Mesabi Metallics receives May 1 deadline to fund pellet plant and pay off debts

In a conference call Wednesday morning, the Minnesota executive committee unanimously approved an amendment proposed by the Minnesota Department of Natural Resources which set a deadline of May 1 for the company to meet numerous financial requirements intended to ensure the completion of the pellet plant by 2024, to take steps towards a briquetting iron installation hot on the spot, to repay important debts and to find customers who will buy its pellets.

But the approval was not without reservation. Several board members – made up of Governor Tim Walz, Lieutenant Governor Peggy Flanagan, Secretary of State Steve Simon, State Auditor Julie Blaha and Attorney General Keith Ellison – have expressed concern over the project history of more than a decade of broken promises and false starts.

Mesabi Metallics – the former Essar Steel Minnesota project that had several owners, managers and names – has waded through construction stoppages, bankruptcies, missed deadlines, late payments and other legal battles. Under construction for more than a decade, the project is almost half finished. As Essar walked away from the bankrupt project in 2015, leaving behind a billion dollar debt, the Mumbai, India-based company is back on the scene after settling some $ 260 million. of debts.

Essar’s involvement worries the delegation of Iron Range lawmakers who have repeatedly urged the DNR to terminate the project’s leases or transfer them to a more reputable company.

If Mesabi Metallics does not respect the new deadline of May 1, the modification of the leases will not go ahead and the MRN will be able to cancel its leases until 2021. The agency already has this capacity until 2020 afterwards. the business missed a number of deadlines and payments at the end of last year and at the beginning of this year, including the completion of the plant by the end of 2019.

Although he voted to approve the amendment, Simon said he was struggling to make a decision after speaking to the Iron Range delegation on Tuesday.

“They are tired, they are angry and they are frustrated,” said Simon. “And so, from what I understand, there is concern that this lease amendment will end with another round of broken promises.”

Simon had made a motion to postpone the decision to a later date, but that motion failed.

Walz said he was “very skeptical” but called the amendment “probably one of the toughest protected leases the state of Minnesota has ever attempted to enforce.” He noted that he decided to ban Essar from doing business in the state at the start of his term as governor.

Asked by Ellison about what is different about Mesabi Metallics now, Marty Vadis, consultant for Mesabi Metallics, said that Essar will fund, not lead, the project along with others, of which Mercury, a Swiss energy and raw materials company.

“Essar would have no role in the management of this project, they are a funder, and others are expected to come forward to meet this requirement of $ 850 million in place by May 1, 2021”, said Vadis. “And the scrutiny of the project by these lenders, I think that’s an important indicator for things whether they’re willing to put their money into it. I think that says a lot to all of us.”

The amendment requires Essar to settle all of its debts and stake in Mesabi Metallics in a trust agreement with the DNR. It also prohibits Essar from assuming an operator role until the pellet plant is complete and significant progress is made in planning and licensing the HBI plant.

The amendment had the support of some unions, economic development officials and local government who said the project would be a boon to Itasca County, its schools and workers.

“We feel a tremendous sense of urgency and the need to act. We know this project is an opportunity to move from a glorified mining camp to a whole new level of socio-economic reality, ”said Ben DeNucci, Chairman of the Itasca County Board of Directors. commissioners, said.

Although not present at the meeting, the Iron Range delegation of lawmakers has long urged the DNR to terminate the Mesabi Metallics leases and favored the takeover of the site by Cleveland-Cliffs.

The amendment met with stiff opposition from Lourenco Gonçalves, president and CEO of the Cleveland-Cliffs iron ore mining and steelmaking company, and Chris Johnson, head of interview with Hibbing Taconite and president of United Steelworkers Local 2705, which represents workers there.

Cleveland-Cliffs CEO Lourenco Gonçalves talks about the company during a in Chisholm. (File 2019 / News Tribune)

The two said the leases would be better in the hands of Cliffs, as he could use the ore from Nashwauk to extend the life of Hibtac. The cliffs will be manage and hold an 87% stake in Hibtac later this month upon closing the acquisition of ArcelorMittal.

“We’re here because the state continues to bet on the ‘what if’… it’s not a solid lease,” Johnson said. “It’s only a solid rental agreement if it’s honored, and it looks like an agreement that has a lot of safety nets for people who bet this place won’t go so they want to make sure their money is secure. “

Goncalves issued an ultimatum to the Executive Council: If the state continues to grant leases to Mesabi Metallics instead of Cliffs, it will shut down Hibtac when ore runs out in 2025, a move that would cut 750 jobs at the iron mine and the Hibbing dumpling. plant.

Simon asked Gonçalves if this was just a negotiating tactic.

“I’m going to say very clearly on the record: I’m not bluffing,” Gonçalves said. “If these leases remain with Essar, Mesabi – whatever the name – I will close Hibbing Taconite because I will not have iron ore to continue Hibbing Taconite beyond the remainder of my four year lifespan.”

But Cliffs currently owns a patchwork of land at the Nashwauk site, and MNR deputy commissioner Jess Richards has said it could be mined and brought to Hibtac for processing, extending its lifespan.

A map shows the intricate property quilt at the Nashwauk mine site. (2018 file / News Tribune)

In addition, the DNR tried to get US Steel and ArcelorMittal to negotiate the use of ore from the Carmi Campbell private reserve near Hibtac to feed the plant. Currently, this reserve is leased to US Steel’s Keetac facility, Richards said.

Gonçalves, however, said these conversations between US Steel and ArcelorMittal have been going on for years without progress. He suggested that once Cliffs owns ArcelorMittal, these negotiations would end.

“I am very disappointed to learn that Cliffs is unwilling to speak to US Steel about the Carmi Campbell leases which are directly adjacent to the Hibtac pit,” said Richards. “It could extend the life of Hibbing Taconite.”

There are also public leases controlled by ArcelorMittal adjacent to the west pit of US Steel’s Minntac mine, near Buhl and Kinney, which Richards said could be negotiated to extend the life of Hibtac and Minntac.

Goncalves has long said he wanted to build a hot briquette iron factory at the Nashwauk site, but he was outbid for the site and assets by former Mesabi Metallics owner Tom Clarke. Cliffs then built the HBI plant in Toledo, Ohio, and it began production on Thanksgiving Day, Gonçalves said.

But if he had the site in Nashwauk, he promised to build an HBI factory there. The HBI plant produces an iron product which is then mixed with scrap metal in electric arc furnaces to make steel.

Yet Richards said Cliffs had not submitted a detailed plan for such a project to MNR.

“We spoke to Cliffs on numerous occasions. They were unwilling to submit a formal proposal for the project to us. We were trying to figure out, as we weighed whether or not we should continue this project with Mesabi, which our the alternatives were, “Richards said.” And there was no alternative. “

Goncavles said Cliffs was limited by what it could offer as a publicly traded company.

“I was waiting for the end of the DNR to move in… we’re a publicly traded company. We can’t commit – we can’t just throw numbers at the wall to see if they stick,” Goncavles said.