Cliffs wins Nashwauk land case, deals blow to Mesabi Metallics

Lourenco Goncalves

To paraphrase “The Simpsons” Episode #222: Everything’s coming up Lourenco Goncalves.

It’s been a very good week for Goncalves and Cleveland-Cliffs.

The company declared strong earnings. Netting $165 million in the second quarter, Cliffs is selling iron ore pellets at $112 per ton. That’s a dramatic increase from the doldrums of 2015 and 2016. Industry experts praise Cliffs consolidation in the North American market. Stock watchers on the site Seeking Alpha are yelling “buy, buy, buy.”

Construction at Cliffs’ new $700 million hot briquetted iron (HBI) plant in Toledo is ahead of schedule. Soon the company will have a unique position in the American iron ore sector: selling traditional taconite pellets, varied flux pellets and value-added iron for electric arc furnaces.

Which brings us to the latest more local triumph. Yesterday afternoon, a judge ruled in Cliffs’ favor regarding the company’s purchase of land on the old Butler Taconite site near Nashwauk. Rival Mesabi Metallics, led by Tom Clarke’s Chippewa Capital Partners, had sought to nullify that deal.

Judge Brendan L. Shannon explained in his ruling that the root of the problem was Mesabi Metallics’ failure to execute its end of the plan last fall:

The Agreement plainly required Mesabi to go effective with the Plan by October 31, 2017 for the Leases to be assumed. It did not, and its failure to do so is fatal to its ability to assume the Leases. In this case, the Court will not permit the parties to evade or alter the plain consequences of what they bargained for in their Agreement.

Thus, Shannon rules that Glacier Park was within its rights to sell the land and mineral leases to Cliffs, which represented a more likely developer of the mineral resources.

As I wrote earlier this year, the checkered map created by this land sale benefits Cliffs. Conversely, it all but destroys Mesabi Metallics’ hope to execute the project as it was proposed. The patchwork grid of Mesabi-controlled and Cliffs-controlled mineral rights makes conveying ore on the site a serious challenge.

It’s not easy for Cliffs either, but they have the ability to wait on the land they do own. Their Hibbing Taconite facility will need ore five years from now, maybe later. They can wait.

Mesabi Metallics can’t. They need to demonstrate action at their site to keep in good graces with the state of Minnesota. A new governor — no matter which party wins — will likely go in a new direction.

If Clarke and Mesabi Metallics goes under, Cliffs could snatch up the remaining mineral rights from the State of Minnesota.

One thing to keep clear. Cliffs wants the ore. That’s their top priority. Under a Cliffs-dominated future for the Nashwauk site, the Iron Range would be wise to temper its expectations of a massive new plant.

The best hope would be an HBI facility. But there’s no assurance that Cliffs will build another HBI plant, or that they would necessarily build it in Nashwauk if they do. That depends on how Toldeo goes.

Making iron briquettes in Minnesota means taking advantage of the cost savings of heating the iron ore here. Making them in Ohio means saving the customer money on turning the finished iron briquettes into steel. I worry that if they demonstrate a model that produces the briquettes near the furnaces, they’ll keep doing that.

One distinct possibility is that the former Butler site simply prolongs the life of other taconite plants. That’s not a bad thing. But it’s certainly not what Nashwauk and Itasca County had hoped for.

It all relates to what I wrote about on Sunday. We, the people, don’t control big time financing. So we have to focus on what we can make happen in our midst.


Comments

  1. Cliffs’ CEO is opportunistic, to say the least, and no matter what this means for the Range, at least contract law is still being honored in this country, and Minnesota’s resources are still viable and needed.

  2. Karin Schultz says:

    I hope the people of the iron range are happy!!! Especially Itasca county! They screwed up big time and now they have let the mafia boss who has a monopoly and iron grip on the Range literally screw over the people who live here! Letting this jerk win will have consequences that they don’t even realize; it is going to damage our economy more than they can even imagine. Tom Clarke’s failure to meet the deadlines is a direct result of the mafia boss’s interference in the whole process. He is a poor sport and an idiot! Can’t stand the man, he is a jerk! And now he has put the last nail in the coffin of any hope Itasca county has of ever employing their people in the local mines. Thanks for nothing!!!! My husband lost his job there nearly two years ago and was interviewed a year and a half ago to go back to work at plant four when it reopened, but thanks to the Goncalves idiot he is now stuck working at L &M for half the pay, with no hope of getting his old job back!!! Real nice!!! And THIS IS Why I wanted to be as far as I could get from the range!!!!

    • Karin, I understand your personal frustration, but Tom Clarke had literally over a year to get his plan organized and in place but was unable to deliver. The deadline that was missed that allowed Cliffs to purchase the land was already an extension. “Letting” Cliffs win? Are you in favor of the government picking winners and losers like that? In defiance of bankruptcy and contract law nonetheless? If Minnesota were to get a reputation like that, you can be rest assured investment will stay VERY FAR away from the Range. Cliffs did not purchase the land until it was legally clear to do so, and the judge explained this in his ruling. What exact interference are you referencing? If there’s something illegal Cliffs did, I will be right there with you in calling it out.

      Cliffs is a relatively small company (yes they are now essentially a monopoly in a niche market), but they found a way to finance $700 Million on their own to build their own HBI plant currently under construction in Ohio. Neither Arcelor Mittal, US Steel, Nucor, Steel Dynamics, or anyone else for that matter made a bid to build at Nashwauk except for the people who already failed there. That’s telling to the financial and economic challenges of such a venture. It’s a very disappointing situation nevertheless for your husband.

  3. This certainly doesn’t sound bad for Minnesota, however here in Michigan, this could be the nail in the coffin for the Empire mine,which closed in 2016…..you should be happy in MN….looks bleak here, but that can change anytime…..

  4. Benjamin Kempa says:

    I share Aaron’s sentiment …..if the Iron Range , its constituents and those in the legislature refuse to leverage the natural resources into value added product development locally vs it being done in other locales we are doomed to end up just like the UP of MI. Mesabi Nugget could have been a step in this direction. Hopefully the former Essar site still holds potential here.

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