The Minnesota Department of Natural Resources has started terminating the leases for Mesabi Metallics, the beleaguered and half-built iron ore mining project in Nashwauk, because the company could not prove it had enough cash on hand.

After a series of missed deadlines, the DNR, with approval from the Minnesota Executive Council, in December modified Mesabi’s leases to give it one final chance at proving it could finish the project.

In a news release Wednesday, the DNR said the company did not show it had $200 million in its accounts on May 1, which is a “failure to meet a fundamental requirement” of the amended lease. In its own news release, the company said it deposited $100 million on May 1 but the remaining $100 million was delayed due to the COVID-19 crisis in India. Mesabi is funded by Mumbai, India-based Essar Group. Without meeting the amended lease, the leases revert back to the original terms, which the company has violated.

“After initial review, DNR determined that Mesabi failed to demonstrate that it had $200 million immediately available in its accounts, as required by the 2020 amendment,” the DNR said in a news release.

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The DNR said it will begin the process of terminating the leases because Mesabi still owes $18 million in minimum base payments for 2020 and because it failed to mine 1.6 million tons of ore from state properties at least two quarters prior to Jan. 1, 2021, failed to complete construction by the end of 2019 and failed to ship 3 million tons of pellets by the end of 2020. The lease termination will take effect on May 25 if Mesabi doesn't "cure" those lease requirements over the next 20 days, which is impossible. Construction is far from finished and mining has not started.

"Mesabi Metallics understands that there are those who believe that the entire project should not go forward because of this delay," the company said. "We strongly believe that it is in the best interest of Minnesota for the Nashwauk project to be allowed to commence, and have demonstrated our strong commitment to the project by making $100 million immediately available."

Mesabi said it has satisfied the other six items required by May 1.



The DNR said it continues to review all of the other documents submitted by Mesabi. Other requirements included securing $850 million in equity and debt commitments for pellet plant financing, establishing offtake agreements for 4 million metric tons of taconite pellets per year and placing $24.5 million into an escrow account for missed rents and royalties and a Department of Employment and Economic Development settlement.

Before giving the project a final May 1 deadline, the agency could have canceled the leases as early as 2020 after the company missed a number of deadlines and payments late last year and early this year, including the completion of the plant by the end of 2019.

Mesabi Metallics — the former Essar Steel Minnesota project that has had multiple owners, managers and names — has floundered through construction stoppages, bankruptcies, missed deadlines, late payments and other legal battles. In the works for more than a decade, the project sits about half-finished. While Essar walked away from the bankrupt project in 2015, leaving behind $1 billion in debt, the company is back in the picture after settling some $260 million of debt.

Geneva, Switzerland-based Mercuria said it would also fund the project if Mesabi were to emerge from the state's lease process.

Iron Range lawmakers and others have long urged the DNR to transfer the leases to mining and steelmaking company Cleveland-Cliffs, which owns a patchwork of land at the Nashwauk site, but the DNR said that would restart the lengthy permitting process.

In a statement Wednesday, Rep. Dave Lislegard, D-Aurora, called Mesabi Metallics "a bad actor" for its long list of failed commitments and praised the DNR's decision to begin terminating its leases.

“It’s critical the decisions we make today protect the assets and our ability to finally move the project in Nashwauk forward with a viable and credible partner, and finally give us the opportunity to strengthen our region’s economic future," Lislegard said.

A map shows the complicated quilt of ownership at the Nashwauk mine site. (2018 file / News Tribune)
A map shows the complicated quilt of ownership at the Nashwauk mine site. (2018 file / News Tribune)

Cliffs has said it wants to build a hot-briquetted iron plant at the Nashwauk site.

Cliffs has also threatened to close Hibbing Taconite when it runs out of ore in 2025 if it can not get the Nashwauk leases and supply the Hibtac plant with Nashwauk ore.

This story was updated at 5:56 p.m. May 5 with quotes from Mesabi Metallics and Rep. Dave Lislegard. It was originally posted at 3:43 p.m. May 5.

This story originally misrepresented the role of Mercuria. It was updated at 9 a.m. May 6. Mercuria would help fund the project if it were to move forward. The News Tribune regrets the error.