Competitor Cliffs Natural Resources goes after Essar Steel Minnesota

20 October 2015

Iron Range mill project that got $72 million in subsidies has fallen short, competitor said.

Potential competitor Cliffs Natural Resources has again urged the state to force Essar Steel Minnesota to pay back $72 million in state grants and loans because it says the project has failed to meet construction and project timelines and other promises.

“It is Cliffs’ position that Essar Minnesota should be required to immediately repay its construction subsidy due to Essar unilaterally changing the scope of its project,” the company said in a statement on Monday.

Essar received $65.9 million in state grants and $6 million in loans from the state after promising in 2007 to build Minnesota’s only integrated taconite and steel mill by the beginning of this month.

Essar has said that problems with financing had caused delays and that changes in the industry landscape forced a realignment of the $1.9 billion project to just a taconite plant. The company has said that the taconite plant is roughly 86 percent finished and that it expects to complete construction by mid-2016 and begin producing 7 million tons of taconite pellets annually during the second half of the year.

Cliffs officials said that they toured the site, and that the timelines are “substantially overstated” and “inaccurate.” Cliffs operates Hibbing Taconite, United Taconite and Northshore Mining in Minnesota and two iron ore facilities in Michigan.

Essar Assistant General Counsel Mitch Brunfelt told the Star Tribune that Essar will meet its new timeline. “That is our statement. If they think otherwise, they are wrong,” Brunfelt said.

Brunfelt added that Essar and state officials had a “very constructive meeting a week ago and we are optimistic that we are going to arrive at an agreement with the state on the repayment of those moneys, which are $65.9 million in grants and $6 million in loans we inherited from the prior owner of the project.” He declined to give details.

State officials with the Minnesota Department of Employment and Economic Development confirmed the negotiations and said they are grateful for the roughly 720 jobs the Essar project has created in Nashwauk. They declined to comment on Cliffs’ statement.

Members of the Iron Range delegation in the state Legislature and Nashwauk city officials have expressed frustration and anger that Essar is not building the steel plant the company promised.

The squabble between Cliffs and Essar comes at a tough time in the industry, when taconite producers have been stressed by overcapacity and historically low pricing worldwide. U.S. Steel, Magnetation, Steel Dynamics and Cliffs have all laid off workers in Minnesota since this summer as they battle low ore prices plus a flood of inexpensive steel imports that have come into the United States for more than a year.

Cliffs temporarily furloughed 420 workers at its United Taconite facility in Forbes and Eveleth, Minn., in August. And it announced that it would close its Empire iron ore mine in Michigan. That plant had produced 1.5 million tons of iron ore pellets a year.