Essar secures $450 million in financing to restart work on Iron Range taconite plant
Essar Steel Minnesota confirmed this week that it will resume construction of its taconite plant on the Iron Range after securing $450 million in financing to complete the project.
Problems with the cash-strapped project in Nashwauk began more than a year ago when Essar officials decided to expand their taconite production goal to 7 million tons from 4 million. The sudden jump increased the project’s cost to $1.8 billion from $1.1 billion and sent the Mumbai, India-based parent company scurrying for more money.
But this week, Essar said it tapped $450 million through a high-yield bond and also will inject about $300 million of its own money to finish the work.
“This is a very important transaction which we have been planning to undertake for some time, and we are pleased that we have reached a stage where it has been priced and is a reality,” said Madhu Vuppuluri, chief executive of Essar Steel Minnesota.
Essar Steel Minnesota is a subsidiary of steel giant Essar Group, a $20 billion corporation with about 70,000 employees worldwide.
Kevin Kangas, the Iron Range-based spokesman for Essar Steel Minnesota, had told the News Tribune in late April that the company was close to finding additional financing that would allow it to pay off bills and finish the project; he said he expected a cash infusion by the end of the month. On Friday he directed inquiries about the new financing to Essar’s offices in New York, which did not respond to questions from the News Tribune.
SteelWind Industries, a metal fabricating firm based in suburban Milwaukee, hired a law firm this spring in an attempt to recoup $425,000 it said was past due for work on the project.
Jason Geiger, SteelWind’s vice president, said Friday he’s heard nothing from Essar since being told that its officials wired money to a wrong account. He was more hopeful after hearing Essar had come into some more money this week.
“We’ll start making calls hourly instead of daily,” Geiger told the News Tribune on Friday of his efforts to get a response about the money due.
SteelWind is one of several companies that have not been paid for work or equipment at the site of what is expected to be Minnesota’s first all-new taconite iron ore plant in nearly 40 years. Industrial Maintenance Service pulled off the Essar site over the winter, claiming Essar owes them $3.9 million. Grand Rapids-based Hammerlund Construction filed a mechanics lien against the Essar plant claiming $9 million in unpaid bills.
Vuppuluri acknowledged this week that payments to contractors had been delayed. But with the new financing, “the activity at the site will start picking up speed. It will be quite soon,” he said.
“It’s a step,” a skeptical state Rep. Tom Anzelc, DFL-Balsam Township, whose district includes the Nashwauk facility, told the News Tribune on Friday afternoon. He spoke about the financing news from the floor of House.
“But if it’s simply a press release” to divert attention from Essar’s struggles, he said, “I’m not interested.”
He said Essar needs to set a firm date on when construction will continue and give assurances that the facility will be up and running.
“They have a responsibility,” Anzelc said. “People are making life decisions on staying there and Essar needs to tell us when it will be restarting.”
He said he would remain skeptical until the contractors and workers on the project get paid what they are owed.
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. Last winter, the News Tribune reported that work had slowed to a crawl as money to pay for construction had run dry. The company conceded at that time that it was pushing back the start date for full-scale taconite production from 2014 to the end of 2015.
Despite the parent company’s massive size, money problems have dogged the Iron Range project. Global financing has become scarcer for big projects and the company worked for more than a year to find a lender, or a new partner, to pay to finish the project.
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.
The state’s $6 million loan was never affected by Essar’s delays as that loan isn’t due until 2015, IRRRB Commissioner Tony Sertich said before Thursday’s announcement.
The Minneapolis Star Tribune contributed to this report.