Essar makes a big arrival as its Nashwauk options narrow

A private 737 carring Essar officials pulls away from the General Aviation building at the Hibbing Airport Wednesday afternoon.

Essar Global’s push to squash an effort that would ban it from doing business in Minnesota was set aside after the Minnesota Court of Appeals upheld a lower court’s decision that dismissed the company’s challenge to a debarment process.

Essar sued the Minnesota Department of Natural Resources and Department of Administration last February in State District Court in St. Paul after the agency moved to ban the India-based steel conglomerate from doing business in the state. Essar owned the half-built Nashwauk mine and pellet plant when it filed for a $1.1 billion bankruptcy case in July 2016, triggering a series of events that led to the steel giant being back in control four years later.

In the February 2019 lawsuit, the company claimed the two agencies violated state law and put the Mesabi Metallics project at risk.

A district court judge dismissed the case in September, but Essar appealed. In an opinion filed last week, the Minnesota Court of Appeals upheld the decision of Judge Robyn Millenacker, who said the company’s concerns should be raised with the Department of Administration, saying the lawsuit tried “sidestep” the process through “instant civil action.”

If the agency does debar Essar, then the company can request the agency’s commissioner review the decision, and if the commissioner’s “determination is unfavorable” then the company can “seek review in the appropriate appellate courts.”

Gov. Tim Walz and his administration have been steadfast in their opposition to Essar holding a controlling position in the project, but have said it can’t prevent the company from holding a financial stake.

The debarment process was started in January 2019 when DNR Commissioner Sarah Strommen filed the formal request to ban Essar. The agency said last week it was pleased with the decision, a sentiment echoed by the Administration Department.

“We are reviewing the specifics of the decision, but we are pleased that the Appeals court upheld the lower court decision,” said DNR spokesperson Chris Niskanen.

Department of Administration spokesperson Curt Yoakim said the “review had been on hold but we will now determine next steps once a more thorough review of the court’s decision has been completed.”

Missed deadlines continue

Essar is the majority owner of Mesabi Metallics, the company which won the project through a bankruptcy bid in 2017 under the ownership of Tom Clarke and Chippewa Capital Partners. The group would later check a series of boxes to retain the state’s coveted mineral leases.

But in Mesabi Metallics’ time in control of the project, it has been marred by missed deadlines that now threaten its future to operate.

Most notably, the company missed a December 31, 2019, to complete construction on the half-built pellet plant. Significant construction didn’t occur, the state noted, giving DNR the right to pull the mineral leases from Mesabi Metallics, but officials have said they have up to a year to decide on how to move forward.

Essar publicly lobbied for an 18-month extension of the mineral leases and construction deadline, claiming investors were shy on the project because of a lack of certainty that state mineral would be available. The state said Essar or Mesabi Metallics never formally asked for an extension.

In January 2020, the company missed a $12 million payment to the state. The money would have distributed funds to the Permanent University Fund, county and local governments, local school districts near the project and the School Trust Fund.

“Governor Walz continues to support the Nashwauk project and wants to see it succeed. For that to happen, he believes there needs to be a credible party in control of the project. He does not view Essar as credible,” said governor’s office spokesperson Teddy Tschann, over email at the time. “He is disappointed that Mesabi Metallics failed to make its required payments to the state. The Governor’s Office will continue to work with the DNR to discuss the project with businesses, community leaders, and workers as the state determines the best course of action to move the project forward.”

The pattern of missed payments and failed construction deadlines is reminiscent of Essar’s previous ownership term under the Ruia fmaily, which missed a $10 million payment to the state in April 2016 before filing a $1.1 billion bankruptcy claim that July, with $74 million owed to local contractors.

Later that year, Clarke was ousted as CEO of Mesabi Metallics and replaced by Gary Heasley. Still, construction failed to launch and Essar Global officially rejoined the ownership group in January 2019, on the same day Walz was inaugurated as governor.

Essar re-emerged as the principal owner of Mesabi Metallics in January 2019 by gobbling up the company’s debt, and immediately sought to form a project team with Stelco and Mercuria to complete the pellet plant. Led by its subsidiary, Essar Capital Americas and former Essar Steel Minnesota CEO Madhu Vuppuluri, the India-based conglomerate failed to raise nearly $800 million from investors to restart construction on the once-promising project that offered 700 construction jobs and 350 permanent jobs.

DNR officials and Walz have met with Stelco and Mercuria about the project, saying they want it to move forward without Essar’s direct involvement in the construction or operation.

A “credible partner” for the state has yet to emerge and members of the Iron Range Delegation have since taken a stronger stance against Essar, calling for one or all of the “big three” mining companies — Cleveland-Cliffs, ArcelorMittal and U.S. Steel — to step up and take control. Cliffs already controls more than 3,700 acres of land and minerals in the project area.

Walz said earlier this year that the state held a meeting with interested parties, naming Mercuria and Stelco, which Essar recruited as a potential partners. But no progress has since been made toward a deal that would satisfy the state.

Meanwhile, the project has also fallen behind on payments to Itasca County and owes a substantial sum in delinquent second-half property taxes from 2019.

A review of the 15 highest-taxed parcels in the county show more than $418,000 owed in delinquent taxes. Between the two companies, they have about 500 parcels of land.

Essar first 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, and 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.

Patience with the project is running out from Iron Range delegation members. Rep. Dave Lislegard of Aurora has openly called for the state to work with Cliffs, nothing any project will have to go through the company’s vast land holdings.

Sen. David Tomassoni, DFL-Chisholm, has said he wants to see a local, reputable company gain control. At the RAMS meeting earlier this year, Rep. Julie Sandstede, DFL-Hibbing, also said she wants to incentivise one of the “big three” of Cliffs, ArcelorMittal or U.S. Steel to work together on a solution.

“No more Essar,” she told the crowd. “It’s time to move on.”

Forum News Service contributed to this report.

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