The Minnesota Supreme Court has overturned PolyMet's permit to mine in Minnesota, sending the company's central permit back to state regulators for further review.

It is a fresh blow to what would be the state's first copper mine, a $1 billion open-pit mine project near Babbitt and Hoyt Lakes that has stalled with several permits on hold or under review.

The state's highest court ruled Wednesday that the state Department of Natural Resources (DNR) must hold a trial-like contested-case hearing on PolyMet's plan to line the mine's tailings dam with a bentonite clay mixture to protect against contaminated waste leaking out.

It also said the DNR erred "by issuing the permit without an appropriate fixed term." In other words, the DNR should have set a clear date by which the mine site and wastewater is supposed to be cleaned up and returned to nature.

The company and environmentalists each immediately called the ruling a victory for their side, citing different portions of the opinion.

Chris Knopf, executive director of the Friends of the Boundary Waters Wilderness, which opposes copper mining in Minnesota, called it "a huge defeat" for PolyMet.

"They don't have a permit to mine," Knopf said.

But the Supreme Court decision, written by Justice Natalie E. Hudson, was mixed. On the main legal point — whether the DNR has discretion to deny petitions for contested case hearings — the court sided with the DNR and the company.

At issue are the permit to mine and dam safety permits that the DNR issued in 2018 to the Minnesota subsidiary of PolyMet Mining Corp. Although the parent company is registered in British Columbia and majority-owned by Glencore in Switzerland, PolyMet is run out of St. Paul.

PolyMet spokesman Bruce Richardson noted the Supreme Court rejected all the opponents' arguments for holding a contested case hearing on the permits — except the bentonite clay issue.

"This is a very narrowly scoped contested case," Richardson said. "It remains to be seen what the timeline will be, but we don't anticipate it being anything of any great consequence."

"Our opponents are doing all they can to snatch victory from the jaws of defeat," he said.

Nonetheless, environmental groups were celebrating Wednesday.

"Yesterday they had a permit. Today they don't. How is that a victory?" said Paula Maccabee, counsel for the nonprofit WaterLegacy.

The Minnesota Center for Environmental Advocacy said "the people won."

"Today, the Supreme Court hit the reset button on PolyMet," the center's chief executive officer Kathryn Hoffman said in a statement. "Now it's up to Governor Walz and his agencies to make better decisions and protect Minnesotans and the water they depend on."

At a news conference at the State Capitol on Wednesday, state Sen. Jen McEwen, DFL-Duluth, said the ruling shows the DNR failed in its duty to protect the health of the state's citizens and natural resources.

"We were not able to depend on our state government," McEwen said. "They were supposed to protect us, and they didn't."

The groups accused the DNR of not setting a specific time frame on PolyMet's mining permit to duck thorny issues about cleaning up the pollution from this type of mining. Unlike taconite or iron ore mining, hard rock mining involves crushing sulfide-bearing ore that can turn into toxic sulfuric acid, or acid mine drainage, when it's exposed to the elements.

The pollution risks are too great for the fragile watery ecosystem of wetlands and rivers that drain into the St. Louis River, the groups say. The river runs through the reservation of the Fond du Lac Band of Lake Superior Chippewa and into Lake Superior.

PolyMet's own modeling shows that "post-closure maintenance is likely necessary for at least 200 years," the Supreme Court ruling noted.

The Fond du Lac Band said it was "extremely pleased" with the ruling.

"The decision recognizes that DNR failed to address significant factual and legal issues that must still be addressed," the band said in a statement. "The Band is not opposed to mining, just irresponsible mining and we will continue to advocate and fight to ensure that the waters, natural resources and environment are protected for the Band, its members and all Minnesotans."

Nancy Norr, chairwoman of Jobs for Minnesotans, which supports copper mining in the state, said the Supreme Court largely backed up the DNR.

"I think this is very much an affirmation this project will move forward to construction at the appropriate time," Norr said.

DNR Deputy Commissioner Barb Naramore said the agency appreciated the court's evaluation of its first efforts to apply Minnesota's nonferrous mining laws.

Naramore said the agency was not avoiding anything but using a "performance-based" framework where the permit doesn't fix an end-date but remains in effect until the company meets its obligations.

She called the scope of the court's remand "very specific." The DNR is still reviewing it, she said, but isn't likely to take up all the issues the Court of Appeals said were unresolved.

Those issues include, for example, the safety of the upstream design of the tailings dam, whether the financial assurances are adequate to cover future pollution, and whether Glencore's name should be on the permit.

"I'm hard-pressed to imagine why we would revisit those," Naramore said.

Staff writer Greg Stanley contributed to this report.