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The Imperial Aspirations of Murray Edwards

Legendary investor Murray Edwards bet heavily in B.C.’s hard rock mining industry, and right now he’s paying the price

May 18, 2015

by Andrew Findlay

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Legendary investor Murray Edwards
Illustration Josh Holinaty

On August 4, 2014, 24 million cubic metres of slurry laced with heavy metals burst through a tailings impoundment dam in central B.C. As the slurry from the Mount Polley gold and silver mine spilled into Hazeltine Creek and Quesnel Lake, the environmental nightmare it created spilled into newspapers across Canada. This was not the publicity Canada’s mining industry, forever in a battle to win social licence, was aiming for. And it certainly was not a call the mine’s financier, Murray Edwards, welcomed in the middle of the day. Edwards, 56, is best known as one of the founders of oil-patch heavyweight Canadian Natural Resources Limited (CNRL) and as part-owner of the Calgary Flames. But he also has a majority 39 per cent interest in Vancouver-based Imperial Metals Corporation, which owns Mount Polley and two other B.C. mines, Huckleberry and Red Chris.

Edwards’ rise to the pinnacle of Canada’s business elite is the stuff of legend: he is said to work from before dawn to beyond dusk; the media-shy lawyer turned financier also owns large stakes in Ensign Energy, Penn West Petroleum and the Resorts of the Canadian Rockies. But there is now a wrinkle in the budding mythology. Between the federal and B.C. governments, three separate inquiries have examined the root causes of the spill, which ranks as one of Canada’s worst environmental mining disasters. The first inquiry went public with its report in January, and called the Mount Polley impoundment pond a “ticking time bomb,” and the spill the result of engineering oversights. Edwards is known for his shrewdness and ability to pick winners. But his recent foray across the Rocky Mountains and into hard rock mining is now looking like a decision that could come to define him – and significantly affect his bank account – in the years ahead.

The son of a Regina accountant and a school teacher, Edwards graduated with a bachelor of commerce from the University of Saskatchewan and a law degree from the University of Toronto before becoming an oil sands financier and parlaying a small investment into a multibillion-dollar crude oil enterprise. In 1989, nascent CNRL was a company of just nine employees, producing 1,400 barrels of oil per day. Back then, it had a market capitalization of roughly $1 million. Today, with Edwards’ help, the company has grown to employ more than 6,000 workers, churns out 817,000 barrels of oil equivalent per day in oil and gas, operates 21,000 Alberta oil and gas wells and has a market capitalization of $45 billion. Edwards’ personal wealth is pegged at around $2 billion and sees him claiming number 974 on Forbes’ list of billionaires. His empire has expanded from oil and gas to professional sports, winter recreation, high-tech and mining. As part-owner of the Calgary Flames, Edwards established himself as a negotiating force to be reckoned with during the NHL lockout of 2012.

This sort of success would warm the heart of any aspiring capitalist. But there’s little that’s warm and fuzzy about Edwards the businessman or about the companies he controls and has helped found. While other oil sands players, like Syncrude and Cenovus, spend money to create a warm corporate image, CNRL – its name as bland and anonymous as a barrel of crude – does little to engage with media or the general public. The company is in many ways a corporate reflection of Edwards: aloof and squarely focused on the bottom line rather than spinning its oil patch operations into a more human package.

CNRL has had a fairly troubled relationship with regulators in Alberta. In November 2014, the Alberta Energy Regulator revealed that CNRL had flared more than twice the sour gas of any other Alberta producer in 2013. Late that same month, 357 barrels of crude spilled near Red Earth Creek due to a pipeline rupture, one of 35 spills for the company that year. On December 5, 2014, an employee at CNRL’s Horizon oil sands mine died when his pickup collided with mining equipment (10 other CNRL workers have died in the past decade.) Then, in January 2015, the company was ordered to halt high-pressure steaming at its Wolf Lake operation, 55 kilometres north of Bonnyville, after benzene and other chemicals showed up in tests of an aquifer. Wolf Lake was also the site of several underground bitumen leaks in 2013. “They’re known as a hard-nose, bottom line company, but CNRL is also one of the greatest business success stories in Canada,” says Stephen Ewart, a Calgary Herald business columnist and former oil sector communications specialist. “As for Edwards, he’s personable but he’s not a bon vivant. You won’t find him on the society pages.” Ewart doesn’t go so far to call CNRL a problem company but says it’s definitely on the radar of the energy regulator.

Back in the mid-1990s, Edwards saw a golden opportunity when he took a stake in Imperial Metals. This is also when his involvement in B.C.’s resource sector and politics started to get interesting. At the time, Imperial had a single operation producing ore – the open pit copper and molybdenum Huckleberry Mine, 130 kilometres south of Smithers, in northwestern B.C. In 2001, low metal prices had led to Mount Polley’s temporary closure. But a new ore discovery in 2003 and credit extended by Murray enabled its operators to reopen in 2005. The Red Chris copper, gold and silver property, also in B.C.’s north, was at the time owned by BC Metals and still at the exploration and permitting stage. Edwards helped stickhandle Imperial’s growth when the company purchased Red Chris from BC Metals in 2007 and began navigating through the environmental assessment process. Imperial is near completion of a $500 million construction project at Red Chris and the 30,000-tonne-per-day open pit mine is set to scale up to full production this year.

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The Mount Polley tailings pond spilled into Hazeltine Creek and Quesnel Lake

Raymond Goldie, a mining analyst at Toronto’s Salman Partners, has looked closely at Imperial’s operations and stock performance and says the marquee Red Chris is considered one of the richest deposits currently being mined in Canada, with a net value of between $1- and $1.2-billion. But Mount Polley also still has value. Goldie says cash flow at the mine near Williams Lake was $44.5 million in 2013 and $38 million in 2014. An expansion and upgrade that was underway at the time of the tailings pond failure would have seen cash flows jump to $83 million in 2015, with a projected shut down of 2025, the same as Imperial’s Huckleberry operation. Red Chris has a projected lifespan of 28 years, with cash flows of $180 million and $195 million for 2015 and 2016 respectively, then stabilizing to $100 million per year by 2025. As a package of mines, Imperial was sitting on an attractive portfolio of properties.

In the annals of global mining disasters, Goldie says, the closest comparison to what happened at Mount Polley is the 1998 tailings pond failure at the Las Frailes Mine, near Seville, Spain. It was a copper, lead, zinc and silver mine owned and operated by Boliden Apirsa. Adjusted to 2014 Canadian dollars, Goldie says the cost of clean-up at Las Frailes was $550 million. “Boliden shares didn’t hit their low until 10 years after the spill,” Goldie says. “That’s how long it took to figure out the full costs of clean-up.” Before the spill at Mount Polley, Imperial’s share price was $16.80; the day after, it plummeted to below $10, instantly erasing roughly $500 million of market value. The share price has yet to recover.

According to another mining analyst, Derek Macpherson of the Toronto-based investment bank M Partners, Edwards was and potentially still is on the right track with Imperial. “I think Edwards is trying to replicate the success he had with CNRL and he assembled a good team with [Imperial Metal’s president] Brian Kynock,” Macpherson says. “They’re good operators and they have a world class asset at Red Chris.” But there’s no question that Mount Polley has hurt the company’s reputation. And it hasn’t done much to strengthen B.C.’s reputation as a responsible mining jurisdiction; in an August 6, 2014 letter to U.S. Secretary of State John Kerry, urging him to pressure B.C. to bolster mine regulations, Alaskan senator Mark Begrich said he “was shocked by the video of this massive breech” and that it “raises serious questions about provincial permitting and oversight of this industry.”

Indeed the public memory could be long on Mount Polley. M Partners’ Macpherson says, “It’s hard to put a dollar value on the social cost of the tailings pond failure. It can take a second to lose social license and a long time to earn it back.”

To say the Mount Polley breach has Edward’s fingerprints on it is a stretch, though some of CNLR’s critics in Alberta say it has the mark of a CNRL-style operation – pushing the envelope. Edwards would have needed a crystal ball to know what troubles lay ahead for Mount Polley. Stephen Ewart, of the Calgary Herald, says when he first heard of the disaster, it had shades of CNRL’s bottom line approach to the resource sector.

And as B.C.’s Minister of Energy and Mines, Bill Bennett, recently told the Financial Post, “[Imperial Metals was] in compliance, but they were – very often – very, very, very close to the line that if you cross it, you’re getting into dangerous territory. As the regulator, we have to ask ourselves if there’s something we can do through regulation that would create a little more space between the line.”

The Mount Polley Review Panel, conducted by independent experts, points to a monumental design and engineering failure at the mine. According to the panel’s report, “The dominant contribution to the failure resides in the design,” and the design did not take into account the complexity of the “geological environment.” A clear picture of the disaster is still taking shape, but it’s appearing more and more like a mix of corporate breakdown at the engineering and monitoring level, and a soft spot in the B.C. government’s mining regulation and enforcement.

What is clear is that Edwards knows the value of close political ties. It’s no secret that he has the ear of the Harper government at the highest levels. For example, in 2003, he successfully secured a deal limiting the impact on the oil sands from the Kyoto Accord on greenhouse gas emissions. He then advised Prime Minister Harper on CNOOC’s takeover of Nexen, and in 2008 he hosted Warren Buffett for a tour of the oil sands. He has taken a similar interest in B.C, politics. Late in the 2013 B.C. provincial election campaign, when Liberal leader Christie Clark’s bid for the premier’s office seemed doomed, Edwards hosted a fundraising dinner at the Calgary Petroleum Club, raising $1 million for her campaign that culminated in the ultimate upset victory, one that shocked pollsters and delivered Clark a majority government. Since 2006, CNRL has funded the B.C. Liberal Party to the tune of $156,480. While there’s nothing illegal about campaign contributions – some might even call it good business – ­Wade Davis sees it another way. The B.C.-born, internationally renowned ethnobotanist is the author of the bestselling book The Serpent and the Rainbow and is now on faculty at the University of British Columbia. Davis has a personal stake in the Imperial Metals story; he owns a lodge within view of the Red Chris Mine, which sits near Mount Todagin where the headwaters of the Stikine, Nass and Skeena rivers rise. It’s a region that conservationists and First Nations refer to as the Sacred Headwaters. He believes Edwards’ play in the B.C. mining sector demonstrates how power and politics influence resources management; in fact, that was the subject of a talk he gave on February 12 to a sold-out audience of 500 on the U.B.C. campus. Since 2006, the B.C. Liberal government has pushed hard for a controversial expansion of the power grid into the northern wilderness, at a cost of more than $800 million – $130 million of which came from the federal government’s Green Infrastructure Fund. The so-called Northwest Transmission Line was being built to enable a number of major resource development investments, including Shell Canada’s Klappan coalbed methane project and Nova Gold and Teck Resource’s Galore Creek copper and gold property, both of which have since been derailed by global economics. That leaves Red Chris, along with a small run-of-river hydro project owned by AltaGas (which sells power back to British Columbians at a premium price), as the only major player on the power line grid. Davis says Red Chris would not be feasible without the extension of the power line, and that the $886-million expenditure “appears increasingly as a public subsidy for a single mine.” That’s why he is very uncomfortable with the Liberal government’s cozy relationship with Edwards. “I don’t think the B.C. government will do anything to compromise its relationship with that mine or Mr. Edwards,” Davis said, in an email.

Davis characterizes Imperial’s reputation in the Red Chris region as “terrible.” In consultations with the Tahltan First Nation during the approval process for the mine, Davis remembers Imperial executives promising that Red Chris would be engineered to the same standards as Mount Polley. That the latter’s tailings pond was meant to last into perpetuity but failed after only a decade makes it hard for anyone to take comfort in that promise. The company’s relationship with its neighbours is now fractious at best. Last fall, Imperial sought a court injunction to prevent Tahltan elders from blockading the road leading to the Red Chris mine site. Last November, a third-party review of Red Chris’s tailings pond facility by the engineering firm Klohn Crippen Berger found potential design flaws and concluded that “Any failure of the Red Chris impoundment will likely have a much more significant environmental impact than the Mount Polley failure.”

Edwards’ financial commitment to Imperial Metals appears rock solid. He has much to gain; Red Chris is a rich deposit with an estimated project payback of 4.6 years and a lifespan of nearly three decades. In the wake of Mount Polley, he and fellow shareholder Fairholme Capital Management supplied an emergency $100-million infusion to stabilize Imperial’s cash flow. But as a majority shareholder and judging by comparable mining environmental fiascos, Edwards could be on the hook for a lot more.

I reached out to Edwards for an interview through contacts at Resorts of the Canadian Rockies but received no reply. To people without access to his inner circle of confidants, Edwards can seem remote and intimidating, known to be a tough audience. But the true picture of Edwards is more nuanced, according to an RCR employee who asked not to be named. Contrary to the image many people have of Murray as this rich guy “who sits in a tower and pushes buttons all day,” the source says, “There’s a side of him that people don’t know or read about that has a heart and cares about the environment.”

An example of this “heart” could be Imperial’s decision to keep the greater part of a Mount Polley workforce of nearly 200 on the payroll despite operations at the mine being suspended for an ­indeterminate time period. Edwards is also hands-on, to an almost ­obsessive degree, considering his prodigious daily diet of business operations and dealings, according to the same RCR employee. There was a time when Edwards got involved in a discussion about ­revegetating a disturbed site at one of RCR’s properties, just to ensure that native plants were being used. “I know that what happened at Mount Polley pains him deeply.”

The pain continues. Imperial Metal’s Mount Polley debacle seems to go from bad to worse. The mine remains on shutdown.

On February 3, days after the release of damning report into the Mount Polley spill, investigators armed with a search warrant scoured Imperial’s Vancouver headquarters for documents and reports while company execs looked on.

Whether or not the ongoing issues at Mount Polley – and Red Chris – will sour Edwards on the hard rock mining sector, it’s clear that his foray across the Rockies into gold, copper and silver has been anything but the legendary rags-to-riches success story of CNRL.

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