Sections

Weather Forecast

Close

Cliffs unveils plan for iron plant at Essar site

U.S. Rep. Rick Nolan (left) and Gov. Mark Dayton (center) listen as Cliffs Natural Resources CEO Lourenco Goncalves expains his plan to gain control of the Essar Steel plant at a meeting in Nashwauk Tuesday. (Bob King / rking@duluthnews.com)

NASHWAUK — Cliffs Natural Resources CEO Lourenco Goncalves on Tuesday unveiled his plan to wrest control of the Essar Steel taconite project in bankruptcy court, finish construction and build a directly reduced iron mill at the site.

Goncalves — backed by Gov. Mark Dayton, U.S. Rep. Rick Nolan and the entire Iron Range delegation of state lawmakers — said he'll start work on the iron plant just as soon as he gains control of the Essar project that sits half-built and idle just outside of town.

"I'm the fixer. ... I'm coming to the rescue," Goncalves said.

The bankruptcy process could drag on, he conceded, and work can't start until that plays out. But he said a united front among Iron Range workers, Minnesota officials and Cliffs will convince Essar's creditors to buy into his plans.

It's believed Essar has more than $1 billion in debt on the project.

"If they (creditors) want to see anything for their money from that site, they have two choices: Help me build an iron plant on the Iron Range, or sell what's there now for scrap. Either way, I'm going to get it," the outspoken CEO said.

The iron plant — long a dream of Range promoters to add value to iron ore — would use taconite mined and processed at the site to make a feedstock product that could be used in electric arc mini-mills which now produce about two thirds of all steel in the U.S. Currently, most Minnesota iron ore can only feed large blast furnaces which have been losing share in the steel market.

The Cloverdale Township Hall was packed with more than 100 people to hear Goncalves' plans, many of them vendors and contractors on the Essar site who are owed millions of dollars for past work that the Mumbai, India-based company never paid.

Officials said many small contractors in the region are facing devastating times after not being paid by Essar for months of work already completed.

"We're very worried about what's going to go on now,'' said Mike Syversrud, president of the Iron Range Building and Construction Trades Assembly of unions whose members work for sheet metal, electric and other small contractor companies. "Our contractors are being pushed into bankruptcy."

Goncalves and state officials said they had no "magic wand'' to see contractors are repaid. But they said the best path forward for more Iron Range jobs is for Cliffs to gain control of the project, fish construction and start making a new product for the Iron Range to sell.

"I understand your frustration. I get it," Goncalves told them. "We are here to show there's a path to a better future."

Goncalves' plan, in essence, is to gain control of state mineral leases, which Dayton has offered, to gain access to the valuable taconite iron ore in the ground at the mine site. He would then negotiate with neighboring private mineral leaseholders and, if Essar creditors gain control of the assets in bankruptcy as expected, work with those creditors to take the project over.

Goncalves said he's ready to battle Essar in court as he has before.

"We've done it in Canada and now we'll do it here,'' he said making no effort to contain his disdain for Essar. "I will make a deal with anyone to make this work. Even the devil. But not Essar."

Essar officials on Monday said they have been working to secure their own financing deal and that they hope to convince the bankruptcy court to leave them in control of the project. They plan to fight the state's control of the mineral leases, saying they were a company asset as the time bankruptcy was filed.

Dayton said state attorneys were working on the mineral rights issue and that it will be up to a federal judge to decide the issue.

"That's what bankruptcy courts are for," he said.

Both state officials and Goncalves berated Essar's business principles and practices, saying the company has outright lied for months, even years about finances, progress and status of the $1.9 billion project.

State officials and Goncalves said the Iron Range, and especially people who Essar owes money, are better off with Cliffs. "(We're not) a fly-by-night company coming out of nowhere from the other side of the world. Cliffs is 169 years old,'' Goncalves said. The governor and other state officials say they have faith in Cliffs, which owns and operates three existing Minnesota taconite operations, but have lost faith in Essar.

"We have a little bit of hope that something positive is going to happen at that site after being lied to," said state Sen. David Tomassoni, DFL-Chisholm. He said Essar's last-ditch efforts to keep control of the site are a "facade" of partial and incomplete payments to creditors and vendors. Essar "have proven over and over again that they are not believable."

Dayton said he appreciated Goncalves' commitment to the Iron Range and to the iron mining industry, saying the CEO has lived up to his promises to restore jobs this year that were idled in 2015's steel industry crisis.

But Dayton also reminded Goncalves that his promises of a directly reduced iron plant on the Range have been made, and unfulfilled, for more than 30 years.

"You come here following a trail of broken promises that goes back decades,'' Dayton said.

Dayton said he spoke with the India-based CEO of the Essar who vowed last year to not just repay Minnesota contractors for past-due work and repay a $66 million debt to the state for unkept economic development promises, but also resume work on the project.

"We had it in writing. Didn't happen,'' Dayton said.

Goncalves is "a man of his word,' " Nolan said, saying Cliffs has lived up to every promise made after state leaders leaned on federal officials to impose sanctions on imported steel sold below cost.

Rodney VanBaalen of Saginaw Power & Automation, a Duluth-area contractor, was at Tuesday's meeting to find out more about the idled project his company worked on. He said Essar still owes his company, which installed most of the control technolgy at the Nashwauk plant, about $200,000. He's not sure he will ever see any of that money, depending on bankruptcy results, but he's hoping Cliffs' plans work out.

"We're really a little player in this,'' he said. "But I try to look forward. And I think he (Goncalves) is right that DRI is our future. We need to tap into that market."

Goncalves said the Nashwauk plant could be the first of several directly reduced iron units across the Iron Range. Cliffs' Northshore Mining in Silver Bay already is producing a taconite pellet that can be used to make directly reduced iron, but the customer's mills are in Trinidad and Louisiana, too far away to make the sales profitable.

Essar's Nashwauk facility was to be one of the state's largest private construction jobs and the first all-new major taconite operation on the Iron Range in 40 years. By 2014 it was supposed to be employing 350 people producing some 7 million tons of low-cost taconite iron ore pellets each year. Plans originally called for an iron and steel plant on the site, creating even more jobs, although Essar scrapped those years ago.

Ground was broken in 2008 on the taconite project, but work occurred in fits and starts. Essar said it obtained $850 million in financing in 2014 and indeed restarted work in earnest last year. As recently as October, the company appeared poised to finish the project and begin making taconite pellets late this year. But that promise was dashed last winter when 700 construction workers and even most of Essar's own newly hired employees were pulled off the project and sent home well before the first pellet was produced.

Advertisement