Bankruptcy petition mires Iron Range mine project

ERP Iron Ore now controls the former Magnetation property, a scram mining and value added iron ore mining and processing company based in Northern Minnesota. (PHOTO: Magnetation)

Creditors filed a petition last week to force Tom Clarke’s ERP Iron Ore into Chapter 7 bankruptcy. Meanwhile, Minnesota Power shut off electricity to the former Magnetation property.

Clarke told the Duluth News Tribune that ERP would pay back most creditors this week and work out a solution to the impasse with Minnesota Power. ERP owes MP more than $4 million. Clarke argues that the other debt mostly stems from residual Magnetation liabilities.

Nevertheless, the episode reminds many on the Mesabi Iron Range of the slowly unfolding fate of ERP’s predecessor, Magnetation. Further, Clarke’s role in the re-opening of the incomplete mine at the former Butler Taconite property now begs the question: is any of this going to work?

Technically, ERP is only a partner at the former Essar Steel project, ostensibly operated by Chippewa Capital Partners. But the ERP and Chippewa operations were at least partially merged, with Clarke’s ERP Iron Ore managing both idled mine sites.

Like Magnetation and Essar before, Tom Clarke has spoken with confidence about the future. But like those bankrupt companies, relatively little is changing on the ground. I live near the Essar site. I’ve seen some large cranes and activity at the Essar site, but no major changes to the appearance of the incomplete plant structure.

Ditto at the Magnetation sites. In fact, I’ve talked to former Magnetation employees. They say the condition of Plant 4 at the end of its run was very poor. It’s hard to imagine it coming back online without a massive infusion of capital.

That’s where this always ends up. You can control the property. You can even pay some of the debts. But do you have the money to make the mining happen? Seems like that’s the hard part.

This petition by creditors is partly just an effort to get paid. But it also seeks to spur movement. If Clarke’s ERP or Chippewa Capital Partners can’t reopen the western Mesabi Iron Range, perhaps someone else could.

Meantime, iron ore continues to enjoy a small boom. The central and eastern Iron Range mines are running full tilt. There is reasonable fear that by the time Clarke’s companies figure things out, iron ore prices and demand could again recede.

That, too, happened to Clarke’s predecessors. It’s the repetition in these stories that becomes most frustrating.


Comments

  1. Until Goncalves quits meddling into this project, it is going to be extremely hard to get things done in time, which is exactly what Cliffs wants…they are the devil/mafia in the details….make it so that they are so busy with “court” details that they don’t have time to meet their deadlines…and then sweep in and steal it out from underneath them, so that they can continue to hold the Iron Range hostage with their monopoly.

  2. Karin, I understand your frustration with Cliffs, but to say that Cliffs is doing anything devilish/mafia-like is more than a bit under-handed. Cliffs has stopped is global adventurism and is refocusing its efforts on making a strong U.S. company once again. They are investing in new developments with U>S. held cash, not foreign investor credit like Clarke, Essar, and Butler before them, and if that means Cliffs should try to thwart a competitor through legal means, then they will do so, it’s a free country. Cliffs paid cash to Glacier Park Iron Ore properties for their land once it came out of the Ch. 11 proceedings last winter. That ore body, though Cliffs may not necessarily use it for DRI production at the Butler site, will still prolong the life expectancy of a mine they currently profitably operate (Kee-Tac). It was only after this land purchase that Chippewa (i.e. Tom Clarke) paid up to buy the other half of the land, which Cliffs was also trying to buy with cash and claims was prevented from counter-offering. The Butler project is indeed ambitious but it’s end product (DRI) is not as easily shipped and may present an economic impossibility to turn a profit unless the market is peaking, which it can’t do forever. I would like to see another plant on the Range, but the exact type of plant and the product that is created and shipped needs to be determined by market forces so it can be sustainable, not by hopes and dreams of the surrounding community.

    • Ranger47 says:

      Well stated Derek..

      • independant says:

        Actually lacking significant details… Most conversations about this project seem to consist of people without any direct knowledge repeating what they were told by someone else. Things will play out soon enough.

    • Grey Camp says:

      Derek – Cliffs doesn’t have anything to do with Kee-Tac. They operate the next mine east in Hibb-Tac, but only own a small percentage of it. Investing in this land was at least 95% about meddling to try and prevent their competition from entering the market and/or buying this project for cheap.

      • Thanks for the correction, meant Hibb-Tac. I have no problem with a company trying to compete with another (Clarke trying to compete against Cliffs’ market share dominance), but in that vein then Cliffs should be allowed to buy future iron ore land their competitor already had the opportunity to purchase but failed to do so. It’s entirely Glacier Park Iron Ore’s prerogative to sell to whoever has the cash they say they do. Tom Clarke also owes Cliffs $50M for a coal mine that Clarke’s companies never paid for, an asset that Cliffs sold in an effort to avoid bankruptcy, so yeah Cliffs might be a bit irritated by a guy (Clarke) who doesn’t pay his bills and is doing his own meddling in Cliffs’ business.

        • independant says:

          According to what I can find digging into the matter, ERP didn’t agree to pay anything for the Cliffs coal mines they were shutting down but instead the agreement was that they would assume Cliffs debt liabilities of about $268 million.

  3. Samantha says:

    This is a well written article. Truth be told, you need to look at the facts as they have been released. First, ERP was going to sell 4.5 million tons of pellets to the Chinese and produce DRI with the remaining tons according to a news article on December 22nd. Then ERP said they were not going to do HBI, but rather they were going to produce Pig Iron, and executed an agreement with Republic Steel. A few days ago, they announce they have sold 7 million tons to a European Consortium. Try to find the name of this European Consortium because it is no evident when searching on the Internet. Makes one wonder if it is true or not. (As a side note, a consortium on large buyers and sellers that act as one agent would be illegal in most countries). Furthermore, what lake port will be used by ERP? Most of the ports are being used and there does not seem to be a port capable of holding winter inventory that would be available. Also, moving 7 million tons across the Great Lakes will be an impossible logistics challenge. Due to the constraints of the Welland Canal, smaller vessels must be used. It has yet to be announced how the logistics would be accomplished to get these pellets to an ocean port. What it appears is ERP does not have a well thought out business model. They went from HBI to Pig Iron to just a pellet producer. It appears Cliffs is trying to stop this and keep competition out because they know what will come next…ERP will announce they can not ship the entire 7 million tons to the export market, and will focus pellet sales to the USA market. This will result in a zero sum game, where some pellet producer on the range will win and one will lose, which will result in zero job growth for the area. Just listen to the facts and draw you own conclusions, but the fact is ERP has changed their business model too many times not to be looked at with some skepticism.

    • independent says:

      ERP has said they would produce pellets and value added iron products utilizing multiple facilities. It would not be wise to tip their hand with abondant details too early with competitors attempting to interfere at every turn. Let’s see what the details look like when we get to the deadline at the end of June before trying as hard as we can to chase away $1 billion dollars of capital investment into our region.

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