St. Charles, Minn., ponders future as sand mining takes off

ST. CHARLES, Minn - Nestled in a trout stream paradise between Rochester and Winona, this picturesque town has long been known as the "Gateway to Whitewater," a nearby state park known for its stunning ravines.

Before long, it could be the gateway to Minnesota's new mining frontier.

Local investors have floated a $55 million to $70 million proposal -- as large as any in the country -- to build an industrial processing plant and rail depot that would convert St. Charles into a regional hub for the nation's burgeoning frac sand industry and open southeastern Minnesota to what could be a sand mining frenzy.

The proposal could make millionaires out of lucky landowners and transform a quiet corner of the state that yearns for greater economic diversity. With a series of local mining moratoriums set to expire in the coming year, a deluge of other frac sand proposals could follow quickly.

"All eyes are on St. Charles," said Mayor Bill Spitzer, who is cautiously receptive to the idea. "This could be like the Iron Range of southeastern Minnesota."

At the same time, the prospect is stoking opposition among citizens from Red Wing to La Crescent, who envision their tranquil bluff region pockmarked with strip mines, scenic roads overrun by the rumble of heavy trucks and groundwater tainted by industrial waste.

"People like to go to Lanesboro for the weekend, but they won't want to drive through Mars to get there," said Barb Nelson, an anti-sand activist in Winona County.

"It's a big social-economic struggle," said Fred Troendle, a certified financial planner in St. Charles who is fighting the proposed plant -- even though he serves clients who could become rich from selling their sand.

"It looks like St. Charles is going to be the epicenter of everything that is going to happen in the state," said Dave Christianson, state planning director for the Minnesota Department of Transportation.

Hydro-fracking takes off

Wisconsin and Minnesota contain vast holdings of the world's most sought-after frac sand -- the spherical, high-strength Northern White Sand that oil and gas drilling companies use in the process known as hydro-fracking.

Both states have so-called "legacy" producers who have supplied the ancient quartz to energy companies for generations. The industry was bumping along quietly until just a few years ago, when hydraulic drilling activity exploded in a rush to extract domestic oil and natural gas from vast underground shale deposits in Pennsylvania, Texas, North Dakota and elsewhere.

Some crude economics help explain the industry's force.

For the average farmer in either state who happens to sit on high-grade sand close to a processing plant, payments of $1 to $3 per ton for excavated material can reasonably add up to $200,000 to $800,000 per year in extra income.

By the time a load gets refined to grains of pure crystalline silica and delivered to a drilling field, Big Oil will pay more than $60 a ton for it -- sometimes up to $300 a ton, including transportation costs.

The markups create a lot of paydays for people in between and have created a speculative land rush on either side of the Mississippi River from Osceola to south of Winona.

"All of a sudden, this basic mineral looks really good to a lot of investors," said Brian Olmen of Kelrick LLC, a veteran industry consultant.

St. Charles is no dying community. The town's population has doubled to more than 3,000 in the past 20 years, and its classrooms are crowded with kids. Fresh flowers and civic banners hang from the street lamps, and a new Park 'n Ride has replaced a trailer park that got washed out in the flood of 2007. The transit facility is central to St. Charles' identity as a bedroom community dependent on jobs in Rochester, Winona and La Crosse.

But there's also an empty block on the town's main street where the biggest local employer, North Star Foods, burned to the ground in 2009. The company chose not to rebuild and no replacement has emerged, despite a brand-new industrial park near Interstate 90, also empty.

One day recently, Mayor Spitzer pointed across a 300-acre soybean field on the fringe of his city where the investor group, known as Minnesota Proppant LLC, wants to build its plant -- with no financial assistance from the city.

"Every community wants to develop an economic development safety net," Spitzer said. "This is an economic engine that could move St. Charles forward."

But, even for him, it's no slam dunk. He's protective of the town's image as a nature and outdoor recreation haven.

The site hinges on its proximity to an active rail line that sides the property -- rare infrastructure in a part of the state that lost most of its railroad network in the 1970s. From St. Charles, unit trains of more than 100 cars each could roll directly to North Dakota's Bakken oil formation, a high-demand area that many Wisconsin sand plants can't easily reach.

Foes and supporters say the Minnesota Proppant facility would rival the frac sand processing center in Chippewa Falls, Wis., owned by EOG Resources Inc. of Houston, Texas. Since EOG's plant opened in 2010, more than 10 other frac sand operations have cropped up in the surrounding county, transforming the hometown of the fictional Annie Hall into a nationally recognized mining center.

"We would be one of the biggest in the country, for sure," said Stuart Hagen, Minnesota Proppant's lead investor.

Bowling pals

Despite the allure, Spitzer -- a deputy sheriff by day -- is reminded daily of the opposition.

"The people in our area want it stopped. Period," said Ruhberg, who has led two votes against a hypothetical transfer of township property where the plant would sit. The city has the power to take the land by annexation, but only at a rate of 120 acres per year, and the mayor is hoping for a negotiated agreement.

Travis Lange grew up in St. Charles and returned after years in training to be an architect. His 50-mile daily commute to an office in Rochester is the price he pays for his dream of raising a family in a small town blessed with quality schools. If Minnesota Proppant builds its plant, he said, the industry would converge as it did around Chippewa Falls and spoil the area's quality of life and public safety. He worries about heavy truck traffic, the threat of silicosis from sand dust and possible contamination of groundwater.

"We'd be getting all the sand from miles away," said Lange, who helped form Concerned Citizens for St. Charles to rally against the proposal. "Who's to say this isn't going to turn into a 600-acre monstrosity three years from now?"

For now, Minnesota's biggest hub for frac sand processing and shipping is Winona, 20 miles east of St. Charles. But, crowded between bluffs and the Mississippi River, it has limited capacity, and city officials say mine operators in western Wisconsin are already on the brink of exhausting Winona's capacity.

Jason Gilman, director of Winona County's Planning and Environmental Services, agrees that St. Charles has the logistics to be a major hub.

'Hunting buddies'

Once the annexation issue is settled, it would be up to the city -- not the county -- to issue the required conditional use permit. County authority might be limited to reviewing the company's environmental impact worksheet, a work in progress.

None of four Minnesota Proppant owners contacted by the Star Tribune would reveal the major investor who is reportedly waiting in the wings to finance the project.

Spitzer said people in St. Charles are guessing the money will come from an energy company, but the city can't compel more details. So far, the city has been given the names of eight men from Minnesota and Wisconsin who constitute Minnesota Proppant's ownership group.

Jennifer Dessner, a spokeswoman for the company, described the existing owners as "a bunch of hunting buddies" who will be looking for additional investors.

Hagen said his group has been responsive to the public about the project and wants to move ahead. "I feel we have mitigated all the public concerns," he said.

Another investor, Chad Nolte of Spring Valley, Minn., is a land surveyor and lifelong resident of Fillmore County. He said the group is committed to the project not only out of self-interest and for the good of the area's economy, but for the benefit of all Americans.

Fracking makes the country less dependent on foreign oil, he said.

"Lower fuel prices, lower groceries, lower everything," Nolte said. "There is absolutely nothing harmful that is going to come out of this. This is a good thing. It really is."

Tony Kennedy 612-673-4213