Our troubled economy

Iron Range's fast fall follows boom

  • Article by: LARRY OAKES , Star Tribune
  • Updated: December 21, 2008 - 11:32 PM

The mining industry faces sudden shutdowns, but many see a silver lining in the long run.

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Chan Paine shoveled broken crusher rods from an opening in one the rotating mills that reduce taconite ore to powder. Paine, 20, was one of 24 new workers to be hired at United Taconite, the first new hires in 13 years.

Photo: Glen Stubbe, Star Tribune

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DULUTH - After years of prosperity that crescendoed to a boom for much of 2008, the world economic crisis has brought hard times back to the Iron Range with stunning speed.

"It was like we were on top of a Ferris wheel in the third quarter of '08, and suddenly we're on a decline," said Sandy Layman, commissioner of the state agency Iron Range Resources. "We're rewriting the history books because of the speed of this."

However, Layman and others say they take solace in predictions that this time the plant shutdowns are expected to last months rather than years and that several major projects remain on track.

Earlier this month U.S. Steel Corp. announced a temporary shutdown of its Keewatin Taconite mine and plant and the layoff of most of nearly 400 employees. CEO John Surma said the steelmaker, which last January announced an expansion of that facility, was now throttling back as a "necessary response to current market conditions," namely a slowdown in manufacturing and construction worldwide.

The announcement, which Minnesota House Majority Leader Tony Sertich, DFL-Chisholm, called a "sock to the stomach" for workers, came just over a month after Cliffs Natural Resources Inc. announced 30 percent production cutbacks at two mines and warned workers that layoffs might occur.

The 557 workers at one of those curtailed operations, United Taconite in Eveleth and Forbes, have so far avoided layoffs by agreeing to a 32-hour workweek. Cuts in overtime and other adjustments similarly have avoided layoffs at a second Cliffs property, Northshore Mining, a non-union operation that mines ore in Babbitt and processes it in Silver Bay.

However, union officials at Hibbing Taconite, in which Cliffs owns an interest, said they've been told to prepare for the layoff of 110 employees in January as part of a plan to idle a production line. Cliffs spokeswoman Maureen Talarico said staffing decisions "aren't finalized."

But Frank Jenko, president of United Steelworkers of America Local 2705, which represents about 540 of Hibbing Taconite's employees, said preparations are well underway, with older workers who can better afford to be laid off being asked to consider volunteering.

"We're connected to the rest of the economy, which has pretty much fallen off a cliff," Jenko said. "We've been through such cycles before, but the speed [of] this one ... was shocking."

Shipping slows

So far, no specific cutbacks have been announced for the other two of the Range's six mining companies: U.S. Steel's Minntac operations in Mountain Iron or ArcelorMittal's plant in Virginia.

Adolph Ojard, executive director of the Duluth Seaway Port Authority, said taconite shipments to steel mills on the lower Great Lakes started slipping in October and portend lean times for a while.

"Taconite production is taking a beating in these final weeks of 2008," Ojard said in a statement. "We anticipate a dramatic drop in tonnage through year-end and well into 2009."

Peter Kakela, a Michigan State University professor and an expert on the worldwide taconite industry, said he expects iron ore prices to fall another 20 to 30 percent before beginning to rebound in 2010 as the recession eases. But he said that dip should be kept in perspective.

"The price of iron ore in the world market for this whole calendar year is up 375 percent from 2002," Kakela said. "Even if it comes down 50 percent, it's still going to be well above where it was in 2002."

Kakela also sees a silver lining to the sudden shutdowns and layoffs. By cutting production quickly, Kakela said, the corporations are trying to avoid flooding the market and driving the price below the cost of production. In so doing, they are likely to avoid a collapse like the one that plunged the Iron Range into a long recession in the 1980s, purging two-thirds of the workforce and bankrupting two operations, Kakela said.

Craig Pagel, president of the Duluth-based Iron Mining Association of Minnesota, added that Minnesota's surviving operations emerged from the 1980s much more efficient and competitive and have just come out of a period of high demand and high prices -- meaning they are in a much better position than their predecessors to handle a major recession.

Long term brighter

Layman says she's seen no sign that companies plan to halt projects that show promise of launching the Iron Range into a new age of mining and ore-processing.

She said construction continues on the Mesabi Nugget refined iron plant near Hoyt Lakes and on what would be the Range's first steel mill, the $1.7 billion Minnesota Steel Industries project near Nashwauk. And Polymet Mining Corp. continues to wait for permission from state regulators to begin mining copper, nickel, and other nonferrous metals near Hoyt Lakes.

Even Keewatin Taconite, she said, has assured Iron Range Resources that it's continuing with preparations for a $300 million expansion of its idled plant.

"When we resurface from this downturn, the companies anticipate moving ahead, and they're in a position to come out strong," Layman said.

Larry Oakes • 1-800-266-9648

  • about this series

  • The Star Tribune's coverage of the housing crisis, the credit crunch and their effect on Minnesotans.

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