Yukon Zinc plans to axe royalties to discoverers of Wolverine deposit

Twenty years ago, Mark Baknes pulled a rock core out of the ground in the Finlayson district of southeast Yukon and knew his life had changed. He could see the zinc, lead, and copper in the rock with his naked eye.

Twenty years ago, Mark Baknes pulled a rock core out of the ground in the Finlayson district of southeast Yukon and knew his life had changed.

He could see the zinc, lead, and copper in the rock with his naked eye. Gold and silver were harder to see, but he guessed they were there, too.

This was the kind of jackpot that most prospectors only dream about. And he’d hit it on the first core he drilled.

“It was astonishing, really,” he said. “It’s a kind of Cinderella-like story, to hit it on the first hole.”

That mineral discovery led to one of the largest staking rushes in Yukon history since the Klondike Gold Rush. It was by far the largest discovery of Baknes’ career.

And 15 years later, it gave rise to Yukon Zinc’s Wolverine mine. The mine went into production in 2011, only to close in January 2015 due to low metal prices.

Now, Yukon Zinc is trying to do away with royalty payments to Baknes and the owners of the company he worked for, David Caulfield and Henry Awmack, to make the mine more attractive to potential investors.

“It just doesn’t seem fair,” Baknes said. “Prospectors go out there and they toil at this stuff and it really is a total dream that you might find this stuff. Right now, we have poor metal prices… and we’re being asked to fix that with our royalties, which really isn’t fair.”

Baknes, Caulfield, and Awmack had an agreement with Yukon Zinc for royalties equal to 0.555 per cent of the net revenue from the sale of gold and silver from the mine, to be divided equally between them.

They began receiving royalty payments when Yukon Zinc went into operation in 2011. In 2013, when production was at its highest, each man received $128,577 from the precious metal royalty.

But on Jun. 25, 2015, after Yukon Zinc received creditor protection for $646 million of debt, the company issued letters to the three men explaining that the royalty payments would be discontinued. It is also trying to disclaim royalties to two mining investment companies.

Yukon Zinc’s legal counsel explained in a letter to the men’s lawyer that “in order to enhance the prospect for profitable future operations at the mine, the company is seeking to eliminate as many of these overhead expenses as it can.” It also stated that “disclaimer and termination of all royalty agreements… may be necessary to complete a favourable transaction” with potential buyers or investors.

But Baknes and his colleagues say they were counting on that money to help them during retirement. All three are now in their fifties, and as independent consultants, they have no pensions. Baknes owns a rural property on Vancouver Island he was hoping to develop when he didn’t have to spend as much time working.

“I want to have a little farm here that actually produces something,” he said. “What that money was going to allow me to do was give me a little bit of time… so that I could establish this farm.”

Baknes said he’s had to return to work as a geologist since the Wolverine mine ceased production and royalty payments dried up.

“To be honest, I’m getting a bit tired,” he said. “It’s a long, hard career. You spend a lot of time away from home. It takes a toll on family.”

Caulfield, too, was hoping to spend more time with his family. He said he has an adult son with a developmental disability who requires full-time care. When he’s away working, his wife provides most of that care.

“She’s going to have to be there having to deal with him 24/7 while I’m away,” he said. “I’ll do whatever I have to do. That’s the way it is. It’s just going to mean that I’ve got to be on the road… and I’ve done that for 30 years.”

He said the royalty payments would have helped provide for the care of his son in the years to come.

Caulfield’s total income was about $380,000 in 2013, including the royalty payments. But he expects that to decline to roughly $50,000 in 2016 unless he goes back to work.

Baknes said he doesn’t believe the amount of money being paid to him and his colleagues makes the mine less viable.

“I know the money that I’m making is not going to make a difference,” he said.

But for him and Caulfield, the larger issue is the precedent this case could set for the industry. Mineral discoveries like this one are incredibly rare, and they said what drives prospectors is the possibility they could one day earn royalties from a deposit that is successfully mined.

“It’s really important that royalty stays,” Caulfield said. “Because otherwise why do people go out and do the work that they do?”

He worries that, if this disclaimer goes ahead, other mining companies in financial difficulty could follow suit. And that could put a damper on mineral exploration.

Creditor protection does allow companies to break contracts if it will help them restructure, according to Jonathan Williams, the geologists’ lawyer. However, he believes his clients have an “underlying right in the land” that should prevent Yukon Zinc from being able to disclaim their royalties.

He also said contracts cannot be broken if doing so would cause economic hardship, which he argues would be the case for Baknes and his colleagues.

“It’s unlikely they’ll be able to generate a lot of revenue between now and their retirement,” he said. “Frankly, I think it’s very unfair what they’re trying to do here.”

Chris Stocco, a vice-president in the deals practice of PricewaterhouseCoopers, the company monitoring Yukon Zinc, said this case may be the first of its kind in Canada. He said it’s particularly unusual to see royalty disclaimers issued to individual people.

“This is the first time I’ve seen something like this,” he said. “It hasn’t been done before and there’s a question of whether it can be done. The story has yet to be written on this.”

Stocco approved Yukon Zinc’s decision to issue the disclaimer notices, but he said the monitor has no position on the matter. He said he wanted the issue to be resolved in court.

Alex Wu, a spokesperson for Yukon Zinc, said he could not comment on something that hasn’t happened yet.

“This agreement is still in place,” he said. “There’s an intention to have this terminated, but it has not happened at this point.”

Baknes, Caulfield, and Awmack are scheduled to challenge the disclaimers in the B.C. Supreme Court on August 14. That is also the deadline for Yukon Zinc to present its restructuring plan to the court.

Contact Maura Forrest at

maura.forrest@yukon-news.com

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A proposed Official Community Plan amendment would designate a 56.3-hectare piece of land in Whistle Bend currently designated as green space, as urban residential use. Whitehorse city council will vote on the second reading of the Official Community Plan amendment on Dec. 7. (Courtesy City of Whitehorse)
Future area of Whistle Bend considered by council

Members set to vote on second reading for OCP change

The City of Whitehorse’s projected deficit could be $100,000 more than originally predicted earlier this year. (Crystal Schick/Yukon News file)
City deficit could be just over $640,000 this year

Third quarter financial reports presented to council

Chief Medical Officer of Health Dr. Brendan Hanley speaks during a COVID-19 press conference in Whitehorse on Oct. 30. Masks became mandatory in the Yukon for anyone five years old and older as of Dec. 1 while in public spaces. (Crystal Schick/Yukon News file)
As mask law comes into effect, premier says $500 fines will be last resort

The territory currently has 17 active cases of COVID-19

Crystal Schick/Yukon News file
Ranj Pillai, minister of economic development, during a press conference on April 1.
Government rejects ATAC mining road proposal north of Keno City

Concerns from the First Nation of Na-Cho Nyäk Dun were cited as the main reason for the decision

asdf
WYATT’S WORLD

Wyatt’s World for Dec. 2, 2020

The new Little Salmon Carmacks First Nation council elected Dec. 1. (Submitted)
Little Salmon Carmacks elects new chief, council

Nicole Tom elected chief of Little Salmon Carcmacks First Nation

Submitted/Yukon News file
Yukon RCMP’s Historical Case Unit is seeking information related to the unsolved homicide of Allan Donald Waugh, 69, who was found deceased in his house on May 30, 2014.
Yukon RCMP investigating unsolved Allan Waugh homicide

Yukon RCMP’s Historical Case Unit is seeking information related to an unsolved… Continue reading

A jogger runs along Millenium Trail as the sun rises over the trees around 11 a.m. in Whitehorse on Dec. 12, 2018. The City of Whitehorse could soon have a new trail plan in place to serve as a guide in managing the more than 233 kilometres of trails the city manages. (Crystal Schick/Yukon News file)
2020 trail plan comes forward

Policies and bylaws would look at e-mobility devices

Snow-making machines are pushed and pulled uphill at Mount Sima in 2015. The ski hill will be converting snow-making to electric power with more than $5 million in funding from the territorial and federal governments. (Joel Krahn/Yukon News file)
Mount Sima funded to cut diesel reliance

Mount Sima ski hill is converting its snowmaking to electric power with… Continue reading

Fossil finds at Mt. Stephen. (Photo: Sarah Fuller/Parks Canada)
Extreme hiking, time travel and science converge in the Burgess Shale

Climb high in the alpine and trace your family tree back millions of years – to our ocean ancestors

Black Press Media and BraveFace have come together to support children facing life-threatening conditions. Net proceeds from these washable, reusable, three-layer masks go to Make-A-Wish Foundation BC & Yukon.
Put on a BraveFace: Mask fundraiser helps make children’s wishes come true

From Black Press Media + BraveFace – adult, youth and kid masks support Make-A-Wish Foundation

Colin McDowell, the director of land management for the Yukon government, pulls lottery tickets at random during a Whistle Bend property lottery in Whitehorse on Sept. 9, 2019. A large amount of lots are becoming available via lottery in Whistle Bend as the neighbourhood enters phase five of development. (Crystal Schick/Yukon News file)
Lottery for more than 250 new Whistle Bend lots planned for January 2021

Eight commercial lots are being tendered in additional to residential plots

The Government of Yukon Main Administration Building in Whitehorse on Aug. 21. The Canada Border Services Agency announced Nov. 26 that they have laid charges against six people, including one Government of Yukon employee, connected to immigration fraud that involved forged Yukon government documents. (Crystal Schick/Yukon News file)
Charges laid in immigration fraud scheme, warrant out for former Yukon government employee

Permanent residency applications were submitted with fake Yukon government documents

Most Read