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Dayton doesn't want Mesabi Metallics to get state mining leases

Gov. Mark Dayton (Forum News Service)

Minnesota Gov. Mark Dayton on Wednesday broke the state's silence on the emerging effort to restart bankrupt Essar Steel Minnesota, saying the new company — Mesabi Metallics — still doesn't deserve the state-owned mineral rights for iron ore under the proposed taconite mine in Nashwauk.

The fledgling company filed a plan in federal bankruptcy court last week, laying out its scenario to restart construction on the half-built project and see it through to production.

The plan could be approved as soon as a March 16 bankruptcy court hearing in Delaware.

Mesabi Metallics says the plan is the best hope of creditors, contractors, vendors and the Iron Range community that's in a constant search for new jobs.

But the company still hasn't convinced Dayton, who still is angered at the former Essar Steel Minnesota for reneging not just on job creation promises but also on debts to the state and to local contractors.

"In its filing, Mesabi Metallics again failed to demonstrate any ability to finance the completion of the Essar construction project or to operate it successfully," Dayton said in a statement issued Wednesday. "For the past 16 months, Essar/Mesabi Metallics has been unable to show the solid financial commitments, sufficient to complete the project and to repay the Range contractors the money they are owed. "

The final say, however, may not be up to Dayton or the state Department of Natural Resources. Mesabi Metallics has asked the bankruptcy judge to award it the state mineral leases even against the state's wishes.

While the new company says it has nothing to do with India-based Essar or any of the principals of the former Essar Steel Minnesota, Dayton and the DNR haven't made a distinction between the old and new companies.

The governor says the new company still hasn't shown any proof it can raise the financing needed to finish the project — an estimated $800 million on top of $1.8 billion already spent — as well as secure critical contracts from steel companies to buy the taconite pellets produced there.

In a chicken-or-egg-first dilemma, the company says it needs the leases in hand before it can get the financing and contracts.

"Mesabi Metallics proposes that it be granted possession of the state's mineral leases for the next 17 years without any commitment to complete the project or begin mining. The DNR terminated those leases last July, when then-Essar once again failed to meet the leases' conditions," Dayton said Wednesday, noting that Essar filed bankruptcy in July, minutes before Dayton moved to withdraw the leases which are now tied up in the bankruptcy case, possibly out of the state's control.

Minnesota so far is the only major player to object to the bankruptcy emergence plan.

"I want that half-completed project to be completed and to fulfill then-Essar's long-broken promise to bring new jobs to the Iron Range. Regaining the state's rightful control of its leased properties, so that through an open process they can be transferred to a company with the demonstrated ability to develop and operate a successful project, is essential to bringing important new jobs to the Range," Dayton said. "I therefore support the DNR's decision to object to Mesabi Metallics' proposal."

Mesabi Metallics officials say they are working to break free of the debt and damage left behind by Essar Steel Minnesota, and they also are now trying to draw in the former parent company. They have sued the Essar parent company and principals of Essar Global who they say bilked the Minnesota project out of millions of dollars. Essar officials have denied those claims.

Essar's Nashwauk facility was supposed to be employing 350 people by 2014, producing some 7 million tons of taconite iron ore pellets each year, the state's first new major taconite producer in more than 40 years. Plans originally called for an iron and steel plant on the site, creating even more jobs, although Essar scrapped those years ago.

Ground was broken in 2008 but work occurred in fits and starts. As recently as November 2015, the company appeared poised to finish the project and begin making taconite pellets in 2016. But that promise was dashed last winter when 700 construction workers and most of Essar's own newly hired employees were sent home, with Essar out of cash.

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