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Sand mine’s economic impact

If A.F. Gelhar Mining Co. opens the sand mine in the town of Union, it could create up to 34 jobs in Waupaca County.

According to figures from the University of Wisconsin Extension office in Waupaca County, the new jobs alone could have a $1.5 million impact on total wages earned in the county.

Mike Koles, community development educator at UW Extension, said Gelhar plans to employ 26 people at the mine and eight people as truck drivers.

Wages would range between $15 and $25 per hour and most of those workers would live in Waupaca County.

“We want as many jobs as we can get in our county because we are significantly under the state and the country in the amount of income coming from jobs,” according to Dave Thiel, executive director of the Waupaca County Economic Development Corp.

Thiel noted that per capita personal income is $39,635 in the United States and $37,373 in Wisconsin, while it is $35,635 in Waupaca County.

He attributes the income disparity between Waupaca County and the rest of the country in part to the need for more local jobs.

In Waupaca County, 58.2 percent of the total income comes from employment.

In the United States and the state, more than 64 percent comes from employment, according to a 2011 economic analysis by the U.S. Department of Commerce.

In Waupaca County, 24.6 percent of all income comes from government transfers, which includes financial aid, Social Security and some business subsidies.

In the state as a whole, 18.4 percent of income comes from government transfers, while 17.5 percent of the nation’s total income comes from transfers.

If Waupaca County is to increase the number of high-paying jobs, Thiel believes that growth will be led by manufacturing.

Manufacturing in Waupaca County

“Most people are not aware of how strong manufacturing is in our county,” Thiel said. “Manufacturing jobs are very important to the county’s economy.”

Manufacturing is the county’s largest economic sector, accounting for more than $2 billion in sales.

Manufacturing employs 24 percent of the county’s total work force and provides a total income of $226 million, Thiel said.

Thiel contrasts manufacturing with tourism, the county’s third largest economic sector.

Tourism in Waupaca County generates $77.5 million in sales and employs 17 percent of the work force, with a total payroll of $21.5 million.

Thiel noted that the average wage earned in manufacturing in Waupaca County is $48,460, almost $16,000 more than the average wage earned in non-manufacturing jobs.

The cluster effect

Koles points to the concept of “clustering” as part of the reason manufacturing has become so central to Waupaca County’s economy.

First explained by Harvard economist Michael Porter, the cluster concept recognizes that when related companies operate in the same area, competitive advantages begin to emerge.

The most notable example has been the Silicon Valley in California, where a large number of computer-related companies were launched, followed by suppliers, engineering firms and other businesses related to the field.

“The closer your supplier is to you, the cheaper it is for you to make your product,” Koles said. “You also start to create a brain trust in your industry. You have more intellectual innovations, better productivity. It gives you a competitive advantage.”

Thiel sees the proposed sand mine as an example of Waupaca Foundry’s cluster effect on the county’s economy.

“The more inputs you have solidified locally, the more likely you will have a cluster,” Thiel said.

“And the more likely the cluster will stay globally competitive,” Koles added.

Koles said the foundry has three key components to its production process: a trained work force, scrap metal and sand.

“The foundry is trying to secure one of their key inputs,” Koles said.

Thiel said the foundry is currently facing rising sand costs due to high demand created by the natural gas industry.

Hydraulic fracturing, also known as fracking, has caused a surge in gas well drilling in shale deposits and coal seams.

The number of shale gas wells grew from 342,000 in 2000 to 510,000 in 2010. Fracking requires large amounts of specialized silica sand, which in turn has driven up demand.

“It’s not going to slow down,” Thiel said. “The people who want the sand for the fracking industry are a major threat to one of the foundry’s key supplies.”

Foundry sand

Waupaca Foundry has six plants in the Midwest, including three plants in Waupaca.

It uses 350,000 tons of sand annually, according to John Wiesbrock, vice president of supply chain for Waupaca Foundry.

The four plants in Wisconsin use about 250,000 tons of sand annually.

“There have been some severe price changes, and there is some concern about the availability of sand for the foundry industry,” Wiesbrock said.

A July 2012 study by the Federal Reserve Bank of Minneapolis reported, “High-grade frac sand commands a premium in the marketplace: $60 to $80 per ton, over five times the price of construction sand and gravel. Oil companies and oil field service firms can pay over $300 per ton for processed sand delivered to the wellhead.”

“Freight is also a significant portion of the cost of sand,” Wiesbrock said.

“Having such a significant supply base this close to our foundries has a positive impact on our ability to secure 1,600 jobs,” added Joey Leonard, the foundry’s vice president of human resources. “The sand mine will help us secure a critical supply for our business and protect our ability to produce.”

Wiesbrock stressed that the foundry is viewing the local sand mine as a long-term supply source.

“It’s not just about today,” Wiesbrock said. “We’re looking to have sand for the next 20 to 30 years and beyond.”

Wiesbrock said Gelhar’s proposed operation would better serve the foundry’s needs than the many small pits and quarries that are currently located in Waupaca County.

“This operation would have advanced cleaning of the sand,” Wiesbrock said, regarding Gelhar’s proposed facility in Union. “The sand would be mined, washed, dried and loaded into sealed trailers and delivered to the foundry.”

Wiesbrock said the foundry has been doing business with Gelhar for about 20 years. “We have a good relationship with them,” he said.

“We have the largest foundry in the United States and one of the largest foundries in the world located right here in Waupaca County,” Thiel said. “We don’t want to give up that competitive advantage.”

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