This Alberta coal mine is back from the brink of financial ruin — but it comes at a cost

Back in 2019, things were looking good for the Vista coal mine just outside Jasper National Park in Alberta. The mine had backing from a billionaire coal magnate in the U.S. and had just shipped its first train cars of coal west, to be burned for electricity in international markets. Two years later, though, the mine was shuttered and on the brink of financial ruin, with many of its supporters and local business partners facing millions in losses; and the charismatic billionaire behind the project, Chris Cline, had been killed in a helicopter crash off the coast of his private island in the Bahamas.

Now, there’s relief with the mine running and its owners paying back a portion of what is owed. The mine has clawed its way back from the brink of financial ruin, riding a wave of high prices to an estimated $152 million in cash on hand — a 96 per cent increase over what had been previously forecast — even while it avoided paying at least $1.1 million owed to local businesses, according to court documents. 

The resurrection of the mine was the result of creditor protection proceedings initiated after Coalspur, the U.S.-based owner, came up against several devastating financial and regulatory hurdles largely of its own creation and found itself unable to operate. 

The agreement that saved the mine was approved on Jan. 6 by 100 per cent of eligible creditors who voted on the plan at a virtual meeting. Several large creditors, including banking giant RBC and a trust set up for Chris Cline’s family, are set to receive all outstanding amounts, with the possibility of interest as part of the deal. Those owed less than $15,000 will also be paid back in full, while anyone over that threshold could opt to receive 75 per cent of their money, or get 50 per cent of what’s owed and gamble on the future price of coal with the promise of full payment in two years if coal prices stay high.

Only eight creditors, out of 161 who were eligible, opted to gamble. 

In total, Coalspur owed approximately $504 million to at least five secured creditors and investors, and $53.5 million to 286 unsecured creditors. 

Just over 60 of those creditors are in the small town of Hinton, where the mine is located. Almost 300 kilometres west of Edmonton, the town of just over 10,000 people has long relied on resources, including forestry, oil and gas and mining, but has seen a shift to tourism thanks to its position just outside Jasper National Park.

In Hinton alone, creditors were owed a total of $4.7 million. Nearly a quarter of that will never be recovered.

The Narwhal called 28 of the affected Hinton-area businesses owed over $15,000 and spoke with nine business owners. All said they continue to do business with Vista, one of the largest employers in town. 

Many local businesses affected by the creditor proceedings who spoke to The Narwhal said they’re relieved to get some money back and to see the mine back in business, even if there is lingering frustration. Most, but not all, took the view that getting something was far better than getting nothing and seeing the mine close for good. 

According to Anna Lund, an associate professor of law at the University of Alberta, there was not much the smaller creditors with outstanding amounts over $15,000 could do other than approve the plan, “because they don’t have information, because they don’t have very big claims and because they’re way down the priority payout.”

“They are pretty powerless,” she said.

Vista coal mine forced to shut down for four months in 2021

The Vista mine produces thermal coal, burned for electricity, for export to international markets like Japan, South Korea and Taiwan. Canada and Alberta have both vowed to phase out domestic use of thermal coal, with Alberta ahead of target and expected to have a coal-free electricity supply by 2023. Those goals do not currently affect thermal coal exports. 

Now, seemingly on more solid financial footing, the mine still faces challenges, including a shortage of investors interested in coal, a potential federal review of proposed expansions, a federal government that says it wants to stop exporting thermal coal and the ongoing roller coaster of global markets.

But the story of how the Vista mine found itself in dire financial straits goes beyond external forces and was laid out in court documents. 

The inside story of an Alberta coal mine devastated by a financial crisis

The mine’s troubles started shortly after it opened in 2019 and realized its planned filtration system for waste tailings would not work and it lacked sufficient capacity to store the byproducts. Receiving regulatory approval for more tailings pond capacity through the Alberta Energy Regulator was slower than the waste built up and the mine was forced to temporarily shut down on Feb. 1, 2021.

It remained closed for four months. 

That coincided with high coal prices on the global market, which the company had bet against as part of a hedge with its distributor, Trafigura. The distributor called in the money it was owed on that bet — US$59.9 million, just as the mine struggled with stopped production.

In lieu of payment, which Coalspur could not afford, Trafigura seized the mine’s coal and sold it, leaving Coalspur with no ability to fund its operations and, by its own admission in court documents, an inability to attract financing in a world moving away from coal-fired electricity. It entered creditor protection in April 2021.

Creditor protection proceedings are initiated when a company can no longer cover its financial obligations and seeks time to either restructure and renegotiate those obligations or to liquidate its assets. 

Coalspur’s fight against a federal environmental assessment

Coalspur has long been seeking to expand its mining operations near Hinton — an increase that would expand the mine’s output by six million tonnes per year and which Coalspur said would “approximately double annual expenditures, taxes, royalties and other government payments”— but has been stalled by the federal government’s decision to designate the project for an environmental review. The company has since been arguing with the federal government in court, a process which has been made even more complicated by challenges by the Ermineskin First Nation, which had supported the project for its economic benefits and had argued it was not adequately consulted by the federal government. 

Amid court challenges, the Impact Assessment Agency of Canada says work continues to evaluate the project expansion to see if it merits a full review.

“Our position is that [the review] is more than lawful,” Fraser Thomson, a lawyer with Ecojustice who has been arguing for an environmental review in court, told The Narwhal. “It’s a valid exercise of the minister’s discretion.”

“This is a massive proposed expansion of a thermal coal mine — a commodity we know that does massive damage, both to the local environment and to the global environment,” he said. 

That damage includes numerous human health concerns where the coal is ultimately burned, including respiratory ailments, cancer and cardiac arrest, among others issues. According to the Pembina Institute, phasing out coal-fired power by 2030 will mean 1,008 fewer premature deaths in Canada between 2015 and 2035 — the vast majority of which are attributed to the Prairies. Then there are the climate implications.

Thomson said an expansion to the mine could make it the largest thermal coal mine in Canadian history, producing 15 million tonnes per year. 

Burning that much coal, according to Thomson, produces 33 million tonnes of carbon. “That’s the same as seven million cars on the road. So it’s a huge amount of carbon dioxide,” he said. ”From a climate perspective, it’s a non-starter.”

Thomson argued none of this should come as a surprise, noting that the Vista mine opened four years after the Paris climate agreement was signed in 2015.

“We’ve known for decades that the climate crisis is upon us; that we need to reduce our fossil fuel consumption. It’s hard to see how opening a thermal coal mine in 2019 is a good business decision.”

That’s little comfort for those small businesses in Hinton dependent on the mine’s economic impact. 

Hinton businesses in ‘tough position’: bankruptcy expert

When it initiated creditor protection proceedings, Coalspur owed nearly $5 million to local businesses, ranging from car dealerships to oilfield services to welding shops.

In the end, most will not be paid back what they’re owed in full.

Of the more than two dozen businesses The Narwhal contacted, there was frustration, but mostly relief.  Some blamed governments for the mine’s woes, others the mine ownership, but the vast majority were happy to see the mine up and running again.

“I’m actually happy with the way things played out,” Trina Radley, co-owner of Lynx Creek Oilfield Services in Hinton, told The Narwhal. “We’ve been in several situations over the last two years where companies have gone bankrupt and you get nothing.”

Radley, the only business owner willing to speak on the record, said her company was luckier than others, both because it is well established and because it wasn’t owed larger sums. Lynx Creek was owed $22,588.

Facing the prospect of receiving no compensation is a big stick in creditor proceedings in Canada, and one that leaves local contractors “pretty powerless” compared to the big creditors, according to Lund, the bankruptcy expert.

“The small companies are also in a tough position because they have the amounts outstanding that they’re owed, but a lot of them also have what you might think of as a financial interest other than as a creditor: they want to keep doing business with the company as it goes forward,” she said. 

Then there are the larger economic benefits local businesses are considering: housing prices, municipal taxes and hundreds of jobs and the spinoffs from that employment.

She said small creditors don’t have the time or expertise to properly examine their options, whereas big creditors have often been at the table from the beginning and know how the system works. Many, including banks, are at the table when legislation is reviewed or new precedents set. 

The local chamber of commerce, which was owed $1,255, was unavailable for comment. 

The Mayor of Hinton, Marcel Michaels, told The Narwhal the town could survive the closure of the mine despite the fact it is “invaluable” to the community, but the impact on individuals would be immense. 

“There’s no medium or long-term plan, let alone a short-term plan, in order to transition a lot of these workers,” he said. 

“I think many people agree coal has an expiry date. But unfortunately, the expiry date is not 2022.”

The other option: ‘a liquidation scenario’

The prospect of the mine closing with little compensation to unsecured creditors and taking its hundreds of jobs with it was front and centre in the proceedings. 

“The [plan] will result in considerably greater recoveries for all affected creditors than would be achieved in a liquidation scenario, wherein there is no certainty that general unsecured creditors would receive any recoveries at all,” reads a court document submitted in January, after the vote had been cast. 

It was just the latest in a string of documents that stressed the benefits for small creditors throughout the process. 

In the final affidavit submitted by Coalspur’s president and CEO Michael Beyer, an American living in Palm Beach Gardens, Florida, he said emerging from the proceedings intact was a better outcome for all creditors, as opposed to a fire sale of assets, and will enable relationships into the future. 

In an earlier affidavit, he said if expansions of the mine move ahead, the company estimates an additional 370 full-time jobs would be created, and claims over 1,000 full and part-time jobs would be created from economic spinoffs. Those additional jobs are calculated based on a framework designed by the Canadian Coal Association, according to Beyer’s statement.

Beyer did not respond to interview requests submitted through his lawyers or by email to an address listed in court documents. 

Coalspur also did not respond to a request left at its Hinton office. 

A bird’s eye view of coal leases on the eastern slopes of Alberta’s Rockies

Business owners who spoke with The Narwhal talked about their desire to see the mine continue and the impact its closure would have on the town and its economy, on the value of their homes and the security of their neighbours. 

They also cited their need for that work, and the stigma that might come from speaking out as reasons for not wanting to talk on the record. 

Some said they felt they had no choice in approving the plan.

One owner who said they were feeling “neutral and with relief” after the agreement was approved, said the creditor process was handled well, but it was still a challenge. 

“It was a difficult year, put it that way,” they said.

“The timing was terrible, going into summer, probably for a lot of businesses where you actually hire extra staff. And yet, you were down all this money. You know, so you’re just basically carrying the money for quite a lot longer than you would normally.”

That owner said the company seemed serious about keeping the mine open and working with the community, but also acknowledged there are bigger forces at play. 

“I have no idea about where the political angle comes in,” they said.

Those politics extend well beyond the borders of Hinton, of Alberta and even Canada. 

Thermal coal markets and politics

Clark Williams-Derry, an energy finance analyst at the Institute for Energy Economics and Financial Analysis, said international thermal coal markets, where the vast majority of Vista’s resources are sold, is currently over US$200 per tonne, significantly higher than the US$80 per tonne it has averaged over the past five years. 

But he cautioned those markets are volatile and the current rate is due in large part to political moves in China where the government is cracking down on its coal industry and driving up prices. Those spikes then affect international markets. 

“It’s really China, and to some extent India, that winds up being sort of the thing that makes those markets swing,” he said.

Beyond the international markets, he pointed to recent statements from the Liberal government in Ottawa which says it wants to phase out exports of thermal coal by 2030.

He said the federal government and its policies are now a major risk factor for the future of the industry.

“I get that people’s livelihood is on the line here and I feel like clenched up inside when I think about families that are depending on this, but it’s not in their control,” Williams-Derry said. 

“Leave aside what’s happening in Ottawa. If you look at what’s happening in China, in Beijing, there is no guarantee of an income here. There’s no guarantee of financial success. You’re rolling the dice, and the dice are loaded against you.”

Mayor Michaels, however, is confident in the mine staying open for the foreseeable future. 

“There’s some, I think, uncertainty on their part, but the investments, I think, outweighs the risk of them just walking away immediately,” he said. 

“Now, will things pivot and change, potentially, for them in the next 24 to 36 months? If we continuously get uncertainty from the federal government on thermal coal in our area, perhaps. But again, I feel confident with them continuing to try to, you know, get a return on their initial investment, which was hefty.”

Updated Feb. 14, 2022, at 3:35 p.m. MT: This story was updated to clarify that Fraser Thomson said the mine’s financial troubles were not surprising since it opened four years after the 2015 Paris Climate Agreement. He did not specify whether anyone in the community should or should not be surprised.