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More money troubles for Essar Steel plant on Iron Range

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Duluth News Tribune
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More money troubles for Essar Steel plant on Iron Range
Duluth Minnesota 424 W. First St. 55802

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.

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Officials of SteelWind Industries of suburban Milwaukee said Friday that the firm — Whyte, Hirschboeck, Dudek — will try to speed up an arbitration effort with Essar to avoid going to court over the unpaid bill.

SteelWind officials say Essar contracted for $800,000 of work on the massive, $1.7 billion project, made the down payment and a second payment, but SteelWind officials contend Essar never paid in full.

Jason Geiger, SteelWind vice president, said it was especially frustrating that Essar officials apparently knew that they were slowing the project because of a lack of financing but let contractors keep ordering material and keep working.

“We would have had no problem with them delaying the order or paying for the raw materials and delaying the building of the items, but to have us order $500,000 in raw materials and not pay is just not right,” Geiger said in a statement. “Dealing with Essar has been extremely frustrating. The manner in which they have handled our contract is extremely disappointing, and Mr. Jain and Essar management’s attitude towards missed payments is simply appalling.”

Essar Steel Minnesota is a subsidiary of Mumbai, India-based steel giant Essar Group, a $20 billion corporation with about 70,000 employees worldwide.

SteelWind Industries is a large-capacity metal fabrication company that builds industrial pieces for heavy industry, such as the mining industry.

Kevin Kangas, the Iron Range-based spokesman for Essar Steel Minnesota, said he had no knowledge of legal action regarding SteelWind’s claims.  He said a different division, Essar Projects, is handling the construction issues.

Kangas told the News Tribune on Friday that Essar continued to be close to finding additional financing for the project but declined to give any specifics. The company has said in recent months that they expected, by the end of April, a major infusion of cash that would allow it to pay off bills and finish the project.

SteelWind is one of several companies that has 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 then $3.9 million. Grand Rapids-based Hammerlund Construction has filed a mechanics lien against the Essar plant claiming $9 million in unpaid bills.

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.

“It’s very frustrating that work has completely shut down there, and that we continue to hear from vendors and contactors that Essar won’t, or can’t, pay their bills,” said State Rep. Tom Anzelc, DFL-Balsam Township, whose district includes the Nashwauk facility. “We want them (Essar) to get financing and finish the plant and start making pellets. But it’s not looking good.”

The current work stoppage is the second major slowdown in the past 18 months; work also ground to a halt in 2012 for the same cash-flow reasons. The slowdown has been downplayed by Essar officials who said it was just a matter of working with its contractors to reduce construction activity to only critical tasks until Essar finds cash, about $700 million, to finish the project.

Despite the parent company’s massive size, money problems have dogged the Minnesota project. Kangas said over the winter that the problem began when the company decided to expand the project from a 4 million ton per year capacity to 7 million tons before they had the money in hand for the extra work.

Since then, global financing has become scarcer for big projects and the company has 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.

Perhaps most disappointing to Anzelc, however, is that the public investment was made in Essar Steel Minnesota because of its promise to expand beyond a traditional taconite plant and into on-site steelmaking. The taconite operations always have been considered just the first stage of a two-stage project, with an additional $1 billion steel mill.

It would be the first such facility in the U.S., with mine, ore processing and 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.

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John Myers
(218) 723-5344
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