Mesabi Metallics

In this October 2017 file photo, materials are laid out over the entire Mesabi Metallics project site in Nashwauk.

State mineral leases for the Mesabi Metallics project in Nashwauk have been officially terminated by Minnesota regulators after the company once again failed to meet several construction milestones and financial obligations.

The Minnesota Department of Natural Resources said Thursday that leases were terminated and the agency would follow up with the company on its next steps, including removing equipment from the leased property.

DNR officials informed Mesabi Metallics on May 5 that it had not met terms of a lease agreement amendment, rendering it invalid and noting the company had 20 days to meet a number of milestones, kick starting the lease termination process. Those terms included completing the half-built pellet plant within that 20-day period, an unlikely scenario that never came to fruition for the company.

Last week, the DNR further criticized filings from the company in a letter that noted its primary lender of more than $450 million was not credible, and accused Mesabi’s parent company, Essar Global, of holding a $100 million cash infusion hostage unless the agency ratified the lease amendment.

In a statement Thursday, State Rep. Dave Lislegard of Aurora called the lease termination “a significant day for our region and our state to move forward.” He added, “I applaud the DNR for their work to hold bad actors accountable for their inability to follow through on the commitment and obligations that were set forth and agreed upon.”

The official move from the state came one day after Essar Global co-founder Ravi Ruia took out a full page advertisement in the Star Tribune, making an 11th-hour pitch to Minnesota about the company’s intentions with the Nashwauk project, and signaled they had worked well with the DNR.

Essar and Mesabi Metallics faced miraculous odds to meet the necessary lease agreement milestones in 20 days, considering the half-built status of the pellet plant, and used the time period instead to introduce a new public-facing executive in Larry Sutherland and rehash previously failed initiatives of workforce increases and noticeable construction.

Sutherland told a crowd in Nashwauk last week that they were requesting a stay of the termination and Ruia expressed regret for the project not finishing after Essar first broke ground in 2008. But Mesabi Metallics apparently let the leases quietly revert back to the state without any known legal challenge.

“The company indicated to us last week that they disputed our assessment of whether they met the 2020 Amendment requirements and indicated that they may file some sort of litigation,” DNR Assistant Commissioner Jess Richards wrote in a follow-up email. “At this point there has not been any litigation filed that I have seen.”

The state attempted to pull the leases in 2016 when Essar first defaulted on the project, but a last-minute bankruptcy filing tied the minerals up in court and the DNR eventually reached a deal with Mesabi Metallics. More stop, starts and failed payments since then culminated in Thursday’s news of an official termination.

What’s next, barring intervention by the courts, is a decision from the DNR on what to do with the state’s mineral leases, which have drawn intense interest from Cleveland-Cliffs and newfound curiosity from U.S. Steel. Cliffs has long sought the leases at the project site and already control 3,700 acres of minerals in Nawauk.

DNR officials said they are determining the next steps for the leases.

“The DNR has not made any decisions on future leasing of the state minerals in the area,” the agency said in a statement Thursday. “DNR will take the time necessary to consider proposals from credible entities before deciding how to proceed.”

Time may be on the side of the state, to some extent at least, as regulatory permits remain in flux. 

A proposed bill by State Sens. Tom Bakk and David Tomassoni, Lislegard and State Rep. Julie Sandstede would effectively grandfather the permits into the lease transfer, potentially saving the new leaseholders years in an environmental review process. The bill is currently in conference committee, and the Legislature is expected to convene for a special session June 17 that could move it forward, most likely as a piece of a larger bill.

Still, there is some urgency for the DNR and the Iron Range as Hibbing Taconite nears the end of its mine life in 2024. Cliffs has promised to use the ore in Nashwauk to feed Hibbing Taconite, but is exploring options in the interim.

U.S. Steel and Cliffs have expressed interest in expanding their direct-reduced or hot-briquetted iron portfolio with the site. Either way, the acreage already controlled by Cliffs represents a major factor in not only the life of mine for a standalone project in Nashwauk, but also with investors, who may have to reckon with Cliffs withholding its land from a partnership on site.

Lislegard said Thursday that the most pressing matter now is awarding the leases to a company that will fulfill the promise that Essar could not.

“I am committed to ensuring that the most viable, logical company will receive state leases and following that, once real work begins on the site,” he said, “Iron Rangers can soon experience the economic opportunities they deserve.”

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