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Cliffs CEO: Foreign steel imports are threat to Minnesota mining

VIRGINIA -- The biggest threat to Minnesota's taconite industry isn't the global glut of iron ore mined in other nations but rather the vast amount of foreign steel that's being imported to build Amercian projects.

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Lourenco Goncalves

VIRGINIA - The biggest threat to Minnesota's taconite industry isn't the global glut of iron ore mined in other nations but rather the vast amount of foreign steel that's being imported to build Amercian projects.

That was the warning Monday from Lourenco Goncalves, president and CEO of Cliffs Natural Resources, the largest taconite iron ore producer in the U.S.

Goncalves said no foreign iron ore producer can get their product to U.S. steel mills as efficiently as U.S. producers in Minnesota and Michigan. But the U.S. imported 23 percent of its finished steel in 2013, 28 percent in 2014 "and that number hit 33 percent in January,'' Goncalves told Iron Range business and political leaders Monday.

"The biggest issue we have in this country is imports," Goncalves said at the company's annual mining breakfast to update the region on Cliffs' problems and prospects at its three Minnesota operations.

Goncalves said America is experiencing a relatively booming economy - including automobile manufacturing and construction - but that too many of the new projects are being built with foreign steel that is made from iron ore from Australia or Brazil, not Minnesota.

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Demand for steel in the U.S. is up, but taconite and domestic steel production is flat because of the glut of imports.

"We are not enjoying this growth," Goncalves said, adding that while the U.S, has imposed sanctions on specific nations' steel imports, the problem continues to shift to different countries.

Steel mills in the U.S. currently are operating at about 75 percent of their capacity.

U.S. Rep. Rick Nolan, D- Minn., who attended Goncalves' talk, said the problem is "so-called free trade agreements" that don't account for fair wages or equal regulations, such as environmental protection.

The U.S. has imposed some sanctions on some kinds of steel from a few countries "but the problem when we try to protect our industry one at a time, like steel, is that it takes years to get through the system and, by then, the damage is done," Nolan told the News Tribune.

Nolan said he is stepping up efforts to block the proposed Trans-Pacific Partnership free trade agreement because he fears it will lead to more below-cost imports from nations that subsidize their industry or offer substandard wages to workers.

"These trade agreements, like the North American agreement, create jobs all right. The problem is that none of them are in the U.S. They end up costing us hundreds of thousands of jobs and the loss of our middle class," Nolan said.

Nolan said he's part of a congressional working group that meets weekly to plot strategy to block the Pacific agreement which is favored by President Barack Obama and others.

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Goncalves, speaking at his first public event in Minnesota since taking over the company last summer, said he will tour all three Cliffs operations in Minnesota this week - Hibbing Taconite, United Taconite and Northshore Mining - as well as its two operations in Michigan's Upper Peninsula, Empire and Tilden

In other news:

* Goncalves said the company is considering three different directly reduced iron projects. He said Cliffs will almost certainly invest in a Minnesota taconite plant, likely Northshore in Silver Bay, to produce a new kind of taconite pellet that can be used to make directly reduced iron. Goncalves said he expects an announcement within months with a partner that will build a facility in Ohio, adjacent to a steel mill, that will use Cliffs' DRI-ready pellets to feed electric arc mini mills.

"I've been receiving offers," from companies willing to build the Ohio facility, Goncalves said. He said the cost to upgrade Northshore would be relatively cheap, far less than building a new plant. The new type of pellet would add jobs and many years to the life of the facility, he said.

Small-scale tests at the Silver Bay plant in recent years said the local ore works well to make DRI pellets.

Currently, all Minnesota taconite iron ore must be used in traditional blast furnaces. But electric arc mills now account for 60 percent of all steel produced in the U.S., and Iron Range officials for years have wanted inroads into that growing market.

* Goncalves predicted amicable talks with the U.S. Steelworkers this year as the company's current labor agreement with the USW runs out. He said he has excellent relations with national and regional USW leaders and that Cliffs workers understand that they must help him cut costs to keep the company viable.

"The problem needs to be solved in the family, together," Goncalves said. He declined to address any specific concessions he might ask for. Cliffs has some 1,850 employees at the three Minnesota plants, with a payroll of more than $250 million annually.

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* The frank-speaking CEO, a native of Brazil who has headed several steelmaking companies, repeated his disdain for the state's proposed loan extension for Essar Steel Minnesota, the India-based company building an all-new taconite plant in Nashwauk. Goncalves said Essar should repay the $67 million state loan on time, this year, and not ask for a legislative extension that's now being considered.

Goncalves said the U.S. steel and iron ore industries are at nearly perfect supply and demand balance right now. He said Essar's proposed production isn't needed and will simply create an oversupply of ore. If that happens, local mining communities on the Iron Range "will pay the price" as existing operations close, Goncalves said.

* Goncalves said he has his company on the right track to become a U.S.-only, iron ore-only mining company after selling off coal operations and shutting Canadian mines. He said the company will sell its remaining coal mines and let its Australian iron ore operation run out of ore and quietly close in a few years, leaving only Minnesota and Michigan taconite mines.

He said his biggest corporate hurdle now is raising the value of Cliffs' stock, which fell from $100 per share in 2011 to just $6 in January. It sat at $7 Monday. Ironically, Goncalves said. Cliffs was teetering on the brink of disaster from unsustainable growth in 2011 when its stock price was highest. Now, as the company becomes leaner and more nimble and poised for success, Cliffs' stock is stuck in the basement.

* Goncalves politely declined an offer to move his newly Minnesota-focused company to Minnesota, saying it would remain in Cleveland for the time being. "We'll help you move those corporate offices'' to St. Louis County, said Keith Nelson, a St. Louis County commissioner.

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