The combination of two large copper-nickel projects in northeastern Minnesota could bolster the financial strength of each as costs to build new mines have surged.
PolyMet, Teck complete Minnesota copper-nickel mine merger
The companies' joint venture comes as mine construction costs have risen sharply — but so have expectations for increased mining revenues.
February 15, 2023 at 4:06PM
PolyMet, owner of the proposed Minnesota hard-rock mine closest to becoming reality, completed on Wednesday a 50-50 joint venture deal with Teck American. Teck's project next door to PolyMet is still in its early stages and has not begun the permitting process.
With the deal's closing, PolyMet and Teck will each infuse $85 million into the joint venture, which has been dubbed NewRange Copper Nickel.
That cash will be used "to get a shovel in the ground" for PolyMet "and to further study possibilities for the Teck property, said Bruce Richardson, a spokesman for PolyMet, which is registered in Canada but headquartered in St. Paul.
Over 70% of PolyMet is owned by Switzerland-based global mining giant Glencore, which will make PolyMet's cash contribution to the joint venture. Teck American is a subsidiary of Canadian mining heavyweight Teck Resources.
The joint venture will control all assets, liabilities, mineral rights, permits and financial assurance obligations of both PolyMet's and Teck's Minnesota projects. Financial assurance refers to money companies put in escrow for future environmental remediation.
"Nothing changes in terms of the obligations and commitments with the permits and financial assurance," Richardson said.
PolyMet's project has long been delayed by battles with environmental groups over permits. Three major permits are still being hashed out by courts and regulatory agencies. The delays have been costly for PolyMet.
The first phase of PolyMet's proposed mine is now expected to cost $1.2 billion, up 27% from the company's 2018 estimate, according to a recent regulatory filing. The second phase — bolstering the mine's ore processing operations — would cost $326 million, up 26%.
Inflation has primarily driven those increases, Richardson said. However, the extra costs are expected to be tempered by increasing revenue from rising metals prices.
PolyMet's latest long-term forecast shows higher prices for copper, nickel and other metals compared with its 2018 forecast. The stronger forecast is driven largely by soaring demand for copper, nickel and cobalt, which are used in electric vehicles.
Related Coverage
The upshot: Despite higher costs, PolyMet last year raised its projected internal rate of return on the mine's first phase to 10.5 %, up from 9.6% in 2018, Canadian regulatory filings show.
PolyMet and Teck's partnership is aimed at boosting cost efficiencies for both companies.
PolyMet already has ore processing infrastructure in place at its Hoyt Lakes location, the former home of a taconite operation. And Teck has a proprietary mineral processing technology.
Teck's property is only about 1 mile northeast of PolyMet's. That proximity has alarmed environmental groups that oppose PolyMet and who say the joint venture is a "bait and switch" tactic to expand the mining industry. Environmental advocates say PolyMet's mine plans threaten to pollute water with toxic acids and metals.
PolyMet opponents also point to Glencore's checkered past. Last year, Glencore admitted guilt in bribery and corruption charges and agreed to pay nearly $1.2 billion in a settlement between the company and prosecutors in the United States, Britain and Brazil over Glencore's operations in the U.S., the Democratic Republic of Congo, Venezuela and Nigeria dating back to 2018. In November, the company was fined $314 million for bribing oil officials in Africa.
Glencore, in addition to paying PolyMet's $85 million joint venture contribution, will cover about $100 million in "certain other costs and expenses," PolyMet said in a press statement.
That money would largely pay off PolyMet's debt through another equity rights offering, which would in turn increase Glencore's ownership of PolyMet. Glencore will also get a say in "decision-making matters" of the joint venture, the press statement said.
The joint venture's general manager will be Tannice McCoy, a 21-year Teck veteran who has supervised the company's Minnesota project from its Vancouver headquarters. She is expected to move to Minnesota.
Jon Cherry, PolyMet's CEO, will remain in that position and will be the initial chairman of the joint venture's six-person management committee. Each company appoints three directors; two of PolyMet's are Glencore representatives.
Passenger volume at Rochester International Airport is down nearly 50% since the start of the pandemic as travelers migrate to MSP for cheaper flights without layovers.
