Steel and recessions don't mix, but that's not stopping Essar Steel from continuing to build a $1.7 billion ore-to-steel facility near Nashwauk, Minn.

Phase one of the Minnesota project will be construction of an iron ore plant, whose pellets will be shipped to an Essar facility in Canada and turned into steel.

"We are absolutely on schedule," said Madhu Vuppuluri, Essar Steel Minnesota's chief executive, who was in northern Minnesota this week to look at site preparation work. Today, he'll be keynote speaker at the India Association of Minnesota annual dinner in the Twin Cities. India-based Essar Global is a conglomerate with operations that include steel, oil and gas, telecommunications and power generation.

"This is a massive project, the taconite facility will be $1.1 billion," said Vuppuluri, the New York-based president of Essar Americas, who travels to Minnesota every 10 to 15 days to monitor work at the construction site.

In an interview, Vuppuluri said that considerable site preparation work has been underway near Nashwauk since a September groundbreaking. That work includes clearing trees, conducting a soil analysis, removing water from iron ore pits and grading the land in advance of the plant construction.

Vuppuluri said that Essar acquired about 7,000 acres last fall around the former Butler Taconite operation.

By 2011, he said, the Minnesota facility will be producing taconite pellets, and it will supply pellets to the Essar Steel Algoma facility in Sault Ste. Marie, Ontario.

The Ontario plant has been hurt by the recession. A $146 million profit for the September quarter swung to a $14.2 million loss for the final three months of 2008.

Steel shipments dropped by 33 percent in the October to December period. Vuppuluri said the facility can produce 4 million tons of steel per year, but production has been trimmed in response to the economy.

By the time Minnesota iron ore pellets are headed for the Canadian blast furnaces, it's unclear whether the global economy will be slowly rebuilding or rapidly growing.

"It's very difficult to forecast anything beyond a few days, let alone months, quarters and years," Vuppuluri said.

In Minnesota, after the final stages of the construction project are completed, steel slabs also will be produced at Nashwauk.

Liz Fedor • 612-673-7709