A Canadian company has signed a deal with a global mining partner to develop a copper-nickel mine southeast of Ely, Minn., that would be larger than the controversial Polymet mine already planned on the Iron Range.

Unlike the Polymet operation -- a surface mine that environmentalists say threatens to pollute waters that run to Lake Superior -- the new mine would be underground. But its eastern edge would lie only a few miles from the Boundary Waters Canoe Area Wilderness, raising the possibility of any pollution quickly reaching the BWCA.

Known as the Nokomis deposit, the area is thought to be so rich in copper, nickel and precious metals that it could produce 40,000 tons a day -- possibly more -- for decades.

"We believe this project has the potential to be one of the biggest development projects in the United States in mining," said Christopher Dundas, chairman of Duluth Metals Ltd., the Toronto company that holds key mineral rights for the proposed mine.

Duluth Metals had entered into a joint venture called Twin Metals Minnesota LLC with London-based Antofagasta plc, which is furnishing $130 million to pay for feasibility and engineering studies.

Dundas said the money will make it possible for the companies to "talk to the state of Minnesota about a real project."

He said the total investment in the underground mine and above-ground processing plant could exceed $2 billion. That's two to three times the estimated cost of the Polymet copper-nickel mine near Hoyt Lakes.

Together, the two mines could bring new vibrancy to the Iron Range, where for decades taconite was king. But environmental groups have raised concern about both projects, because of worries about pollution from tailings.

Antofagasta, one of the world's largest mining companies with $188 billion in revenue last year, owns 60 percent of the Twin Metals joint venture and has rights to increase its stake. It also is loaning $30 million to Duluth Metals to cover its exploration costs, and would arrange overall financing if the project is deemed worthy.

Polymet, based in Vancouver and backed by Swiss mining giant Glencore, has proposed a $600 million open-pit mine. After five years of environmental study, the project faces further review because of pollution risks raised by the U.S. Environmental Protection Agency.

In an interview, Dundas said the ore from the proposed mine is 1,500 to 3,000 feet down. Originally, engineers considered using traditional vertical shafts, but new studies will consider building a 4- to 5-mile-long inclined tunnel starting at the mine's western edge, the farthest point from the BWCA, he said.

"We believe at this stage of planning that we can meet or exceed all of the state standards," Dundas said. "You are not really going to see or hear anything, because it is all underground."

With its financing set, Dundas said the venture is prepared to approach the Minnesota Department of Natural Resources and other agencies to discuss the timing of the environmental study, permit reviews and other matters. Regulatory review is expected to take several years.

Though Duluth Metals controls 3,000 acres of the deposit, the U.S. Forest Service also owns some of the land and mineral rights, Dundas added. Other land is held by private owners and the state of Minnesota, he said.

David Shaffer • 612-673-7090