Essar Steel Minnesota, which filed for bankruptcy protection last week, said Monday it’s secured a new financing partner and intends to complete its stalled $1.9 billion taconite plant in Nashwauk.
Essar said in a statement it views Gov. Mark Dayton’s decision to terminate the company’s mineral leases as “invalid,” adding it plans “to continue efforts to complete [a] state-of-the-art steel plant in Minnesota.”
Essar’s apparent intent to revive long abandoned plans to build a steel mill in addition to its taconite facility added intrigue to a project at a crossroads after months of missed deadlines and Essar’s failure to make payments to the state and its contractors.
In ordering Essar’s mineral leases terminated, Dayton on Friday turned to Cliffs Natural Resources to revive the project. Dayton and Cliffs CEO Lourenco Goncalves are scheduled to meet Tuesday with political leaders in Nashwauk, Minn. Cliffs has the first right of refusal on the mineral leases.
Essar doesn’t appear willing to go quietly. On Monday, Mitch Brunfelt, Essar assistant general counsel, said in an e-mail that Dayton’s move to terminate Essar’s mineral leases in Nashwauk violated federal bankruptcy rules.
“The state’s putative termination notice was sent in violation of the standstill agreement it had reached with the company on June 30th and is therefore invalid,” Brunfelt said. “The putative notice would not be effective until 12:01 p.m. central time [Friday].” Essar filed for federal bankruptcy protection at 11:30 a.m. central time Friday, which means the termination was “barred by the automatic stay under federal bankruptcy law.”
Essar said it now has a letter of intent to receive $250 million in new equity financing from a California and New York investment firm, SPL Advisors LLC. If the deal goes through, the investment would result in an 80 percent ownership stake in Essar Steel. But first Essar must secure another $650 million worth of debt financing.
Beyond saying that they found Essar’s statements “surprising,” state officials declined to comment Monday ahead of Tuesday’s meetings in Nashwauk.
Dayton’s decision Friday to terminate Essar’s leases followed months of ultimatums designed to spur Essar to get its financing problems under control, repay the state $66 million, and to pay its Minnesota vendors the $49 million they are owed. (Essar owes out-of-state vendors an additional $25 million.)
Dayton said he hopes Cliffs can develop a higher grade of iron ore at the site that can be processed into steel using modern electric arc furnaces that Iron Range pellets now can’t use.
Cliffs currently runs United Taconite, Hibbing Taconite and Northshore Mining on Minnesota’s Iron Range. Tuesday’s meeting will include Minnesota’s Iron Range legislative delegation and U.S. Rep. Rick Nolan, followed by a public briefing.
If Cliffs takes over Essar’s mineral leases, it may take years before the project is completed. It is unclear how the bankruptcy court could deal with Essar’s many vendors, bondholders or the equipment and half-built buildings now on the site. Essar owes vendors and bondholders an estimated amount approaching $1 billion.