This rendering shows Cleveland Cliffs’ plans for a hot-briquetted iron (HBI) plant in Toledo, Ohio. (PHOTO: Cleveland-Cliffs)
These days, Cleveland-Cliffs CEO Lourenco Goncalves seems positively jubilant in his quarterly earnings calls with investors and the media.
And why not? The first quarter of the year is normally pretty slow. That’s when iron ore ships are docked until ice retreats from the Great Lakes. Nevertheless, Cliffs performed well ahead of expectations in the first quarter of 2019 according to yesterday’s earnings call.
Furthermore, Goncalves detailed how Cliffs is buying back common stock and significantly reducing debt that just a few years ago threatened to put the company into bankruptcy. Goncalves even took time to thank investors who shorted Cliffs’ stock back then, arguing it helped them pay off debt quicker.
Why the good news? High demand for iron ore, limited supply due to disasters in Brazil, and, according to Goncalves, good strategic decisions to diversify its array of higher quality iron ore products.
Case in point: the company’s new hot-briquetted iron (HBI) plant now under construction in Toledo, Ohio. As Goncalves explains in the call, HBI is essentially direct-reduced iron (DRI), the kind of iron required by electric arc furnaces to make steel. These are rapidly becoming the industry standard, comprising the vast majority of new steel furnaces all over the world.
Northshore Mining in Babbitt and Silver Bay, a Cliffs property, will supply pellets to this new plant. Meantime, other Cliffs mines in Eveleth, (until the end of the year) Hibbing, and Michigan will fulfill a long list of other ore contracts.
If you’re working for a Cliffs-owned mine in Northern Minnesota, you’re certainly happy with this news. But if you’re wondering whether the Mesabi Iron Range will ever make the leap from providing iron ore to housing an HBI/DRI plant of its own, well, you’re still waiting.
Goncalves told investors he wasn’t in a hurry to start a second HBI plant after finishing the one in Toledo later this year. That throws cold water on the notion that he might swoop in and “take over” the long-suffering former Essar Steel Nashwauk project in the near future.
Mesabi Metallics, still the company of record for that project, finds itself at another crossroads with the state of Minnesota. They claim they can build an iron ore mine. Meanwhile, the state seeks to debar Essar Steel, which currently has a partial interest in Mesabi Metallics.
Recently, the Itasca County Board passed a well-meaning but feckless resolution demanding action, but the truth is we’re stuck. Cliffs owns critical land adjacent to the Mesabi Metallics project. Mesabi Metallics likely can’t raise money or sell out for a fair price so long as that remains true.
Goncalves referenced “options” in the works regarding his future iron ore supply needs. Nashwauk might well be one of those options, but it’s probably not the only one.
What does all this mean? Well, my take is this. “We,” meaning broadly the people of the Iron Range, would benefit from seeing value-added iron ore products like HBI produced in our region, near our ore. We had hoped that something like this would happen during the current upswing in the iron ore market.
However, HBI on the Range now seems several years, not months, in our future. That means we risk seeing a retreat in the markets, requiring yet another recovery, before capital will be available for such a project.
Of course, maybe the cool rhetoric is another of Goncalves stratagems; perhaps he is simply driving down the asking price of the Nashwauk project even more. Or, perhaps a company like ArcelorMittal — the world’s largest steelmaker — holds some cards in this, something we’ve discussed here.
In any event, barring progress in the next few months by Mesabi Metallics, it would appear the Nashwauk project will spend another winter in purgatory.
A weary Iron Range awaits evidence to the contrary.
I don’t think there’s any doubt about “L.G.” wanting to mine Nashwauk. With that in mind, I believe Minnesota has the leverage to get him to commit to building HBI-2 on the range, and in the immediate future.
The only thing I want to point out is that HBI is an improvement over DRI because it can be shipped farther without the risks present in DRI (self-heating when in stockpile, which is a safety hazard). Therefore HBI will be able to be shipped farther from Ohio down to the EAF facilities in the Southern US (via rail, then Ohio-Mississippi float). It’s a strategically better material than the DRI that Mesabi Metallics was/is/maybe going to build at Nashwauk.