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The proposed mine would be located in the Duluth Complex of the Mesabi Iron Range. The surrounding area is currently suffering from an economic depression. The operation is projected to bring growth to northeastern Minnesota.
The proposed mine would be located in the Duluth Complex of the Mesabi Iron Range. The surrounding area is currently suffering from an economic depression. The operation is projected to bring growth to northeastern Minnesota.
The proposed mine would be located in the Duluth Complex of the Mesabi Iron Range. The surrounding area is currently suffering from an economic depression. The operation is projected to bring growth to northeastern Minnesota.
Winner of the 2013-2014 Securian Ethics Essay Scholarship Competition
An Ethical Analysis of PolyMets Proposed Mine
Kanad Gupta Miriam Hadidi Kevin Hyde Alexander Radunz John Rodgers Farez Siddiqui
MGMT 1005 Corporate Responsibility and Ethics, Section 002 Professor Jeffrey Kaufmann University of Minnesota March 26, 2014 Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 2
PolyMet Mining Corporations proposed mine has received a great deal of both opposition and support. As a result of the growing controversy, the outside directors on PolyMets board have asked: Is going forward with the proposed mine ethical on the part of the company? Based on the analysis outlined below, it is clear that it would be unethical for PolyMet to move forward with the proposed mine. Considerations must be made for all relevant stakeholders, including the citizens and industries who would be directly impacted by the mining operations environmental harm. Overall, the environmental implications dwarf the claims of economic benefits for this northeastern Minnesota region. The proposed mine is an operation that would be located in the Duluth Complex of the Mesabi Iron Range. The area has a rich history of mining activity and the Duluth Complex currently contains the worlds third-largest accumulation of nickel and the worlds second- largest accumulation of copper and platinum-group metals (PolyMet Mining 1). Moreover, the surrounding area is currently suffering from an economic depression. This makes the Duluth Complex a preferred location for PolyMet because of the potential economic gains. Still, the possibility of negative environmental consequences poses a major ethical dilemma for the outside directors of PolyMet. The situation becomes a complex ethical dilemma because the outside directors of PolyMet have obligations to shareholders and the corporation, while they also have an obligation to consider other stakeholders who may be affected by environmental damage. Furthermore, the operation is projected to bring growth to northeastern Minnesota, a region which is suffering from an economic depression. Regarding environmental damage control, PolyMet plans to use the profits generated from the operation to alleviate the significant harm done to the local water. Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 3
However, it is unclear whether the water treatment plan is a viable solution because it does not account for storm runoff, flood plains, or water seepage. More importantly, the negative effects sustained by the environment would likely affect the Boundary Waters and Lake Superior, thereby damaging the sustainable tourism industry for 500 years even if the water cleanup plan is in fact successful. Unfortunately, if PolyMet were to declare bankruptcy, the responsibility to clean up would be placed upon the taxpayers. All of these factors surrounding the operation pose a major ethical dilemma, which can be broken down into three key conflicts: I. The first issue is a conflict between short-term and long-term economic efficiency. The short term benefits of the mine include an estimated $10.3 billion in revenue over twenty years for PolyMet, which would surely fulfill the financial obligations to the investors and corporation itself (PolyMet Mining 1). Moreover, the mine would stimulate economic growth in a suffering area by producing large sums of tax revenue and job opportunities (PolyMet Mining 1). However, the long-term effects of the operation suggest a much larger economic and environmental threat than what may have initially been considered. If the mine were to damage local bodies of water, the tourism and forestry sectors of the northeastern Minnesota economy could become massive victims of the twenty year mining operation. The tourism and forestry sectors produce about 21% of the gross regional product, which has been consistent over the past decade (see Appendix A). In comparison, the mine will remain intact for a twenty year maximum and is liberally projected to produce a little more than 3% of the gross regional product per year in revenue (see Appendix C). The economic boom will be short-lived and the conditions of the surrounding communities could potentially worsen once the surge wears thin due to the safety hazards of acid mine drainage, sulfuric acid, and toxic metals, in addition to the decrease in lake home real estate values that follow these hazards. Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 4
II. The second issue that poses an ethical dilemma is a conflict between economic efficiency and social norms. Like in most corporations, PolyMet officials intend to pursue actions that are in the best interests of their own company and investors. Moving forward with the mine could ensure profitability, as well as potentially bring prosperity to an economically depressed area. From a utilitarian perspective then, going forward with the mine would be the most economically efficient decision, at least in the short run. On the other hand, PolyMet must consider the societal norms and expectations of the residents of the region and how they will receive the mining operation. There are many opponents to the mine that are concerned with the legitimate threats that the operation poses to the environment. Opponents of the mine may be able to make PolyMets operation more difficult by lobbying for stricter guidelines and laws. So, for purposes of public relations, it is important that PolyMet addresses the social norm of not harming the environment. III. The third key issue that poses an ethical dilemma is the conflicting social norms of the proponents and opponents of the mining operation. With respect to shareholder primacy theory, PolyMet has obligations to their investors. Since PolyMet is a corporation that receives financial backing through investors, it is their obligation to pursue the interests of their investors. It is possible that if PolyMet does not move forward with their proposed mine, they could lose valuable capital and become less stable as a company. Alternatively, stakeholder theory posits that PolyMet should consider all who may be impacted by the mining operation, including the environment and other citizens or industries. Due to this conflict, the outside board of directors are confronted with an ethical dilemma concerning which social norms are to be considered most important. To gain a deeper understanding of the matter at hand, a stakeholder analysis was produced from the perspective of the outside board of directors at PolyMet (see Appendix B). Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 5
Based on the stakeholder analysis (see Appendix B), PolyMet and its shareholders are considered the most important and most powerful stakeholders to the outside directors. However, parties that are opposed to the mine also hold a moderate amount of power to affect this decision, even if they are not necessarily of very much importance to the outside directors. These parties include the state government, local community, environmental activists, and the tourism industry. These parties prioritize the safety and sustainability of the environment, and may be able to affect the fluidity of PolyMets mining operation by advocating for harsher regulations. They also have the right to a clean environment, which should not be infringed upon simply in the name of profit. These rights become a vital part of this stakeholder analysis. Based on the conflicts and interests outlined above, we must resolve the following questions in order to explain why going forward with the proposed mine is unethical: 1. What are the environmental implications of the proposed mine and how will they affect the stakeholders? With respect to the environment, the mine would likely be a disaster. Similar sulfide mines all across the world have yielded severe and long lasting contamination in the area around the mines (see Appendix D). PolyMets proposed mine, however, is an even larger concern than past mines because the mine and processing facility would be located on the St. Louis River basin. Legal scholar Maccabee points out that virtually all sulfate releases within the St. Louis River basin can be considered high-risk since wetlands, floodplains, and lakes are common in the region (1118). This is particularly dangerous because the basin drains into the St. Louis River, which is the largest U.S. tributary to Lake Superior (Environmental Protection Agency 1). These bodies of water are very important for the people of northern Minnesota. The wetlands serve as systems that can transport and filter water, while providing direct benefits to the environment, Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 6
including but not limited to: nutrient assimilations, recreation, ground water discharge and recharge, and habitat for rare plant and animal species (Minnesota Department of Natural Resources 6). Acid mine drainage is the most significant problem associated with mining copper and other heavy metals. When metal sulfide minerals within rock are exposed to water and oxygen (oxidation), the reaction yields sulfuric acid. The problem is that open pit sulfide mines [increase oxidation] of metal sulfide minerals and therefore increase the amount of sulfuric acid that will leach from the rock into the surrounding bodies of water (Maccabee 1116). PolyMets large scale operation would undoubtedly alter the environment as it would disturb an area of wetlands of at least 1,522 acres (Maccabee 1117). The acidic water caused by sulfide mines destroys native wildlife and is even a threat to human safety. Human exposure to sulfuric acid can cause nausea and headache, while accidental ingestion may cause major damage and bleeding to a persons digestive tract (Oregon Health Authority 1-2). Just as frightening, contact with skin and eyes may cause burns and eye irritation that can lead to blindness (Oregon Health Authority 2). This poses a serious threat to human safety. It would be unethical to put the health of citizens at risk. Proponents of the mine may assert that with the correct treatment and care, the probability of substantial pollution is very low. But, PolyMets plan for damage control does not account for stormwater runoff and groundwater seepage that represent pathways for the project to affect water quality in the Partridge River and Embarrass River (Maccabee 1120). This is crucial because the Partridge and Embarrass Rivers flow into the St. Louis River which eventually flows into Lake Superior (Minnesota Department of Natural Resources 1). Thus, Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 7
PolyMet leaves major holes in their damage control plan and will likely affect bodies of water that are not a part of their post-operational clean-up jurisdiction. The tourism sector of northeastern Minnesota would also be affected by environmental damage caused by the mine. Currently, tourism and recreation in northeastern Minnesota itself generates $1.6 billion per year (Mining Truth 20). Unfortunately, the proposed mine would pollute waters that are at the heart of this industry. This would make it less safe for tourists to visit major attractions such as the Boundary Waters Canoe Area Wilderness, which is estimated by the Forest Service to bring in $100 million yearly (Mining Truth 20). Thus, as the environmental effects of the mine become more evident, the northeastern Minnesota tourism sector could become less stable due to safety hazards from chemicals in the water. If the tourism industry can promote a safe environment, it will likely continue to be an annual multi-billion dollar industry, while the proposed mine operation would only generate $10.3 billion in its complete twenty year lifespan (PolyMet Mining 1). Overall then, it seems, damaging the environment becomes a large cost to pay even considering just economics. 2. What are the benefits to the proposed mine, and do these benefits outweigh the potential environmental consequences? The UMD Labovitz School of Business and Economics generously projects PolyMets proposed mine to produce $500 million in economic benefit annually to northeastern Minnesota (PolyMet Mining 1). The mine is estimated to create 360 stable mining jobs and even 600 indirect jobs, on top of a contribution of $2 million annually for northeastern Minnesota schools (PolyMet Mining 1). These benefits will continue until the 20 year permit expires. Given solely these estimates, the mine would reduce the economic depression of northeastern Minnesota and fulfill the duty of the outside directors to PolyMet and their shareholders. Thus, Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 8
adopting a utilitarian perspective in the short-term, one may consider moving forward with the mine as an ethical decision. However, the long-term outlook following the mine is unacceptable. As outlined above in question #1, the environmental implications of the operation are immense. Not only would the mine place the tourism sector at risk, but the local communities following the twenty year period would likely return to a poor economy. The economic boom would be short-lived and would not outweigh the long term consequences that the mine imposes on the environment. Therefore, from a long-term oriented utilitarian perspective, not moving forward with the mine would be the best option. 3. Do the duties owed to PolyMet and its shareholders outweigh the rights of the environment and stakeholders affected by the mining operation? In resolving this question, one should adopt a justice-based approach to ethics. It is important to consider the duties that are owed to PolyMet and their shareholders, as well as the rights of the stakeholders who would be affected by the mine. To decide whether going forward with the mine is ethical, the fairness of the outcomes for each stakeholder should be considered. As shown by the data, the main short-term beneficiaries of the mining operation are the local community and PolyMet along with its shareholders, who will all experience economic growth and gains. However, following the twenty year operation, the local community and tourism industry seem to only be affected negatively by the externalities of the mine. In fact, in the long-term, the mine would have an overall adverse effect on the economy of the local community and tourism sector, the latter of which already contributes more than $784 million annually in gross sales and supports over 18,000 jobs (Iron Range Resources and Rehabilitation Board 1). Moreover, the mine would introduce numerous safety hazards for both humans and Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 9
animals. Based on these factors, it is clear that it would be unfair and unethical to move forward with the proposed mine. 4. Is water cleanup a feasible solution following the project? PolyMet has offered to fund and run an ongoing water treatment operation at the site of the mine in order to offset the pollution caused by the mine. PolyMet has estimated that polluted water would need to be treated for 200 years at the mine site and 500 years at the offsite processing plant, at an estimated cost of $3.5 to $6 million per year (Meador 2). Frankly, no cleanup procedure lasting this long is practical or feasible, especially without risking taxpayer money. Even so, PolyMets estimate is just that: an estimate. In actuality, there is no way of knowing for certain the entire duration of the treatment (Dunbar and Kraker 1). The treatment may actually be a perpetual process, which would be in violation of Minnesota state law (Meador 5-6). This indicates a possible non-disclosure of information by PolyMet to protect the viability of the project. It is clear how difficult this decision must be for the directors at PolyMet due to the implications for both the companys prosperity and the quality of the water in northeastern Minnesota. When using an ethically structured approach to help determine whether to go through with the mining operation, it becomes quite salient that the environmental implications of the decision are too strong for the directors to disregard, and that going forward would be unethical. Although this is not in the best interests of the shareholders and people involved within the corporation, this decision will secure the quality of life for people in the region and preserve the biodiversity of the area for generations to come.
Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 10
APPENDIX A
Source: Labovitz School of Business and Economics. "The Economic Impact of Ferrous and Non-Ferrous Mining." UMN.edu. University of Minnesota Duluth, Nov. 2012. Web. 25 Mar. 2014.
Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 11
Stakeholders Interests in the decision Duties owed to Stakeholder Importance to Decision Maker (Board of Directors) Stakeholder Power PolyMet Mining Corporation Maximize returns and remain stable Serve in the best interests of the corporation High it is the directors job to seek success for the firm High The reputations of directors are heavily influenced by the corporations success Shareholders of PolyMet Maximizing the value of the shares of the PolyMet Mining Corporation Serve in the best interests of the shareholders such as maximizing the value of shares High - the directors are appointed to serve in the best interests of the shareholders High - Shareholders influence the amount of capital available for PolyMet and can influence the directors' role Local Community Improve and stabilize economy; adequate resources for water Be respectful of the environment and maintain safe standards for the mine Medium - PolyMet's publicity is dependent on the effects on the local community Medium - The welfare of the community will affect the reputation of PolyMet. Also, they have a powerful public voice on the matter. Tourism Industry (environment) Maximize returns and keep environ- ment in a stable state that allows tourism to thrive Be respectful of the environment in the pursuit of profit Low - relative to the corporation or shareholders of PolyMet, the tourism industry is of little concern to the directors Low - the industry is mostly incapable of physically rallying to prevent the operation, especially when compared with the government or shareholders Environmental Activists Ensure protection of the environment Although the directors have an obligation to respect the environment, they do not owe anything to the activists themselves Low - although the activists may campaign and address key issues, the directors have little regard for many of the activists since some are outsiders Medium - Environmental activists can advocate for harsher regulations or even advocate against the mine altogether and have a powerful voice capable of change MN State Government Safe environ- ment, econ- omic growth, citizens well- being Adhere to regulations Medium - the government can strongly affect the operation High - the government can implement regulations that can either make the operation more difficult or even shut it down Potential Employees of the mine (300- 360) Creation and upholding of stable mining jobs They do not owe the creation of a job to anyone Low - the job of the directors is to serve the interests of the company, not employees Low - if the decision results in them not having mining jobs, they will for the most part just look for other opportunities APPENDIX B: STAKEHOLDER ANALYSIS *Outside directors of PolyMet are the analyst/decision maker Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 12
Stakeholders Rights that belong to Stakeholder Importance of the decision to the stakeholder Anticipated Reaction (mine) Anticipated Reaction (don't mine) PolyMet Mining Corporation PolyMet has the right to directors that serve in the best interests of their company High - This mining operation would contribute a lot to their financial success PolyMet will experience positive growth PolyMet will be unhappy because of their failure to attain a company goal. It is likely they will look for alternative mining projects Shareholders of PolyMet PolyMet has the right to the shareholders that serve in their best interests because the shareholders appointed them High - This mining operation contributes a lot to the growth in value of shares The shareholders will reap the rewards of the growing company and may choose to invest more Shareholders will take losses. It is likely that some will sell their shares, causing PolyMet to lose capital Local Community The expectation is that PolyMet will uphold the well-being economically and environmentally of the community High - the future of the community's economy and water is highly dependent on the outcome of the decision They will experience economic growth, but will face long term environmental consequences Will be unhappy due to continuation of the economic depression but will be free of the risk of harmed water and forests Tourism Industry (environment) The tourism industry expects the directors to adhere to the social norms and regulations regarding the environment High - The environmental implications of the operation may have a massive effect on outdoor tourism The long term impact of the operation on the water will drastically hurt tourism & forestry Will be happy because the environment will face less risk of pollution Environmental Activists The activists expects the directors to adhere to the social norms and regulations regarding environmental impact High - the environmental implications of this sulfide mining operation are massive Activists will likely advocate for harsher regulations to make PolyMet's activities difficult Will be happy because the environment will face less risk of pollution MN State Government The MN State Government has the right to enforce regulations and laws High - this decision directly affects the welfare of MN citizens The MN State Government will enforce regula- tions and benefit from tax revenues Will enjoy security of safe citizens with no environmental damage and less risk of increasing taxes Potential Employees of the mine (300- 360) There is an expectation that the firm will hire the employees as needed Medium - potential employees are likely prepared to look for less appealing job opportunities Will enjoy stable mining jobs for the length of the 20 year operation They will likely search for employment elsewhere but will be unhappy for the loss of opportunity Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 13
APPENDIX C: THE ESTIMATED CONTRIBUTION OF THE PROPOSED MINE TO THE GROSS REGIONAL PRODUCT
PolyMets Estimated Economic Benefit $515 million Gross Regional Product of Northeastern MN in 2010 $14.9 billion Percent Estimated Contribution of the Proposed Mine to the Gross Regional Product Relative to the Gross Regional Product of Northeastern MN in 2010 3.5%
Sources:
Labovitz School of Business and Economics. "The Economic Impact of Ferrous and Non- Ferrous Mining." UMN.edu. University of Minnesota Duluth, Nov. 2012. Web. 25 Mar. 2014.
PolyMet Mining. "Investing in Our Region and State." PolyMet Mining. PolyMet Mining, n.d. Web. 24 Mar. 2014.
Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 14
Sadbury Mining and Smelting Region of Canada Mine in Orijrvi, Finland Britannia Mine in British Columbia, Canada The mines in this region have caused large areas of forest desolation due to sulfur dioxide fumigations over the past 80 years. Even soils within 2-3 km were many more times acidic than untouched soils. Heavy metals are persistent in soils, and the ecological consequences to date have perhaps only been masked around Sudbury by the sulfur dioxide damage, and the particular importance attached to it in the past.
Source: Hutchinson, T.C., and L.M. Whitby. Heavy- metal Pollution in the Sudbury Mining and Smelting Region of Canada, I. Soil and Vegetation Contamination by Nickel, Copper, and Other Metals. Environmental Conservation 1.2 (1974): 123-132. MNCAT Article Discovery. Web. 25 Mar. 2014. The Cu (Pb, Zn) mine of Orijrvi (17571956) was the first mining operation in Finland where flotation techniques (1911 1955) were used to enrich ore. Large quantities of tailings were produced. The nearby lake water still has elevated heavy metal concentrations. It has low productivity, and the planktic diatom community is still not developed. The study demonstrates that unremediated mining areas form a major risk to the environment. The damage to aquatic ecosystems can remain severe for decades after the mining activities have ceased. Source: Salonen, Veli-Pekka, Tuovinen, Nanna, and Samu Valpola. History of Mine Drainage Impact on Lake Orijrvi Algal Communities, SW Finland. Journal of Paleolimnology 35.2 (2006): 289- 303. MNCAT Article Discovery. Web. 25 Mar. 2014.
Britannia copper mine operated from 1927 to 1974. To this day, millions of liters of contami- nated water still flow from the mine into the ocean In the area, there has been a disappearance of fish and shellfish. It was also reported in 1997 that the only sign of life in Britannia Creek is some algae on rocks. Rainwater and snowmelt pour into the mine, causing acid mine drainage that leaches metals and acidic water out of nearly 160 km of tunnels. Estimated costs for cleanup greater than $10 million.
Source: "Acid Mine Drainage: Mining and Water Pollution Issues." MiningWatch.or g. Environmental Mining Council of British Columbia, 2000. Web. 25 Mar. 2014. APPENDIX D: THE EFFECTS OF PAST SULFIDE MINES Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 15
Works Cited Dunbar, Elizabeth, and Dan Kraker. "Water Treatment a Central Question in PolyMet's Environmental Study." MPR News. Minnesota Public Radio, 5 Dec. 2013. Web. 25 Mar. 2014. Environmental Mining Council of British Columbia. "Acid Mine Drainage: Mining and Water Pollution Issues." MiningWatch.org. Environmental Mining Council of British Columbia, 2000. Web. 25 Mar. 2014. Environmental Protection Agency. "St. Louis River & Bay Area of Concern." EPA. Environmental Protection Agency, 20 June 2013. Web. 25 Mar. 2014. Hutchinson, T.C., and L.M. Whitby. Heavy-metal Pollution in the Sudbury Mining and Smelting Region of Canada, I. Soil and Vegetation Contamination by Nickel, Copper, and Other Metals. Environmental Conservation 1.2 (1974): 123-132. MNCAT Article Discovery. Web. 25 Mar. 2014. Iron Range Resources and Rehabilitation Board. "Northeastern Minnesota Jobs, Businesses, Economy Boosted by Impact of Tourism Industry." Iron Range Resources and Rehabilitation Board. Iron Range Resources and Rehabilitation Board, 6 May 2011. Web. 25 Mar. 2014. Labovitz School of Business and Economics. "The Economic Impact of Ferrous and Non- Ferrous Mining." UMN.edu. University of Minnesota Duluth, Nov. 2012. Web. 25 Mar. 2014. Maccabee, Paula Goodman. Mercury, Mining in Minnesota, and Clean Water Act Protection: A Representative Analysis Based on the Proposed Polymet Northmet Project. William Mitchell Law Review 36.1 (2010): 1110-1145. MNCAT Article Discovery. Web. 25 Mar. Gupta, Hadidi, Hyde, Radunz, Rogers, Siddiqui 16
2014. Meador, Ron. "Review of PolyMet Mining Project Finds Treatment, and Costs, Lasting Centuries." MINNPOST. MinnPost, 10 Dec. 2013. Web. 24 Mar. 2014. Mining Truth. "Frequently Asked Questions about Sulfide Mining in Minnesota." Mining Truth. Mining Truth, May 2012. Web. 25 Mar. 2014. Minnesota Department of Natural Resources. "Minnesota's Water Supply: Natural Conditions and Human Impacts." Minnesota Department of Natural Resources. Minnesota Department of Natural Resources, Sept. 2000. Web. 25 Mar. 2014. Minnesota Department of Natural Resources. "Northmet Mining Project and Land Exchange Supplemental Draft Environmental Impact Statement: Water Quality." Minnesota Department of Natural Resources. Minnesota Department of Natural Resources, 6 Dec. 2013. Web. 25 Mar. 2014. Oregon Health Authority. "Fact Sheet for Sulfuric Acid." Oregon.gov. Oregon Health Authority, Sept. 2011. Web. 25 Mar. 2014. PolyMet Mining. "Investing in Our Region and State." PolyMet Mining. PolyMet Mining, n.d. Web. 24 Mar. 2014. PolyMet Mining. "Doing Things Right with a Modern, Safe Mine." PolyMet Mining. PolyMet Mining, n.d. Web. 24 Mar. 2014. Salonen, Veli-Pekka, Tuovinen, Nanna, and Samu Valpola. History of Mine Drainage Impact on Lake Orijrvi Algal Communities, SW Finland. Journal of Paleolimnology 35.2 (2006): 289-303. MNCAT Article Discovery. Web. 25 Mar. 2014.