In 2009, Compliance Energy Corp. announced its intention to build the Raven Underground Coal Project, a new coal mine in the Comox Valley on Vancouver Island.
Compliance was created in 2000 as Beanpole Capital by James O’Rourke, who remained in charge to the end. Its corporate tradition of failure began with a couple of early ventures near Princeton – a small thermal coal mine and a coal-fired generation plant.
In 2008, its subsidiary company, Compliance Coal Corp., acquired 29,000 hectares of freehold coal rights in the Comox Valley. Funds were provided by its new joint venture partners Itochu and LG, Canadian subsidiaries of two major international firms. Compliance Coal Corp. also acquired the coalbed methane (natural gas) rights in the coal, for itself. Watch closely for where both of these rights end up.
The Raven mine proposal encountered fierce opposition from the beginning, and it never let up. Everyone was concerned about water. Nearby residents were terrified that their drinking water would be polluted. The BC Shellfish Growers Association was threatened by the prospect of mine effluent flowing into Baynes Sound, which is the source of 50 per cent of BC’s commercial shellfish revenues. Residents of Port Alberni, where the coal would be trucked from the mine and loaded onto ships destined for Asia, faced coal dust pollution of the air and harbour, and 24 hours a day of truck noise, traffic delays, and safety threats on Highway 4. Local governments voiced concerns. First Nations objected. And for a growing public everywhere, in a world facing catastrophe from carbon emissions, building a new coal mine defined insanity.
There were only two places you could find support for the Raven project. One was in Premier Christy Clark’s cabinet. In 2011 she promised that BC would have eight new mines by 2015, so new mine proposals were looked on with favour. Her government bestowed the Order of British Columbia on James O’Rourke the same year.
By 2016, the new mines promise had morphed into a rescue mission to keep existing mines operating, by allowing them to defer electricity costs. And, at 5 p.m. on Thursday, February 25, 2016, Mr. O’Rourke, OBC, and his cronies abandoned the Raven mine, and Compliance Energy.
Hard Rock Liberal Love
The other source of support for Raven was in the mining industry itself. The Mining Association of BC and its member companies, consult- ants, and service providers support mining unconditionally. They also support the BC Liberals generously. The leading exemplar is Teck Corp., BC’s largest coal producer, which has donated at least $1.5 million to the BC Liberals since 2007, eclipsing smaller donations like those of Compliance Energy and Mr. O’Rourke.
From 2009 on, Compliance mismanaged its mission. Its public relations were pathetic, dismissive, accusatory, often with severe bouts of foot-in-mouth. The company countered criticisms from the public, not with facts or science, but by labelling them as “misinformation.” It failed to meet self-imposed deadlines and to honour undertakings to provide information.
EAO Rejects Application 1
In May 2013, the Environmental Assessment Office (EAO) rejected the first application for the environmental assessment, listing more than 1500 deficiencies in the submission. And yes, it took Compliance four years to achieve this “milestone.”
For eighteen months the company made no apparent progress on addressing the shortcomings in its application. But Compliance burned steadily through what little cash it had available, leading to an Emphasis of Matter note to shareholders from the auditor, Deloitte. An Emphasis of Matter indicates that the auditor has serious concerns about the financial condition of the company. Deloitte “resigned” as auditor in June 2014. Silencing the messenger did not prevent the next audit firm, Smythe Ratcliff, from also including an Emphasis of Matter in its audit the next year.
At the company’s annual general meeting in June 2014, John Tapics “resigned” as Chief Executive Officer, a fix which seemed empty, given that Mr. Tapics remained as a director of the company. He was replaced by Stephen Ellis, as President and Chief Operations Officer. The announcement did not disclose that Mr. Ellis’ last job was as Operations Manager of the Pike River Mine in New Zealand, where 29 workers had died in an underground explosion on his watch.
Late in 2014, a floundering Compliance submitted a second application to the EAO’s Working Group. Then in a classy display of confidence in itself, in early March of 2015 the company withdrew the application from the screening process, narrowly escaping a second rejection by the EAO. Mr. Ellis’ letter to the EAO was classic Compliance – pointing the finger at others for the company’s own inadequacies. He wrote, “We received some misinformation that is circulating in some communities regarding the Raven Project and believe it is appropriate that we withdraw the project from the screening process at this time.”
In the midst of these events, the EAO ordered Compliance to pay an Environmental Assessment Certificate fee of $112,500 plus taxes.
Compliance arranged a loan of $200,000 from “a director.” The loan was payable within a year, at 10 per cent interest, and was secured by “the assets of the Company.” But Compliance was more than just low on cash: it owed more than a million dollars in immediate payables, and had a deficit of $19.6 million. There was more to this loan than met the eye.
The price of coal had plummeted from the historic highs of 2011 to a price so low that the coal industry in North America was collapsing. According to the company’s own feasibility study, the Raven mine had become unviable, and could only operate at a loss.
Folks asked the obvious question: what capacity does this company have to build and operate a safe and non-polluting coal mine – as if there could be such a thing as a non-polluting coal mine – when it can’t demonstrate the competence to operate an empty corporate shell?
Only one more letter from Compliance has been published by the EAO. At the end of August, 2015, Mr. Ellis accused the EAO of “placing roadblocks” ahead of the Raven project, of bias against the project in the Working Group, and said that “there is little merit in sitting down with the EAO to review EA options for the Raven Project…. The EAO are not treating the proposed Raven Underground Coal Project in a fair and transparent manner and … the project would never be able to achieve an EA Certificate given the built-in biases in the review process.”
A couple of days later, Compliance issued a news release announcing that Mr. Ellis had “resigned” from the company, and they thanked him “for his dedicated and professional service.”
The final word from the company came on February 26, 2016. A news release signed by “the Former Board of Directors” announced that the company was “insolvent and rendered valueless,” that “the Company’s only secured creditor has demanded repayment of their loan,” so there was “no alternative other than to … resign from the Corporation.” It placed all the blame on the EAO.
The EAO appeared to be unconcerned by any of this, though Compliance had missed deadlines months ago that should have resulted in its EA being terminated. Constant pressure from CoalWatch Comox Valley Society president John Snyder, and his enlistment of Scott Fraser, NDP MLA for Alberni-Qualicum, resulted in Minister of Environment Mary Polack committing that a decision would be made by the end of March. On April 6, 2016, the EAO terminated the EA of the Raven project.
Evaluate the Proponent
The EAO should evaluate the proponent, and not just the project.
The company flamed out after six years of stunning incompetence. A reasonable person would quickly question whether such a company should be granted a permit to build a mine. At no point did the BC Environmental Assessment Office ever examine if this company was able to deliver responsibly on what it was asking for permission to do. Though presented with years of failed deadlines, unacceptable applications, unfulfilled demands from the EAO, and publicly available evidence that the proponent was in financial crisis, the EAO acted as if none of it was happening or that it wasn’t relevant.
Corporate character, competence, or capabilities are not reviewable factors in the EA Act. In not including these factors in the scope of its reviews, the EAO discredits itself, and undermines the credibility of its certificates.
And the Assets go to…
One thing was managed successfully.
The directors have left behind a million dollars in payables and a deficit of nearly $20 million. They leave the company suspended, though not yet delisted, from the TSX Ventures Exchange. What they did not leave behind are “the assets of the Company” – those will go to the director who loaned Compliance $200,000 a year ago. At least they did not get to screw up this badly with a real mine.
Auditors could see the company was headed towards insolvency. For four years now they had been advising shareholders and indirectly, regulators and the public, of this fact. Directors were more aware of this than anyone – they were, after all, in control. Yet they managed the company into this inevitable collapse. One director, with the full support of the others, saw fit to arrange a relatively small loan, a year ago, in which he almost certainly would end up with the assets of the company.
Those assets again: 29,000 hectares of freehold coal in the Comox Valley, and all the natural gas in the coal.
When the commodity price pendulum swings, CoalWatch, and the people of the Comox Valley, will be paying attention – neither the coal nor the gas will be extracted.
Arthur Caldicott is an independent energy analyst who lives in Victoria.