Price tag on future pollution underlies PolyMet mine debate

Beneath the controversy over Minnesota's first proposed copper mine lurks a hundred-million-dollar question: How much would it cost to protect the state from water pollution, environmental calamities and mining company bankruptcies that could occur decades, even centuries, after the mine opens?

The answer could make or break the project proposed by PolyMet Mining Corp. for Minnesota's Iron Range, and it will be front and center at the State Capitol on Tuesday, as the state's top mining regulators testify at a hearing on how much "financial assurance" might be necessary to protect future generations of taxpayers from a new and risky type of mining. The short answer for now is: They don't know.

If the mine goes forward, they will have to walk a perilous line.

If they ask PolyMet to post too large a financial guarantee, the project may not attract the next $450 million in investment PolyMet is seeking — jeopardizing a plan that could bring hundreds of mining and construction jobs to northern Minnesota. If they ask for too little, then taxpayers someday may have to pay the price of polluting one of the most beautiful corners of the state.

"Our concern is not so much whether PolyMet is profitable or not," said Jess Richards, director of lands and minerals for the Minnesota Department of Natural Resources, the agency that is leading the environmental review. "Our focus is to make sure that the state is protected if PolyMet were to walk away."

It doesn't make their job easier that the proposal has sparked passionate debate across the state and has drawn thousands of citizens to recent public hearings about the project and its environmental impact.

Company and state officials won't predict how much financial assurance could be required, and they say it will be determined if and when state officials grant a permit for the project to proceed — late this year at the earliest.

Bruce Richardson, spokesman for PolyMet, said the company's financial plans include those costs. "We are fully aware of our obligations there," Richardson said. "And we are confident we can meet the state's requirements."

But one watchdog environmental group already has hired experts to crunch the numbers. It predicts that, because the mine might require indefinite water treatment to protect the region's lakes and rivers, it could require guarantees of about $400 million by the time the operation closes in 20 years.

"It's a critical question for the viability of the project," said Kathryn Hoffman, an attorney with the nonprofit Minnesota Center for Environmental Advocacy. "It should not be what the company can afford. It should be what will protect the taxpayer and the environment."

Because environmental problems can persist long after a mine closes, operators elsewhere in the country now are routinely providing hundreds of millions of dollars in such guarantees. Sometimes it's enough — and sometimes it's not.

The DNR's Richards said he's well aware that he'll be in the spotlight on Tuesday, when he explains exactly how Minnesota's financial assurance law, which has never been tested, is supposed to protect the state. The decision is all the more important because PolyMet is the first of many companies hoping to tap into one of the largest untouched copper deposits in the world, which lies beneath northeast Minnesota.

Hard-rock risks

Minnesota is one of many mining states that require companies to put up financial assurance before they start digging. And regulators at the U.S. Environmental Protection Agency have begun writing national rules to protect taxpayers from the risks of hard-rock mining. They learned their lesson the hard way: The EPA is facing billions of dollars in cleanup costs from mines across the country.

In 2004, the EPA's Office of Inspector General estimated that cleanup costs at 156 hard-rock mines would cost the EPA up to $15 billion. Some of the mines have contaminated tens of thousands of miles of streams by exposing sulfide-bearing waste rock and tailings, which produce acid when exposed to air and which leach heavy ­metals and other contaminants into ground and surface water.

"That's been a big problem," said Tom Bloomfield, a California environmental attorney who has negotiated such agreements for the EPA, other regulators and mining companies. "Now there is a better understanding that a mine that generates acid drainage will require a long-term approach."

At the Iron Range site near Hoyt Lakes, there's sulfide in the ore that PolyMet expects to mine and process — 32,000 tons a day, with ample room for expansion.

Company and state officials both say that only a third of the ore is expected to be high in acid-generating sulfides and that modern mining techniques and reverse-osmosis water treatment technology will prevent water contamination during and after mining.

The state's environmental review of the project predicts that it will cost $200 million to close the mine, and $3.5 million to $6 million annually to treat the water — perhaps for hundreds of years.

Mixed record

History in other states, however, shows how difficult it can be to predict a mine's environmental impact, the fate of the company that owns it, and even how much rain will fall in and around a mine site in the decades ahead.

The Summitville gold mine in Colorado is often described as the poster child for inadequate financial assurance. In 1992, its owner, Galactic Resources, declared bankruptcy and abandoned the site, leaving behind byproducts from the cyanide leaching it had used to extract the gold. In all, the EPA spent $150 million to stabilize the site. The company's financial assurance was $4.5 million.

The Zortman-Landusky gold mine in Montana is another example. In 1999, its owner declared bankruptcy, turned off the water treatment plant and left. Some financial assurance had been built into the project, but the state had underestimated the volume of water needing treatment. Taxpayers there were assessed to create a $34 million trust fund to pay for it.

Other projects, though, have been adequately funded.

At the Iron Mountain Mine in California, after years of pollution and litigation, the company and the EPA reached a settlement providing $300 million for the first 30 years of cleanup, and a $514 million investment contract that will kick in after that.

The Cobalt Mine in Idaho is a recent example often cited by regulators, including the Minnesota DNR, as a model for financial assurance. When completed, the mine would process 800 tons of ore per day to extract cobalt, gold and copper. It agreed to provide $44 million in a financial assurance bond.

But its Canadian parent company put the project on hold last year as cobalt prices dropped and it was unable to raise $100 million to build it.

The DNR already has received thousands of public comments on the PolyMet proposal as part of the legally required environmental review that will remain open until mid-March. (For more information, go to www.dnr.state.mn.us/input/environmentalreview/polymet.)

And though the review does not address how much the state will need to protect taxpayers, Richards said: "We welcome people's suggestions on what it should be."

Josephine Marcotty • 612-673-7394