Mining's potential payday -- for schools

  • Article by: DAVID SHAFFER , Star Tribune
  • Updated: March 7, 2011 - 8:57 PM

An 1858 federal land grant put thousands of acres of ore-rich land in state control.

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Drilling under Birch Lake by Franconia Minerals. Last week, shareholders of Franconia Minerals Corp. agreed to a $75 million takeover by Duluth Metals Ltd., consolidating control of mining rights south of Ely, Minn.

Photo: Franconia Minerals,

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The state of Minnesota owns more than 6,000 acres of land targeted for copper mining, and stands to collect $2.5 billion in royalties in the coming decades if two mining projects go ahead, according to a new analysis.

The ore-rich properties are scattered south of Ely and Babbitt, Minn. -- the legacy of a massive land grant from the federal government in 1858, when Minnesota became a state.

Two mining ventures have negotiated leases to mine copper, nickel and precious metals on more than 150 parcels, known as "school trust lands.'' Under the state Constitution, income from such lands is earmarked for the Permanent School Fund, which this year contributed $59 per pupil to every school district.

A new analysis by the state Department of Natural Resources projects that the school fund, with assets of $720 million, could more than triple in size with the copper royalties over 25 to 30 years. Actual production of copper ore in northern Minnesota is still years away, if it occurs at all. The operations will face lengthy environmental reviews.

But the size of the projected royalties underscores the economic implications of copper mining in the state. "It might go a long way toward helping our state's budget situation for funding K-through-12 education," said Peter Clevenstine, DNR's manager of engineering and mineral development, who did the analysis.

Minnesota's direct stake in copper mining is only part of the potential gain from this new industry, which also would generate jobs, taxes and possibly spinoff industries. Copper, the third-most-used metal in the world, has seen growing demand and soaring prices in the last two years as emerging economies, especially China and India, have recovered from recession. Copper is used in a wide range of industries, from construction to electronics.

Three years ago, before prices skyrocketed and mining companies boosted their estimates of available ore in Minnesota, Clevenstine estimated that the state trust lands might bring in $1.4 billion in royalties. His latest projections increase the royalty estimate by $1 billion.

The two ventures with state leases are Teck Resources Ltd. and Twin Metals Minnesota. Teck, based in Vancouver, has said little about its Minnesota mining plans. Twin Metals has proposed a deep underground mine costing more than $1 billion south of Ely. Neither company has sought environmental review or applied for a permit to mine, however.

Last week, the prospects for Twin Metals' project got a boost when shareholders of Franconia Minerals Corp. agreed to a $75 million takeover by Duluth Metals Ltd., consolidating control of mining rights south of Ely. Duluth Metals is part of the Twin Metals joint venture that also includes Antofagasta PLC, a mining company based in Chile.

Vern Baker, president of Duluth Metals, said the proposed mine would be an economic gain for schools and state government.

"If you look at the direct contribution of the property taxes, the royalties, the income taxes that will be paid by the company and the employees of the company, the state is going to end up being one of the major beneficiaries of the flow of money," he said.

Under state law, the DNR has responsibility to manage the school trust lands to get the best return. The agency also regulates mining and oversees the environmental review of new mine projects. The dual roles worry some environmentalists, who say copper mining is a pollution risk to lakes, rivers and wetlands.

"It is a conflict of interest," said Scott Strand, executive director of the Minnesota Center for Environmental Advocacy, a St. Paul-based nonprofit that closely tracks environmental regulation. "I am not challenging anyone's good faith, but it puts an enormous amount of pressure on people to serve competing goals.''

Clevenstine said that the DNR often has competing goals, which are built into the agency's mission to manage lands for recreation, economic development and protection of natural resources. He said engineers like him are called on to make professional judgments on controversial projects. "That's what we do," he said.

Minnesota still owns 2.5 million acres of school trust lands, mostly on the Iron Range. Over the years, income from such things as timber sales or iron ore mining royalties has slowly built the fund to its current size. The money is managed by the State Investment Board, and only the fund's earnings are spent on schools.

This year's $59 per pupil pay out may not seem like a lot, especially when compared with the $5,124 the state spends each year per student. Yet for small districts it adds up to tens of thousands of dollars. For the largest, it can be millions.

"It can be enough to pay for another teacher," said Charlene Briner, director of communications for the state Education Department. "In times of diminishing resources, it can be significant.''

David Shaffer • 612-673-7090

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