COLUMN

A typical tale of Canadian bungling

The sawmill saga is about a mixedenterprise fiasco, caused by business opportunism and political expediency

DIANE FRANCIS August 20 1990
COLUMN

A typical tale of Canadian bungling

The sawmill saga is about a mixedenterprise fiasco, caused by business opportunism and political expediency

DIANE FRANCIS August 20 1990

A typical tale of Canadian bungling

DIANE FRANCIS

COLUMN

The sawmill 12 km south of Watson Lake in the Yukon is a sorry sight. Insects have eaten their way into the mill’s inventory of logs, and the bunkhouse is destroyed after an irate worker drove a forklift through its side after an argument with a co-worker. Unsecured creditors are owed $2.5 million, and the Mounties have been asked by the receiver for the now-bankrupt sawmill to investigate a former mill employee after a truck from the mill site was found destroyed in the employee’s backyard.

The story of this sawmill is simply the latest example of business Canadian-style, a mixedenterprise boondoggle caused by a combination of business opportunism and political expediency, leavened with some questionable lending by the Bank of Nova Scotia, which may lose up to $2.2 million in the venture. It is also another example of why Canadian taxpayers are awash in debt. Territorial politicians here (indirectly and heavily subsidized by Ottawa) fell over themselves to save 100 jobs in this sawmill, but the government has lost, on paper, $13 million since 1987, or $130,000 per job. That money might have been better spent relocating families to somewhere else in Canada where there is work.

“The government’s made a mess of it,” says Yukon Conservative opposition leader Willard Phelps. “The New Democrats said it was a wonderful deal and the players were solid, so small businesses supplied goods and services. Now it’s almost breaking the town of Watson Lake.”

In February, 1990, the Yukon Supreme Court appointed a receiver to manage the mill at the request of the Yukon government’s Yukon Development Corporation. A month later, the mill closed after a fire damaged part of the mill’s kiln. “It is one of the worst insolvencies I have seen,” says receiver Colin Rogers with the accounting firm Peat Marwick Thorne Inc. “All creditors are owed $10 million to $11 million, and there is only an estimated $1.5 million in assets. As well, there is an

The sawmill saga is about a mixedenterprise fiasco, caused by business opportunism and political expediency

insurance claim for the fire which could be worth up to $700,000.”

Here’s the chronology of events: The mill, which employed 100 at its peak, went bust twice. In December, 1986, the Yukon government paid $475,000 for the mill and $90,000 for related harvesting licences. It then handed the mill over to its development corporation, which reopened it in May, 1987. In September, 1988, the development corporation announced a net loss of $1.8 million on its $8.3-million investment for the fiscal year ending in March, 1988. Five months later, in January, 1989—on the eve of the last Yukon election—New Democrat government leader Tony Penikett announced with great fanfare that half of the mill and accompanying timber rights in the area were sold for $2.5 million to a company called Yukon Pacific Forest Products Ltd.

The government agency retained a 15-percent interest in the new venture and gave away 35 per cent to native groups. It took back shares and debentures as payment for the other half, which was split 50-50 between a blue-ribbon Toronto merchant bank called Shieldings Inc. and T. F. Properties Ltd., a holding company run by two Howe Street stock

promoters, Ted Myrah and Barry Ferguson. The two promoters had brought the deal to Shieldings, in which the Bank of Nova Scotia as well as several other financial institutions have an interest.

Yukon Pacific’s plan was that T. F. Properties would run the operation and come up with a business plan so that money could be raised to replace the decrepit sawmill. For its part, T. F. says that some of its management fees remain unpaid. But Shieldings says that all financing could not be completed until T. F. sent monthly audited financial statements and a business plan.

Between February and December, 1989, the mill lost another $6.2 million, and it was the government’s development corporation, to protect its debentures and stock, that pulled the plug by petitioning Yukon Pacific into receivership. Partners squabbled and bills went unpaid all over town. In May, his fees unpaid by the warring factions, the receiver successfully asked the court for permission to sell the mill’s assets. On July 13, the receiver obtained two bids and four expressions of interest, but won’t release details until he makes a decision.

Even more eyebrow-raising in this case was the fact not only that Shieldings put $1 million of equity money into the ill-fated venture, but that the Bank of Nova Scotia also lent the mill $2.2 million, secured only by the mill’s inventory of lumber and logs as collateral—lumber and logs now worth a fraction of that amount. “The bank is embarrassed,” says receiver Rogers. “I’d say the lumber is worth $72,000 gross, and the logs $100,000 for the newer ones and $40,000 for the older ones.”

Also interesting is that Shieldings would join forces with Myrah and Ferguson, formerly shareholders and officers in Gametec Systems Inc., a company suspended by the Vancouver Stock Exchange in 1988, pending clarification of Gametec’s affairs. The company was delisted last January after failing to submit a reactivation plan. Gametec’s plan was to market a coin-operated arm-wrestling machine called the Grappler, and, interestingly, the receiver at Watson Lake recently found several unsold Grappler arm-wrestling machines stored with the sawmill equipment.

Yukon Development Corporation spokesman Alex Raider blames Shieldings and T. F. Properties for the fiasco and adds that his agency had no recourse but to petition for receivership. Said Raider: “We have no ability to sue them to fulfil their obligations in the mill. The only one who could institute lawsuits against them is Yukon Pacific for failing to follow through on commitments, and they are the major shareholders of Yukon Pacific. They are not going to sue themselves, and we are a minority.”

No matter what the outcome, the Watson Lake sawmill mess is another example of wastefulness and the proclivity among Canadian politicians to squander taxpayers’ money on misguided social employment programs and nonsensical development of regions which may never be economically viable. A made-in-Canada mess.