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Cliffs CEO wants iron plant in Minnesota

A view from October 2015 of Essar Steel Minnesota's rock separator building (at left) and the tailings pumphouse and concentrator (right) under construction near Nashwauk. Cliffs Natural Resources CEO Lourenco Goncalves strongly hinted he wants to build a direct-reduced iron plant at the now half-built Essar Steel Minnesota site. 1 / 2
Lourenco Goncalves2 / 2

VIRGINIA — Cliffs Natural Resources CEO Lourenco Goncalves on Wednesday said he wants to build a direct-reduced iron plant in Minnesota and strongly hinted he'd like to do it at the now half-built Essar Steel Minnesota site in Nashwauk.

Goncalves, speaking at Cliffs' annual breakfast briefing with Iron Range business and civic leaders, said the strongest future for his company and for Minnesota's taconite iron ore industry lies in producing products — namely direct-reduced iron — that can be used in electric arc furnace steel mills that now supply nearly two-thirds of the domestic steel market.

Minnesota taconite iron ore now goes almost entirely to feed the older-technology blast furnaces that account for only about 35 percent of U.S.-made steel.

"We are only scratching the surface with one-third of the market" by producing traditional taconite pellets for blast furnaces, Goncalves said.

"We need to put a DRI facility in Minnesota" he said, adding that he needs support from state government and gas and electric utilities to make the project happen. "If Minnesota wants it, we are going to have a DRI plant here."

The electric arc mills mix that more-pure iron with recycled old steel to make new steel products. Most of the iron they now use comes from overseas, such as Brazil.

Goncalves said the new DRI facility would cost up to $750 million to build, unless he could find already existing infrastructure. If Minnesota regulators cooperate, Goncalves said, obtaining financing would not be difficult. The plant probably would employ dozens if not hundreds of people.

The DRI plant would produce iron pellets or nuggets made from Minnesota taconite iron ore that is first made into a DRI-ready pellet. Cliffs can now make those pellets at its Northshore Mining operations in Silver Bay/Babbitt, and pellets from there have gone to a DRI plant in Trinidad and Tobago.

But Goncalves said he would rather have a "dedicated" ore body, mining operation and processing plant to feed a new DRI iron production plant. And because the iron ore at the Essar site is unusually low in silica, Goncalves noted, it is perfect to be made into direct-reduced iron. The plant also already has all needed environmental permits.

He also implied that, if Cliffs could somehow take control of the half-built Essar site in Nashwauk, the cost to start up a DRI operation would be greatly reduced. That plant, owned by India-based Essar, has been under construction for years, with progress in fits and spurts. Work has been halted since Christmas with no sign the company can raise the money needed to finish the $1.9 billion project.

"It's clear something has to happen there ... We're going to deal with that situation," Goncalves said of the Nashwauk project.

When asked if he was thinking of buying the Nashwauk facility, Goncalves laughed and said "from now on, that will be on the top of my list," but then declined to make additional comments, saying he was bound by corporate governance regulations.

He earlier said the Essar plant as a taconite producer is "a place of imagination. ... A place of fiction" that may never produce any finished product. Goncalves has criticized state subsidies for Essar, saying that if the new plant opened it likely would put one of Cliffs' plants out of business in an already saturated domestic market.

Essar invited Goncalves to tour the Nashwauk site last year in an apparent effort to shop the project to Cliffs, but Goncalves at that point wasn't biting.

Now, Essar not only appears out of cash to move forward but has been sued by several vendors for not paying its bills, in some cases for tens of millions of dollars. The company also owes the state of Minnesota nearly $66 million for repayment of a state grant because it didn't create jobs at a proposed iron plant at the Nashwauk site by 2015. The first installment on that debt is due April 1. It's unclear if the company will make that deadline.

Goncalves met with Minnesota Gov. Mark Dayton earlier this week and apparently talked about both the prospect of a DRI plant in the state and what will happen with Essar. Dayton told the News Tribune that the talks were "productive" but declined to elaborate.

Steel tariffs working

Goncalves said he was optimistic about the long-term future of not just his company but the domestic steel industry and the iron ore industry that supplies it with raw material. He said federal efforts to crack down on illegally "dumped" steel in the U.S. have helped keep foreign steel out and are working to slowly increase production of U.S.-made steel.

"We are absolutely back on track," the outspoken CEO said.

Without that federal action, Goncalves said — praising Minnesota's congressional delegation for convincing the Obama administration to act — cheap, imported steel may have overwhelmed the U.S. steelmaking industry. Tariffs as high as 266 percent have been imposed on foreign steel.

He praised the late-December Iron Range meeting between Minnesota officials and White House Chief of Staff Denis McDonough.

"That's the day everything changed" and the federal government began to take steel dumping seriously, Goncalves said.

Because the U.S. economy remains strong — with automakers, construction companies and other manufacturers busy — the steel and iron ore industries can make money in the U.S. as long as they compete on a level playing field, he said.

Goncalves also was bullish on the future of the 168-year-old company he has headed since August 2014.

"There is absolutely no threat of Cliffs going away," Goncalves said, noting he has reduced the company's debt from $3.6 billion to $2 billion even at a time the price for Cliffs' product is at historically low levels — and he vowed to cut that debt to $1 billion soon.

"Imagine what I can do when iron ore prices are better," Goncalves said.

He noted his company has shed unprofitable coal businesses in the U.S. and iron mining in Canada and has refocused solely on Minnesota and Michigan iron operations, with a remnant iron operation in Australia. That limited focus will help guarantee Cliffs' future for another "100 years," Goncalves said.

He said the company is virtually bankruptcy-proof — no bank or investor has the ability to force the issue — as long as it continues the cash flow to pay creditors and employees.

Empire nearing permanent shutdown

Goncalves on Wednesday also said Cliffs' Empire taconite operations in Michigan's Upper Peninsula will close down in a matter of months as the mine is virtually out of iron ore.

Goncalves was slated to go to Empire this week to tell employees in person that he will soon be giving the federal government official Worker Adjustment and Retraining Notification (WARN) Act notice of the shutdown that will affect 350 jobs. Some of those workers may go to the nearby Tilden operations, and others could backfill at Minnesota operations if openings become available. But Goncalves said it's likely most won't get positions in the company.

Goncalves said Tilden will continue to operate at its current production level for the foreseeable future, with decades of ore remaining at that site west of Marquette, but he said any future growth of iron ore production in his company will come from Minnesota and not Michigan operations.

"The growth is here" in Minnesota, he told reporters Wednesday.

Pellets that had been made at Empire will in the future be made at United Taconite in Eveleth/Forbes, Goncalves said

Environmental story to tell

Goncalves urged Iron Range residents to battle back against perceptions that Minnesota iron ore mining is a threat to the environment, saying every piece of steel not made in China is good for the Earth because steelmaking in the U.S. produces far less pollution.

"If you really want to take care of the (global) environment, take care of the steel industry in the United States," he said. "Chinese steel hurts the environment."

Because Chinese steel is made with sinter ore, a process that spews particulate matter into the atmosphere, it causes far more environmental and human health damage. The lack of controls on that pollution is another reason Chinese steel has an unfair advantage, he said.

St. Louis County Commissioner Tom Rukavina asked Goncalves how to battle back against environmental groups and public perception labeling Iron Range mining as a polluting relic.

The News Tribune reported earlier this month that the Environmental Protection Agency is investigating state regulators over allegations that some mining pollution discharge permits have been expired for years, even decades.

"We're getting pounded with the incorrect message of what mining does in Northeastern Minnesota," Rukavina said.

"We need to start to deploy this message more and more" on the environmental stewardship of Minnesota iron mining, Goncalves told Wednesday's gathering.

Cleveland-based Cliffs owns both United and Northshore and is co-owner and operator at Hibbing Taconite and the Empire and Tilden operations in Michigan, as well as an iron ore mine in Australia.