Minnesota, Iron Range leaders worry about lack of progress at former Essar site

It's March, the month Mesabi Metallics was to supposed to rev up construction at a massive but half-built $2.6 billion taconite plant in Nashwauk.

But it has been quiet on the Iron Range site — too quiet for state officials who have been dealing with more than a decade of delays on the former Essar Steel Minnesota project.

State officials want a more definitive answer. Officials from Gov. Tim Walz's office, the Department of Natural Resources (DNR), Nashwauk's mayor and Iron Range officials conducted a conference call Thursday to pool information. Mesabi was not on the call.

"They publicly stated they will ramp up [construction] in March," said Barb Naramore, the DNR's assistant commissioner. "But I am unaware of any recent activity or signs of a ramp-up on-site. They have not notified us of anything."

Mesabi Metallics spokesman Darin Broton said the company does not have an update on when hundreds of contractors will start work.

"As we continue the great thaw, I am sure I will have something [to report] in the coming weeks," he said in an e-mail, adding that Mesabi plans to meet its year-end construction deadline.

Iron Range officials aren't sure what to believe.

"Even without the weather, there are many things that have to fall in place to get this project going again. They are going to be delayed," said Nashwauk Mayor Calvin Saari. "They have not been able to get heavy equipment in there yet. … It's just a wait-and-see situation right now. It's such a mess."

Further complicating the situation is a change in leadership at Mesabi — the second in less than a year — and questions about the company's financial backers.

In January, Essar Global of Dubai, which owned the bankrupt Essar Steel, bought $260 million of Mesabi's debt, inserting itself back into the project.

Mesabi used to be controlled by an investment group led by Virginia health care entrepreneur Tom Clarke. He and his team bought Essar Steel's assets out of bankruptcy in December 2017. They then won the state's mineral leases to jump-start the Nashwauk project.

But by last summer, Clarke had ceded majority control to Nubai Global Investments of the British Virgin Islands. The new owner pushed Clarke out and named Gary Heasley as interim CEO.

Three months ago, however, the company did not renew Heasley's management contract and it has not named a new CEO. Heasley remains on Mesabi's board of directors.

Essar Global has made clear it wants to be involved in the Nashwauk project once again. The state is attempting to bar Essar Global from doing business in Minnesota. Essar Global, in turn, is fighting the state.

When Essar Global's subsidiary — Essar Steel Minnesota — filed for bankruptcy in July 2016, it had more than $1.1 billion in debt, had missed deadline after deadline tied to state economic development grants, failed to pay contractors and downsized the project.

Now that Essar Global wants back into the deal, state officials aren't interested.

Naramore from the DNR told officials on the conference call Thursday that Essar Global recently asked to meet with the DNR to discuss extending the state's construction deadlines.

Saari said state legislators and DNR officials at the meeting insisted no extensions should be granted. They feel Essar should meet its obligations or face state action. "They don't want to meet with Essar," Saari said.

Separately, DNR officials have reached out to Mesabi's management team to try and get some answers. But Mesabi has not responded to requests for a conference call on the project's progress, Saari said.

However, Mesabi's Broton said the company requested to participate in a conference call with the state, but was told not to bother.

Now the state is wondering where Mesabi stands and whether it will make its March rent for the mineral leases in Nashwauk.

Mesabi Metallics already blew one critical deadline.

Three months ago, it failed to begin constructing a new "high-value" ore processing plant in Nashwauk by the agreed-upon deadline of Dec. 31.

In response, the DNR doubled Mesabi Metallics' 2019 royalty costs in Nashwauk to $12 million and doubled the quarterly rent to $120,000, Naramore said. That first payment is due March 30.

Mark Phillips, commissioner of the Iron Range Resources and Rehabilitation Board (IRRRB), said that even without Essar Global complicating the process, there are questions about whether Mesabi Metallics is still meeting its $650 million financial covenants on the project.

Mesabi has not updated the DNR on the financing. In September, Mesabi officials said a Swiss investment group called Mercuria Energy would become the lead investor on the Nashwauk project by December. Since then, Mercuria hasn't been heard from and Mesabi has given no details. Now, there's the re-emergence of bankrupt Essar.

So there is a question, Phillips said.

"Are they [Mesabi] in compliance with all of their arrangements with the state with regard to the mineral leases? Either way the state will [have to] take appropriate action," Phillips said. If Mesabi is in compliance it will have to start construction.

If Mesabi is out of compliance with state agreements, "the DNR could pull Mesabi's mineral leases, renegotiate terms or open up the leases to competitive bidding," Phillips said.

Meanwhile, Saari and state officials said there might be interest in the Nashwauk property from other large mining operators such as ArcelorMittal, which runs the Minorca mine in Virginia, Minn.; by Stelco in Canada; and by Cleveland-Cliffs, which runs Hibbing Taconite, United Taconite and Northshore Mining on the Iron Range.

Cliffs CEO Lourenco Goncalves made it clear last week that his company still wants to mine in Nashwauk. The land boasts one of the richest iron ore bodies in the country, he said. In December 2017, Cliffs bought or leased 3,768 acres of land around Nashwauk after Mesabi Metallics and its prior owners missed a key financing deadline.

Last week, Goncalves reiterated that the DNR should change the mining permits in Nashwauk to reflect Cliff's new partial ownership there. He said he is willing to negotiate, but has sued the DNR because the permit name changes have not yet been made.

Phillips of the IRRRB said there are many unknowns with the project.

"It would be nice to have someone acquire it that has the wherewithal to develop the property and actually be in control rather than playing games," he said. "You can quote me on that."