West Side Story: the high stakes Mesabi mining show

The war of words escalates between Cleveland Cliffs and its rival for the iron ore properties of the former Butler Taconite near Nashwauk. Cliffs CEO Lourenco Goncalves called his competition “Chewbacca” in a recent earnings call, referring to Chippewa Capital Partners and its billionaire backer Tom Clarke. In Star Wars parlance, “the fate of the galaxy hangs in the balance.”

A proposed new mine near the western Mesabi Iron Range town of Nashwauk has proven to be a challenge to explain. Every time I go to write one piece, something new pops up, changing the story. I don’t even know what to call it. This thing is a folk story now.

So let’s start from the beginning.

This is partly a long tale of economic hopes dashed the way Lucy pulls out the football from Charlie Brown. And this is partly a high stakes conflict between an established mining company and a new upstart. But last week, when Cleveland Cliffs CEO Lourenco Goncalves called his competition “Chewbacca” on an earnings call, days after his company was accused of trespassing on snowmobiles, we got a new angle.

This story is kind of weird.

Weird, but very important.

Three laborers stand atop the last shipment of iron ore from Butler Taconite. By tradition, workers place a broom in the final shipment of ore from a mine. A tree is placed in the first load of ore from a new mine. (Iron Range Research Center archives).

There is no lack of symbolism here. When Butler Taconite closed in 1985 it signaled one of the worst contractions in our region’s mining economy. Thousands of workers lost jobs that never came back. When the mines recovered, they did so with efficient new systems that employ far fewer people. Then-Gov. Rudy Perpich, Minnesota’s only Iron Range governor to date, told the papers that the Range “will never, never, never be the same.” And he was right.

But just a few years later ideas began to percolate. The steel industry was just beginning its transition toward electric arc furnaces, smaller machines that produce custom batches of steel using higher grade ores and scrap. All of the Iron Range taconite plants produced ore for blast furnaces, the titanic tools of 20th Century vertical integration. Even in the mid 1990s, industry watchers knew the Iron Range would one day need to produce new iron ore products to process Mesabi iron into modern steel.

But there was certainly no hurry. Though companies no longer built new blast furnaces, the old ones would run for decades. They’re still running. No one knows when that will ever change. So most taconite plants forged ahead (literally) with traditional taconite, a lower grade iron product specially designed for blast furnaces.

Nevertheless, a handful of developers thought that the old Butler site might still have some life. The rich ore left in the ground could be processed into not just taconite, but something called direct-reduced iron, a higher grade product that feeds electric arc furnaces. Perhaps this could even one day become the state’s first facility to turn Mesabi ore into steel right on the same site! Dare we say it, Ford pickups rolling off the line and right onto Howard Street in downtown Hibbing?

This was a prime subject of local speculation through the late 1990s and early 2000s. Many civic organizations and city councils were bombarded by very earnest, very busy Power Point slides. For a region still dominated by mining culture and mining politics, this notion was like pure oxygen pumped into the casino.

Sunrise, sunset. Booms and busts. Plant idled and reopened across the Mesabi, but still Minnesota Iron and Steel gathered public support and permits. They needed money, though, something that fixed income seniors in old company houses can’t give. In 2007, the money, or at least the promise of money, came from the other side of the world.

The new crusher! Fresh paint. You never see that. (Aaron J. Brown)

Essar Steel, a young company that spends paper billions the way Cousin Jimmy burns through four-wheeler gas, bought the project, kit and caboodle. Finally, this globalism deal was gonna go *our* way. Essar hired engineers, staffed an office, and some money *did* come. Enough money that they started digging dirt and building plant structures. They even bought a crusher!

But then the money that had started to loosen up after the Great Recession started to slow down again. Or least that’s what they said. The money from India slowed to a trickle, then stopped. The project stopped right in the middle of progress. Hundreds of construction workers were idled. Their employers found their most recent bills unpaid, to the tune of millions of dollars.

Essar Steel Minnesota, the subsidiary, now found itself alone in an angry world. It tried to get more money out of its parent before breaking out on its own (backed by former Essar people) as Mesabi Metallics. Unfortunately for them, the cash-strapped company couldn’t raise enough capital. They went bankrupt in 2016.

Enter Cleveland Cliffs, the venerable mining company helmed by Goncalves. Cliffs runs several Minnesota mines, including Northshore and United Taconite, which it owns, and Hibbing Taconite, which it operates on behalf of several co-owners. Goncalves is one of the most colorful CEOs I’ve ever met — so colorful I’ve questioned his sanity in the past, to his chagrin — but he’s also proven an adept leader who correctly predicts trends in iron trading. He’s turned a struggling company into one that makes money.

During the bankruptcy, Goncalves offered the State of Minnesota — which installed infrastructure for the project and that owns the mineral leases on site — to take over. Cliffs wants to build new iron plants, these ones configured for the electric arc furnace. Iron nugget plants. They’ll be smaller, but would be logically located in Minnesota. The first one could be located right here.

But Cliffs offered a low bid for the property, an amount Goncalves said amounted to the “real value” of a substandard structure left out in the elements.

Meantime, Mesabi Metallics tried to use some new money to buy its way out of bankruptcy. And then, stunningly, a new investor — a former health care CEO Tom Clarke and his Chippewa Capital Partners (aka Chewbacca) — came in with a surprisingly high bid. The bankruptcy court handed Mesabi Metallics to Clarke.

Goncalves responded by announcing the first iron nugget plant in Toledo, Ohio. But he still told Minnesota he wanted to build one in Nashwauk, too.

This was just last year. Then things get crazier. A company no one’s ever heard of — Glacier Park Iron Ore Properties — announced it would stop leasing its property to Mesabi Metallics. This is half the property of the old Essar site, a huge chunk of rich iron ore. Not only that, it was selling that property to Cleveland Cliffs.

** ASIDE: Glacier Park Iron Ore Properties spun off the old Great Northern Iron Ore Trust originally formed by James J. Hill, the man who brought the railroad and, thus, relevance to the state of Minnesota. That trust was controlled by the living heirs of the same men who paid to prospect the iron ore 120 years ago, people who have extracted unfathomable wealth from the labor of six generations of Iron Range workers.

Wake up! We’re almost to present day. Here comes the exciting part.

So Cliffs now owns a big stripe of land in the middle of old Butler. A couple weeks ago Cliffs posted signs on their new property and Mesabi Metallics accused them using snowmobiles to trespass in order to do so. Cliffs denies that. It’s like a dumb comedy movie where two rival inmates find themselves shackled together during an escape. “I’m getting out of here.” “No I’M getting out of here.” (they trip) Only in this movie it’s more likely that one of them will kill the other with a stone. I guess that removes it from the comedy genre.

Mesabi Metallics, backed by Tom Clarke’s Chippewa Capital Partners, holds few options here. They can try to finish the incomplete taconite plant on their property and mine the land they still control. They say they will do that, and that the money is there. This could work, but seems unlikely to sit well with investors capable of reading maps. Or they can try to operate a mine with Cleveland Cliffs, something Cliffs has ruled out entirely so far. Beyond that they may issue press releases about trespassing but little else.

Cliffs has more options, including the option to do nothing for a long period of time if they feel like it. Goncalves says they can mine the new land they acquired without the remaining property controlled by Mesabi Metallics. I suppose they could ship it by rail to Hibbing Taconite, or they could even truck it if costs allowed. Perhaps they build their iron nugget plant anyway.

“Despite the fact that the State of Minnesota has backed the wrong horse for the last several years we still believe that we are best positioned to bring new growth and market diversification to Minnesota,” said Goncalves during his company’s recent earnings call. “As evidence of that, we are proud to present our real projects Mustang at United, DR-grade pellets at Northshore, and HBI in Toledo, Ohio. Cleveland Cliffs still stands ready to implement all plans in Minnesota, but will not wait forever.”

Cliffs is playing hardball. Their hope, most likely, is that Clarke gets gun shy about the big new plant and sell it, focusing instead on his scram operations to the west. (Clarke bought the old Magnetation plant 4 under his ERP Iron Ore banner). Maybe Cliffs can buy it out. Heck, Goncalves could scrap that old Essar plant and melt it into some nuggets. Who knows!

Will the site of the Range’s greatest modern defeat, the closure of Butler, see the region’s greatest modern victory in the establishment of a new generation of mining technology? Who will do it, Clarke or Goncalves? Unless Goncalves is bluffing, it would appear he has the upper hand.

In any event, the outcome today is in some ways as uncertain as it was twenty years ago. Such is the drama of living and dying by the blade of a mining shovel. One thing is certain. The Mesabi Iron Range must find a way to launch value-added iron products like DRI if its iron industry is to survive long term.

And the Iron Range must diversify its economy so stories like this don’t control our destiny more than they already do.


  1. independant says:

    I just hope this high stakes game doesn’t result in the Iron Range loosing out on a potential two billion dollar capital investment if the site isn’t fully utilized.

  2. Thank you for this history lesson. It helps put things into perspective.

  3. Brent Elledge says:

    As an proud shareholder of CLF,I believe the Taxpayers of State of MN, would be well served , by selecting a company that has a proven track history of preforming. Cliffs is just that!

  4. I really enjoy your blog, keep up the good work! Lourenco Gonvalves certainly knows his mining (he does hold a Masters in Metallurgical Engineering after all) and he has proven to be a shrewd business man, and as they say you have to be at least a little crazy to be a genius. I think he wants to do right by Minnesota, but he will do right by the business first (as he should). I can see why he wants to put up a plant in MN (proximity to the ore will reduce transport costs of refinement before selling the product) but he will also get some benefits of a longer shipping season of the finished products in Toledo, and he can store the ore whenever he can get at it.

    Tom Clarke is equally, if not more, unusual than Goncalves and the fact that he is already a billionaire but wants to break into a whole new business model this late in his life, AND still is looking for outside financing to assist in development of the plant, gives me just as much concern as any foreign investor in the Iron Range.

  5. MN Born and Raised says:

    Whatever happens we sure could use those jobs…

Speak Your Mind