business

PolyMet Mining, the company proposing Minnesota's first copper-nickel mine, plans to borrow $4 million from Iron Range Resources in a tentative deal that grants stock warrants to the development agency, potentially giving it a stake in the company.

The deal, expected to be approved Thursday, represents the second time the Iron Range agency has offered financial assistance to a copper-nickel venture -- a sign of the growing support for non-ferrous mining, which has been dogged by concerns over its environmental risks.

"We are doing our darnedest to get the project off the ground and get some jobs," said Sen. David Tomassoni, DFL-Chisholm, the chairman of the agency's board. He said he expects the board to approve the deal.

The five-year loan at 5 percent interest is tied to PolyMet's purchase of two land parcels for eventual exchange with the U.S. Forest Service, which owns property at the mine site near Babbitt. PolyMet, headquartered in Richmond, British Columbia, controls the mineral rights, but not all the land above the deposits.

The stock warrants would give Iron Range Resources the right to purchase 400,000 shares of PolyMet stock at $2.50 a share with a exercise time window linked to the final permitting of the mine. The company's stock closed at $2.13, up 8 cents in Wednesday's trading. Shares have traded as high as $4.70 in the past five years. If the stock again reached that five-year high, the agency could exercise the warrants for an $880,000 profit.

It's uncommon for stock warrants to be part of development deals, although they were a feature of the Wall Street bank bailout, earning billions in profits for the federal government. Two years ago, the Iron Range agency also received warrants for 2.5 million shares of Franconia Minerals Corp. in a $2.5 million loan/grant package. The agency also has received warrants in four non-mining deals, an IRR spokeswoman said.

PolyMet, a publicly traded company, plans to mine copper, nickel and precious metals in a $600 million open-pit operation and ship the ore about 30 miles by rail for processing at a former LTV Steel taconite plant in Hoyt Lakes. The operation would employ 400 workers, the company says.

The project is in its fifth year of environmental review. Most recently, the Forest Service has begun studying the consequences of swapping more than 6,500 acres of land for the mine. Two of the swap parcels would be financed by the Iron Range Resources loan: 32 acres near McFarland Lake in Cook County and 5,272 acres near Biwabik.

The key environmental risks are mining wastes and long-term pollution of waters that flow eastward to Lake Superior, environmentalists say. The U.S. Environmental Protection Agency in February declared the draft environmental impact statement "unsatisfactory," and has begun taking a more active role in the process.

Betsy Daub, policy director of the Friends of the Boundary Waters Wilderness, said she is outraged by the development agency's deal with PolyMet.

"At this point we have a proposal that is not in the best interest of the Minnesota public, and now you are asking the public to pay for this project, which at this point has received a failing grade," she said.

But Tomassoni said the public is protected. The two parcels will be collateral for the loan, a protection if the mine isn't approved. If PolyMet is a success, the agency also stands to profit from the warrants.

Rebecca Driscoll, who has served as head of economic development for Minnesota and Minneapolis, said the loan is well-structured. "The warrants are totally an upside," said Driscoll, now a principal in the Minneapolis executive recruiting firm Keystone Search. "The beauty of it is those warrants really pay back if the venture is successful."

David Shaffer • 612-673-7090