Essar still owes millions to Iron Range contractors

The crusher plant under construction at Essar Minnesota's Nashwauk project in May 2015. (Aaron J. Brown)

The crusher plant under construction at Essar Minnesota’s Nashwauk project in May 2015. (Aaron J. Brown)

Major media outlets report that despite Essar’s payment of $20 million to local vendors after an ultimatum from Gov. Mark Dayton, the company still owes millions to contractors. Coverage includes offerings from the Star Tribune (Dee DePass story) and Minnesota Public Radio (Dan Kraker story).

This matches recent casual conversations I’ve had with laid off construction workers and miners from nearby idled taconite plants. Vendors are one kind of supplier to the Essar site, but many contractors were held out of that recent payout. Or, if they were paid, it was cents on a dollar, not full repayment. The workers talk pretty openly about this, but their bosses are nervous about losing the business if they say too much. We’re entering a historically difficult year for the mining economy on the Iron Range. No one can afford to lose a contract.

Essar is building a $1.9 billion taconite plant on the western Mesabi Iron Range and, despite apparent cash flow issues, appears fixed upon doing so. At one point earlier this year there were more than 800 workers on the site and significant progress was observed. So, the project has to some degree passed the point of no return.

Yet Essar is not going to make steel at the site, as originally promised, at least no time soon, and as such will owe the state $66 million, some to DEED and some to the IRRRB. Negotiations between the state and Essar have proceeded slowly. Underlying the situation is the fact that if the state does call that loan, they’ve got to figure out how to get it from a company based in India. Even if they were successful, it would take years of navigating international law. It’s never gotten that far because Essar usually figures out a way to restart construction and resupply officials with hope that it will be completed.

Meanwhile, the future of the Range’s mining industry is at stake. Local mines need to produce the lower-cost, value-added iron products that Essar seeks to make, and yet the companies that own Iron Range mines are, by and large, broke and getting broker. Essar, despite its multitude of problems, is still poised to make a lowest cost iron ore pellet when it’s ready to operate. Unfortunately, the prospects of that happening on time are again in question. With a global glut of iron ore supply and dismal prices predicted for a long time, it’s anyone’s guess as to how this might turn out.


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