Minnesota Power agreement another step in Cliffs Natural Resource's restructuring

Cliffs Natural Resources Inc. has signed a 15-year deal with Minnesota Power that guarantees the taconite producer favorable long-term power rates, plus $31 million in cash for the sale of select assets and use of certain roadways on Minnesota's Iron Range.

The deal announced Tuesday, which is subject to regulatory approval, involves the sale of utility assets and select "non-core" operations such as Cliffs' transmission assets at United Taconite near Eveleth and certain land options at both Cliffs' United Taconite and Northshore Mining operations in Babbitt and Silver Bay.

The deal also includes transportation rights along the Cliffs' Erie rail assets. Separately, Cliffs extended its regulated power arrangements with Minnesota Power for 10 years at its United Taconite facilities near Forbes and its Babbitt facilities.

Under the deal, Cliffs secured highly "competitive" power rates from Minnesota Power through 2031 while also getting upfront cash that will help the company as it continues to restructure in one of the worst industry downturns in decades.

In a phone interview with the Star Tribune Tuesday, Cliffs CEO Lourenco Goncalves said that Cliffs has already received the $31 million from Minnesota Power.

"Minnesota is an important core operation for us, with our three mines in Northshore, Hibbing and United Taconite," he said. "So, I am very pleased that we solidified a strategic relationship with Minnesota Power for long-term, low-cost power which helps us preserve our future competitiveness."

He noted that the agreements provide Cliffs with "considerable certainty in our energy management for these operations, and will also enable us to continue to improve our cash production costs over the long term."

The DRI process is more efficient and creates a higher grade of iron ore pellet than the traditional ore processes now used in Minnesota. Minnesota is one of several states hoping to lure Cliffs' future DRI operations.

Goncalves said Tuesday that its new energy rates and cash influx from Minnesota Power "should facilitate" DRI talks in Minnesota.

Al Hodnik, CEO and president of Minnesota Power's parent firm, Allete Inc., said in a statement that "strong mining and paper industries" are critical to the Iron Range's economic strength.

"These agreements demonstrate the value of a strong partnership between Minnesota Power and Northeastern Minnesota's natural resources industries," Hodnik said. "These steps can help Cliffs achieve its goals of remaining competitive, maintaining regional jobs and further enhancing their products through technology advances."

Cliffs stated that the supply agreement will not involve any immediate staff reductions at its Silver Bay Power plant.

A slowing global economy, especially in China, has caused historic lows in iron ore prices, exacerbated by illegal dumping of underpriced steel imports into the United States. The market has improved slightly in recent months, partly because of strengthened tariff regulations.

The downturn caused massive layoffs on the Iron Range. For example, Magnetation declared bankruptcy. Cliffs idled its United Taconite and its Northshore Mining operations for months. Northshore Mining reopened this month, and United is expected to reopen later this year. Cliffs' Hibbing taconite operations were not affected.