A controversial open pit copper mine proposed for northeast Minnesota could triple in size within five years, according to industry analysts who have studied the project, raising the economic and environmental stakes far beyond what its owner has discussed with state regulators.

If state officials approve the initial project late next year, the company is likely to seek a second mining permit from the state within six months because a larger operation would double or triple the value of PolyMet Mining's stock, said Wayne Atwell, one of the analysts who wrote a report issued this week by Edison Investment Research. The report, commissioned by PolyMet, projects that daily ore production would increase from 32,000 to 90,000 tons per day.

"The real value is in getting that second project built," Atwell said. "The economics are huge."

People on both sides of the increasingly intense debate over copper mining in the state are gearing up for public hearings that will follow the Dec. 6 release of a state environmental review that critics say should include the implications of a larger mine. A spokesman for PolyMet said Tuesday that the company is not considering any future expansion, noting that it has its hands full just trying to get regulatory approval to produce 32,000 tons per day.

The company has said and there is enough copper and other precious metals on the site to feed possible future expansion, but it would require further drilling, engineering plans, environmental review and permitting, said Bruce Richardson, PolyMet's vice president for communications and external affairs.

"That's not part of our discussions around here," he said.

But environmental groups and Minnesota Indian tribes said the report confirms their belief that the company is contemplating a much larger project than it has proposed to state regulators.

They said they've argued, unsuccessfully, that the potential impact of a larger project should be addressed in the state's environmental review. The public, they said, has a right to know the true scope of the project, which even now calls for up to 500 years of water treatment that could ultimately cost billions of dollars.

"If we don't know all the impacts, we can't have an honest conversation about that," said Kathryn Hoffman, an attorney with the Minnesota Center for Environmental Advocacy.

Atwell acknowledged that his predictions are "intelligent estimates," and do not represent the company's statements. Steve Parsons, a mining industry analyst with National Bank Financial in Toronto, said he thought that would be a very aggressive move for the company in a short time frame.

But Atwell, a mining industry analyst for 40 years, said he met with management, visited the site near Hoyt Lakes and used other publicly available documents to write the report as the launch of Edison's coverage of the company's stock. PolyMet is an investment client of the firm, and its managers provided Atwell guidance as well, he said.

"In my best judgment, I think that's what will happen," Atwell said. "We didn't make this stuff up."

Jobs, with risks

The Dec. 6 release of the environmental impact statement launches a critical part of the federally required public review of the mine, and forms the basis for planning and permitting next year. The public will have 90 days to comment on the environmental review, and the DNR expects to hold one or more public hearings as well.

Chris Niskanen, communications director for the Minnesota Department of Natural Resources, said the agency can review only the project that's been presented by the company.

"If the company seeks to expand its processing, that expansion will be subject to additional environmental review," he said.

PolyMet's Northmet project, which has been in development since 2003, would be Minnesota's first copper-nickel mine. There are several other companies lining up to tap into one of the world's largest copper-nickel deposits that lies beneath the forests in northeast Minnesota — deposits that offer the promise of a new era of mining for Minnesota, but also come with significant ecological risks for one of the most scenic areas of the state.

PolyMet's $650 million project would create about 360 jobs for the duration of its 20-year-mine, plus spinoff jobs. In addition to an open pit mine, the project would include a metallurgical processing plant that would extract small amounts of precious metals from tons of rock.

The metals are in high demand for computers, smartphones, wind turbines and many other technologies related to green energy.

But unlike iron ore deposits, the sulfide-bearing waste rock produces acid when exposed to air, which leaches heavy metals, changes the acidity of surface waters and damages fish and other aquatic life. Hard rock mines have a long history of significant environmental damage that can last for many decades, and have cost taxpayers billions of dollars in clean up costs.

PolyMet officials and other mining experts say that new processes, engineering techniques and stringent environmental oversight will protect Minnesota's waters as well as taxpayers. The 500-year plan to run millions of gallons of water a day through expensive reverse osmosis plants is one such example of what's feasible — and required — to remove pollutants in the runoff that comes from tailings basins and waste rock piles.

Old taconite plant is key

The key to the project's financial success, however, is the old taconite processing plant that was once used to crush 100,000 tons of iron ore per day, said Atwell. PolyMet acquired the plant, 6 miles by railroad from its proposed open pit mine, from the bankrupt Erie Mining Company. It plans to use about a third of the machines but could quickly ramp up to 90,000 tons per day at little or no additional cost, Atwell said.

And that's where the money is.

"There is real value in using the whole capacity of the mill," Atwell said. Assuming that the permitting is completed by the end of 2014, as the company's management predicts, and that it also succeeds in acquiring the necessary financing, the added capacity could eventually bring the stock up to $3 or $4 per share from Tuesday's close of $1.23, he said.

PolyMet could either expand its mining operation by digging more ore per day, a process that could take a year or two of regulatory review, he said. Or, when other mines develop in the area, they could send their ore to PolyMet's facilities, which "government regulators may encourage," in order to minimize the mining footprint in the region, the report said. But that, Atwell added, could take five or seven years.

Either way, by being first mining company out of the box and as owner of the processing plant, PolyMet "will be in the driver's seat," he said.