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Nanisivik owner wants more time to post $17.6 million bond

NWB issues new water licence covering clean-up of Nanisivik zinc mine

Zinc production at the Nanisivik Mine ceased last month. The Nunavut Water Board is now asking CanZinco Ltd. to post a $17.6 million bond to guarantee a clean-up of the site

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(FILE PHOTO)

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JIM BELL

CanZinco Ltd., owner of the Nanisivik Mine, is asking the Nunavut Water Board for more time to come up with a $17.6 million security bond they’re required to post under a new water licence issued Oct. 10.

Though the water board’s new licence requires the security to be paid within 30 days of the licence being issued, CanZinco’s lawyer, David Searle, asked the water board this Tuesday to give the company 60 days instead.

Searle made the request this week in a letter to Thomas Kudloo, the water board’s chair. The water board will wait until at least Nov. 8 before making a decision on CanZinco’s request.

That comes hard on the heels of an agreement reached this Monday between Breakwater Resources, CanZinco’s cash-strapped parent company, and the Department of Indian Affairs and Northern Development to cover an older $1 million security requirement that CanZinco failed to make by July 31, 2002.

CanZinco’s old water licence, issued July 31, 1997 and expiring Sept. 31, 2002, required that the $1-million deposit be paid every year by July 31.

But when the Nunavut Water Board issued a new licence to CanZinco on Oct. 10, they did so on the belief that CanZinco had breached its previous licence by failing to post the required security.

"The main compliance issue, which greatly troubles the NWB, is CanZinco’s failure to post the July 31 security bond," the board says in its "reasons for decision," issued Oct. 23.

"That breach of the licence should be entirely in the hands of DIAND to review for what the NWB believes would be grounds for potential enforcement action."

But this week, Breakwater agreed to provide a written guarantee to the water board to cover the $1 million, an offer that DIAND accepted.

The new water board licence is the main tool that various government agencies will use to regulate an environmental clean-up of the Nanisivik site. Zinc production there ceased on Sept. 30.

The $17.6-million figure the board is now asking the company to post as security is intended to guarantee that CanZinco will follow through on a commitment to clean up the Nanisivik site according to plans approved by regulators.

CanZinco had originally estimated that it would need $9.1 million to close the mine and reclaim the site. That figure is close to what Breakwater Resources has reported in its public financial statements.

But a consultant hired by DIAND earlier this year produced a much higher estimate — $29.5 million.

Officials from all parties then whittled that down to $18.9 million, after taking into account what the company would save by using sealift, rather than air freight, to bring in large quantities of lime needed for the clean-up, and what the company would save by using chartered aircraft to fly in clean-up workers.

But the water board said in its reasons for decision that the company’s non-payment of the $1-million security "leaves the NWB without the normal reassurances necessary to feel confident about accepting the mine’s reclamation and financial figures."

The board also said it still has some doubts about CanZinco’s "financial strength, or that of Breakwater, its parent company."

In 2001, the year that Breakwater announced plans to close CanZinco’s mine at Nanisivik, the company took a brutal financial hit, losing $111.1 million on revenues of only $161.8 million. In 2000, the year world zinc prices began to slide downwards, the company lost $8.7 million.

Facing a short-term cash-flow crisis, the company negotiated an agreement with its bankers that basically forgives the company’s long-term debt until January 2, 2003. They also raised $17.9 million in a new share offering last March.

Breakwater’s financial plan was based on the assumption that zinc prices would rise to 45 cents a pound by the end of this year. But right now, zinc prices during the company’s second quarter of 2002 — April, May and June) — sat at 33 cents a pound, compared to 34 cents a pound for the same period last year.

The company reported modest earnings of $2.4 million in its second quarter, though — $2.4 million, compared with a loss of $1.3 million in the same period last year.

That’s because the company managed to lower its operating costs and smelter treatment charges, and increased its sales.

At Nanisivik, where the company has been mining the high-grade, mineral-rich pillars left by years of underground extraction, they saw a sharp decline in the cost of producing zinc. They also produced 65 per cent more zinc than during the same period last year.

The company said in its second-quarter financial statement that last August, they began talking to thier lenders about "restructuring of its credit facililties which are due Jan. 2, 2003."

Bill Heath, the manager of Nanisivik Mine, said company officials want to consult with their lawyer, David Searle, before making a public response to their new water licence.

He explained that it won’t be possible for them to offer comment to Nunatsiaq News until after the newspaper’s press deadline this Tuesday and said the company will be able to offer comment by early next week

"Our legal counsel was out of the country travelling on business, but we’ll hopefully be talking to him early to mid-this week, with any luck, about what our options are," Heath said.

Searle said in a letter to the water board this week that he and company officials will meet Nov. 2 to discuss the Nanisivik licence.

The seven-year water licence, which takes effect Oct. 1, 2002 and expires May 1, 2008, contains other conditions aimed at ensuring a thorough site clean-up. Under it, the company must submit:

• a final closure and reclamation plan;

• a second environmental site assessment

• a human health risk assessment study;

• plans for underground waste disposal, and closure plans for landfills and the West Twin Dyke area.

A deal to transfer town-site assets to the government of Nunavut can’t be completed until after the various environmental reports are submitted.

After the company makes these submissions, they’ll likely be reviewed at another public water board hearing that may be held in Arctic Bay.

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