Gov. Dayton, officials meet with Essar to negotiate repayment

Construction continues at Essar Steel's new taconite plant near Nashwauk on Oct. 8, 2015. (Aaron J. Brown)

Construction continues at Essar Steel’s new taconite plant near Nashwauk on Oct. 8, 2015. (PHOTO: Aaron J. Brown)

On Monday, Gov. Mark Dayton and Iron Range lawmakers, along with officials from the state Department of Employment and Economic Development, met with representatives of Essar Minnesota.

Essar is building a new taconite mine on the western Mesabi Iron Range, but scuttled initial plans to build a value-added steel mill on the site, all while falling behind the original schedule. In 2007, Minnesota invested almost $67 million into the project on the hopes that it would modernize the state’s iron mining industry. In that regard, the project has been a disappointment, and the start-and-stop nature of the construction has been very disruptive to the surrounding community and its businesses.

Gov. Dayton’s office issued this statement last night describing the Oct. 12 meeting and explaining what will happen next:

This morning, Governor Dayton, Iron Range legislators, Itasca County Commissioners, and staff from the Department of Employment and Economic Development (DEED) and the Iron Range Resources and Rehabilitation Board (IRRRB) met with top Essar officials, including the CEO of the parent company, Essar Global Fund Ltd., who joined by teleconference from Mumbai, India.

The Governor stressed the imperative that Essar make current its payments to suppliers on the Iron Range and received Essar’s commitment that those obligations would be made current by the month’s end. The company’s obligation to repay the $66 million loan provided by the State in 2008 was also discussed. The company agreed to review the State’s latest offer sheet and to reply within two weeks.

Importantly, Essar officials reiterated their commitment to completing construction of the facility and beginning production of taconite pellets by the end of 2016. Everyone participating in this morning’s meeting understood the urgency of honoring the company’s commitments.

I toured the Essar site last Thursday, Oct. 8, with Po Tidholm, a visiting journalist from Sweden who covers the iron mining industry there. Work continues and notable progress has been made since my last visit there in May. It’s now evident that the project is past the tipping point and will be completed in some fashion. The question is whether Essar will operate the plant as they claim or whether another company will buy out or partner with the project to bring it to the finish line. Essar continues to assure everyone that they have the money and the customers to operate this mine as planned.

But Cliffs Natural Resources, which operates nearby Hibbing Taconite along with United Taconite in Eveleth and Northshore Mining in Babbitt and Silver Bay, believes otherwise. Company officials at Cliffs have long criticized Essar’s ability to deliver on its promises and have made no secret they would like to acquire the project. Cliffs is also exploring value added iron products and is looking to find new life for its Iron Range facilities. Along with the entire industry, Cliffs is struggling with global iron ore prices and increasing low-cost supply all over the world.

It’s important to remember that right now these companies are fighting for their lives. The global situation in iron ore essentially requires some companies to close, it just hasn’t been determined which ones will get the ax. What’s happening here in Northern Minnesota is part of a much larger industrial question that envelops the entire globe.

I’ll be writing about this more for my column this Sunday. The thought I leave you with today is my general observation that in a year or two we will have a new mine on the Iron Range. We just don’t know the nature of the business deals that will govern its operation or how it will affect other mines in Minnesota or North America. We also don’t know if the people of Minnesota will get their money back for the one thing we know for certain: The 2007 promise of a revolutionary new steel mill was not kept.


  1. I am sure our top notch political negotiators had a default clause built into the agreement with Essar that if certain advancements were not in place by Essar on certain dates they wouldn’t get the whole 67M.
    I’m sorry, I guess they DIDN’T have that clause in there and now are on bended knee begging for money back or anything to save face. Donald Trump is correct on one thing, politicians are stupid when it comes to negotiating with our money and get run over steady by business men who know what they are doing.
    Another embarrassing deal by our elected officials. I bet if it were their own money they wouldn’t be so careless.

  2. “Supply additions by the four largest producers have overwhelmed output cuts elsewhere, according to Morgan Stanley. There’s also the prospect of the first cargoes from billionaire Gina Rinehart’s new Roy Hill mine, which is set to start shipments this month, the bank said in a report on Monday.”

    “Demand for seaborne iron ore will probably peak next year, while mining capacity continues to rise, Goldman said on Monday, citing higher productivity at existing mines as well as new projects such as Roy Hill. The bank repeated forecasts for prices to drop to $US44 next year and $US40 in 2017.”

    Read more:
    I have no idea what the cost of production is in Minnesota? Anybody know?

    • Bill Willy says

      Aaron had an article here that touched on that back on June 22, (that I stumbled on) that said, “Iron Range mines produce ore at a cost usually in the high $50s per ton.”

      Also came across another interesting piece while looking at the same issue (What the heck’s happening to the mining industry!?) a while back. The article’s older (November, 2014) but interesting and related nonetheless:

      “Iron ore price decline hurts U.S. Steel’s cost advantage over rivals”

      I was looking at the same kind of thing more in relation to the proposed copper-nickel mining project to see how Polymet (and Glencore) finances were looking and the same trend (or worse) seems to be playing out there. Here’s a link to a real eye-popper (from September 28th) for anyone interested in the strange world of bankrolling these things:

      “Glencore craters 29% as analysts fear debt will ‘evaporate’ stock’s value

      “Glencore shares have now lost 76% in value year-to-date, as the miner and trader struggles with weak results, slumping metals prices and broader concerns about its balance sheet.”

      And the news (in the article) just gets worse from there.

      In short, things don’t look good in any “mineral sector.” And while I don’t doubt what Ken had to say, I’m not sure even Donald Trump would be able to negotiate his (or the government’s) way around or through the “market forces” that seem to be blasting all concerned.

  3. Market forces come and go. Gas, oil, lumber and steel have peaks and valley’s always have always will. Legal contracts last forever. My point is not that the steel market has fallen, it is that Essar got the whole 67M without having steps built in to ensure they were meeting agreed to standards. When you finance a project in the real world, with your own money, you make sure A is done before you give more money to finance B. It is all built into your contract. Clearly our elected officials got out negotiated by Essar in getting the 67M without building the steel reduction plant. With steps in place your exposure is more limited. Instead of the State/IRRRB losing 67M they lose agreed to 1st payment 5-10M.
    Again, our money being thrown down a rat hole by a bad deal struck by our elected officials. Cash money in business deals is King, you have the leverage when you have the cash, business folks use that leverage to do deals that limit exposure and maximize returns- Government does not!!

Speak Your Mind


This site uses Akismet to reduce spam. Learn how your comment data is processed.