Financing trips up Range mine projects

The Essar Steel project in Nashwauk has progressed since this photo taken last year, but is now at a standstill as the company irons out its half-billion dollar financing woes. PHOTO: Hammerlund Construction

Sometimes it feels like the entire leadership structure of the Iron Range is standing outside the offices of environmental regulators, waiting for a Willy Wonka-type figure to emerge, do a little flip, and announce whether or not we get to come inside where they keep the permits.

But two recent stories about Range mine projects show us that environmental permitting is just one aspect of whether or not mining new minerals will happen in this region where people have mined iron for five generations. Just like when the Merritt Brothers tried to haul their own ore off the Mesabi 125 years ago, it’s all about the money.

Both the Essar Steel project near Nashwauk and the Twin Metals nonferrous project near Ely encountered setbacks last week, and both were due to problems finding private financing for their expensive Range mine projects.

For Essar, an announcement last month that the India-based steelmaking giant had secured $450 in private financing for the project was the good news everyone on the Iron Range was looking for. However, it has since been revealed that Essar had trouble coming up with its portion of the money and now bond holders will have the option to pull out, threatening the entire deal.

This is particularly troubling because tens of millions of dollars, both private and public, have already been spent running rail, electrical and highway infrastructure out to the Essar site, along with the footings and shell structures of several key plant buildings, including a concrete cooling tower visible for miles around. Essar said it won’t sell the project, but if it can’t finance the completion of the deal the incomplete plant will rot in the sun, wind, snow and rain for years.

Then, up at Twin Metals, an entirely different set of circumstances are playing out, though still related to financing. Chilean mining company Antofagasta has terminated its option to buy a 25 percent stake in Twin Metals, though it will retain the smaller stake it holds now. This means that majority owner Duluth Metals will need to make up the financing

In this Associated Press story by Steve Karnowski, Duluth Metals said the news does not deter their interest in the Twin Metals project, in fact, they are “excited” to pursue financing to make up the difference, thus owning a bigger share of the project in the end. Still, this leaves Duluth Metals in the same position as Essar — trying to gin up financing in a turbulent commodities market.

It’s easier to finance projects with clear expectations for profit; but for many of the big Range mine projects these days, profits remain theoretical. That might fly in convincing local politicians and newspapers to support you, but it doesn’t cut it with the fat cats who write the big checks. Therein lies the problem with placing all of your economic development hopes in just one industry known for its high stakes volatility.