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Cliffs CEO headlines Duluth mining conference

Cliffs Natural Resources CEO Lourenco Goncalves talks to reporters following a company luncheon at the Minnesota Discovery Center in Chisholm earlier this month. Brooks Johnson / bjohnson@duluthnews.com

Lourenco Goncalves had engineers and company executives laughing in their chairs at a mining conference Wednesday with his one-liners and brutally honest opinions of his competitors, but he said he's deadly serious about trying to gain control of the former Essar Steel project in Nashwauk.

Goncalves, CEO of Cleveland-based Cliffs Natural Resources, says his company's is the only serious offer for the former Essar Steel Minnesota project that may go up for auction in a Delaware bankruptcy court next week.

Goncalves was speaking to the annual conference of the Minnesota chapter of the Society for Mining, Metallurgy & Exploration Inc. at the Duluth Entertainment Convention Center.

He spent much of his speech outlining why his company has thrived over 170 years in business while also landing jabs at his global iron ore competitors, referring to the CEOs of iron ore giants BHP Billiton, Rio Tinto and Vale as "Larry, Moe and Curly."

But Goncalves moved into his latest crusade — his effort to acquire the Essar site — and how he's rallying support in Minnesota for his expansion effort. He said Cliffs offers the best hope to see the Nashwauk site reach its full potential as a producer of direct-reduced iron that can be used in electric arc steel mills that currently produce two-thirds of the steel made in the U.S.

Currently, Minnesota taconite iron ore plants can supply only blast furnaces which produce the other third of domestic steel.

While for all of its 170 years Cliffs has sold its iron ore to blast furnaces, Goncalves said the next 100 years will depend on supplying electric arc steel mills as well.

Goncalves said the bankruptcy judge in Delaware will heed what more parties say is the best option for the people of the Iron Range, creditors and potential employees, adding that he has the support of Minnesota Gov. Mark Dayton. He said his company has feasible plans to open the mine at Nashwauk, process the taconite ore at one of Cliffs' three existing operations and then ship those pellets back to Nashwauk, where he wants to build a $700 million direct-reduced iron plant.

That new plant and new mine would employ 300 or more people making iron briquettes that would be used to bolster the iron content of electric arc furnace steel made mostly from scrap.

"I see Cliffs owning several DRI facilities. But I need that (Essar) site" in Nashwauk, Goncalves told the convention. "That site is perfect for that."

Goncalves first needs to win the bankruptcy battle that could be decided as early as next Wednesday. His company has made a $75 million "liquidation" bid to the court to partially pay off creditors for the more than $1 billion owed by Essar.

Cliffs faces competition from Mesabi Metallics, the California-based company that has acquired the bankrupt assets during the court proceedings, and from Tom Clarke, owner of ERP Iron Ore that recently purchased the assets of bankrupt Magnetation. Clarke's bid, under the name Chippewa LLC, is $250 milion. But Goncalves told reporters after the conference that the other offers don't really exist, that the money is "not real. Mine is a cash offer."

He warned Minnesotans, especially Iron Rangers, to stick with the name they know in Cliffs and not fall for "false promises" of "fly by night" companies such as Mesabi Metallics and Chippewa.

"Fool me once, OK," he said, referring to millions of dollars Essar owes the state and to contractors for the failed project. "But fool me twice? Come on, Minnesota and Iron Range, wake up."

Essar borrowed and spent some $1.8 billion on the Nashwauk project, only to walk away in late 2015, out of cash and with the plant only half completed. Mesabi Metallics has estimated it would cost another $800 million to finish the mine and taconite processing facility.

Goncalves says there's no need for the taconite plant at this time, saying he would first use his existing pellet-making capacity — Cliffs owns and operates United Taconite in Eveleth and Northshore Mining in Silver Bay, and is manager/co-owner of Hibbing Taconite. But he would build the DRI iron plant on-site near the Nashwauk mine. Eventually, Goncalves said, as he sold more direct-reduced iron, Cliffs would build a taconite pellet plant in Nashwauk.

"But we would have to grow into it," he said. "There's no need for it now. We already have the capacity."

Goncalves, who became CEO in a hostile takeover in 2014, has steered Cliffs as the company nearly shut down and went bankrupt in 2015 only to recover in 2016 to nearly full U.S. production and become one of the fastest-rising stocks last year. Cliffs' stock has cooled off since as global iron ore prices have plummeted from about $90 per ton in March to about $65 now, but analysts say the company appears to be on solid footing if the domestic U.S. steel industry continues to increase production.

The American Iron and Steel Institute trade group reported this week that U.S. steel production was up 2.5 percent from the same week in 2016 and up 2.2 percent from the week before. Year-to-date production through April 15 was 25,994,000 tons, with a capability utilization rate of 74.3 percent. That's up 3.8 percent over last year at this time.

More than 800 people were expected to attend this week's 90th annual meeting of the Minnesota Section of SME. The Duluth event is the largest regional minerals conference in the Midwest, featuring a wide range of session topics addressing pressing industry issues, emerging trends and the latest technology developments.

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