Crow Wing Power's $20-million-plus investment in manganese mine raises questions

EMILY, Minn. – Ten years ago, Brainerd-based Crow Wing Power entered the mining business, an unusual move for an electricity cooperative. After multimillion-dollar investments, the mine has yet to pan out.

The power company bought a manganese reserve in nearby Emily, Minn., with an initial cash outlay of $4.5 million and, eventually, another $18 million. The deposit had promise: Economically minable amounts of manganese are scarce in the U.S., and the mineral is important in the burgeoning battery market for electric cars and electronic devices.

Crow Wing, a nonprofit company, figured the mine would be a moneymaker and an asset for its customers and the communities it serves in north-central Minnesota. Crow Wing's top leaders at the time of the purchase — including its current chief executive — saw an extra incentive, too, in the form of royalty payments should the mine start operating.

A processing plant was built next to the mine site. Yet the manganese still lies deep in the ground.

"They are not putting it in motion," said Steve Carlton, whose family owned the manganese deposit for decades and sold it to Crow Wing Power and who also leads a group that retains royalty rights to 38.75 percent of the mine's net profits. "They have just got it in mothballs."

Bruce Kraemer, Crow Wing Power's longtime CEO, rejected that notion: "We are working on it every day."

Crow Wing Power, which had more than $68 million in revenue last year, serves 38,000 mostly residential customers in Cass, Crow Wing and Morrison counties — the heart of lake country. It's one of the state's many electricity co-ops, which are owned by their "members," its customers in other words.

"It's not like we woke up one morning and said, 'Let's go mining,' " Kraemer said.

But the co-op sensed a big opportunity in the Emily manganese reserve. "We thought we had the ability to do it right, do it environmentally friendly and do it for our members," he said.

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 is one of only two in the country that are large enough "to be significant on a national scale of manganese demand," according to the U.S. Geological Survey.

Crow Wing owns a for-profit subsidiary called Hunt Enterprises that has funded the Emily mining venture. Around 2000, Crow Wing Power financially rescued a troubled but promising Minnesota company called Hunt Technologies, taking a majority ownership stake.

Hunt, a maker of electricity metering equipment, was sold in 2006, and Crow Wing Power profited nicely. The co-op distributed $12 million of the windfall to its members and used another $5.2 million for improvements on its system. A sizable chunk of the proceeds also went to Hunt Enterprises.

From 2009 to the end of 2014, Hunt contributed $22.7 million to Crow Wing Power's mining subsidiary, the for-profit Cooperative Mineral Resources. Kraemer is the CEO of both Cooperative Mineral and Hunt Enterprises.

If the mine succeeds, Kraemer would receive 1 percent of its net profits, according to a royalty agreement obtained by the Star Tribune. Two other Crow Wing executives, now retired, received the same 1 percent royalty. Another 2 percent of royalties was left "undesignated" to Hunt Enterprises.

Kraemer said the royalty is "just an incentive" and comes at no cost to Crow Wing Power's members. Crow Wing Power's board of directors authorized the royalty payments, Kraemer said. Co-op members were "probably not" told about the incentives, but compensation matters are usually not disclosed to them, he said.

Crow Wing's service territory covers part of the old Cuyana Iron Range, which for 80 years churned out iron ore particularly rich in manganese. Steelmakers loved the stuff because manganese is a critical ingredient in hardening steel. To this day, the primary market for manganese globally is the steel industry.

Geologists have long known about the Emily manganese deposit, and Steve Carlton's grandfather, C.C. Carlton, was one of the first. C.C. worked for Pickands-Mather — an iron-mining company that operated for decades in Minnesota — and helped discover the Emily lode in the 1940s.

Pickands-Mather tried to develop a manganese mine, but by the 1950s the firm had shifted its attention to the new taconite mining ventures on the Mesabi Iron Range, Carlton said. Steve's dad, D.W. Carlton, who also worked for Pickands-Mather, then bought the property from his employer.

"He knew there was value in the minerals right from the start," said Steve Carlton, who worked in construction as a millwright back in the 1970s, and has since been an entrepreneur and inventor.

In the 1990s, he and a group of mineral researchers began investigating the possibilities of his dad's land. Carlton determined a mine would not be competitive selling commodity manganese to steel companies. So, he aimed to serve specialty markets for higher-grade manganese.

He and his research group developed a manganese-based sorbent to scrub pollutants from coal-fired power plants emissions. Duluth-based Minnesota Power tested the technology at its plant in Cohasset, and even invested in Carlton's scrubber company. But Minnesota Power never adopted the technology.

The scrubber sorbent did not catch on commercially, but it — and the Emily mine — caught the eye of Crow Wing Power executives. Even as the sorbent idea faded, the company and Carlton eventually saw potential in supplying the battery industry.

Lithium-based batteries that contain manganese power everything from medical devices to tools and electric cars (including the Chevy Volt and the Nissan Leaf). Manganese is a key component, too, in Tesla's Powerwall home-energy storage systems.

To extract the Emily manganese, Carlton's group had a plan to use "borehole" mining, which is far cheaper and potentially more environmentally friendly than traditional mines. Through borehole extraction, water is shot into the earth under high pressure, forcing up a slurry containing the desired mineral.

But the borehole method failed at Emily in 2011. The manganese deposit was too hard: It didn't break up properly in a slurry. Crow Wing's mining arm, Cooperative Mineral, then terminated Carlton's group as a contractor on the project. Since then, the company has been planning an underground mine.

Cooperative Mineral in 2014 worked with two small Canadian companies — one a mining firm, the other a battery developer — to form a joint venture. But those talks fell apart in 2015. In the past couple of years, Cooperative Mineral has been collaborating with an Atlanta-based mining developer, also with the intent of forming a joint venture.

Meanwhile, a Minnesota investor affiliated with Carlton last fall offered to buy the manganese deposit for $20 million on a one-year purchase option. Kraemer said he "didn't even consider it an offer," seeing it "more or less a right of first refusal."

Earlier this year, Carlton said the investor raised his offer to $30 million, and shrank the purchase option window to six months. Kraemer said, "I really don't remember" the $30 million offer.

Carlton said by the time of the second offer, Cooperative Mineral was already set on working with the Atlanta-based mining developer. Kraemer thought "he could nail down a new deal," Carlton said. "But it's a nothing burger."

Mike Hughlett • 612-673-7003