Mine closure has devastating impact on Lincoln County economy

Just as Revett Mining was starting to get the Troy Mine back up to full production following their 2012 shutdown, the bottom dropped out of world copper markets and forced them to place the mine in care and maintenance status, a move that will result in the loss of an estimated 175 jobs in the Troy and Libby communities.

The mine, previously closed due to seismic instability, was in the process of ramping back up to full production and had approximately 85 workers back on the payroll, with the expectation of adding another 90 to 95 by mid-2015. Global economic changes forced the small producer to shutter the mine, as copper prices plummeted to the lowest point in over a decade.

In addition to the workers and families directly impacted by the loss of jobs, the ripple effects of the loss of that income will impact local businesses at every level. Restaurants, stores and other shops depend upon local consumers to keep themselves afloat, the dollars that are paid to those employees find their way into the hands of a number of additional places, keeping a small local economy alive.

The community celebrated the announcement of the mine’s reopening mere months ago, especially given the delays in permitting for the Montanore mine and Revett’s Rock Creek project. Work at the Troy Mine was expected to help keep the local economy afloat as those projects wound their way through the bureaucratic process.

The loss leaves a hole in the economic outlook of an already-depressed county. “It’s absolutely devastating,” said Lincoln County Commissioner Greg Larson. “It is a very serious economic blow to an area that is already severely economically depressed.”

THE IMPACT

The Troy Mine began the process of ramping back up to full production at the end of 2014. When the announcement of the shutdown hit, 85 people were back on the mine’s payroll. To make matters worse, the mine was expected to employ at total of between 170 and 175 workers when it returned to full production, which was expected to occur in mid-2015.

John Shanahan, president and chief executive officer of Revett, said the payroll at the Troy Mine was approximately $100,000 per week just prior to the layoffs. He had anticipated that payroll reaching as high as one million dollars per month once the mine hit full capacity later this year.

Those dollars will be hard to replace in the already-distressed Lincoln County economy.

The loss of those jobs has tremendous impacts upon the families of those immediately affected. Lincoln County already suffers under one of the state’s highest unemployment rates. Statistics provided by Kootenai Job Service show Lincoln County’s unemployment rate for November 2014 at 10.6 percent. Montana’s average unemployment rate for the same month was 4.3 percent.

Even with that rate, however, things were actually starting to look up for Lincoln County. Rates for the latter half of 2014 hovered around 10 percent, but the numbers for earlier in the year hit as high as 18 percent.

Kootenai Job Service manager Johnette Watkins was discouraged, but also hopeful. “It’s going to be difficult for our community to absorb that number of jobs,” she said. “It’s going to be tough, but we do have some federal grants that help through retraining and on-the-job training programs.”

In addition to the direct impact on the workers and their families, those dollars are vital to the survival of local businesses. As disposable income decreases, so will sales in other parts of the economy.

Commissioner Larson also expressed concern about the non-economic impacts of the shutdown, such as families moving away from a community that is already dwindling. “The last thing we want is to see our workforce disappear to Alaska, North Dakota or Nevada,” he said.

THE ECONOMICS

The precipitous drop in copper prices was a surprise to most observers, including Shanahan. Copper, though, is traditionally one of the most volatile metals on the commodities trading market, due mainly to its relatively low price. That low price means that even small fluctuations in cost of production can have dramatic impacts on the profitability of copper mining and production.

Several global economic factors contributed to the fall of copper prices, but none were as significant as declining oil prices. Energy accounts for an estimated 25 percent of copper production costs, so declining world oil prices resulted in much lower production costs for copper. That drop in production cost spurred global copper producers to dramatically increase their output, creating a glut on the market.

That glut combined with shrinking demand to create a perfect storm of conditions that wreaked havoc on world copper prices. The Chinese, far and away the world’s largest importers of copper, have entered into a “managed slowdown” of their economy, according to economic analysts at CRU Group. They estimate demand growth in China to drop from 5.5 percent to 4 percent in the coming year, which will keep copper prices down.

Elad Jelasko, a credit analyst with Standard & Poor’s, explained in a report issued Jan. 20, “The most significant changes are the revision to our iron ore price assumption to $65 per ton in 2015 and 2016, from $85 per ton previously, and the revision to our copper price assumption to $2.70 per pound in 2015 and 2016, from $3.10 previously.”

Shanahan said Revett’s target number was “around $3.00 per pound, although there’s really no magic number.” At $2.70, or $2.50 per pound, where copper closed on Jan. 19, it’s just not profitable to mine and produce copper at Troy.

Shanahan said the decision to place the mine into care and maintenance status was not taken lightly, “it’s the last thing we want to do,” he said.

THE OUTLOOK

The future of mine operations in Lincoln County is under a cloud of questions. Revett is currently working through the permitting process for the Rock Creek project and Minerals Management is also pushing forward on the Montanore project. Neither of which, however, show signs of being opened anytime in the near future.

Shanahan said he anticipates Revett finishing a Supplemental Environmental Impact Statement for the Rock Creek project by mid-2015. That will trigger a public comment period that will last a minimum of 60 days.

Procedurally, the United States Forest Service will then take the public comments into account and issue a Record of Decision on the project. Operations could begin immediately thereafter, assuming a favorable decision, but most observers anticipate legal challenges to the decision should a permit be issued.

Commissioner Larson expressed his frustration with the bureaucratic and judicial process, “Environmental impact statements are being written with an eye toward litigation, not what is best for the forest or the people,” he said. “Group have hijacked land management dollars for litigation.”

Litigation has resulted in permitting delays on several projects in the Kootenai National Forest in Lincoln County, including Revett’s Rock Creek project, the long-awaited Montanore mine and a number of timber harvesting operations.

Montana’s Sen. Steve Daines also highlighted the importance of regulatory and procedural changes to help Lincoln County and other rural counties that struggle with federal lands ownership and the economic hardship it brings, “In times of serious economic uncertainty, the closure of the Troy mine is disappointing news for Lincoln County and families who are hopeful for the return of western Montana’s resources industries. I will continue working to renew Secure Rural Schools and extend the critical stopgap payments that our rural counties depend on, but a long-term sustainable solution for Lincoln County is also needed. We need overall regulatory reform to rein in the permitting costs and delays that have undermined the viability of Montana mining projects. We also must implement meaningful, comprehensive forest management reform that helps revitalize Montana’s timber industry, in turn creating thousands of jobs and providing our rural communities, like Lincoln County, with a critical and stable source of revenue.”

Rock Creek could be the answer Lincoln County so desperately needs, and Shanahan reiterated Revett’s commitment to the project. “Our commitment to develop Rock Creek has not changed,” he said. “Developing Rock Creek and operating Troy in unison is the perfect situation for us.”

Shanahan intimated that Revett’s decision to close Troy might have been different if Rock Creek was producing, but couldn’t say for sure whether or not the decision would have changed. Revett’s goal was to continue to mine Troy while developing Rock Creek and then transition that workforce to the new mine.

“The best way for us to develop Rock Creek is with an experienced crew,” Shanahan said.

The short-term outlook for Troy isn’t very promising. Shanahan said it is unlikely that Revett will reopen the Troy Mine anytime soon. “The last thing we want to do is restart the mine and then six months later have to shut down again due to prices,” he said. “We’d have to have higher prices for a sustained period of time. Opening and closing isn’t fair to anyone, especially the employees of the mine.”

He did quantify that, saying unforeseen price increases could always change the outlook and the plan, but he also believes, as do most analysts, that the price of copper will remain low for the next year or two.

Fortunately, Rock Creek is still a feasible project in the current market environment. “At these prices, Rock Creek is economic,” Shanahan noted. And once Rock Creek is up and running, the decision to reopen Troy becomes easier.

Shanahan also expressed optimism about the future of copper prices, based upon the cyclical nature of the commodities market. “Things move when you least expect it,” he said. “We just don’t know what will happen. We didn’t see this coming, but it did. We’ll see $4 copper prices in the next few years. It might be two, it might be three, but one day we’ll wake up and wonder where that price jump came from,” he said.

One thing is clear, Lincoln County will again have to adapt to a rapidly changing economic environment. It’s something the people of this county have endured before. “We have a resilient workforce that has experienced setbacks before and rallied with an outlook on a brighter future. We have been contacted by the governor’s office and others offering their assistance to help our workers in this effort,” Larson concluded.