Anybody who follows the global markets for iron ore shouldn’t be surprised by Gogebic Taconite’s decision to suddenly abandon a controversial proposal to open a new mine in northern Wisconsin.
After peaking at nearly $200 a ton in February 2011, ore prices have since plunged by more than 30 percent, with analysts now predicting a world glut of iron ore by 2014 and beyond.
One reason is China, which has been ramping up production, accounting for more than 70 percent of projected capacity growth worldwide over the next two years. Another is the increasing use of recycled steel, which reduces the demand for new sources of iron ore to feed the steel mills.
These factors, insiders tell Biz Beat, likely had as much impact on GTAC's quick exit as any failure by the Wisconsin Legislature to streamline mining laws or efforts by environmentalists or Native American groups to block the project.
In fact, some critics maintain GTAC never intended to open a mine anytime soon. Rather, the company sensed an opportunity to get a quick permit from a state thirsting for new jobs and a governor desperate for any kind of positive press. Once a permit was obtained, it could be sold to another developer or held until market conditions improve.
“Gogebic Taconite's announcement that they are leaving Wisconsin confirms that the company was never interested in responsible mining,” says Kerry Schumann, state director of the League of Conservation Voters.
The medium-grade ore body eyed by GTAC that stretches 22 miles across Ashland and Iron counties isn’t a new discovery. U.S. Steel owned the deposit back in the 1960s and did extensive study before deciding to pursue its mining interests elsewhere in northern Minnesota.
The majority of the Penokee Iron Range is now owned by RGGS Land and Minerals out of Houston and La Point Mining Co. of Minnesota. They have been looking to sell their holdings for years and found an interested party in the Florida-based Cline Group, one of the nation's largest private coal mining companies, which formed Gogebic Taconite in 2010 to pursue the $1.5 billion Wisconsin project.
At first, GTAC hoped to get a new streamlined mining bill included in Gov. Scott Walker’s 2011-2013 budget. The company commissioned a study showing the open pit iron mine would support 2,834 jobs in a 12-county region of northern Wisconsin and Michigan's Upper Peninsula, with a total economic impact of $604 million a year.
But when the mining law changes were removed from the budget discussions, GTAC announced suddenly in June 2011 it was putting the project on hold and closed a small office it had opened in Hurley, the epicenter of Wisconsin’s mining past.
At that point, a new mining bill almost took on a life of its own, with Republicans in the Legislature falling over themselves to pass anything related to jobs and Walker calling mining the centerpiece of his economic development efforts.
"We think it's a great jobs bill," Assembly Speaker Jeff Fitzgerald, R-Horicon, said at the time. "It's going to create a lot of good, high-paying jobs especially in that northern part of the state that has really been hurt with this economy."
But legislators failed to work out key differences over issues like allowing the filling of wetlands with mine waste or whether the Department of Natural Resources could even question an applicant’s data.
"I support responsible mining," Sen. Robert Jauch, D-Poplar said this week. "But you can't have responsible mining if you have an irresponsible mining law."
David Ward of NorthStar Economics, who authored the economic impact study for GTAC, thinks the project still holds merit despite the slump in ore prices and the high cost to open a new mine.
“Mining companies aren’t looking so much at short-term ore prices as they are at future opportunities,” he says. “This mine was projected to operate over the next 35 or 40 years.”
Of course, the real losers are the people of northern Wisconsin who were lured by promises of new jobs paying $80,000 but ended up as pawns in a political chess game.
Dale Kupczyk, executive director of the Ashland Area Development Corp., estimates that 10 percent of northern residents back the mine no matter its environmental impact, 10 percent are against it no matter what, and the other 80 percent are supportive -- if it protects the quality of life in the region.
“There’s no doubt we need the jobs but it’s got to be done right,” he said in a phone interview Wednesday.
If anything, Kupczyk says the region could use some improved infrastructure -- like a four-lane highway connecting Ashland with the rest of Wisconsin.
"That would do as much for our economic development as anything," he says.