REGIONAL—The economic prospects of PolyMet Mining’s proposed NorthMet copper-nickel mine have diminished significantly from earlier projections, according to a new definitive feasibility study that the company issued this week.

The cost to build the mine has also escalated sharply from a 2012 estimate of about $650 million, to $945 million today according to the report. And that figure would not include the cost of building a hydrometallurgical processing facility, which would add another $259 million to the cost of construction, pushing the final price tag to just over $1.2 billion.

Meanwhile, lower metal prices, particularly for nickel, have cut anticipated financial returns from the mine almost in half. And those estimates are based on copper and nickel price assumptions that are higher than current prices. In the past, the company has taken a more conservative approach to metal price assumptions.

The latest report pegs copper prices at $3.22 per pound, up from the current price of $2.95. Copper prices have averaged just under $3 per pound over the past year. The report also assumes an average nickel price of $7.95 per pound, more than two dollars per pound higher than the current nickel price of $5.85 per pound. Copper and nickel would provide more than three-quarters of the revenue from the proposed mine.

Company officials contend that metal prices are likely to rise during the lifespan of the mine, fueled by the anticipated boom in electric vehicles. Those vehicles require large amounts of copper, nickel and cobalt, according to company officials.

The new financial estimates project total annual revenues for the mine at $362 million over the first five years, or $292 million over the 20-year life of the mine. The report estimates actual earnings before interest, taxes, depreciation and amortization, (or EBITDA) at $170 million for the first five years, and $118 million over the life of the mine. That’s down from the EBITDA of $217 million for the first five years projected in a 2008 financial update to PolyMet's original definitive feasibility study produced in 2006.

The lower revenues and higher costs put the mine’s internal rate of return at 9.6 percent, well below the 30.6 percent return projected in its 2008 financial report.

PolyMet officials tried to put the numbers in a positive light, noting that the project is continuing to advance and remains viable at its current proposed mining rate of 32,000 tons per day.

“This report reaffirms the technical and financial viability of the 32,000 tons per day case for which the final EIS and draft permits have been issued,” said PolyMet president and CEO Jon Cherry. “Our focus remains on obtaining final permits [for the current plan], meeting our environmental and financial assurance obligations under the terms of those permits, and obtaining the necessary financing to build the project,” added Cherry. “We are making significant progress on all of those fronts.”

Indeed, PolyMet announced on Monday that Glencore AG agreed to extend repayment provisions on $152 million of PolyMet debt for one year, and to reduce its interest rate by five percent (to LIBOR plus ten percent). Glencore also agreed to commit an additional $80 million in debentures over the next 12 months to help PolyMet continue to fund pre- and post-permitting work.

“As we continue to progress through the permitting process, we appreciate Glencore’s continued financial and technical support for this great project, which will produce essential metals including those needed for renewable energy and electric vehicles,” said Cherry.

Nonetheless, the latest financial report did not appear to cheer investors. The company’s stock had dropped more than ten percent from Tuesday through midday on Wednesday, apparently as news of the report began to spread. PolyMet stock has been trending downward since January, when the stock reached $1.32 per share on news of the issuance of the DNR’s draft permit to mine. The stock dipped as low as 88 cents per share in trading on Wednesday.

The numbers do appear to raise questions about the economic viability of the project. In 2014, a pre-feasibility study produced by Duluth Metals for the Twin Metals project suggested a rate of return of 13.6 percent on an investment of $2.9 billion, which most investors saw as lacking viability. Within weeks, the stock price of Duluth Metals had collapsed, and the venture was assumed for pennies on the dollar by Antofagasta.

Investors had generally viewed the economics of the PolyMet project far more favorably, but the latest numbers are certain to raise questions.

Indeed, environmental groups were already suggesting the project likely won’t be built based on the current numbers.

“Minnesotans have been sold a bill of goods by PolyMet,” said Kathryn Hoffman, executive director of the Minnesota Center for Environmental Advocacy. “The rate of return is just one-third of earlier projections and is well below the level of a viable mining proposal. This study shows a proposal that, if built, would be financially tenuous and put Minnesota taxpayers at risk of holding the bag when the mine goes belly up.” 

Ron Sternal, a retired managing director of a financial management company, and an MCEA board member, went further. “Theirown definitive feasibility study now proves that even without adequate financial assurance, this thing doesn’t pan out as permitted.”

Attorney Paula Maccabee, of Water Legacy agreed. “It looks like PolyMet is in trouble. To make the kind of profit they claimed six years ago, they now say they would need a massive increase to more than triple the size – and the impacts – of the NorthMet copper-nickel sulfide mine,” she said.

Indeed, PolyMet officials are suggesting that profits from the proposed mine could be enhanced by exploiting more of the known deposits at the site, and by increasing the rate of mining. The company looked at two different scenarios, including increasing the rate of mining to 59,000 and 118,000 tons per day. Those options, however, would require significant additional new engineering as well as new environmental review. A higher rate of mining could enhance profitability of the operation, boosting the internal rate of return to 18 percent in the case of the 59,000 tpd scenario to 24 percent for the 118,000 tpd option. But PolyMet’s own report notes that these estimates are speculative and include the use of inferred mineral resources, which are considered too speculative to be considered economically without further exploration.

While an increase in the rate of mining could boost profitability, it would also likely reduce the life of the mining operation, depending on the rate of increase. The company is currently proposing to mine 225 million tons of known reserves, which would take just under 20 years at the proposed mining rate of 32,000 tpd. At 118,000 tpd, the mining operation would last just over five years.

The company does have additional known or indicated mineral resources totaling 649 million tons, according to the report. That includes some inferred resources which would need to be better documented before the company could proceed. If all of that resource were mined at the current proposed rate, it could entail 55 years of operation. At 118,000 tpd, however, the known reserves would be depleted within 15 years. Mining the additional reserves would almost certainly require completion of an entirely new environmental impact statement, require re-engineering the project, and substantially raise the financial assurance liability.

The company could also boost the rate of return marginally by investing in development of a hydrometallurgical processing facility, which would allow the company to produce nickel-cobalt hydroxide and increase the rate of recovery for platinum group metals. That would boost the project’s rate of return at the planned mining rate from 9.6 percent to 10.3 percent but require the company to invest an additional $259 million in start-up costs.