UPDATE: The GNWT’s case for buying Mactung
No, the GNWT isn’t looking to annex pieces of the Yukon, nor is it seeking riches by getting into the mining game. According to Mark Warren, deputy minister of the GNWT’s Department of Lands, the government’s purchase of North American Tungsten’s undeveloped Mactung property is all about fulfilling obligations to the Government of Canada following the transfer of the defunct Cantung mine to the feds. Basically, it’s the GNWT doing Canada a solid after passing Cantung and its clean-up costs back to the feds.
I’ll explain. Or at least try to.
This spring, North American Tungsten was operating the Cantung mine at a loss and it owed a lot of people a lot of money—around $80 million in total. That included the GNWT, which was owed $21.7 million in securities for environmental liabilities under Cantung’s water licence. (Those securities totalled $11.6 million until June, when an amendment to the mine’s water licence was approved and the securities required more than doubled to $27.9 million. Before that amendment, North American Tungsten had paid the GNWT $6.2 million in cash, with the remaining $5.4 million in the form of a promissory note against Mactung—using the property’s value as collateral)
The company went into creditor protection and its assets were eventually put up for sale through a court process. Potential buyers had the option to bid on Cantung exclusively, Mactung exclusively or both assets together. Warren says no one bid on the combo or on Cantung, but there were some suitors for the attractive, undeveloped Mactung property. This meant that Cantung had essentially become an abandoned mine.
Provisions in the devolution agreement allowed the GNWT to transfer responsibility for Cantung—and its future clean-up costs—back to the feds. “In the case of the Cantung mine, it operated for 40-odd years under Canada’s responsibility, therefore why should the taxpayers of the NWT be responsible for the clean-up that that generated?” says Warren. The $6.2 million in cash, along with responsibility for the rest of those outstanding securities, went to the feds too.
But there’s always a catch. A wrinkle in the court sales process shuffled the priority of those would be paid by any sale of Mactung: instead of the government being first in line to get back the money it was owed, the lawyers, the court-appointed monitor and all other court costs would move to the front of the line and get settled first. That outstanding $21.7 million once owed to the GNWT—now held by Canada—would come second.
But why did the GNWT buy Mactung? Well, included as part of the terms that allowed the GNWT to hand Cantung back to the feds is the legal obligation for the GNWT to do the aforementioned solid for Canada. (“I’m not sure I would use the terminology ‘a solid’ but that’s exactly right,” notes Warren.) Here’s how Warren explains it in his words: “If we are to return a property to Canada, we have to do whatever we can to maximize the value of the securities that we’re giving back to Canada.”
According to Warren, the GNWT and the Canadian government found the bids for Mactung “disappointing”—though he can’t get into details due to confidentiality agreements that were signed. “In today’s market, we thought that [property] should have resulted in higher bids. And we also think today’s market is close to the bottom of tungsten prices.” So the GNWT agreed to offer up to $4.5 million for Mactung, which would pay off the costs associated with the court process. This gives the government the mineral rights to Mactung, with the idea that it would sell the property once—and again, if—market conditions improve. If the GNWT were able to sell the property, then the money it spent to buy Mactung would be recouped first, and then the $21.7 million in outstanding securities now on the feds’ books would start getting paid off. If the GNWT made more than that through the sale of Mactung, the next creditors in line would get paid off. “A lot of people seem to think we’re doing this just to have a big windfall on Mactung. No, it’s to cover the environmental obligations of either government,” says Warren. If the GNWT hadn’t put up the money for Mactung, the governments may not have gotten anything from the Mactung sale.
The GNWT won’t incur any lease renewal costs or be required to do any exploration work on the Mactung property, which sits primarily on the Yukon side of the Yukon-NWT border, says Warren. He's careful to add there’s also an appeals process for the sale, so there’s a chance the deal doesn’t go through. And there are no plans yet on how to proceed with a potential sale of Mactung; that will be up to the next government to figure that out.