Liability must remain with Imperial Metals and all its subsidiaries
By Peter Ewart
The clean-up costs for the massive tailing pond spill at Imperial Metals’ Polley Mountain mine have been estimated by some to range between $50 and $500 million. In addition, legal action will undoubtedly be launched by individuals, businesses, and First Nations in the region which could result in hundreds of millions more in costs. And then there are law firms launching suits on behalf of Imperial stockholders who have suffered huge stock losses when the company’s stock plunged over 40%. Whatever the final amount, the issue comes down to – Who is going to pay?
On August 8, BC Environment Minister Mary Polak said: “We have a polluter-pay model in British Columbia and we expect the company will be the one paying for the cleanup and recovery” and that she has “heard commitments that [the company] is ready, willing and able to continue to fund what they need to” (CBC News, 08/14).
However, comments from Imperial Metals president Brian Kynoch suggest that the situation may be a lot more dicey than this optimistic statement from the Minister. According to one news report (CBC News, 08/14), Kynoch has committed to paying for the clean-up “to the best of [his] ability”. But in contrast to Mary Polak’s statement that the company is “ready, willing and able” to pay for the spill, Kynoch is more equivocal and doubts that the company’s insurance will be high enough to cover the cost (for more on the insurance issue see 250 News article of Aug. 12).
After indicating that the company does not have the money in the bank at this time, Kynoch goes on to say that, “If it’s $400 million, then we are going to have to get mines generating to make that money to do the cleanup.”
But there is a problem here when Kynoch says that we need to “get mines generating” the cleanup funds. For one thing, as noted before in 250 News on Aug. 7th, company financial statements of previous years reveal that the Mount Polley mine itself was being used to generate “cash flow” for the company’s new Red Chris mine in northwestern BC, as well as other Imperial operations. Yes, the Red Chris mine is nearing finish as is its extension to the Northwest Transmission Line, and presumably will generate substantial amounts of revenue down the road. But completion of the construction, as well as start-up funds, will be required for a while before that happens, especially since negotiations are still going on between Red Chris and that Tahltan First Nation regarding the mine.
So the Red Chris mine will still need cash flow from other parts of the company. But the Mount Polley mine, which has been a cash cow for Red Chris, will likely not be in operation until the end of the year or later. In the meantime, clean up and associated costs for the spill will be mounting by the day. To compound the problem, Imperial Metals’ other operating mine, Huckleberry Mine (which Imperial has a 50% stake in), was down for several months earlier this year because of equipment failure. The company has a lot of debt, and, as one financial analyst says, “the shutdown of Mount Polley will stretch thin an already tight balance sheet” (Reuters, 11/14).
So how will the financial oligarchs who dominate the Canadian and global mining industry view this dicey situation? Speaking plainly, some are no doubt looking at how to hive off the lucrative Red Chris mining asset and other Imperial assets from the Mount Polley operation, which is already nearing the end of its life as a mine and will be beset with clean-up costs and lawsuits for years to come. Indeed, a number of big companies were in fierce competition to gain control of the Red Chris property several years ago, but Imperial Metals eventually won out. Now the situation has changed and the sharks are circling again as can be seen by recent business analyst speculation on how Red Chris might be torn away.
But could this conceivably happen? Could the Red Chris mine and other Imperial assets be siloed or separated off from a Mount Polley mine that is burdened with debt and lawsuits? Could then the Mount Polley operation (or even Imperial Metals itself) eventually go bankrupt requiring public funds to clean up the mess and leaving plaintiffs twisting in the wind?
The first thing to get straight is that, although the Mount Polley mine and the Red Chris mine are all part of the parent company Imperial Metals and are subsidiaries of it, they exist as separate companies. For example, the Mount Polley mine is owned by the Mount Polley Mining Corporation (Imperial Metals acquired majority ownership back in the 1990s) and the Red Chris mine is owned by the Red Chris Development Corporation. In turn, both are wholly owned by Imperial Metals.
To many, it would seem logical that any debt or obligations incurred by the Mount Polley Mining Corporation should fall on the parent company Imperial Metals and its wholly owned subsidiaries such as Red Chris Development Corporation. But that is not necessarily the case according to current corporate law and government policy.
For example, a few years ago in BC, there was a tank car spill on a railway and the parent railway company and its 100% owned subsidiary company (which actually operated the railway) were sued. But the BC Provincial Court ruled “that the parent company wasn’t liable for the subsidiary’s environmental offences” because it merely owned the railway and didn’t operate it (Environmental Compliance Insider).
But wait. If we examine Business Registry records regarding Imperial Metals and its subsidiary companies, we find that there are several overlapping members of the Boards of Directors, i.e. several of the Imperial Metals directors sit on the board of Mount Polley Mining Corporation and the same is true for some of the company officers. Doesn’t this prove something in terms of potential responsibility?
Not in this particular railway case. The court found that it didn’t matter that there were overlapping directors. The parent company got off scot free (although this does not always happen).
In such a circumstance, it is within the realm of possibility that the subsidiary company could then go bankrupt and leave the plaintiffs and the people of BC out in the cold.
And yes, corporate reorganizations do happen all the time where assets are hived off. Indeed, Imperial Metals, facing bankruptcy back in the early 2000s, did exactly that in a court-sanctioned restructuring which saw subsidiary oil and gas companies and assets shifted into a separate company from its mining assets (which were facing difficulty at that time as a result of low metal prices).
In any case, a better situation for the workforce, local communities and businesses, First Nations communities and the people of British Columbia will be that Imperial Metals and its subsidiaries remain intact and continue operating under strict public oversight, as well as with First Nations and community consent. It is especially important that Red Chris Development Corporation is not sold off by Imperial Metals and that the Mount Polley Mining Corporation is not hived off and put into bankruptcy.
As revealed in Imperial’s Annual Reports, the Mount Polley mine provided cash flow for the Red Chris mine construction and all sorts of profits for Imperial shareholders. Now it is Red Chris and Imperial’s turn. Clean-up costs and legal costs can be expected to go on for years. Rather than being sold off for a song and taken over by global financiers, the revenue from the lucrative Red Chris mine must be used to pay for these costs now and in the future. As previously noted, Imperial Metals’ president Brian Kynoch appears to support that course of action.
In terms of Imperial’s current financial woes, an immediate solution could be for Imperial’s largest investors, several of whom have very deep pockets, to step up to the plate and provide financing to stabilize the company’s situation. These dominant investors, who have directors connected to them on Imperial’s board, have profited greatly from Imperial’s operations in the past and should have been aware of the risks the Mount Polley mine was taking.
It is clear that vigilance is needed in this fast moving situation. For its part, the provincial government must make it very clear to Imperial Metals, as well as those who may be considering carving the company up, that it will not go along with any financial maneuvers that will hurt or endanger the interests of the people of BC or hinder the clean-up and financial reparations.
Peter Ewart is a columnist and writer based in Prince George, British Columbia. He can be reached at: peter.ewart@shaw.ca
Comments
Thanks for a very good and informative article Peter.
The way I see it is the courts are going to look to corporate law and with the way risky resource companies are set up in Canada all the risk is usually tied up in a silo subsidiary corporation, so if things go awry they just bankrupt it and cut the loss.
This will almost assuredly become another Lac Magantic situation with the subsidiary corp bankrupted and the assets sold in bankruptcy court to a lucky connected financier for pennies on the dollar minus the liabilities. The insiders will make money on the bankruptcy, because that is how corporate bankruptcy laws are set in Canada.
Look at 360 Networks $24 billion dollar market capitalization bankruptcy in BC Supreme Court. They were allowed to buy other datacom fiber network companies with cash on hand while in bankruptcy, and still see the company sold to its secured creditors for only a $180 million dollars owed, yet claiming over $7 billion in state of the art global assets. The investors, bond holders, trade creditors all got nothing, but the executives that took it through the bankruptcy all got million dollar bonuses and massive allocations of the new shares in the post bankruptcy privately held company.
When it comes to corporate law in BC its all one big fraud of insiders feeding insiders. When it comes to a company that put half a million into the BC liberals election campaigns they will get the fast track to absolving them from their crimes.
Imperial may well keep Red Chris mine, but nothing in BC corporate law stops them from claiming bankruptcy with Mount Polly and simply walking away leaving the province with the liabilities.It may well be their bankers that institute this and the executive that gets rewarded richly for guiding the company through the process.
Quite likely the ‘large investors’ in Imperial Metals are themselves mortgaged to the hilt. Remember the old saw about the two ways to be a millionaire? You can HAVE a million, or you can OWE a million.
And if we were ever able to ‘cash in’ many of today’s millionaires and billionaires I’m quite sure the latter group would be found to far and away exceed the former.
They don’t “have the money”, in ‘money’ itself, but rather assets that are VALUED in ‘money’. BIG difference. And those ‘values’ can be highly volatile.
Fundamentally, they are what could be called the ‘credit value’ of any particular productive asset. Which is virtually entirely dependent on that asset’s CONTINUED ability to “…make a Price for its product in excess of its Costs.”
Take that ‘credit value’ away, which some of the suggestions made by some of the well-intentioned commentators on this situation would certainly do, just what do you have left? Minerals in the ground, and some mining infrastructure that represents ‘wealth’, but is really no more so than a roast of beef in your deep-freeze is, WHILE IT’S IN THE DEEP-FREEZE. It is really only ‘wealth’ after it’s thawed out, cooked, and eaten. You can’t get any “well being”, i.e. ‘wealth’, out of it until it is.
Regardless of all that, in the final analysis it will be the PUBLIC that pays. And they’ll do so either directly, if the company is unable to fund the remediation costs and what will no doubt come afterwards in the form of more stringent requirements if such render the mine uneconomic to operate; or, indirectly, through a rise in the PRICE of this mine and every other mine’s products. Which will flow through into increased consumer product prices for everything that’s made from those products. Those are ultimately the only sources of payment, so disband the ‘lynch mob’ and the ‘vigilance committee’ out to find some kind of so-called justice by nailing the supposed ‘profiteers’, and start to examine the REAL facts.
“However, comments from Imperial Metals president Brian Kynoch suggest that the situation may be a lot more dicey than this optimistic statement from the Minister. According to one news report (CBC News, 08/14), Kynoch has committed to paying for the clean-up to the best of [his] ability. But in contrast to Mary Polaks statement that the company is ready, willing and able to pay for the spill…”
Two completely different outlooks on the spill cleanup and Imperial Metal’s ability to pay. La La Christy World says everything is A-OK, but Imperial Metals is not so sure.
Maybe we can get some of the same commenters on here that have attempted to placate us by minimize the size of the accident, minimize the environmental damage and it’s effects, and now to minimize this troubling bit of news.
Come guys lets see your positive spin, maybe you can even attack (discredit), Peter Ewart, myself, or anyone else who would dare make public any bit of fact that does not fit into the La La Christy World positive spin, on what is one of the largest mining accident in the world!
Breaking news, this just in; Mary Polak and Christy Clark’s response to this whole sordid mess!
http://tinyurl.com/q2ha3oo
I didn’t read past the headline but I’m guessing Ewart’s rant goes something like this, “We need to turn the mine over to the socialists. That’s the only way people won’t have to work but will somehow magically prosper.”
This guy is so predictable it’s no longer necessary to read anything he posts to know what he’s going to say.
Again, to some agree peter is correct and if the Mine is not put into operation soon the funds needed for clean up may not be there. We have 380 workers staff or hourly that are in limbo. Let the investigation continue but get the mine running before its to late.
Axman you have your head up your ass,get off your conservative waggon pay attention you if anything are most predictable
Posted by: steph99 on August 13 2014 10:00 AM
Axman you have your head up your ass,get off your conservative waggon pay attention you if anything are most predictable
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Struck a nerve with you? Are you drinking the Ewart Kool Aid? Hanging on his every word waiting for the great socialist utopia?
For the record, I am no where near conservative.
The site will be cleaned up, if the company does not do it the government will and then pass the bill on to the company. In event of bankruptcy, government is always paid first and then banks and then shareholders. Stocks are always risky, don’t want the risk then buy a GIC or Bond.
They also hold 50% stake in two other mines so there is cash flow. They may have to go on a payment schedule but that should be doable if the insurance is lacking.
Axeman, if you are not going to read the article then why assume you know its content and then comment on your assumptions. Do you have mental health issues that need to be addressed, maybe some pills you forgot to take?
I don’t see Ewert as socialist. He often talks of corporate structure and responsibility that is governed by healthy legislation, but I have never heard him talk of government monopoly over industry. I view the politics of Ewert as closer to a free enterprise capitalist. He recognizes the need and use of capital in the economy, but looks for ways to ensure they play by the rule of law and compete on a level playing field in terms of things like environmental, safety, and labor standards.
Its because of people like Ewert with insights into how our economy operates that we enjoy the benefits of a modern economy. Its because of ignorant partisans like Axeman that we see monopoly capitalists and their partners in crime at 1984 headquarters running amuck with our society.
IMHO
Based on every article I’ve read, Ewart is a socialist. Great idea until you run out of other people’s money. (I think Maggie Thatcher said that).
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