winning essay - 2013-2014 securian ethics essay scholarship competition

Winner of the 2013-2014 Securian Ethics Essay Scholarship Competition

An Ethical Analysis of PolyMet’s 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 Corporation’s proposed mine has received a great deal of both

opposition and support. As a result of the growing controversy, the outside directors on

PolyMet’s 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

operation’s 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 “world’s third-largest accumulation of nickel and the world’s 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.


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.


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 PolyMet’s 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).


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 PolyMet’s 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). PolyMet’s 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,


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).

PolyMet’s 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 person’s 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, PolyMet’s 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,


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 PolyMet’s

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,


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


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, PolyMet’s 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 company’s 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.


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.


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 corporation’s 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


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


APPENDIX C:

THE ESTIMATED CONTRIBUTION

OF THE PROPOSED MINE TO

THE GROSS REGIONAL PRODUCT

PolyMet’s 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.


Sadbury Mining and

Smelting Region of Canada

Mine in Orijärvi, 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

Orijärvi (1757–1956) 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 Orijärvi 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


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.


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 Orijärvi Algal Communities, SW Finland.” Journal of Paleolimnology 35.2

(2006): 289-303. MNCAT Article Discovery. Web. 25 Mar. 2014.

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