The state of Minnesota is seeking to bar Essar Global from any involvement in a controversial $2.6 billion taconite project in Nashwauk.
"As you know the DNR and state of Minnesota has a long and troubled history in working with Essar and its affiliates," wrote Sarah Strommen, the new commissioner of the Department of Natural Resources (DNR), in a letter Monday to Mesabi Metallics CEO Gary Heasley. "To that end, please be advised that the DNR has begun the process of seeking debarment of Essar Global and any of its affiliates from doing business with the state of Minnesota."
Mesabi Metallics is the company trying to resurrect the half-finished Iron Range project. Essar Global's subsidiary, Essar Steel Minnesota, started the project, but after a decade of missed milestones and missed payments, it filed for bankruptcy in 2016.
Virginia businessman Tom Clarke and his Chippewa Partners bought the assets out of bankruptcy and through Mesabi has tried to jump-start the project. Last summer, control of Mesabi passed to Nubai Global Investment, based in the British Virgin Islands.
Earlier this month, Essar Global bought $260 million of Mesabi's outstanding debt.
Although the move makes Essar Mesabi's primary lender, Mesabi has not been in contact with Essar for a couple weeks, spokesman Darin Broton said.
Mesabi still owns the assets of the project, Broton said, and "right now, there is lack of clarity around what Essar's role is going to be."
After meeting commitments made in its bankruptcy plan, DNR awarded the mineral leases for the project to Mesabi.
Strommen said the state is now reviewing whether the current Mesabi Metallics management team has complied with the permit and mineral-lease requirements set by the state. The company missed a key construction deadline on Dec. 31 and was informed its rent and royalty fees would be doubled, a consequence worth millions.
Now that Essar is involved in the project again, the state decided to act.
"The state has no confidence that Essar — if it were to take any operational, management, oversight or even investor role in the Mesabi Metallics project — would act in good faith to ensure timely construction and professional operation of the project."
The missed deadline had to do with progress on a "value-added" facility that is supposed to produce an ore product with significantly higher iron content than what is currently produced by taconite facilities on the Iron Range. Because of it, quarterly rent to the state now doubles to $120,000 beginning this quarter. Annual mineral royalties now double to $12 million a year, the DNR said last week.
Broton said Mesabi Metallics still plans to finish building the taconite plant by the end of this year and will build the new value-added facility at some point after that. Further, he said the Dec. 31 deadline was set by prior project managers and that a new timetable had been submitted to the DNR.
Essar Steel Minnesota first broke ground on its Nashwauk project in 2008. But it filed for bankruptcy in July 2016 with $1 billion in debt after downsizing the project and failing to pay contractors. The state called in its economic development loans and took over Essar Minnesota's mineral leases.
In the meantime, the project has prompted a series of lawsuits, including management squabbles between Clarke and Nubai and a lawsuit in which Cleveland Cliffs accuses the DNR of unfairly awarding mineral rights in Nashwauk to Mesabi Metallics instead of Cliffs. Cliffs purchased land surrounding the Nashwauk project controlled by Mesabi Metallics and Nubai.