New MN taconite mine finally arrives, but will market be there?

Construction work
A construction worker walked past steel beams inside the structure that will house an iron ore induration machine near Nashwauk, Minn.
Derek Montgomery | For MPR News

After nine years of financing and construction delays, Minnesota's first modern taconite operation is nearly complete. But this summer's ribbon-cutting won't be all smiles and ice cream.

While Iron Range leaders are happy about the jobs and investment, falling ore prices and lowered expectations are dampening enthusiasm for the $2 billion Essar Steel project.

With recent layoffs at nearby taconite plants, some Rangers are anxious for the global steel industry to rebound and unsure about Essar's commitment given that the firm has shelved plans to build a steel factory to accompany its ore plant.

Essar officials say they're in for the long-haul on taconite but that constructing the steel plant would not have been feasible. The shift, however, remains a sore point for some lawmakers.

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The state kicked in $66 million in infrastructure grants based on the promise of a steel plant that didn't happen, said Rep. Tom Anzelc, DFL-Balsam Township.

"This was an extraordinary company with an extraordinary idea," said Anzelc. "We built a railroad. The public built an electric substation, brought in the gas and electric. It was with great fanfare and excitement that all that was done. Jobs were beginning to be created."

Madhu Vuppuluri
Essar Steel Minnesota CEO Madhu Vuppuluri talked about ongoing construction near Nashwauk, Minn., Thursday, March 19, 2015.
Derek Montgomery | For MPR News

Leaders of India-based Essar say there will be plenty to celebrate. Some 300 construction workers are erecting several huge steel buildings at what will be the Iron Range's first new taconite operation in 40 years. That will peak to 800 by this summer.

The plant will boast 350 full-time jobs averaging $85,000 a year and provide tens of millions of dollars in tax revenue for decades, said Essar Steel Minnesota CEO Madhu Vuppuluri.

It will be one of the cleanest, most efficient, and lowest cost ore operations in North America, he added. "It has been quite a road. This project has been project on paper for almost 20 years, so we are seeing light at the end of the tunnel now."

The steel plant is not off the table completely, but the $66 million in state grants to Essar were given on the belief the company would complete construction of a steel mill by October. The company has asked the state for a seven-year extension to build the plant, saying it's still in their long-term plans.

But several Iron Range legislators, say that's unlikely.

"I don't think that's in the cards right now," said state Sen. David Tomassoni, DFL-Chisholm. "I think that they need to get the place built, and I think they need to pay it back."

Essar struggled to raise the $1.9 billion needed just for the mine and taconite pellet plant. In 2012 and 2013 construction stalled when the company was unable to pay its contractors. Vupuluri says work resumed late last year when Essar secured its last $800 million in financing. But now steel demand in the U.S. is slumping.

An oversupply of iron ore and steel has led U.S. Steel to announce the layoffs of about 400 workers at nearby Keewatin Taconite. A company called Magnetation is closing an iron ore plant, also in Keewatin, that employs 50 people.

Ore storage area
A crane continued to piece together the area where iron ore will be stored near Nashwauk, Minn.
Derek Montgomery | For MPR News

Vuppuluri calls those layoffs unfortunate, but says he's not concerned for Essar, which is banking on a growing appetite for steel in North America to replace aging airports, bridges and other infrastructure.

Despite the glut of steel and low demand, College of St. Scholastica economist Tony Barrett believes the taconite market will rebound with the changing business cycles.

"We need the steel capacity that we have," Barrett said.

That's what Essar and the Iron Range hope.

The Essar jobs are huge for the region and will mean the difference between Neshwauk surviving and thriving, said Mayor Ben DeNucci, who squeezes in politics between his day job at Keewatin Auto Repair and the bar he owns in Neshwauk.

"There are contracted workers working there that I know, that I've gone to high school with, that I'm on the fire department with, that I play softball with in the summertime," DeNucci said, "so those jobs are great, they're important."

The mine, he added, will be worth the nine-year wait.