MARQUETTE — Eagle Mine’s Economic Impact Assessment is the best case estimate of the project’s economic impact on the area. Published by Eagle Mine under Lundin Mining Corporation on October 17, 2013, the assessment was written in the previous spring of 2013 by senior economist for Rio Tinto, Anita Malhotra, and Eagle Mine’s external affairs manager Matt Johnson. It was created a few months prior to Lundin Mining Corporation’s acquisition of the mine, using a formula that calculates 250 direct / on-sight workers may also indirectly support an additional 1,250 jobs in the community.
The document was originally created omitting most risks in its projections. The assessment calculates that Eagle Mine will have a community economic impact of $4 billion in Marquette County.
The Eagle Economic Assessment offers a disclaimer of caution. Projections are not based on historical evidence, but upon forward-looking scenarios. The risks that may cause the actual results to very include (but are not limited to):
Environmental hazards, unusual or unexpected geological formations, ground control problems and flooding, risks associated with the estimation of mineral resources and reserves and the geology, grade, and continuity of the mineral deposits, the possibility that future exploration, development or mining results will not be consistent with the expectations, the potential for (and effects of) labor disputes, difficulties with shortages of labor, interruptions in production, actual ore mined varying from estimates of grade, tonnage, dilution, and metallurgical characteristics, the inherit uncertainty of production, cost estimates, unexpected costs and expenses, and commodity price fluctuations.
These incalculable variables are risks in mining, the document prefaces the list categorizing them as inherit in the field.
Anita Malhotra is a London-based Rio Tinto economist, whose work comprises of assessing, identifying, and evaluating the risks that arise from an operation’s impact in the local, regional and national economy. Malhotra has developed economic impact models with Rio Tinto for the better part of a decade, since 2007.
Matt Johnson is the co-author, an NMU graduate with 15 years administrative experience working for the U.P. in government on the Federal and State level. Johnson is better known for political communication and community development, and has been managing Eagle Mine’s External Affairs since November 2008.
A trio of Economic PhDs from MTU made up a steering committee – Mark Roberts, Paul Nelson, and Gary Cambell are said to have guided the assessment.
The Eagle Mine has an estimated production life of eight years. The assessment uses 14 years of cumulative revenue to showcase the project’s Gross Domestic Product impact to the County. It calculates jobs and tax revenue generated by the mine and the county as a whole. Closure of the mine is planned for 2022, but the assessment’s best case estimate uses rising GDP from 2011 to 2025. With production plans anticipated to decline in 2017, the 14 year estimated impact on the community is five times longer than their productivity. The contribution is said to be $4.0 billion to the county, compared to a GDP increase of $3.7 billion that the county would generate without the mine.
The Eagle’s Economic Assessment uses an accumulation of direct, in-direct, and induced effects to calculate the project’s economic impact. Direct – salaries paid, procurement of goods and services from local vendors, and the taxes paid to local government. Indirect – employees spending their paychecks toward local businesses, and local government using additional tax revenue for community-investments. Induced – the ripple effect of consumer spending, i.e. consumers spend extra cash on a hairdresser, the hairdresser then pays it forward to a waiter in the form of a larger tip, and so on and so forth.
If everything goes according to plan and the Eagle Mine avoids all cautionary inherit risks, the mine’s best possible long-term outlook will average a 7% increase atop normal County GDP growth. It’s an additional $280 million to the County each year. According to Malhotra and Johnson’s report, this is a 14 year trend totaling approximately $4 billion. The impact fluctuates over the course of the Eagle’s production phase, and peaks in 2016 at +20%. It will have a short contraction in impact in 2022 during the mine’s closure, but then is expected to steady thereafter.
The baseline (or normal GDP growth without the Eagle Mine) has a 14 year steady increase trend of about $260 million every year, no spikes, no booms.
Eagle’s Economic Assessment states that the mine’s 250 direct-hire on sight jobs will indirectly support an additional 1,250 other jobs in the community. Unlike the continuing impact of GDP, the employment trend does not continue past 2022 when the mine closes. The mine attributes the contagious hiring spree during the mine’s lifetime to a “multiplier of five” effect. For every one job the mine creates, the claim is that an additional five will sprout indirectly as result. On average, 250 positions will be filled each year. This average lasts until 2022.
The methodology of adding 1,500 jobs (250 direct, 1,250 in-direct) and $260 million annually is generated from a formula known as REMI PI+ (Regional Economic Model Inc). REMI PI+ calculates economic simulations to test the level of impact that a particular industry might have on a community. Economists use this model to interpret and forecast economic change. Data generated from the model takes into account demographics, local government policies, the environment, cost and access of utilities / energy / amenities, local taxes, and infrastructure variables.
The model shows that even though workforce sectors such as mining, construction, accommodations, and food-service are expected to benefit the most, certain sectors will see contractions in their work force. Education and transportation are examples of industries that would benefit more without Eagle. These workers will increase in numbers, but less than their normal projected growth.
The report attributes these contractions to demand for higher paying positions with the mine, and in lieu of a secondary education, opting for a career the mining sector.
Normally, in a developing country, a mine’s economic contribution can be driven by infrastructure improvements and tax spending. One of Lundin Mining Corporation’s other mining operations is located in the Democratic Republic of the Congo, where the Lundin Group of Companies has claimed communities have been the beneficiaries of new facilities – roads, schools, and construction improvements. Because Eagle is in the United States and in a location with a solid infrastructure, the report says tax payments are predominantly sent to the Federal government, so these same benefits are not witnessed. Eagle Mine’s economic contribution will be driven by its supply chain. Local school budgets, however, will change during volatile tax revenue fluxes. Schools will first benefit from taxes paid by Eagle during peak production, but the negative effect of the mine’s closure will have considerably larger impact on a tax payer publicly funded education system.
The motivation to create the Economic Impact Assessment is to offer complicated economic projections in simple terms to help the community understand the economic benefits of Eagle Mine. According to the mine, it’s a commitment to transparency, and will hopefully better prepare schools and local government for tax revenue. The projections are intended as a guideline for the local community to strategize their own economic plans. If schools and local governments spend, allocate, and budget accordingly, the eight year influx in workforce and short term economic boost may translate to long-term sustenance for Marquette County. According to the Economic Assessment and External Affairs manager Matt Johnson, the community is economically better off with than mine than without it. Johnson said they are currently surpassing expectations.