Mesabi Metallics' last-ditch effort could complicate award of Nashwauk mineral leases

Mesabi Metallics is mounting a last-ditch offensive to stop the state from awarding its former iron ore leases to rival Cleveland-Cliffs.

The Minnesota Department of Natural Resources (DNR) revoked state leases for Mesabi's delay-plagued Nashwauk taconite project after the company missed a 2021 deadline. Earlier this month, the DNR assigned the coveted leases to Cleveland-Cliffs, the Iron Range's largest iron ore operator.

On Thursday, the Minnesota Executive Council — made up of Gov. Tim Walz and the state's other four top elected officials — will meet to rule on the DNR's recommendation.

Representatives from Mesabi and its ultimate owner Essar Group — including Essar co-founder Ravi Ruia — plan to argue against the Cliffs award at the meeting.

"All we ask is you to be fair to us," Ruia said in an interview on Wednesday. "Please listen to us."

Mesabi is asking the Executive Council to send the issue back to the DNR, saying the roughly 2,600 acres of leases should be divided between Mesabi and Cleveland-Cliffs. Two commissioners from Itasca County — home to Mesabi's half-finished project — are expected to support Ruia's effort at the meeting.

The Itasca County Board last week passed a resolution supporting both Mesabi and Cliffs, saying the leases could be divided in a "win-win" proposal.

Cleveland-Cliffs did not respond to a request for comment.

The DNR said it considered and rejected splitting up the 66 lease parcels among interested companies, which also included U.S. Steel, the Iron Range's other dominant mining company.

"We do not believe that splitting up the leases into smaller packages is in the best interest of the state," the DNR said in a statement to the Star Tribune. "The DNR has also been very clear in prior statements that it does not believe Essar Group, Mesabi's parent company, is a credible miner and that we would not entertain leases involving Essar."

The DNR revoked Mesabi Metallics' leases after it made only half of a required $200 million down payment on the project in 2021. Two state courts upheld the DNR's revocation, and the Minnesota Supreme Court earlier this year declined to hear Mesabi Metallics' further appeal.

The DNR then sought proposals for the leases, deciding Cleveland-Cliffs should get them.

Mesabi Metallics in March submitted a request to the DNR to re-lease the ore rights it had lost. Ruia said it never heard back from the DNR until May 4, the day the department announced that Cliffs should get the leases.

"We were never given the opportunity to present to the DNR," Ruia said. "We should have at least been given the courtesy of a hearing."

In a letter informing Mesabi that its lease request had been denied, the DNR cited, among other things, "Mesabi Metallics' and Essar's history of lease defaults and the outstanding rent and royalty payments owed to the state under the terms of past leases."

Ruia said construction of the Mesabi project was renewed this spring to help show the state it's capable of finishing what it started.

"We are absolutely committed to completing this project," he said. "Essar Group has the liquidity to build the project."

Mesabi also this week tried but failed to get a federal bankruptcy court to stop the state from awarding the leases to Cliffs. Mesabi and Cliffs have been fighting for six years in a lawsuit connected to Essar Steel Minnesota's 2016 bankruptcy filing.

Mesabi, which sued Cliffs on antitrust grounds, asked for an emergency injunction from U.S. Bankruptcy Judge Craig Goldblatt in Delaware.

At a hearing Tuesday, Goldblatt appeared sympathetic to Mesabi's argument, saying there are facts supporting the company's argument against Cliffs — and that Mesabi could suffer irreparable harm without the leases.

But Goldblatt declined to interfere with the state's leasing process. "The sovereign interest of the state of Minnesota does weigh in the balance," he said.

Essar Group, which has about $15 billion in annual revenue, is a global conglomerate with interests including steelmaking and oil and gas. Essar was heralded in 2007 when it bought out a moribund effort in Nashwauk to build a new taconite facility.

By the end of 2017, the former Essar Minnesota — rechristened Mesabi Metallics — had financially reorganized with new owners and a new lease agreement with the state of Minnesota. But Mesabi Metallics quickly became a shambles.

Essar re-entered the picture in January 2019, gaining control of Mesabi Metallics. When Mesabi missed more deadlines by Jan. 1, 2020, the state could have pulled its leases then.