Friday, October 08, 2004

Huckleberry Mine owners get a gift from taxpayers

VICTORIA - It's hard to see how letting a company off the hook for $3 million owed to the government isn't a subsidy, something the Liberals considered odious during the NDP years.
That's what the government has just done for the owners of the Huckleberry Mine southwest of Houston.
And it's likely just the first, smallest installment in taxpayers' kindness to the mine's owners. Another $14.5 million may be written off in two years, as the mine nears the end of its life.
Revenue Minister Rick Thorpe says writing off the company's debt isn't a subsidy. The government - like any other creditor - had two choices, he says. It could forgive the debt. Or the company would close the mine and 175 people would lose their jobs.
It was a business decision, he says.
But it was also a political one, and it is a subsidy. Other mining companies are out there trying to compete without the benefit of government largesse, while Huckleberry Mine gets a break.
The tangle goes back to the NDP days, when subsidies were flowing to companies.
Imperial Metals of Vancouver wanted to develop the copper mine, and in 1996 the government came up with a $14.5-million loan - about 10 per cent of the total mine cot - to help with development. It was supposed to be a commercial loan, at competitive interest rates.
But eight years later, not a dime has been repaid. The mine has been operating, although apparently not terribly successfully due to low copper prices, since other creditors have also gone unpaid. Imperial has since taken on four Japanese investors, who have a 50-per-cent share in the property.
Imperial made a $3.4-million profit last year, and is developing another mine at Mount Polley. With a well-crafted loan agreement, you would expect the government and other creditors to be able to exert some pressure and get some of your money back.
But Imperial also restructured last year, turning over the management of the Huckleberry Mine to a separate company. The ultimate ownership stayed the same, but the debts are now on the new company's books. Its only asset is the Huckleberry Mine, which is slated to shut down in a little over two years, and it has large debts. Creditors have little leverage, because the owners have don't have much to lose if the mine is forced into bankruptcy and closes now.
Thorpe notes the Liberals have closed the door on any new grants and loans to companies.
That was a good decision. If no bank or investor considers the risk worthwhile, taxpayers shouldn't be tapped for the money. And a subsidy to one company inevitably disadvantages competitors, creating a tilted playing field. The NDP's decision to pump more than $400 million into Skeena Cellulose not only cost taxpayers money, it hurt other companies trying to operate pulp mills without government cash.
Why the break to Huckleberry, without any benefit to taxpayers or commitment from the company to make regular payments? The government hopes the company will pay the remaining $14.5-million debt in late 2006, but it has no commitment and will have even less leverage then.
Huckleberry president Jim O'Rourke says the deal with creditors means they'll get first shot at any profits. With good prices the province will see payments, he says. "It was a good business deal."
Thorpe says the government had little choice. It could forgive the $3-million in accrued interest on the loan, or the mine would close. The deal was reached after negotiations with the owners.
It's not an easy political decision. Pressing for repayment - calling the company on its threat - might have worked. Or it might have resulted in the mine closing early, and the debt still left unpaid.
The Liberals - like the NDP before them, though on a much smaller scale - opted to protect the jobs, and let the debt slide.
Footnote: The Liberals appeared uncomfortable with the deal. Cabinet quietly approved the write-off, with the only public notice a 15-word reference in a list of about 70 cabinet decisions posted on the web. A decision to spend $750,000 on materials for schools rated a news release; a decision to approve a $3-million break to a company didn't.


wonderer said...

Your blog is excellent. I specialize in commercial loans as well.

heropoo said...

You have a great blog here! I will be sure to book mark you. I have a quick loan site. It pretty much covers quick loan related stuff. Check it out if you get time :-)

heropoo said...

Your blog is excellent - keep it up! Don't miss visiting this site about link auto loan It pretty much covers link auto loan related stuff.

hexadecimals resources said...

I found a good car title loan site. I am looking into it myself.

hexadecimals resources said...

I found a good auto loan payment calculator site. I am looking into it myself.