PolyMet says proposed mine will cost nearly $1 billion

The proposed PolyMet copper-nickel mine near Hoyt Lakes will cost nearly $1 billion to build if it's permitted, but will earn a hefty annual profit for 20 years for the company after taxes and other expenses.

That was the report Tuesday as the company released its new technical and economic viability report aimed at investors and regulators.

It's the first major update on the project's costs and projected revenue in five years.

The report predicts the company will need to raise $945 million to build Phase I - including opening the mine and restarting the former LTV Steel processing center. That's significantly more than earlier reports indicated.

PolyMet hopes to gain state and federal permits and be cleared to mine, possibly later this year, and then will need to find an investor or lender willing to front that construction money. PolyMet officials will hold a conference call with investors today to highlight the news.

"That's why we're releasing this report now," said Jon Cherry, PolyMet CEO, saying the report "affirms" PolyMet's projection that the Minnesota project will be highly profitable. "This project has good economics."

The expected rate of return on investment now ranges from 9.6 to 10.3 percent even after all costs are included.

The report estimates it would cost another $259 million to build Phase II of the operations, a proposed hydrometallurgical facility that would refine the copper to a more valuable end product. PolyMet has said it won't build Phase II until the mine and primary processor are up and running and earning revenue.

If Phase II is built the total protect construction cost would hit $1.2 billion, with revenues jumping to $271 million annually. That's on top of the $300 million PolyMet already has spent to get to this point, including engineering, exploration and environmental review and planning.

Phase I would include about 300 employees, with Phase II adding other 50 or so for the PolyMet project - what would be Minnesota's first-ever copper mine - that supporters say will be a boon to the regional economy.

Opponents say the project poses too great a risk of polluted mine waste leaving the site and tainting local waters. Some of those critics on Tuesday questioned if PolyMet's latest report shows it will make enough money to cover the costs for any catastrophic problem, if one occurs.

Paula Maccabee, attorney for the group WaterLegacy, noted that PolyMet has downgraded its expected profit margin from 30.6 percent in its 2012 report to about 10 percent now.

"In order to get a return for investors that even comes close to what PolyMet promised investors in 2012, the company would have to more than triple the size of the NorthMet project to a massive 118,000 tons of ore per day," Maccabee noted.

Aaron Klemz, spokesman for the Minnesota Center for Environmental Advocacy, agreed.

"The study released (Tuesday) shows that PolyMet's plan is not financially viable. Minnesotans have been sold a bill of goods by PolyMet," he said. "Since PolyMet's financial assurance depends on a highly profitable mine, we are concerned this economically marginal project will put Minnesota taxpayers at risk."

PolyMet's report Tuesday talked about future expansion to that 118,000-ton-per-day level, but the company said it had no plans to mine that much any time soon. And it said the newly projected profit margin builds in financial assurance costs.

While the company has applied for permits based on recovering about 225 million tons of ore over 20 years, or about 32,000 tons mined and processed every day, Cherry noted that there's an estimated 730 million tons of ore under the site. That's enough ore for the company to someday more than triple production to 118,000 tons per day.

That 730-million-ton resource has always been there, Cherry noted, but the company wanted to remind potential investors. Cherry added, however, that the company would have to conduct new environmental and engineering studies and renegotiate permits with the state before expanding beyond permit limits.

The plan is to mine 32,000 tons daily and "the rest of it is just future opportunity if we ever get to that point," Cherry told the News Tribune.

Cherry also noted that the mine's production costs will be among the lowest 25 percent globally for copper producers. That's in part because, in addition to copper and nickel, the mine will produce decent amounts of valuable platinum, palladium, gold, cobalt and other minerals - essentially a bonus on top of the primary ores.

The projected total numbers are huge - including 1.2 billion pounds of copper, 174 million pounds of nickel and 1.6 million combined ounces of platinum, palladium and gold.

The rosy revenue projections outpace the considerable increase in capital costs because the price of copper and other metals is high and expected to rise more. Copper now sits at about $3 per pound, down from a high of around $4.50 per pound in 2011 but well up from historic averages below $1 per pound. Analysts say copper prices are expected to increase as demand for copper-heavy products such as electric cars and wind generators rise faster than global copper production.

Meanwhile, inflation is part of the reason the costs are much higher, but the company also has changed its plans from leasing to buying millions of dollars of haul trucks, giant shovels and other mining equipment, Cherry noted.

In addition to about 20 state and federal permits, PolyMet also must gain title to the land at the mine site now owned by the U.S. Forest Service. The federal agency approved the land swap but the deal has been challenged in a federal lawsuit. A bill that would force the land swap through passed the full House but has stalled in the Senate.

While PolyMet hopes to be cleared for takeoff later this year, opponents still hope to slow or stop the state permits by challenging their basis in contested case hearings before an administrative law judge.

The new report was released one day after PolyMet announced it has received another $80 million loan from global commodities giant Glencore, which already had loaned PolyMet $152 million and which owns one-third of PolyMet's stock. Glencore also is in line to buy all of the copper produced by PolyMet.