Essar seeks 3-year deal to avoid paying back $67 million

These giant concentrator mills will turn hard taconite rocks into a fine powder used to make pellets. The larger mills here are aggregate mills, which use large rocks to pulverize smaller ones. The smaller mills are ball miles, which does the same thing to obliterate remaining rocks with heavy steel balls. Essar will have three mill lines, fewer than other Range mines but capable of processing 7 million tons of taconite per year because of the large size of these new mills. (Aaron J. Brown)

Between 300-500 workers have been on the Essar Steel construction site near Nashwauk every day through the summer, but the company is still seeking more time to meet provisions of a state grant that helped the company build power and transportation infrastructure. (PHOTO: Aaron J. Brown, May 2015)

It was no secret that Essar Steel would be requesting more time to meet the provisions of a state grant that provided critical early infrastructure to its huge new mine near Nashwauk, Minnesota. The company has until Oct. 1 — about two weeks from now — to produce value-added iron products as it originally proposed. And while the project has seen enormous progress over the summer, it remains a collection of steel and dirt, at least a year (and quite possibly more) from functional service as a taconite plant.

That’s the other problem. To be eligible for the $67 million state grant, Essar had promised value-added iron products, not just taconite production. The Mesabi Iron Range already has six taconite plants; this was supposed to be something new.

So there’s no way the Oct. 1 deadline is possible. The original agreement forged eight years ago fell by the wayside as Essar struggled to consistently finance the already-permitted project. Eventually, Essar scaled down its initial plans, pushing back the capacity for direct-reduced iron production until after the launch of the taconite plant. They still say they want to pursue value-added iron, but are safely several years from the prospect if it happens at all.

As the terms currently read Essar would need to pay the money back after Oct. 1. They’re asking for three more years.

There were rumors of some kind of legislative bail-out during the last session, but no agreement could be reached behind the scenes. Cliffs Natural Resources — which has not-so-secret ambitions to acquire all or part of the project — actively fought any kind of extension, while some lawmakers were frustrated with the constant delays that have marked Essar’s entry into the Mesabi Range.

But we now see what Essar wants: a three-year extension. How do we know this?  Because Essar is getting local government units, unions and contractors to sign letters of support for that plan. Case in point, last week when the Nashwauk City Council voted unanimously to support Essar’s plea for more time.

Ultimately, Gov. Dayton and the Minnesota Department of Employment and Economic Development (DEED) will have the final say regarding the repayment of the grant.

Calling in the money would be the option preferred by existing Iron Range mines and those most frustrated by the involvement of public money. But many others, including folks in Nashwauk, are deathly afraid of derailing the project — the sort of perils that often befall small towns that put all their hopes into things they don’t control. Nevertheless, a three-year extension would also be an alarming precedent, one the governor will surely seek to avoid.

It’s a tough call for the governor. I would predict some kind of negotiated compromise, but it’s clear that crunch time has arrived for a $1.2 billion project that continues to be something of an enigma in the iron and steel marketplace.

Then again, how many times have we said that? It just keeps inching along.


  1. hardrockminer says

    Call the loan now. We need another pellet plant like we need a longer, colder winter!

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