The owner of two mining properties in the Northwest Territories went into creditor protection last Tuesday due to crumbling finances, leaving some in the territory concerned about the company’s ability to pay for site remediation in the event that operations are discontinued.
North American Tungsten Corp. (NATC), which owns and operates the Cantung mine and Mactung property in the NWT near the Yukon border, recently petitioned the B.C. Supreme Court to be put under creditor protection while it restructures its finances.
According to the petition, the Vancouver-based company has $84.4 million in liabilities, $14 million of which are unsecured, and an estimated book value of $27.9 million. It owes around $75.5 million to over 200 creditors.
“For the six months ended March 31, 2015, NATC experienced a net loss of $6.6 million,” the document states. “NATC’s cash balances are extremely low and additional or replacement financing will likely be required.”
As of Wednesday afternoon, NATC stocks had plummeted 42.86 per cent to a unit price of $0.02.
The company said numerous factors have contributed to its current financial standing, not the least of which is a “severely depressed” global tungsten market.
“The need for NATC to restructure…is attributable to a number of factors including the continuation of low prevailing market prices of (tungsten), high debt service payments, insufficient capitalization, and recent operational issues,” chairman and CEO Kurt E. Heikkila said in a statement released Tuesday.
Those recent operational issues include interruptions with power supply at the Cantung property, which halted production at the mine for a week at the end of May.
The company was granted 30 days of protection under the Companies’ Creditors Arrangement Act (CCAA) on Tuesday and now has until July 9 to conduct its restructuring. A further hearing date of July 8 has been set, at which time the company indicated it plans to apply for an extension.
Without the creditor protection, the company felt it would not be able to stay afloat.
“Absent a CCAA filing, NATC expects to have insufficient cash in the coming weeks with which to pay its suppliers, employees, and debt service payments,” stated the petition to the court. “Key trade creditors may take steps to refuse to provide services that are essential to transport, and therefore sell, existing tungsten inventories.”
Layoffs at Cantung
The announcement follows the temporary six-week layoff of approximately 80 employees at the company’s Cantung mine on June 1 undertaken as a cost-saving measure.
Each employee will miss one work rotation of three weeks. During this time, NATC said it believes it has sufficient tungsten ore stockpiles to continue operating the mill and shipping to customers throughout the layoff period.
“Tungsten prices have been volatile over the last two to three years and we fully expect them to increase from their current level over time, but in the meantime, we will continue to reduce our operating expenses at Cantung,” Heikkila said. “We appreciate the significant contributions of our employees and understand the impact that this difficult decision has on our employees.”
Heikkila said the company believes it can solve its financial issues with time to restructure.
“Although the corporation is currently unable to meet all of its past obligations and ongoing financing costs, NATC expects that a financial restructuring will enable it to continue to operate as a going concern and preserve value for stakeholders,” he said.
Minister approves water licence amendment for Cantung mine
The move to restructure came just as NATC was awaiting a final decision by Environment and Natural Resources (ENR) Minister Michael Miltenberger on the company’s proposed tailings management plan.
On Friday, June 12, Miltenberger approved the request for an amendment to the water licence for the Cantung mine based on the decision from the Mackenzie Valley Land and Water Board.
The board had recommended in March that the amendments be approved, conditional on modifications to the company’s security arrangements. While the total security deposits for mine clean-up at Cantung currently held are around $11 million, the board recommended those be raised to $30,950,000, to be paid within 90 days.
But in his letter last week, Miltenberger said the form and conditions of the security are his decision, not the board’s.
“While I appreciate and support the timely posting of reclamation security, I will continue to take the necessary time required to ensure that any form of security provided under a water licence is in an acceptable form and with appropriate conditions, as per the authority provided under the Waters Act and associated regulations,” Miltenberger wrote. “Should this process require longer than 90 days, the Board will be notified in advance, so that the Board can take any action required to modify the compliance date.”
Company critical of security requirements
NATC, whose own estimates for the Cantung mine reclamation were around $15 million, objected to the amount of security deposits recommended by the board and requested the minister delay his decision on the application.
“A requirement to post security of $30.95 million will have grave implications for North American Tungsten, potentially jeopardizing the employment of 250 people at a mine site that contributes $80 million annually to the economy,” Heikkila wrote to Miltenberger in a letter dated Mar. 26. “By dramatically increasing Cantung’s security requirements, the Board has unintentionally impaired NATC’s access to capital needs for operations, in the process, pre-empting progressive reclamation.”
At the time, NATC asked for the existing “Transition Rules for Existing Mines” to be applied, which state that the minister should only modify the amount of securities when he or she feels the company is financially incapable or that doing so is in the public interest.
According to NATC’s own admissions, a similar policy was applied when the company was previously under creditor protection in 2004.
Heikkila suggested the issue of securities could be revisited when Cantung’s 2016 water licence renewal is considered.
‘Taxpayers on the hook’: MLA
Despite Heikkila’s tempered optimism, others in the NWT aren’t convinced that NATC will survive its current troubles to be able to clean up its mine sites.
“Unfortunately, the taxpayer is clearly on the hook,” Weledeh MLA Bob Bromley told the Journal. “These mines are big projects in terms of the scale of budget we deal with, and the federal government failed miserably with their legislation, which we mirrored.”
According to the department of Lands, the GNWT accepted responsibility for sites that were permitted under the “modern regulatory regime” through devolution, which included NATC’s properties.
“GNWT’s acceptance of a portfolio of sites balanced the risks and rewards of taking on the responsibility, including the ability to collect royalties and the authority to manage sites in a way that reflects the interests of northerners,” reads an email response to the Journal.
Bromley questioned the GNWT’s decision to take over regulatory authority for the two mine sites, and wonders if the existing $11 million in securities for Cantung will be adequate.
“We are left, likely, looking after the whole resolution of everything, so there will be a lot of damage to companies and so on that are owed, but I suspect that we will also – the taxpayers – be shouldering an unexpected burden once all is said and done,” he said.
As for the company’s objections to the increased securities, Bromley said clean-up guarantees are part of the costs owed.
“It’s like wanting the Northwest Territories to pick up for the failing global economy and subsidize five sixths of the cost of mining in the North on the shoulders of 43,000 people,” he said. “The cost of mining must include the cost of clean-up. So if a company cannot handle it, they need to get in a player that has big enough dollars to do that, or we need another model.”