REGIONAL—PolyMet Mining is offering up additional financial resources as part of its financial assurance package for its proposed NorthMet copper-nickel mine near Hoyt Lakes. The new proposal is part of an updated Permit to Mine application that the company filed with the state’s Department of Natural Resources late last week.

“With this financial assurance estimate, we believe PolyMet has fulfilled all of the requirements necessary for the state to issue a draft Permit to Mine,” said Jon Cherry, president and CEO. DNR officials say they expect to issue a draft permit sometime shortly after the first of the year.

The financial assurance package is a form of insurance for the state, to protect taxpayers from having to pay clean-up costs when the mine closes, or as a result of major leaks or spills. The project is expected to require ongoing water treatment for centuries.

PolyMet’s revised application proposes to put up $65 million in letters of credit or surety bonds, in addition to $10 million in cash, for the first two years of construction. Most of that is designed to cover clean-up costs at the former LTV Steel Mining Company. PolyMet will assume legal liability for those clean-up costs once the DNR issues an actual Permit to Mine.

The proposal estimates the potential liability for the first year of actual mining at $544 million, which represents the cost of closure, reclamation, and centuries of water treatment at the site assuming that PolyMet is unable to perform the work. That figure would be updated annually during the course of mining at the site, and could increase or decrease each year depending on the outstanding liabilities.

State officials will now examine PolyMet’s latest offer and decide whether it meets the state’s anticipated costs for potential clean-up.

Environmentalists acknowledged that the numbers reflect an improvement over the company’s initial offer, but they express wariness at the same time. “The numbers look pretty good, but are they worth the paper they’re printed on?” asked Aaron Klemz, a staff attorney at the Minnesota Center for Environmental Advocacy. “The real issue is whether they can meet their promises,” he added.

Financial consultants that the state of Minnesota hired in late 2016 expressed similar skepticism, noting that PolyMet would almost certainly rely on the cash flow it would generate from its mining operation to purchase surety bonds, letters of credit, or other financial instruments. “Due to numerous mine bond forfeitures that caused considerable losses to the surety industry, it has now become more difficult for mining companies to obtain surety bonds,” noted the consultants, Twin Cities-based Emmons Olivier Resources, or EOR, in their report. “For a small or new mining company like PolyMet it would be very difficult to obtain a reclamation bond if there is any risk of bankruptcy, which would be indicated if the financing or economics are not solid. It would be even more difficult to find a surety willing to guarantee a long-term financial assurance liability unless the project’s economics are very strong.”

If PolyMet is unable to obtain a surety bond, it would likely require that the company post up-front capital and “that could harm the project’s feasibility,” according to the consultants.

Robust economics could be key to reducing the environmental risks of the project, since the company’s ability to fund its financial assurance package will likely depend on it.

It’s unclear how robust PolyMet’s finances would be under operation. While a 2008 financial report had suggested a robust 30-percent return on investment, that projection assumed a price (in 2008 dollars) of $2.90 per pound for copper and $12.20 per pound for nickel. After adjusting for inflation, the current copper price of $3.05 per pound is slightly below the benchmark used by PolyMet in its 2008 report. And the current price of nickel, at just $5.05 per pound, is barely a third of the price that PolyMet assumed in its earlier analysis. At the time, nickel was estimated to generate more than a third of PolyMet’s total revenues from mining.

Klemz worries that continued sluggishness in the metals market could put the state’s taxpayers at risk. “If we get to year five of mining, and the company is struggling to meet their obligations, what happens if they can’t get the surety bonds?” he asks. The state could presumably force a shutdown at the mine, but Klemz notes that the ramifications of such a move would be politically fraught. “Are they going to shut them down? I can’t see a world in which they would do that.”

Instead, the state would be left hoping that the company could meet its obligations down the road, rather than up front, as financial assurance is supposed to work.

PolyMet is working to update its financial projections, but won’t be able to issue them until the DNR has issued a draft permit. “We first need to have the state’s permit conditions in a draft permit before we can finalize the report,” said PolyMet spokesperson Bruce Richardson.

It’s unclear whether a new financial report will include a source of financing for the project, which will include an estimated $650 million construction price tag in addition to financial assurance obligations. When asked by the Timberjay whether the company has obtained a commitment from its Swiss-based partner Glencore, or any other investors to fund the project, company officials did not respond.