State moves to keep Essar out of Mesabi Metallics

India's Essar Steel may be trying to get back into the long-delayed taconite project in Nashwauk, but the state of Minnesota is making it clear it doesn't want Essar back.

A mound of shattered taconite iron ore from an earlier blast in Mesabi Metallics' mine in Nashwauk. (2017 file / News Tribune)

India’s Essar Steel may be trying to get back into the long-delayed taconite project in Nashwauk, but the state of Minnesota is making it clear it doesn’t want Essar back.

Sarah Strommen, newly appointed commissioner of the state Department of Natural Resources, on Monday sent a letter to the CEO of Mesabi Metallics, the company trying to revive Essar’s former mine site in Nashwauk, saying the state is taking actions to prevent Essar from doing business with the state. Essar has twice indicated it wants a role in the Nashwauk mine site.

Strommen wrote that the DNR would hold back state mineral rights that are key to the Nashwauk project's potential success if Essar “were to take any operational, management, oversight, or event investor role in the Mesabi Metallics project.”

“Toward that end, please be advised that the DNR has begun the process of seeing debarment of Essar Global and any of its affiliates from doing business with the state of Minnesota,” Strommen wrote to Mesabi Metallics CEO Gary Heasley in a letter dated Jan. 28, citing state statutes that allow the action.

In a statement Monday afternoon, Gov. Tim Walz was supportive of the DNR’s action and further chastised Essar for its past role in the Nashwauk site.


“This is a company that left the Iron Range in the lurch and caused a lot of pain,” Walz said. “I want to do everything I can to keep that from happening again.”

Essar took control of the massive project in 2008 and the Nashwauk facility - the state’s first all-new taconite mine and processing center in decades - was supposed to be employing 350 people by 2014, producing some 7 million tons of taconite iron ore pellets each year. Plans also originally called for an iron and steel plant on the site, creating even more jobs.

But Essar walked away from the project in late 2015 after spending $1.8 billion and leaving it less than half-finished. The company also left behind $1 billion in debt, leading to years of bankruptcy and post-bankruptcy troubles that continue today.

It appeared Essar was out of the picture entirely until September when Mercuria, a Swiss energy and commodity company, announced it would take a majority stake in the project while a draft version of its news release meant to remain unpublished said Essar would become a minority shareholder in Mesabi Metallics.

Then, earlier this month, Essar agreed to settle some $260 million of the debt it left behind and buy its way back into the project.

But Strommen made it clear Minnesota wants Essar out of the picture, noting years of failed efforts, broken promises, missed deadlines and financial mismanagement as the state tried to push the Nashwauk project through.

“As you know, the DNR and state of Minnesota have a long and troubled history in working with Essar and its affiliates. Essar repeatedly failed to meet the construction and production milestones contained in the state mineral leases, failed to pay contractors, currently has approximately $64 million in unpaid debt to Itasca County and the state and ultimately drove the project into bankruptcy,” Strommen’s letter reads. “Essar proved itself over a period of years to be an unreliable partner with contractors, local governments and the state.”

Strommen added the DNR was scouring legal agreements to see if Mesabi Metallics has kept current toward retaining the state mineral rights that cover about half the rich taconite iron ore at the site. If not, the letter not-so-subtly hints that those mineral rights would be withdrawn, possibly going to a rival company such as Cleveland-Cliffs, which has been fighting to mine on at the Nashwauk site.


Mesabi Metallics spokesperson Darin Broton directed questions about Essar’s involvement in the project to Essar, but Essar officers did not respond to requests for comment by the News Tribune Monday.

Asked what the impact would be on Mesabi Metallics’ plan for the mine if Essar is blocked from doing business in Minnesota, Broton said the company still being funded without Essar.

“Regarding the impact on the project, it is important to remember that Chippewa Capital Partners is the sole owner of Mesabi Metallics. Funding continues to come from them, and the project remains on the schedule presented to the DNR in early January. Mesabi Metallics continues to prepare for accelerated construction come this spring,” Broton said.

Mesabi Metallics missed a key year-end deadline when it failed to start construction on its value-added facility by Dec. 31, 2018 , which triggered its rent and royalty payments to the state to double until the lease term is corrected, according to the DNR.

Broton said Mesabi Metallics completed an updated construction timeline and cost to complete assessment in December and shared that with the DNR in early January.

But the DNR is reviewing everything, Strommen wrote. That includes the key mineral leases from the state that Mesabi Metallics won back in July shortly before company founder Tom Clarke was ousted amid an ownership dispute.

“DNR is also continuing to evaluate the sufficiency of all information provided by Mesabi to DNR and on which DNR relied upon for reinstatement of the leases in July 2018,” Strommen said.

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