After operating for just three years, Yukon Zinc, owned by a private Chinese company, left the territory with unpaid security deposits and a flooded mine site, polluted with cadmium, selenium, copper and lead

The Yukon government is seeking $25 million from Yukon Zinc in bankruptcy proceedings to cover the costs of the company’s shuttered and contaminated Wolverine mine site in southeast Yukon.

Yukon Zinc operated the mine until 2015, when it was temporarily shuttered due to unfavourable market conditions. But the mine never reopened and in 2018 the Yukon government stepped in to handle environmental care and maintenance of the flooded site, which contains waste water contaminated with cadmium, selenium, copper and lead.

Over the course of a three-day hearing in late January, government asked the Yukon Supreme Court to recognize the debt, arguing it has “a provable claim” to $35,548,650 for remediation of the environmental damage at the site and that this claim “ranks above” any other creditor claims against the Wolverine property.

According to court documents, during the course of the mine’s operation Yukon Zinc only paid around one third — $10.6 million — of the $35.5 million security required of it, leaving it owing owing around $25 million earmarked to clean up the mess left behind.

In July 2019, the Yukon government petitioned to have Yukon Zinc sent into receivership so its assets could be liquidated and sold. That request was granted by the Supreme Court of Yukon on Sept.13, with PricewaterhouseCoopers Inc. taking control of proceedings and the mine.

Yukon Zinc — which is owned by Jinduicheng Canada Resources Corp., a private Chinese company — argues that the government can’t claim the $35.5 million security as a debt, because the government hasn’t actually spent any of its own money at the site, only part of the $10.6 million in security Yukon Zinc managed to pay.

Wolverine mine ‘has left an environmental scar on the territory’

Prior to 2003, remediation of abandoned mine sites was a federal, not territorial, responsibility.

“This is the first litigation that [the Yukon Government] has initiated … that relates to defaults on the part of a mineral claim/licence holder for a mine,” since the territory took on this responsibility, Laurie Henderson, legal representative for the Yukon government, said in an emailed statement.

During the final day of the recent hearings, Yukon’s lawyer, John Porter, told the court the Wolverine mine “has left an environmental scar on the territory.”

At the request of his client, Porter declined to comment on the hearing outside of the courtroom.

A request for comment sent to Yukon Zinc via email went unreturned. All phone numbers listed for the company on its website have been disconnected.

The missing millions

The Wolverine mine site — primarily rich in zinc but with traces of silver, copper, lead and gold — is located in Yukon, approximately halfway between the communities of Watson Lake and Ross River on Kaska First Nation traditional territory.

In the Yukon, mine security increases as sites develop so risk can be assessed over time. In 2006, when Yukon Zinc first opened Wolverine, the company paid an initial deposit of just $1.78 million.

Operations at Wolverine, which is an underground mine, included construction of a work camp, mill, air strip, tailings storage facility, landfill and a 25-kilometre access road connecting the mine to the Robert Campbell Highway. Commercial production began in 2012 and by 2013 the necessary security increased to $10.6 million, required in scheduled instalments — which Yukon Zinc was consistently late in making.

The company filed for and was granted creditor protection when the mine closed in 2015. Yukon Zinc made its way out of protection in October of that year and brought its total contribution up to the $10.6 million mark, but the mine remained closed.

In a Yukon Supreme Court document filed July 17, 2019, the Yukon government stated that between 2016 and 2018, inspections found conditions at the site to be rapidly deteriorating.

The underground mine was flooded, and so contaminated water had to be diverted to the mine’s tailings storage facility, designed to hold waste from mining operations. With no water treatment in place at this time, the water in the tailings pond swelled, and risked overflowing.

In the same document, the government noted inspection reports issued in 2018 and 2019 identified “serious concerns related to water management and an overall concern about Yukon Zinc’s capacity to undertake the necessary care and maintenance activities at the mine.”

As a result of “deteriorating environmental conditions at the mine site,” the Yukon government bumped up the required security to $35.5 million in May 2018. By fall the government was forced to step in, beginning environmental maintenance of the site, including the establishment of water treatment.

Selenium a problem in Wolverine tailings

A 2017 government report on the site found that water in the underground mine, even during the period in which there were no mining operations, “exceeds discharge limits for most metal parameters, with exceedances of cadmium, copper, lead, selenium, and zinc.”

Water samples from the tailings pond registered three different classes of problem contaminants which “require removal to ultra-low levels for discharge,” including cyanide, selenium and metals.

Moreover, a “significant portion of the total selenium present in the water is selenocyanate and ‘unknown’ organo-selenium species that are not normally present in mine-impacted waters,” the report notes.

Although selenium is an essential nutrient to human health in tiny doses, it can be poisonous at higher levels. Even at low levels, selenium is dangerous to fish, capable of causing crippling deformities.

Both the water in the flooded underground mine and the water in the tailings pond — itself a source of contamination, as it contains the left-overs from the mining process — are contaminated, says Lewis Rifkind, mining analyst for the Yukon Conservation Society. Water from the tailings is presently being treated by a system which allows cleaned water to be pumped out, which was put in place by the Yukon government to prevent it from spilling over and contaminating other water sources.

“The stuff coming out of the site is pretty nasty,” Rifkind told The Narwhal, noting selenium is a large concern at the site.

Buyer wanted

What the government really wants is a new buyer to return the site to production, John Fox, Yukon government’s assistant deputy minister for oil, gas and mineral resources, told The Narwhal.

With input from government, PricewaterhouseCoopers submitted a sales and marketing plan to the court in January that anticipates the sale of the mine by the end of June.

The plan relies on an “aggressive timeline,” Fox admitted.

“With that [sales] plan, we would also expect the successful proponent to provide us with security that … would ultimately link to the new company’s reclamation and closure plan,” Fox said, adding new reclamation and closure plans would be subject to a new environmental assessment.

“We entered into this receivership with our eyes open and we feel there is a very high likelihood that the mine will sell.”

In an affidavit filed Aug. 1, 2019, Fox stated the estimated cost to continue managing contaminated water at the site to the end of the 2020 fiscal year at $6 million. Fox said the $10.6 million in Yukon Zinc security held by government can cover costs until the end of November 2020.

The Yukon government has already directed $5.8 million of the $10.6 million from Yukon Zinc in its possession to pay for the cost of work it has already done at the site to treat and discharge 15,000 cubic metres of water from the facility, Pendergast said, adding more treatment will take place this spring.

“Future costs will depend on the timing of a potential sale of the property, as well as the need to address emerging issues as they arise on site,” Natalie Pendergast, communications representative for the Yukon department of Energy, Mines and Resources said.

Yukon Supreme Court Justice Suzanne Duncan, who presided over the January hearing, has reserved her decision on the issues at hand for the time being, although she has stated she recognizes the urgency of the matter, Pendergast said via email.

Fox said whatever the outcome of the courts, “it’s fair to say that Yukon — unlike [Yukon Zinc] — can’t walk away from those obligations. So we will be spending the money we need to ensure those risks are addressed.”

Wet tailings and ‘bad rock’

Rifkind said he heard “rumblings” of the possibility of a sale, but thinks it’s “dreaming in technicolour,” as the cost and time to pump out the site, clean it up and make a workable mine again would be undesirable to a buyer. Moreover, the primary product of the mine — zinc, which is primarily used to protect iron and steel from rust — is not a high-roller commodity, he noted.

“Just getting to the site is going to be expensive. It’s got to be remediated and closed up and you need lots of money for that,” Rifkind said.

Full remediation is expected to cost another $25 million, although Rifkind said he has to wonder if that will be enough, given the kind of barebones upkeep a site like that requires.

“Keeping the roads open and that sort of stuff, basic maintenance, none of it is cheap — that’s why you burn through money like crazy.”

Rifkind said the fact that the site is water-rich — the underground mine remains flooded and the tailings impoundment is threatening to overflow — is another disincentive for a buyer.

Wolverine was also built with a wet tailings impoundment, a waste storage technology that fell out of favour after the 2014 Mount Polley mine disaster, which saw the collapse of a tailings dam that released 25 million cubic metres of mine slurry and waste water into the local environment and Quesnel Lake in Likely, B.C. An expert panel report on the disaster recommended best available practices and technology — including dry stack tailings — be used for tailings storage when possible.

“Could you imagine if you bought the mine, put it back into operation, dewatered it and did all the right things, and then tried to get a wet tailings dam through the (environmental assessment process)?” Rifkind said.

“I mean, the entire Yukon would scream — we just don’t accept wet tailings dams anymore,” Rifkind said.

“Plus,” he added, “it’s a mine that, when it was operating, was infamous for instability, rock, falls, that sort of thing — it’s something called ‘bad rock,” said Rifkind. “So you need a lot of money just to stabilize the site.”

New rules in place

As to why Yukon Zinc was allowed to operate for so long without providing the full required security deposit, Pendergast said via email that for the government to take enforcement action the mine operator had to be in non-compliance of the terms and conditions of its licence, but during most of the temporary closure, Yukon Zinc was in compliance.

“In the end, Yukon Zinc Corporation’s failure to comply with the terms and conditions of its licence increased the closure costs of the mine,” Pendergast added, noting that the government is looking at the options in its toolbox when it comes to reconsidering the terms and conditions of licences to be more proactive in addressing the risk of mines.

Some of those tools have already been put in place.

Shortly after the security for Wolverine was set at $10.6 million in 2013, the government changed its rules to require security for any critical infrastructure that has to be constructed for the mine during its entire lifecycle, according to Fox.

“Yukon Zinc required a water treatment plant on site. Our old rules basically said, ‘if they don’t need the water treatment system right now, they don’t need to secure it. We will get that (money) when they will build it later and everything will be fine,’ ” Fox said. “Of course they didn’t build it and everything wasn’t fine.”

This policy in and of itself is a “change” and the government believes it will go a long way to preventing a recurrence of a situation like Wolverine again, he said.

“The Wolverine is the first mine in the Yukon since devolution where a company has failed to pay the required security,” Fox noted.

In November of last year, the Yukon government announced it was considering the creation of a reclamation fund, but hasn’t said yet who will be responsible for paying into it.

Wolverine mine, between Ross River and Watson Lake, Yukon. Photo: Yukon government