Essar formally announces bond sale for Nashwauk project
Essar Steel Minnesota on Thursday officially announced that it has raised $450 million in a bond sale to resume construction on its Nashwauk taconite iron ore mine and processing center.
The news, which the company’s president disclosed to a media outlet last week, is also expected to mean contractors that have walked away from the partially built facility in recent months may be paid for their past work.
The company said proceeds of the “six year, senior secured notes” will be deposited into an escrow account, and upon the completion of certain conditions and documentation, the money will be released to Essar.
It’s not clear how long that process might take. An Essar official said the company would not answer any additional questions Thursday.
“We are delighted to have completed this important financing, which marks a significant milestone for (Essar Steel Minnesota) as we move ahead to deliver our seven million (tons) of pellet production capacity in Minnesota,’’ Madhu Vuppuluri, Essar Steel Minnesota’s New York-based president, said in a prepared statement released Thursday.
Essar “will be the first new pellet plant constructed in over 35 years in the Mesabi Range, made possible by not only the superior resource base and infrastructure available,” Vuppuluri added. “But also the skill base and support of the local community.”
Earlier this year Essar officials said they would need more than $700 million to finish the project and now says the roughly $300 million still needed will come from equity provided by the parent company.
Essar’s apparent financing to resume construction is good news on the Iron Range, which has been patiently awaiting the project for years. Essar Steel Minnesota is a subsidiary of Mumbai, India-based steel giant Essar Group, a $20 billion corporation with about 70,000 employees worldwide. Despite the parent company's massive size, money problems have dogged the Minnesota project.
The News Tribune reported last month that a Wisconsin metal fabricating company has hired a law firm to retrieve $425,000 past due for unpaid work at Essar Steel Minnesota's partially built taconite plant in Nashwauk. The company is one of several trying to get Essar's construction division to pay past bills.
Officials at SteelWind Industries of suburban Milwaukee say Essar contracted for $800,000 worth of work on the massive, $1.7 billion project, made the down payment and a second payment, but never paid in full, according to SteelWind officials.
Essar broke ground for the new mine and processing plant in 2008 and has all the necessary government permits in hand to finish work and start production. But progress has been painfully slow. In December, the News Tribune first reported that work had slowed to a crawl as money to pay for construction had run dry. The company made news at that time by conceding it was pushing back the start date for full-scale taconite production from 2014 to the end of 2015.
At stake are not just hundreds of construction jobs, and about 300 permanent jobs at the new taconite plant, but also about $73 million in public money: $6 million from the Iron Range Resources and Rehabilitation Board and $67 million from the state. Much of that money went to build infrastructure for the project and would still be there if Essar pulled out. The IRRRB loans also are backed by a letter of credit from the parent company.
After the taconite facility is completed Essar also has plans for an on-site steel producing plant. It would be the first such facility in the U.S., with mine, ore processing and a steel mill at the same location, and would fulfill a long-held dream of Iron Range leaders to add value to taconite in Minnesota rather than far-flung mills in other states or nations. The steel mill portion of the project would add another 100 employees, in addition to the taconite operations.