fedgazette

Mining in the Ninth District

After nearly 200 years, mining still important

Kathy Cobb - Associate Editor

Published October 1, 1996  |  October 1996 issue

In the Ninth District, 1979 was the year in mining: The energy crisis created a surge in oil and coal production in Montana and North Dakota, Minnesota's taconite industry had its highest production year to date, and precious metals prices soared.

Jump to 1996: Minnesota's taconite industry is prospering, North Dakota's coal still fuels the electricity generating plants that sprouted up in the 1970s and '80s, and gold is still worth mining in South Dakota and Montana.

Since the Lewis and Clark expedition first recorded the use of lignite coal in what is now North Dakota in the early 1800s, the first copper mines opened in the Michigan's Keweenaw Peninsula in the mid-1800s, and Gen. George Custer's troops discovered gold nuggets in South Dakota's Black Hills in 1876, mining's presence has been felt in the district. This fedgazette industry roundup looks at legislative issues facing the metal mining and coal industries—as well as conjectures about the future of mining—and a summary of current mining activity for each district state or region.

Legislative issues multiply

Wisconsin, with one active copper mine, may not see another mine in operation if proponents of a bill to ban new mining permits succeed in the next legislative session. It will be the second time around for the bill that asks the state to hold back all mining permits until it can be shown that a U.S. or Canadian mine with a sulfide ore deposit has operated safely for 10 years and successfully been closed for at least 10 years without generating any water pollution.

The ability of environmentalists and mining interests to co-exist is "an open question," says University of South Dakota economics professor Michael Madden, citing a November ballot measure in Lawrence County that would declare certain land off-limits to mining. "A combination of added expense to ensure environmental safety and public opinion are formidable obstacles for mining companies to overcome," Madden says. Despite the growth of tourism jobs, "Lawrence County still can't do without mining." The longevity of a mining operation depends on locating reserves, Madden says, and without new permits that exploration won't occur and could eventually put the industry in jeopardy.

In Montana, while the mining industry convinced state legislators to ease water quality standards in 1995, environmentalists countered with a November ballot initiative that would have created stricter water quality standards for some metal mines. Initiative 122 was defeated, but had it passed, it could have meant "a premature shutdown of 70 percent of mines and zero exploration," says Robin McCulloch, staff mining engineer for the Montana Bureau of Mines and Geology in Butte.

McCulloch says it's not the environmental regulations that bother mining companies as much as the endless changes in rules. "It's tough enough to deal with [fluctuating] commodity prices and operating costs, like diesel fuel prices." McCulloch would like to see a 10-year window whereby a mining company that begins operations under a certain set of regulations can operate for a 10-year period under those regulations, after which the company would be required to comply with the current rules.

For mining: "No way to forecast what will happen"

"The future looks good," says Dave Gardner, director of public relations for Cleveland Cliffs, which operates the Tilden and Empire mines in the Upper Peninsula. "The U.S. steel industry is competitive nationally and internationally," Gardner says.

Minnesota's taconite industry is coming off its fourth best year ever and 1996 looks promising as well. But if one compares the prices paid for iron in the early 1980s with the current prices, it becomes clear that companies were paid about 50 percent less for their product in 1995, says Wayne Brandt, executive director of the Iron Mining Association of Minnesota in Duluth. Salaries adjusted for inflation show a drop of about 15 percent in earnings for the same period as well, he says. Brandt also predicts that the industry will need another $1 billion over the next 10 years to remain viable. "Certainly, continuing to add value and make a better product is important," Brandt says.

To keep up with the competition, direct reduced iron (DRI) plants that create a scrap iron product for use in steel mini-mills are under study by two Iron Range mining companies. These have been put on hold for now because of the prohibitive costs of the natural gas needed for production. Brandt says it's important to meet the industry trend of DRI plants and mini-mills head on by adding DRI to taconite on the Iron Range.

Cleveland Cliffs has looked at DRI in Minnesota and the U.P., according to Gardner, but he reiterates that high natural gas prices are a drawback. The company is exploring a new coal-based process, but until the technology is effective there are no plans for U.S. DRI plants. Instead, Cleveland Cliffs is building its first DRI facility in Trinidad, where natural gas is cheap.

As for precious metals, there's some talk that silver prices may rise, possibly up to $8 to $11 per ounce, an increase from the mid-October price of a little over $5 per ounce. And in a good economy, more autos are produced, McCulloch says, meaning that more palladium and platinum will be needed for catalytic converters.

With gold prices hovering near $400 an ounce since 1990, South Dakota's gold mining industry is stable, says Larry Mann, communications director for Homestake Mining Co. But he is concerned that an inability to mine on public lands would put the industry at a disadvantage. Mann doesn't want to see a recurrence of the time when the United States was a net importer of gold. In 1990, he says, the United States was a net exporter of gold to the tune of about $10 billion, and he'd like that trend to continue. "It's important for us to recognize that we're competing with every other gold mine in the world," Mann says.

"Over the long term, we have deposits and the demand is growing," says Paul Polzin, director of the University of Montana's Bureau of Business and Economic Research, about Montana's mining prospects. But he adds, for the short-term there's "no way to forecast what will happen on either the corporate side or political side."

But according to Mark Roberts, professor of mineral economics at Michigan Tech University in Houghton, it is possible to forecast one general trend: Mining is gradually losing its importance in an economic sense. He predicts that copper mining in the Upper Peninsula will continue to decline as the United States relies more on an international supply of copper. "There's still plenty of copper and iron [in the United States], but ore grades are higher in other countries and costs are lower; it's easier to mine and transportation is cheaper," Roberts says.

"We as a society rely on metals and minerals more than ever," Roberts says. But mining companies are looking to avoid the hassle of permits, and environmental regulation adds to cost. And by making it more difficult for mining companies to operate in the United States, Roberts says, we may actually be exporting environmental problems.

"The American people have their heads in the sand," Roberts says, "it's the NIMBY (not in my backyard) syndrome. It's short-sighted of the American public."

A sign that the mining picture is changing in Montana is the drop in exploration and prospecting. In 1989 prospectors spent more than $30 million in Montana-mostly in hotels, restaurants and on fuel and other supplies. But according to a Montana Mining Association report, "by 1996, because of political uncertainties over environmental regulation and royalties, the exploration business in Montana had dropped to less than $1 million."

McCulloch of Montana's Bureau of Mines says the state has seen a mass exodus of major exploration companies in the past few years. But at the same time there is increased exploration activity by individuals and small companies, McCulloch says. "They're intrigued by huge opportunities and the vacuum left by the major companies."

The slowdown in exploration activity will impact the future negatively, McCulloch says. The currently operating mines were largely exploration projects in the '70s and '80s, he says. With a life of about eight to 10 years, in five years the industry could be in trouble, according to McCulloch. "The years 2000 to 2001 will be critical years in the industry," McCulloch predicts.

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