Friday, January 07, 2005

Liberals, NDP both failed with Huckleberry Mine subsidies

VICTORIA - It looks like the government did a pretty lame job of looking after your money when it came to dealing with the Huckleberry Mine.
The New Democrats got the ball rolling, coming up with a $14.5-million loan - 10 per cent of the mine development cost - back in 1997. That' s your money subsidizing the investors in a mine, a wrong-headed approach to the role of government in the first place.
The mine opened, and the company started scratching copper and molybdenum out of an open pit about 120 km southwest of Houston. There were buyers for the metals, but never quite enough money to send a cheque off to the government to pay down the loan. (Other creditors also faced similar payment problems.)
Unlike most creditors - try not paying your BC Hydro bill and see what happens - the government was patient. Years went by without a single dollar being repaid.
The election came, and the New Era, but the Liberal government didn't take any more action on collecting your money than the NDP had.
Things were challenging for the shareholders as well, it should be noted. Commodity prices were lower than they hoped and the mine's parent company, Imperial Metals, had to seek court protection from its creditors in 2002 while it re-organized.
But that's the risk shareholders and owners run, in return for the opportunity to profit when things do work out.
Still, it was just business as usual under the Liberals, sadly no better, but also no worse. The interest owed on the debt piled up on the government's books.
Until October. That's when the Liberal cabinet passed an order - not in one of those televised meetings, where we could have heard an explanation, but behind closed doors - that forgave the Huckleberry Mine for $3 million in interest payments that had piled up since 1997. Forget about it, we'll write it off.
You may find that surprising, from a government that promised to eliminate business subsidies. After all, if one mining company can borrow from the loosey-goosey government with no interest payments and no need to pay back the principle, while its competitors have to deal with those crabby banks, that's a pretty big advantage.
But Revenue Minister Rick Thorpe said he had no choice but to ask cabinet to give the company the break. The mine was in a precarious position, with only about four years of life left. If the government said no, it might close and 175 jobs would be lost. It wasn't a subsidy, just a business decision, he said, that made the best of the situation.
Here's where the government's assessment of the situation starts to look shaky.
Because while cabinet was giving up on collecting your money, the company was doing more test drilling. And now it says the results are encouraging, with a good possibility that new deposits will extend the life of the mine.
That's good news. But it's hard to justify writing off $3 million in debt when the mine might be able to spin profits for its owners for another decade.
That's not the only development to raise doubts about the government's judgment.
Huckleberry Mine is owned jointly by Imperial Metals of Vancouver, which has 50 per cent, and a consortium of Japanese companies. Barely one month after cabinet was persuaded that Huckleberry shouldn't have to pay the $3 million it owned you, the company repaid another loan. Huckleberry Mine came up with more than $3 million to pay the principle and all the interest it owed to co-owner Imperial Metals as a result of a 1998 loan.
It looks - admittedly from the outside - like the government faces some big questions about the decision to hand over your money. The mine has discovered indications of future potential; the company can pay a debt its owners. Why should taxpayers be giving up on collecting what is owed?
Footnote: How could Huckleberry come up with money to repay Imperial Metals one month after the province wrote off $3 million? "Higher copper prices have improved Huckleberry's cash flow during 2004 allowing Huckleberry repay this loan and accrued interest," Imperial reported in a public release.

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