Just days after Minnesota granted Virginia billionaire Tom Clarke the mineral lease rights for a $2 billion mining project in Nashwauk, it sent a notification of termination for the mineral lease rights regarding one of Clarke's sister projects in the Grand Rapids area.

The reason? Unpaid debt.

The Minnesota Department of Natural Resources sent the unexpected termination letter to Clarke's ERP Iron Ore group on Thursday. The letter notified ERP Iron Ore that it had failed to pay the state $34,200 in mineral leases related to Magnetation, an iron ore processing company it bought out of bankruptcy.

ERP officials could not immediately be reached for comment.

Clarke's ERP group bought Magnetation out of bankruptcy in February 2017. It also paid the state of Minnesota more than $600,000 in royalties associated with the property. However, it failed to pay the comparatively small lease fees due on the property.

In addition, ERP was taken to court in May by several other creditors who said ERP Iron owed them a total of more than $4.4 million.

The creditors, Minnesota Power being the largest, asked the courts to force ERP into involuntary bankruptcy. Initially, ERP fought the petition.

But last week, DNR officials said they learned that ERP withdrew its objection to the forced bankruptcy.

"That's clearly an indication that they want to accomplish something in [bankruptcy court]," said DNR Assistant Commissioner Barb Naramore. "We don't know if that means they will restructure under bankruptcy protection or [opt] to liquidate. But once we saw that they filed a notice saying they would not object to the involuntary bankruptcy, we said, we can't wait around. We have to proceed with the notice to terminate their mining leases."

Naramore noted that while the state has issued a notice to terminate ERP Iron's mineral leases for five plots of land, ERP still has 15 days to make good on the small debt it owes. If it fails to repay the state, the DNR will reclaim the mineral leases on Sept. 20, which is 60 days from July 12, the day the DNR issued its lease termination letter.

The bulk of the defunct operations at the former Magnetation site in Grand Rapids don't deal with mining. The former owners found a way to extract more minerals out of already processed iron ore tailings. Most of the former business dealt with recycling ore as opposed to digging new ore.

The new issue over state mineral leases deals with the very small portion of the project that did involve virgin mining, Naramore said.

Magnetation filed for bankruptcy in 2015. Its Indiana pelletizing plant, plus three of its Minnesota ore concentrator plants and one rail-loading center, were bought out of bankruptcy in February 2017 by Clarke and his ERP team.

At the time, Clarke said he hoped to have Magnetation's Plant 4 in Grand Rapids soon operating with 140 workers. The original plan called for ore tailings from Grand Rapids to be hauled from Minnesota for processing in Indiana, and then to a pig iron plant in Lorain, Ohio. The metal would later be turned into steel by others.

But in November, the plan started falling apart.

ERP Iron Ore Managing Director Robb Bigelow said that when the company bought Magnetation out of bankruptcy, it was not aware of costly problems surrounding the processing plant in Indiana where the Grand Rapids ore tailings were supposed to be converted into iron pellets.

Until $10 million to $20 million in pollution-control equipment and air permits could be secured in Indiana, the Grand Rapids project in Minnesota would be put on hold, Bigelow said last fall.

In the meantime, Clarke continued to work on the Nashwauk project. Last week, the state issued a notice saying that the former Essar Steel Minnesota site in Nashwauk had met all of its pledged obligations to secure construction and financing contracts. As a result, Gov. Mark Dayton announced that it would receive mineral lease rights from the state.

The Nashwauk project is now called Mesabi Metallics Co. and is financed by Clarke's other group, Chippewa Capital Partners. Under the agreement with the state, Chippewa Capital must finish constructing the taconite plant by the end of 2019. It must also complete its added-value direct reduced iron, or hot briquette iron, plant by the end of 2021.

The Nashwauk project, of which $2 billion has been spent to date by previous Mumbai-based owners, will require more than $850 million in investments to complete. Dayton said last week that Chippewa had secured more than $850 million in debt and equity financing needed to finish construction. Jamar Co. and Rice Lake Construction have been hired to build the facility.

Once the plant is operating, Riverdale Commodities SA has agreed to buy the taconite pellets and ore produced in Nashwauk.