An Industry Is Aborning: Nickel Mining in Michigan
By Jack Lifton
18 Jan 2007 at 03:40 PM EST
resourceinvestor.com
DETROIT (ResourceInvestor.com) -- Michigan’s Department of Environmental Quality (DEQ) has recommended that a permit be issued for the construction of what is to be the only primary nickel mine in the United States to the Kennecott Eagle Minerals Company, an operating entity of Utah’s Kennecott Minerals, which is itself a wholly owned subsidiary of Britain’s Rio Tinto Group [NYSE:RTP; LSE:RIO].
The Michigan Upper Peninsula (UP) project’s timeline is illustrated by the graph below, which is the current, and probably final, version of the project timeline, originally presented to Michigan’s DEQ, as illustrated in a detailed and very interesting PowerPoint presentation, available freely on the Internet, of the company’s plans dated April 2004, eight months before Michigan’s governor signed the legislation that made it possible on December 27, 2004.
How did this come about? In 1994, a politically motivated, and pressured by environmental lobbyists, Michigan state legislature passed a comprehensive Environmental (Protection) Act, which immediately brought to an end not only the remaining ferrous and nonferrous mining industry in Michigan, but also stopped further prospecting and new mine development. In 1994, Michigan’s and America’s dominant heavy industry was the OEM automotive industry, which produced then nearly 2/3 of all of the cars and trucks sold in the U.S., had revenues amounting to between 5% and 10% of America’s GDP, and routinely made a total profit measured in the billions of dollars per year. Life was good in Michigan especially for automotive industry executives and the OEM automotive industry’s hundreds of thousands of workers and managers.
In the ensuing decade, from 1994 to 2004, Michigan’s dominant industry shrank to the point of collapse under the weight of globalization. Bankruptcy was routinely put forward as an option. American OEM auto industry executives said that the low labour costs, particularly enjoyed by Asian manufacturers, were crushing an American industry that had an irremovable baseline “legacy” cost for labour, pensions, and healthcare due to, what could only now be seen as, overly generous commitments made during the American auto industry’s halcyon days, which the managers of the time had thought would never end.
The CEOs of the American OEM automotive industry in 2004 had been hired, trained and promoted by the same CEOs whose legacy-creating decisions they now blamed for their industry’s woes. They still, however, thought exactly the same way as their predecessors. Namely that short-term fixes would hold everything in place until the market “cycled” for them. All of this market turmoil, they believed, had happened before and would happen again. Their thinking therefore remained short sighted and fixated on pleasing Wall Street’s increasing focus on short term gains.
For example, they ignored, and thereby maintained their own disastrous corporate legacy of not planning for risk management of raw materials. No financial staff were allocated to risk management of anything other than foreign exchange and only one American OEM automotive manufacturer, GM [NYSE:GM], even had ever had a professional group within its purchasing operations that oversaw the purchasing and risk associated with the acquisition of precious metals for catalytic converter production and of base metals used in production for which there was a futures market in which to hedge (e.g., copper, aluminium, nickel and tin).
The divesting of their parts operations by the American OEMs in the late 1990s masked for them finally and almost completely the issues of raw material availability and price volatility. They became someone else’s problem. Once these issues were twice removed they were basically ignored by the Big (Two) Three’s top management.
Luckily, the ordinary people of Michigan had decided for themselves during this same time period that term limits should be enacted for election to the state legislature in order to break the cycle of the reinforcement of bad or stale ideas in government. It’s a shame that the OEM American automotive industry hasn’t even today yet come to this conclusion.
Thus, there were very few, if any, men and women in Michigan’s state legislature in 2004 who had been in office in 1994. This (2004) legislative group was open to reviewing past legislation that had generated unintended consequences. A group of such legislators, some from Michigan’s resource rich UP, had noted that in the 10 years since the passage of the (Michigan) Environmental Act of 1994 the UP had lost jobs, professionals such as doctors and dentists, hospitals and service industries. They noted that the health, safety and well being of their constituents had actually been degraded not enhanced by the economic consequences of the operation of the law as written.
They then set about to see if they could create a new paradigm that would not in any way reduce the health, safety and well being of their constituents, but would enhance it through bolstering the UP’s economy to create jobs and entice back the professionals and services that had abandoned the area.
The unilateral dismemberment and destruction of the American natural resources development and production industry by environmentalists who have little or no regard for America’s economic future was, hopefully, dealt a setback by this bipartisan effort of the Michigan legislature to begin the revival of the state’s once substantial mining industry.
Michigan’s new mining law is, officially, an amendment to its very tough 1994 Environmental Act that effectively shut down what then remained of the state’s copper and iron mining industry. A main issue at that time was that commercial near surface deposits of “native,” i.e., elemental, copper had been exhausted along with non-sulfide deposits of high grade iron ore in Michigan’s Upper Peninsula, the UP, as it is locally known.
The existence of commercial deposits of high grade sulfide ores of copper and lower grade ores of iron in the UP was well known, but environmental fervour in 1994 conflated sulfide with noxious sulfur dioxide and corrosive sulfurous and sulfuric acids produced not only when the ores were “roasted” to begin the smelting process, but also over the long term by oxidation of the ores and residues when and if exposed to the oxygen in the air.
A turning point though came when Kennecott Minerals discovered and mapped a high grade ore body in Michigan’s Marquette County near the southeastern shore of Lake Superior, and found it to contain more than 3% each of copper and, to their surprise, nickel, both in the form of sulfides. The 4-6 million tonne ore body, at current, January 18, 2007, market prices thus contained between $4.2 and $6.1 billion of recoverable value.
Michigan’s 2004 legislature beset by the collapsing OEM American automotive industry and the concomitant collapse of Michigan’s economy was open to new ideas, and, as it turned out, to the revival of old ideas made safer and cleaner with modern technology. The legislature was much more willing to listen to both sides of the environmental argument in 2004 than its predecessor had been in 1994.
The Environmental Act of 1994 was amended to enable natural resource companies to present their solutions to issues raised by environmentalists and to give Michigan’s Department of Environmental Quality, the DEQ a requirement that it fairly consider the efficacy of proposed solutions to specific problems rather than just reject the proposals outright as the environmentalists wished, since they seem to believe, many in an almost religious manner, that no solutions can ever be found either to problems of health and safety for human beings or of danger to unique species of plants and animals.
Smaller mining companies still avoided working in Michigan, because even with the advent of modern safe and environmentally satisfactory technology the costs of fanatic opposition measured as litigation costs were prohibitive.
One major company, however, the Rio Tinto Group, a global giant, which is one of world’s three main producers of iron ore, which has soared in price in this century, thought Michigan’s UP well worth another look. Rio Tinto’s Kennecott Minerals subsidiary a major producer of copper in Utah, where Rio Tinto is actively pursuing the development of iron ore deposits, was given the green light to look at opportunities in the UP in the late twentieth century before the new Michigan mining law was even drafted..
Kennecott Mineral’s, Eagle Project, discovery of high grade nickel and copper brought about the change in attitude by this major company that the Michigan legislature had hoped for, and, with commodity metal prices soaring and a nickel shortage developing, they decided to make an attempt to develop the Eagle Project. Kennecott, operating within the amended (in 2004) Environmental Act of 1994, has been able to successfully show the DEQ that it has faced and solved the problems that previously led to objections and then rejections for projects to develop sulfide ore mining in Michigan.
The global market for nickel and copper is so high that in fact Kennecott projects that it will make a profit bringing up the ore to the surface in covered containers, concentrating it, transferring it to covered railcars, and transporting it for smelting and refining to Sudbury, Ontario.
The main objection that organized environmentalism has come up with is that they claim it is likely that some ore will be accidentally spilled and overlooked and left on the surface to be oxidized and rainwater will then wash soluble sulphate ion from this air oxidized ore into the local river where this “sulphuric acid” might harm a subspecies of trout, which, it is claimed, is not found anywhere else.
This objection to what could and might happen is supposed to be used to stop the direct creation of 120 new jobs and the bringing directly and indirectly of large enterprise and tax revenues into an otherwise very high unemployment region of the state that today, thanks to the American OEM automotive industry, leads the nation in joblessness.
Michigan’s unemployment rate is officially today 7.1%. A simple car ride through the Saginaw Valley past the former automotive manufacturing centers of Flint, Saginaw and Bay City may convince you that the official unemployment rate may well be understated by as much as 100% to 200% for those cities, but environmentalists aren’t interested usually in checking those statistics.
The real issue for the opponents of the Eagle Project is that the proximity of this small and well defined ore body to Ontario’s Sudbury Mining District is an indication that there may well be many other such ore bodies both in upper Michigan and just under the water of nearby Lakes Superior and Huron, which were both created by glaciers, so that their underlying geology may well be the same as that of the nearby dry ground, i.e., the eastern UP and northwestern Ontario.
What no one has yet discussed is the high probability that the Eagle ore body, as well as the as of yet undiscovered, similar ore bodies in the UP contain platinum group metals just as the nearby Sudbury deposits do. Sudbury is the world’s third largest producer of palladium. It is also synonymous with nickel production.
Michigan’s amended environmental law can be a trial balloon for the revival of mining in the area. It requires that the mining company making an application, even to prospect, first address all of the safety, health and species protection issues beforehand, that solutions to all be proven viable before the project starts, that the company be financially responsible for the life of the mine through not only the application and holding of sufficient capital but also by buying insurance and bonding, and that it return the land to its original state when the project is finished , terminated or abandoned.
Fairness seems to have reared its beautiful head, at least as a newborn, in the ugly arena of environmental suspicion and fear.
Please read Michigan’s Nonferrous Mining Regulations for a trip to a hopeful future for American natural resource recovery.
To paraphrase “Engine Charley Wilson,” the CEO of GM in 1954, perhaps what is good for Michigan is good for America. |
