PolyMet makes $23 million land, equipment deal

A $23 million deal that would pave the way for development of the state's first commercial base and precious metals mine has been struck between PolyMet Mining Corp. and Cleveland-Cliffs Inc.

Under an agreement announced today, PolyMet Mining Corp. would acquire a 120-car rail fleet, locomotive fueling and maintenance facilities, water rights, pipelines, administrative offices and 6,000 acres of property near a tailings basin at the former LTV Steel Mining Co. taconite plant near Hoyt Lakes.

Vancouver, B.C-based PolyMet plans to be operating a base and precious metals mine near the former taconite plant by late 2008.

"This is another positive and major step forward for PolyMet and for Northeastern Minnesota," said Warren Hudelson, Polymet spokesman. "Acquisition of these assets will give us even more control of our costs."

The $235 million to $250 million project would include an open-pit mine about 12 miles south of Babbitt and a processing facility at the former taconite plant.

It would produce copper, nickel, cobalt, silver, palladium and platinum.

The facility would create about 1,000 construction jobs at least 400 permanent jobs.

It's the second major deal involving the property between Cleveland-Cliffs and PolyMet, and adds to Cliffs' ownership share in the project.

In 2005, PolyMet and Cleveland-Cliffs agreed to a deal under which PolyMet acquired crushing, milling, and flotation assets along with buildings, real estate, spare parts, workshops and a 3,000-acre tailings basin at the former taconite plant.

Under the newest deal, a letter of intent signed between the companies would provide PolyMet with even more physical assets, all which could be used to develop the metals mine.

Included is the former LTV Steel Mining Co. administration building, water rights from a pumping station at nearby Colby Lake, water pipelines, land adjacent to the existing tailings basin, and a fleet of rail cars. Locomotives that PolyMet would require would be leased.

"This finalizes the hard physical assets that will be required for mining operations," said Hudelson. "We're running flat-out on all fronts to execute this project."

Cleveland-Cliffs sheds itself of some liabilities at the former taconite plant and benefits financially from the deal.

Cliffs receives 2 million shares of PolyMet stock at $4 per share; $1 million in cash upon closure of the deal; $7 million in cash payable in $250,000 quarterly installments beginning Dec. 31, 2006; and $7 million in cash payable in quarterly installments beginning Dec. 31, 2009.

Following board and regulatory approval, Cleveland-Cliffs would own 9.2 million shares of PolyMet stock, or 7.8 percent of the company.

"These assets will give us even greater control over our operations at NorthMet by reducing our dependence on third-party providers of services and facilities," said William Murray, PolyMet president and chief executive officer. "The land acquisition will enable us to optimize our operations around the plant facility."

Within a few weeks, a bankable feasibility study on the project is expected to be complete.

That would allow the publicly traded company to pursue commercial financing.

A draft environmental impact statement is scheduled for completion in late fall or early winter. A final EIS could be complete by spring.

Public comment periods and public meetings would be held during the environmental review process.

Estimates are that the proposed mine site contains about 800 million tons of ore.

Additional test drilling aimed at further defining the reserve could occur this winter, said Hudelson.

Processing technology that utilizes an enclosed pressure autoclave would be used.

However, environmental groups have raised concerns about potential sulfides runoff from waste rock piles. PolyMet officials say the company would take all necessary steps to protect the environment.