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Franconia’s Birch Lake project could lead to underground mines, 550 jobs

The Ely Echo
July 28, 2007

At 78, Ernie Lehmann gets around on a drill rig with ease. It's familiar territory to the geologist who seeks to create 550 jobs with an underground mine on Birch Lake.

Prospecting runs in Lehmann's blood and this time he may have hit the jackpot with a mineral deposit near Bob Bay under Birch Lake.

Drilling on land and through the bottom of the lake has revealed an area with copper, nickel and precious minerals such as gold, platinum and cobalt.

Lehmann believes there is over 100 million metric tons below the lake and another 83 million metric tons three miles away at the Maturi site, just east of the South Kawishiwi fork off the north end of Birch Lake.

Lehmann, through his company Franconia Minerals, showed a video on the project last week and gave a tour of the facilities in Babbitt as well as the drill barge on Birch Lake.

Looking and finding

The first find of copper nickel mineralization in the area dates back to 1948 and exploration has been ongoing since then. According to the DNR, over 2,100 drill holes have been drilled since 1951, looking for copper and nickel. According to a 1977 study, nine potential copper-nickel deposits have been identified with over 4.4 billion tons grading 0.66% copper and 0.20% nickel.

When the DNR decided in 1985 to resample cores from a hole drilled in the 1970s and found two meters of copper, nickel and platinum group metals, it took a few years to see the results. Lehmann got involved in 1985, buying leases and drilling holes in the area around Birch Lake. Partners such as Utah International and INCO came and went but Lehmann stayed the course.

Then, in 1997, the Minnesota Natural Resources Research Institute (NRRI) suggested there may be PGMS in an area below Birch Lake. In 2000 and 2001, Lehmann drilled 2,500 feet below the lake bottom from a barge.

He returns in 2007 with better financial backing and some very promising results. But what's needed now is to change the status of the findings from inferred to indicated, one step closer to mining.

The players

Franconia has 15,000 acres of private and state leases in and around Birch Lake.

Maturi was acquired by Franconia from INCO and includes a shaft sunk by AMAX in the early 1970s. At the Maturi site, mineralization dips at a 45 degree angle starting at 200 feet down and going as deep as 3,000 feet.

The Birch Lake deposit sits in an area that is 8,000 feet long by 1,200 feet wide with mineralization depths of up to 200 feet in an area 1,600 feet below the lake surface.

Not far away are three other potential mine sites. One is owned by Teck Cominco and likely holds the largest quantity of copper nickel.

Polymet is the other major site and is currently in the permitting stage.

Duluth Metals is exploring the area near the Maturi deposit (See separate story).

"We are licensed to use the same process as Polymet for recovery. The process was invented for Polymet but it's not owned by Polymet, they have a license as well," explained Lehmann.

"That's an important consideration because that process allows us to recover the platinum group metals. Teck Cominco has a process somewhat similar but their's doesn't recover the platinum group metals and for us at Birch Lake we're four times the platinum-palladium grade than the other deposits are, it's very important that we recover the PGMs. It's a significant value.

Expensive business

The two mines, Maturi and Birch Lake, would likely cost over $616 million to build, almost double the cost Polymet is looking at, according to Lehmann.

"Polymet, however, was able to achieve considerable savings by purchasing portions of the former LTV plant," said Lehmann.

Total estimated operating costs are figured at $25.87 per ton for Birch Lake and Maturi mines. Total revenues, which are highly dependent on market prices, could be $300 million per year.

On hand Wednesday was Bill Brice, former head of the DNR Minerals Division, and Jeff Nelson of the state Department of Employment and Economic Development.

"We have had excellent support from the state agencies, DNR and MPCA along with Iron Range Resources and DEED. We have a line of credit with DEED and IRR for $2.5 million provided we spend $3 for every $1 on the line of credit."

That money helps pay for drilling costs as well as testing done on the cores which are initially analyzed in Babbitt before being sent out to independent labs for testing.

Drilling underwater

The drilling process starts with a seven-inch casing that goes 50 feet into the bedrock. Then a six-inch casing is inserted inside to keep any possible contaminants out of the lake.

"We try to avoid anything going into the lake," said Lehmann. "The water and cuttings are taken out and removed from the barge."

Once into the mineralization zone, drillers insert a plug in the hole and then a wedge to drill four new holes from the original hole.

The 20-foot long wedges, which weigh around 800 pounds and cost $8,500 each, are left in the drill holes.

"On land the cost to drill is around $150,000 per hole but on water it's over $200,000 a hole. We're spending some money here."

However moving from one location to another is much quicker on water. The drill barge was moved in an hour and a half Wednesday morning.

Keeping clean water

"The DNR samples the water quality by checking inside and outside the boom as well as upstream and downstream from the barge. We provide the boat and pay for all the testing," said Lehmann.

When drilling is finished on a hole, which can take 20 days or longer, cement is poured down the holes, as deep as 900 to 1,400 feet. "We have a cement mixer on a service barge," said Lehmann. One bag of concrete fills 10 feet of drill hole.

"We are very conscious of that process and we're very meticulous about it," said Lehmann.

He pointed to two containment booms that circle the barge and said absorbent pillows are stored on board in case of an actual spill.

All of the water and rock filings from drilling are stored in tanks on the barge and removed daily and stored on land.

Sulfide issues

Environmental groups have the project on the radar, specifically because of the sulfides found in the mineralization zone. When mixed with air and water, acid runoff can occur.

"The ore itself is considered to be a low sulfur bearing ore," said Lehmann. "We need to recover those sulfides to process them in to useful metals."

The ore would be transported from Birch Lake and Maturi to a processing plant. There the metals are removed and the remaining waste rock is expected to have sulfur levels of .05 to .08 percent.

The company believes the remaining sulfides can be neutralized with lime to form gypsum, used in wallboard. At least half of the tailings created would go back into the mine. No surface subsidence is expected.

Franconia is already working with state and federal regulatory agencies discussing permitting issues, but the main focus now is getting the drilling work done.

"We're drilling for two reasons. We need to infill drill to get a better definition of the deposit from the standpoint of confidence and from the standpoint of designing a mine," said Lehmann.

"We're also trying to put together a bulk sample for a pilot plant and a metallurgical run hopefully in the second quarter of 2008. We need to put together about 50 short tons of materials for that. Originally we were going to put down a prospect shaft for that but the price tripled between February and November of 2005.

"We want to finish this round of drilling by October. And we hope to be drilling, Forest Service and BLM willing, in the fourth quarter of this year in the Maturi deposit," said Lehmann.

Franconia hopes to have test results from the pilot plant by the middle of 2008. "We would try to scope out the environmental impact statement by mid-year 2008 and put together the final feasibility study with construction starting in 2009," said Lehmann.

Next steps

Lehmann knows the company must proceed down the road of developing a plan for a mine while continuing to drill. The company lists potential annual mine production between the two sites of 74 million lbs. copper, 19 million lbs. nickel, 2.9 million lbs. cobalt, 7,400 oz. gold, 33,000 oz. platinum and 68,000 oz. palladium over a mine life of 24 to 26 years.

Approximately 550 jobs would be created over the life of the operation following up to 1,000 construction jobs the first two years.

Back to underground mining

Using shafts and headframes similar to the Pioneer Mine, ore would be crushed underground and then hoisted to the surface. From there it would be transported to a concentrator.

Lehmann said it was likely a room and pillar mining method was initially planned. "But now because the deposit is quite a bit thicker than we anticipated, we may need to change the mining method to a long haul stope process," said Lehmann.

Conceptually the company is talking about producing 10,000 tons per day from Birch Lake and 8,000 tons from Maturi once it got online two years after Birch Lake.

After being run through a concentrator, 1,600 tons per day of concentrate would be generated. The concentrate would be shipped to a hydrometallurgical facility to make cathode copper, nickel-cobalt precipitate and PGM precipitate.

Big fish or small fry

Franconia Minerals was started in 1998 on the back porch of Lehmann's summer home in Franconia, MN which is four miles south of Taylor's Falls.

In the mining industry, buyouts are common with the big fish swallowing smaller companies.

"It is possible somebody will come along and decide to buy us out one day," said Lehmann. "In the meantime we will try to continue to add value by continuing with the drilling and planning."

Area economic impact

A mining operation like the one envisioned by Franconia would likely generate millions of dollars in tax revenues.

Because the state owns the lake bottom, the school trust funds stands to benefit from the Birch Lake Project royalties.

"That could be a big number," said Lehmann.

Drilling near an island near the south shore has already set off finger pointing between the state and federal government over who owns the land.

"When we drilled by the island we found 200 feet of mineralization," said Lehmann. "I expect there will be all kinds of lawsuits between the state, the feds and private landowners."

And, the company believes there are national implications as well. According to Franconia, the impacts from the minerals include:

Copper: The U.S. imports 40 percent of its copper which used in electrical and plumbing systems. Demand exceeds worldwide production.

Nickel: The U.S. imports 100 percent of the nickel needed. Nickel is used in stainless steel, surgical instruments, hybrid vehicle batteries and jet engines.

Platinum Group Metals: The U.S. imports 90 percent of PGMs needed. PGMs are used in making glass, petroleum products, computer hard drives and catalytic converters.

Cobalt: Used in jet engines, gas turbines, medicine.

But Lehmann the geologist is still a Minnesotan who believes Franconia can help the area rebound from the economic downturn in mining over the past 20 years.

"To me the issue is all about people. We need to create jobs for people, we need to have ways they can earn a decent living," said Lehmann.

New mining considered, questioned

The Timberjay Newspapers
July 7, 2007

The Joint Powers Board heard a presentation from Frank Ongaro the executive director of Mining Minnesota during their regular board meeting on June 27.

Ongaro presented the board with future mining plans for the area and details on how those plans might benefit the local economy. The first of those ventures is the Polymet project.

Presentation highlights included discussion on how non-ferrous mineral companies employ new technology to minimize environmental impact and create higher income jobs.

Ongaro said these jobs are an obvious boost for the local economy and may be a bonus for the school district. The district has continually had to deal with decreases in enrollment and less income. Bringing in jobs that can support families may mean more students and more money for the school.

"Anytime we have a chance to bring families in it's going to be a good thing for the district," said Joint Powers chair and school board member Ray Marsnik.

Ongaro added that the Polymet project alone would bring over 400 long-term, high-paying jobs, not including spin-off vending and supplier business that would come with it.

While new mining may bring jobs to help the economy, it also brings inevitable concerns over environmental issues. Although Ongaro stressed new processes that limit this sort of impact, there were still groups with questions.

Several members of the White Iron Chain of Lakes Association wanted to know more about the possibility of heavy metal run-off in the area. Recently, WICOLA members have shown great interest in water quality for the White Iron Chain and want assurances that new projects won't have a negative impact.

The mining companies and WICOLA have yet to meet, but WICOLA members are hopeful they'll have a chance in the near future.

According to Ongaro, Polymet, would be one of the first companies to be up and running, and it is looking at a zero water discharge operation throughout the life of its project. This would limit the impact, if any, the new mining would have on the White Iron Chain. However, this won't stop WICOLA from keeping an eye on their interests.

"We hope to serve as a watchdog when it comes to water quality, specifically in the lakes making up the White Iron Chain," WICOLA board member Ken Wickmann said. "The Minnesota Pollution Control Agency has helped us conduct regular tests for a variety of issues, including heavy metals. This will provide us with a baseline for the future."

In other Joint Powers business:

‰ The board worked on determining wireless Internet viability at the JFK building in an effort to make the property more attractive to possible tenants.

‰ The organization received news that the Highway 169 task force has yet to receive the matching funds they were hoping for from the state. According to Ray Marsnik, without state funds the group would lose federal funding that has already been allotted.

‰ Bill Erzar announced that the school district can remain a member of the Joint Powers Board due to recent legislation passed changing a law that would have required the school board to leave the organization.

‰ The board heard further information regarding talks between the City of Ely and Morse Township over possible annexation.

Estimate indicates metals deposit near Ely shows promise

Minnesota Public Radio
July 6, 2007

Ely, Minn. – (AP) A metals deposit being explored near here contains an estimated 347 million tons of mineralized material that could be mined, according to an official from Duluth Metals.

The company has been drilling exploratory holes for copper, nickel, cobalt, palladium and other metals for two years on about 2,600 acres of leased state, federal and private land. The estimate, completed by Scott Wilson Roscoe Postle Associates of Toronto, shows there are enough metals there to make an underground mining operation economically feasible, said Henry Sandri, Duluth Metals president and chief executive officer.

"It's more than anticipated," he said. "We had hoped we would get numbers in excess of 200 million tons based on the interpretation of our own geologists."

He also added: "But we have a lot of work to do to improve on it. We have a lot of drilling left to do to define it tighter and find the sweet spots."

The estimate is based on results of 44 holes drilled by Duluth metals, along with 14 previously drilled holes. The estimate doesn't guarantee that a mine would be developed.

The company, a spin-off of Wallbridge Mining of Sudbury, Ontario, plans to drill another 30 to 50 holes this year. A preliminary scoping study and prefeasibility study could begin in 2008.

Ernie Lehmann, president of Minnesota Exploration Association, said estimates indicate there are more than 4 billion tons of mineable mineral deposits in northeastern Minnesota.

A commercial metals mine has never been developed in Minnesota. But with metals prices high and new methods of processing available, companies say mines could be economically feasible.

Two other exploration companies, PolyMet Mining Corp. and Franconia Minerals, are seeking to develop metals mines. PolyMet's would be an open pit mine south of Babbitt. Franconia's would be an underground mine, also near Babbitt.

Metals deposit near Ely shows promise

Duluth News Tribune
July 6, 2007

A metals deposit under exploration near Ely shows more promise than expected.

Duluth Metals' Nokomis deposit contains an estimated 347 million tons of mineralized material that could be mined, according to an independent resource estimate, Duluth Metals officials said.

"It's a big number," said Henry Sandri, Duluth Metals president and chief executive officer. "But we have a lot of work to do to improve on it. We have a lot of drilling left to do to define it tighter and find the sweet spots."

Duluth Metals has been drilling exploratory holes for copper, nickel, cobalt, palladium and other metals for two years on about 2,600 acres of leased state, federal and private land near Ely.

The estimate, completed by Scott Wilson Roscoe Postle Associates of Toronto, shows that the site contains enough metals to make an underground mining operation economically feasible, Sandri said.

"It's more than anticipated," he said. "We had hoped we would get numbers in excess of 200 million tons based on the interpretation of our own geologists."

The 347 million ton estimate is based on the results of 44 Duluth Metals holes drilled at the site along with 14 previously drilled holes.

However, the estimate doesn't guarantee that a mine would be developed at the site.

The company, a spin-off of Wallbridge Mining of Sudbury, Ontario, plans to drill another 30 to 50 holes this year to further define the ore body.

A preliminary scoping study and prefeasibility study could begin in 2008.

In an internal company contest, Duluth Metals recently named the deposit Nokomis, Sandri said.

Nokomis was the grandmother of Hiawatha in Henry Wadsworth Longfellow's poem "The Song of Hiawatha."

"When I showed up at my grandmother's, she always had sweets and cookies for me," Sandri said. "We hope our deposit will have some sweet spots."

Estimates are that Northeastern Minnesota has more than 4 billion tons of mineable mineral deposits, according to Ernie Lehmann, president of the Minnesota Exploration Association.

A commercial metals mine has never been developed in Minnesota. However, with metals prices high and new methods of processing available, companies say the development of deposits in Minnesota is economically feasible.

Two other exploration companies, PolyMet Mining Corp. and Franconia Minerals, are seeking to develop metals mines. PolyMet's would be an open pit mine south of Babbitt. Franconia's would be an underground mine, also near Babbitt.

Lehmann: Franconia project on track

Mesabi Daily News
July 3, 2007

Drilling for non-ferrous mining samples will continue on schedule this summer on or near Birch Lake near Babbitt, a longtime minerals exploration expert told the St. Louis County Board Tuesday.

Ernie Lehmann, a director with Franconia Minerals Corp., said drilling for samples of copper, nickel and platinum-palladium metals at its Maturi and Birch Lake projects will continue for a second season this year, and scoping would start probably this fall, with testing next year being done toward an environmental impact statement and permitting. A decision on going ahead with construction could come in 2009, but an underground mine would take longer to design, he added.

Interest in the potential of the region's non-ferrous deposits, which has seen PolyMet Mining Corp. developing a similar operation based out of the former LTV Mining plant near Hoyt Lakes, has picked up, with investors helping with the capitalization of Franconia's work, Lehmann said. "We're in very good financial shape at this point.''

Lehmann said the mine's life was expected to run about 25 years, but had the potential for further deposits exploration. About 550 high-paying, permanent jobs over the life of the mine could be expected, along with spinoff jobs among suppliers and possibly in copper products, as well as generating revenues to local governments. If all proceeded according to decisions and to their schedule, the mine could be operational by 2011, he added.

His presentation was an update for commissioners, who took no action, but asked him several questions on the project's impact to the county and region's economy.

Commissioners Keith Nelson of Fayal Township and Steve Raukar of the Hibbing area both said the project was great news for the region. Nelson asked Lehmann if he had contacted the University of Minnesota for any future use of underground space once mining ended for neutrino-type experiments such as at the Soudan Mine, while Raukar asked about exit reclamation strategies.

Lehmann replied he had not contacted the U of M on any neutrino-type studies; on reclamation, he said half of their tailings would remain underground, and any sulfur encountered in the process would be neutralized by mixing with limestone, of which 400 to 500 tons daily could be used in full operation.

"We think we have a good shot at taking good care of serious environmental concerns,'' he said.

Commissioner Mike Forsman of Ely noted there would be very small impact on the surface by a Franconia mine. Commissioner Steve O'Neil of Duluth asked what wetlands impacts there would be, to which Lehmann replied, the mine being underground, "will be minimal.''

In other action, the board gave final approval to: Rezoning of a parcel in the Crane Lake area from forestry to waterfront; a settlement with the Chubb Group of Insurance Companies for $128,021 and transfer of $25,000 from the insurance fund account as the result of a fire and loss of a tandem dump truck at the Hibbing maintenance facility on March 9; and surfacing of County Road 161, .8 of a mile in Proctor, to Hardrives Inc. of Rogers, Minn., for $129,624; and an additional access entrance opening on County Highway 13, Midway Road in the Duluth area, to the Iron Workers Union training facility and an indemnification agreement completed with the county.

As the Committee of the Whole, commissioners gave first approval to: Reconstruction of roadway of County Highway 154 (Fourth Avenue) in Ely, to Louis Leustek & Sons of Ely for $1,869,847; property and related insurance coverage for major structures and equipment from Chubb Group of Insurance Companies through Otis-Maglie Insurance Agency of Duluth for $194,414 from July 24, 2007, to the same date in 2008; a new job classification of a certified occupational therapy assistant at the county's Chris Jensen nursing home and deleting a vacant social worker position there; and support of a request by the city of International Falls for $6.48 million in state capital investment funding for constructing a new Voyageurs Heritage Center/Voyageurs National Park headquarters. These items face final action next week. A discussion of a lawsuit settlement with a former employee set for Tuesday was moved back to next week.