Mesabi Metallics sues former parent Essar Global

Construction at Essar Steel Minnesota near Nashwauk on Oct. 8, 2015. (Aaron J. Brown)

Essar Steel Minnesota, now doing business as Mesabi Metallics, is suing former parent company India-based Essar Global over mismanagement. WDIO and other media outlets reported the news Thursday.

Mesabi Metallics seeks to emerge from bankruptcy and resume construction of a $1.6 billion taconite plant near Nashwauk, Minnesota. But according to their lawsuit, the project site is a mess and they say Essar is to blame.

This from WDIO:

The suit alleges breach of contract, fraudulent transfer, and breach of fiduciary duties.

The document said that Essar Global funneled money paid to them for the project, to wherever it was deemed necessary by those in control.

Of the $1.1 billion dollars paid to Essar affiliates, the suit says that almost half (approximately $500 million) was not even used on the project, although it was needed for engineering, procurement, and construction.

The suit says that these moves were part of a larger effort to shore up the finances of Essar Global.

This jibes with what I hear from people who have worked for Essar Steel Minnesota at different times. They’d build as much as they could and then wait for promised cash and supplies that never came. Hundreds of laborers would be working one day, and standing around the next.

The story also confirms what many around the Range have long been saying, that the Indian steel Essar insisted on using was of inferior quality. This will require significant reconstruction of some structures. Meanwhile, old steel is laying around in the elements — some of it for years now.

Mesabi Metallics estimates it would need $800 million to complete the project. It still owes $60 million to contractors left unpaid.

The company seeks $1 billion in damages.

This isn’t the only suit against Essar Global. Indian banks are also suing the company for misuse of investments in projects like the one in Nashwauk.

Mesabi Metallics has stated it has investments and is preparing to begin work again. That’s for the bankruptcy court to decide. However, if this lawsuit is part of the equation, the project’s future might hinge on not one but two court rulings. As you might imagine, this could take some time.

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