Utah buys bankrupt U.S. Magnesium plant and the water rights that come with it

An aerial photo shows the now-defunct U.S. Magnesium plant west of the Great Salt Lake in Tooele County. The state of Utah has purchased the site in a bankruptcy court auction. The purchase includes 144,000 acre-feet of water rights that will now be “returned to the lake.” (Courtesy U.S. Magnesium) 

The misfortunes of a major mineral producer on the Great Salt Lake have seemingly become a significant boon to the efforts of the state of Utah to secure the future health of the historic body of water. 

A Delaware bankruptcy has approved the sale of most of assets of defunct U.S. Magnesium’s mineral extraction operation assets on the western shore of the Great Salt Lake in Tooele County to the state for $30 million. U.S. Bankruptcy Judge Brendan L. Shannon overruled an objection that the transaction would end U.S. Magnesium’s efforts to reopen
the facility.

The Judge ruled that the Utah Division of Forestry, Fire and State Lands’ bid to buy the 4,500 acres of land on the shore of the Great Salt Lake, along with U.S. Mag’s mineral rights contract with the state, for $30 million was the highest and best offer to come out of a recent Chapter 11 auction.

The judge delayed his sale order to give Utah and the debtors time to work out a handful of objections, but overruled an objection from Wells Fargo Bank, a secured lender that had alleged the deal was an about-face from U.S. Magnesium’s plan to find a going-concern buyer. The sale was to have closed last week.

Utah’s effort to win the bid for the U.S. Magnesium assets was based largely on the possibility of securing the water rights owned by the bankrupt company. Those rights amount to 144,000 acre-feet of water that will now remain in the quickly drying lake, according to Jamie Barnes, director of the Utah Division of Forestry, Fire and State Lands, when she updated legislators on the state’s efforts following the bankruptcy judge’s decision in late January. Utah’s Legislature is currently in its annual general session in Salt Lake City.

Officials have indicated that the $30 million purchase price for the U.S. Magnesium assets will likely come from state’s “rainy day” funds and that no new appropriations from the Legislature will be necessary. Lawmakers approved the transaction last week.

U.S. Magnesium ceased operations at its Great Salt Lake facility in 2021 citing “adverse market conditions” and following a “catastrophic” equipment failure. The company had been extracting magnesium and other minerals from the lake at the site 40 miles west of Salt Lake City since 1972 under a mineral lease with the state.

U.S. Magnesium filed for Chapter 11 bankruptcy protection in September, estimating between $100 million and $500 million of liabilities and announcing plans to sell its assets in bankruptcy. Wells Fargo gave the company an $11.5 million loan to fund the bankruptcy, taking a first position in any asset liquidation.

Adding to the company’s prebankruptcy troubles, in 2024, the state of Utah moved to terminate the mineral rights lease and the U.S. Environmental Protection Agency accused U.S. Mag of failing to take ordered environmental clean-up steps, according bankruptcy court documents.

U.S. Magnesium had lined up a “stalking horse” bid from LiMag Holdings LLC, an affiliate of its parent company. A stalking horse bid is a prearranged bid that sets a price floor for the sale of bankruptcy assets. LiMag’s offer drew fierce opposition from the unsecured creditors, while the Utah Department of Environmental Quality claimed the deal would allow the buyer to avoid environmental clean-up rulings.

Utah had initially offered $15 million in the court-administered auction and battled back and forth with LiMag until its $30 million offer seemed too steep for the stalking horse bidder. The sale to the state does not include assets on which Wells Fargo has a lien, such as inventory and equipment or U.S. Magnesium’s Salt Lake City headquarters.

“By securing these assets, the state is keeping more water in the lake, addressing long-standing environmental risks and supporting advanced mineral development,” said Gov. Spencer Cox in a social media post following the bankruptcy court announcement. He praised the Utah Department of Natural Resources for its involvement. “This is a commonsense investment in Utah’s future, and in one of our most important natural resources.”

Utah’s legislators generally praised the state’s move, including Rep. Jason Thompson, R-Logan, who praised the move as a pivotal step to protect the Great Salt Lake, secure water for Utah’s future and address long-standing environmental risks at the site.

“This is a huge win for Utah and for the Great Salt Lake,” said Thompson. “We are taking control of assets that have been tied to major environmental concerns and, most importantly, we are securing water that can help keep the lake alive. This is exactly what responsible stewardship looks like.”

“When the Great Salt Lake drops, Utah families feel it in real ways,” Thompson continued. “It impacts air quality, wildlife habitat and the economy along the Wasatch Front. This purchase is about protecting public health, our environment and making sure these resources don’t end up in the wrong hands.”

The added value of the water rights that come with the state’s purchase lead the news about the transaction as water levels of the Great Salt Lake continue to make headlines. The lake’s current surface elevation around 4,190 feet is “scary low,” according to Brian Steed, Great Salt Lake commissioner and executive director of the Janet Quinney Lawson Institute for Land, Water and Air at Utah State University. The current measurement is nearing levels not seen since the lake hit a historic low of 4,188.5 feet in fall 2022.

The shrinking lake adversely affects Utah’s population, damaging everything from industry to community health, lake watchers say. As the water recedes, the lakebed is exposed, which contributes to poor air quality as storms whip up toxic, heavy metal-laden dust that spreads to population centers across the Wasatch Front. That can cause respiratory problems and other health issues.

Declining levels can also expose microbialites, organic deposits that are a crucial part of the lake’s ecosystem. Microbialites are essential for brine fly populations, the main food source for millions of migratory birds that stop on the lake. If the microbialites are exposed for long periods of time, it can prompt a chain reaction ultimately impacting the entire ecosystem.