On Tuesday, a federal bankruptcy judge denied the state of Minnesota’s request to strip Essar Steel Minnesota of mineral leases. This move breathes new life into Essar, though perhaps only temporarily. It’s a significant setback for hopes that Cliffs Natural Resources could quickly take over the project.
The beleaguered Essar, stuck with a half complete taconite plant near Nashwauk, celebrated the judge’s ruling. The company continues to reorganize and seek financing. Essar owes $75 million to both local and major international contractors.
The state wants to give the leases to a more solvent mining company, most likely Cliffs Natural Resources. Cliffs detailed a plan to build a value added iron concentrate plant at the Nashwauk mine last summer.
Ultimately, the wishes of the unpaid contractors held sway in the court. Essar, led by new CEO Matthew Stock, successfully convinced the court that it had a plan to raise funds to restart construction.
For the people of the Iron Range, this has the feeling of being more of the same with Essar Steel.
John Myers detailed the court’s finding in his Tuesday story in the Duluth News Tribune:
[Gov. Mark] Dayton, tired of the project’s many delays and failed promises from Essar management, wanted the state leases back now to hand them over to Cliffs Natural Resources, which has promised to use the ore at the site to make direct-reduced iron products.
But other than the state and Cliffs, virtually all other parties are backing SPL, including dozens of Minnesota contractors and vendors that haven’t been paid by Essar and are hoping recoup some of their money.
Attorneys for those unsecured creditors in the bankruptcy, in documents filed in court last week, argued that the leases should stay with the court to give SPL enough time to form a viable plan for the Nashwauk project. Those attorneys also said the leases shouldn’t go back to Minnesota until “there can be an opportunity to learn whether there was any collusion or misconduct between the State of Minnesota and Cliffs that might suggest the DNR filed (its request for the leases) with unclean hands.”
Last summer, state officials and Cliffs Natural Resources leaders held a major community event at the Nashwauk Township Hall asking for support in the coming bankruptcy process. It was clear then that contractors did not trust that a new company would pay them for the old company’s debts.
Some criticized that event as a dog-and-pony show. Now it appears that the event’s brazen rhetoric about getting “everyone” on the Iron Range (including me, mentioned by name!) to support Cliffs in this bankruptcy case is being investigated as collusion.
Despite the favorable ruling, Essar Steel Minnesota will only keep the leases if its new financiers can explain how they plan to finish the project. Lacking that, the bankruptcy court could end up stripping the mineral leases anyway. In that event, Cliffs would remain the presumptive successor.
Barring new evidence, Cliffs is the most likely company to successfully complete this project. Yet their efforts to take over the Essar site quickly seem stuck in the same mud as the unfinished construction at the old Butler Taconite site north of Nashwauk.
Once again, Essar Steel Minnesota gets another turn at the table.