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DNR, Mesabi Metallics seek mineral lease changes

Iron Range lawmakers oppose such a move and seek a different company to take over the Nashwauk site.

Mesabi Metallics
A crane sits next to a partly constructed Mesabi Metallics pelletizing building. (2018 file / News Tribune)
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A partially built and beleaguered iron ore mining project in Nashwauk could see some major mineral lease changes, even after it missed key deadlines over the last year.

The Minnesota Department of Natural Resources will ask the Minnesota Executive Council on Wednesday to approve an amendment modifying the mineral leases for Mesabi Metallics, the company trying to develop a Nashwauk site into an iron ore mine, pellet plant and hot-briquetted iron plant.

If the Executive Council — made up of Gov. Tim Walz, Secretary of State Steve Simon, State Auditor Julie Blaha and Attorney General Keith Ellison — approves the agreement, Mesabi Metallics would have until May 1 to complete a number of requirements for the lease changes to take effect.

Requirements include:

  • Place $24.5 million into a escrow account, $13 million of which will go toward a Department of Employment and Economic Development settlement and $11.5 million will go toward missed 2019 rents and royalties
  • Secure $850 million in equity and debt commitments for pellet plant financing
  • Establish binding and enforceable offtake agreements of at least 4 million metric tons of taconite pellets per year

Additionally, Essar Global, which started the Nashwauk project in 2008 but walked away in 2015 amid bankruptcy and is now back in the picture, must settle all its debts and equity interest in Mesabi Metallics into a trust agreement with the DNR.
If it meets those requirements, the mineral lease then sets a number of milestones the company must meet over the next few years to make sure construction on the pellet plant is completed by June 2024, progress is made on a feasibility study and financing for the HBI plant, and annual royalty payments of at least $11.8 million are made to the DNR.

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But Mesabi Metallics has missed numerous deadlines under the existing leases, including the completion of the pellet plant by the end of 2019 and missed lease and royalty payments. Missing such deadlines allows the DNR to revoke the leases, an action the agency has so far refused to take over fears that it would set the project back years and restart the permitting process under a different company.

Iron Range lawmakers have repeatedly urged the DNR to do just that. In early October, legislators penned a letter to Gov. Tim Walz, urging him to revoke the leases.

In an interview with the News Tribune on Monday evening, State Rep. Julie Sandstede, DFL-Hibbing, said she and the other members of the Iron Range delegation were surprised and "frustrated" to learn last week that the DNR had been negotiating with Mesabi Metallics on the new mineral lease agreement.

Sandstede, whose district includes Nashwauk and the project site, said she's not sure what would compel the company to follow this lease's terms when it hadn't followed the terms before.

"So extending leases another time? I'm not really sure what's going to be different," Sandstede said. "I am very skeptical. "

DNR Assistant Commissioner Jess Richards did not answer several emailed questions about the agreement and said more information would be available during Wednesday's Executive Council meeting.

In an emailed statement, Rep. Dave Lislegard, DFL-Aurora, shared Sandstede's concerns. He alluded to broken promises at the site from both Essar and Mesabi Metallics.

“It’s hard to understand how anyone who has followed or been directly affected by the aftermath left behind, of years of empty promises, could or would support more of the same. The $12 million payable in this proposed deal while enticing, is not new money," Lislegard said. "It is money already owed. When making a decision of this magnitude the track record of repeated patterns of deception and failed commitments to our communities and state must be taken into account.”

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Iron ore mining and steelmaking company Cleveland-Cliffs already owns a patchwork of land at the Nashwauk site and has urged the DNR to let it mine and open a pellet plant there.

"Cliffs is the logical place to have these leases," Sandstede said.

Sandstede, on Monday, and Lislegard, in a previous interview with the News Tribune, have suggested Cliffs could mine the iron ore at the Nashwauk site to feed Hibbing Taconite's processing plant to extend its life beyond 2025, when it is expected to run out of iron ore.

Cliffs, through its acquisition of ArcelorMittal USA, will become the majority owner and manager of Hibtac when the deal closes in December.

News of the agreement was first reported by WDIO-TV, a News Tribune news partner.

Mesabi Metallics.jpg

Jimmy Lovrien covers energy, mining and the 8th Congressional District for the Duluth News Tribune. He can be reached at jlovrien@duluthnews.com or 218-723-5332.
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