Protection plan

The proposed sale of Hudson Bay Mining & Smelting is an elephant-and-mouse deal like almost no other. Anglo American, one of the world’s largest mining companies, is ready to sell a large integrated mine-and-smelter operation to a small Toronto-based junior, OntZinc.

Anglo obviously wants out of Flin Flon, and wants out badly enough to make a deal that is conditional on a financing about 20 times the market value of the buyer itself. And then what if it all goes through?

Here is OntZinc’s situation: with about $3 million in cash, it has agreed to purchase HudBay for $325 million, which it will finance partly by an equity issue and partly through debt. In the normal course of business, the buyer assumes all of a mine’s closure liabilities, and there has been no representation to the contrary from the parties to the deal. So a junior with a limited treasury and a big loan may be taking over responsibility for one of the largest rehabilitation jobs in Canada.

Specific figures on the cost of rehabilitation at Flin Flon aren’t easy to come by; Anglo American does not break out long-term liabilities operation by operation. The mines are relatively modern, underground operations with small footprints. But the Flin Flon smelter has been around a long time, there have been significant effects from airborne pollutants, and there is a record of exceedances that extend at least into the 1990s.

As far as we can tell, there is no definitive regulation or agreement covering either what will be done to rehabilitate the area or who will pay for it. If it’s left to the courts, well, they tend to look on exceedances as evidence that an owner is liable for damages across his property line. Let the buyer beware.

It’s not an exaggerated fear to imagine that a junior company that has raised enough money to buy an operation may not have deep enough pockets after that exercise to fund closure and rehabilitation. Even if the company were to go into a purchase with the most responsible intentions and the most prudent preparation, things can happen. If one of those things is a bankruptcy (as happened, for example, at the Giant gold mine in the Northwest Territories and at Zortman in Montana), the mine is orphaned and any cleanup falls to the taxpayer. (And we know what that got the industry in Montana: the cyanide ban.)

To be fair, that problem is not unique to smaller companies. Even large companies can run into insolvency, as Pasminco did in 2003. But the dangers that face a small company, financed expressly for the takeover of one operation, should be obvious.

We naturally hope a new owner, whether it’s OntZinc or someone else, will run Hudson Bay profitably for a long time. That will be good for the shareholders, for the workforce, and for the Flin Flon region. If the new HudBay is a success, its closure plans will have all the money they need.

That’s if things go well. If they do not, and if the taxpayers are saddled with the expense of a Flin Flon cleanup, it will be the whole Canadian mining industry whose reputation suffers, not just the new owner. The public, and governments, will see the mining industry walking away from a mess. It will avail us nothing to protest that a minority of operators are giving the industry a black eye, or that these are “legacy liabilities” from a time when nobody cared.

So what is to be done in the meantime? The smelter has been tough on the Flin Flon landscape. Any cleanup will be costly and extend over Hudson Bay, private, and Crown lands. Just like Noranda, Sudbury, or Wawa, Flin Flon may never be cleaned up entirely on the smelter owner’s dime. But there is no better time to start planning for what is to be done, and how much of that burden the public has to shoulder.

When it comes to the mines themselves, the situation is better. They are under closure plans on both sides of the provincial boundaries; the problem that may loom largest, the Creighton tailings disposal area, is on the Saskatchewan side. The current regulations allow the Saskatchewan government to order a review of the closure plan and its assurance fund; under the Manitoba regulation, annual reports from operating mines can trigger reviews by the government.

Reviews of HudBay’s closure plans, and variation of the terms of the financial assurances, would be good business on the part of the provinces. There is, we concede, a danger of placing so heavy a burden on the buyer that the sale falls through. There is also a danger that failing to review the plans now could one day mean that rehabilitation costs are forced on to the public. We know which risk we’d rather have the provinces run.

Before the sale of Hudson Bay Mining goes through, the public interest demands that the provinces of Manitoba and Saskatchewan secure themselves — and the taxpaying public — against any risk that the Flin Flon sites will be abandoned. It is in the industry’s own interest to get behind that, and save itself some damage control down the road.