Minnesota's mining not an economic panacea

Mining could be a huge economic boost for the state, say proponents of an iron ore mine in Northwestern Wisconsin. But it hasn't been a cure-all for the big iron ranges of Minnesota and Michigan. The areas rank below average in median household i...

Taconite plant
Smoke rises out of the stacks at United Taconite in Forbes. The Mesabi Range in Northeastern Minnesota is the source of 80 percent of the nation's iron ore. (2007 file / News Tribune)

Mining could be a huge economic boost for the state, say proponents of an iron ore mine in Northwestern Wisconsin.

But it hasn't been a cure-all for the big iron ranges of Minnesota and Michigan.

The areas rank below average in median household income for their states, and their economies often have struggled despite dominating iron ore production in the United States.

The ore, processed into taconite pellets, is a staple for making steel at Midwestern mills.

In Wisconsin, many hope that a new iron ore mine in Ashland and Iron counties can rekindle the glory days, when cities such as Hurley buzzed with commerce and night life notoriety.


"We've all dreamed for the past 50 years what would happen if a mining company came back to Hurley," Gary Pelkola, owner of the Iron Nugget bar in Hurley, recently told a legislative committee in Madison.

"We now have a chance to make Wisconsin iron mining a dream come true."

If Gogebic Taconite gets the mining bill it wants from the Wisconsin Legislature, and receives regulatory approval, the company said it will spend $1.5 billion to construct an open pit mine that, in time, will stretch for four miles over an ore-rich ridge in the two counties. An adjoining factory would process the ore into pellets.

The mine, with 700 workers, would be a massive operation in an area of forests and a smattering of private properties. It would represent the biggest investment in decades -- perhaps ever -- for an area that is older, poorer and less educated than the state average.

A Gogebic consultant, Madison-based NorthStar Economics Inc., says that with spinoff employment, an iron mine could support more than 2,800 jobs across 12 counties in northern Wisconsin and the Upper Peninsula.

But the iron ore industry also has a history of booms and busts.

It's increasingly buffeted by global markets, especially China. Last year, iron ore prices peaked at $128 per metric ton in July, fell by 23 percent to $99 in September, and then rebounded to $129 in December.

And in recent months, Wall Street has expressed concern about a long-term glut.


"A new mine in Wisconsin or anywhere else would have the advantage of having the ore close to the plant and be constructed with newer and improved equipment," Gogebic President Bill Williams said in an e-mail. "A new mine will be better in position to weather the economic storms than a plant that is 35 to 40 years old."

Critics such as Mike Wiggins Jr., chairman of the Bad River band of Lake Superior Chippewa, say proponents discount the environmental effect a mine would have on tourism and natural resources. Wiggins also rejects the notion that mines are the economic engines that their supporters say they are.

"In Minnesota, I don't see manna from heaven," he said.

Falling employment

The Mesabi Range in Northeastern Minnesota is the source of 80 percent of the nation's iron ore.

The jobless rate in the past two decades there usually has been higher than the state average of 4.7 percent, according to the U.S. Bureau of Labor Statistics.

In St. Louis County, the unemployment rate averaged 6.1 percent between 1990 and 2012.

In Lake and Itasca counties, it was 5.9 percent and 8.5 percent respectively.


Between 2000 and 2011, mining employment in Minnesota fell 25 percent to 4,245 jobs in 2011, according to the state's Department of Employment and Economic Development.

In 1979 -- the peak of iron ore production -- there were 15,000 mining employees working in Minnesota, the agency reported.

Production has remained relatively stable since 2000, except in 2009 when it dropped by about half because of the recession.

In Marquette County, Mich., the home of two large open pit ore mines, the unemployment rate has fared better than the Michigan average in recent years.

But one of the mines, the Empire, will close at the end of 2014. Owner Cliffs Natural Resources had been contemplating an expansion there, but said in November it was closing the mine because of volatility in ore prices and weaker demand by steel-makers in North America.

Incomes remain low

Another key measure is income, which has been lower in mining country, despite union-scale wages.

U.S. Census Bureau figures show that median household income in St. Louis County was 22 percent below the state average of $58,476 between 2007 and 2011.

In Lake and Itasca counties, it was 19 percent lower.

Median household income in Marquette County from 2007 to 2011 was $45,495 -- 7 percent below Michigan's statewide average of $48,669, according to U.S. Census Bureau figures.

"I think there would be a lot fewer people up there if iron mining didn't exist," said Peter Kakela, a professor of resource management at Michigan State University.

Kakela said iron ore mines in Minnesota and Michigan are critical to the nation's steel industry.

Leigh Freeman, a general manager in the Denver office of Downing Teal Inc., a consulting firm in mining and natural resources, agreed.

"The iron deposits in Minnesota, Michigan and Wisconsin -- where they become important is that they're a domestic supply of a very critical mineral," said Freeman, an industry representative for a National Academy of Sciences study examining the adequacy of U.S. mineral resources.

In recent years, there have been two economic studies of mining in Minnesota.

The University of Minnesota Duluth in 2009 found that 34 percent of the regional economy was tied to iron ore mining and that the overall impact of the industry totaled more than $3 billion annually.

Among those that commissioned the study were the Iron Mining Association of Minnesota and Minnesota Power, a utility.

"You come to the conclusion that mining, even though it goes up and down, it's still here," said James Skurla, director of the Bureau of Economic Research at the university. "And it's been producing a lot of jobs and income."

A second study in 2007 by University of Montana economist Thomas Michael Power concludes that the economic importance of mines is overestimated and that the sector makes up a small part of the total job base. He determined that a project at the time of the study that was slated to create 700 jobs would have increased employment by 3 percent in Itasca County.

Power's study was commissioned by the Minnesota Center for Environmental Advocacy and the Sierra Club.

He highlighted a series of booms and busts since 1965 on the Mesabi Range that have bred an "atmosphere of uncertainty that affects people's economic decisions," as he put it in an interview.

Wall Street concerns

Gogebic Taconite takes its name from the Gogebic range, a region with proven iron reserves that stretches for 50 miles through Wisconsin and the Upper Peninsula.

The company has estimated it could produce 8 million metric tons of iron ore annually. That represents 15 percent of total U.S. production in 2012, U.S. Geological Survey figures show.

While a Michigan mine is closing in 2014, expansions are under way in Minnesota. Most notably, Gogebic would compete against a $1.7 billion taconite and processing plant in Nashwauk that will produce 4 million to 7 million metric tons of iron ore annually, according to the owner, Essar Steel Minnesota.

The Essar mine is the first new mine in Minnesota in 35 years. The company is in the planning stages of constructing an adjacent steel mill.

But Wall Street has expressed concerns about a glut of iron ore.

Research firm Trefis says that overcapacity and a push by the Chinese government for self-sufficiency suggest little chance of higher prices between now and 2019.

In January, Goldman Sachs Group Inc. forecast that the "market is headed for a long period of significant oversupply, but in our view this is still two years away."

Williams said such conditions are a fact of life in a commodity-based industry.

"The older, less-efficient plants will drop out of the market," Williams said in an e-mail.

"New plants must come into the system to replace them," he said.

Related Topics: IRON RANGE
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