Essar Steel Minnesota confirmed Thursday that it will resume construction of its taconite plant on the Iron Range after securing $450 million in financing to complete the project.
Problems with the cash-strapped project in Nashwauk began more than a year ago when Essar officials decided to expand their taconite production goal to 7 million tons from 4 million. The sudden jump increased the project’s cost to $1.8 billion from $1.1 billion and sent the Mumbai, India-based parent company scurrying for more money.
But this week, Essar tapped $450 million through a high-yield bond and will also inject about $300 million of its own money to finish the work. “This is a very important transaction which we have been planning to undertake for some time, and we are pleased that we have reached a stage where it has been priced and is a reality,” said Madhu Vuppuluri, chief executive of Essar Steel Minnesota.
The company declined to offer further details about the transaction.
Essar broke ground on the project in 2008, but suffered multiple delays that caused the bulk of the work to begin in earnest in 2011.
Several contractors worked for months without payment before finally walking off the job. State officials with the Iron Range Resources and Rehabilitation Board (IRRRB) said previously that they were not alarmed and expected a project of this size to have its ups and downs. The state’s $6 million loan was never affected by Essar’s delays as that loan isn’t due until 2015, IRRRB Commissioner Tony Sertich said before Thursday’s announcement.
On Thursday, Vuppuluri acknowledged that payments to contractors had been delayed. But with the new financing, “the activity at the site will start picking up speed. It will be quite soon,” Vuppuluri said.
Early on, the company had hoped to have the entire taconite factory completed and running by the end of this year. Now, it aims to open around the end of next year.
To date, the Nashwauk site on Minnesota’s Iron Range has its concrete foundations poured, most steel beams erected and giant iron-ore crushers installed. Over the next few months, the remaining steel beams and factory walls will be erected and other equipment will be put in.
As of last summer, there were about 100 Essar workers and about 300 contractor employees working on the site. Those numbers declined dramatically as several contractors called it quits due to nonpayment.
Grand Rapids-based Hammerlund Construction and Michigan-based Industrial Maintenance Services both pulled equipment and workers off the site. By January 2014, Essar had about 75 workers at the site.
The plan eventually calls for 350 full-time taconite workers at the facility.
The financing problems associated with the taconite factory have tempered expectations that Essar eventually would create a three-pronged steel production facility. Back in 2008, Essar unveiled a plan for a fully-integrated operation that would mine iron ore, reduce it into iron pellets and use special furnaces to produce finished steel slabs, all on the same site.
If the larger game plan comes to fruition, the operation would be the first to do so in Minnesota, state officials said.