Cliffs CEO promises iron clad future for Mesabi

Gov. Mark Dayton addresses more than 150 in attendance at the public forum he and other state officials hosted with Cliffs CEO Lourenco Goncalves and representatives from his company. (Aaron J. Brown)

Gov. Mark Dayton addresses more than 150 in attendance at the public forum he and other elected officials hosted with Cliffs CEO Lourenco Goncalves and representatives from his company. (Aaron J. Brown)

Tuesday morning’s public forum with Gov. Mark Dayton and Cliffs Natural Resources CEO Lourenco Goncalves sounded like a battle cry before a coming war. Though everyone hopes the war will be short and successful, many unknown factors lie ahead.

Lourenco Goncalves, CEO of Cliffs Natural Resources, enters the Nashwauk Township Hall on Tuesday, July 12, 2016 to announce his company's plans to expand into DRI production. (Aaron J. Brown)

Lourenco Goncalves, CEO of Cliffs Natural Resources, enters the Nashwauk Township Hall on Tuesday, July 12, 2016 to announce his company’s plans to expand into DRI production. (Aaron J. Brown)

The meeting’s primary announcement was stunning. Goncalves said that Cliffs is planning a major shift to direct-reduced iron (DRI) production in the coming decade. This may one day involve investment in “four or five” Cliffs DRI plants in the Great Lakes mining district, dominated by the iron reserves here in Northern Minnesota. And Cliffs wants that first DRI facility to be located North of Nashwauk on the site of the former Butler Taconite plant.

If that sounds familiar, it should. That’s where Essar Steel Minnesota has been building a taconite plant for almost ten years. Though initially planned as a DRI facility, India-based Essar scaled the project back to a traditional taconite pellet plant. Essar failed to raise enough money, missed countless deadlines to repay loans and grants, and declared bankruptcy last Friday.

Also Friday, Gov. Dayton cancelled Essar’s mineral leases, and vowed to support Cliffs efforts to acquire the leases and property so it can develop the site. That led to today’s meeting with Cliffs, practically in the shadow of Essar’s unfinished taconite plant.

It was an imposing delegation seated at the front of the Nashwauk Township Hall on the same rural county highway that takes me to work every day: Dayton, Goncalves, U.S. Rep. Rick Nolan, Lt. Gov. Tina Smith, local legislators, state officials and members of Cliffs management.

More than 150 people packed the hall, located just three miles from the Essar construction site. For every one member of the press there were two local officials. For every local official there were at least 10 representatives or employees of Iron Range contractors owed millions of dollars by Essar.

Those folks left with some hope, but a lot of unanswered questions.

When pressed by one contractor, Goncalves said “I know you guys have a lot of individual claims. I’m asking you to look at the big picture.”

Goncalves was all but pleading the contractors to take any reasonable offer and not prolong the bankruptcy. He inferred they’d make up their money working on the new DRI plant that Cliffs would build while finishing the iron ore plant Essar started.

“Let’s look into the future,” said Goncalves. “Things happen for a reason. We are here with the potential to build the first DRI plant [on the Mesabi] and the potential to build four or five more. As soon as I get my hands around that site, we are going to break ground on DRI.”

Both Dayton and Goncalves deferred specifics on the repayment of contractors to the bankruptcy process, though Dayton said he would use all means to see that the contractors are made solvent and whole by the end of it.

The Essar Strikes Back

All is not so simple in these North Woods. Essar Steel Minnesota issued a statement Monday that it planned to fight this deal by the governor and Cliffs. Essar believes that the governor was wrong to cancel the mineral leases. It also claims, once again, that it will soon have a new financial backer, the investment firm SPL Advisors.

Essar Steel Minnesota CEO Madhu Vuppuluri said the bankruptcy was a necessary step to bringing in the new investor, which would become 80 percent majority owner under the proposed arrangement.

“Taking into account all of the facts and circumstances, it became apparent that the commencement of a Chapter 11 case was the critical next step we needed to take in order to move this important project forward,” said Vuppuluri in the Essar announcement. “It creates a pathway to realizing all of the benefits envisioned by the nearly $2 billion that has already been invested.”

Gov. Mark Dayton speaks to reporters outside the Nashwauk Township Hall on Tuesday, July 12, 2016 after he and the CEO of Cliffs Natural Resources announced a plan to take over the Essar site and build a direct-reduced iron plant. (Aaron J. Brown)

Gov. Mark Dayton speaks to reporters outside the Nashwauk Township Hall on Tuesday, July 12, 2016 after he and the CEO of Cliffs Natural Resources announced a plan to take over the Essar site and build a direct-reduced iron plant. (Aaron J. Brown)

The message that emerged from Dayton, Goncalves, Nolan and others was that the state and Cliffs were united, that steel tariffs were working to stem foreign steel dumping, that iron ore demand was surging, and that Cliffs is the company most likely to succeed with the Nashwauk project. All were dismissive of the Essar proposal.

Goncalves called Essar’s investment scheme “fictitious.” He vowed to fight the company in court, assuring the same success he’s had battling with Essar over supply contract issues in Canadian courts.

“I’m the fixer. I’m the wolf. I’m coming to clean the mess. I need your support. If you guys have my back, we’ll have DRI here very soon.”

Dayton remarked that the difference between Cliffs and Essar is that Cliffs has kept its word in the past year, while Essar has failed to do so time and time again.

Goncalves said he hoped the bankruptcy process could be held to nine months, and that he believed investment banks would ultimately back Cliffs, not Essar. Obviously that process could go much longer if Essar has its way.

Why DRI matters so much

DRI, which is nearly pure iron, feeds electric arc furnaces. These produce a growing majority of North American steel. Taconite feeds blast furnaces, which now account for less than a third of the market and are no longer being built. The Mesabi Range’s six existing mines are all built to make taconite, including the three owned or managed by Cliffs. Without DRI capability, most Iron Range mines will be doomed in a decade, perhaps less. With DRI, however, one can imagine some form of the Mesabi iron mining industry enduring much longer, well into the 21st Century.

That said, such an industry would be smaller, more efficient, and just as subject to the economic whims of world markets as before. If the blast furnaces of the industrial revolution are the mighty dinosaurs, what comes next are the nimble, crafty mammals. In this case: pure iron melted into highly customizable steel products made by electric arc furnaces and modern steelmaking.

Even though Cliffs is 169 years old, something Goncalves took care to point out, the company might not be a dinosaur after all. As Goncalves says, he aims to be the wolf.

Comments

  1. Minnesota Mining says

    The US Bankruptcy Court in Delaware will make the final decision. If CNR presents the best investor option, then when all the dust has settled they will be the new proud parents of that project. However, just a heads up…there may be another mining company and/or investor group which is interested. That ore body is one of the largest and best in the world. The workforce of Northern Minnesota is also one of the best. The Governor’s office needs to develop some arm’s length perspective. Further over-involvement by the Governor could send a message to other mining companies and investor groups that the State of Minnesota does not want them to bid on the ESML project. Minnesota needs a diversified group of mining companies operating on the Mesabi. The Governor needs to take a reasonable step back from this situation and let Goncalves handle his own “wolf” and pony show. Let’s hope that the actions by our Governor in promoting the always-willing-to put-on-a-show Goncalves haven’t put off other potential investors. Keep up the good work covering the story Aaron. Booyah

  2. Aaron you are right this will be a war. This company’s management are like leeches, they will suck the state dry until they are scraped off and stepped on. They will do the right thing only when every other option is more costly (financially or legally).

    Lets not fall for the smoke and mirrors show called SPL Advisors LLC. It’s a shell company setup last year and has an address at some guys house in california. He claims to be financier with years working in India which could also mean its a hidden subsidiary of Essar trying to buy the company for cents on the dollar from the creditors.

    To prepare for whats to come ahead Dayton and Minnesota need to know who they are dealing with. Here is a brief summary of the company’s escapades around the world.

    You can google the following:
    Essar Loop telecom – (Telecom Licence fraud)
    Essar Phone Tapping – (investigation of spying on government officials and competitors)
    Essar Algoma Bankruptcy (several bankruptcies in past 6 years, now finally lost the business and the only incentive to build a minnesota mine in first place )
    Essar Trinity coal bankruptcy – (bankruptcy and repurchase at a discount – same thing they tried at Algoma and now in Minnesota)
    Essar vs Great Lakes Gas – (breach of contract judgment against them for 30million)
    Essar – IRS (8million unpaid taxes)
    Essar vs numerous business (Unpaid business throughout US including unpaid court judgements)
    Essar Ceo statements about securing financing on 02/24/2015 – (could be grounds for fraud when CEO stated financing was complete when it was obviously not. Its called Fraudulent Inducement). He is the brains behind all of Essar’s misfortunes in North America. He has some delusion that he is a titan of industry but so far he has destroyed billions of value for the company, for the US and for Canada. Time you sharpened your pencil Aaron and gave him some journalistic attention for all his achievements.

    Minnesota should let Lori Swanson loose on them and go after any fraud charges she can find. Indictments have a funny way of making people more understanding and compromising.

  3. Independant says

    From what I understand as of this week Madhu Vuppuluri is no longer the CEO of Essar Steel Minnesota.

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