Cliffs Natural Resources executives asked the Iron Range’s legislative delegation this week not to give further aid or extensions to future competitor Essar Steel Minnesota, the India-based company that is building a $1.6 billion taconite plant in the northeast corner of the state.
Cliffs’ new CEO, Lourenco Goncalves, met Monday night with Minnesota’s eight Iron Range legislators to introduce himself, discuss difficult market conditions and talk about the $65.9 million in grants the state paid to install railroad tracks, wastewater treatment, power and other infrastructure on Essar’s massive project.
The Legislature approved the infrastructure grants in 2007. In exchange, Essar promised to build a new taconite plant and an integrated steel mill in Nashwauk by October.
If Essar misses the deadline, it must repay the $65.9 million.
Last month, Essar asked the Legislature for a seven-year extension to complete the steel mill, said Rep. Carly Melin, DFL-Hibbing.
Cliffs wants the Legislature to do nothing, which would force Essar to repay the state.
Goncalves told Melin, delegation chairman Tom Anzelc, DFL-Balsam Township, and other area legislators that any Essar financing extensions from the state would hurt Cliffs and other long-term taconite firms in the state. Cliffs said it is already struggling to stay competitive amid sunken taconite prices and problems caused by illegally dumped steel imports. Any new accommodations for Essar could be unfair, Cliffs officials said.
Essar officials could not be reached for comment.
“Cliffs is concerned by the extension of public dollars to help subsidize new, unneeded iron ore pellets capacity that may displace existing Iron Range jobs,” said Patricia Persico, Cliffs’ communications director.
She added that Cliffs wants an “ongoing dialogue with elected officials regarding the realities of current market conditions and the disruptive impact of public subsidies that will contribute to an oversupply in the North American pellets market.”
Persico and other officials from Cliffs declined to say more, noting that inquiries about the issue are piling in from across the state.
Besides the infrastructure grants, Essar, whose parent firm is based in Mumbai, India, received $7 million in state loans.
It broke ground in Nashwauk in 2008, but faced years of financing woes and construction delays. After new financing fell into place this fall, construction in Nashwauk resumed. Company officials now say the taconite plant will be in full roar early next year.
But Essar has tabled its steel mill plans.
Anzelc said he was not surprised that Cliffs balked at Essar’s request to delay its steel mill and repayments. “Cliffs was very vocal about having a level playing field for all taconite producers.”
Goncalves, who took over as Cliffs’ CEO after a backlash from dissident shareholders last fall, outlined how he is restructuring Cliffs away from coal and focusing on taconite, specifically its operations in Minnesota, where the Ohio-based Cliffs employs 1,850 employees at its United Taconite, Hibbing Taconite and North Shore Mining facilities. They are three of seven iron-ore operations in the state.
Goncalves “has a strong commitment to Minnesota’s Iron Range,” Anzelc said. But one takeaway from Monday’s meeting “was that 2015 and 2016 are going to be difficult years in the cyclical boom-and-bust culture of iron ore and taconite and steel making. Any new [taconite] pellet production in the United States will not be wise” and using public dollars on such production also would not be wise.
“I am leaning toward not asking the Legislature to intervene and to allow the agreement with Essar to expire,” said Anzelc, who said he was only speaking for himself. “[That] would require the company to either pay off its debt to the state or to refuse to pay its debt, which would then lead to litigation I am sure.”
He added: “An average person living on the Mesabi Iron Range, in my opinion, could easily conclude that a foreign national company capable and planning to build a facility worth nearly $2 billion, should be more than able and ready and prepared to pay off a public debt of this size.”
Melin said that not every legislator has made a decision on Essar’s request.
If the Legislature approved Essar’s request, “we could go seven years from now and there could still not be a steel mill,” Melin said. “And they could still owe the state that $66 million.”
Itasca County Commissioner Terry Snyder, stressing that the decision is the Legislature’s to make, said the state will have to be cautious.
“I understand that [Cliffs] is upset,” Snyder said. “It’s supposed to be fair market competition, and when you give one company the competitive edge over the other, you have to be careful. Because eventually they are all going to be competing on the free market with each other. So we will have to proceed very carefully.”