by Steve Timmer

Jun 22, 2019, 11:00 AM

Skipping down Memory Lane with PolyMet

The basic outlines for the PolyMet and Twin Metals projects were set many years ago. They involved using local companies, which could be claimed with a more-or-less straight face, were “real companies” for purposes of permitting and liability avoidance. It was a poorly-kept secret. Well, it wasn’t even a secret, really. The façade in the case of Twin Metals crumbled a little early; the Chilean landlord to our president’s daughter and son-in-law in Washington, Antofagasta, owns the whole thing now. But let’s focus on PolyMet, because it’s further along, and well, it’s in the news.

Way back in 2013, some nosy television reporter started, well, nosing around the relationship between PolyMet Mining that the shadowy mining bad boy, Glencore, known for a while as Glencore/Xstrata. Never heard of ‘em, PolyMet’s oily PR machine said. But that clearly wasn’t true, as you’ll know if you read the LeftMN story at the link.

In early 2014, PolyMet Executive Vice President Brad Moore, who before that used to be the Commissioner of the Minnesota Pollution Control Agency said, at a Minnesota House hearing on financial assurances to be put up before any mining activity could be permitted, “We’re a real company.” There was a titter of laughter around the room.

You see, the laughter was because PolyMet, although incorporated in Canada in 1981, has never operated a mine, and has never earned a dime (US or Canadian) from mine operations. That’s over 35 years. If you had a 35 year-old kid who lived at home and had never earned a dime, you know what you would do with him, right?

PolyMet has an extremely impressive accounting loss carryback. But somehow – and this is impressive, too – PolyMet has managed to sell enough blue sky in public financial markets to continue to exist. In other words, chumps like Karin Housley keep buying its stock.

First time tour for a long-time shareholder. pic.twitter.com/RWqMvNkJGa

— Karin Housley (@KarinHousley) June 23, 2014

At some point, though, the Swiss company Glencore identified PolyMet as a perfect junior mining company – sometimes known in the business as “useful idiots” –  to develop Minnesota’s first copper-nickel sulfide mine. It entered into a loan agreement with PolyMet in exchange for a first-lien security interest in all of PolyMet’s assets, including Brad Moore’s key to the executive washroom. And PolyMet became Glencore’s Puppet on a String. Through a seat on PolyMet’s board of directors, seats on technical committees, and by the all-important covenants in the loan agreement, nobody goes to the can at PolyMet without saying, “Glencore, May I?”

Glencore continued to loan money to PolyMet in drips and drabs, just enough to keep it on life support, and each time taking more stock and stock rights. And miracle of miracles, people like Karin Housley continued to buy its stock. It’s a good thing her spouse was a professional hockey player.

It was obvious back in 2014 when Brad Moore gave the House committee a laugh that PolyMet’s financial position was so bad – so negative – and getting worse by the day, that the only party who would ever operate a sulfide mine at Hoyt Lakes was Glencore.

I even had a sidebar about that with Jess Richards, the Director of the Land and Minerals Division of the Minnesota DNR, at the hearing, urging that Glencore be brought in and bound by permit discussions and requirements, but he would have none of it.

PolyMet couldn’t, and can’t, get a loan for used car without Glencore. It isn’t bankable and it really can’t raise much capital in public markets anymore because of its astronomical negative book value. The only conceivable way out is for Glencore to recapitalize the company through the exercise of rights offerings or down streaming part of its debt into equity. This will naturally, dilute all the Karin Housleys out there.

Glencore wants to control the company, surely, but not own quite enough of it to be considered a parent for purposes of having to sign on to permits and financial assurance liabilities. There are a lot of great ways to suck money out of a company, but receiving dividends isn’t one of them, especially when you have to share the dividends with other stockholders. Glencore was the only game in town for so long for PolyMet that it was obvious to even the casual observer that control and majority ownership was the endgame all along.

[And that, of course, proved to be true. Ed.]

Suspicious people might think Glencore had an ace – or perhaps a former regulator with friends – in the hole.

You know, it was all going so well for Glencore. PolyMet got the water permit from the MPCA, and then it got a permit to mine from the Land and Minerals Division of the DNR.

What a fairy tale!

It was a fairy tale, of course. You could say this was a Faustian bargain for PolyMet that went wrong, or it was the plan all along. I am inclined to believe the latter.

We know now about the corruption and infidelity of the Minnesota Pollution Control Agency – PolyMet Executive Vice President Moore’s former outfit – in issuing the water permit. It’s been in the papers. The water permit is unenforceable and permits the violation of the Clean Water Act. Other than that, I suppose it’s fine.

Parenthetically, the water permit from the MPCA seems to be modeled after the one issued to the now-closed Flambeau mine near Ladysmith, Wisconsin. That mine was touted as an example of extraction without pollution, a fatuous claim that I called The Miracle of the Immaculate Extraction. Well, the former mine did and does pollute (see several LeftMN stories here), in amounts in violation of the Clean Water Act, but the miner’s permit was so badly written that no enforcement is possible because of something called the “permit shield.” The Seventh Circuit Court of Appeals can tell you why.

If you get the right pollution regulators, they are your defenders, not your regulators.

In response to the revelation that it is a mining industry-captured lickspittle, the MPCA has said, Well, we can put new conditions in the permit if circumstances require.

I invite anyone to cite examples to me of situations where Minnesota regulators (as opposed to the courts) have imposed more stringent conditions on miners after mining permits were issued. It doesn’t happen. In fact, the typical post-permit scenario is inattention by the regulators or caving to miner demands for relief from existing limits. Relevant examples:

PolyMet bought the LTV Steel Hoyt Lakes plant and tailings basin for a song because LTV steel went bankrupt. The tailing basin has $90 million in deferred maintenance because LTV Steel didn’t maintain it.

Why didn’t it maintain it? Partly because the lick-spittle regulators were asleep at the switch. One of the reasons why the regulators like the PolyMet deal is that PolyMet undertakes to fix the tailings basin. Or more likely, just kick the can down the road. Only now, the can will contain way more toxic stuff. Swell.

Almost more troubling is the recent example of the MPCA seriously considering U.S. Steel’s request that the MPCA materially abandon the Dark River. The requested change would make it even easier for U.S. Steel’s MinnTac tailings basin to discharge pollutants into the Dark River. The MinnTac permit, by the way, hasn’t been updated (looked at?) since 1987, well, until now, with the proposal to weaken it.

Glencore is an order of magnitude bigger than U.S. Steel and probably at least an order of magnitude better at shoving already supine regulators around.

All things are revealed in the fullness of time and now Glencore’s plan has been revealed. Let’s just hope it’s not too late.

Addendum: I’ll just connect some dots a little more explicitly.

The water discharge permit issued by the MPCA is similar to the one issued to the Flambeau miner that couldn’t be enforced by the public. It was another case of the regulators becoming the defenders of the pollution.

The former EPA staffer who caught wind of what was going on and blew the whistle, Jeffry Fowley, undoubted had the “permit shield” and the Flambeau mine in mind. Here again is a memo he prepared on the subject.

It should be obvious to everyone the MPCA and EPA’s efforts to avoid creating a record that would be discovered was not just a simple screw up. It was an effort that almost worked — and may still work if other parts of government and law enforcement don’t get on the ball — to subvert the Clean Water Act. It was purely craven, dissembling, corruption.

It requires waaaay more than just the Legislative Auditor looking into it.