Pivotal week for Essar bankruptcy on western Mesabi Range

Construction at Essar Steel near Nashwauk, Minnesota, as seen May 2015. (Aaron J. Brown)

It’s a big week ahead for those following the bankruptcy of Essar Steel Minnesota near Nashwauk, Minnesota. In the next few days a bankruptcy court will rule on the project’s fate.

Essar is the proposed taconite plant at the site of the former Butler Taconite on the western Mesabi Iron Range. But calling it a taconite plant sells short this Iron Range dream factory.

The project also holds the potential of becoming the state’s first full scale direct-reduced iron producer. If realized, this would put the region in the business of making modern iron ore products. This goal would add decades of relevance to the region’s iron mining industry. Currently, taconite producers feed blast furnaces, technology that is being phased out of the steel industry.

We’ve been watching this story for a long time. In fact, the notion of reviving Butler Taconite, dormant since 1985, as a modern iron producer has existed since the late 1990s. Initial proposals sought to make steel on the Iron Range. In 2007, Essar Steel acquired an earlier version of the project, eventually downscaling it to a taconite plant. Ten years later, the former Essar Global subsidiary went bankrupt. The reorganized Mesabi Metallics seeks to reopen the project. Two other bidders would like a chance to buy out the project, however: a new player, Chippewa Capital Partners, and an old one, Cliffs Natural Resources.

Of the three bidders, none offer a “perfect” solution to what has been a flawed project. Half a billion dollars of steel and incomplete plant works rests in the mud north of Nashwauk.

Ron Brochu of Business North lays out an excellent picture of the Essar Steel Minnesota bankruptcy case and its potential implications.

I’d recommend reading Brochu’s piece first, but here’s my take on the three bidders who could emerge successful this week:

  • Mesabi Metallics, the incumbent, offers the most specific promises to pay back local contractors, imperiled over Essar’s unpaid bills. However, it’s only a slightly reorganized version of the same company, with the same questions about financing and customers over the long run.
  • Cliffs Natural Resources offers the gravitas and iron producing acumen of the oldest mining company on the Iron Range. Cliffs says it will follow through with value added iron production in the first of several new direct reduced iron plants. The company also says it has the money and the will to act soon. However, it’s clear Cliffs wants to buy this project at a bargain. They only offered $75 million. It offers no assurances that the contractors bilked under previous ownership will ever be paid. That could doom some local contractors.
  • And Chippewa Capital Partners, which includes ERP Iron Ore, the new owners of Magnetation? They’re new. They offer something of a middle option at $250 million, though the company is completely unproven in Minnesota. Like Mesabi Metallics, they’d have to answer questions of financing and customers.

Do any of these options create a perfect outcome? No. It comes down to which ones you trust to finish the project and treat people the best. No matter how it goes, someone will lose. The most likely outcome, no matter the winning bidder, will be delay. My children, born at the time Essar took over the project, might be old enough to work there when the place finally opens.

In true Iron Range fashion, we hope for the best with a health dose of restrained optimism.

Comments

  1. Barely mentioned in what I’ve seen on this is that the case is in bankruptcy court in Delaware, notoriously a safe harbor for corporate misconduct. Those locals getting stiffed aren’t likely to be high on the court’s horizon. (Some years ago there was federal legislation introduced to require bankruptcies to be filed where the defaulters actually operated, to make access a little easier for non fat-cats. Need I say it didn’t fly?)

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