Serving Northern St. Louis County, Minnesota

New mine proposal confirms scale-back

Daily ore production would be reduced over 2014 plan; new location for processing

Marshall Helmberger
Posted 5/30/18

REGIONAL— The new preliminary mine proposal released late last week by Antofagasta subsidiary Twin Metals signals a substantial reduction in the scale of mining operations at the facility, and a …

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New mine proposal confirms scale-back

Daily ore production would be reduced over 2014 plan; new location for processing

Posted

REGIONAL— The new preliminary mine proposal released late last week by Antofagasta subsidiary Twin Metals signals a substantial reduction in the scale of mining operations at the facility, and a lower initial capital investment from the company’s original plan released in 2014.

The new project outline would sharply reduce the rate of ore production, from the 50,000 tons per day in the company’s original proposal to 20,000 tons per day under the new plan.

The new plan confirms some of the changes incorporated in a project update issued by the company last year, while encompassing some additional changes.

The company now proposes to locate their processing plant about a mile south of the existing Maturi deposit, located adjacent to Birch Lake, east of Babbitt. The company’s previous plan had proposed a concentrator plant located about 1-2 miles west of the mine site, with much of the initial ore processing taking place underground.

The processing plant now envisioned would directly access the mine site via underground tunnels, according to the company.

Several elements of the plan would remain much the same as the company’s 2014 proposal. The tailings facility would be located about 12 miles southwest of Babbitt near the Peter Mitchell pit on land owned by Twin Metals. According to company spokesperson Bob McFarlin, the tailings would be deposited in a lined basin, through a wet method of tailings disposal. The company did consider dry stacked tailings storage, according to McFarlin, but ultimately opted for a more conventional method. Dry stack tailings storage is being proposed more frequently in modern mines as it is seen as less subject to leakage and collapse, such as occurred at the Mount Polley Mine in British Columbia in 2014.

McFarlin notes that approximately half of the tailings generated by the mine operations would be cemented as backfill in the underground mine, which is consistent with the 2014 proposal.

One other change from the company’s previous proposal is the suggestion that the company would build a second northeastern Minnesota office, located in Babbitt, close to the time when construction on the project was set to begin.

Lower initial cost

The latest proposal would substantially reduce the need for up-front investment capital, from the company’s initial proposal of approximately $2.8 billion to about $1.2 billion according to McFarlin. The source of the savings compared to the 2014 plan isn’t entirely clear. “The two projects are significantly different in size and scope, operational efficiencies, facility locations, engineering, various internal financial assumptions, project ownership, etc.,” stated McFarlin. “It is these significant issues that account for a variety of differences, including estimated pre-operational capital costs.”

The proposal remains highly preliminary and it did not come with any financial projections or updated employment numbers. McFarlin cited previous figures of 650 direct jobs and 1,300 spin-off jobs as a result of the project, even though the new plan would reduce its rate of ore production by 60 percent. Under the original mine plan released by Twin Metals in 2014, labor costs were projected at about 9-10 percent of gross revenues. Maintaining the same level of employment with only 40 percent of originally-projected ore production would push labor costs to approximately 17-18 percent of gross revenues. McFarlin noted, however, that the company had indicated that it planned to reduce its production rate to 20,000 tons per day in an project update issued last year, and that included the estimated 650 jobs. Back in 2014, the company was claiming as many as 850 workers might be employed in the operation.

“I would caution against trying to make detailed comparisons between the 2014 PFS Technical Report and the current project information – such comparisons would not be valid,” said McFarlin.

But the company’s job numbers are coming under question. Spencer Phillips, an economist with KeyLog Economics who is analyzing Twin Metals’ proposals for the Campaign to Save the Boundary Waters, said he believes the jobs estimates originally put out by Twin Metals are no longer credible given the substantial drop in planned production. Assuming the same level of worker productivity, Phillips argues that the number of workers employed in the mining operation would fall proportionately to the decline in production.

Phillips noted that any decline in direct employment would also impact the number of indirect spin-off jobs, with about two spin-off jobs lost for every mining job that doesn’t materialize.

Phillips said he’s been skeptical of Twin Metals’ job claims for some time and notes that the rapid shift to robots in the mining industry put all mining jobs increasingly at risk. “The 650 jobs estimate is roughly twice the number one would expect, based on worker productivity across Minnesota’s mining industries,” Phillips said. “It isn’t at all clear how even at 50,000 tons per day of production, Twin Metals can realistically claim that its operations would support 650 mining jobs. At 20,000 tons per day, 650 jobs are about five times what one would expect.”

Company officials say they remain optimistic about the economics of their proposal. “Twin Metals is confident in the financial viability of the project,” said McFarlin, even as he appeared to acknowledge that the project hinges on higher metal prices than at present. “Future viability is not measured on short-term current copper, nickel and other metal prices” said McFarlin, “but rather the long-term outlook for domestic and worldwide demand to supply the green economy.” Promoters of new copper production, in particular, cite the anticipated greater use of electric vehicles, solar power, and wind generation, as factors that are expected to boost demand for the metal in future years. “The green economy doesn’t exist without these metals,” said McFarlin.

It’s unclear how the company’s latest proposal will affect the project’s financial outlook, although financial projections would be included in the company’s definitive mining plan, expected in about 18 months. The definitive plan would form the basis for any environmental review of the project, a process that would likely take years to complete.

Lawsuit pending

Twin Metals released its preliminary plan against a backdrop of pending litigation by environmental groups over the company’s right to mine in the area. The Trump administration recently announced that it was renewing two mineral leases that date back to 1966, without conducting any environmental review. The decision to renew the leases came after Interior Department legal counsel Daniel Jorjani determined that Twin Metals had an absolute right to renew the leases. Jorjani, who spent years working for organizations financed by Charles and David Koch, has been under fire by environmentalists for a number of his recent legal determinations at the Interior Department that have favored oil and gas or mining interests. Previous legal counsel for the Obama and Reagan administrations had determined that the holder of the mineral leases in questions did not have a right to renewal because the original holder of the leases, the International Nickel Company, or INCO, had failed to begin mineral production within the agreed-upon time period.

Environmental groups have vowed to challenge Jorjani’s legal opinions and the resulting renewal of the mineral leases in federal court. Filings in that case are expected later this summer.

The Interior Department decision to renew the leases also runs counter to the expressed view of the U.S. Forest Service, which declined to renew the leases in 2016. The Forest Service, which is part of the U.S. Department of Agriculture, is continuing a review of a proposed withdrawal of 234,000 acres of the Superior National Forest located within the watershed of the Boundary Waters Canoe Area Wilderness from the federal mineral leasing program. The Interior Department’s renewal of the leases would exempt the lands controlled by Twin Metals from the potential withdrawal.

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