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Minnesota's streamlined permitting put to the test


November 25, 2011

Beth Bily
BusinessNorth

Magnetation in October announced a newly formed partnership with Ohio-based AK Steel that will likely bring hundreds of jobs to Minnesota’s Iron Range.

The obvious takeaway – hundreds of jobs – was easy to spot. A little less obvious, but no less compelling, was the challenge this new partnership places on Minnesota’s revamped environmental review and permitting laws.

The partnership, which creates Magnetation LLC, will expand Magnetation, Inc.’s scram mining on the Western Mesabi Iron Range. Since 2009, the company has extracted iron ore concentrates from previously mined iron ore tailings basins. The concentrates can be used in numerous applications, including the manufacture of iron nuggets. Terms of the deal give Magnetation, Inc. a 50.1 percent ownership stake and AK Steel a 49.9 percent share of the new company.

Earlier this year, Magnetation formed another joint venture, this one with Mesabi Nugget, to construct a third plant near Chisholm. That plant will employ 80 and supply Mesabi Nugget with the concentrates it needs to manufacture iron nuggets.

The company currently employs about 100 at its Plant 1 facility in Keewatin and plans to hire another 60 when a second plant opens near Taconite next year. As demand warrants, Magnetation LLC also will permit and construct two more plants – a fourth near Coleraine and a fifth near Calumet, according to CEO Larry Lehtinen.

The final component of the new partnership is a pelletizing plant. That plant, which would convert Magnetation’s iron ore concentrates into high-quality iron oxide fluxed pellets, would have an annual 3 million metric ton capacity. The operation would be similar in size and finished product to pelletizing operations at ArcelorMittal’s Minorca mine in Virginia.

But the pelletizing plant – and its 100 to 150 jobs – may not end up on the Iron Range. Magnetation LLC is weighing all its location options – and Minnesota’s long-standing tradition of very long environmental review could prove detrimental. Lehtinen said his company will be simultaneously permitting the plant in Minnesota, North Dakota and Ohio.

“We’re just beginning the process of siting” the pelletizing plant, Lehtinen said. “We hope to get the site selected within six months.”

Tony Kwilas, director of environmental policy for the Minnesota Chamber of Commerce, believes that bi-partisan support for speeding the review and permitting process, coupled with Gov. Mark Dayton’s newly created mining coordinator position and mining cabinet, will situate Minnesota competitively.

Iron Range Resources and Rehabilitation Commissioner Tony Sertich said the coordinator position provides “a single point of contact to our state government – a one-stop shop interface.”

The Chamber has been an outspoken champion for reform and is still seeking out development barriers, said Kwilas, adding, “we’re trying to alleviate (challenges) and make it easier for Magnetation and other projects to move forward.”

Nonetheless, North Dakota’s permitting process will likely be shorter than Minnesota’s.

“North Dakota doesn’t have national forests, the BWCA (Boundary Waters Canoe Area) or Lake Superior,” said Kwilas, noting that protecting environmentally sensitive areas makes for more stringent review.

In Minnesota, Lehtinen hopes to shorten the review process by avoiding wetlands, which trigger federal and state environmental review. He estimates that environmental review in North Dakota could take as little as nine months and hopes the process here can be completed in 18 months. A pelletizing plant would have an approximate two-year construction phase.

Although an 18-month review period isn’t a deal killer, a much longer timeline could be problematic.

“Certainly, if it takes an extra two years to get to market (due to permitting delays) your window of opportunity can close,” said Lehtinen.

Sertich declined to comment on exactly how the mining cabinet – comprised of himself and the commissioners of the Department of Employment and Economic Development, the Minnesota Pollution Control Agency and the Department of Natural Resources – or the mining coordinator position might affect timelines for Magnetation’s pelletizing plant. Magnetation has yet to formally propose anything to state agencies, he said.

Rep. Tom Anzelc, DFL – Balsam, whose home district includes most of Magnetation’s current and proposed sites, said the mining coordinator position will expedite the process. The chairman of the Iron Range delegation also added that he found “the issue of shopping around for a taconite plant site – peculiar.”

“The mining coordinator position certainly will help in streamlining and directing interaction between agencies – that’s been the problem,” he said. “The air pollution and water pollution people act as if they’ve been operating in silos.”

So far, although Dayton created the mining coordinator position, he has yet to fill it permanently. IRRRB Deputy Commissioner Brian Hiti currently is acting in an interim capacity.

Meanwhile, Magnetation’s plans for more iron ore concentrate plants will continue to move forward. Permitting for plants four and five will begin in the next few months, Lehtinen said. Because the operations will take place on previously mined lands, review and permitting takes just a few months.

Lehtinen said the new partnership gives Magnetation access to the capital needed to expand. AK Steel plans to invest nearly $300 million over the next several years. The partnership provides the Ohio steelmaker with access to about 50 percent of the raw materials it needs for production.

The joint venture marks a re-entry into the mining industry for AK Steel, which until 2003 owned a 40 percent stake in EVTAC. The exit from raw materials made sense for the company at that time, said Peter Kakela, a Michigan State University iron ore industry expert.

“AK Steel almost gave away its stake in EVTAC. At that time, taconite was selling for $30 to $35 a ton,” he said.

Earlier this year, prices soared as high as $200 per ton, but have fallen in the last few months. Prices over the last few years have been detrimental to steelmakers that don’t control at least some of their own raw materials.

Despite the recent taconite price drop, Kakela predicts the partnership will make sense for AK Steel given current and expected market conditions.

“I think that for the next three to five years, the price is going to stay high.”

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