At a time when steelmakers and mine operators are notching hefty profits, members of the Iron Range Resources and Rehabilitation Board will discuss whether to continue subsidizing the Northland's taconite industry.
Today, the board will reconsider its practice of returning a portion of the taconite production taxes it collects. This money has been reimbursed to the mines for reinvestment in Minnesota operations through the Taconite Economic Development Fund.
At least one board member contends the aid is no longer needed. Rep.
Tom Anzelc, DFL-Balsam Township, said he will propose that the IRRRB do away with the fund and instead redirect the proceeds to public works projects on the Range.
"I will move that we not continue to cut taxes for the mines at a time when everyone else's taxes are going up," Anzelc said.
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This year, about $9.7 million is at stake, and more will probably be on the line next year, as production climbs. Disbursements through the Taconite Economic Development Fund are based on the prior year's production.
In lieu of property taxes, the Minnesota Department of Revenue collects $2.31 for every ton of pellets produced on the Range. Of that sum, 30.1 cents on every ton -- or 13 percent of total proceeds -- flow back through the Taconite Economic Development Fund to support capital investments in the region's mining facilities.
"The idea was to spur continued capital investment to ensure Minnesota mines are modern and updated and can compete in a global market," said Craig Pagel, president of the Iron Mining Association of Minnesota.
He said the Taconite Economic Development Fund has been an effective means of encouraging international companies to make additional investments in their Minnesota facilities.
An IRRRB vote today could authorize distribution of money from the development fund, but Anzelc said he will ask fellow board members to reconsider, given the mining industry's recent resurgence. Iron Range mines produced 37.5 million tons of pellets in 2010, and many
expect 2011 production will top 40 million tons.
Peter Kakela, a Michigan State University professor who tracks the global steel industry, said the merchant price for Minnesota and Michigan pellets has eased a bit, but at around $150 to $155 per ton, they're still well above production costs that are generally about $65 to $75 per ton.
"Huge profits are being made right now, and while prices have been dropping somewhat, I think they will stay high for some time to come," Kakela said.
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He pointed to China's growth and its appetite for steel as a price driver on the global market.
Kakela also noted that relatively few steelmakers these days control substantial mine operations -- U.S. Steel Corp. and ArcelorMittal being two notable exceptions. Instead, most steelmakers now purchase from suppliers, making the market for pellets more competitive.
Pagel observed that markets go up and down.
He expressed his hopes that the IRRRB will not do away with the Taconite Economic Development Fund program without first engaging in a discussion with mining industry representatives. He described being shocked by Wednesday's news of Anzelc's pending proposal.
"What's hard is when state policy changes and adds more uncertainty and risk to the equation," Pagel said. "Our industry needs consistency in state statutes and rules, so it can make better business decisions."
