Controversial Crow Wing Power mine project inches forward

EMILY, Minn. — A drill burrows through the earth 24 hours a day, extracting rock samples in a hunt for industrial treasure.

It's the first sign of life in over a decade for Crow Wing Power's ill-starred quest to mine manganese, a key ingredient in electric vehicle batteries.

North Star Manganese, the company that leased the project from Crow Wing, does not yet know if it is commercially viable.. And North Star and its thinly traded corporate parent will need hundreds of millions of dollars to bring any mine to fruition — a tall order.

Meanwhile, Crow Wing Power, an electricity cooperative, still faces an investigation by the Minnesota Attorney General's Office, just when it appeared the four-year-old inquiry might be dead.

"It is apparent that the Attorney General's Office is paying attention to the various allegations that the accountability group has made," said Rick Nolan, a former U.S. representative and a leader of the Crow Wing Power Accountability Group, which has pushed for scrutiny of the co-op's governance.

The AG's office in December sent Crow Wing a battery of questions about transactions and contractual agreements connected to the mine project.

Char Kinzer, a spokeswoman for Crow Wing Power, said the co-op has responded to the attorney general's questions, which she characterized as "pretty standard." As for the investigation, "there's really nothing there," Kinzer said.

The mining project will go on regardless of the state's inquiry. "It doesn't affect us," said Rick Sandri, North Star Manganese's CEO. "We are doing everything we are supposed to be doing under our agreements and under the law."

Manganese needed for EV future

The U.S. depends completely on imports of manganese, and the nation's last manganese mine closed in the early 1970s. The Emily manganese deposit could support a mine — a rarity in the U.S.

"I think we are the highest-grade manganese ore in the Northern Hemisphere," Sandri said. "It potentially could be pretty sweet."

Crow Wing Power sensed a manganese opportunity and in 2008 secured mineral rights and bought property near Emily.

Crow Wing provides electricity to 40,000 customers in Cass, Crow Wing and Morrison counties. It's one of the state's many electricity co-ops, which are owned by their member customers.

The nonprofit co-op funded a nearly $25 million investment in the mine through a for-profit subsidiary, Hunt Enterprises. Hunt had reaped a financial windfall in 2006 after rescuing and then selling Hunt Technologies, a Minnesota maker of electric metering equipment.

Controversy began roiling in 2018 after the Star Tribune disclosed that Bruce Kraemer, Crow Wing's CEO, and other top co-op executives had an undisclosed agreement to personally receive royalties from the mine should it become a reality.

In 2019, Crow Wing's board acknowledged that some directors had altogether taken $70,000 in undisclosed payments connected with the 2006 Hunt sale. With rumors raging, the co-op then revealed that Kraemer had gotten a $1.9 million bonus for the Hunt transaction.

Attorney General Keith Ellison's office launched an inquiry into Crow Wing in 2019, but little was heard for years.

"I thought it had gone away myself," said Paul Koering, a Crow Wing Power board member since 2016. Still, Koering said he doesn't "think any illegal action has occurred or is occurring. If I thought it had, I would have certainly sounded an alarm."

Members of the Crow Wing Accountability Group — spearheaded by about a half dozen of the co-op's customer-members — have held several meetings with Attorney General's Office staffers, including one late last year.

"I have sat in on virtually all of them," said Nolan, a Crow Wing Power member from Nisswa. Nolan has been particularly active in the accountability group, criticizing the transparency of the co-op's leadership. "As members, we know nothing."

Ellison's office sent 11 detailed questions to Crow Wing Power's board in mid-December. They included queries about compensation or benefits that officers and directors may have received relating to the manganese deposit or from Crow Wing's for-profit subsidiaries.

The Attorney General's Office said it cannot confirm the existence of any investigation.

Crow Wing Power's plan

In 2011, Crow Wing's for-profit mining arm, Cooperative Mineral Resources, tried "borehole" mining to extract manganese, injecting pressurized water underground to force up a mineral slurry. It failed. Crow Wing then searched for a private company to develop the mine.

"Over the years, there have been a lot of courtships," said Crow Wing's Kinzer. In 2020, the co-op signed a deal with North Star Manganese. "These people really seem to have the knowledge and ability to carry this thing through," he said.

North Star's plan: an underground mine and a plant to process manganese into a form that battery makers can use.

North Star has a 50-year lease, and mining and sales agreements, with Cooperative Mineral Resources. "They are managing everything we own, and they take all the carrying costs," Kinzer said. "Cooperative Mineral Resources isn't putting money into anything anymore."

If mining commences, North Star would work under a cost-plus-15% contract, meaning it gets paid for its costs plus a 15% markup, according to a filing with Canadian securities regulators.

North Star in turn would pay Cooperative Mineral Resources for the raw ore it mines. Cooperative Minerals would also get roughly 10% of the profits from North Star's sale of processed manganese.

Those profit payments would come in two 5% tranches — the second with a $13.5 million cap. North Star Manganese also has an option to buy the project for $30.25 million at any time until the mine and any processing facility starts operating.

Nolan called the agreement excessively favorable to North Star Manganese. "It's giving away the whole store," he said. ... They are squandering an incredibly valuable asset."

In a statement, Crow Wing Power's attorney said the co-op's subsidiaries "stand to make a good profit and recover the initial investment in the project."

How North Star fits in

Sandri, who lives in Cottage Grove, founded North Star Manganese along with Gary Lewis of Sydney, Australia. Lewis worked in the pharmaceutical and food industries before turning to natural resources in 2006, according to a filing with Canadian securities regulators.

Sandri is a minerals economist and executive who has worked on myriad projects in dozens of countries over 45 years.

He was CEO of Duluth Metals until 2010 when it was taken over by Twin Metals, a company owned by Chilean mining giant Antofagasta. Twin Metals is trying to develop a controversial copper-nickel mine in northeastern Minnesota.

North Star Manganese is owned by Nevada Silver, whose stock trades in Canada for about 20 cents. Toronto-based Nevada Silver plans to rechristen itself "Electric Metals" to reflect the Emily project, which is its main asset.

Sandri also is Nevada Silver's chief operating officer and owns about 8% of its shares; Lewis, the firm's CEO and largest shareholder, has a 17% stake.

Lewis and Sandri had previously worked together at Battery Mineral Resources Ltd., a mining company that Lewis founded in 2016. By early 2019, Battery Mineral Resources began to experience cash flow problems.

With its major shareholders concerned about Battery Mineral's "increasingly dire financial situation," Lewis was "stood down as CEO" in July 2019 and removed from the company's board a few months later, according to Australian federal court records.

After that, Battery Mineral Resources filed for an Australian form of bankruptcy reorganization.

Mining economics

Nevada Silver is what's known as a "junior mining" company, dedicated to exploration. It raised $3.5 million in a recent stock offering, money largely aimed for a manganese drilling program.

About 70 exploratory holes were drilled near Emily, mostly in the 1940s and 1950s by two iron mining companies, including U.S. Steel. They found high manganese concentrations.

North Star has data from those exploration efforts. But it still must drill many more holes — a process that could take a few years — to determine if manganese can be economically mined. North Star began drilling in February.

"We are in that first level of investigation to see if we have a deposit of size and merit to go to the next steps," Sandri said.

Nevada Silver will likely need to raise more cash to continue exploration. But obtaining the vast sums needed to actually build a mine would be far more difficult.

Junior miners with a promising project often try to find a partner or acquirer in a large mining company with deep pockets. That's the model for PolyMet, which is trying to build a copper-nickel mine in northeastern Minnesota and is largely owned by Swiss mining giant Glencore.

"It's going to take a big mining company to get the $200 million to $500 million to open a mine," said Bryan McCulloch, a Crow Wing Power board member.

And even if the money is raised, new mines in Minnesota — like PolyMet's and Twin Metals — have faced fierce opposition during the permitting process, McCulloch noted.

"I really hope it succeeds," he said, "but I don't really see it."