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$300 million expansion planned for Keetac taconite operation

United States Steel Corp. plans to embark on the largest and most costly expansion of an Iron Range taconite operation in 29 years, the company announced this afternoon.

United States Steel Corp. plans to embark on the largest and most costly expansion of an Iron Range taconite operation in 29 years, the company announced this afternoon.

The company aims to invest more than $300 million in its Keetac plant in Keewatin. It plans to boost pellet production by 60 percent and hire 75 people, bringing the operation's full-time work force to 475 and its annual production capacity to 9.6 million tons. Keetac produces about 6 million tons of iron ore pellets per year.

With the expansion, U.S. Steel would own and operate the two largest taconite plants in North America, both on the Minnesota Iron Range.

Some Keewatin residents were pleased about the announcement.

Kalvin Durant works for the Keewatin City Street Department. "Any time you get an expansion like this it's good for the economy," Durant said. "Hopefully it will bring a few more people and maybe some businesses."

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Tom Cook is a lifelong city resident. "I hope it comes through; we need jobs. It's tough here for people to live."

Tiffany Bodin grew up in Keewatin and recently moved back from St. Cloud. She now tends bar at DeneQua. She said her husband, Kevin, has applied for jobs at Keetac and Hibbing Taconite. "How can you go wrong with more jobs?" she said.

Lance Hopke said his grandfather had more than 30 years at National Steel, then had his pension cut when it went bankrupt. As Hopke played pool at DeneQua he said he hopes that the expansion actually happens and that the jobs are permanent. "If they can keep it stable, it will be a great thing," Hopke said. "But I have ex-girlfriends that are more stable than the mines."

Minntac Mine, with an annual capacity of about 14.6 million tons of pellets, is North America's largest taconite plant. Keetac would rise to second largest.

Assuming the project goes forward, it also is expected to create about 500 construction jobs. Building the new facilities probably would require three years of work, according to John Goodish, U.S. Steel's executive vice president and chief operating officer.

Before construction can begin, however, Goodish said state and federal emissions permits must be obtained. He's hoping to have the necessary approvals in hand in within six months.

"That's an aggressive but attainable goal," Goodish said.

"We want to expedite the permitting," he explained. "We're not asking anyone to bend the rules, but we want people to concentrate on this project."

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Toward that end, George Babcoke, U.S. Steel vice president of plant operations, said the company wants to address any environmental concerns about the project up front.

"We want to bring environmental stakeholders into this process," said Babcoke, explaining U.S. Steel's plans to contact representatives of environmental groups active in the area, so the company can listen and respond to any concerns.

The project also still needs to be approved by U.S. Steel's board of directors before it can proceed, but Goodish expressed confidence it will garner the needed support.

U.S. Steel hopes to restart a pellet-producing line that has been mothballed since 1980 -- but that's not as simple as flipping a switch.

Goodish said the old line will be overhauled, using the "best available technology" to maximize efficiency and minimize emissions. The same technology also will be used to upgrade the pellet line that's currently in operation at Keetac.

Other equipment, such as grinding mills and balling mills, also will be needed to increase Keetac's output.

"It's a surprise, but it's a smart thing to do,'' said Peter Kakela, a Michigan State University taconite industry analyst. "U.S. Steel is being smart in expanding its own capacity and continuing to vertically integrate.''

The last time anyone spent anywhere near this kind of money on the Range was in 1978, when U.S. Steel upgraded the Minntac Mine, near Mountain Iron.

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Goodish said most of the pellets from the Keetac expansion would feed Canadian blast furnaces U.S. Steel recently acquired from Stelco Inc.

"The announcement of U.S. Steel to make a major commitment to northeast Minnesota's economy is another example of the importance of mining not only to all the state, but to the people that make their livelihood right here in northern Minnesota,'' said Craig Pagel, president of the Iron Mining Association of Minnesota. "While the rest of the state is undergoing a dip in the economy, the taconite industry and mining in general is seeing economic growth that brings jobs to the mines, to the vendors that serve the mines and to the trades that build the facilities.''

The mining industry currently employs about 4,000 people directly and about 16,000 indirectly.

Several other prospective mining projects also now in the pipeline could put even more people to work. A projected 3,400 construction workers would be needed for three other major mining-related projects: Mesabi Nugget's iron nugget plant near Hoyt Lakes, Minnesota Steel's steel mill near Nashwauk and PolyMet Mining Corp.'s copper-nickel and precious metals mine south of Babbitt.

Worldwide demand for iron ore, driven by rapid growth in industrializing nations such as China and India, remains strong.

Within the United States, iron ore and steel companies don't have the capacity to meet domestic steel demand. That has resulted in the importation of steel and semi-finished steel slabs, which can be turned into steel.

Demand for iron ore pellets -- the prime ingredient in steelmaking -- has driven prices from about $35 per ton in recent years to a world price of about $77 per ton in 2007.

In 2008, the world price for a ton of iron ore pellets is expected to increase by 25 to 50 percent, which could push it above $100 a ton for the first time.

Kakela said he expects prices to go up by about 31 percent per ton.

By owning and expanding its own iron ore pellet operations, U.S. Steel could supply itself with iron ore pellets at a cost of about $40 to $50 a ton, Kakela said.

"This project will further strengthen our company's position in an increasingly global steel industry," Goodish said of the Keetac expansion. He explained that by boosting its production of low-cost pellets, U.S. Steel should gain a competitive advantage.

"The Minnesota and Michigan mines are going to feed the domestic steel industry,'' Kakela said. "The one thing this can do is cut down on the import of slabs by providing more raw steel in the U.S.''

In 2003, U.S. Steel bought the taconite plant as part of a $1 billion deal to acquire ownership of bankrupt National Steel Corp.

The taconite plant, formerly known as National Steel Pellet Co., began operating in 1967.

Historically, Keetac has been one of Northeastern Minnesota's most productive facilities on a tons-per-man-hour basis, setting several world records for one-line iron ore pellet production.

U.S Steel's ties to Northeastern Minnesota go back to 1901, when the company was formed.

Minntac Mine is located near the site where, in 1890, the Merritt brothers discovered iron ore on the Mesabi Iron Range.

News Tribune staff writer Peter Passi contributed to this report.

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