Why is state only now taking action on Twin Metals mine?

The state's governor may not have killed the proposed Twin Metals copper, nickel and precious metals mine project in northeastern Minnesota, when he said this week that he doesn't like the environmental risks.

But he sure wounded it.

It's all about where the project is, not even 10 miles from Ely, the jumping off point for the Boundary Waters Canoe Area Wilderness. It's simply too close to the BWCA, Gov. Mark Dayton reasoned, to have the worrisome risks of sulfide mining.

Of course, that proximity to a wilderness area was well understood back in 2006, when two state agencies decided to loan money to one of the exploratory companies, called Franconia Minerals, working on what became Twin Metals Minnesota.

It was well understood in 2005 when a Canadian company called Wallbridge Mining spun off a separate company to work on what became the Twin Metals project.

The canoe area wilderness was well marked on the maps in 2001, too. That's when Wallbridge had gone ahead with its investments in the area.

This decision on the part of the state's political leadership to not allow sulfide mining next to a wilderness area may be justified, but it sure would've been nice to have had that policy in place before miners put in thousands of hours of work and invested hundreds of millions of dollars.

The governor's staff declined to discuss his decision beyond what was in his letter to the company, which explained that he had directed the state not to enter into any more access agreements or leases for the project.

His letter pointed out that he also told the federal Bureau of Land Management of his "strong opposition" to mining there, and this week the Department of the Interior released a little bombshell of its own. As it turned out, the department's solicitor wrote, the company doesn't have the automatic right to renew leases with the BLM, leases that go back all the way to 1966.

This Twin Metals news likely took the mining industry by surprise, as what's been getting all the attention lately is the permitting process for PolyMet Mining, another so-called "junior" mining operation.

There are a lot of differences between what PolyMet is working on and the Twin Metals project, starting with the fact that PolyMet's proposed operation is at the southwest end of the chain of copper, nickel and platinum group ore deposits miners hope to dig up. That puts it far closer to the heart to the traditional iron mining of the Iron Range.

The water at the PolyMet site flows southeast toward Lake Superior. At the Twin Metals site, it flows toward the BWCA.

Polluted water is a legitimate worry with copper and nickel mining, as bringing up the sulfide ore that contains the metals brings it into contact with water, forming sulfuric acid that in turn dissolves other minerals into the water.

What Twin Metals had in mind, of course, was a mining operation that would keep the toxins out of the lakes and streams of the BWCA.

Given the headlines over the last few years related to PolyMet and now Twin Metals, Minnesotans might be surprised to learn that the idea of mining here goes back more than 60 years. It took two junior mining companies to pick up the idea and try to make it a reality.

Both became publicly held corporations and in neither case did their investors make huge gains. And here's where the state of Minnesota's involvement in the project gets interesting, because one of the stockholders that ended up losing money in this deal was the state of Minnesota.

Like a lot of economic development projects, this one takes a little bit of explaining. It started when the Iron Range Resources and Rehabilitation Board and the state's Department of Employment and Economic Development decided to loan Franconia Minerals money in 2006 to help develop its operation.

The loan was paid off when Franconia merged in 2011 into the other little company working in the area, Duluth Metals, and that's when the state agencies decided to exercise their stock warrants, a form of option, related to the loan. In a burst of optimism for the future of mining, they actually bought stock in Duluth Metals.

The state agencies ended up losing, together, more than $500,000 on their stock deal, according to an analysis in the Duluth News Tribune.

These agencies did about as well as other investors. Duluth Metals did what it could to keep its project moving forward, but it eventually sought a partner and ended up with the big Chilean firm Antofagasta holding a minority stake in its main ore deposit.

In late 2014, with the global commodities markets sliding and the odds of getting to the finish line getting longer, Duluth Metals agreed to be acquired by Antofagasta for $.45 (in Canadian dollars) per share, well below the initial public offering price from nearly 10 years ago.

In its short history, Duluth Metals had invested $189 million in its mining projects, based on its last published balance sheet before its sale to the Chilean firm was announced.

At 45 cents a share, it could be said that at least the public shareholders got out of a dead project alive, although as of this writing it's not clear the governor's action has killed the project. If the BLM decides not to renew leases, however, that could be the end.

Antofagasta was reviewing the situation and wouldn't have anything to say about the governor or the BLM this week, according to a spokesman for its Minnesota unit.

It's important to note that Antofagasta is a multibillion dollar company. It has financial staying power and it now has, according to its spokesman, about $350 million already sunk into this deal. It is unlikely to leave the state quietly.

The biggest unanswered question isn't what the company is going to do, though, it's why the governor took action now on a project that's been in the works for years.

Maybe an equally valid question is why the mining industry took the political risk. These junior miners have been trying to get a copper mine operating here for years, scrambling for capital to keep going and all the while not knowing if mining for copper and nickel would ever be permitted.

One thing's for sure, of course. No mining company in this state will ever take that kind of risk again.

lee.schafer@startribune.com • 612-673-4302