Mesabi Metallics given May 1 deadline to finance pellet plant, settle debts
Lourenco Goncalves, president and CEO of Cleveland-Cliffs, threatened to close Hibtac if state continues to give Mesabi Metallics leases instead of Cliffs.
Mesabi Metallics, the troubled and incomplete iron ore mining project in Nashwauk, has five months to prove it can finance the completion of its half-built pellet plant and settle its debts.
In a conference call Wednesday morning, the Minnesota Executive Committee unanimously approved an amendment proposed by the Minnesota Department of Natural Resources that set a May 1 deadline for the company to satisfy numerous financial requirements meant to guarantee completion of the pellet plant by 2024, to take steps toward an onsite hot-briquetted iron facility, to repay substantial debts owed and to find customers that will buy its pellets.
But the approval wasn't without reservation. Several members of the council — made up of Gov. Tim Walz, Lt. Gov. Peggy Flanagan, Secretary of State Steve Simon, State Auditor Julie Blaha and Attorney General Keith Ellison — expressed concern over the project's more than decadelong history of broken promises and false starts.
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 Mumbai, India-based company is back in the picture after settling some $260 million of debt.
Essar's involvement is concerning to the Iron Range delegation of lawmakers who have repeatedly urged the DNR to terminate the project's leases or transfer them to a more reputable company.
If Mesabi Metallics fails to meet the new May 1 deadline, the amendment to the leases won't move forward, and the DNR will be able to cancel its leases through 2021. The agency already has that ability through 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.
Though he voted to approve the amendment, Simon said he was having trouble coming to a decision after speaking Tuesday with the Iron Range delegation.
"They're tired, they're angry and they're frustrated by it," Simon said. "And so there is concern, as I understand it, that this lease amendment could end in yet another string of broken promises."
Simon had made a motion to table the decision until a later date, but that motion failed.
Walz said he was "very skeptical," but called the amendment "probably one of the most stringent safeguarded leases the state of Minnesota has ever attempted to execute." He noted that he moved to ban Essar from doing business in the state early in his governorship.
Asked by Ellison about what is different about Mesabi Metallics now, Marty Vadis, a consultant for Mesabi Metallics, said Essar will fund, not run, the project with others, including Mercuria , a Swiss energy and commodity company.
"Essar would not have any role in managing this project, they are a funder, and others would have to step forward to fulfill that requirement for $850 million in place by May 1 of 2021," Vadis said. "And the scrutiny that the project would be under from those lenders, I think is an important bellwether for things if they're willing to put their money into it. I think that tells a lot to all of us."
The amendment requires Essar to settle all its debts and equity interest in Mesabi Metallics into a trust agreement with the DNR. It also bars Essar from taking an operator role until the pellet plant is completed and significant progress is made on planning and permitting the HBI plant.
The amendment had support from some union, economic development and local government officials who said the project would be a boon to Itasca County, its schools and its workers.
"We feel a tremendous sense of urgency and the need to take action. We know this project is the opportunity to progress from glorified mining encampment to an entirely new level of socio-economic reality," Ben DeNucci, chair of the Itasca County Board of Commissioners, said.
Though not present at the meeting, the Iron Range delegation of legislators has long urged the DNR to terminate Mesabi Metallics' leases and have favored Cleveland-Cliffs taking over the site.
The amendment faced fierce opposition from Lourenco Goncalves, president and CEO of iron ore mining and steelmaking company Cleveland-Cliffs, and Chris Johnson, a maintenance worker at Hibbing Taconite and president of United Steelworkers Local 2705, which represents workers there.
Both said the leases would be better off in the hands of Cliffs, as it could use the ore in Nashwauk to extend the life of Hibtac. Cliffs will manage and own an 87% interest in Hibtac later this month when it completes its acquisition of ArcelorMittal .
"We're here because the state continues to gamble on the 'what ifs' … this is not a robust lease agreement," Johnson said. "It's only a robust lease agreement if it is abided by, and it sounds like an agreement that has a lot of safety nets on people that are gambling that this place isn't going to go so they want to make sure that their money is secured."
Cliffs says Hibtac will close without Nashwauk
Goncalves gave the Executive Council an ultimatum: If the state continues to give Mesabi Metallics leases instead of Cliffs, then he will close Hibtac when it runs out of ore in 2025, a move that would eliminate 750 jobs at the Hibbing iron ore mine and pellet plant.
Simon pressed Goncalves on whether that was just a negotiation tactic.
"I will state very clear on the record: I do not bluff," Goncalves said. "If these leases stay with Essar, Mesabi — whatever name — I will shut down Hibbing Taconite because I will not have iron ore to continue Hibbing Taconite beyond the rest of the life of mine of four years."
But Cliffs currently holds a patchwork of land at the Nashwauk site, and DNR Assistant Commissioner Jess Richards said that could be mined and brought to Hibtac for processing, extending its life.
Additionally, the DNR has been trying to get U.S. Steel and ArcelorMittal to negotiate using ore from the privately held Carmi Campbell Reserve near Hibtac to feed the plant. Currently, that reserve is leased to U.S. Steel's Keetac facility, Richards said.
Goncalves, however, said those conversations between U.S. Steel and ArcelorMittal have been going on for years with no progress. He suggested that once Cliffs owns ArcelorMittal, those negotiations will stop.
"I'm very disappointed to hear that Cliffs is not willing to speak to U.S. Steel about the Carmi Campbell leases that are directly adjacent to the Hibtac pit," Richards said. "That could extend the life of Hibbing Taconite."
There are also ArcelorMittal-controlled state leases adjacent to the west pit of U.S. Steel's Minntac mine, near Buhl and Kinney, that Richards said could be negotiated to extend the lives of both Hibtac and Minntac.
"If these leases stay with Essar, Mesabi — whatever name — I will shut down Hibbing Taconite because I will not have iron ore to continue Hibbing Taconite beyond the rest of the life of mine of four years."
— Lourenco Goncalves, CEO, Cleveland-Cliffs
Goncalves has long said he wants to build a hot-briquetted iron plant at the Nashwauk site, but he was outbid for the site and assets by former Mesabi Metallics owner Tom Clarke. Cliffs then built the HBI plant in Toledo, Ohio, and it started production Thanksgiving Day, Goncalves said.
But if he had the site in Nashwauk, he promised to build a HBI plant there. The HBI plant produces an iron product that's later mixed with scrap metal in electric arc furnaces to make steel.
Still, Richards said Cliffs hasn't submitted a detailed plan for such a project to the DNR.
"We have talked to Cliffs on numerous occasions. They were not willing to submit to us any formal proposal for the project. We were trying to understand, as we were weighing whether or not we should pursue termination with this project with Mesabi, what our alternatives were," Richards said. "And there was no alternative."
Goncavles said Cliffs was limited by what it could propose as a publicly traded company.
"I was waiting for the DNR to terminate in order to move in … we are a publicly traded company. We cannot commit — we cannot just throw numbers against the wall to see if they stick," Goncavles said.