The Minnesota Department of Natural Resources said Wednesday that Mesabi Metallics failed to meet all conditions of a mineral lease amendment and the agency is initiating the process to terminate its agreement with the company.
DNR officials sent a press release announcing the agency’s determination, which said Mesabi Metallics “failed to demonstrate that it had $200 million immediately available in its accounts” as required by a December 2020 amendment.
The DNR said while it is “continuing to review all of the documentation submitted by Mesabi, this failure to meet a fundamental requirement warranted notification that the amendment is not in effect.”
Patrick Hynes, a lawyer and lobbyist representing Essar Global and Mesabi Metallics, said in an statement that the company deposited $100 million into the account, but “because of the unprecedented COVID crisis in India the deposit of the remaining $100 million has been delayed.”
He continued: “Mesabi Metallics is currently spending money from this account in support of the construction project and there will be over 40 new workers on site this week. We are confident that the additional funds will be in the operating account within the next few weeks. The $100 million currently in the account is sufficient to keep the project on schedule.”
Mesabi Metallics faced a May 1 deadline to provide a binding offtake pellet agreement, secure long-term financing of $850 million, of which $200 million was to be immediately deposited in an account for future construction of the Nashwauk project. The amendment was approved by the state’s Executive Council — consisting of the governor, lieutenant governor, attorney general, secretary of state and state auditor — in December 2020 after a $25 million payment was made to state coffers.
DNR officials confirmed receipt of several documents and submissions on May 1, but said it could take up to two weeks to complete the agency’s review.
In a second letter sent Wednesday to the company, DNR officials told Mesabi that it also owed $18 million in minimum base payments for 2020 and that the agency initiated termination of the leases.
Termination action was taken for a failure to meet a previous lease agreement at end of 2019, which included completion of the pellet plant, mining 1.6 million tons of ore from state properties in at least two quarters prior to Jan. 1, 2021, and shipping 3 million tons of pellets by the end of 2020.
“Mesabi Metallics has 20 days to cure the lease defaults or the termination action will go into effect,” the DNR said in a statement Wednesday, referring to the pellet plant completion, 1.6 million tons of ore mined and 3 million tons of ore shipped in that time span.
The Nashwauk project, which aimed to produce hundreds of jobs, a new mine and steel plant to the West Range region, has failed to deliver on its lofty promise since breaking ground in 2008 under Essar Steel Minnesota. In 2016, the company initiated a $1.1 billion bankruptcy filing that emerged under the ownership of Chippewa Capital Partners.
After numerous CEOs and missed deadlines, former parent company Essar Global purchased Mesabi Metallics’ debt in 2019 to take back its seat as the primary financial stakeholder in the project, but the pattern of missed payments and deadlines persisted.
The return of Essar drew the ire of Iron Range lawmakers, who vocally opposed the December 2020 lease amendment and called for increased scrutiny and safety nets for the project.
Independent State Sens. David Tomassoni of Chisholm and Tom Bakk of Cook recently wrote a bill that would keep permits intact should the DNR want to move on from Mesabi Metallics, essentially providing a safety net for the Nashwauk ore to be mined by a new company without a lengthy environmental review process.
House 6B State Rep. Dave Lislegard, DFL-Aurora, said he would call for a legislative audit of the DNR’s handling of the leases if he felt the agency continued to mismanage the state minerals. On Wednesday, Lislegard praised the agency’s decision and said it moved the project closer to finding a “viable and credible partner” to move forward.
“Today’s announcement validates everything we’ve said about this organization, and what Mesabi Metallics put forth recently was just more in a long line of continued failed promises,” he said. “While we have lost precious time and economic opportunity over the last 13 years, now is the time for us to move forward. I'm extremely pleased that today the DNR has listened to the will of the people of the Iron Range who have been impacted by this bad actor’s inability to meet its commitments.”
Cleveland-Cliffs, which controls a large portion of land and minerals at the project site, is considered the odds-on favorite to obtain state leases should Mesabi Metallics falter again. CEO Lourenco Goncalves has expressed increased interest in Nashwauk, saying he would build an HBI facility in the future and use the minerals on site to help keep Hibbing Taconite — which is on pace to run out of ore by 2024 — in operation.
Cliffs CEO Lourenco Goncalves said in a statement:"Cleveland-Cliffs applauds the move made today by the DNR to address the long term injury inflicted on the Minnesota Iron Range by people with no agenda other than the goal of extracting benefit for themselves. We also appreciate the relevant support from the Iron Range legislators, the local associations, the Mayors, The United Steelworkers and the population in general. As soon as the legal process of terminating the leases is completed by the State, and assuming that at this time the saga will come to an end, Cleveland-Cliffs is ready to step in and do what we have been doing for decades, by developing Nashwauk and generating a big number of good paying middle-class union jobs for the people of the Iron Range."
House 6A Rep. Julie Sandstede, DFL-Hibbing said: “It’s time to move on from this debacle and pave the way for a legitimate mineral-producing company — with a commitment to our region — to create good-paying jobs. One company is prepared to build an HBI plant, and we must strike while the iron is hot.”
Hynes, in responding to calls for the state to end its relationship with Essar and Mesabi Metallics, reiterated a “strong commitment” to the project through the $100 million available to the company.
“Mesabi Metallics understands that there are those who believe that the entire project should not go forward because of this delay,” he said. “We strongly believe that it is in the best interest of Minnesota for the Nashwauk project to be allowed to commence, and have demonstrated our strong commitment to the project by making $100 million immediately available.”