Op-Ed: Unsteady ownership made Minto a disaster waiting to happen

Written by Malkolm Boothroyd | August 6, 2023
Photo from Google Earth, Minto Mine and Yukon River.

Read the full editorial as published in the Yukon News on August 6th, 2023.

—

Unsteady ownership made Minto a disaster waiting to happen

This spring the Minto Mine shuttered, leaving dozens out of work and tens of millions in unpaid bills and royalties.

The Yukon public is on the hook for much of the clean up costs. Many explanations have been offered up for the financial struggles that ultimately sunk Minto.

People have blamed volatile copper prices, the pandemic and spring snowmelt straining the mine’s capacity to treat water. One contractor suggested investors were scared off when the Yukon government requested a higher security bond from Minto. Minto may have been the victim of volatile circumstances, but mining is a volatile business. One study found that around the world, as many as three quarters of mines close unexpectedly or prematurely.

There is a simple explanation for what went wrong at Minto. The company that bought Minto had no business owning a major mining operation and the territory’s outdated mining laws could do little to safeguard the Yukon against the inevitable collapse.

The Minto mine got a new owner in 2019. At the time of the sale, Minto had been operating for over a decade and was nearing the end of its life. Still, the mine was in reasonably safe hands, as far as covering environmental costs went. Back then, Minto was owned by Capstone Mining Corp. Today, Capstone is valued at nearly $4.5 billion, putting it among the world’s 100 wealthiest mining companies. Capstone certainly had the financial resources to care for Minto. It could have implemented the mine’s clean up and closure plan, and the Yukon public wouldn’t have had to foot the bill. Instead, the company chose to sell Minto. As Capstone wrote in annual reports, it sought “value maximizing alternatives” for Minto, and for the company to have “no further obligation with respect to the closure” of the mine.

Capstone found a buyer in UK-based Pembridge Resources. The two companies could not have been more dissimilar. At the time of the sale, Capstone was a fully fledged mining company that also operated mines in the US, Mexico and Chile. Pembridge had never operated a mine before.

Pembridge got off to a rough start. The company’s initial attempt to purchase Minto collapsed after the company failed to raise enough capital. Pembridge was eventually forced to take millions of loans from American hedge funds, in return giving up ownership of nearly 90 per cent of Minto. A Pembridge subsidiary, Minto Metals Corp subsequently took control of the mine.

Minto restarted production in 2019, but without functional water treatment facilities. Contaminated water steadily accumulated, while the mine’s water storage capacity shrunk, eventually falling below the minimum levels required by its water license. In 2022, due in large part to water treatment issues, the Yukon government requested an additional $18 million in financial security, which Minto failed to pay. That same year, Minto announced it would invest $8 million in water treatment, but was unable to resolve its water crisis. This spring Minto Metals’ Board of Directors resigned and the company abandoned Minto.

Still, not everyone lost out as a result of this mess. Pembridge’s CEO earned the equivalent of $1.5 million Canadian dollars the year of the Minto sale. Capstone sold Minto for $20 million US and got to walk away from the mine.

Just six years after Yukon Zinc walked away from the Wolverine Mine, the Yukon has been saddled with another abandoned mine to care for. There are parallels between Minto and Wolverine — both allowed too much contaminated water to pile up, both were plagued by financial hardships and both failed to pay tens of millions in financial security to the Yukon government. A report by the accounting giant PWC detailed what went wrong at Wolverine, parts of which could be cut and pasted into a report about Minto. For example, PWC wrote that Yukon Zinc was a small, risky company, whose profits were vulnerable to changes in metal prices. Yukon Zinc “allowed liabilities to increase at the site, a decision that was influenced by their financial difficulties.” According to PWC, the Yukon government was unaware of many of the financial troubles at Yukon Zinc. The firm wrote that the Yukon should be conducting comprehensive risk assessments of mining companies before granting them licenses.

The Yukon government wanted to see Minto’s life extended, even if it meant a more fragile company taking control of the mine. After Pembridge’s first attempt to purchase Minto fell through, the then premier told the legislative assembly that his government was “hoping that [Capstone] can strike a deal with Pembridge.”

Five years later, the public is responsible for cleaning up Minto. Many red flags might have appeared had there been a risk assessment on Pembridge Resources prior to the sale of Minto. Unfortunately, as currently written, the Yukon’s mining laws don’t require checking to see if a company is a financial disaster waiting to happen.

Hopefully the Yukon government’s lawyers are figuring out if Capstone, or any of the American hedge funds that bankrolled the Minto purchase, can be held accountable for some of the clean up costs. At the same time, the Yukon should make sure that this can’t happen again. The Yukon is in the midst of rewriting its archaic mining laws and new legislation should prevent risky companies from undertaking massive environmental liabilities. Before issuing permits, the Yukon government should assess the financial stability of the companies responsible. Mining companies with moderate financial risk should be required to post higher security in advance. Corporations with high financial risk should not get permits unless they can find more robust companies to guarantee their projects.

Money, of course, is only one dimension of mining. It’s impossible to put a price on salmon runs, healthy caribou herds or the connections that people hold with the land and water. Minto’s financial story is easier to work out, but we have to learn the right lessons from it. Some will try to paint Minto’s downfall as the result of exceptional circumstances. The truth is mines fail all the time. Companies like Pembridge shouldn’t be trusted to oversee massive environmental risks if they can’t withstand a couple of rough years. It’s time to update our mining laws to help ensure that more mines don’t end up in the hands of volatile companies.