Agreement struck on sale of Magnetation assets to new owner, awaits judge's approval

A federal bankruptcy court judge in St. Paul appears ready to approve a deal that will sell the remaining assets of bankrupt Magnetation Inc. to Roanoke, Va., entrepreneur Tom Clarke in a move that could see hundreds of Iron Range steelworkers ba...

Magnetation's Plant 2. (2014 file / News Tribune)

A federal bankruptcy court judge in St. Paul appears ready to approve a deal that will sell the remaining assets of bankrupt Magnetation Inc. to Roanoke, Va., entrepreneur Tom Clarke in a move that could see hundreds of Iron Range steelworkers back on the job in 2017.

At a Thursday court hearing Judge William Fisher indicated he is ready to sign off on the deal after final details are put into writing and one last notice published to give any party a chance to object.

"The judge says he's ready to approve this; we just need to get all of the final agreements in writing and give (any opponents) one last chance for objections," Clarke told the News Tribune.

Fisher ordered that any new objections must be filed by noon Tuesday. A final hearing to approve the sale is set for Wednesday at 9 a.m.

The bankruptcy agreement, first unveiled last week, appears to have the backing of all major parties - from major creditors owed millions of dollars by Magentiaton, to local contractors who helped build the company's newest Plant 4 but were not fully paid.


The deal was sold in bankruptcy court documents filed last week as the last, best hope to reopen the failed company's shuttered iron ore recovery operations on the Iron Range.

Clarke, owner of Kissito Healthcare, ERP Compliant Fuels and now ERP Iron Ore, brokered the deal to acquire Magnetation's now-idled plants in Keewatin, Bovey and Grand Rapids that turn leftover mining waste into valuable iron ore concentrate.

The deal also includes all of Grand Rapids-based Magnetation's rail operations and the company's pellet-making plant in Reynolds, Ind.

Clarke said he hopes to close the deal by year's end and restart at least some operations in 2017. It's likely Plant 4, which had about 130 employees when it closed in October, would be the first to reopen. The future is less clear for the Bovey plant, which had 167 employees until closing in January, and the Keewatin plant, which had about 50 employees when it closed in 2015.

One critical element remaining is finding customers to agree to buy Magnetation's iron ore pellets.

The last remaining parties objecting to the deal, including Itasca County, filed court documents Thursday saying they now back the agreement.

"This is great news for the Minnesota miners heading back to work this spring and for the entire Mesabi Range,'' said U.S. Rep. Rick Nolan after talking to county officials about the agreement. "The deal appears to be a very positive step for the citizens of Itasca County, the many vendors and contractors waiting on payment or contracts, and other stakeholders. We will continue to monitor the situation as events proceed. Hats off to the various investors, the Itasca County Board, the area contractors and creditors owed money and other parties involved for coming to this solution that reactivates the mining operation and brings our miners back to work."

Under the deal, Clarke will repay $22.7 million to bondholders, part of the money they are owed for funding construction of the various Magnetation facilities that, combined, cost about $700 million to build. That $22.7 million note is personally guaranteed by Clarke and his wife, Ana.


Clarke also has offered to repay contractors and vendors the more than $30 million they are owed by Magentation for past work - but they will have to wait to get all of that money. The bankruptcy deal calls for the vendors to get some money as soon as the new company, ERP Iron Ore LLC, raises operating equity. The rest would be paid back over time, Clarke said, from a royalty on every ton of iron ore pellets produced.

Magnetation LLC was founded in 2006 and was a joint venture between Grand Rapids-based Magnetation Inc. and AK Iron Resources LLC, an affiliate of steelmaker AK Steel. Magnetation recovered valuable iron ore from waste dumps left behind by long-closed mining operations. It sold its finished pellets to AK's steel mills in Ohio.

Under the direction of Magnetation CEO Larry Lehtinen and his son, Magnetation President Matt Lehtinen, the company grew rapidly. At its peak in 2014, the company had more than 500 employees, including more than 400 on the Iron Range.

But the company was hit hard when the price of iron ore plummeted from more than $100 to less than $50 per ton through 2014 and 2015. The company began to close plants in 2015, and Magnetation filed for Chapter 11 bankruptcy reorganization in May 2015.

John Myers reports on the outdoors, natural resources and the environment for the Duluth News Tribune. You can reach him at
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