One issue not getting much discussion during a hearing this week on relaxing Wisconsin’s mining laws might prove the most significant: falling prices for iron ore.
A series of reports in the financial press is noting slowing growth in China’s steel industry coupled with new iron ore sources from Australia coming onto the market.
As a result, industry analysts are predicting a bear market for iron ore over the next several years. Some commodity experts forecast the world supply of iron ore will exceed the demand by 2015 and beyond.
Here is one story from the Financial Times detailing the issue. Bloomberg was also out with a report this week noting the end of what had been a rally in iron ore prices. The issue is important since it could affect whether investors can be attracted to a new iron mine in northern Wisconsin.
Ore prices had reached record highs of $191 per metric ton last February but have been on a downward slide since. One analyst said prices could fall to $50 per ton by the middle of 2013.
Iron ore producers in Michigan’s Upper Peninsula have already moved to reduce production in response to falling prices, according to Biz Times of Milwaukee.
Cliffs Natural Resources Inc. had announced in November a temporary shutdown of its Empire (Mich.) Mine operation for the second quarter of 2013, affecting about 500 employees. Cliffs also is curtailing production at its Northshore Mining operation in Minnesota, affecting 125 employees.
Like other commodities such as oil or natural gas, iron ore prices can fluctuate with the economy or changes in the supply chain. But iron ore mining can be profitable, according to this story by Reuters.
The inability of the Wisconsin Legislature over the past two years to agree on a new mining bill at one point had caused the Florida company which has an option on the mineral rights to close its Wisconsin office in Hurley.
But with Republicans and Gov. Scott Walker anxious to show they are doing something to help boost Wisconsin’s flagging economy, the company — Gogebic Taconite (GTAC) — has once again taken an interest in a mining bill and testified on Wednesday.
The medium-grade ore body 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 site is actually 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 the Gogebic Taconite subsidiary 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.
When the mining law changes were removed from the budget discussions, however, GTAC announced suddenly in June 2011 it was putting the project on hold.
At that point, a new mining bill almost took on a life of its own, with Republicans in the Legislature looking to pass anything related to jobs and Walker calling mining the centerpiece of his economic development efforts. But a bill failed to pass last year by one vote in the state Senate, setting the stage for this Legislature's latest attempt.
Even if a new streamlined mining bill is passed this session, it could be years before a mine could be open. There is the risk of ongoing court battles or a lengthy approval process by federal regulators.
But mining investors are often looking for a multiyear return rather than a quick turnaround, says David Ward of NorthStar Economics, who authored the economic impact study for GTAC.
Ward told me for a story last year that the Gogebic project still holds merit despite a slump in ore prices at that time 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 said. "This mine was projected to operate over the next 35 or 40 years."
Some have questioned why iron ore mining interests have not pursued the project themselves, rather than a company with a background in coal mining.
Marcia Bjornerud, a geology professor at Lawrence University who testified at Wednesday's hearing, says GTAC thinks it could out-compete some of the older iron ore operations in Michigan and Minnesota with a newer, more efficient model.
"But this is hard to believe given the inherent disadvantage of the deeply buried target rock," she says. "There is no way to overcome that inefficiency."