The underground workings of Yukon Zinc’s Wolverine mine are slowly filling with water because the company can no longer afford to operate the pumps and ventilation equipment.
Yukon Zinc officially suspended operations at the mine on Jan. 21, citing falling mineral prices.
On March 13 the company received creditor protection on $646 million in debt. That court order protects Yukon Zinc from legal action by its creditors temporarily, while it attempts to restructure its affairs.
Yukon Zinc must abide by a temporary closure plan that is set out in its Quartz Mining Licence in the event of a shut-down.
That plan includes ongoing dewatering and ventilation of the mine shaft.
But on Feb. 8, the company told the Yukon Workers’ Compensation Health and Safety Board of its intention to suspend those activities, too.
“The mine informed us that they had decided to shut down the pumps because they had run out of propane and could no longer run the ventilation system,” said Richard Mostyn, spokesperson for the safety board.
The consequences of the resulting underground flooding have yet to be determined.
The Yukon government has hired a contractor to help understand the environmental implications, as well as how the flooding could affect the mine’s closure plan.
“I think we’re satisfied that it isn’t a crisis at this moment in time,” said Rob Thomson, director of compliance monitoring and inspections for Energy, Mines and Resources.
“The water infiltration isn’t rapid. Our chief concern from an enforcement point of view is not foreclosing options that are described in the decommissioning and closure plan.”
The company’s current closure plan involves permanently storing waste rock underground. That may not be possible if the mine is allowed to flood.
On February 13 an EMR inspector issued an enforceable direction to the company to continue the dewatering.
“The only next step we could take would be to carry out that action ourselves, and we don’t know that that’s necessary yet,” said Thomson.
If the government decides to take action to dewater the mine on its own, it could use money from the company’s mine security to pay for it.
We’ll have a better sense within a couple of weeks how significant the flooding is, and what the consequences are for the mine, he said.
Meanwhile, the company’s finances are being monitored by PwC Canada under court order as it attempts to restructure its affairs.
The most significant portion of the company’s debt is $595 million owed to Jinduicheng Canada Resource Corporation Ltd., Yukon Zinc’s parent company.
That company funded approximately $477 million in capital expenses for the mine, as well covering revenue shortfalls during the mine’s operation. Yukon Zinc has not turned a profit since it began operations in 2012.
Jinduicheng began to restrict Yukon Zinc’s borrowing in November 2014, according an affidavit filed in the Supreme Court of British Columbia.
The parent company has since advised Yukon Zinc that it will not continue to provide funding until a formal restructuring process has been completed.
Since entering the creditor protection process, Yukon Zinc has received a $8 million line of credit for continued operations through Maynards Financial Partnership Ltd., a firm that specializes in high-risk lending to companies in financial trouble, as it continues its efforts at restructuring.
According to court filings, the company expects it will need $7.1 million to cover expenses through the end of July, and $1 million per month after that.
Based on current project mineral prices, it expects mine operations to remain suspended through the end of this year and the beginning of 2016.
Those cost estimates, however, do not include some potentially expensive items that may be required by the government.
The company is counting on being able to negotiate a new temporary closure plan that would not require dewatering and ventilation of the underground workings.
“The company is in discussions with the Yukon government and expects to submit a revised temporary closure plan which would remove the underground dewatering requirement temporarily,” according to an affidavit signed by Yukon Zinc CEO Jing You Lu.
But EMR hasn’t seen any proposal for an alternative plan, said Sue Thomas, spokesperson for the department.
Regulatory requirements for a temporary closure plan will not change, she said.
Yukon Zinc also owes the Yukon government about $3 million towards its mine security. It has missed two scheduled payments since October, and as a result is out of compliance with its mine licence.
The Yukon government charged the company for its failure to pay last week in Yukon Supreme Court. A first appearance is scheduled for March 31.
The maximum fine a judge could assign for failure to make payments on time is $100,000.
The company also may have to deal with a section of the underground tunnel that has become unsafe.
In late January workers brought up concerns with a section of the ramp during a WCB inspection, said Mostyn.
He said he wasn’t sure exactly what the problem was, but onsite geotechnical engineers “agreed with the workers’ concerns and told us the ramp needed to be fixed immediately.”
WCB issued a stop-work order prohibiting entry to that section of the ramp on Feb. 5.
“The ground condition in that site is a very coarse, granular type of material. I don’t know if that played into it at this time - there have always been problems there, because of the type of material they’re mining in.”
That order did not prevent ongoing access to the underground water pumps and ventilation equipment, since there was a safe secondary access, said Mostyn.
The cost of making the necessary repairs to that section of the tunnel are still unknown.
In the court-appointed monitor’s first report, the company appears to pass the buck to both WCB and the Yukon government for its failure to deal with safety issues and to continue the dewatering of the underground.
“The company has not been able to access the underground mine areas since mid-January due to safety concerns,” according to the report.
“As a result, the underground areas have not been dewatered nor ventilated. The company anticipates there will be costs required to make access to the underground mine areas safe, however, it is unable to estimate the potential cost of this activity until it assesses the current situation in the underground mine areas in consultation with YG.”
Contact Jacqueline Ronson at jronson@yukon-news.com