Company trying to finish $2.6 billion Essar Minnesota project misses key deadline

The company trying to resurrect the former Essar Steel Minnesota site in Nashwauk faces penalties worth millions after it missed a key state deadline to begin construction on a promised, high-end iron ore processing plant.

Mesabi Metallics was supposed to start construction on one of the Iron Range site's facilities by Dec. 31, 2018, but an inspection by the Department of Natural Resources (DNR) found that work had not been done, said Barbara Naramore, the DNR's assistant commissioner.

"Under the terms of the state mineral leases, failure to meet this deadline results in a doubling of rents and royalties due to the state," she said. "We have notified Mesabi Metallics of the schedule under which these increased payments are due."

The rents will double to $120,000 each quarter. By the end of 2019, full-year royalties and rents will now be a total of $12 million.

Mesabi acknowledges that the work on the "value-added" facility adjacent to the half-built pelletizing plant was not completed by the deadline, said spokesman Darin Broton.

However, he said those deadlines were made by a former management team and before Mesabi faced litigation and other issues came into play.

The company hopes to discuss the payments with the DNR in more detail in the coming weeks and show what design and engineering work has been completed on the "value-added" high-grade ore facility. That plant is expected to be built adjacent to a half-built taconite pelletizing plant that Mesabi also hopes to complete.

The missed deadline is the latest drama in a 12-year saga to build new iron ore mining and processing facilities in Nashwauk. Under Essar Steel Minnesota, the project continually missed agreed-upon milestones. The state eventually demanded economic development loans be paid back. Essar Steel Minnesota, which was $1 billion in debt, filed for bankruptcy in July 2016.

The state subsequently terminated Essar Steel Minnesota's mining leases.

Under new management, Mesabi Metallics bought Essar Steel Minnesota assets out of bankruptcy in 2017. That deal was led by Chippewa Capital, a group led by Virginia health care executive Tom Clarke. After the partners promised to put $650 million into the project, the state awarded mining permits to Mesabi.

Since then, control of Mesabi has changed from Clarke to Nubai Global Investments, which is based in the British Virgin Islands and named its own management team. Mesabi said in September that a Swiss firm, Mercuria, was going to buy majority control of the company.

Mesabi has not said where the deal with Mercuria stands, but Essar Steel Minnesota's parent company, Essar Global, is back in the picture after assuming Mesabi's $260 million in debt in January.

Mesabi also is dealing with court challenges regarding the mineral rights for the Nashwauk property from Cleveland-Cliffs, another mining company with properties on the Iron Range.