Gov. Mark Dayton gave the controversial Essar Steel Minnesota a two-month window to get its financial house in order or he will not renew Minnesota mineral leases for Essar's unfinished $1.8 billion taconite project in Nashwauk, Minn.

The ultimatum, which Dayton shared with the Star Tribune on Thursday, is the latest part of a long battle to get Essar to not only pay its outstanding debts to many Minnesota contractors but to also get it to pay the state back $66 million in economic incentives after failing to meet deadlines for the Iron Range project.

Despite promising that the massive taconite project would finally be completed last year — and after originally promising to give Minnesota its only fully integrated iron-ore-to-steel facility — Essar is far off course. The project broke ground in 2008. It is still only about 50 to 60 percent complete. And the steel mill plan has been scrapped.

The company has again run into financing problems that have stalled the project and caused unpaid contractors to walk off the job.

Dayton had given Essar until March 31 to find new financing, repay its Minnesota contractors the millions they are still due, and to repay the state the first $10 million of the $66 million owed.

That deadline came and went with no payments.

Madhu Vuppuluri, president and CEO of Essar Steel Minnesota

Essar Steel Minnesota still "remains steadfastly committed to completing this project," Mitch Brunfelt, the company's assistant general counsel, told the Star Tribune on Thursday. "The company is progressing in its efforts to bring a new equity partner and substantial new capital into the project. Essar Steel Minnesota is confident that, in the near term, the necessary funding will be in place to resume construction and complete the project."

Essar Steel Minnesota CEO Madhu Vuppuluri said in a memo on Monday that he is "optimistic" the project will succeed.

He noted that Essar's parent company, the Mumbai-based conglomerate Essar Global, plans to invest an undisclosed amount of "interim financing" to help its U.S. subsidiary meet some of its more "critical" obligations.

Dayton said, "it remains to be seen" whether such efforts will be successful.

"I remain determined that the stalled Essar project be constructed, begin operations, and create new jobs on the Iron Range," Dayton said in his e-mail. "My administration and I are currently working closely with the members of the Range Legislative Delegation to assess all possible options to achieve those objectives."

Dayton said the state's mineral leases for the project terminate July 1.

"If Essar Steel wants those leases to be extended, the company must demonstrate within the next two months that it has secured all of the necessary financing," Dayton said. "If Essar Steel fails to fulfill in full its commitments to the state and its vendors by that deadline, the company should not expect the leases to be renewed."

Minnesota Rep. Tom Anzelc, the DFLer who chairs the Legislature's Iron Range delegation, has said Essar's finances are in trouble.

If new investors are not found to take over the project, then Essar faces possible bankruptcy or foreclosure, Anzelc said.

Essar's timing hit one of the worst global downturns for the iron and steel industry. U.S. producers have not only been hurt by a glut of steel and historically low iron-ore prices, but also by the dumping of underpriced steel imports. Several U.S. iron and steel processing plants, including several in the Iron Range, have since been idled.

In all, 2,000 Minnesota iron miners and workers were laid off last year. Magnetation filed for bankruptcy.

Dayton said Thursday that the continued work being done on the national level to reduce illegal dumping is both appreciated and needed.

Dee DePass • 612-673-7725