NASHWAUK — An official from the Minnesota Department of Natural Resources told Itasca County commissioners last week that no U.S.-based companies appear willing to invest in a Nashwauk mining project while Essar Global is involved.
The report from Peter Clevenstine, assistant director of the Hibbing-based DNR office, comes at a critical crossroads for the Mesabi Metallics project. As Essar weighs its ultimate involvement, the state — led by the DNR — is simultaneously trying to ban the India-based conglomerate from doing business in Minnesota.
Essar’s decision, in part, hinges on the outcome of the debarment proceedings, although a number of options are open, ranging from foreclosing on the $250 million in debt purchased from Mesabi Metallics to remaining in an investor-only role.
Clevenstine said the debarment effort won’t prevent Essar from being a financial partner in the project, only stopping the project’s former owner from operating it. But the company’s involvement, he said, is what the DNR believes is the current hold up at the long-beleaguered site where construction has stagnated since its 2016 bankruptcy.
“There is no company in the U.S. that will touch this project if Essar is involved,” Clevenstine said, adding that the DNR is hopeful the state Department of Administration will rule on the debarment within a month. “This has to happen soon.”
Gary Heasley, a board member and former CEO of Mesabi Metallics, said they are waiting on Essar to more clearly define its role before they can chart a future path for the project. Mesabi Metallics planned to start full-scale construction at the end of March, but only a skeleton crew remains on site.
A spokesperson for Essar said the company wants to find a solution to complete construction and move into operation.
“We very much believe in the Nashwauk project,” spokesperson Jon Austin wrote in an email. “That’s why we’ve spent over $1.5 billion on the site so far and why we’re hoping to invest hundreds millions more to bring the project to life. To finish Nashwauk, we’ve introduced Mesabi Metallics to a world-class team of potential (strategic and other) partners — including companies in the U.S and internationally — who are eager, like us, to see activity on the site ramp up and the project move forward.”
In another email, DNR Deputy Commissioner Barb Naramore wrote that the agency has not met with Essar Global officials since they officially re-entered the project earlier this year and the state intends to continue the debarment action.
Essar’s involvement isn’t the only hurdle for potential investors. Completing the half-built pellet plant is projected to cost $1 billion with a Dec. 31 state-imposed deadline for construction to be completed.
Additionally, Clevenstine said the DNR is looking into other aspects of the mineral lease agreement with Mesabi Metallics. On a conference call last month with the Iron Range Delegation and local elected officials, the DNR said it is taking a second look at a $750 million funding package from Riverdale Commodities SA that was approved by the Dayton Administration last July. Sources with knowledge of the investigation also said the company lacks an offtake pellet agreement that was previously approved by the state. Riverdale was also the company represented on the initial pellet agreement.
The funding and pellet deal were key pieces that Mesabi Metallics had to present to the state to secure mineral leases last summer, and it remains unclear what leverage the state has on those leases if it’s determined Mesabi Metallics currently lacks them.
What is clear is a growing lack of patience from Range officials with the recent hold ups and investigations at the site. Mark Phillips, commissioner of the state Department of Iron Range Resources and Rehabilitation, told participants on the same March conference call that he believed the funding agreement wasn’t real and that Mesabi Metallics was in violation of the agreement.
‘Proven track record’
As the Mesabi Metallics project rests in limbo, the bar for a business partner with Mesabi Metallics is being raised by Range lawmakers.
Clevenstine told Itasca commissioners that state legislators have pushed for a company with a “proven track record” to take over or partner on the project to receive their stamp approval. He singled out ArcelorMittal USA, Cleveland-Cliffs and U.S. Steel, all which currently operate mines in northern Minnesota.
That marks a change in approach from previous bankruptcy proceedings when the state eventually signed off on former healthcare CEO Tom Clarke and Mesabi Metallics to emerge with the project.
While the fastest way to move the project forward is a partnership that keeps the leases and permits intact, the appetite for collaboration with Essar or Mesabi Metallics is faint.
ArcelorMittal USA has long been linked to the project as a means to feed Hibbing Taconite. Officials for the company have publicly said it remains focused on finding new ore for the dwindling reserves in Hibbing, but a source with insight on the company’s involvement said their interest in Nashwauk ends there.
They describe ArcelorMittal as keeping a hat in the ring should a significant development present itself, but not to the level of adjacent landowner and business partner Cleveland-Cliffs, and is not pushing hard to become involved at the project in a meaningful way. U.S. Steel, meanwhile, has not engaged in the project.
Last September, ArcelorMittal was described by Phillips, the IRRR commissioner, as being a fallback option if the project “blows up.”
Part of that approach is the financial conservatism involved with fully-completing the pellet plant, coupled with past losses on the project.
Arcelor was dealt a blow in 2016 when Essar Steel Minnesota filed for bankruptcy. The two companies had a pellet agreement in place, which fell through as construction lagged, and Arcelor filed an unsecured claim of $1 billion against Essar in the bankruptcy proceedings.
Clevenstine said none of that money has been recovered by Arcelor to date.
Cliffs CEO Lourenco Goncalves has rebuffed calls to partner with Mesabi Metallics as the co-owner of the land and minerals in Nashwauk. Heasley confirmed to commissioners that no talks are taking place with Cliffs.
Without a clear partner, Clevenstine said the DNR has to weigh its other option, which is to pull the leases from Mesabi Metallics and get them in the hands of a company that can move things along.
“That’s the balancing act we’re trying to make,” he said.
Speaking on Cliffs, Clevenstine added the DNR is keeping an eye on the company’s pledge to reopen its Empire operations in Michigan — a potential $650 million investment — noting Cliffs has to look at other options to supply customers and keep contracts secure.
Goncalves has said he will help feed Hibbing Taconite and build the state’s first hot-briquetted iron facility in Nashwauk if Cliffs is awarded the state leases, which could happen through negotiation with the DNR or a competitive bid process.
“They are going to do things, and if they do other things it’s going to have long-term effects,” Clevenstine said.