(Aaron J. Brown)
Mining, despite its booms and busts, is still vitally important to the economy of Northern Minnesota, but its mechanics are typically so boring as to drive men to drink and/or high-rent metropolitan neighborhoods. For those who follow the doings of the Iron Range mining industry, the conference calls of Cliffs CEO Lourenco Goncalves have become spectator sport.
Typically, mining CEOs play it safe, focusing solely on projecting stability within their company and in the markets, even when chaos may reign both. They almost never go after other companies. In fact, Iron Range mines typically work in congress. Co-ownership, shared leases and a culture of management personnel who have worked multiple locations reduces the sharp edges of competition among the companies. Everyone knows who has the best ore, the best equipment. The future challenges facing each mine are widely understood conversational topics around the region, even if those conversations run a bit dry for the tastes of the Reality TV Era.
Goncalves, however, is like a giant talking bear locked in a tool shed full of crystal figurines. His comments are among the most entertaining content to emerge from the mouth of a mining executive I’ve ever heard, and it’s be wonderful if it weren’t so simultaneously frightening.
Goncalves came on board after the stockholder revolt of last year. He inherited a bad situation that has gotten worse. The global iron and steel market is in turmoil as lower demand and vast amounts of new, cheap supply have crushed iron ore prices. Cliffs is a commodities company that sells on the open market, and has taken huge losses as a result. Cliffs stock lost more than 95 percent of its value this summer, selling for a pittance in recent weeks.
Here on the Iron Range, Cliffs manages and co-owns mines at Hibbing Taconite, United Taconite of Eveleth and Forbes and Northshore Mining of Babbitt and Silver Bay. That’s half the working mines in the region. One of them, United Taconite, just announced an indefinite shutdown starting next month and there are serious questions about what might happen there in the long run.
Goncalves is oddly optimistic, saying that investments in new value-added technology will keep Eveleth open. But miners I’ve talked to say that they are several years and hundreds of millions of dollars from such technology being ready.
But the talk continues.
One of the biggest targets of Goncalves scorn has been the Essar Steel project near Nashwauk. Observing the problems of over-supply around the world, Goncalves has long maintained that the new project is not necessary in the marketplace, asking the state of Minnesota to pull its support of the project. Nevertheless, Essar’s project is seeing a great deal of activity this summer.
That talk continued in last week’s conference call with investors, where Goncalves was quoted saying this:
“The pellet plant that is set to being built to compete against us will not start until, my assessment, at least 2018. You are going to see a lot of good money being put after bad there until everyone will give up on that. The other one that’s getting technical support from a private equity fund will fail as well. So, what we are going to have in this market at the end of the day, Cliffs Natural Resources.”
“The other one” refers to Magnetation, which reorganized in bankruptcy this year. So Goncalves is apparently going after any vulnerable company in hopes of controlling the amount of supply off the Range.
Cliffs is posting huge losses and is in a tremendous amount of debt. Other companies aren’t doing well either. U.S. Steel needs to cut $10 off its cost of a ton of iron ore, a fact they stressed during the last legislative session. Covering this stuff is an art of reading between the lines.
Add it all up, and here’s this: companies seem to think that there will be less ore coming off the Iron Range in the foreseeable future and it will need to cost less than it does now. Essar, despite its many delays, will come on line eventually. That means contraction. That means that what we’re watching is a game of musical chairs, the outcome of which is not yet settled. That’s not a political position. That’s the economic reality of our region in our time.
That’s why you’re hearing more talk about economic diversification from the old powers. Talk, however, is easy to come by. Believe what you see. The only thing any of us control is what we do.
If we want to be able to mine up here for the foreseeable future, we will need more deals like St Louis county did with Hibtac. All the anti-mining folks (way too many up here) who say we won’t diversify our economy until mining goes away just don’t appreciate how much money is produced thru mining. I’m all for responsible copper mining, logging and any other industries that employ Rangers. Mining needs to have good partners with cities, counties and State to be successful going forward.
Essar and Magnetation are 2 deals that hopefully will pan out but were badly negotiated from the start by IRRRB. So hard to make up for a bad deal rather than recovering from a down turn or unexpected problems with a good deal. But I guess we’ll wait and see if the millions of tax dollars produce long term jobs or just another boondoggle that will be swept under the rug by the DFL shepeople.