Cliffs seeks to buy Essar project, make value-added iron

Cartoon by Aaron J. Brown

Cartoon by Aaron J. Brown

Gov. Mark Dayton’s administration will not renew the mineral leases of the Essar Steel Minnesota project near Nashwauk. This comes to me from a source familiar with today’s private meeting between Essar Steel officials and the governor.

Instead, Dayton will announce a deal between the state and Cliffs Natural Resources that would allow Cliffs to buy the project from Essar.

Cliffs CEO Lourenco Goncalves will announce that his company will finish the plant at Nashwauk and produce 3.5 million tons of direct-reduced iron briquettes per year, within three years. Cliffs will also sign a collective bargaining agreement with the United Steelworkers ensuring that the mine will be staffed by 400-500 union workers.

Next week, Gov. Dayton and Goncalves will visit the Iron Range to explain more details about the changing project and the deal behind it.

This will remove Essar from its start-and-stop Nashwauk project that broke ground in 2007. Essar still owes millions to vendors and contractors for their equipment and labor. Unless Essar pays them back immediately, those vendors will have to pursue their money in what could become a bankruptcy case.

State officials have long criticized Essar for its delays and outright holdouts in repaying contractors on the project. It was a key factor in the decision not to renew the mineral leases.

Yesterday I wrote about what the end of Essar might mean. At the time, it wasn’t clear if Cliffs would make a play on the property sooner or later. This announcement dramatically accelerates Cliffs timeline. It also better explains how Cliffs plans to produce the value added ore products it has promised. 

It remains to be seen how this news will affect other iron mines on the Mesabi. At least at first, Cliffs-owned mines appear to be secure. We may well see further reorganization and consolidation, however, during the next downturn or in the event of a recession. 

Comments

  1. Mark Zimmerman says:

    That is great news for the most part except the contractors and partners who are owed money from Essar. Thanks for sharing.

  2. Independant says:

    This will very likely put multiple local companies out of business. There was an offer made by Essar to make partial payments to contractors and vendors in return for that 9 month extension. That would have been substantially more than they will end up getting in a bankruptcy situation and they would have had it this month instead of maybe fractions of a penny to the dollar a year from now.

    • You mean hold business and labor hostage for another nine months.

      • Independent says:

        Now contractors and vendors who were involved will get nothing and you can start watching multiple local businesses start closing their doors soon. Did you even read what I wrote? Our governor is one hell of a negotiator, at least the nine month delay would have come with millions up front to make a dent in what is owed to our friends and neighbors.

        • Taylor Johnson says:

          Why would nine months change anything it’s been years since essay was squared up with their contractors. How much time do they need.

          • Taylor Johnson says:

            *essar

          • Independent says:

            At least the local contractors would get some of the millions owed to them before the nine month extension would have been granted, that was the offer. Now they will get nothing.

      • Mitch Orso says:

        Did you know the Essar also asked for extends on their loans from banks in India?? Read that simple fact. So if they woulda got the extension that we gave them a few times before. Who would they pay first. The contractors and vendors will now know that they will not be getting paid by them. Inside of hoping and dreaming that they will get paid by them. As they have been hoping for awhile now. It won’t make the contractors and vendors go out of business. Because most contractors and vendors have been on the range for years. And I bet they didn’t put all their eggs in that Essar basket!

  3. Mike broker says:

    Are you kidding me the whole threat was on money owed now let all contractors suffer sounds like a lot of back room crap

    • Independent says:

      You know it. On the same day the governor announces pulling leases Cliffs announces a full blown plan for a 3.5 MTY plant on the site. No favoritism or back room deals there at all! At least the huge corporate guys are listened to by our elected officials because they sure don’t give a shit about our local businesses who will be wiped out.

  4. steve baker says:

    I hate to say “same old, same old”, but I’ve been hearing the story about direct reduction all my life. (And I’m collecting Social Security now!)

    This appears to be good news in any case, and I applaud Cliffs new management]s agressive tact , but to keep things in perspective, Cliffs stock (CLF) is trading around $6.10-6.25 today. That’s around the high for the year, but quite a bit short of five years ago when it was nearly $100.00/share.

  5. John Wangensteen says:

    Whoever attempts direct reduction, must face the competitive DISadvantage of transportation. Steel production is based near waterways for a reason. Good luck with addressing those laws of economics

    • Time to resurrect Jeno Paulucci’s idea to build a barge canal from Duluth to Eveleth? This is a good point, though. The economics of steel have placed the Rust Belt precisely where it is for a reason — water, coal, manganese and iron are all relatively close. To make DRI or steel here would have to cut costs over traditional production means somehow.

  6. Regarding the above discussion about local contractors. Yes, Essar owes them money. Yes, Essar declared Chapter 11 today. It is possible that the contractors who are owed money will be drug through the bankruptcy process. On the other hand, Cliffs hasn’t *announced* its plans yet, except that I know from Cliffs’ previous statements and from my source that they want to add the taconite and iron production capacity I describe and that the Essar project is now their targeted plan. It’s possible that there is a multi-step process to make the contractors whole during the sale. It’s possible the contractors get screwed. That part is not yet determined. We’ll find out a little more next week about that. My post today was about the outline of a forming plan to see Cliffs take over the Essar Steel MN project. I’m confident of where this is going, though some of these details are yet to be firmed up.

  7. Jim Schullo says:

    Welcome home Cliffs. During the 50’s Clevland Cliffs was a big part of the Nashwauk boom era. They had their shops one block off First street and ran locomotives out of the Hawkens Mine. When the Taconite Amendment was passed Cliffs swapped land with M.A. Hanna and moved their operations to Michigan. They built 2 Taconite Plants in Michigan, the Empire and the Tilden and Hanna built 2 Taconite Plants in Minnesota, the Butler and National Steel. Last year the Empire Mine in Marquette Michigan ran out of ore and had to be closed. Sooooo welcome home Cliffs.

    • Cliffs has been a major part of Michigan for 150 plus years back when it was The Cleveland Iron Mining Company founded in 1847 and chartered as a company by Michigan in 1850 and then later joining with Cliffs Mining Company around 1890 to become Cleveland-Cliffs. The Empire did not close last year but due to this August and is not out of ore as you have stated. I wouldn’t say welcome home but maybe welcome back.

  8. Essar had a reputation since they started here of being slow pay, no pay, don’t pay the last invoice, in general being a very poor credit risk and very unethical businessmen. Good riddins to them. At least Cliffs, if they take over the project, eventually pays their bills.

    Essar probably wasn’t going to have any more money in 9 months than they have now and it would have just drug things out further. For the life of me I don’t know why anyone extended Essar credit in the first place.

    Even if Cliffs eventually takes over the project there is a long way to go to completion and there is still the risk of displacing blast furnace pellets from somewhere else in what has become a zero sum game. If Cliffs does manage to get a DRI plant started there is some hope, though right now those prices are down too. At least they will be marketing to the part of the steel industry that is growing.

    Having a completed Cliffs plant operating is a far better deal for the area in the long run than having an Essar plant perennially half built. Better for the workers, better for local businesses, better for the state and area. Especially if Cliffs expands into a market currently not served.

    Nucor recently signed a deal with a Japanese company to partner in a car parts stamping plant in Mexico. I’m guessing they mainly did this to “learn the business” of how to supply steel sheet for car bodies to the automobile industry, an announced goal for their company.

    This is currently the last major market for blast furnace produced steel and, incidentally, iron ore pellets. If Nucor manages to crack this market, and if they do it others will follow, it’s game over for iron mining on the Range as we know it and we better hope we are sufficiently “rehabilitated” to survive.

    Will Nucor be successful in this? I’m betting yes. They have eventually been successful in every other part of the steel market they’ve ventured into.

    Mining towns that loose their mines generally do not fare well. Not every place can be an Ely. Hibbing is especially poorly placed with no major highway (169 is just a commuting road), other basic industry, or a cluster of tourist attractions.

    I hope I’m wrong. We’ll see where the trends have gone in 10 years.

  9. John Ramos says:

    Fuck these assholes who object to profanity, is what I always say. If a certain arrangement of letters is enough to kill an argument, then people aren’t even focused on the argument.

  10. John Ramos says:

    I realize I responded to the wrong post, but as far as I can tell, my objection fits in just fine here.

  11. Essar now says they had a deal almost in place to sell an 80% ownership interest in the project to an investment firm for $280 million. That smacks of desperation for cash and means they only value the entire project at $350 million at this stage. Had that advanced they would maybe have paid off some of their creditors, maybe not, but not had anywhere near enough cash available to finish the project.

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