Essar plant rises amid industry decline
NASHWAUK — On a brisk, breezy October day, 18 big cranes reached for the sky over the sprawling Essar Steel Minnesota taconite plant just north of town where more than 700 construction workers were on the job.
Iron beams and steel siding hung from cables as ironworkers in bucket-lifts grabbed dangling pieces and secured them into place, players in what looked like the world's largest erector set.
The first thing that strikes the eye is the size of the project — everything about the work is big — from the 240-ton capacity ore-hauling trucks being readied to the massive building that will house the taconite-baking furnaces and the hulking, 9-story-deep underground concrete edifice where boulders of raw ore will be crushed to a useable size.
The $1.9 billion taconite mine and processing plant is among the largest and most expensive construction projects in Minnesota history.
Progress is obvious. Drill rigs and giant ore shovel loaders are being tuned up. The furnaces that will bake the pellets hard are being assembled. A ceremony marking the first major explosion ripping taconite iron ore off the mine wall could come within weeks.
Buddy Harvick, a Texas native who now lives in South Range, just south of Superior, was working for Grand Rapids-based Tristan Fabricators LLC, one of dozens of contractors on the job. Harvick was helping curl and weld a giant piece of steel for another big component at Essar.
"This is a huge project,'' Harvick said "It's good to have this much work close to home."
It will be Minnesota's first new full-scale taconite mine and processing plant in more than 35 years, with an easy-access, high-quality ore deposit that could last 80 years. (The mine and processing are at nearly the same site as the old Butler Taconite operation which was closed and dismantled in the mid-1980s.)
Despite a decade of delays and a constant string of controversies, the Essar Steel Minnesota project now appears headed toward reality. The question seems no longer if the long-delayed Essar project will be completed but when, with the company promising its first freshly-baked pellets rolling off the line in mid-to-late 2016.
"It will be 180 rail cars of taconite per day, 365 days,'' said Mitch Brunfelt, the company's director of government and public affairs. The plant can access both CN and BNSF tracks to move the ore to Lake Superior for shipment.
Construction will peak soon at more than 800 people on the job, Brunfelt said. Essar employees, now at 125, will ramp up to 350 by July. Several of the people applying, and several new hires, are Mesabi Nugget employees who are now on indefinite layoff, Brunfelt noted.
Essar plans on producing 7 million tons of processed taconite pellets annually — headed to ArcelorMittal for its steel mill outside Chicago, as well as Essar's own steel mill in Algoma, Ontario. Brunfelt said the plant's future production is essentially spoken for.
Too much taconite
Yet the new plant is coming online during one of the worst downturns in mining in 30 years, with cheap foreign steel made with cheap foreign iron ore pushing the market down. The U.S. steel industry is struggling to compete, meaning it needs less Minnesota ore.
And despite the massive investment and promise of new jobs on the Iron Range — the first full-size new plant since 1977 — it seems pessimism, scepticism and outright concern over the ultimate impact of the Essar project is quashing most jubilation among Iron Range residents and officials.
"You've heard of stadium fatigue among the people of Minnesota, about people being tired of using taxpayer money to build stadiums for rich athletes and owners? Well, up here among the people who live and work around Nashwauk, there is a great deal of Essar fatigue,'' said state Rep. Tom Anzelc, DFL-Balsam Township. "People have been hearing about how great this is going to be for a decade. But, quite frankly, now they aren't going to believe it until they see smoke coming out of (smokestacks at) that place, and not before."
Brunfelt explained that Essar will produce about as much finished taconite pellets as Hibbing Taconite just a few miles to the east. But Essar will be able to mine, process and ship the ore to customers much more cheaply than Hibbtac or other Minnesota producers, he said. Essar will produce the same tonnage with one-third the employees and one-third the number of haul trucks, Brunfelt claimed, which will sharply reduce costs.
It will also be the only North American plant that can produce both traditional fluxed pellets for blast furnaces and also "DR-grade'' pellets to be made into directly-reduced iron that can be used in electric mini-mills.
"Everything designed into this (project) is aimed at reducing production costs,'' like having the initial processing site just one-quarter mile from the mine, Brunfelt said. "How they laid out everything really helps add to the efficiencies. And the technology now is so much better. This is all new from the bottom up."
Essar had to beat global financial bushes for months to find money to finish the project, with $800 million secured late in 2014. Essar has about the same amount of its own money invested in its project.
The progress here has come despite the fact the global price of iron ore, which peaked at nearly $200 per ton a few years ago, has dropped to about $53 today. That's near or even below the cost of some other Minnesota producers to get the stuff out the door.
"I think the fact that you see all this construction at a time when the iron ore industry is in a global downturn is indicative of Essar's commitment to Minnesota," Brunfelt said.
While Essar has gained a reputation for not paying its bills — it has owed hundreds of thousands of dollars to contractors on the project — Essar Steel Minnesota's New York-based CEO has vowed to become current on all bills by the end of the month.
Critics, however, and even some supporters, note that the plant is being built at a time when its product simply isn't needed. They say there is no new demand for U.S. iron ore which continues to be squeezed by reduced demand for domestic steel — all because of cheap foreign ore going into cheap foreign steel that is flooding the U.S. market.
It's not just a U.S. issue, with steel prices down about 40 percent in the past year, British authorities say they may lose 5,000 steelmaking jobs because Chinese manufacturers continue to produce steel at below cost and sell it overseas. Britain and the U.S. have alleged unfair trade steel "dumping'' by China and other nations.
Evidence of the global crisis remains vivid across the Iron Range:
- Mesabi Nugget, the state's first iron nugget plant, has shuttered, perhaps permanently, as has its Chisholm-based supplier of ore that was half-owned by Magnetation.
- Grand Rapids-based Magnetation, forced into bankruptcy earlier this year, also closed two of its other ore-producing plants, and now is operating only its all-new Plant 4 under the veil of bankruptcy reorganization. The company hopes to emerge from Chapter 11 by spring, but it's likely dozens of Minnesota suppliers to the mining company will be paid only pennies on the dollar for the bills Magnetation owes them.
- U.S. Steel idled its Keetac operations, mothballed the plant and now has laid off nearly all 412 workers. The company also temporarily laid off a good share of its Minntac operations in Mountain Iron, although most of those are now back on the job.
- Cliffs Natural Resources halted operations at its United Taconite operations in July saying it had too much inventory and not enough orders. It's not clear if or when its 420 workers will be called back.
It's Cliffs which stands to lose most when Essar opens. While U.S. Steel and ArcelorMittal, which own and operate the Minorca mine in Virginia, produce pellets mostly aimed for their own steelmaking furnaces, Cliffs owns no steel mills and depends on selling pellets on the open market.
Cleveland-based Cliffs, already in tumult after massive downsizing and hostile takeover in the past two years, will almost certainly close its remaining iron ore production in Michigan's Upper Peninsula when Essar opens — the Empire-Tilden operation, which currently supplies ArcelorMittal, which already has an agreement to buy Essar pellets.
Cliffs CEO Lourenco Goncalves last January warned that an operating Essar operation would flood the U.S. market and harm existing Cliffs operations in Minnesota. He recently went further, saying he'd have to shut down a Minnesota plant the day Essar opens.
"All they (Essar) are doing is adding supply that the industry doesn't need," Goncalves told the News Tribune in January. "It doesn't do any good for the region. The (new Essar jobs) that would be generated will be destroyed somewhere else. And the jobs that would be destroyed would be Cliffs jobs."
Last week Cliffs issued a statement that it has no plans to permanently shut down any Minnesota operations, although no date has been set to reopen United.
The Nashwauk project was first proposed by a company called Minnesota Iron and Steel, back in 2004, with state and IRRRB funding offered in 2007 and pollution and mining permits approved in 2008 through an expedited process. Essar took over in 2008 and appeared ready to start work. But almost nothing happened until 2012, in part because of the global economic recession. Work started, stopped and started again before stopping in 2014 yet again. Short on cash, Essar apparently was unable to pay many of its contractors. Several filed claims, liens and suits against Essar and pulled off the job.
Finally, in fall 2014, Essar obtained the $800 million in financing needed to finish the project. Work began in earnest last winter.
Essar also has been unwilling, or unable, to repay $67 million owed the state from a 2007 economic development deal. Some critics, including Cliffs' Goncalves, say unless Essar pays the money back as stipulated, owed because it is not creating steel at the Nashwauk site, the state is subsidizing his competition, helping flood the current, delicate balance between supply and demand in the U.S. iron and steel market.
Others, including most Iron Range lawmakers, agree.
"If Essar wants to build a taconite plant with 350 jobs, they are free to do so. It's the state subsidy that's the problem. ... They are permitted and appear to have the infrastructure in place for a taconite plant,'' state Rep. Carly Melin, DFL-Hibbing, told the News Tribune. "I do not, however, support the state of Minnesota subsidizing a taconite plant and that was never contemplated or agreed upon between the parties."
Essar Steel Minnesota is a subsidiary of Mumbai, India-based Essar Group, a $20 billion firm with about 70,000 employees worldwide.
"If they would just agree to build the iron part of the original project, all of this would be settled, and we could be celebrating this new project,'' Anzelc said of Essar. "But they won't do it. So we're left with this quandary."
Decision expected Monday on Essar repayment to state
State officials said last week that there has been no final deal reached on how and when Essar Steel Minnesota will repay nearly $67 million in state financing due because the company has failed to meet its end of a 2007 economic development deal.
Gov. Mark Dayton earlier this month met with top Essar officials who said they were close to agreeing on a repayment plan. Essar also vowed to make good on all past-due payments to contractors on the Nashwauk project.
Dayton asked Essar corporate leaders to decide by Monday whether to accept his compromise to pay $10 million toward the bill now and work out a payment plan for the remaining $57 million to be paid back as the plant operates.
Essar’s predecessor on the Nashwauk taconite mine and processing plant project received the state money, in addition to another $6.7 million from the Iron Range Resources and Rehabilitation Board, in exchange for the promise of 350 jobs at an all-new taconite mine and processing plant but also another 100 jobs at an iron nugget and steelmaking operation.
Under the 2007 agreement, the jobs needed to be all in place by October 2015, or the money had to be paid back.
The taconite project is under construction, but still many months from operations, and the company has scuttled plans for the steelmaking operations, at least in the near future.
State officials are under pressure from Iron Range lawmakers and established taconite companies to force Essar to pay up so the state isn’t seen as subsidizing a new taconite mine that will simply compete with existing mines for the foundering domestic steel industry’s reduced demand for ore.
The IRRRB already has moved on several occasions to delay Essar’s repayment of its loan until the company begins production.