YUKON/NWT
Despite being in the middle of an election, cabinet ministers approved up to $4.5 million last week to acquire the mineral rights to a tungsten-rich property known as Mactung, located on the Yukon side of the NWT-Yukon border.

North American Tungsten's Cantung Ming near the Yukon-NWT border. On Nov. 19 the GNWT announced that the Government of Canada has assumed responsibilities of the Cantung Mine and it was acquiring the NWT and Yukon mineral rights to the company's Mactung property. - photo courtesy of North American Tungsten

Both this property and the Cantung mine inside the NWT were owned by the North American Tungsten (NATCL) corporation, which the B.C. Supreme Court granted creditor protection on June 9. Documents show the company owed $79.5 million to more than 200 creditors, including $5.5 million to the GNWT.

The GNWT stated in a news release Nov. 19 that the "decision to make the offer to purchase (Mactung) during the election period was required by the pace of proceedings in the B.C. Supreme Court," calling it "beyond the GNWT's ability to control."

Normally, GNWT cabinet ministers wouldn't be allowed to approve bids like this during an election period but Mark Warren, deputy minister of Lands, said the situation dictated otherwise.

"It made more sense for us to buy it out and look to the future to hopefully see circumstances change," he said.

In this case, the territorial government "was authorized to commit funding for the offer through a special warrant that will be reported to the 18th legislative assembly."

News/North asked to speak with Lands Minister Robert C. McLeod but was told the minister couldn't comment due to the election. All six MLAs who served on cabinet during the 17th legislative assembly, along with Premier Bob McLeod, were seeking re-election ahead of the Nov. 23 vote.

The Cantung mine is located in the NWT's Deh Cho region on the Flat River close to the Nahanni National Park Reserve. The Mactung property is located about 16 km northwest of the Cantung mine across the border into the Yukon.

North American Tungsten had been in debt for months and had already laid off dozens of staff at its Cantung mine earlier this year.

Warren said the acquisition of Mactung involved several government departments working together through a resource management committee comprised of deputy ministers, which he chaired.

"It has a multitude of responsibilities so it was thought best to do it under our committee system," he said, adding that as the chair, the overall responsibility for the project was his.

NATCL's Cantung mine was abandoned by the company under proceedings that followed the Companies' Creditors Arrangement Act.

Warren said the Yukon government did not consider making a bid for the purchase of the mineral rights at Mactung and North American Tungsten already owes GNWT money and is first in line to be repaid.

"When the Cantung mine was being developed under the auspice of our (Mackenzie Valley) Land and Water board, the security that was posted against the reclamations was the Mactung property," he said.

What this means is that Mactung was posted as collateral for Cantung. Reclamation securities are usually assets set aside for the clean-up process following the closure of a mine in case it requires extra work. The GNWT asked NATCL for a reclamation security of $30 million for the Cantung mine.

Warren said the Cantung mine, which has been in operation for decades, eventually fell under the Government of Canada's responsibility under Chapter 6 of the Devolution Agreement which states the territory has a five-year grace period during which it does not have to assume responsibility for remediation of mines that have been abandoned in the territory.

"In this case (Cantung) went into an insolvency and was declared abandoned just by the courts a couple of days ago," he said. "There was then the opportunity to go back to the Government of Canada and say, 'Hey this was a mine that happened on your watch and therefore you should be taking over.'"

Cabinet spokesperson Andrew Livingstone said part of the reason why it's important the GNWT purchases Mactung now is, according to the devolution agreement, "The GNWT was required to diligently pursue all reasonable means to recover debts or realize any proceeds available to it" before the federal government would agree to take over cleanup of the Cantung Mine.

"Environmental securities for Cantung were backed by assets at Mactung that met the requirements of the devolution agreement," said Livingstone.

Warren said during the sales and investor solicitation process, the Cantung mine did not receive any bids.

According to Warren and the GNWT's news release, Mactung has "significant potential value as the world's largest tungsten deposit outside of China."

While the GNWT offered to purchase the Mactung property for a maximum of $4.5 million, Warren said the final cost to the territorial government is expected to be lower than that.

Warren said once the committee of deputy ministers knew the Cantung mine was abandoned and there were no bids during a process that ended in September, his department could go through all the bidding information about Mactung, the details of which they had to keep confidential.

"I can tell you they were disappointing to both levels of government," he said of the Mactung bids.

Warren actually expected to get worthwhile bids for Mactung and figured that would resolve the situation. The GNWT stepped in when that didn't happen.

Warren said the GNWT wanted to protect the environment by ensuring an orderly shutdown of the Cantung mine and to have a say in the next owners of the property to protect the interests of NWT taxpayers. If the court-appointed monitor put in place after NATCL sought creditor protection had chosen to accept inferior bids for the Mactung property, taxpayers would have a much lower return on the outstanding loan the GNWT had given to NATCL.

Warren said his department knew a number of different things could have caused Cantung mine to be abandoned while the company was under creditor protection, such as running out of money, equipment failure, suppliers backing out or a further collapse in commodity prices.

"We were always planning and had a contingency plan in case (if) we had to step in and do care and maintenance," he said.

As to how the purchase of mineral rights will play out, Livingstone acknowledged the price of tungsten is currently at a five-year low.

Livingstone said due to ongoing court proceedings all questions regarding the details of the $5.5 million owed to the government need to be directed to the assigned

monitor, Alvarez and Marsal.

A backgrounder issued by the GNWT said "the Mactung property will be sold when the price of tungsten rebounds" so the territory can make

its money back.

Mike Bradshaw, executive director of the NWT Chamber of Commerce, said it's not unusual for a government to step in when an industry struggles. He cited the example of the Ontario government intervening on the financial future of several car manufacturers over the last decade.

"That financial intervention allowed them to continue operating," he said. "Of course, the Government of Ontario received shares of those companies and then sold them back when the companies recovered."

While the Mactung situation is different, Bradshaw said it's clear the GNWT

considered the mineral rights to be valuable.

Both Bradshaw and Warren described the situation as far from ideal but said it was the best alternative to letting the leases lapse or accepting the other bids.

As for Mactung's former owner, according to the GNWT backgrounder, NATCL's directors and officers have resigned and most of the employees have been laid off, effective Nov. 18.

There was no update posted to NATCL's own website.

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