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State officials move to bar Essar Steel from Minnesota

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Construction work
A construction worker walked past numerous steel beams inside the facility that will house the induration machine at the Essar Steel site in March 2015 near Nashwauk, Minn.
Derek Montgomery | For MPR News

The Minnesota Department of Natural Resources is moving to legally bar Essar Global from doing business in the state, after more than 10 years of missed deadlines and payments in the company's long bid to build a new taconite iron ore mine and processing plant on the Iron Range.

In 2008, India-based Essar Steel broke ground outside Nashwauk, Minn., on a new taconite iron ore mine and what was supposed to be the region's first steel mill.

More than a decade later, after nearly $2 billion in investment, the project is less than half finished. Essar declared bankruptcy three years ago, and a new company called Mesabi Metallics took over the project.

Earlier this month, Essar moved to reinvest in the project by settling about $260 million in debt related to Mesabi Metallics.

But in a letter sent to Mesabi's CEO Gary Heasley Monday, DNR Commissioner Sarah Strommen said the state has begun the process of legally barring Essar from doing business in Minnesota.

The letter stated Essar still owes $64 million to Itasca County and the state in unpaid debt, failed to pay contractors, missed construction and production deadlines, and ultimately drove the project into bankruptcy.

"This is a company that left the Iron Range in the lurch and caused a lot of pain," said Gov. Tim Walz. "I want to do everything I can to keep that from happening again."

The state natural resources department is also reviewing whether Mesabi is in full compliance with its permits and mineral lease requirements, Strommen said.

In a separate letter sent to Mesabi Metallics last week, the department said after inspecting the project on Jan. 10, it determined the company had failed to meet a deadline to begin construction on a value-added iron project at the site.

As a result, the state department's lands and minerals director Jess Richards said the rents and royalties Mesabi Metallics owes the state for its mineral leases will be doubled.

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

A spokesperson said the company submitted a construction timeline and an assessment estimating the cost to complete the project to the natural resources department in December. He said an acceleration of construction is expected to begin in the spring.

The former Essar project was supposed to be a major economic development for the Iron Range, featuring not only a state-of-the-art taconite mine but also a processing plant to create a higher value iron product that can be used in newer generation steel mills.

However, it's been nothing but a headache for state officials. After several fits and starts, the company declared bankruptcy in 2016, just hours before the state attempted to wrest control of the project and transfer it to Cleveland Cliffs, which operates two other taconite mines on the Range, and is part-owner of a third.

That sent the project to federal bankruptcy court, where Mesabi Metallics won the bidding to take control of the Essar Steel site, beating out Cleveland Cliffs. State officials subsequently awarded state mineral leases at the project site to Mesabi.

But Strommen said the agency is also "continuing to evaluate the sufficiency of all information provided by Mesabi to the DNR and which the department relied upon for reinstatement of the leases in July 2018."

Cliffs, meanwhile, 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.