Woods Person: Thoughts and reports on what is happening in Wisconsin's Northwoods
Mercer business owner, John Sendra is running for a seat in the WI Assembly on the premise that we need high paying jobs here in the northwoods and that a mine in the Penokee Range would provide those jobs. This plank in his platform is a valid one, as most would agree that mining jobs would help to solve the low income problems of the North.
However, presented here is an alternative scenario. Let’s suppose that Wisconsin does pass new mining laws favorable to mining the Penokee Range, and let’s suppose a mining company gets a permit to mine the iron there. We agree with those who contend that mining in those hills will never occur despite those accomplishments. Residents of northern Wisconsin would then be the biggest losers, having lost environmental protection and gained nothing.
According to Encyclopedia.com, an “orebody” is: “an accumulation of minerals, distinct from the host rock, and rich enough in a metal to be worth commercial exploitation."
For the past year and a half a cantankerous old mining engineer from Baltic, Michigan, a miner from Cornwall, has been saying on this blog; “There is no orebody in the Penokee Range.” Yes, there is ore and lots of it, but not, according to the above definition, an “ore body.”
First, too many economic obstacles exist for mining there to be profitable.
Second, under today’s federal and state laws, in order for a body of ore to be mined, that ore must be located in an area in which the disruption to the environment will be minimal and reclaimable. The Penokee deposit has serious problems meeting that criteria.
And finally, the political climate must be favorable, which it is not in the Penokees.
To be an orebody, the ore must be easy and therefore economical to extract. According to this article the current factory cost ( labor, material, and overhead) for taconite in Minnesota and in Michigan is about $35 per ton. Consider that the infrastructure (power, roads, rail, manufacturing facility, permits, etc) for these competitors is already in place and paid for and has been so for the last 60+ years. A company mining in the Penokees will have huge start-up costs--for power to be generated either by building a plant or erecting transmission lines, for a manufacturing facility to be built, and for a 22 mile long water line to be constructed from Ironwood. The railways and roads leading to the mine site are insufficient to handle the traffic that will be created by an immense mining project. Even if extremely friendly laws are passed in Wisconsin, the federal permits required by the EPA, the Core of Engineers, the Forest Service, etc. will still take years and cost millions of dollars. All these costs do not have to be borne by the competitors.
The next obstacle to profitability of mining the Penokees is the position of the ore. The deposits in MN and MI lie flat, and once the covering overburden has been removed, the 500-600 foot thick deposits are laid bare—easily extractable. In the Penokees the deposit is standing on end, creating the condition that as more ore is removed, geometrically more overburden must be removed. Furthermore, the overburden in the MI and MN sites is a relatively innocuous material creating little environmental concerns. On the other hand, the Tyler Slate, which must be removed to access the Penokee deposit, has been shown to contain everything from merely annoying to environmentally catastrophic concentrations of sulfides which will have to be treated beginning at the time of removal on into perpetuity. Though this treatment is probably technically feasible, the huge cost for it, at least at this point in time, must be borne by the mining company—again an expense that MI and MN companies do not have.
Though we can’t predict exactly how much these obstacles add to the factory cost, mining economists say it could be well above $75 per ton. The question then becomes, “would a potential business investor invest 1.5 billion dollars to produce taconite when his cost of manufacturing would be twice that of his established competitor?” Answer: perhaps, because right now taconite is selling for $115 per ton. However, historically for the past 4 years that price has reached a low of $45 and high of $185. Added to that volatility is the fact that taconite is a commodity, and several huge Chinese taconite mines are coming on line in China and Australia where factory costs are well below those in the most efficient U.S. mines.
Potential investors in any taconite mine should also be aware that the U.S. is a small player in this market. Latest figures show U.S. production to be about 49 million tons per year and leading producer, China, to be producing upwards of 900 million tons per year, making it the Saudi Arabia of taconite and, therefore, able to control prices.
In addition to the economics of mining in the Penokees, the actual location of the ore in its surrounding environment must be considered. Besides standing on its head the Penokee deposit is located in a very environmentally sensitive area, the Bad River watershed. The mine property itself is crossed by several cold water trout streams including the federally protected Tyler Forks River and Bull Gus Creek. To complicate the situation further the 3750 acres adjacent to the mine proper, leased to the company from Iron County, is a virtual wetland, much of which is also currently protected by state and federal law. Finally, the mine property and its surrounding area lie in the Bad River watershed, which ultimately runs into Lake Superior.
Finally, the opinions and political power of the neighbors of the mine will be the third obstacle to mining the Penokees. The neighbors of this potential mine are in many cases strongly opposed to its existence. Certainly this is nothing new, as many mining projects go against public opinion. The residents of the town of Anderson and of the city of Mellen are apprehensive about the effects of this mine on their environment and their lives and may have the power to stop the mine. The neighbors to the north, the Bad River Band of the Chippewa most certainly do have that power. A fact that was widely overlooked during the last rounds of legislative efforts to write new mining laws was that the mine lies in ceded territory and as such is subject to tribal control, not through local law, not through state law, not through federal law, but through the overriding power of the Treaty. It is not widely understood that treaty rights supersede local, state and federal law. Although a compromise between the tribe and a mining company could be reached and the interpretations of the Treaty could be challenged in federal court, these activities constitute yet further expenses and obstacles for a company mining in the Penokees.
Therefore, given that the Penokee deposit will be expensive to mine, sits in an environmentally sensitive area and is not welcomed by many of its potential, infuential neighbors, why would a company pursue this venture? One need only read the historical sections in the Iron County Miner or in Bruce Cox’s writings on mining in the Gogebic, to see that lots of money can be made in mining without actually doing any mining
Author's Note: 9/26/12
Questions have been raised about the U.S. position in the world's production of iron. From the source link above, here are the top 10 producers (in millions of metric tons from U.S.G.S. world commodity report for 2011). Note that the U.S. makes up only 2.1% of the top 10 producers.
China: 900
Australia 420
Brazil 370
India 260
Russia 100
UK 72
South Africa 55
United States 49
Canada 35
Iran 33
Total: 2294
It is also worth noting that if every tiny spec of the whole 22-mile-long Penokee deposit were removed and refined (not possible, by the way) it would be less than one year of world production. One mine economist said, in fact, that the Penokee deposit may well be of more value as a U.S.strategic reserve than an active mine.
Next, Part II -- Why they’re hangin ‘round