Yukonomist: Have I got an opportunity for you!

Are you tired of the same-old, same-old at work? Would you like to be a captain of industry, surveying your domain from your helicopter and enjoying steak dinners with influential government officials at the high-profile Roundup mining conference?

keith halliday

Are you tired of the same-old, same-old at work? Would you like to be a captain of industry, surveying your domain from your helicopter and enjoying steak dinners with influential government officials at the high-profile Roundup mining conference?

If yes, then your opportunity awaits. All you have to do is Google the phrase “PWC insolvency assignments Yukon Zinc” and check out the “Teaser” posted there for the Yukon Zinc mine.

The teaser is like the one-pager a real estate agent will give you when you’re shopping for a house.

The property has plenty of great features, including an underground mine and processing facility, your own airstrip, power generators, a wet shotcrete plant and tailing facilities. Plus, you get almost three thousand mining claims full of zinc, copper and lead along with some gold and silver.

But, like in your real estate agent’s handout, there are a few clues that this property may be a fixer-upper. There is a “substantial quantum of tax losses” and the teaser is included on page 291 of a bankruptcy court document.

The good news is that the Yukon government also sees opportunities for you. As reported in the News last week, the minister responsible told the Legislature that “we are hopeful that there will be a successful bidder on the site and the taking over of both — the liabilities and the opportunities of the site.”

Ah, perhaps you noticed the pregnant pause before the word “liabilities.”

And there is no shortage of liabilities, as you might expect with a flooded mine not operating since 2015 and described by a Yukon Supreme Court judge as an “irresponsible mining venture.”

As has been documented in a long-running series of court documents, when Yukon Zinc was placed in receivership in 2019 it still owed around $25 million of its $35.5 million security deposit. The Yukon government and another company both filed notices last month to take various Yukon Zinc issues to the Supreme Court of Canada.

Currently, the Yukon government is footing the bill at the mine. They say they will spend over $12 million of taxpayer money dealing with the mine’s problems this fiscal year alone.

This is why the Yukon government is keen on you seeing those opportunities. Because anyone bidding on the mine will also inherit those liabilities.

We shall see if anyone sees enough opportunity in Yukon Zinc to cover the liabilities and still make a profit. If no one bids, the Yukon government will be in the mining regulation equivalent of the Pottery Barn rule: someone else broke it, you own it.

The bankruptcy report says that JDC Group of China “funded over $600 million for costs related to development, construction, and operation of the mine.” JDC is a large Chinese government-owned mining company. Making an investment of that size in a mining venture that ends up in the bankruptcy courts is painful, and especially embarrassing for a government-owned company operating in a foreign country.

This may bring back unpleasant memories among Yukon business-owners who had to accept 11 cents on the dollar on their bills to Yukon Zinc during its previous restructuring in 2015.

It’s unclear what, if anything, the Yukon government has done to try to convince the Chinese government to stand behind the liabilities created by one of its government-owned mining companies.

There are few options here. China might step up to pay, but that is highly unlikely. A white knight mining company might purchase the site despite its issues. If that doesn’t happen, the Yukon government continues to own the mess.

You may be asking how a mine was allowed to operate without a fully paid up security deposit. Few landlords ask you to pay the damage deposit years after you move in.

It’s a good question. And one made more troubling by other recent stories in the News, such as the one last month about the lawsuit between the Yukon government, Golden Predator, and former Yukon government chief mine engineer Paul Christman.

Among the allegations, none of which have yet been proven in court, Christman assessed Golden Predator’s Brewery Creek property, found that it needed a financial security of $12 million, but was then overruled by higher ups. The News reported that the government website currently says only $1 million is being held for the cost of reclaiming and closing Brewery Creek.

The media stories included allegations (also unproven in court) of closed-door meetings among industry executives and regulators at Roundup.

You might think you could check the Yukon’s new lobbyist registry to find out more. But you’ll notice the absence of many mining companies’ names from the registry. One reason is that they don’t have to register until they’ve done 20 hours of lobbying meetings in a calendar year.

Essentially, the Yukon government faces a tension between its interest in developing the economy by encouraging the mining industry and its duties to protect the Yukon environment and taxpayers.

Mining disasters before devolution, such as Faro, are the responsibility of the feds since they were making the decisions at that time. Mines opened since devolution are the Yukon government’s problem.

And with stories about security deposits for two mines in the news simultaneously, it’s time to ask the question if we need to change this system.

I think we do. It’s time for an independent body, modeled on one of our more successful independent bodies such as the Yukon Utilities Board, to provide independent advice and reporting — in public — on things like mining security deposits.

Yukon Zinc is costing “only” $12 million per year. The next one could be a lot more.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist and received the bronze for Outstanding Columnist in the 2019 Canadian Community Newspaper Awards.