There are no accidents. There is only some purpose that we haven’t yet understood, so says Deepak Chopra.
Ever since Victoria Gold’s (VGCX) heap leach pad failed, I have been wondering what caused the failure — and what the deeper purpose may be.
It may take a lifetime to build a company, a reputation, or a fortune. By contrast, failure can be swift — and devastating. Years of hard work can unravel or be destroyed in a mere moment.
As challenging as rebuilding the pad from the wreckage and getting the company out a tailspin, salvaging one’s reputation is much tougher. Regaining stakeholders’ trust and support will take work and demonstrated meaningful actions.
No doubt the pad’s failure was a crystallizing moment for the entire Yukon mineral exploration industry. Anyone with a project in the territory is watching with bated breath, anxiously wondering whether they’ll suffer long-term repercussions or emerge unscathed from the impact.
THE AFTERMATH OF THE ACCIDENT
By now the facts are well-known:
- two million tonnes of cyanide-soaked ore escaped the embankment and damaged pipes, pumps, liners, conveyor belts and some electrical infrastructure.
- 300,000 cubic litres of cyanide spilled from the pad.
- Company’s market value plunged by $450 million.
- Close to 500 workers were laid off. It’s uncertain when they’ll be called back to work.
PAD FAILURE – WHAT WENT WRONG?
Common sense suggests that the failure is the culmination of a number of systemic flaws and errors (both human and technical) that have gone uncorrected for some time.
What might the cause of the failure be? It’s possible that a flaw in the pad design is the culprit, but we won’t know for sure until a government-commissioned inquiry releases its findings. (Ideally this inquiry is launched soon while the evidence is still fresh.)
In the meantime, there are some clues. A whistleblower, as recently reported by the Northern Miner, claimed that “excessive leaching of the ore and improper maintenance of the pad” were responsible for the failure.
Allegedly pipes carrying the cyanide solution were broken and not fixed. The liquid spilling out caused the ore to move.
Whether this is indeed the major cause of the failure will be determined in due course, but for now, this latest drip of revelation raises a raft of hard questions:
- When did the pipes carrying cyanide solution break? Was the breakage detected? Was the problem reported to management?
- How many pipes were broken? How much was spilled?
- What actions, if any, were taken by management to address the problem?
- Where were government inspectors?
- Whatever happened to the pad/pipeline monitoring process?
- Who knew what and when?
THE FALLOUT
It’s truly unfortunate that this “accident” happened. I am certain nobody wanted it, not least management with a lot of their wealth tied up in the company; the 500 workers who now face an uncertain future; countless shareholders who have collectively lost hundreds of millions of dollars; the Yukon Government; and an anxious First Nation band worried about contamination.
To get the mine back into production is certainly possible, but the challenges are formidable. Due to Victoria Gold’s deteriorating finances, the path to production again is narrow. Undoubtedly, there’s a lot of clean-up and repair work to do.
What will the clean-up costs be? How much will it cost to repair the heap leach pad? To relocate two million tonnes of ore to a permanent storage location? To repair the conveyor belts and other infrastructure? What will it take to get the mine ready to operate again? What is the timeline? Even then, a lot of working capital will be required as it will take some time before inventory is converted into cash.
Given the high labour, fuel and shipping costs of running a mine in Yukon, it’s likely the final price tag will be north of $10 million.
Does Victoria Gold have that kind of money? As at March 31, 2024, the company had almost $40 million in cash and marketable securities.
However, at the same time, it also had $74 million of accounts payable and accrued liabilities plus $40 million to be repaid to the banks within one year.
Will the Yukon government throw the company a financial lifeline?
It’s interesting how the lenders moved quickly to issue default notices in the aftermath of the failure. Would the banks have done this if this accident never happened? There was nothing in the notes accompanying the company’s first quarter results that suggested a default was imminent. I suppose the notes in the 2 nd quarter results will shed light on this.
If the experience of SSR Mining, which also suffered a pad failure in Türkiye in February of this year, is any indication, Victoria Gold will face a class-action lawsuit alleging negligence and misrepresentations.
At the moment, it’s likely class-action lawyers based somewhere in Vancouver or Toronto are quietly building up a case against the company.
Eventually there will be a settlement with the plaintiffs, which will cost the company some money. What that amount will be is an open question.
Ultimately, if VGCX recovers, it likely won’t remain independent for long. In a financially weakened state, and with disgruntled shareholders, it will be an easy prey for other bigger fish.
As for some deeper purpose connected to the failure, I suspect it’s going to be different depending on who the people involved are: management, employees, contractors, suppliers, Yukon First Nations, shareholders, investors, lenders, and the government.
