Cleveland-Cliffs iron nugget project is dead

A proposal to build the world's first commercial iron nugget plant at the former LTV Steel Mining Co. site near Hoyt Lakes is dead.

Cleveland-Cliffs Inc., a major partner in the $200 million project, said Friday night that partners in the project have not been able to come to terms. The exact details of what killed the deal were not available.

"Though we are disappointed with the temporary setback this action represents, the iron nugget technology works and we intend to move forward," Joe Carrabba, Cleveland-Cliffs chief executive officer said in a news release.

Cliffs, Kobe Steel, Steel Dynamics Inc. of Butler, Ind., and Ferrometrics of Two Harbors had proposed building the plant near Hoyt Lakes.

The state also supported the project, including streamlining an environmental permitting schedule.

The commercial plant, to be built on a 6,000-acre site, was to bring with it about 400 to 500 construction jobs and 100 permanent jobs.

Cleveland-Cliffs, with Kobe Steel of Japan as a partner, still intends to purse development of a commercial-size nugget plant at Cliffs' Northshore Mining Co. facility in Silver Bay, Carrabba said.

But Sen. Tom Bakk, DFL-Cook, said that permitting a commercial nugget project along Lake Superior could prove difficult.

"I'm just heartbroken," Bakk said Friday night. "I don't think Cliffs has their heart in it. It could have happened in Hoyt Lakes. Everything was ready. The Iron Range legislators pulled out all the stops in St. Paul for this. We broke arms and broke legs to make it happen and even had an EIS (Environmental Impact Statement) waived."

Hoyt Lakes Mayor Marlene Pospeck called the announcement "reprehensible and infuriating."

Her city was hit hard when LTV Steel Mining Co. permanently closed in 2001, costing 1,400 jobs -- many in Hoyt Lakes.

"I just can't understand what the h--- they're thinking," the normally placid Pospeck said. "I can't believe the decision was made to once more pull the rug out from under Hoyt Lakes. It's like over and over and over again, we get our hopes raised and then dashed."

Pospeck said she didn't know whether the city or other government leaders would have any recourse.

All funding and permitting for the project was based on the premise that it would be at the former LTV Steel Mining Co. plant, she said.

"I don't understand how it can be a financial decision," Pospeck said. "It will delay the project for two or three more years, which means it will cost more. And the market is there for it right now. Who knows what the market is going to be like a few years from now."

A confirmation of the agreement at the Hoyt Lakes site was expected earlier this year.

But delays over several months led some within Minnesota's iron ore industry to believe that the parties were having trouble reaching agreement.

Still, the sudden announcement caught some off guard.

"Companies make decisions for a variety of reasons based on what's in their best interest," said Frank Ongaro Jr., president of the Iron Mining Association of Minnesota.

Mesabi Nugget, which had planned to operate the nugget plant, successfully demonstrated the technology on a small-scale at Northshore Mining Co.

Where the failed deal leaves Larry Lehtinen, president of Mesabi Nugget, wasn't clear Friday night.

Lehtinen, an Iron Range native, spent about six years working to get the pilot plant operating and seeking partners, funding and permits for a commercial plant.

Kobe Steel officials say that could still happen at Silver Bay.

"We are committed to the reduced iron business and believe that the iron nugget technology can significantly alter the raw material landscape for steel producers," said Shohei Manabe, Kobe Steel general manager. "While we are also disappointed by the delay caused by this setback, we are nonetheless optimistic regarding the technology, as well as building the innovative operation in Minnesota. We look forward to working with Cleveland-Cliffs and the state of Minnesota to commercially deploy this technology."

Iron nuggets would be a new product made from Iron Range taconite concentrate, more valuable than iron ore pellets, and used to feed electric arc furnaces and foundries.

Bakk said the project held promise of a new era on the Iron Range.

Now, he says he unsure whether a plant will ever be built in Northeastern Minnesota.

"It hurts," Bakk said. "But I feel worse for the people of the Range who have been waiting for something that would revitalize the Range and get us into a new market."

Meanwhile, Cleveland-Cliffs said that it plans to re-start furnace No. 5, a pelletizing furnace at Silver Bay.

Permits and capital funding have been approved.

Construction work to get the furnace re-started, along with additional concentrate capacity, is expected to be complete by 2008, Cleveland-Cliffs said.

The re-start would boost iron ore pellet production at the plant by about 800,000 tons annually.

This week, Cleveland-Cliffs announced new long-term pellet contracts with AK Steel and Republic Steel. The contracts assured Cliffs' that it will sell 100 percent of its pellet production.

Re-starting the concentrate lines would be necessary to fuel a Silver Bay nugget plant.

"Whether the start-up is directly related to their thoughts about nuggets in the future, who knows?" Ongaro said. "But they just announced that their order books are full."

Donald Gallagher, Cleveland-Cliffs chief financial officer, said the expanded pellet capacity would help satisfy customers' current and future requirements under long-term sales agreements.