Construction takes place at Essar Steel Minnesota near Nashwauk on Oct. 8, 2015. This structure surrounding the ore storage bins is new since my last visit in May 2015. Despite an ongoing battle between Essar and Cliffs over ore contracts and the disappointment of delays to the steel making portion of the project, Essar continues to make progress on its new taconite plant on the western Mesabi Iron Range. (PHOTO: Aaron J. Brown)
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Aaron J. Brown is an Iron Range blogger, author, radio producer and columnist for the Hibbing Daily Tribune.
Speculation can be ignored, but one must reckon with concrete. Here along Northern Minnesota’s Mesabi Iron Range one finds many messy versions of the truth surrounding Essar Minnesota’s new taconite mine under construction near Nashwauk. While controversial, actual activity at Essar shows that new mining will happen on the grounds of the erstwhile Butler Taconite. We just don’t know all the details.
Essar officials asserted just last week that the new plant will produce traditional taconite pellets sometime during the third quarter of 2016. Essar reiterated its agreement to sell those pellets to ArcelorMittal and Essar’s own Algoma steel mill in Sault Ste. Marie, Ontario. Further, company spokesman Mitch Brunfelt affirmed that capacity to produce different kinds of value-added iron ore pellets would soon follow — encouraging signs, but none of which fulfill the project’s original plan to make steel on the Iron Range by 2015.
Rival Cliffs Natural Resources disagrees with nearly all of that. Cliffs CEO Lourenco Goncalves openly predicts Essar’s inability to deliver ore by those dates in public calls. Goncalves has also made statements indicating Cliffs interest in acquiring all or part of the Essar project in the future. And he’s playing hardball. Cliffs announced last week it would no longer be supplying Essar’s Algoma mill with pellets on a contract basis, due he says to Essar’s breaches of that contract.
UPDATE: Goncalves is now openly threatening to close an Iron Range mine if Essar opens. This is all part of the same gambit.
Cliffs has its own troubles, a tanking stock price, huge debt, and the idling of United Taconite in Eveleth. On the other hand, Cliffs is the other company on the Range talking about adding value to its iron products. Cliffs says it’s putting about $80 million into its idled Eveleth plant to make value-added pellets. (UPDATE: Though the threat to close a mine calls this into question; UTac is idled and winterized now, with no evidence of installation of new equipment).
This isn’t about just one mining project, or even just the $67 million the state granted Essar years ago for the failed promise of a innovative steel mill, though both are consequential. What’s most at stake is the survival of the Iron Range’s iron ore industry and these companies, which raked in big profits just a few years ago. This dire clash highlights the historic moment we now see in our Iron Range economy, and the need to prepare for change.
Last Monday, Gov. Mark Dayton, Iron Range legislators, and state officials met with representatives of Essar both in the room and on video call from Mumbai, India. Dayton pressed Essar to repay the state grant, and keep up with payments to local contractors. Essar will reply to that demand with a counter offer next week. Underscoring the whole event, however, was a realized truth: the rosy world in which the Essar deal was struck is gone. This is a new world.
On Thursday, Oct. 8, I toured Essar’s construction site for the second time. It was plain to see significant progress since my previous visit in May, with much work yet to be done. Brunfelt was hopeful that the buildings could be closed up by the time snow falls, allowing workers to continue construction through the winter.
The most remarkable aspect of Essar’s plant isn’t its size (it would fall squarely in the average range of Mesabi mines in annual tonnage), but its efficiency.
For instance, Essar’s new mine will be similar in production capacity to Cliffs mine at Hibbing Taconite, about 7 million tons annually. What’s striking, however, is that Essar only plans to employ 350 workers, half as many as Hibbing Taconite. Hibbing runs 28 240-ton production trucks; Essar only plans to run eight. Essar’s proximity to its mining body and new technology simply allow them to run far fewer trucks, requiring far fewer workers.
This isn’t an anomaly. This is what’s coming for all Range mines, as soon as investments come after markets settle down. Right now, intense international pricing pressure seems to demand at least one North American company go under. Some say it will be Cliffs. Cliffs says it’s Essar that must go. U.S. Steel has steadily lost market share over the past three decades. International giants like Vale, Rio Tinto and BHP rule iron ore, while mighty ArcelorMittal dominates steel.
Nevertheless, the Iron Range has a logical relationship with American steel production and manufacturing. Just like the slick new production lines at Essar, we stand to benefit most if the distance between the mining and the making is as small as possible. Short of that, we best plan for a smaller per capita mining workforce in the coming century — no matter how much ore is actually mined.
Aaron J. Brown is an author and college instructor from northern Minnesota’s Iron Range. He writes the blog MinnesotaBrown.com and hosts the Great Northern Radio Show on Northern Community Radio. This piece first appeared in the Sunday, Oct. 18, 2015 edition of the Hibbing Daily Tribune.
Hi Aaron, this is a real question, but sorry if it is dumb:
Could people from here form a public non-profit corporation and buy / operate a mine ourselves? (Sort of like the Green Bay Packers are a publicly owned non-profit sports franchise?) Obviously, no one around here is rich enough to just go purchase a mine themselves, but maybe if a bunch of people put in a small amount each, it could be done? After cities and people got back their original donation, any money earned from the mine would just go back into the operation, which would employ people, which would benefit the communities and the public that way. There wouldn’t be the worry of having to make an extra profit for external shareholders who didn’t live in the area.
Has this ever been done that you know of?
Thanks : )
That is a brilliant question Amy. Trust your instincts. Trust your values. Progress forward in that manner, questioning. I am sure Aaron can tell you some stories of similar events within the Range community. For example, both Virginia and Hibbing operate publicly owned utilities.
Don’t let the trolls discourage you. Keep going.
Mines are expensive. You’d need $500 million to buy an operational stake in one of these things. Then you’d need to run it. If you sell “shares” at $1K each you’d need half a million people to participate. If all 100,000 (a generous guess) citizens of the Iron Range were to buy an equal stake, each stake would cost $5K.
Mines have been nationalized (become state-owned) before, and that has been proposed here before (some wanted that after LTV closed). But critics call it socialism and the political environment tends to abhor that kind of arrangement. Nevertheless, nationalization has its shortcomings, too. It requires commitment to forging ahead even when the mine isn’t making money. Countries that do that sell their ore and steel at loss, and then we call it “foreign steel dumping.”
The optimal arrangement is one in which a responsible owner has an abiding commitment to the region. We haven’t had that in a long time, nor should we expect it from a big global company. Magnetation was a locally owned company but as they expanded quickly they got caught by the bad markets and now even they are principally owned by a hedge fund. It’s a tough business.
Amy
Trevor nailed it – “a brilliant question!”
Read Aaron’s answer carefully. He says – “It’s called socialism and the environment (we citizens) tends to abhor that kind of arrangement”. “It has its shortcomings” (to say the least). “It requires commitment to forging ahead” (to keep making stuff whether people buy it or not). “Countries that do that sell their ore and steel at loss” (just to keep the people employed).
Sounds like he’s not too fond of socialism / communism. That’s a relief.
But his solution suffers from greed. He wants somebody “who has an abiding commitment to the region” to be “the responsible owner”. Somebody should keep everyone employed. Somebody should make stuff at a cost even when no one is willing to buy. Somebody should keep losing their money. It’s always…. somebody else. What dya think Amy, are you that somebody?
The best solution, which he doesn’t offer, is having a responsible owner (whether us citizens or a public / private company) become more productive so as not to lose money…as Cliffs, Magnetation and Essar are all trying to do. He seems to despise productivity, being competitive. I wonder why.
Why would I say that? Because perhaps I view the well-being of a community and its people as a concern separate of the profitability of giant global mining companies owned by hedge funds. The fact that you don’t see a difference between those things is, quite simply, the difference between you and me.
Magnetation did it, at least until the price of pellets and concentrate fell through the floor. They are still operating, still employing people. They were started by local people.
In the olden days, there were Pacific Isle, Rhude and Freyberger, and several others that would operate when times were good (and they were very good in the early 50’s) and scale back when times were bad. They were also started by local people.
Socialism is fun until you run out of other people’s money to spend.
Aaron,
Dumb question from a Twin Citian –
I have been following these developments closely and have enjoyed your coverage greatly. To me it seems like Essar essentially misled the State by unilaterally changing the scope of their project. Did conditions of the subsidy allow Essar to cancel the plans for a steel mill? Does the state have any recourse to get some of this cash back from Essar? Could the state have negotiated more aggressively and made the subsidies contingent upon execution of plans to construct a steel mill?
Again I have no horse in this race, but Cliffs’ position on the Essar conundrum seems to be the most reasonable. It seems like Essar pulled a fast one on us all. Thanks!
Brian
Good questions, Brian. Conditions of the subsidy require repayment if value-added iron products weren’t being produced by Oct. 1. So Essar is in violation of those conditions. The state’s recourse is to ask for the money (they’ve done that). If Essar doesn’t pay, they have to sue — which will be expensive and difficult to do. Yes, the state could have negotiated much more aggressively. Everyone wanted a steel mill and were willing to take a chance.
Cliffs position on requiring Essar to repay is reasonable. But Cliffs rhetoric about closing a mine has one purpose, and that is to get Essar to fail faster so it can swoop up the project (and probably close said mine anyway) so it can gain market share and perhaps, though probably not, avoid bankruptcy.
Much appreciated Aaron. Great info.
So the worst possible scenario seems to be that the state doesn’t get the money back, there is no value added iron produced, and Essar never comes online or only comes online with the shuttering of Cliffs. Seems to me that it’s entirely possible that we may be left on the hook for the subsidy AND left with only one facility producing non-value added iron instead of two.
This is a bad situation.
Brian
So Aaron – you’re saying the “well-being of the community” would be better served by “unprofitable, small, local, non-mining, communes owned by somebody”??? Provide a little more color..
Not at all. Once again, you’re putting words in my mouth and making assumptions that aren’t true because you want to have a very specific ideological argument with all of the known universe. This is why I hesitate to reply to your comments, and why I’ve once again concluded that doing so was in error.
Slow down Aaron. You and I, not the universe, are having a simple discussion regarding the Range economy and what’s best for its people. No more, no less. I offered a specific solution – “profitable, productive, responsible mining company(s), either public or private …such as Cliffs, Magnetation and Essar”. You disagree. That’s fine.
But instead of clarifying what your solution is, you suggest I’m off on some ideological tangent and insinuate “profitable, giant, global, mining, companies, and hedge funds” aren’t the answer. You might be on to something but how are we to know unless you explain your position…
Offer something you’re for. If it’s socialistic in nature, that’s ok, you’ll have a lot of supporters. But, you’ve already said that’s been tried, doesn’t work. So…what are you for?
I’m not the one who brought this up. I think it’s pretty clear that every kind of system is having a hard time figuring out how to make the old cash cow of iron and steel more adaptable to new technology and markets. I saw what hedge funds are doing to small local newspapers (and their communities) and I see the same thing happening to mines and most other kinds of business. They are about stock prices (that’s their job), whereas people care more about work. Hedge funds don’t care about work. They care about profits. In fact, profits are better when there is less work (and less labor to pay for). Paradoxically, when you take away local control you take away local self-determinism, which is murderous to the local society. Now you’ve got less work and no means to change anything. That’s the poison we need to expel. My main problem with mining as a means of economic development is that it reinforces this paradox over time.
I don’t want to repeat all the ideas I’ve brought up about what communities can do about this (I wrote something today and something last week, and something every month or so prior), but sufficed to say they involve putting the creation and intellectual rights closer to the means of production. Short of that, we’re a resource colony and the result is a foregone conclusion.
AB – Your phrase that potentially “we’re a resource colony and the result is a foregone conclusion” is so accurate. In fact it is my view that, sadly, for the most part, with regard to mining, we have always been a resource colony. Once the Merritt’s lost control it has only been smaller, yet plucky, ventures like Magnetization that make up any local mining. The Unicorn of a local steel mill seemed so close this time, and had the industry not done the inevitable “bust” cycle right at this moment I believe we would have had it. Essar should pay back the grants, but AFTER they are up and running – I can’t recall anything in the history of Taconite where the company paid the people up front for anything – let’s treat them the same. Cliff’s attempt to perpetrate an Essar crash and burn is dirty business and any support of that effort will be dirty politics and dirty citizenship. You are right that a mill here creates a local anchor for the industry that is not just on Wall Street. Charlie Miller, my HHS Econ teacher always used to say, “We are the tail of the dog and the head is in Pittsburgh and when the head gets what they think are tail-wagging ideas all we can do is hang on for dear life.” It still holds true except now the head is hedge-fund offices. As for (alleged)Ranger47, disliking this state of affairs and suggesting more human alternative arrangements is not the equivalent of socialism, but even if it were socialism standing up and voicing opposition to the moneyed power “out east” and fighting for what is best for the people is what makes one a true Ranger. Peace, BLAH
Sadly, Ranger appears to suffer from oronymism, misreading words, verbal or written, and stubbornly sticking to his interpretations. Otoh, falling prey to mondegreens , mishearing song lyrics which happens to most of us occasionally, is much more amusing and you can avoid embarrassment by pretending you deliberately changed lyrics to make your friends laugh when you are belting out, “I left my brains in Africa” (Toto), “I can see clearly now, Lorraine is gone” (Johnny Nash) or “Someone towed me long ago” (CCR).
“back in the day” steel companies contributed back to the community, actually built stuff. Not much anymore, it all goes out east instead.
Essentially we tax payers are on the hook for $300 million + of mine related expenses, here on the range. A fancy money-pit-bridge and this debacle. No easy answers for sure and this will play out slowly, and I hope we don’t have a “bridge to nowhere” AND an unfinished mine next year….
It’s very clear what you’re against Aaron but after another 250 words….and counting, we still don’t have a concrete idea as to what you’re for.
As one of the wiser men who ever walked the earth said – “If you can’t explain it simply, you don’t understand it well enough”.
Ande, Ande…it all goes out East? Mining did, but no longer contributes to the community?? Are you that uninformed or simply lying?
The Minnesota iron mines directly contribute $1.8 billion to the economy of Minnesota every year in the form of purchases, wages and benefits, taxes, and royalties. Additional business impact as a result of iron mining is responsible for more than another $1.6 billion in economic benefit—making the total economic impact $3.1 billion on the state and region’s economy.
Part of the direct impact to the economy includes taxes and royalties paid by the iron mining industry includes over $85 million going to education, over $50 million to the K-12 Trust Fund, $20 million to the University Trust Fund and $15 million directly to Range schools.
If the mines become unprofitable and shut down as some folks would like, all those dollars going to our schools drop to zero, yup, zero. Not to mention the $3.1 billion of total economic activity and thousands of jobs disappearing. What’s your proposal to replace those jobs?
The mines aren’t closing because of the people who want them to close. They’re closing because of global competition. I think that’s kind of been the take-home message from this blog for many years. I think Aaron has been trying to prepare the Range for a time when the mines, or a significant number of them, DO close, no matter what anybody does. That is not taking a position against the mines, or wanting them to close; it’s an attempt to face an unwelcome reality. I find Aaron’s commentary to be insightful and informative, despite certain people who endlessly pick, pick, pick at things and turn every discussion into an ideological proving ground, even as the ideologies themselves become less and less relevant in the global scheme of things. I think Kissa called this “moronism.” It seems like an apt label.
The Range is a mess John and you consider it’s “picking at things” or someone, when they’re simply asked to clarify their position/proposal? You certainly didn’t grow up on the Range I did.
And here we go, when the argument is lost, when you’ve got no solutions, when you feel trapped…resort to name calling. Junior High Communications 101.
That’s the problem with you, Ranger, you idiot–everything’s an argument. There was no argument in this post until you came in with your usual unproductive comments. Somebody brought up the idea of local people investing in a mine, and Aaron spent a few paragraphs discussing that idea–the pros and cons, the possible ramifications, and so on. Then you jump in and put a bunch of words in Aaron’s mouth, like this: “He seems to despise productivity, being competitive. I wonder why?” Where the f#$%! did you get that, except out of your own little pea-brain? It’s not so much that you’re a fool–God knows I’ve run into my share of those–it’s how you seem to think that you’re scoring all kinds of points in some kind of argument that clearly is only going on in your own head. If you want to talk productivity, just look at this blog. Aaron puts so much time and effort into maintaining it that you, with your supposed respect for hard work, should be singing its praises up and down the street. But no–no matter what the issue, you come oozing in on your trail of slime and try to belittle it–FOR NO REASON. All that endless questioning? You don’t want answers. When you get them, you just switch your focus a tiny bit and go on with the questioning. To me, you sound really insecure–but annoying, too, which is why I don’t mind calling you an imbecile from time to time.
Thank you for answering my original question Aaron. Sorry it caused a bit of a ruckus.
I guess I was wondering about it, because it seems like it could be a large-scale way for people around here to have a little more control in the process. I understand the global economy thing, but it just seems like if you have a bunch of internal shareholders (actual people who actually live in the area and work at the facility), people are more likely to ride out the ups and downs with a little more ingenuity than what we’re getting right now from the companies. Seems like it would just be a more stable environment for families.
Right now, we have one guy telling us, “I will close a mine that day.” “I” will close a mine? When hundreds of people, and an entire region’s economy can rest in the hands of one person who, at the end of the day doesn’t really care if people live or die around here, maybe it’s time for a major change. Maybe if he closes a mine, it’s time for someone to figure out how to buy the darn thing for real cheap and go from there. (Afterall, Cliffs is selling a lot of things and their stock is really low right now…)
Thanks again for original reply!
As soon as I hit the button, I realized the error in my previous post.
Of course there’s always been “one guy” or a “few guys” who control all the mining companies and who could care less about here. And no, that isn’t new. But what is new is that we’re no longer an area of recent immigrants who don’t speak the same language. We, the people who live here, are different. We’re an area with a 100+ year tradition of resilience, really hard work, and education. We even have a 4-year engineering college in Virginia.
What’s new is we now have a growing group of local kids and people with the right education and certifications to be a “CEO Lourenco Goncalves” except to be a much better one with actual ties to the area.
Big talkers come and go. Bigger bosses than Goncalves have ruled the commerce of this region. The reason I stress economic diversification so much is because our efforts to invest in small businesses, innovation and quality of life in our communities will go so much further (and cost so much less) than trying to take over or influence the actions of mining companies. The latter is like fighting the wind or the waves with fists. Better to build a sturdier boat.
I totally agree with small business diversification, but I’m also starting to believe that it doesn’t have to be impossible to do something larger scale ourselves, either. I know that some people think if we continue to think about mining, nothing else happens, but I don’t see it as an either-or. Not everyone is going to want to be involved with mining, and that’s good, but there are a lot of people around here who still do want to work with this natural resource. I just bet if we got a few kids from that engineering college some actual money, they could have an idea and the know-how to make it happen better than we’ve ever seen.
I never said it was either-or, but I do think that the region lacks the hundreds of millions of dollars needed to be a player in the shrinking marketplace of iron ore and steel. What money, resources and time we have should be spent on diversification because *we already have* a mining economy. We need to invest in a parallel economy now because no one else will. If there’s money to be made in mining, you can bet Cliffs, ArcelorMittal or the lot of them will do so. When they do, they’ll hire. That’s great. But we don’t control that. That’s what I’m trying to say.
Amy, The frustrations you have been posting have been being experienced all around the country in all different industries. Down here in Kentucky different industries, but the exact same problem. It has nothing to do with who runs the company or whether it is run by a publicly traded company or a local co-op who may ( but most certainly probably not) be run at a loss. It is flat out our trade deals and the way in which our politicians have sold us out to enrich the top 1% who are playing a game of global arbitrage. In this particular industry, certainly China slowing down and their state run mills deciding NOT to idle plants and in turn to dump Steel all over the world (and operate at a loss, kind of what you are suggesting) that is causing the problem. But in other cases, it’s a labor arbitrage. Blame “Free Trade” on all of this, it’s enriched the 1% and caused divorce, joblessness, hatch key kids, and massive frustration amongst the average worker for decades. Go TRUMP.
My goodness John, just ’cause someone isn’t willing to sing all verses of Kumbaya, you fire off tear gas in the blog. It’s understandable though considering the strong Southern Europe heritage on the Range. A lot of my friends are Serb. Gotta go get my gas mask. OK, now what solution did you just offer?
I’m on board Amy..!
Ok, all together now, verse two….”Someone’s cryin” Lord, Kumbaya….”
It doesn’t matter what AB or anyone else writes, R47 doesn’t really read any of it. His sole intention is to be as disruptive and annoying as possible for his own amusement. My guess is that he is bored out of his skull, craving attention and has nothing more productive to do with his time.
Amy, there are options, mines have been purchased by ESOP(employee stock option Plan), example, white pine in the UP of Michigan. I don’t remember all the facts and would have researched if as Aaron always says, if only I had better internet. It would change the dynamics of “corporate paternalism.”
“I just bet if we got a few kids from that engineering college some actual money, they could have an idea and the know-how to make it happen better than we’ve ever seen” – Amy
This is the only specific idea I’ve seen posted Amy. Take the next step, make something happen. Set up a meeting with a few kids from the engineering college, I’d suggest including Ron Ulseth as well. Let me know when and where the meeting is, I’ll attend with you.
Marty..If lack of internet is keeping you for doing the research needed to move on your idea, sitting on your butt waiting for fiber optic to worm it’s way into your home isn’t the way to inspire others to join your cause. Show some passion! Drive to Starbucks where the internet is free and make a few clicks to research & advance your idea…geez!
It is interesting and reflective of the status quo that everybody assumes that the current free trade regime is unalterable. We can even speculate about the possibility of publicly held companies. But we can’t conceive of tariffs on foreign steel. This is one issue where the Clintons, the Bushes and Obama are singing in unison. Why is altering the current free trade regime so utterly unimaginable?
Laudato si… David