Essar Steel Minnesota was heralded as the next big thing on the Iron Range. A pellet plant and a steel mill that would transform the industry in the region, along with its economy. Then financial problems hit the company — construction deadlines were missed, payments were late and the state came knocking on the door a little louder in 2016.
In the nearly three years since Essar Steel Minnesota (ESML) filed for bankruptcy on the Nashwauk project and it emerged under Mesabi Metallics, few significant changes have happened on the construction end. Instead, the new ownership team has faced now-monumental challenges of meeting a state-imposed deadline and the optics of the project’s former owner, Essar Global, re-emerging as a large investor in the project.
Mesabi Metallics says its committed to building the project while acknowledging that completing the pellet plant by December 2019 is a tall order. Essar Global, while increasing its own visibility with the project, is openly asking the state to provide an extension.
The now-competing interests have laid the groundwork for confusion — only emphasized by the state of Minnesota emphatically telling Mesabi Metallics to find a new partner, and Essar that the government will continue its effort to ban the conglomerate from doing business in the state.
While Mesabi Metallics recognizes Essar as a significant stakeholder after gobbling up $260 million in debt from the fledgling company, they maintain they’re the ones in charge of the project and maintaining the permits.
“As an important stakeholder, Mesabi maintains its own proprietary communications with the state over this past year regarding our leases and permits,” said Mesabi Metallics spokesperson Emmett Coleman, “the Mesabi team and current investors remain steadfastly committed to the Nashwauk project.”
Essar re-emerges as a player
When Mesabi Metallics emerged with the Nashwauk project and later earned back state mineral leases from Department of Natural Resources, speculation was rampant that Essar was behind the effort.
The company committed to Mesabi’s offtake pellet agreement and $800 million in financing, the Swiss-based Riverdale Commodities SA, had direct ties to Essar under its former entity PeaKom SA and on the Riverdale board of directors.
All along, Essar was somewhere in the background of the project.
It was hours before newly-elected Minnesota Gov. Tim Walz was set to be sworn in on Jan. 7 when reports surfaced that Essar Global was officially a financial player in the project, buying out $260 million in debt from Mesabi Metallics to become its largest creditor.
Essar’s role, as it largely remains, was unknown.
“Mesabi Metallics hold the leases, but Essar is a creditor and a large shareholder,” said representative Ron Dicklich, in an interview this month. “Essar is actually a part of Mesabi Metallics.”
Dicklich is registered to lobby for Essar under Essar Capital Americas, with former Essar Steel Minnesota CEO Madhu Vuppuluri listed as the chief executive. Vuppuluri led construction efforts of the Nashwauk project until the 2016 bankruptcy and was later sued with Essar Global for allegedly funnelling money from the project to other Essar entities worldwide.
The state responds
Minnesota and Essar have a sordid history, to say it best.
Essar and the Ruia family conglomerate controlled the Essar Steel Minnesota project in Nashwauk since they broke ground in 2008, promising then a taconite plant and steelmaking facility, along with 700 construction jobs and 350 permanent jobs.
Construction stalled and continued numerous times over the next eight years, as Essar Steel Minnesota claimed funding problems from the parent company, eventually promising former Gov. Mark Dayton it would make certain payments in 2016.
Instead, as the state moved to strip the company of its mineral leases, Essar went into a $1.1 billion bankruptcy filing that left local contractors and municipalities on the hook for millions in lost funds.
As this January drew to a close, and with Essar back on the scene, the state of Minnesota took a more aggressive approach under the Walz administration. DNR Commissioner Sarah Strommen filed to debarment paperwork with the state Department of Administration, a formal request to review Essar and potentially ban it from doing business in the state.
According to state rule, a vendor can be banned from doing business for one to three years unless a longer time period is effect. The length will depend on the “vendor's past performance, the number and seriousness of the current complaints, and the cost to the state associated with correcting the problem.”
That process is ongoing, and block Essar from operating the Nashwauk project, but not as a financial investor.
“This is a company that left the Iron Range in the lurch and caused a lot of pain. I want to do everything I can to keep that from happening again,” Walz said in response to the debarment plans.
Dicklich said Essar has spent more than $1.4 billion on the project to date and called the state’s debarment effort foolish. The company, he added, wants to finish out the project it started.
“They can’t depend on someone else to comply,” he said of the company returning to the project. “If it didn’t happen in the past, that’s too bad.”
Essar makes a plan
To add more layers to the already-contentious, often-confusing path of the Nashwauk project was Essar’s decision to lay out a full development plan for the pellet plant and value-added DRI facility.
According to Dicklich the proposed partnerships would have the engineering and construction firm Fluor, based in South Carolina, bring the project to completion. Fluor and Essar say they need the state to extend mineral leases to account for an 18-month construction schedule.
Mercuria, a Swiss-based trading corporation, remains interested in being a financial investor. They came onto the scene as a potential investor in September 2018, unknown to the state, during a visit by Dayton to the Iron Range.
Tenova/HYL, based in Mexico and Italy, has the license to the technology for the DRI value-added plant on site. Mesabi Metallics has already missed a state-imposed deadline to begin construction on the value-added site.
Lastly, the Canadian-based steelmaker Stelco is interested in pellets and a potential investment opportunity.
“It’s not just Essar — the proper way to describe it is a development team,” Dicklich said. “If this doesn’t go ahead with this group, there may never be a project.”
Mesabi Metallics and the state, however, disagree.
Coleman, the Mesabi Metallics spokesperson said the company is forging ahead with minor construction work needed to keep permits active. Facing a Dec. 31, 2019 construction deadline, which is getting increasingly less likely to meet, they’re in more frequent communication with state regulators about moving forward.
“Mesabi Metallics maintains an active workforce on site as part of management’s commitment to the success of the mine and has a local contractor on site currently conducting construction work to the induration building,” Coleman said. Noting Essar’s request for a lease extension, he said “Mesabi has not made any written request for any modifications to its leases and permits with the state as of today.”
For its part, the state DNR has continued an aggressive approach to Essar. One day after the company detailed its development plan, the state took an unprecedented step to formally chastise Essar and its development team, along with the slow progress at Mesabi Metallics.
“For all the reasons laid out in our debarment action, Essar has absolutely no credibility with the DNR. This cannot be overstated,” said DNR Deputy Commissioner Barb Naramore in a letter, which called letters from the development nothing more than showing interest and lacking commitment. “We strongly advise Mesabi Metallics to position itself as or with a credible controlling owner and operator, capable of securing the necessary construction funding, before it is too late.”
She continued that it would be “simply shocking, and beyond disappointing” if Essar had the necessary $800 million to finish the project but had not acted on it. Dicklich said the state’s approach showed a lack of business acumen — why would potential partners spend the money when the minerals could vanish in mere months?
“Essar has some bad perception — some true and some not,” he said. “At the end of the day there’s companies that are committing $800 million, but the mineral leases have to be extended … we’re wasting construction season. This needs to go to the next step and that is the governor needs to look at this, get involved and look at what the department has done and what is the rationale.”
For Mesabi Metallics, they’re continuing talks with the state and keeping regulators updated. The DNR last reported four cranes on site, and Coleman said the project looks different from a year ago, but significant steps forward are still not present.
Riverdale is reportedly still involved in the financial end of the project, but a request for comment was not returned as of press time. Dicklich said he has never heard of Riverdale.
Essar said it will continue to lobby against the debarment and still plans to complete the Nashwauk project under its new development team.
The state is moving ahead on debarment and encouraging Mesabi to find new partners.
A major loose end for any company to tie up is the joint land ownership and control with Cleveland-Cliffs. Cliffs purchased and leased more than 3,700 acres within the Nashwauk project in 2017 after Mesabi Metallics defaulted on lease payments with Glacier Park Iron Ore Properties. A federal bankruptcy judge affirmed the purchase in July 2018, days after Mesabi was granted state mineral leases.
Cliffs CEO Lourenco Goncalves has said he will not work with Mesabi Metallics and is instead seeking the state mineral leases. If awarded to Cliffs, he said the company will supply Hibbing Taconite and also build a value added DRI facility.
Mesabi and the state have welcomed Cliffs to the table, but Dicklich said Essar is banking on an active project forcing Cliffs out. He said only three of Cliffs’ parcels are in the 10-year mine plan for the project.
“That won’t be an issue — they can mine around this,” he said. “The people who own the leases will see only one company can dig into it and they’ll want to make money off it. The fact an operating starts up, the other mineral rights owners will want to be part of this and reach termination points with Cliffs.”
A review of public records in Itasca County shows the lease agreement between Cliffs and Glacier Park, with annual payments to Glacier Park, lasts through 2068.