HIBBING — One piece of land could pull Hibbing Taconite from the brink of closure, but it’s currently controlled by one of the mine’s owners and primary rival.
A lawsuit filed this week, claiming the land was gained in a sweetheart deal, aims to break up a series of mineral leases that could extend HibTac’s life for more than a decade. Glacier Park Iron Ore Properties filed the suit against U.S. Steel in Sixth Judicial District Court in Hibbing on Monday, contending the steel giant illegally obtained a long-term mineral lease called the Carmi-Enterprise from the former Great Northern Iron Ore Properties Trust in 2010.
The lawsuit is the first public attempt to put pressure on U.S. Steel over the land in question, which would provide about 500 million tons of resources and seven to 12 years of mining for HibTac. Estimates currently show the mine could run out of ore by 2024, potentially threatening its current operation and more than 3,000 direct and indirect jobs across the Iron Range.
Lease terms were negotiated as a combination of the Carmi-Campbell, Mississippi-Enterprise and Grant leases controlled by the trust and due to expire in 2015. According to the court filing, a former U.S. Steel manager named Jim Swearingen joined the GNIOP Trust and played a role in negotiating with his former employer a 47-year lease of the combined land at below-market royalty rates.
That was allegedly done after trustees said they would not negotiate leases beyond April 2015. At the time, the trust was set to dissolve and the land would become the property of Glacier Park, which was then owned by oil and gas giant ConocoPhillips. The trust intended to lease the Carmi-Campbell to HibTac.
The lawsuit filed Monday seeks to enact a Minnesota law that renders improper leases null and void, with the intention of leasing the Carmi to HibTac, while keeping the other two leases with U.S. Steel. That’s a critical distinction for U.S. Steel as the primary infrastructure for Keewatin-based Keetac is on the Enterprise lease.
“The state is very focused on supporting Hibbing Taconite and its continued operations far into the future,” said Barb Naramore, deputy commissioner of the Minnesota Department of Natural Resources, in an emailed response to the Mesabi Daily News. “We do not have a direct role in resolving matters involving private minerals and have no comment on the lawsuit filed yesterday. At a broader level, we are committed to doing everything we can to facilitate a successful future for Hibbing Taconite and other mine operators and mineral owners.”
U.S. Steel has since filed a counter suit in U.S. District Court in St. Paul, but the files are sealed.
“While we do not comment on pending litigation, we are committed to our Minnesota ore operations and our 1,700 hardworking employees, who work tirelessly to uphold our rich tradition and long history of mining in the region,” said Meghan Cox, spokesperson for U.S. Steel.
ArcelorMittal owns the majority of HibTac (62.3 percent) and operates the plant with joint partners Cleveland-Cliffs (23 percent) and U.S. Steel (14.7 percent).
Swearingen denied the allegations from Glacier Park and the lawsuit in an email late Tuesday night, saying he was not involved in negotiating the royalty agreement and that it was not below-market value. He added he was one four GNIOP directors that approved the negotiated lease.
Requests for comments have been sent to representatives from ArcelorMittal and Cliffs. A representative for Glacier Park declined comment citing pending litigation.
Glacier Park’s beginnings are rooted in the Great Northern Railway and its founder James Hill, who controlled thousands of acres in mineral assets. After Congress passed the Hepburn Act in 1906, which prevented railways from shipping product they produced, the minerals were turned over to a trust known as Great Northern Iron Ore Properties, which was publicly traded.
Fifty years after Minnesota changed its law that allowed companies to own more than 5,000 acres, the assets were turned over to direct ownership of the trust. The trust was set to terminate 20 years after the last surviving trustee died, at which point non-cash entities would transfer to a reversioner and the trust dissolved.
According to the court filing, the trust operated as expected for decades until a dispute in the 1970s that went to the Minnesota Supreme Court, who said trustees had the fiduciary responsibility to the reversioner and certificate holders, and could not convert assets to cash and skip the reversioner.
In 1995, the last survivor of the trust died. That meant the trust would terminate on April 6, 2015, and shares would stop trading on the New York Stock Exchange. Glacier Park, then owned by ConocoPhillips, was the reversionary at the time.
The trust owned several taconite minerals and land, which it did not mine itself but rather leased and collected royalties from mined ore.
Three active taconite mines held operations on leased land: Minntac, Keetac and HibTac. Minntac and Keetac are wholly owned by U.S. Steel, with Keetac sharing a border with HibTac that extends about 5 miles.
A new trustee, a big problem
In 2009, about a year before the leases at HibTac and Keetac expired and six years before the trust was set to dissolve, former U.S. Steel manager Jim Swearingen was appointed as a new trustee. He was the former general manager of Minnesota Ore Operations for U.S. Steel, a position now held by Larry Sutherland. He was the lone mining expert among the trustees.
According to the complaint filed Monday, Swearingen was unsuccessful in multiple attempts to buy leased land from ConocoPhillips in the 1990s and early 2000s.
The Carmi-Campbell, Mississippi-Enterprise and Grant leases were set to expire on Dec. 31, 2010, and some individuals directly accessible to HibTac, then had worries about the mine’s timeline to process ore.
The trust, the complaint says, saw 2010 as a “valuable opportunity” to enter into an agreement with HibTac to mine the Carmi-Campbell area before the trust dissolved in 2010.
Representatives from Cliffs, who managed HibTac up until this month, wrote the trust expressing interest in the Carmi land noting they “would offer significant benefits to both parties.” U.S. Steel’s Keetac mine plans then and now have not addressed a plan or desire to mine the Carmi, according to the filing.
But U.S. Steel had looming problems of its own. As the trust was dealing with U.S. Steel, its leadership noted Keetac had infrastructure located partially on both the Mississippi and Carmi leases that could present a large financial cost to the Pittsburgh-based company.
If the land reverted to the control of ConocoPhillips — a massive player in the oil and gas industry — U.S. Steel could lose the land, minerals and infrastructure located on the leases. Infrastructure alone was estimated at about $1 billion to replace.
Swearingen, according to the complaint, told fellow trustees that U.S. Steel could “go around you” and mine somewhere else. At the same time, U.S. Steel was questioning the trust about the future of the land if it went to Glacier Park and ConocoPhillips.
On July 14, 2010, U.S. Steel and Cliffs met with the trust to discuss the properties. HibTac’s primary owner ArcelorMittal was not included, as was noted by Cliffs during the meeting, “but ArcelorMittal was not included and U.S. Steel took efforts to exclude ArcelorMittal from the discussions,” the complaint read.
At a separate meeting between the trust and U.S. Steel, the complaint alleges U.S. Steel attorney Miles Stipanovich implied that the company could complicate a minerals agreement with HibTac as it would require a unanimous vote of the three managing partners.
As negotiations with U.S. Steel and the trust progressed, trustees noted ConocoPhillips would have to consent, but was not included in the negotiations.
Citing internal memos of the trust, the complaint says ConocoPhillips didn’t know what they were consenting to, suggesting “that GNIOP knew that if the reversioner knew the truth, then it would not have approved of U.S. Steel’s lease.”
In other words, if ConocoPhillips knew it was coming into control of minerals and Keetac infrastructure, it stood to make a large sum of money or venture into the iron ore business with many decades of ore as a startup.
On Sept. 29, 2010, the trust sent a final lease agreement copy to Glacier Park and ConocoPhillips and, according to the complaint, citing internal communication “was careful to avoid raising any questions by COP about the U.S. Steel lease.” Further, it says the trust failed to notify Glacier Park of the Keetac infrastructure, that below-market royalty rates were accepted on the Carmi-Enterprise, the competing interest from HibTac and that the company had plans to mine the land in a short manner.
As Glacier Park began to object in late December 2010, the complaint says U.S. Steel increase its pressure on the trustees to finalize the deal. The trust considered court approval, but in February 2011, ConocoPhillips agreed to the terms, allegedly with only a few details on the land.
By agreeing, U.S. Steel had obtained a 47-year lease for the combined Carmi-Enterprise land through 2057, of which 42 were supposed to be designated to Glacier Park.
Negotiations come to light
Glacier Park says it first learned details of the land when the reversion officially took place in November 2016 and learned of the process in which the leases were allegedly negotiated.
The leases, according to the complaint, also contained an arbitration clause that addressed disagreements or controversy in the agreement.
On March 27, 2019, Glacier Park, no longer owned by ConocoPhillips, served an arbitration demand to U.S. Steel. On April 16, the parties agreed to suspend arbitration to reach an agreement without litigation, which expired on Monday, prompting the lawsuit that alleges the trustees negotiated “unfavorable” terms that breached terms set by the trust in its creation.
“U.S. Steel substantially assisted the trustees’ breach,” the complaint reads. “The trustees’ relationship to U.S. Steel, including Mr. Swearingen’s role as a former U.S. Steel inside, gave U.S. Steel a substantial degree of influence over the trustees and forced the trustees to avoid “upset[ing] U.S. Steel.”