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Mesabi Nugget parent urges patience, sees improvement at Hoyt Lakes iron plant

Recent improvements after a month-long shutdown at the Mesabi Nugget iron nugget plant near Hoyt Lakes have officials at parent company Steel Dynamics more optimistic about the facility’s future.

The Iron Range plant lost money again in the first and second quarters this year, but may be nearing a turning point where it could become profitable, company officials said Tuesday during a conference call with industry analysts.

The innovative plant, the first of its kind in Minnesota, turns iron ore concentrate recovered from old mine sites directly into 97 percent pure iron nuggets to be used to enhance scrap metal in electric arc “mini mill” steel mills.

The nearly $300 million plant opened in late 2009 with the promise of dozens of Iron Range jobs with workers producing an added-value product and opening a new market – mini mills – for Minnesota iron ore that has in the past gone strictly to traditional blast furnaces.

But the plant has suffered lingering growing pains, and has never met production expectations. That had both industry analysts and Indiana-based Steel Dynamics officials in recent years questioning the future of the Iron Range facility.

Mark Millet, Steel Dynamics’ president and chief executive officer, in January said Mesabi Nugget’s future was under “careful evaluation.”

“The project has been a disappointment thus far, because even though the purity of the iron nuggets has been up to par, the quantity of the yield has fallen short of expectations,’’ reported Andrew Lane, a steel industry analyst with Morningstar, an independent investment research firm , in April.

 On Tuesday company officials said Mesabi Nugget’s losses in the second quarter totaled $9.1 million, up from an $8.9 million loss during the first three months of 2014.

But the news for Mesabi Nugget got better.

The plant shut down entirely for four weeks earlier this year so major changes in the process of turning concentrate into pure iron nuggets could be made, company officials said Tuesday. Test trials after those changes, especially to the rotary hearth furnace, show promise.

“The trials resulted in encouraging results related to improvement in yield, quality, volume and raw material input costs, resulting in a potential cost structure that we believe is competitive,” the company’s second quarter statement noted. 

Now the plant needs to produce those results consistently, Millett noted.

“It’s a matter of executing on the results we saw in the prior trials this year,’’ Millett said Tuesday, adding that the plant’s losses are expected to be “meaningfully less’’ as operations ramp up in July, August, and September.

Company officials say they think they can get the cost of production at Mesabi Nugget down to about $350-per metric ton for iron nuggets, with the delivered sales price for that ton historically between $380 and $550-per ton. That would make the Iron Range plant cost competitive, Millett said, although he declined to predict when that might happen.

Mesabi Nugget is 81 percent owned by Steel Dynamics and 19 percent owned by Japan-based Kobe Steel.

Meanwhile, the Iron Range plant continues to face questions over wastewater emissions, which are released into a now flooded former open pit iron ore mine. The federal Environmental Protection Agency earlier this summer revoked an earlier variance that allowed Mesabi Nugget to exceed some emissions limits at certain times of the year. Environmental groups and the Fond du Lac Band of Ojibwe filed a lawsuit last year challenging the EPA’s 2012 decision to grant the variance, saying it improperly allowed the plant to exceed state standards for discharges of bicarbonates, conductivity, hardness and total dissolved solids. They said the discharges threaten wild rice and other aquatic organisms downstream.

The company said the plant faces challenges if the variance is not allowed. It’s not clear when the issue may be settled.

Steel Dynamics announced a second quarter net income of $72 million on net sales of $2.1 billion. That’s up 62 percent from the first quarter this year, when bad weather slowed the economy and is up from $29 million net income for the same period last year. The company this week also announced it has agreed to buy Severstal Columbus,a massive mini-mill in Mississippi, for $1.6 billion. That will increase its steel production by some 40 percent. The company said that, despite a flood of imported steel, its outlook for domestic markets remains strong.

Steel Dynamics is one of the largest domestic steel producers and metals recyclers in the U.S. with sales of $7.4 billion in 2013, over 6,800 employees and manufacturing facilities throughout the United States, including five steel mills, six steel processing facilities, two iron production facilities – including Mesabi Nugget – over 90 metals recycling locations and six steel fabrication plants.