s assets at this time.”
Environmental liability — responsibility
The parties will be in court again in January 2022 to carry on the sides of financial, legal and operational aspects of a mine that perhaps should never have been permitted in the first place.
“YG does have deep pockets and it could well be a learning experience for YG in what happens when they approve a dodgy mine,” said Lewis Rifkin of the the Yukon Conservation Society.
“Yukon does not appear to have sufficient technical expertise to undertake the project, they may have deep enough pockets.”
Sebastian Jones, with the same organization, added that unlike private companies, the Yukon government won’t go bankrupt and leave the territory.
The recently released Yukon Mineral Development Strategy makes a strong recommendation that clearly states the Yukon government needs to “end the practice of accepting perpetual care and maintenance of a quartz mine site as part of any mine closure plan. Final closure plans must be fully costed and reclamation security amounts sufficient to return the mine site to a balanced environmental state.”
Contact Lawrie Crawford at lawrie.crawford@yukon-news.com