By Peter Ewart

In a news release on August 14, Imperial Metals announced that it has raised $100 million to cover reclamation costs related to the Mount Polley mine tailing pond spill, as well as to complete construction of its Red Chris mine in northwest British Columbia.  The news bumped up Imperial’s stock by 16% (it had plunged 40% the day after the August 4th spill).

Imperial’s two biggest shareholders came up with the financing.  The Calgary-based oil financier N. Murray Edwards, of Edco Capital, will be providing $40 million of unsecured convertible debentures.  Bruce Berkowitz, of the Florida hedge fund Fairholme Partnership, will be supplying another $40 million.  In order to ensure that the target amount of $100 million is raised, Mr. Edwards and Edco have committed to purchasing a further “6-year Non-convertible Debentures bearing interest at 12% in the event of [a] shortfall.”

This move appears to be aimed at shoring up confidence in Imperial Metals, as well as warding off possible attempts by other financial interests to break up the company or scoop up key assets, especially the prized Red Chris copper and gold mine which is on the traditional territory of the Talhtan First Nation and which is expected to come into full production soon.

At the present time, Imperial has only $7 million cash on hand and has a long-term debt of $561 million.  However, its total assets are currently valued at $1.23 billion.

Will the $100 million plus $25 million in insurance be enough to cover clean-up and reclamation costs at Mount Polley (estimates of these costs range from $50 million to $500 million), as well as construction overruns at Red Chris (estimated to be another $51 million)?  Some business analysts argue that the jury is still out.

According to the company’s August 14 statement, “while the precise costs of remediation and repair are presently unknown, the company believes that the costs can be managed over time, given the underlying value of the company’s assets and by the resources provided by the additional financing.”

However, in the company’s statement, there was no mention of future possible third party insurance liability claims (for losses incurred by businesses, property-owners, and First Nations in the region) or investor liability claims (for stock losses arising from the spill).

In any case, it appears that, at least for the time being, the plan is to keep the parent company and its subsidiaries intact with future revenue from the Red Chris mine used to “cover the costs to remediate the effects of the tailings dam breach at the Mount Polley mine”.

In regards to Red Chris, the Klabona Keepers, a group within the Tahltan First Nation have mounted a blockade outside the mine.  At the same time, negotiations are going on with the Tahltan First Nation Central Council leadership regarding giving it control over a review of the proposed mine tailing storage.  If permitting issues are resolved, the Red Chris mine is expected to start up milling operations this Fall.

According to the company statement, the Mount Polley mine is expected to be down for “an indeterminate period of time” as a result of the mine tailing breach.  The mine has about another ten years of life left for its open pit and underground operations (2013 Annual Report).   Up until the tailing pond spill, the Mount Polley copper and gold operation was Imperial’s top revenue producer, providing cash flow for the Red Chris mine construction, as well as other company expenditures.

Will the Mount Polley mine start up again?  It is not clear at this time, but some analysts believe it could be back in operation next year, which would certainly give a boost to laid off workers, as well as the local economy.  A lot will depend on the development of new tailing disposal facilities, whether that be through a redesigned or reconstituted tailing pond or other disposal method.  A further consideration – What input or oversight will First Nations, local communities, and government have regarding a new disposal facility?  And will there be consent to go ahead?

The infusion of money from Imperial’s biggest shareholders will no doubt contribute to stabilizing the financial situation, warding off takeover attempts, and keeping the beleaguered company intact – at least for the time being.  In addition, substantial revenue could be generated in the coming months and years for clean-up, reclamation and liability costs if the Red Chris mine gets into full production and if the Mount Polley mine starts up again.  Any break-up of the company, along with a selling or hiving off of assets could endanger this repayment (see previous 250 News column).

Irrespective of whether either of these mines are up and running soon, the tailing pond spill has brought to the fore a number of issues to be addressed, including an inquiry / investigation into the causes, a review of government monitoring of mines in the province, consideration of safer methods for tailing disposal, and the creation of new mechanisms for First Nations and community oversight of mining operations.

Although the $100 million infusion is a positive development, many questions remain regarding Imperial Metal’s long term finances and stability, as well as the long term environmental effects of the spill.  All of this, of course, is in the context of a huge uptick in Asian demand for copper and other metals over the last few years, counterbalanced by the uncertainty and volatility of a globalized market for commodities.

Peter Ewart is a columnist and writer based in Prince George, British Columbia.  He can be reached at: peter.ewart@shaw.ca