A team of financial consultants hired by the state of Minnesota says its doubtful that PolyMet Mining Corp. can come up with the hundreds of millions of dollars necessary to protect taxpayers against long-term environmental risks from its proposed copper-nickel mine.

And, they say in a report filed with the state, there is no certainty that PolyMet will find the deep pockets it will need.

That assessment comes at a critical time for PolyMet’s proposed $650 million open-pit mine near Hoyt Lakes. As the proposal moves into its next state-permitting phase, state regulators are wrestling with how to cement a financial agreement to protect Minnesota taxpayers from the risks inherent in copper mining — catastrophic accidents, mine closure and water treatment that could last for hundreds of years.

The process is under intense scrutiny from advocates on both sides of the most divisive environmental issue that state regulators have tackled in years, as well as Gov. Mark Dayton, who has called this decision among the most difficult he makes as governor.

The consultants’ report underscores the fine line Minnesota must walk in the coming months. If it asks for too little from PolyMet, state taxpayers and the people downstream from the mine could pay the price — tens of millions of dollars in future cleanup costs. If it asks for too much, a long-awaited project seen as an economic boon to the Iron Range could be stopped in its tracks.

PolyMet officials said the final number has yet to be negotiated, but the company has proposed setting aside $332 million for financial assurance.

At this point the state doesn’t have a number, said Barbara Naramore, assistant commissioner at the Minnesota Department of Natural Resources, and its consultants haven’t yet furnished an estimate of their own. Naramore said agency officials understand that the decision could have significant financial implications for PolyMet.

“But we need to look at it through the lens of making sure the state’s interests are protected,” she said.

But another mining consultant, hired by the Minnesota Center for Environmental Advocacy, has said that PolyMet’s long-term cost estimates, especially for water treatment, are unrealistically low. Jim Kuipers, a Montana mining consultant, said PolyMet’s financial projections are contrary to standards recommended by the federal government and overly optimistic.

Kuipers said Minnesota should ask for $934 million up front to pay for at least 500 years of water treatment and mine closing costs two decades from now, he said.

The issue is also in play during end-of-session negotiations between Dayton and Republican leaders in the Legislature. A proposal in the GOP’s main environmental budget bill would weaken the rights of citizens and environmental groups to challenge mine permits and financial assurance decisions. Dayton vetoed the entire omnibus bill last week, but the mining provision could be revived during negotiations in the next few weeks. Regardless of where PolyMet and the state end up, the company is highly unlikely to be able to provide the necessary funds by itself, according to the state’s consultants, Emmons and Olivier Resources Inc. (EOR).

PolyMet is a small Canadian mining company whose only asset is the proposed mine site and the old taconite processing facility and tailings it owns on the Iron Range — and they are of value only if the company succeeds in getting a state mining permit, the consultants said. That means the financial protections would have to come from a company or partner with much deeper pockets, they said.

That could test the commitment of Glencore, the giant Swiss mining conglomerate that holds a third of PolyMet’s stock and which has been its primary lender up to now.

Brad Moore, PolyMet’s vice president for governmental affairs, said small and large mining companies can and do find ways to fund financial assurance packages and project construction. PolyMet is in the process of doing that now, he said.

Moore also said PolyMet has proved its ability to raise capital through the $300 million it has invested in the project to date.

“And we are confident we will have a package to meet regulatory review and the needs of our investors,” he said.

Nonetheless, the state’s consultants said, Minnesota should demand a new in-depth analysis of the project’s financial feasibility. As it stands now, they said, PolyMet would have to provide financial assurance through cash flow. They concluded that the nation’s financial industry, which normally provides the types of bonds or insurance instruments for such environmental protections, would be dubious of a risk like PolyMet because the industry has been burned in the past by mine bankruptcies.

Naramore said the state will ask for updated financials from the company, but could not say when that would happen, or how comprehensive they will be. Moore said the company would provide whatever information the state requires.

For now, the state is on track to complete the work by September, when it will present proposed permit terms and a financial assurance package at public meetings and open them up for 52 days of public comment, she said.

In the meantime, the consultants’ report and Kuipers’ analysis highlight the difficult decisions that lie ahead for the state.

At a recent talk at the University of Minnesota, Kuipers said many states have learned the hard way how much it takes to protect taxpayers. “If it can go wrong, it will go wrong,” said Kuipers, who has worked on multiple mine problems, including the 2014 Mount Polley disaster in British Columbia.

EOR and Kuipers said states have frequently underestimated the amount of pollution old mines will produce, particularly acid runoff from waste rock that can leach heavy metals and other toxins into water, and which has destroyed tens of thousands of miles of streams in the West.

PolyMet officials say that as planned, its open-pit mine would not produce acid drainage. And the state’s 10-year environmental review, completed last year, also concluded that as proposed it could be built and operated without producing acid runoff.

On the upside, EOR said, well thought out financial assurance agreements do work.

They said that since 2000 they couldn’t find any examples of mining companies that went bankrupt or walked away from their responsibilities as long as they were appropriately bonded for risk.

“Mines have closed,” they said. “But the mining companies are responsibly performing their obligations.”