Iron mining’s cold war on the western Mesabi

Construction at Essar Steel Minnesota near Nashwauk on Oct. 8, 2015. The company has since reorganized in bankruptcy as Mesabi Metallics, though still faces challenges before construction may resume. (Aaron J. Brown)

As Iron Range economic development phantasms go, the Essar Steel Minnesota project near Nashwauk has always felt rather personal. The construction site sits just a few miles from my house. When the wind carried, I could hear them running equipment, crushing rocks for fill, and erecting the plant structures which today remain unfinished on the horizon of my daily commute.

Like many on the Range, I had hoped the project would be something more than what it’s become. Remember, Essar Steel promised a direct-reduced iron plant, a new era in iron mining and processing on the Mesabi Iron Range. What they ended up settling on was a new taconite plant, more efficient than existing Range taconite plants, but not much more ambitious than that.

Then, halfway through construction, after much sputtering, the project landed in bankruptcy. Today, Essar Steel Minnesota has reorganized as Mesabi Metallics under new leadership and claiming new investment to finish the $1.6 billion project on the site of the former Butler Taconite plant, which closed in 1985.

Late last week, Mesabi Metallics announced that the court had accepted their bankruptcy recovery report. This allows them to court labor agreements and otherwise prepare their plan to resume construction.

However, Cliffs Natural Resources, one of the bigger iron mining companies operating on the Range, wants no part of the new company, threatening plant closures and market chaos if they go online. Instead, Cliffs wants to acquire the mining leases and property of the former Essar. In exchange, Cliffs CEO Lorenco Goncalves promises to build direct-reduced iron ore “mini-mills,” starting at Nashwauk but expanding elsewhere around the Range.

John Myers explains in a Sunday, March 19 story in the Duluth News Tribune:

The battle for the hearts and minds of local officials has gotten personal in recent weeks. Some of Cliffs’ shareholders, of which there are many on the Iron Range, have been recruited by the company to convince Range lawmakers to back Cliffs, and not Mesabi Metallics, for the Nashwauk site.

So far, most Range lawmakers — with the exception of Sen. Tom Bakk, DFL-Cook — are bucking Dayton and backing Mesabi Metallics. In a Jan. 12 letter to DNR Commissioner Tom Landwehr obtained by the News Tribune, Sen. David Tomassoni, DFL-Chisholm, and six other Range lawmakers said they want the state leases to go to Mesabi Metallics, not Cliffs.

This kind of division among Iron Range lawmakers is fairly rare. And for the DFL governor and Iron Range Senate DFL caucus leader to be on the opposite side of Iron Range DFL rank-and-file members is especially rare.

But the stakes are high. Will the company that enjoyed millions in state infrastructure spending to open a new plant win? Or will one of the region’s oldest mining companies prevail?

Again, from Myers story:

A key court hearing in April could determine the fate of the bankruptcy effort. If the judge agrees that Mesabi Metallics has adequate financing to revive the project, and adequate orders for its taconite, the judge could simply award the state leases to the new company over Dayton’s objections.

Cliffs so far has not made an offer for the project but would be able to do so when the current “period of exclusivity” is over that gives Mesabi Metallics first chance to revive the project. Others have speculated that Cliffs CEO Lourenco Goncalves is trying to thwart Mesabi Metallics’ success in Chapter 11 so the project falls into Chapter 7 liquidation, at which point Cliffs could acquire the project in a fire sale for pennies on the dollar.

Goncalves has called Mesabi Metallics a “fly by night” operation and has said that there’s no need for any new taconite iron ore production for the domestic steel industry.

Goncalves claims that, if Mesabi Metallics opens, it will simply displace other taconite workers, likely at Cliffs plants on the Range. He’s urged state officials and Iron Range residents to back Cliffs, a known company with history of employing Iron Range residents.

But Mesabi Metallics said Goncalves is simply fear-mongering, and that increasing demand for U.S.-made steel already is opening up new customer orders for taconite well beyond what is currently being produced.

I wrote about this dust-up in a recent column.

To read the headlines, an improving economy and trade protections spur good times for iron mining on the Mesabi. And for now, that’s true. But over the next two decades the region requires a dedicated (and expensive) commitment to value-added iron ore production. Anything less will equal gradual reduction of iron mining jobs, much like we’ve already experienced over the past 30 years.

The former Butler site — no matter who controls it — could be a turning point for the future of iron mining, or it could be the Iron Range’s Waterloo. Whether Mesabi Metallics or Cliffs is victorious in bankruptcy court, we must also expect they deliver what they promise.

Mesabi Metallics has a sketchy history, while Cliffs has an unclear plan. It comes down to which company we should trust. We’ll know by the end of April whether the federal bankruptcy court believes Mesabi Metallics. Perhaps meantime, we’ll learn more about Cliffs plans as well.