Essar faces spring crucible

Construction at Essar Steel near Nashwauk, Minnesota, as seen May 2015. (Aaron J. Brown)

Construction at Essar Steel near Nashwauk, Minnesota, as seen May 2015. (Aaron J. Brown)

Essar Steel has been in the news plenty these days. The stories can all run together, so let’s combine the things we’ve learned recently to form a clearer picture.

In a nutshell, I think Essar is headed for a sale. Perhaps a partial sale, but a major new investor is likely necessary for this new Iron Range taconite plant to be completed.

Trying to figure out what’s really going on with Essar Steel near Nashwauk is a process of triangulation.

First you have to consider what the company — Essar Steel Minnesota, a subsidiary of India-based Essar Global — says about the situation.

Essar had said that it can’t make the next payment in its loan agreement with the State of Minnesota on time. However, Essar maintains that it can finish the project and will receive new money from its parent company soon.

But with the company’s assurances come some contradictory messages. For instance, one of Essar’s biggest investors and creditors is going around meeting with contractors and local lawmakers on its own. They’re projecting a fair amount of power in shaping the future of the project, especially considering how bankruptcy rumors have been circling the project for some time.

Speaking of the contractors, scads of them still haven’t been paid, to the tune of multi-millions. Further, the new haul trucks and equipment I saw being constructed on site last fall still haven’t been paid for, either.

As for the state, which still has a vested interest in the project, Gov. Mark Dayton released a statement about Essar last week. In it, we see that whatever happens is going to be sorted out within the next two months.

Here’s Dayton:

“I remain determined that the stalled Essar project be constructed, begin operations, and create new jobs on the Iron Range. My administration and I are currently working closely with the Members of the Range Legislative Delegation to assess all possible options to achieve those objectives. We remain in conversation with Essar Steel, as it works to secure the necessary financing to move forward, which must begin with its paying local vendors in full for the services they have provided.

“The State’s minerals leases for the project are subject to termination on July 1st. If Essar Steel wants those leases to be extended, the company must demonstrate within the next two months that it has secured all of the necessary financing. If Essar Steel fails to fulfill in full its commitments to the State and its vendors by that deadline, the company should not expect the leases to be renewed.

“We have been told by Essar Steel that its parent company, Essar Global, is committing an undisclosed amount of interim funding to meet the company’s immediate obligations. Essar Steel is reportedly also seeking a new equity partner for the project. It remains to be seen whether or not those efforts will be successful.

Without mineral leases, Essar Steel Minnesota is stone dead. Essar responded to this statement with further reassurances that it will raise the necessary funds to continue.

Cliffs Natural Resources has indicated it is interested in acquiring a project that could be developed into a modern mining facility with capacity for direct-reduced iron products.

It’s possible that Essar’s parent company feeds enough money into the project to continue on its own, but it’s at least equally if not more likely that investors lose patience and turn to Cliffs or a company like Cliffs.

That opens up a whole new set of questions, including whether Cliffs has enough money themselves and/or what that might mean for other Cliffs properties on the Iron Range. But that’s well in the realm of the hypothetical at this point.



  1. Steve Giorgi says

    My sources have assured me a new equity partner will be announced soon and this project will move forward which is great for the region and the state.

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