PolyMet Mining Corp. would have to put up roughly $1 billion dollars halfway through the life of its proposed copper-nickel mine in northern Minnesota to protect state taxpayers from environmental risks — with more than half the funds dedicated to a trust fund for water treatment that would be required long after the mine has closed.

The estimate by state regulators, obtained by the Star Tribune through a data practices request, for the first time puts a dollar amount on the significant risks to water, air and wildlife that come with a new kind of mining for Minnesota.

The peak-mining cost estimate is three times higher than what PolyMet first proposed a year ago, and approximates what outside engineering experts have recommended because of the scale and severity of potential water contamination from hard-rock mining.

The projections are contained in documents produced by state regulators as they develop financial protections that, by state law, must accompany the permit to mine that PolyMet is seeking. The permit will be open to public comment early next year, but officials say they haven’t decided yet whether those long-term costs will be included.

The mining permit represents a critical turning point for one of the longest, most contentious environmental debates in state history.

Mining advocates see PolyMet’s $650 million open pit project near Hoyt Lakes, and others that are expected to follow, as the long-awaited economic rejuvenation of a once thriving mining community in northeast Minnesota. Environmentalists see it as a looming threat to the last remaining wild area of the state and the still-clean lakes and rivers that give Minnesota much of its identity.

Unlike taconite mining, copper-nickel mines can produce runoff that can generate acid that leaches hard metals and other contaminants from underlying rock, a problem that can linger for decades.

The mining industry and PolyMet officials say modern technologies and engineering can protect Minnesota’s surface- and groundwater.

Still, some mining states, including Minnesota, require companies to post “financial assurance” in the form of bankruptcy-proof financial instruments that would pay for mine closure and environmental cleanup if PolyMet or its successors should fail or walk away — as many mining companies have in other places.

The states’ role in negotiating such protections became even more critical last week when Scott Pruitt, administrator of the U.S. Environmental Protection Agency, dropped a new federal rule that would have required mining companies to provide funds for cleanup.

Pruitt said it would impose an “undue burden on this important sector of the American economy.”

Even so, Minnesota regulators must now walk a careful line. If they ask too little in the way of financial assurance, residents, taxpayers, Indian tribes and Lake Superior — all downstream from the mine — could pay the price for any future environmental damage. If they ask too much, Gov. Mark Dayton and his administration could be blamed for thwarting the Iron Range’s long-awaited economic boom.

Barbara Naramore, assistant commissioner for the Department of Natural Resources, said the state’s primary goal is to “make sure taxpayers are adequately protected.”

She said the state is still crunching numbers, but has not moved much off the $1.039 billion figure, detailed in agency documents, that could be needed to cover potential costs at the peak of production.

State law requires regulators to adjust the amount annually, based on the potential costs of closing the mine in each year of operation.

That means the initial costs are low, then rise over time as the mine gets larger, and then decline as site reclamation is completed.

Lasting challenges

Last week, PolyMet submitted a $544 million financial assurance proposal for the first three years of construction and mining, but not beyond that.

The state, however, did. Using the company’s financial and mining projections submitted as part of its permit applications, combined with additional data from outside consultants, it determined that after peaking in year 11, the potential cleanup costs would gradually decline to $580 million in the 20th year. And that’s where they would stay as the basis of a trust fund to pay for water treatment perhaps “in perpetuity.”

PolyMet declined to comment on the state’s numbers, but in an e-mailed response to questions, officials said that figuring out the amount annually is more accurate.

Others, however, commended the state for taking the long view.

“That’s very realistic, based on what we know,” said Ron Sternal, a former financial executive who is now a board member at the Minnesota Center for Environmental Advocacy.

He is among a handful of Minnesota business executives who publicly pushed regulators to set a high bar for PolyMet’s financial assurance.

PolyMet’s plan, according to the state’s documents, would use bonds and irrevocable letters of credit for the first several years, but gradually replace them with cash from the mine’s operations. But Sternal and other critics warned against relying on revenue because mining is so volatile.

“Financial assurance should not be, in any way, related or dependent on the economic viability of this thing,” Sternal said.

Naramore said that if PolyMet is unable in any year to provide the necessary cash — or other financial instruments — the state can use its authority to withdraw the permit or curtail operations.

She agreed, however, that it would be politically difficult for the state to force the shutdown of a major business because of unpredictable environmental risks in the future.

Added Sternal: “The state has never shut down [a mine] because it’s not living up to its obligations,” referring to taconite mines that have operated for years without updated permits or meeting water quality standards.

“We think as citizens we should have full visibility and transparency as to what cash flows they think this mine will generate,” he said.