Bankruptcy judge blocks attempt to rescind Essar Steel's mineral rights

A federal bankruptcy judge has temporarily disallowed the state of Minnesota's attempt to rescind mineral rights beneath Essar Steel Minnesota's property in Nashwauk, Minn.

Gov. Mark Dayton tried to take away mineral rights the state granted to Essar because the company failed to live up to its promises to build a taconite mining and processing facility in Nashwauk.

"A judge in the federal bankruptcy court in Delaware today issued a ruling denying Minnesota's request to remove mineral rights from Essar's bankruptcy," Minnesota Department of Natural Resources spokesman Chris Niskanen said Tuesday.

The order is temporary, Niskanen explained. It gives Essar until February to prove to the judge that it can put together a financial plan that will let it finish the Nashwauk project while also paying off creditors.

"If the court decides Essar is incapable of doing that, then the court could release the mineral rights from the bankruptcy proceedings." Niskanen said.

Dayton announced that the state was rescinding the valuable mineral rights after Essar filed for bankruptcy in July.

The company immediately challenged the decision, saying it violated federal bankruptcy law because bankruptcy filings essentially freeze all assets.

Dayton's press office said the governor would have no comment on the ruling Tuesday.

"We are gratified by the ruling," said Mitchell Brunfelt, Essar Steel's assistant general counsel.

DNR sent its land and mineral director, Jess Richards, to testify in the bankruptcy case. DNR manages mineral leases for the state. The leases are critical to the state because the leases and mineral extractions they empower bring revenue through special taxes. Some of the money goes to state's school trust fund.

Essar owes the state $66 million under its agreement to build the Nashwauk taconite facility. It also owes Minnesota vendors $49 million, as well as $25 million to out-of-state vendors. When debt owed to the project's bondholders are added in, the company is on the hook for nearly $1 billion, according to court filings.

Another mining company, Cliffs Natural Resources, had hoped to take over the Nashwauk project from Essar and acquire the mineral rights beneath the ground. Cliffs runs United Taconite, Hibbing Taconite and Northshore Mining. Cliffs could not be reached for comment on the judge's ruling.