Yukon Zinc to pay off some debt to creditors

Yukon Zinc has filed a plan to pay out a portion of its debt to creditors as part of the company's attempt to restructure and avoid selling the Wolverine mine.

Yukon Zinc has filed a plan to pay out a portion of its debt to creditors as part of the company’s attempt to restructure and avoid selling the Wolverine mine.

The funding for the plan comes from Jinduicheng Canada Resources Corporation (JDC Canada), Yukon Zinc’s parent company and primary creditor. Yukon Zinc currently owes a total of $654 million, of which $602 million is owed to JDC Canada.

JDC Canada will pay $4.5 million to Yukon Zinc’s unsecured creditors, as well as the full amount owed to 131 employees. It will also pay off all the money owed to the Yukon government and the Ross River Dena Council.

According to the plan, those creditors owed $5,000 or less will be repaid in full, while those owed more will have the choice of being paid $5,000 or 7.5 cents on every dollar they’re owed.

The creditors will also have the option of selling their claims to JDC Canada for an extra four cents on the dollar, which would give them a total of 11.5 cents for every dollar they’re owed. JDC Canada would then acquire that extra debt, which could benefit the company if Yukon Zinc becomes profitable again sometime down the road.

“In a very best case scenario, they could end up increasing the amount they get repaid,” explained Kibben Jackson, a lawyer for Yukon Zinc. He said the arrangement is an “incentive” for JDC Canada to fund the restructuring.

Jackson said this outcome is “very positive,” and that it’s unusual for creditors to be offered more than 10 cents on the dollar in this type of situation. More often, he said, mines don’t even have the financing to consider restructuring.

“To do a restructuring plan in the context of a mining CCAA (creditor protection process) is very unusual,” he said. “Most of the time, the assets are sold.”

When that happens, unsecured creditors typically receive nothing.

But in this case, he said, Yukon Zinc has benefited from having a “financially sound parent” in JDC Canada.

A report from Yukon Zinc’s court-appointed monitor estimates that JDC Canada will pay out roughly $24.5 million less than the full amount owed to the affected creditors.

The plan will also settle Yukon Zinc’s accounts with 131 employees who were either employed or who had been temporarily laid off by the company when it filed for creditor protection on March 13. Those employees will be paid the full amount of any wages or severance pay they’re owed.

That’s good news for Heather Hopewell, who’d been working at the Wolverine mine as a human resources assistant since 2011, until she was laid off in February. She’s owed more than $8,000 in severance pay, but said she hadn’t heard much from Yukon Zinc since the company received creditor protection.

“I’m very surprised, actually. I kind of had the feeling I would never see the money again,” she said. “But I’m quite delighted that we will.”

Hopewell lives in a small community on Vancouver Island, and said she hasn’t been able to find work since she was laid off. She’s been trying to find another position at a mining camp, but nothing’s come up yet.

“It’s been really quite difficult. I was very happy working at Yukon Zinc. It was a wonderful position,” she said. “I was hoping it would be my retirement job, but it didn’t quite work out that way.”

At least two other unsecured creditors will also be paid in full. According to the plan, the Yukon Department of Energy, Mines and Resources will receive the full $2.8 million it’s owed in security payments.

The Ross River Dena Council will also be paid the full $170,000 it’s owed. The Wolverine mine is located on Kaska traditional territory, and in its plan, Yukon Zinc wrote that “the support and cooperation of Ross River Dena Council is necessary in order for the Petitioner’s (Yukon Zinc’s) business to continue for the benefit of stakeholders.”

However, the largest unsecured creditor, Shaanxi Zinc, will not receive any payment under this plan. Shaanxi Zinc is a cousin to Yukon Zinc – both it and JDC Canada share a parent company, Shaanxi Non-ferrous Metals Holding Group. Yukon Zinc currently owes Shaanxi Zinc just over $20 million, largely because Shaanxi Zinc prepaid for zinc concentrate that Yukon Zinc never delivered.

Jackson said Shaanxi Zinc could be fully repaid in zinc concentrate eventually, if Yukon Zinc becomes profitable again.

According to the plan, Shaanxi Zinc was not included with the other creditors because “it has extensive business dealings with the Petitioner (Yukon Zinc), and its continued support and business are necessary for the Petitioner to be able to resume operations.”

Despite the plan’s release, there is still no clear outcome for the companies that have filed lien claims against Yukon Zinc. Those include two trucking companies from B.C. and Yukon, Hy’s North Transportation and Sidhu Trucking Ltd. More recently, Whitehorse-based Alkan Air also filed a claim of lien.

Those companies will now have to decide whether they will pursue their liens. If the claims were deemed valid in court, they would be entitled to the full amount they’re owed. If not, the companies would be treated like any other unsecured creditor.

Alternatively, they could try to settle with Yukon Zinc now, which might get them a better deal than the other creditors, though less than the full amount they’re owed.

Jackson also said negotiations with royalty holders are ongoing. Last month, the News reported that Yukon Zinc was trying to end royalty payments to the three men who discovered the Wolverine deposit and to two mining investment companies.

Jackson said the court has ruled that royalty payments will continue to one of the investment companies, but that the prospectors’ case has not yet been resolved.

The monitor’s report also explains that Yukon Zinc still plans to finalize a purchase agreement with MinQuest, the Australian mining company that announced last month it had placed a bid for the mine. But that doesn’t mean the sale will actually happen.

“That right now is still going to remain as a back-up,” said Jackson. If the restructuring plan falls apart, Yukon Zinc will turn back to MinQuest.

According to the report, it wasn’t until July that Yukon Zinc was confident it would get financial backing from JDC Canada, which is why it proceeded with MinQuest’s offer.

Yukon Zinc’s creditors will vote on the restructuring plan on Sept. 2. Jackson said money could be paid out to creditors as early as Oct. 2. Yukon Zinc will likely exit creditor protection shortly after that.

According to the monitor’s report, Yukon Zinc has “no plans to reopen or access the underground mine,” at least until metal prices improve. The company is continuing to monitor water levels in the mine, which has been slowly flooding since February.

Contact Maura Forrest at

maura.forrest@yukon-news.com

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