Gov. Mark Dayton has given the order to terminate Essar Steel Minnesota’s lucrative mineral leases on the Iron Range, prompting the company to file for bankruptcy protection Friday in Delaware.

The company had been told that if it did not repay $66 million in infrastructure costs to the state and also pay its overdue contractor bills that the leases would be terminated.

“The company has not done so, and has provided no reliable assurances that it will be able to do so in the foreseeable future,” Dayton said in a statement. “The company has been told for the past nine months that the state would not extend those leases beyond July 1, 2016, unless it paid the full amounts it owed.”

Essar, which is owned by the Mumbai, India-based Essar Global, broke ground in 2008 on what was to be a taconite pellet plant and a steel mill in Nashwauk on the Iron Range. After several delays and setbacks — some caused by an unprecedented slowdown in the industry — the project was scaled down to a taconite plant, which still is not completed.

Delays, broken promises

Much to the delight of frustrated Iron Rangers who were tired of Essar’s financial woes, delays and broken promises, Dayton made good on the ultimatum he had delivered in April.

He said at the time that the company must repay the state’s $66 million by July 1 or the leases would not be renewed.

Essar’s bankruptcy filing was expected if the leases were terminated. That action now opens the door for another entity to take over the unfinished $1.9 billion iron ore mining project in Nashwauk, legislators said.

Tom Landwehr, commissioner of the Minnesota Department of Natural Resources, said Essar has 20 days before the lease termination becomes official.

Landwehr said Essar owes Minnesota vendors about $49 million and other vendors another $25 million. It owes the state $66 million for money the state paid to install roads, rail and power in and near the building site. Separately, Essar owes bondholders what is estimated to be nearly $1 billion.

Landwehr said that Essar officials told the state last week that they had a “last-minute investor” who might be able to repay the contractors. But after a week, no payments were made, so the state terminated the mineral leases Friday.

State Rep. Tom Anzelc, DFL-Balsam Township, who leads the Legislature’s Iron Range delegation, said that going forward the hope is that Cliffs Natural Resources will take over the mineral leases and complete the project. Cliffs, which runs Hibbing Taconite, United Taconite and Northshore Mining on the Iron Range, “has the right of first refusal on those mineral leases.”

Big questions remain about how Essar’s global bondholders, vendors, and its Minnesota buildings, equipment and other assets might be dealt with in bankruptcy court, Anzelc said.

Regarding the state’s mineral leases, Landwehr said that the state’s termination letter is likely to quickly remove the mineral leases from bankruptcy proceedings. But bankruptcy proceedings regarding Essar’s buildings and equipment in Nashwauk are likely to be a “very long-drawn-out process,” Landwehr said.

The mineral leases terminated by the state make up about 44 percent of the total land area involving Essar’s project. The large percentage makes it unlikely that Essar could go forward with the project without them, state officials said.

Meeting with Cliffs

Dayton said Friday that he already met with Cliffs CEO Lourenco Goncalves, who expressed “his strong desire” to finish the taconite processing facility that Essar was building in Nashwauk. “Mr. Goncalves and I will travel to the Range on Tuesday to discuss his plans in greater detail.”

Even if Cliffs is able to resume the leases, it is not expected to be a quick fix. Whatever the outcome, it’s a very long journey.

“I am pleased,” Goncalves said in a statement. “This is the first step in a long-term development process that we believe holds tremendous potential for job creation on the Iron Range. Cliffs looks forward to the opportunity.”

Nashwauk Mayor Ben DeNucci said that there is still hope for the project.

If another party takes it over, that would be “good for our economy and put hundreds of people from the area back to work. People who are laid-off currently would benefit from that,” DeNucci said. “It would help our businesses out. My sense from the public up here is that they were very frustrated with Essar.”