Cliffs shows it's for real

The facilities at United Taconite are so large that bicycles are used to speed travel time from one end to another.

Lourenco Goncalves isn’t one for the quiet retreat, but anyone within shouting distance of the Iron Range already knew that.

The chairman, president and CEO of Cleveland-based Cliffs Natural Resources is a dying breed. As the alpha CEO becomes a thing of the past — replaced by the more unimposing figures crafted by Silicon Valley — Goncalves remains a thunderous presence atop one the Iron Range’s most successful companies.

So in April, when the CEO stood in front of local stakeholders in Chisholm and asked why it’s so hard to believe his message, the point should have resonated: Why is it so hard for the business community take him at his word?

To him, the promises have been filled, the checks written, and yet, there’s work left to be done on the Iron Range.

Proving them wrong

For the past half-decade, investors, Wall Street and industry types cautiously eyed Cliffs as it teetered on the brink of bankruptcy and clawed its way back to solvency. That battle kept the company, Goncalves said, focused on the Cliffs’ core operations as it shed coal mines and exited the Canadian iron ore scene.

It wasn’t without skepticism though, even as Goncalves sold his vision on how Cliffs would rise above its massive debt and become a viable company in the steel industry, and shed the reputation of the bad years before him.

Billions in the hole, the Goncalves said the company would reduce its debt, and it did, cutting about $3 billion August 2014 (about $8 billion in total), despite doubts. By 2017, he said, Cliffs would only owe $1 billion.

“I was wrong,” Goncalves said, telling stakeholders that Cliffs’ debt was down to $700 million this year. “It’s phenomenal, it feels good.”

When the outspoken CEO told business leaders in the region that a hot-briquetted iron plant was theirs to lose — referring to his interest in the former Essar Steel Minnesota location in Nashwauk — he again followed through. Three days after a federal bankruptcy judge approved an agreement to allow Chippewa Capital Partners to obtain the site, Goncalves announced his own HBI facility in Toledo, Ohio, with production planned as early as 2020.

Since steel was on a crash-and-burn pace in 2015, paralysed by an unprecedented amount of foreign imports pouring into the U.S., all Cliffs has done was shine light on the path forward and in many ways take the needed steps down that path.

At the end of the tunnel was the completion of a $70 million investment in United Taconite, which Goncalves and the Range christened on May 30, as the Mustang Pellet Project extended UTAC’s viability on the heels of a 10-year superflux pellet agreement with ArcelorMittal.

But UTAC’s road to a more viable future was itself a tenuous one, planned long before the industry and the region had an inkling a steel rebound was in their sights.

If you believe the message of the last year-plus, the Mustang is only but a footnote to company’s plans.

“These moments matter,” said Goncalves earlier this year. “This shows that we are real. We speak from the heart, and are real persons.”

The steel bubble pops

By reputation, the steel industry is cyclical. It isn’t volatile like other parts of the extraction industry, but its downswings have a lasting impact on the support communities and the mindsets of residents.

The so-called “next one” is always too close. The last one was 1985 and the next one came in 2015. U.S. Steel idled for Keewatin Taconite — for what turned out to be almost 20 months — and for a short time idled Minntac in Mountain Iron.

Cliffs was next. It idled United Taconite’s operations in Forbes and Eveleth in July and Northshore in Babbitt and Silver Bay.

The steel industry on the Range was in a full-blown crisis.

The steel industry in the U.S. was in a crisis. Thousands of workers were being laid off from the mines Michigan to Ohio, Indiana, Illinois, Pennsylvania and Alabama.

“Nobody was paying attention,” said Congressman Rick Nolan, D-Minn., in a 2015 interview with the Mesabi Daily News.

While Washington puttered along with business as usual, steel imports ballooned and took over a larger share of U.S. steel’s customer portion. With nobody watching, foreign imports were doing it on the cheap and driving U.S. producers into the ground.

As the story goes, Goncalves turned to Minnesota’s congressional delegation and told them the steel industry needed tariffs, and it needed the White House involved. White House Chief of Staff Denis McDonough was in the crosshairs of Nolan, talked the Obama administration officials into a pre-Christmas meeting on the Iron Range.

Viewed then as a largely symbolic gesture by McDonough, it became the turning point.

“That day changed everything,” Goncalves said.

It took time, but tariffs were on their way to foreign steel imports and the industry was about to find out how critical a point it was.

“Goncalves told McDonough, ‘If you can help these market conditions, we will put people back to work,’” Nolan added.

March 2016

On March 14, Cliffs announced Northshore was coming back online in May: 540 jobs, just like that.

On March 23, the Goncalves told stakeholders at a breakfast in Virginia that United Taconite would reopen in 2016, hinging on a new pellet agreement with ArcelorMittal that would trigger a $70 million expansion and superflux upgrade to the plant. That meant 420 jobs, with an influx of construction work for the expansion.

Cliffs was ahead of the expected curve at this point. With the Empire Mine in Michigan nearing the end of its lifespan, and Essar Steel Minnesota’s contract talks with ArcelorMittal falling through, the Cleveland company was capitalizing, as one does with when the alpha CEO senses an opportunity.

With the market improving, and the 10-year Arcelor contract finalized, Goncalves said UTAC would reopen in October. Less than two weeks later, after a new deal with U.S. Steel Canada was signed, the opening was pushed up to August.

It was the right time to pounce.

“Anyone who wants to sell to ArcelorMittal has to sit and wait,” Goncalves said earlier this year. “We almost got off track on that. If Essar finished, they’d have it, and we wouldn’t be as big. They did not take advantage.”

Mustang comes to life

Cliffs broke ground on the Mustang project in August with an eye toward production in the spring of this year. About 250,000-plus hours of labor and 120 construction jobs later, the company held a grand opening on May 30 and had its first batch of superflux pellets ready to arrive at ArcelorMittal on June 2.

“We started the mill on May 12, at 3 a.m., and 20-minutes shy of exactly one-week, we were shipping on target, flux pellets to the Duluth dock, which is an absolutely unbelievable and unheard of achievement,” said new UTAC General Manager Chad Asgaard at the grand opening. He took over UTAC after Santi Romani’s retirement.

With Mustang up and running, the life expectancy of Mustang is also lengthened as only on pellet is processed at a time.

Goncalves hold the project up as a sample portion of what the company can do: Help reroute the industry’s fortunes, reopen plants, build a new one and do it all in about a year’s time total.

“I did Mustang to show how things are done,” he said, referencing the company’s HBI wishes. “I did a 10 percent demonstration.”

On the cusp of HBI

Goncalves’ pursuit of the former Essar plant in Nashwauk wasn’t supposed to be a well-kept secret. After fulfilling promises of putting iron miners back to work at United Taconite and Northshore, and building a $70 million plant in Forbes, the logical way to build support for the company was through saying he wanted it.

And it worked, for the most part.

Gov. Mark Dayton rolled out the red carpet for Cliffs when Essar declared bankruptcy, but the state mineral leases were snared in the legal proceedings, and Cliffs would have to do things the hard way.

As the bankruptcy proceedings drew longer, and support for Cliffs from local lawmakers shifted in some circles, Goncalves didn’t retreat. Instead he warned Minnesota that Cliffs was building an HBI plant, just where was the issue.

“If it’s going to be here, it’s up to Minnesota,” said in February. “A year ago, it was Minnesota’s to lose. But now, it’s for Minnesota to reclaim.”

The company tested DRI-grade pellets at its Northshore location, but didn’t plan to shift away from Northshore’s current operations. In the idyllic world, it would have already acquired the long-delayed Nashwauk plant by now and started construction. But that’s not the case.

“Believe me, we will do it with the people who will help us get it done,” he said in April … “That’s the way we’re going to be here for a long time. No new blast furnaces will be built, that’s not going to happen again. Today, we only sell pellets to blast furnaces, and that’s a bad start.”

On June 15, three days after the Essar plant went to another ownership group, Cliffs announced it was partnering with Toledo, Ohio for its first plant. Toledo, about 117 miles from the company’s home base in Cleveland, offered a shipping port with access to the Great Lakes provided by Duluth and Two Harbors in Minnesota.

“This is just the first one,” Goncalves said. “The second or third plant, that will take a long time.”

Kelly Grinsteinner of the Hibbing Daily Tribune contributed to this report.


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