Working for a half-century in the mining business has made Ernest Lehmann
a patient man. Since 1985, he has been exploring on and off for platinum
and palladium near the northeastern Minnesota town of Babbitt.
Two years ago his Lehmann Exploration Management partnered with South
Africa-based Impala Platinum Ltd., the world's second largest platinum
producer, to help analyze whether mining the ore body there is economically
feasible. Lehmann's patience might pay off in a big wayor it might
never pay off.
"You begin to wonder whether you'll live long enough to see these
things happen," he said.
Lehmann and a small group of other explorers are looking for nonferrous
(or noniron) metals. The deposits are there; it's a matter of trying to
extract them economically. That little fact has raised eyebrows, as some
see nonferrous mining as a logical replacement for a sagging taconite
mining industry in Minnesota.
But it will be at least five years before Lehmann and Impala's underground
mine could be operating. And that's just one of the factors that begins
to take the bloom off the rose. The effects of finite resources, globalization
and low metal prices also challenge development of a permanent new mining
sector in Minnesota. And if other states are any barometer, nonferrous
mining in the Ninth District appears to be on the same downward track
as the taconite industry in northeast Minnesota and Michigan's Upper Peninsula.
Better efficiency but fewer jobs
The U.S. mining industry (which includes coal, petroleum, natural gas,
iron and nonferrous metal) has made huge strides in efficiency over the
years. The value of mining output increased from $205 billion in 1990
to $212 billion in 2000 (in chained 1992 dollars), and is expected to
continue increasing to $230 billion in 2010.
Metal Mining Employment
|Source: Bureau of Labor Statistics
Mining's Economic Impact
1999 (In Millions)
|State & Local Government
|1 Primarily iron mining.
2 73 percent metallic minerals as well as coal, gemstones
and industrial and construction minerals.
3 Primarily coal.
4 Primarily gold, stone, sand and gravel. In 2002 only one mine
is producing gold, compared with five in 1998.
5 Primarily crushed stone, sand and gravel.
|Source: National Mining
That's not exactly fast-track growthindeed, the projected output
growth of about 0.8 percent per year in mining is substantially less than
the 3.3 percent annual growth rate seen for all industries combined.
But mining employment decreased 24 percent to 543,000 jobs from 1990 to
2000, and more job cuts are expected. By 2010, the industry's total employment
is projected to fall by another 55,000 jobs, according to the Bureau of
Labor Statistics. Mining is expected to have the largest annual employment
decline for any major industry until at least 2010.
Many of the job cuts in the district have been at taconite mines. Minnesota's
mining employment fell by 62 percent from 1980 to 2001from 15,600
workers to 6,000 workers, according to the Iron Mining Association of
Minnesota. During that time, three of eight iron mines closed and oneNorthshore
Mining, formerly called Reserve Miningreopened.
Environmental requirements, low-priced imports, high-cost production and
bankruptcies have plagued American steelmakers and affected the demand
for taconite, the low-grade ore mined and processed in northeast Minnesota
and the U.P. As in other mining sectors, technological improvements have
allowed taconite mining operations to run with fewer workers.
The most recent closure was LTV Steel Mining Co., the state's second-largest
mine, which was shuttered last year due to the bankruptcy of its parent
company, LTV Corp. Two owners of other mines, Bethlehem Steel Corp. and
National Steel Corp., have filed for bankruptcy, but their Minnesota mines
Empire Mine, one of two iron ore mines in the UP, was out of production
for several months in late 2001 and early 2002, while an owner of the
Tilden Minewhich ultimately sold its sharestruggled with insolvency.
Many are holding out hope for a turnaround in the taconite industry, particularly
in value-added iron products. Northshore Mining in Silver Bay is working
with Kobe Steel, a Japanese firm, to make nuggets that are almost pure
iron. Minnesota Iron and Steel has been working for more than six years
on a plan to mine iron ore and build a steel mill near Nashwauk, but financing
is not complete.
Looking for paydirt
In the meantime, however, there is hope that a new metal mining industrystill
at an embryonic stagecan pick up some of the mining slack on the
Iron Range. About seven companies are exploring or testing samples of
gold, platinum, palladium, copper, nickel, cobalt and other metals, which
are known to be present in a geologic formation called the Duluth Complex.
In Minnesota, a state metallic minerals lease sale last July doubled the
number of exploration leases on public land in the Arrowhead region of
Minnesota. Ten mining companies submitted bids for 126 leases on 28,000
acres of land.
That is exciting news in Minnesota, where there's been little exploration
for 20 years, said Don Gentry, president of Golden,
Colo.-based PolyMet, but it's not intense interest from an industry point
of view. PolyMet is one of the companies looking at the possibility of
developing a mining operation.
PolyMet and Teck Cominco, a multinational mining company based in Canada
that also owns Minnesota exploration leases, have each developed what
they say are inexpensive, environmentally friendly ways to separate the
metals from each other and from waste. Metals such as copper, nickel,
silver and gold often are found chemically bound in the ground.
Both companies would use some of the underutilized Iron Range taconite
facilities to at least partly process the nonferrous ore near the mining
site. If Teck Cominco can extract the ore cost-efficiently, it would use
LTV's crushing and grinding equipment near Hoyt Lakes. It would also build
its own plant to further refine the ore. All told, its capital investment
would be about $550 million. The entire operation would employ about 1,000,
said John Key, the company's Minnesota project manager.
PolyMet envisions a $600 million investment, using some of LTV's facilities
and employing 450 to 500 workers. Both PolyMet and Teck Cominco are primarily
interested in extracting copper and nickel, and would build open pit mines.
Lehmann is more interested in platinum and palladium, which would be mined
underground, partly processed in Minnesota and sent to South Africa for
One chance in 1,000
McVicar Minerals Ltd. of Toronto, which is conducting its first mineral
exploration in the state, has partnered with the deep pockets of Australian
conglomerate BHP Billiton to look for nonferrous metals, said Mike Rosatelli,
a senior geologist with McVicar. He noted that although his company has
computer models showing the land it's leasing from the state is geologically
similar to an area in Russia that contains high-grade ore deposits, chances
of the property becoming a mine are about one in 1,000.
The decision will be made after investing perhaps $1 million during an
estimated five years of exploration. "You hope that if you find something,
that in five years the price is going to go up," Rosatelli said.
If the price of copper and nickel rises substantially, he predicted even
more interest in exploration in northern Minnesota.
In addition to technological advances, the availability of resources and
idle infrastructure, Minnesota is creating an increasingly favorable environment
with a relatively new permit system for nonferrous mining. Furthermore,
many politicians are interested in developing the industry. "You
have a favorable business and government climate in Minnesota at this
time," Lehmann said.
Indeed, the Iron Range Resources and Rehabilitation Agency, an arm of
state government, will match up to 40 percent of direct drilling costs.
It is also offering $15 million in agency trust fund money for loans,
grants or equity investments to help build new nonferrous facilities.
Another $80 million in agency and state money is available to develop
a nonferrous mineral mine or processing plant or a
value-added iron products plant.
Hard (rock) times
Whether nonferrous mining is a good investment of public resources might
be questionable because hard-rock mining in other district states has
also been through rough times. For example, the UP was once called "copper
country," but today the only copper mine
leftthe Caledonia Mine in Ontonagon Countyproduces small quantities
of mineral specimens for museums.
As recently as 1998, South Dakota had five active gold and silver mines.
Today it has one, Wharf Resources, located in Lead, which is also home
to the mammoth, recently closed Homestake gold mine. Some of the closures
are partly attributable to depletion of the resource, but low gold prices
and high production costs have affected all the mines, according to Mike
Cepak, natural resources engineering director at the South Dakota Department
of Environment and Natural Resources.
Likewise in Montana, where gold, silver, copper, nickel, platinum and
other metals are mined, the industry "is not exactly booming along,"
said Warren McCullough, chief of the state's Environmental Management
Bureau. Pegasus Gold Corp., owner of the now-defunct Zortman and Landusky
gold mines in north-central Montana, filed for bankruptcy three years
ago. The state's one remaining high-grade gold mine, Golden Sunlight Mine
near Butte, has about a year of life left. Continental Pit, a copper-molybdenum
mine also near Butte and owned by Montana Resources Inc., suspended operations
nearly two years ago because of high electricity and low commodity prices,
and "some people wonder whether it will ever reopen," McCullough
said. Altogether, just four metal mines are operating in Montana today
vs. nine in the mid-1990s.
Exploration for new deposits in Montana and South Dakota is almost nil.
In northeast Wisconsin, a zinc-copper underground mine project proposal
called the Nicolet Mine near Crandon has been dealing with state regulatory
processes for about seven years and still appears to be years away from
Metal commodity prices, except platinum and palladium, have been low for
years. Even gold, which in the late 1970s was $800 per ounce, sold last
spring for less than half that price. Palladium, which is used in automobile
catalytic converters, is in some demand. It reached a peak of about $1,000
per ounce during the past two years, but was about $370 per ounce in the
spring of 2002.
Because some companies have been expanding abroad in a big way, there's
too much ore on the world market, which keeps prices low. With poor worldwide
economic conditions and slim profits, it's a difficult time to finance
exploration, which is an expensive gamble even in the best of times. Gentry
said that until the new technologies PolyMet and others hope to use are
proven, investors have little interest in bankrolling them.
Long start-up timelines, comparatively expensive labor and tight regulations
in the United States have pushed mining giants to invest elsewherethey're
especially interested in South Americaleaving little capital for
IRRRA Deputy Commissioner Brian Hiti acknowledged that there are a lot
of "ifs" involved with nonferrous mining in Minnesota, but his
agency is encouraging its developmentas well as that of
value-added iron production. If successful, the new sectors will benefit
the area in the long term, he said.
The 1,000 jobs that Teck Cominco could create would have great impact,
he said, since it could replace most of the lost LTV jobs, and the life
of the operation is estimated at 60 years. Lehmann estimates his project
would operate for 20 years, while PolyMet estimates 24 years or more.
Length of operation is not a major concern for the agency. "By their
very nature, mining projects have a life. ... Other economic development
projects do, too, but we don't know what it is because it depends on changing
business conditions," Hiti said.
Ride over toward the sunset
Still, a look westward shows what could happen down the line. Mining
is an important part of Montana's economy. The state is the nation's
sixth biggest coal producer and has the nation's only
platinum-palladium mine. The industry contributed $360 million in
direct economic gain (including nonferrous minerals, gems, industrial
minerals, talc and bentonite) to the state's economy in 1999, according
to the National Mining Association.
For those fortunate enough to have mining jobs, the average income
per worker is more than $45,000good pay in a state where the
median household income is estimated at less than $30,000 per year.
The industry paid $79.6 million to state and local governments.
But political sentiment appears to be less favorable than it once
was, especially in terms of environmental issues. Companies have
closed mines, and the industry has shrunk. Employment fell from
8,800 to about 5,000 from 1980 to 2000.
Exploration has also fallen off. In 1989, mining companies spent
an estimated $23.6 million on 90 exploration projects in Montana,
said Robin McCulloch, staff mining engineer for the Montana Bureau
of Mines and Geology. A decade later, exploration investment was
less than $100,000 in 10 projects, and no mines are in the permitting
McCulloch, who compiles the Montana Mining Directory, said obstacles
such as lawsuits, retroactive liability for old pollution problems
and changing environmental requirements are keeping mining companies
In an annual survey, the Fraser Institute, a think tank in Vancouver,
British Columbia, ranked Montana, Minnesota, South Dakota and Wisconsin
in the bottom half for mining policy, mineral potential and investment
attractiveness. Nevada scored near the top in each category. Chile,
Brazil and Australia, as well as Ontario and Quebec, were at or
near the top of the lists.
Lehmann, for one, disagreed with Montana's ranking, but the perception
that Montana is a difficult place to start new mining operations
seems strongly held inside and outside the state. But some believe
Montana's mining canary is still alive. McCulloch, for one, believes
that mining companies will return someday. He compared the state
to an apple tree with 2 percent of its ripe fruit picked.
"When they have plucked all the mega-open pit ore [abroad],
they'll have to come back here to mine," he said.
See related stories in the November 2002 fedgazette:
What lies beneath
The bills come due for hardrock mining's toxic past
The toughest problem in metal mining's future will be making
prices reflect all the costs.
How much for
Estimating environmental values is difficult but essential.
Pay dirt or fool's
Do small towns strike it rich with metal mining or do they
simply get the shaft?