Magnetation’s Plant 4 near Grand Rapids, shown here under construction, opened last year. Now the company faces a financial crunch amid a sluggish steel market. (PHOTO: Magnetation)
The scram mining company Magnetation appears headed for a make or break moment in coming months after partner AK Steel said Tuesday it would not put any more money into the company.
Right now Magnetation processes waste rock at old Mesabi Iron Range mine sites into iron pellets that feed AK Steel’s operations in Indiana. AK Steel also owns a 49.9 percent stake in Magnetation.
WDIO reported the news, saying that AK Steel isn’t confident Magnetation can meet their demand for pellets right now:
When the partnership with AK formed, the plan was to supply the steel company with around 3 million tons of pellets each year.
Tuesday, during an earnings conference call, CEO and President Jim Wainscott, “We are certainly hopeful Magnetation continues to be a supplier to AK Steel. We worked long and hard with them, designing the perfect pellet for our blast furnaces, and we want them to succeed.”
However, Wainscott acknowledged that with the challenges the company is facing, AK may have to look elsewhere for pellets in the long term.
Matt Lehtinen, President of Magnetation, sent out this statement hours ago:
Our operations, Plant 2, Plant 4, and the pellet plant are running well, and we fully expect to continue to supply AK Steel under our long term agreement. On the financing front, in March we retained The Blackstone Group as financial advisor and Davis Polk and Wardwell LLP as legal advisor to assist us in evaluating alternatives to improve liquidity and improve our capital structure. We continue to work on these initiative.”
Unfortunately, Magnetation — like all the mines on the Iron Range — can’t count on an immediate recovery in iron ore and steel prices. Magnetation developed innovative technology that works, but hit its stride just as the market hit the skids. Thus, the company that grew like a wildfire over the last four years will need to figure out how to fund itself through the downturn or it could run out of oxygen.
This is one of several Iron Range economic stories to watch. Today on KDAL 610 in Duluth I talked about the state of mining and the Iron Range, along with the theme of my Sunday column “The Iron Range is dead; Long live the Range.” (Listen). I was on with Kevin Jacobson, who was filling in for John Gilbert. Jacobson and Jennifer Austin have begun a weeklong series about the booms and busts of the Iron Range, and ideas for economic diversification.
Thank you for linking the KDAL segment. Interesting listen and I enjoy hearing creative and positive conversations about improving the economic climate and diversification of the IR.
You peaked my interest Independent, so I listened to the hour long segment also. It confirmed a few facts but what specific new economic ideas did you hear that were creative and diverse?
I liked that it did not force a narrative that mining is evil. The conversation pointed out that we should place more effort on value added iron products which I think is a big one. The tone on copper and precious metals mining what more common sense than I would have expected. The copper could have a huge upside economically with value add processes as well. I personally wish there was more discussion on the Segetis project as I think this type of project could attract more biochemical if we can develop a hub of that activity. Hopefully Aaron or another local source can get more detailed information on Segetis and the project details along with the support industries that it will need.
Oops..you also piqued it..
I agree Independent, the usual “mining is evil” tone wasn’t expressed and adding additional value to our ore before it leaves the Range and the Segetis project were mentioned as good opportunities…both creative and diverse. For all the years of hype on economic diversification and it being an hour long discussion, I thought sure a broader array of creative & diverse ideas would have been offered. There was nothing new..