About 2,000 attendees rallied outside the Miner’s Memorial Building in Virginia, Minnesota on June 23, 2014 in support of the “Save Our Steel Jobs” rally put on by U.S. Steel, the United Steelworkers and the Alliance for American Manufacturing. The rally was protesting the dumping of foreign steel into the American marketplace at far below market value. (USW)
The good news is that Cliffs CEO Lourenco Goncalves is an avid reader of MinnesotaBrown.com. Apparently that is also the bad news.
Tuesday, I received what I would describe as “corporate sass” from Cliffs CEO Lourenco Goncalves after I asked a question at the public forum he and Gov. Mark Dayton held in Nashwauk Township. After the meeting he told me he didn’t appreciate that I called him “crazy” in a post last winter.
What I really asked in that post was whether Goncalves was crazy or putting on a show when he predicted in February that Cliffs would have a great year. At the time both Northshore and United Taconite were idled. Iron ore prices were low and stagnant. Hopes were high that tariffs would help block imports of subsidized foreign steel, but I and most others didn’t know what would really happen.
Well, to be clear, Goncalves was most certainly putting on a show. That’s what CEOs do on earnings calls. But his confidence now seems at least partially validated.
The main reason: Obama administration tariffs on dumped foreign steel are working.
Market conditions changed dramatically in just the last two weeks. Orders for taconite pellets are up. Cliffs is rushing United Taconite back into service, after already firing up Northshore just recently. Hibbing Taconite is working toward a new ore body in historic North Hibbing, which will displace the popular mineview tourist center and disc golf course. U.S. Steel’s Minntac and ArcelorMittal’s Minorca Mine have run consistently all year long.
True, on the whole, 2016 will go down as a mixed year at best. For its part, Cliffs is still seven billion dollars in debt, according to Goncalves at Tuesday’s forum. Further, Minnesota’s mining industry faces an enormous challenge in modernizing its iron ore products for electric arc furnaces — big to the tune of Billions of dollars in private investment.
Nevertheless, I can admit when I’m wrong. I did not believe that the tariffs would work as well as they did. I joined others in hoping they would, but had no strong sense of when or how deeply the North American steel market would respond.
As it turns out, the markets responded remarkably well. This summer, my mining contacts tell me that order sheets are filling up and that the months ahead do in fact look pretty good for most Iron Range mines.
There are two remaining questions. The first, obviously, is what happens with Cliffs and Essar in bankruptcy court. The forum held Tuesday was a remarkable display of public/private sector unity, but was still a public relations gambit. Once again, we are urged to be patient as a distant process of indeterminable length takes place.
The second question is what happens with U.S. Steel’s Keewatin Taconite plant. This is the only remaining Mesabi Range mine that hasn’t been called back into service. Almost 400 workers have been laid off for more than a year. Many have left the area, taken new jobs, or started training for new careers. Several are in a class I’m teaching at my college right now.
One hears many rumors about what might happen to KeeTac, and they run the gamut from permanent closure, to sale, to reopening in a few months. U.S. Steel is an integrated steel maker, meaning that its pellets are used exclusively in U.S. Steel mills. Thus, U.S. Steel will only open KeeTac if its primary mine — Minntac in Mt. Iron — can’t produce enough pellets. Minntac is the region’s largest mine, so that’s been a tall order so far.
I feel confident saying that Iron Range mines now enter a transitional period where some plants will change ownership and one or two might close over time. When the dust settles there will be fewer workers overall, though they will enjoy jobs among the region’s best. In the next decade, DRI will rise to replace most jobs lost from the decline and eventual end of traditional taconite pellet production. Goncalves and Cliffs clearly believe they are the ones to lead this transition.
Nevertheless, every time there’s a recession or market blip, it’ll all shut down and everything I’ve written this past year will repeat itself. That’s fundamentally why I don’t stop talking about economic diversification. The mining economy on the Range goes up and down, but the fundamentals of the overall economy continue on a downward trend.
But I also feel confident saying that Goncalves isn’t crazy. He’s aggressive, though, which carries the promise of risk and reward.
Will the Iron Range enjoy the rise of a Cliffs DRI empire and decades of relative stability for the mining industry?
In that case, I wonder what crow tastes like?
Chicken, I hope.
But for now, I’m reserving judgement while retaining hope for people like my students and current and future citizens of the Iron Range.
How come you don’t mention Mesabi Nugget in one of the mines not running? Seems like many have forgotten about them.
Yeah, good question. I’ve been wondering what’s happening with the nugget plant, too.
I haven’t forgotten, I just limited my analysis to traditional taconite operations. Mesabi Nugget (and Magnetation for that matter) are specialty mining operations that sought entry into the electric arc furnace supply line. The problem for both of them is that their cost basis was built around a much higher price for steel than we see now, or might see in the near future. Mesabi Nugget, in particular, was hit hard by this.
When Mesabi Nugget closed they said it would be a five-year idle. That seems like an eternity in this business. I’ve also heard there are technical problems in the guts of the plant. Both of those spell a long shutdown. Dramatically different market conditions or heavy investment would be needed to reopen Mesabi Nugget. Never say never, but that’s why I didn’t mention them.
Aaron, I enjoy your updates on the region and mining prospects, both long and short term. I believe however, that your reference to Cliff’s debt was misstated. I believe their current debt level totals $2.4b versus the seven billion dollar number you referenced. As a shareholder of Cliff’s I listen to every earnings call and track their progress in driving this number lower. I know that Mr.Goncalves has stated that his goal is to reduce this to $1b so as to allow the Company to take advantage of growth opportunities like the one here with Essar’s mine. Thanks again and keep those updates coming!
Hi Bruce — Thanks for the comment. I was going off what Goncalves said when he commented that he wrote off $8 billion in bad investments and reduced debt by $1 billion. “Wrote off” suggested to me that it was measurable debt. But it’s possible that’s not the case. Perhaps I misunderstood him? In any event, people seem to agree that Cliffs is in debt, but that the numbers have started moving in the right direction. Obviously that would need to be the case for Cliffs to invest, which appears to be their priority.