August 11, 2014 / 8:54 PM / 4 years ago

Huge cleanup bill for Imperial Metals may force partial asset sale

TORONTO (Reuters) - Canada’s Imperial Metals Corp (III.TO) faces huge cleanup costs after a major spill at its Mount Polley mine that may force the miner to sell part of a prized new asset unless its biggest shareholder steps in to help, bankers and industry executives said.

Imperial is on the hook for cleanup costs related to the spill, which sent billions of gallons of sludge containing metals and minerals coursing into waterways last week.

Analysts said costs could range from C$50 million to C$500 million, once a proper assessment is made on the impact of one of Canada’s worst mine spills in decades.

The mine, which produced 38.5 million pounds of copper and 45,800 ounces of gold last year, has been shut indefinitely.

Debt rating agency Moody’s warned on Friday it was concerned the miner may not have the liquidity to absorb the financial impact of the spill.

Imperial had C$1.5 million in cash versus C$464 million in debt, and a working capital deficit of C$21.7 million as of the end of March, according to its financial statements.

“The shutdown of Mount Polley will stretch thin an already tight balance sheet,” Raymond James analyst Adam Low said in a note to clients.

Imperial Metals declined multiple requests for comment.

One source close to Imperial Metals said it was not clear how much insurance the miner could count on to meet the tab.

In the boilerplate risks section of its annual report in March, Imperial said its property and liability insurance may not provide enough coverage for losses related to environmental pollution and other hazards. It said it may elect not to insure against certain things such as environmental pollution when coverage is not available at economically feasible premiums. It was not known whether Imperial had acted on that.


A second source close to the matter said Imperial had other options to cover the costs.

Help could come from N. Murray Edwards, the billionaire chair of Canadian Natural Resources Ltd (CNQ.TO), Canada’s No. 2 oil and gas company. He owns about 36 percent of Imperial and his closely held Edco Capital is one of its creditors.

Last year, when the Imperial was lining up financing for its Red Chris copper-gold mine, Edwards guaranteed half of a $150 million bank credit facility, and Edco provided more credit.

Edwards did not respond to a request for comment.

A more likely outcome is the sale of royalties from nearly finished Red Chris in British Columbia or off-loading a stake in the asset itself. A royalty deal would give Imperial an instant cash injection and in exchange give the purchaser a set percentage of future profits or revenue from Red Chris.

Industry players said companies ranging from diversified miner Glencore Plc (GLEN.L) to more specialized mine financing firms such as Franco-Nevada Corp (FNV.TO) and Silver Wheaton Corp SLW.TO are all likely to consider funding any royalty structure.

An outright sale of a stake in Red Chris may also be on the table. With opposition likely from some environmental and First Nations groups in the area, mining industry insiders say the company may well be forced into selling a majority stake in Red Chris and ceding its position as operator of the mine.

“This type of significant negative event can also impact a company’s social license,” Derek Macpherson, an analyst with M Partners said, referring to the local support needed for a mine to operate.

Additional reporting by Julie Gordon in Vancouver

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