Global conglomerate raises objections to investment deal for Tacora-owned mine

The owners of the Scully Mine in Wabush, Tacora Resources obtained creditor protection from the Ontario Superior Court in October and hope an investment from a group of companies will get it out. (Darryl Dinn/CBC)

There's a hurdle to clear the way of Tacrora Resources' plan to get out of the creditor protection process and breathe new life into its Labrador iron ore mine — and it comes from one of its owners.

Tacora, which owns the Scully Mine in Wabush in western Labrador, obtained creditor protection from Ontario's Superior Court in October. In documents, it cited a volatile market, raging forest fires and unexpected maintenance at the mine as contributing factors that led to a dire year financially.

Earlier this month, the company announced it had a group of investors interested in injecting millions of dollars and support to its operations.

Soon after the deal was announced, Tacora-co-owner Cargill said it planned to oppose the deal. According to documents filed with Tacora's court-appointed monitor FTI Consulting, on Feb. 5 Cargill wrote, "There are also serious concerns about the sale process."

It also called the proposed deal between Tacora and the investors a "rushed process."

Cargill, a massive U.S privately owned global food corporation, is one of the companies that own Tacora and is the sole purchaser of the iron ore produced at the Scully Mine.

Cargill also told the monitor it plans to oppose the tentative deal because it has a stake in the company and it "expects reasonable procedural steps to be put in place for the Sale Approval Motion so that it can defend those rights."

In October, Cargill was behind a $75-million agreement to keep the mine operational until the end of February. In recently filed documents, the monitor said Cargill was willing to increase its financing for the mine so the court process could last longer.

When reached by CBC News over email, Cargill spokesperson Bridget Christenson declined to comment.

Details of the deal

Earlier this month, Tacora announced through a statement that a new group of companies, made up of private equity firm Resource Capital Fund VII LP and commodities traders Javelin Global Commodities, was interested in investing in the iron ore mine, along with a group of bond holders.

"The transactions will allow Tacora to emerge from the [creditor protection] proceedings as a much stronger and better-capitalized business focused on achieving the full potential of the Scully mine," Tacora CEO Joe Broking said in a statement announcing the plan.

The statement added the deal would enable the company to focus on its long-term plans for the Scully mine and invest approximately $300 million US over four years in upgrades and modernization at the site. It added Tacora's goal is to produce more than six million tonnes of high-grade iron ore concentrate per year.

The statement also gives some details about the agreement Tacora is interested in accepting.

The subscription agreement — which was entered into on Jan. 29 — includes details like the companies 'investment of $225 million US into Tacora and debt financing to the tune of $45 million US. It will also handle Tacora's secured debt as well as continue to employ its workforce.

The agreement would also allow "entry into a marketing agreement and product purchase and sale agreement and a secured working capital facility of up to $100 million US with Javelin."

The tentative deal still has to be approved through the court.

Rejected Cargill bid

Documents on FTI Consulting's website show Cargill had also submitted a bid to invest in Tacora, though Tacora said it decided to go with the bid from a group of investors.

Tacora argued Cargill's proposed bid didn't meet its standards and so it didn't proceed to the next phase, writing, "After failing to submit an actionable Bid, Cargill now attempts to establish a long, drawn-out litigation schedule in what appears to be an attempt to disrupt or thwart the closing of the investors' bid to the detriment of Tacora and its other stakeholders."

Tacora also argued "time is of the essence" for it to get out of creditor protection and that its schedule to approve the deal with investor's was reasonable.

The company also made a case for the proceedings to go ahead; citing volatile iron ore prices, the need for capital to come in quickly, small businesses that haven't been paid since the company had entered creditor protection and many of its employees who had left their jobs because of the uncertainty around the company's future.

A hearing has been set for April 10-12.

Tacora spokesperson Graham Letto declined to comment, writing in an email to CBC News that the company would not comment until the transaction was finalized by Justice Jessica Kimmel.

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