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Is the ‘Light at the end of the Tunnel’ still on?

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It was July 12, 2016, when then-Gov. Mark Dayton convened a public meeting of the minds in Cloverdale Town Hall on the outskirts of Nashwauk, the Itasca County city of fewer than 1,000 residents where the embattled iron ore project in question lies.

In the large chambers that afternoon, with the governor, were members of the Iron Range Delegation at the time, tradesmen and union leaders, former 8th District U.S. Rep. Rick Nolan and Lourenco Goncalves, the chairman, president and CEO of Cleveland-Cliffs, among many others.

The gist of the meeting centered on $49 million owed to local contractors. Hibbing Taconite was scantily discussed — if at all — as frustrations came to head when Essar Steel Minnesota declared bankruptcy days earlier on the long-anticipated, half-built project in Nashwauk.

Intentions at the time were for the state of Minnesota to secure the leases from the bankruptcy court — which didn’t happen — and pass them along to Cliffs to develop the site. As history would soon tell, the lease termination attempt by the state was ruled invalid by the court, and the first full-fledge attempt of the governor, DNR, Iron Range Delegation and union and trades members together to give Cliffs control of the project fell apart.

It was that point, where all the pieces would never align in unison at the same time, with the same game plan for the site — and that’s where the story of Hibbing Taconite’s looming ore reserve shortage truly begins in recent history.

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A history lesson Nashwauk

Mesabi Metallics, the rebranded version of Essar Steel MInnesota, began moving forward on the Essar in early 2017 navigating bankruptcy, and as allowed by a federal bankruptcy judge during the bidding process for its future ownership.

Cliffs made what Goncalves would later call a liquidation bid on the project, but an unexpected entity emerged and was awarded the project. They were called Chippewa Capital Partners, led by a former health care executive named Tom Clarke, who also purchased the Magnetation plant in nearby Coleraine and Reynolds, Ind. from bankruptcy.

As Dayton said in 2017: “We have no reason to believe they won’t be successful,” noting its commitments were more than Essar Global, who was sued by Mesabi Metallics after filing the $1.1 billion bankruptcy case for laundering money from the Minnesota site to its other operations (The suit is ongoing, but Essar lost).

Days after Chippewa won the bid, Goncalves and Cliffs announced plans for a hot-briquetted iron facility in Toledo, Ohio, which is expected to begin shipping pellets in the first quarter of this year. Slightly delayed by the COVID-19 pandemic, Cliffs completed construction and could start shipments in just over three years after securing the land — which is what he promised for a Minnesota HBI plant that fateful 2016 day outside Nashwauk.

Meanwhile the company would deliver what was described at the time as a “crippling blow” to Chippewa when it purchased and leased 3,700 acres of land and minerals at the Nashwauk site, just days before Clarke and company emerged from bankruptcy in December 2017. Dayton’s office called the move a “complete surprise” and DNR officials said “It will be up to Chippewa to determine how they will proceed.”

As 2018 drew into April, the first real signs of internal and legal trouble crept into the Chippewa and ERP Iron Ore (former Magnetation) ranks. In April, Clarke missed payments to the local Reynolds, Ind. government related to Magnetation and filed bankruptcy under ERP. Later, direct links to Essar Global emerged to Chippewa’s primary financial partner and pellet customer, the Swiss-based Riverdale Commodities, which was approved by the state as part of the agreement to obtain the public mineral leases.

By July, Chippewa had retained the state mineral leases but turmoil loomed beyond its Essar connections and failure to launch the project in a meaningful way. In late July, Clarke was ousted by the project’s majority owner, Nubai Global Investment, and the company also lost a court battle to retain land and minerals from Cliffs — setting off a public battle at the Mesabi Metallics leadership level. Meanwhile, a larger debate stewed over a project’s eventual mine life if operated outside of Cliffs, culminating in a contentious town hall meeting later that year with Dayton and new Mesabi Metallics CEO Gary Heasley, who is also out of the company now.

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Amid the ownership battle and land jockeying, the Minnesota DNR said in August 2018 that it was “carefully reviewing” the leases for Mesabi Metallics, but ultimately kept the status quo, with one official saying at the time: “This is a complex situation, both factually and legally, and is continuing to develop. Thus, our assessment is ongoing.”

But the state would be caught by surprise, again, this time by Mesabi Metallics. As Dayton met with local officials in Nashwauk, Mesabi Metallics named new investors in the project as they aimed to raise about $900 million dollars. Riverdale Commodities was out (A DNR official said said in December 2020 that deal apparently fell apart) and Mercuria was in. Asked about it in Nashwauk, Dayton said he was only made aware of the change in plans that afternoon.

Fast-forward to the next year and Essar Global officially rejoins the project, buying Nubai’s $250 million in debt and announcing it the morning Gov. Tim Walz was being inaugurated. Later that month the Walz administration would seek to debar Essar Global from doing business in Minnesota, meaning it could hold a financial stake in the Mesabi Metallics project, but couldn’t run the operations. That effort was later affirmed by a judge, but to date, no significant action has gone forward on debarment.

In the months and years since, little to nothing has happened at the site. Mesabi Metallics missed a major construction deadline at the end of 2019 and the state — despite saying on numerous occasions it wasn’t interested in an extension with Essar — put a possible extension on the table toward the end of 2020.

Despite an 11th hour effort from Goncalves, who offered to pay the $25 million owed to Minnesota, the state Executive Council approved a lease agreement amendment in December 2020, potentially extending Mesabi Metallics’ control of public minerals to 2024 (that’s an important date, in and of itself).

The deal called for Mesabi Metallics to repay $24.5 million to the state, which it did, and set new construction goals including finishing the primary crusher for the pellet plant by Dec. 31, 2021, and the entire plant must be ready for commissioning by June 30, 2024.

It also said that Mesabi Metallics, by May 1, 2021, has to secure $850 million in commitments and at least $450 million of debt financing from lenders not associated with the projects equity holders. At least $200,000 million of the financing needs to be advanced to Mesabi Metallics and “immediately available funds in a corporate bank account held in the United States in the name of Mesabi.”

That’s where we stand on the Nashwauk project entering March 2021: One critical deadline looming in May, and if that passes the state’s smell test, another in December.

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Why does this matter to Hibbing Taconite?

While Hibbing Taconite wasn’t the primary focus of that post-bankruptcy meeting in Cloverdale, it was on the minds of Cliffs officials a year earlier, when the company expressed interest in using a portion of the former Butler Taconite ore body to extend the life of HibTac.

If you’re doing the math, that effort started about 10 years out from when Hibbing is set to run out of mineable ore with its current reserves. Cliffs, who was a minority owner and managing partner of HibTac at the time, was long enamored with the Nashwauk site, likely for this reason, but also for its HBI ambitions. Goncalves has previously said that saving ore for HibTac would not offset those aspirations.

As Cliffs won a court battle over its land deals in Nashwauk, the rhetoric over saving HibTac amplified in 2018, coming to a head when Clarke and Chippewa claimed to have reached a deal with Cliffs to provide ore to the mine. A fuming Goncalves said “We don’t have a deal and never will,” and denied any direct communication with Clarke. He later sued Clarke and Chippewa for defamation.

Meanwhile, union leaders weren’t amused by the claims from Chippewa. They’d been at the forefront of lobbying for Cliffs control at the site, knowing in 2018 that permitting and legal battles had the hour glass emptying faster than expected. Chris Johnson, president of the United Steelworkers Local 2705 said of Clarke, at the time: “Obviously he’s lying, he’s not in an agreement to supply us with anything. My local union and union members are still just flabbergasted.”

More than two years and a new Minnesota administration later, hopes were high when Mesabi Metallics missed several construction and payment deadlines critical to the project’s lease agreement.

But word of a deal cut between the state and company raised new tensions when Goncalves made his $25 million offer to Walz the night before the Executive Council was set to meet, a point he made to the state’s top decision makers the next day saying: “None of this proposal was ever put on paper. It was brought to me last night. Two years we’ve been trying to figure this out.”

Goncalves said he was working within the parameters of being a publicly-traded company and needed to be offered the opportunity, again promising HBI in Nashwauk and ore for HibTac, which would allow the company to keep it open beyond 2024 — the year Mesabi Metallics is supposed to be commissioned to process ore — or risk 750 jobs leaving the market.

State Auditor Julie Blaha called the claims by Goncalves that HibTac would close “threats, but not a plan.” Cliffs did announce this year a solution for HibTac, but more on that in the next story.

Walz and the DNR said the Hibbing Taconite was a vital project for the state, but said permitting and environmental reviews for a new project in Nashwauk would take years, a point Goncalves countered.

For Johnson and USW Local 2705, the certainty of Cliffs would be worth the wait. “While the change of leases would take time, it still gives us light at the end of the tunnel and hope at Hibbing Taconite,” Johnson told the Executive Council.

Since, union leaders have revealed that the new leadership at Mesabi Metallics have been absent from communications. They had a neutrality agreement in place Clarke that would allow the workforce to unionize without interference, but the new leadership has not engaged with the Steelworkers.

Further, an active CEO has not been identified by union or state leaders, with members Essar Global ownership, the Ruia family, and former Essar Steel Minnesota CEO Madhu Vuppuluri on the ground at the project site in recent months.

What May 1 brings for the Mesabi Metallics project could determine what solution Cliffs ultimately arrives at for HibTac and whether the state moves to pull the leases if legitimate financing is not in place by then.

Pulling the leases would be the most aggressive by the state since July 2016, when Dayton moved to transfer the leases to Cliffs. Perhaps letting the revived project, now almost five years removed from its original bankruptcy filing, succeed or fail a second time is what the state needs in a legal sense.

Let’s turn back the clock again to 2016. The federal bankruptcy judge handling the Essar Steel Minnesota bankruptcy case was overall nonplussed with the attempt to transfer the leases to Cliffs and approved an Essar request to force all communication between the state and Cliffs be open for review by attorneys in the case.

This time, the hope is that either the project takes off or the leases are more easily extracted.

“More generally, DNR has substantially strengthened the leases to make them much harder for Mesabi to retain in bankruptcy,” said Assistant DNR Commissioner Jess Richards, in an email following the Executive Council meeting, “but that doesn't make them bankruptcy proof.

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