Mesabi Metallics sues Minnesota for canceling its mineral leases in Nashwauk

Mesabi Metallics has sued the state of Minnesota for terminating its iron ore leases, a move intended to keep its troubled and long-delayed mining project from collapsing.

The Minnesota Department of Natural Resources (DNR) terminated Mesabi Metallics' mineral leases last week, saying the company failed to meet provisions of its state agreement, notably having $200 million in hand by May 1.

Mesabi Metallics late Friday sued the DNR in Ramsey County District Court for breach of contract and breach of good faith, essentially asking the court to disallow the lease cancellation.

Mesabi Metallics called the DNR's termination "unjustified and unlawful." The DNR declined to comment on the suit.

The state leases are critical for Mesabi Metallics' plans to finish a half-built taconite project in Nashwauk that first proposed in 2007, with construction beginning a decade ago. Cleveland-Cliffs, the largest player in Minnesota's taconite business, has long sought the leases. Recently, U.S. Steel, the Iron Range's other heavyweight, has shown interest in them, too.

Both companies want the leases to supply ore to their existing taconite plants, though each is also apparently interested in building a nearby facility that would create a purer form of iron. The state has not yet indicated its next move on the Mesabi leases.

Also on Friday, Ohio-based Cleveland-Cliffs filed a libel suit in U.S. District Court in St. Paul against Mesabi's "ultimate parent company," Essar Global, and its co-founder, Ravi Ruia.

Cleveland-Cliffs wasn't named in the advertisement. But Cliffs labeled as "patently false" Mesabi's statement in the ad that "no other mining company in Minnesota invested or attempted to revive the mine."

Cliffs said it has invested more than $50 million to revive the old Butler site "and that Essar Global's affiliate Mesabi has actively opposed and interfered with [its] attempt to obtain permits and begin exploration."

Mesabi Metallics declined to comment on the suit's allegations, saying it "remains focused" on completing the Nashwauk taconite plant.

The state gave Mesabi Metallics a last-chance lease extension in December, providing that the company meet a host of provisions by May 1. Mesabi had only $100 million of the $200 million the state demanded, blaming the COVID-19 calamity in India for financing delays.

But the DNR has said it doesn't buy that explanation. Furthermore, the DNR told Mesabi it was troubled by $850 million in financing for the project. Specifically, the DNR has said that the lender for a $450 million senior secured loan is "not credible."

"This immaterial exception was not the fault of Mesabi and, importantly, has no impact on Mesabi's current operations and construction as the funds available are sufficient to fund operations and construction for approximately 6 months," the suit said.

Essar Steel Minnesota started building the project in earnest in 2011 with a planned 2013 completion date. But in July 2016, after myriad missed deadlines, then-Gov. Mark Dayton moved to terminate Essar's lease. The financially strapped firm filed Chapter 11 bankruptcy.

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