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Mine valuation to stand

March 14, 2012
By JOHN PEPIN - Journal Staff Writer ( , The Mining Journal

MARQUETTE - The Michigamme Township Board of Review adjourned Tuesday after two days of public hearings with neither Kennecott Eagle Minerals Co. officials nor the township assessor challenging a $191.5 million valuation placed on Kennecott's Eagle Mine last month by state geologist Hal Fitch.

The Board of Review receives written protests or appeals and allows for personal appearances by taxpayers or their agents who are protesting a property tax issue within the jurisdiction of the three-member review panel, which acts on each appeal.

By law, the Board of Review must convene during certain hours each March to allow for those public appeals. Kennecott's nickel and copper mine is located in Michigamme Township.

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"We are not appealing the valuation," Matthew Johnson, government and community relations manager with Kennecott in Ishpeming, said Tuesday. "Local jurisdictions are within their rights to challenge the assessment, since it is the first assessment of its kind in this state in many decades. Local jurisdictions may have questions and may choose to use the appeal process to test those questions."

Under the General Property Tax Act, Fitch must determine the true cash value of such non-ferrous mining projects by Feb. 10 each year after mine excavation has begun. Kennecott began blasting the portal to the Eagle Project last fall.

Fitch made his valuation, which represented a partial completion of the mine and excluded the Humboldt Mill in Humboldt Township. His determination was then certified by the State Tax Commission Feb. 15.

State tax officials then sent information on the valuation's calculation to Michigamme Township Assessor Howard Robare. From that information, local tax levies were determined. County officials said previously a total of $4.3 million in tax revenue could be expected this year, based on Fitch's valuation.

Under the law, Robare or the owner of any interest in the property addressed - which would be Kennecott or parent company Rio Tinto - may appeal the assessment and valuation through the Board of Review to the State Tax Commission. The commission would conduct a review and make a final determination.

Johnson said Fitch's valuation was based on the application of current Michigan law.

"The process included the (Kennecott) project providing all the required information about the financial aspects of the business," Johnson said. "The state applied that financial information to calculate the valuation. The valuation is within the range we expected."

Over recent weeks, county and township officials weren't sure whether the valuation was set too low without seeing backup documentation for Fitch's calculations. After requesting that data through a Freedom of Information Act request, lobbying lawmakers for assistance and finally demanding the materials from the state, the information was received last Friday.

However, by law, only Robare and Jackie Lykins, Marquette County deputy equalization director, were permitted to see all the background data.

Some of that information was considered proprietary by Kennecott and protected by law from further distribution. Marquette County Board member Gerald Corkin said at Tuesday's board meeting he thought all of the information on the mine valuation should be made public.

"The process I strongly disagree with," Corkin said. "It's not transparent."

In a letter to the board written Tuesday, Lykins said Fitch's valuation was performed using an "income/cash flow approach," an acceptable valuation method under state law. County Commissioner Bruce Heikkila said two other acceptable methods would include market and cost approaches.

Kennecott officials projected 63 operating days for this year, with 1,048 metric tons of ore mined each day. But with construction still under way, no ore extraction may take place this year.

Lykins said she and Robare reviewed the background data and discussed the valuation with Fitch.

"Mr. Robare has indicated he does not object to the partial valuation and further indicated he is not going to appeal that determination for this year based upon his review of the law and the materials furnished," Lykins said. "I can find no substantial reason to disagree with Mr. Robare's decision as it pertains to the valuation for 2012 and would respectfully defer to his judgment."

The county board voted unanimously Tuesday, with Commissioner Paul Arsenault absent, to accept Lykins' letter and not direct Robare to protest the valuation on the county's behalf.

Johnson said the property taxes involved are only one part of Kennecott's total tax liability, which also includes corporate income taxes, sales, use and payroll taxes and royalties that will be paid to the state during operation of the mine.

John Pepin can be reached at 906-228-2500, ext. 206.



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