HOYT LAKES, Minn. – After years of planning and contention, the derelict taconite complex in Hoyt Lakes is closer than ever to hosting Minnesota's first copper-nickel mining operation.
Backed by global-mining giant Glencore, PolyMet Mining Corp.'s executives are courting bankers for nearly $1 billion to finance the project, hoping to start construction next year. New concerns have blown up recently over one of PolyMet's environmental permits, though the company said it doesn't expect the mine's progress to be impeded.
"It's going to happen," said Jon Cherry, PolyMet's CEO. "It is so rare to get a fully permitted mine at this time in the United States."
Economically, PolyMet's multimetal approach looks like a winner, analysts say. The mine also plans to kick out platinum, palladium, cobalt and a dash of gold, and that diversity should help PolyMet weather the highly cyclical nature of various metal markets. In the long term, the copper-nickel-hungry electric vehicle market also could help.
Most important is PolyMet's long and close relationship with the sometimes-controversial Glencore and its global network of minerals smelting and trading.
"Having Glencore as a partner is the best thing that they have going for them," said Chris Berry, head of mining consultancy House Mountain Partners.
Switzerland-based Glencore has long been PolyMet's primary financier, and it's committed to buying the Minnesota mine's entire output. Glencore's participation is critical in securing the big money needed for the project, which is expected to employ 362 and could have a significant economic effect on the Iron Range.
The company may soon be PolyMet's majority owner, too. Glencore's current 29% equity stake in PolyMet could top 50%, depending on the outcome of a rights offering to PolyMet shareholders. In such a deal, all shareholders get a right to buy more stock at a prescribed price.
"Glencore's final ownership will have a bearing on how [the project] is financed," Cherry said during a tour of PolyMet's sprawling Hoyt Lakes property. The greater Glencore's ownership, the more debt financing PolyMet is likely to secure, he said.
"Glencore could directly finance this out of its treasury — they have the ability — though I am not saying they will," Cherry said.
Permits can take years
The hardest task in setting up a mining operation, though, is not raising money. It's securing the necessary environmental permits, analysts said. For PolyMet, the process took 14 years.
The company won its key state permits in late 2018, and it received clearance from the U.S. Army Corps of Engineers in March. Environmental groups — fearing water pollution from the project — have challenged some permits in court; one case was decided in PolyMet's favor last month.
Earlier this month, the U.S. Environmental Protection Agency's inspector general opened an investigation into how the agency handled a water-discharge permit for PolyMet. Environmental advocates said recently released records show the EPA and the Minnesota Pollution Control Agency suppressed some regulators' concerns over the mine's pollution risks.
A PolyMet spokesman said the issue "doesn't affect the standing of any of our permits." The company plans to start construction soon after raising money, with the mine being operational by sometime in 2023.
Just over 15% of the mine's $950 million price tag is earmarked for water-management projects and improvements to the site's old tailings-containment system, according the company.
The tailings basin, which holds mine waste, came with PolyMet's 2005 purchase of the shuttered LTV Steel Mining property near Hoyt Lakes. So did large-scale electricity hookups, rail links and rolling stock. The old taconite-processing plant's crushing machinery can be used for other ores, too, with some tweaks.
The property gives PolyMet a leg up on other copper-nickel projects proposed for northeastern Minnesota, analysts said.
PolyMet is based in Toronto, but it is run from St. Paul by the 50-year-old Cherry, a mining-industry veteran and an environmental engineer by training.
Glencore began partnering with PolyMet three years after the Hoyt Lakes purchase. The Swiss company — which has worldwide interests in mines of all kinds and also is a big agricultural and oil trader — had a net income of $3.4 billion in 2018.
The company has its share of controversy, too.
It has been under scrutiny in some countries in connection with corruption allegations. In the United States, Glencore is being investigated by two agencies, including the U.S. Justice Department, regarding its operations in Nigeria and Venezuela and the Democratic Republic of the Congo.
But Glencore might be exactly what PolyMet needs to make the mine a reality.
"I think with Glencore's backing, PolyMet could probably secure debt financing from any number of banks that specialize in the mineral field," said David Hammond, a Colorado-based minerals economist. "The fact that Glencore has even gotten involved in this project over time — basically it's going to be their mine."
Glencore declined to make an executive available for comment, but said in a statement: "We support the long-term potential of the project."
Cherry wouldn't delve into financing details, other than to say funding is likely to include bank debt, bonds and equity. "Our goal is to minimize future equity and maximize debt," he added.
PolyMet's shareholders, which include 13,000 to 14,000 Minnesotans, should be glad to hear that. Even though a working mine is in sight, PolyMet's stock has fallen over the past year from $1 to around 40 cents, touching 14-year lows this spring.
"It's a bit of a puzzle," said Graham Davis, professor emeritus of economics and business at the Colorado School of Mines, who bought shares of PolyMet at around 75 cents a few years back. "I still think I am going to get a return on my money," he added.
Copper price swings may account for some of the stock's fall; the per-pound price of copper for much of the last year has been below PolyMet's financial forecast for the mine. But the shareholder rights offering also could have played a particular role in the stock's weakness this spring.
PolyMet first noted the rights deal in March, eventually saying it planned to raise $265 million in a stock offering to existing shareholders only. All shareholders get the right to buy 2.1 new shares for each share they own, with each new share priced at 39 cents.
Most of the proceeds will pay off debt owed to Glencore for financing PolyMet. If the debt is fully converted — along with 14 million Glencore warrants to buy PolyMet shares — Glencore will own 40% of PolyMet.
Glencore has backstopped the rights offering, meaning it will buy not only its allotted shares but any stock remaining if other shareholders do not exercise their rights. Thus, Glencore could end up with majority ownership when the rights offering is completed at the end of June.
Eventually, Glencore could just buy out PolyMet. The company did just that, though over a 20-year period, with a nickel mine in Australia.
Demand 'to go way up'
At PolyMet, copper is expected to provide 61% of revenue, with nickel and platinum-palladium group (PGM) metals each coming in at 18%. Cobalt, a highly prized mineral for batteries, should account for 2% of revenue. "It's the PGM metals that really puts this [project] over the top," Cherry said.
Palladium, currently trading at near 30-year highs, is chiefly used in catalytic converters for gasoline-powered automobiles. If electric vehicles take off like some expect, the long-term markets for palladium would seem suspect.
But copper and nickel demand in the long term are expected to be buoyed by electric vehicles. The main market for nickel is the steel business, but nickel is a critical component in electric-vehicle batteries. And electric cars can utilize up to 10 times more copper than internal-combustion vehicles.
"Everything we produce goes into those batteries, and the demand for those is going to go way up," Cherry said.