Iron Rangers blast Dayton over Essar Steel deal

Mining site
The site where Essar Steel had intended to mine for taconite ore, Mar. 19, 2015, but the company ended up declaring bankruptcy a year later.
Derek Montgomery for MPR News 2015

Gov. Mark Dayton heard many choice words — and delivered a few, too — Monday night during a town hall meeting on the Iron Range about a contentious mining project near Nashwauk where two companies are locked in a power struggle over the former Essar Steel site.

Mesabi Metallics won the bidding last summer in bankruptcy court to take control of the Essar Steel site, beating out Cleveland Cliffs, which already runs three taconite operations in Minnesota.

Many locals, though, remain loyal to Cliffs, one of the Iron Range's largest employers, and don't trust the upstart Mesabi Metallics to deliver. Most of the people who packed the Nashwauk town hall Monday wanted Dayton and other leaders to do something about it.

Ore storage area
A construction crane continued to piece together the area where ore was to be stored at the Essar Steel site. Mesabi Metallics won the bidding last summer to take control of the site
Derek Montgomery for MPR News 2015

"My question to all the politicians and leaders that have a hand in this fiasco is this, if you don't support Cliffs, we don't support you. Do you hear us?" Andy LaBarge, who works at United Taconite, the Cliffs facility in Eveleth, Minn., told the crowd.

Dayton, clearly frustrated, replied that he supports Cliffs, but that he couldn't just yank the mineral leases from Mesabi Metallics and give them to someone else.

"We have to follow the law, we have to follow federal law under bankruptcy," Dayton said. "If Cliffs had made a competitive offer in bankruptcy, they'd own this project today. If they wanted to take over the project and the existing permit to mine, they'd have to buy it from the present owner, Mesabi Metallics."

Later, Dayton bristled when another Cliffs employee suggested he had gone back on his word to Cliffs. Dayton says he had intended to work with the company, but that changed when Essar declared bankruptcy.

"I've spent 40-plus years up here doing every goddamn thing I could to bring jobs to the Iron Range, with one exception, Twin Metals," the governor responded, noting the proposed controversial copper-nickel mine near the Boundary Waters he opposes because of environmental concerns. "Everything else I've supported, everything else, within the law, when I could."

The Essar Steel project remains a hot-button issue for Iron Rangers and political leaders alike.

Essar broke ground on the Nashwauk site a decade ago, when Tim Pawlenty was governor. Pawlenty is pictured here at the groundbreaking on Sept. 19, 2008.
Bob Kelleher for MPR News 2008

India-based Essar broke ground on the Nashwauk site a decade ago, generating significant excitement because of its plan to open a mine and build a steel mill at the mouth of the mine, something that had never been done before on the Range. The state kicked in $66 million in infrastructure grants.

But then the financial crisis hit. Essar eventually invested nearly $2 billion to start building the project but ran out of financing, and couldn't pay contractors.

Two years ago, the state stepped in with plans to terminate Essar's lease agreements. While that process was beginning, Dayton started talks with Cleveland Cliffs. Essar, though, declared bankruptcy, which opened up its unfinished project for bidding in federal court.

New road
A brand new road and railroad line lead to the air pollution control and furnace facilities at the former site of Essar Steel near Nashwauk, Minn.
Derek Montgomery for MPR News 2015

Dayton, who will leave office in January, said at the Nashwauk meeting that if he tried to take away leases from Mesabi Metallics on the Essar site, it would end up in court and drag on for years. After that, he said, the project would still face a yearslong environmental review and permitting process. Department of Natural Resources Commissioner Tom Landwehr estimated that part of the process would take another six years.

"So, right now, given that process and given where we are with Mesabi Metallics, we're moving ahead, seeing that as the most viable option to get something going on this project," Landwehr said.

Mesabi Metallics, through its parent company, Chippewa Capital Partners, has paid $46 million to contractors who were owed money by Essar. The company said it plans to spend another $650 million to complete the project, with construction ramping up by next March.

Interim CEO Gary Heasley told the crowd in Nashwauk he doesn't understand what the fight is about.

"The key to moving communities forward isn't about battling between corporations, that's not going to do anything," he said. "The key to moving communities forward is developing resources to be cost competitive globally, and accessing markets."

Mesabi plans to do that by adding another plant at the mine site that can supply the newer mills that are taking over the steel industry.

But during a call on Tuesday, Cliffs CEO Lourenco Goncalves said that Mesabi doesn't have solid financing, enough ore to mine or a customer lined up.

"We have the expertise, the manpower, we have clients, and we have money, and these are all the things that the company that was anointed by Governor Mark Dayton, does not have," he said.

Cliffs has tried to get a foothold in the project by buying up some of the mineral rights where Mesabi Metallics plans to mine. And both sides are now fighting in court to be able to mine the iron ore they control.

Mesabi Metallics' first major construction deadline is at the end of 2019.