VIRGINIA, Minn. — When Lourenco Goncalves took the helm as CEO of Cliffs Natural Resources in 2014, he inherited a ore boat's load of a mess: billions in debt, a declining reputation and a rumblings that the century-plus-old company would go belly up in bankruptcy.
He didn't inherit the mess. He took it over — in a hostile fashion — to willingly enact his vision for the company, spending millions of his money to, in his words during a 2018 interview, "put my money where my mouth is."
In the six years since, Cleveland-Cliffs (the company reverted back to its original name in 2017) has shed those billions of dollars owed, helped lead the Iron Range out of a massive industry downturn in 2015 and is ready to open the company's first hot-briquetted iron facility in Toledo, Ohio.
Just like Goncalves said would happen.
So, it shouldn't come as much of surprise that he followed through on his February 2020 outlook that the year — which would end up roiled by the COVID-19 pandemic, racial and political tensions and more economic struggles in the months following — would be "transformational" for Cliffs.
That message was coming off an announcement that Cliffs would complete a merger with AK Steel for $1.1 billion dollars. It was completed in March, combining the two Ohio-based companies and making Cliffs a steelmaker for the first time in its history, the Mesabi Tribune reported.
But they weren't done.
In politics, especially big election years like 2020, voters, media and poll watchers are on the lookout for the so-called October Surprise. Goncalves and Cliffs provided the mining industry's September Surprise on Sept. 28 — buying ArcelorMittal USA, a customer and domestic competitor, for $1.4 billion.
Cliffs' stock was up almost 3.5 percent on Oct. 22 to $8.27 a share after being about $6.20 a share on Sept. 22.
The steel game on the Iron Range is now Cliffs and U.S. Steel.
"It means our long-term commitment to the Iron Range is as strong as ever," said Goncalves, the chairman, president and CEO of Cliffs, in a phone interview the day the deal was announced. "We will continue to operate. We will continue to employ people and develop the business."
Buying AreclorMittal is a blockbuster agreement with impacts across the entire domestic steel industry that makes Cliffs the largest iron ore producer in North America with the ability to produce 28 million long tons of iron ore pellets annually.
In 2018 and 2019, according to a release from Cliffs, the two companies averaged annual revenues of about $10.4 billion and $700 million of adjusted EBITDA. Included in the deal, Cliffs was adding six steelmaking facilities, eight finishing facilities, two iron ore mining and pelletizing operations, and three coal and cokemaking operations.
That's on top of what the company already controls through its past assets and the AK Steel deal that include "two efficient integrated blast furnace steel mills, two electric arc furnace plants, a new state-of-the-art HBI plant and several other highly technologically developed facilities," Goncalves said in December 2019 press release announcing the AK Steel merger.
That purchase pushed Cliffs into full integration with operations ranging from raw iron mining and pelletizing to making finished steel products.
Goncalves told investors at the time that the purchase was a growth opportunity for the company, one that gives it control of the manufacturing process and opens new markets to higher end customers.
AK Steel sold most of its product to the automotive industry, and assets gained in the purchase can further open Cliffs' exposure to the electric arc furnace (EAF) market, among others.
"What we're doing here is growth and this growth is coming from somewhere no one was expecting," Goncalves said on a December investors call. "This is not something that came out of the blue. We have been thinking of several ways to grow Cleveland-Cliffs. This is exactly in our wheelhouse."
The AK Steel deal also created a continuous flow of pellets, from Cliffs-owned mining operations in Minnesota to blast furnaces involved in the purchase. Cliffs owns United Taconite and Northshore Mining on the Iron Range.
Purchasing ArcelorMittal USA only strengthened that position. AK Steel and Arcelor were two of the company's three biggest pellet customers along with Algoma Steel and can now further integrate the local industry and feed EAFs previously deployed by AK Steel and Arcelor, allowing Cliffs to expand its HBI footprint, long considered the premier future market of the steelmaking process.
It also puts Cliffs in (almost) full ownership of four of the six recently operating mines on the Iron Range — United Taconite, Northshore, Minorca and 85.3 percent of Hibbing Taconite, of which U.S. Steel owns 13.7 percent — leaving its Pittsburgh based rival and minority partner to own and operate Minntac and the currently idled Keetac.
Cliffs will face a significant hurdle in the coming years as it comes into control of Hibbing Taconite. The company was the manager of the mine until August 2019, when Goncalves said they wanted to focus on wholly owned operations and returned daily duties to Arcelor.
But the life of the mine is a serious concern for the local Range economy and the United Steelworkers union with pellet production expected to dry up by 2024.
Goncalves said he's focused on the company's reserves in Nashwauk, which are currently connected to the half-built Essar project on the adjacent land. Cliffs has been in a long battle over Nashwauk and wants to use that land — about 3,700 acres purchased in 2018 — to extend Hibbing Taconite.
"We still have iron ore in Nashwauk that can be used to extend the life of Hibbing Taconite," Goncalves said, "but we need to solve that ridiculous situation in Nashwauk and keep Hibbing Taconite going and generate good jobs for the Iron Range."
In the past, Arcelor had discussions with U.S. Steel over the so-called Carmi-Campbell land. The Carmi land, now part of Keewatin Taconite, has long been sought for Hibbing Taconite and could extend the mine's life by 12 years and provide about 500 million tons of resources.
Goncalves said their own reserves are the "easiest path," but said the company needs Gov. Tim Walz and the Minnesota Department of Natural Resources to work with them, give Cliffs control of the land and allow them to use potentially decades worth of ore at the site.
"It is totally unnatural that we can't use that ore," Goncalves said. "Why? What are we waiting for?"
When Essar Steel Minnesota was in the midst of constructing the plant in 2015, it eyed a pellet agreement with Arcelor, but the downturn and mismanagement of funds at the Nashwauk site stalled the project. Cliffs would go on to sign a 10-year pellet contract with Arcelor and Essar would file for bankruptcy the next year.
"That hope is over. It's gone. It doesn't exist anymore," Goncalves said of the company finishing the plant and turning a pellet agreement with Arcelor. Stelco, another company tied to the project as a potential offtake pellet contract, currently has a multi-year deal with U.S. Steel for pellets from Minntac in Mountain Iron. "There is no client. Game over. It's Cleveland-Cliffs' time in Nashwauk."
That line of thinking is gaining momentum among members of the Iron Range Delegation, who earlier this month called on Minnesota Gov. Tim Walz and the state Department of Natural Resources to pull back state mineral leases for Mesabi Metallics, a move legally authorized following the company's failure to complete construction of the facility by the Dec. 31, 2019 deadline.
The authorization of repealing those leases comes from an agreement between Mesabi Metallics and the DNR, which activated when the company missed several construction and tax deadlines, owing the state millions of dollars.
"For Iron Rangers, disappointed repeatedly by false starts and empty promises, swift and decisive action on your part would address a long-overdue step toward building a prosperous future for this region," Rep. Julie Sandstede, DFL-Hibbing, wrote in a letter to the governor. "Once the leases are pulled back they need to be awarded to a company with sound financial standing, a track record of credible investments in our region, and integrity and commitment to our shared success. These criteria narrow the pool in such a way that only a few, if not one company, would emerge as the logical recipient. The current operators, with their numerous missed deadlines and breached agreements, have exhibited none of these qualities, and at this stage, the state owes them nothing."
Idling or closing Hibbing Taconite would be a big blow for the region. Its current operation supports more than 3,000 direct and indirect jobs across the Range.
In the wake of COVID-19, Arcelor recently idled Hibbing Taconite, laying off 650 hourly workers in May amid the coronavirus pandemic, but restarted the mine later in the summer.
Minorca Mine in Virginia has been a stalwart for local industry. It stayed open during the pandemic closures and also ran fully during the 2015 downturn caused by imported steel dumping.
"This transaction is a unique opportunity for ArcelorMittal to unlock significant value for shareholders while retaining exposure to the North American economy through our high-quality NAFTA assets alongside a participation in what will be a stronger, better integrated U.S. business," said Lakshmi Mittal, chairman and CEO of ArcelorMittal, in a statement Monday.
As part of the deal, Cliffs is buying six steel mills, eight finishing facilities, two iron ore mining and pelletizing operations and three coal and coke making operations. Terms of the agreement include $505 million in cash, $373 million in non-voting stock and 78.2 million shares of Cleveland-Cliffs common stock. The enterprise value of the deal, which includes debt and market capitalization, is estimated to be around $3.3 billion. Cliffs will now have a capacity of about 28 million long tons and the combined companies shipped 17 million tons last year.
The merger is expected to result in $150 million in annual savings through integration of the steel operations and avoiding paying market rate prices for pellets.
Goncalves said in the short term, nothing changes for the Iron Range workforce and the mines will continue to operate as-is. In the near future, it will depend on the state of Minnesota to help the company extend Hibbing Taconite.
In the long term: "Good things can happen. More production. More HBI. We might think about some new plant or operation on the Range."