Another chance for western Mesabi mine

A truck hauls fill at the Essar Minnesota site in 2015. The incomplete iron ore mine now belongs to Chippewa Capital Partners, headed by billionaire Tom Clarke, a newcomer to Mesabi Iron Range mining. (PHOTO: Aaron J. Brown)

Billionaire Tom Clarke and his Chippewa Capital Partners will have a chance to finish the $2 billion Mesabi Metallics iron mine and pig iron plant at the former Butler Taconite plant in Nashwauk.

On Wednesday, Gov. Mark Dayton announced that the state will restore mineral leases withheld from the project after the bankruptcy of its former owners. Clarke presented a report showing he has $900 million in private financing, and is ready to resume work on the incomplete plant.

It’s not yet clear where the financing comes from, or where Clarke plans to sell the pig iron he proposes to make on the Nashwauk site.

Meantime, the Mesabi Daily News reports that Clarke’s other company — ERP Iron Ore — appears to be headed for forced bankruptcy.

ERP acquired the former assets of the bankrupt scram mining company Magnetation early last year. They soon discovered that Magnetation’s Indiana processing plant and Iron Range mine plants needed far more repairs than expected.

Clarke told the Mesabi Daily News that his ERP project and Mesabi Metallics were separate ventures. However, he also said the setbacks at ERP affected financing at Mesabi Metallics.

Now, as he announces financing and renewed mineral leases for Mesabi Metallics, we see ERP drift toward bankruptcy. It’s all part of the unfolding drama attached to this particular stretch of iron-rich land on the western Mesabi Range.

The Butler Taconite plant closed in 1985 amid a regional depression. Insiders blamed steel industry failures, rather than the quality of the ore. For two decades, various proposals to mine iron ore and process it into steel raised the hopes of the surrounding population.

Essar Steel Minnesota, then a division of Indian steelmaker Essar Global, broke ground on the project in 2007. After struggling to finance the project for years, the project revved up in 2012, stopped, and then started again in 2015. Essar Minnesota spun off on its own as Mesabi Metallics, then went bankrupt. It then fell to Clarke and other investors in bankruptcy proceedings.

Throughout the process, Cleveland-Cliffs has sought ownership of the project, mostly for the ore below the ground. Cliffs is one of the major mining players on the Mesabi, and operator of the nearby Hibbing Taconite mine. The company also seeks new locations for value-added iron production. It broke ground on its first HBI plant in Toledo, Ohio.

Cliffs had the low bid in bankruptcy court, but nevertheless managed to snatch up significant parts of the mineral land once attached to the Essar project. That’s led to a corporate showdown, complete with litigation and Star Wars references, that continues unabated.

The chief meaning of this week’s news is that Tom Clarke remains a player on the former Butler site. But he won’t shake doubts until meaningful construction happens. On that, we wait and see.


Comments

  1. Bruce Momon-Rogers says:

    Aaron, something about the entire sequence of events that culminated in this decision seems rather odd. I personally believe that Cliff’s RICO based lawsuit may lead way up the political food chain before it’s finished. I’ve never seen an issue or opportunity where the state and local governments have provided so many consessions in favor of a bidder…something just doesn’t seem right here. Hope I’m wrong, the citizens, workers and contractors on the Range need a break.

  2. Zachary says:

    Now erp iron ore has its state leases revoked a day after they grant them the leases for Nashwauk what is going on with this guy?

  3. The biggest problem is that the financing is only $900M, when it was believed that to receive the permits back, they had to have financing to “complete the project” which wouldn’t that mean the pig iron plant too? But if it only meant a Taconite processing facility, fine, I guess that can be completed for $900M, but how, HOW, is this processed taconite going to get shipped and sold? It’s only going to be by rail at this point, this facility did not include ore docks as part of the asset, so it’s massively cost prohibitive for this taconite venture to compete against Cliffs. Heck, some of this taconite might need to be “trans-shipped” through Cliffs’ facilities (or US Steel’s or Arcelor-Mittal’s) to be sold to cost-sustainable clients in the Great Lakes. The best method forward for the State would have been to revoke the leases and then have them awarded to whoever would pay the contractors for the work they did, and nothing more, which is essentially what Cliffs’ low bid was. Instead the State wanted to look like it was looking out for the Union workers and creating a new employment stream. The State has a long track record of hopeful ventures that don’t create as many new jobs, excluding initial construction, as anticipated. There is scant evidence that the pig iron project financing (an additional $1.1B) will be completed. It’s also awfully presumptive for the State to force the bidder to complete the pig iron plant, what if the market dynamics aren’t economical? Anyone for this pig iron plant also has to be for the tariffs and hope they don’t crash the economy, because otherwise this venture is borrowing from Peter (Cliffs/US Steel/Arcelor-Mittal’s taconite market share) to pay Paul (Mesabi Metallics’ new market share).

    Good luck Tom Clarke, this saga will resume in 2019-2020 when the pig iron plant funding must be acquired and construction has to begin.

    • independant says:

      You are incorrect. Cliffs low bid was not going to pay the contractors for the work they did. That is not how things work in a bankruptcy, there wasn’t enough money to make that happen with their bid. Furthermore the Cliffs CEO told everyone in person when he met with venders, contractors and state officials that Cliffs would not commit to build any kind of facility on that site. With the US starting up mothballed steel plants and iron unit sources like Cliff’s Empire mine, all of the Magnetation plants and the Mesabi Nugget facility no longer producing you don’t think companies are actively looking for additional domestic sources of iron?

      • While I appreciate your correction regarding Cliffs’ bid, I didn’t imply that Cliffs said anything about a plant. My point was, why is the State requiring a pig iron plant to be part of the answer? That’s been the line the State has used to support Clarke’s bid: Clarke was the highest bid, paid the most vendors, and has the plan to complete the plant. Obviously the State ISN’T requiring it because Clarke’s Essar financing is not enough to build the pig iron plant, it’s only enough to build another taconite processing facility. Well, okay, that’s fine, but then tell me how economical it really is to have another taconite facility when the existing facilities don’t even run at 100% capacity…?

        So my larger point was, maybe the “promise” of a pig iron facility isn’t going to be reality because it’s possible the market forces aren’t there. There were only 2 bidders, Cliffs and Clarke (i.e. Chippewa Capital Partners, i.e. Riverdale Commodities, S.A., i.e. Essar’s former managers sans the Ruia family). Essar messed up this whole thing and the State is going to allow them to do it again. Cliffs might have built a plant there, but probably not, because it’s more economical for them to have HBI nearby their current clients and potential EAF clients.

        The State is doing a never-ending dance with people unable to deliver, even when prices are high, while giving a cold shoulder to an employer that’s been here a very long time and is even making the effort to remain in business through an otherwise turbulent time. I don’t get what the State thinks it’s accomplishing?

        • For what it’s worth, I think the state is falling for the same sunk-cost fallacy that has plagued this project from the beginning. It was supposed to be a steel plant. Heck, they were supposed to be making Ford trucks at a plant next door. That’s what the “M.I.S” Power Point slideshow said in 2001. And when Essar came in 2007, they fed the myth. It was going to modernize our industry. Only it didn’t. They didn’t. And now we watch as the HBI plants get built elsewhere. It’s a damn tragedy.

          I say again, we don’t figure out how to feed EAF from the Range, we’re hosed. And it looks like we’ll be counting on Cliffs to get us there. But it’s tick-tock until the market drops again. Tick tock.

          • Thanks for the background Aaron, I’m too young to have known any of that going back to ’01, though in a similar vein I remember seeing a Vikings game program flyer/magazine in 2000 with an architectural rendering of a big glass wall behind the endzone with the Minneapolis skyline in view. The same thinking (sunk-cost) is what led to the downtown stadium versus the Arden Hills location more so than any other factor. The final product 16 years later was the exact same image of a big glass facade facing the skyline, we tend to latch on to ideas and never let them go, and the State is willing to spend $1B+ to make it so…

            I agree with you regarding EAF feedstock, it’s the Great Lakes industrial base’s only hope.

  4. independant says:

    ERP Iron Ore = The old Magnetation
    Mesabi Metallics = The old Essar

    Tom Clark as a part of two separate groups purchased these two separate entities in two separate bankruptcies. The old Magnetation assets have been discovered to carry major environmental baggage as it sounds like the air pollution control systems and equipment in Reynolds Indiana was never working correctly and will need tens of millions of dollars in repairs and the ore reserves at the Minnesota sites were probably not what was advertised when he made the purchase. To me it appears Mr. Clarke is making a business decision to liquidate the ERP Iron Ore assests of the old Magnetation and focus his efforts on Mesabi Metallics. Aaron explained this better than any of the other news stories I have read. The Mesabi Daily News couldn’t have wrote a more confusing story without any real information if they tried yesterday.

  5. Bruce Momon-Rogers says:

    Aaron given the chain of events since you wrote this article, I for one would be interested in your current assessment as to what is happening here. This story regarding these mineral leases, the apparent backing of Clarke by Essar, and the governor ‘s unwavering commitment to Clarke has more twists and turns than a mystery novel. Might be time for some serious investigative journalism…JMO.

    • You’re right Bruce, there should be an investigation, but the Twin Cities media will only lapdog the lame-duck governor through his remaining time in office. The other political party would perhaps call for it, but they have their own skeletons and they think they turn the state red so they don’t want too many stones overturned at this time. This is a real issue that affects real people.

      • Jerry B. says:

        Stay tuned to the MDN, folks. We’re still digging deep on this and finding new leads even as of this morning to follow up on. Its going to take time though, one outcome or the other, but I’m up to my ears in this one!

        • First time we’ve had a Mesabi Daily News editor comment here (that I know of). Careful, don’t make the place too classy! 🙂

          Nice coverage on this issue, Jerry. I got a nibble on the Ruia tip when I was out of town; couldn’t follow it. Glad you did.

        • Jerry, Thank you for your follow up. Let’s be honest here, this isn’t Watergate, but before it’s over I’ll bet there’s going to be a lot of compromised business dealings and surprising accusations…as they say: “just follow the money”!

  6. I could not agree with Bruce more. The backing of Clarke by Essar who royally screwed everyone in MN needs to be figured out and rectified by the state.

  7. Mike D. says:

    ….and the lies continue. Tom Clarke now falsely states he has an agreement to supply Hibbing with crude ore. Mr. Goncalves understandably responds by saying he will only speak to him in a court of law. All one has to do is look at his track record to know his promises mean nothing.

  8. This Clarke guy is a hoot. Mine and then ship by train his raw earth down to Indiana…then ship it out of the Great Lakes and then across the Atlantic Ocean?!?! Bahahaha!
    He has zero mining experience and in fact knew so little about it he didn’t know Indiana had pollution issues.
    This is the guy the state is putting in control of the future of the Iron Range? Rise up Rangers you’re being taken advantage of again! Write your papers! Call your politicians! Tell your friends!

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