Mining Resurgence Revitalizes Upper Michigan Economy

Published July 6, 2012

Michigan’s economically beleaguered Upper Peninsula is experiencing a dramatic economic turnaround thanks to a resurgence in mining.

Mining gained momentum this year after a state judge rejected efforts by environmental activist groups to block permits issued by the state’s Department of Environmental Quality.

Miners Investing in Region

Rio Tinto is investing $469 million in a nickel and copper mine in the Upper Peninsula, known in Michigan as the U.P. Hudbay Minerals is investing $225 million in a gold, silver, copper, and zinc mine. Highland Resources is investing $11.5 million exploring for copper.

Mining companies expect these and other mining projects to create billions of dollars in economic activity in the U.P. during the next decade.

Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy in Midland, Michigan, says mining will revive the U.P. economy as long as government doesn’t get in the way and mess things up.

“Renewed interest in U.P. mining is another reminder of just how well the price mechanism works. It efficiently acts as a signal to produce more or less of things and does so in almost every arena of life,” LaFaive explained. “This is also a reason we must take care to prevent governments from distorting price signals.”

Neighboring States Take Notice
Analysts in neighboring states hope their states will follow Michigan’s lead.

“The United States has more than $6 trillion worth of untapped minerals waiting to be mined,” said Scott Manly, director of environmental and energy policy for Wisconsin Manufacturers and Commerce.

He continued, “Advances in mining technology allow valuable minerals to be mined in an environmentally responsible manner while providing family-supporting jobs–leaving the anti-mining crowd with no rational basis to oppose mining investment projects.”

“The frustration in dealing with demands by environmental activists is that they don’t recognize the importance of balancing human needs–[such as] wildlife habitat with timber harvesting, water quality with copper production,” said National Mining Association spokesperson Luke Popovich. “The economic side of the ledger is missing from their books.”

Tax Regime Gets Second Look
Michigan Gov. Rick Snyder (R) is proposing a 3 percent severance tax to replace other taxes and fees mining companies pay under existing law. The severance tax would be levied on the value of minerals removed from the ground, which would spare mining companies from paying large tax bills before their operations begin making money or when production is scaled back because of economic downturns or price declines.

Under Snyder’s proposal, local governments in mining regions collect and distribute the severance tax revenue, with 45 percent being kept locally for schools, police, and other local services, and the remaining 55 percent going to a new rural development fund offering grants for regional infrastructure projects.

D. Brady Nelson ([email protected]) is a Milwaukee-based economist.