Minnesota iron ore producer files for bankruptcy

Essar Steel Minnesota LLC (ESML), Hibbing, Minnesota, has reportedly filed for Chapter 11 bankruptcy protection after Minnesota’s state government cancelled the pertinent mining leases.

The Chapter 11 filing was made by ESML’s India-based parent company Essar Steel, according to a write-up prepared by the Wall Street Journal.

The filing was prompted by a decision by Minnesota Governor Mark Dayton to cancel ESML’s leases to mine iron after it missed a July 1, 2016, deadline to complete the construction of its taconite pellet production facility. Ground for the project was broken in 2008.

The governor’s office says it has repeatedly prompted Essar to complete construction and to pay contractors and subcontractors who have complained of a lack of timely payments.

“The company has been told for the past nine months that the State would not extend those leases beyond July 1, 2016, unless it paid the full amounts it owed to Minnesota contractors and showed that it had the ability to carry its current construction project through to completion,” writes Dayton on a statement posted to the website of the governor’s office. “The company has not done so, and has provided no reliable assurances that it will be able to do so in the foreseeable future.”

The governor also writes that a suitor may be waiting in the wings to continue the project. “I have met with Mr. Lourenco Goncalves, the CEO of [Cleveland-based] Cliffs Natural Resources, who has expressed his strong desire to take the existing project to completion and add to it a DRI [direct-reduced iron] facility if his company is assigned those state leases.”

Dayton adds, “The state of Minnesota will continue those negotiations with Cliffs and obtain a firm commitment to execute those plans, before the leases are re-assigned. Mr. Goncalves and I will travel to the [Minnesota Iron] Range on Tuesday to discuss his plans in greater detail. I remain dedicated to assuring that these state leases are utilized by a responsible entity to mine and process their resources, and to create more jobs and further economic growth on the Iron Range.”

Goncalves has released a statement on the Cliffs Natural Resources website confirming the joint research into reviving the project.

A summary of the ESML project’s history in an online article from the Duluth, Minnesota-based regional business publication Business North says it was hampered by negative global steel industry conditions but also its own unique circumstances.

Before ESML produced a single iron ore pellet, ArcelorMittal cancelled a contract to be the biggest single buyer (because the project was behind), and an Essar-owned steel mill in nearby Sault Ste. Marie, Canada—another potential buyer—shuttered its operations.

Regarding management of the project over the course of its eight years, “The lack of financing and cash flow has drawn scorn from area contractors and state officials,” writes Business North.