Minnesota Department of Natural Resources officials told Mesabi Metallics on Wednesday that it failed to meet more conditions of an amended mineral lease agreement, striking the agency’s most forceful tone to date on the company’s erratic track record in Nashwauk.
The letter, obtained by the Mesabi Tribune, came on the same day Mesabi Metallics introduced its new public figurehead for the project, Larry Sutherland, who alongside parent company Essar Global said they would ask for a stay on the lease termination process and claimed another $100 million in cash would be available within 48 hours.
Assistant DNR Commissioner Jess Richards wrote in the Wednesday letter that the agency was still completing a review of the documents, but added it had enough to determine that Essar’s debt agreement was contingency based, with a non-credible lender, and claimed the parent company was holding $100 million hostage until the DNR certified the lease amendment.
The amendment was approved by the state Executive Council last year and if conditions were met, would have given the company until 2024 to complete construction and process ore.
DNR officials informed Mesabi Metallics on May 5 that it failed to secure $200 million in cash financing, providing only $100 million, which the company blamed on delays due to the COVID-19 crisis in India. Richards countered Wednesday that information reviewed by the agency showed COVID-19 was not the issue.
Rather, he wrote, Essar would produce the second $100 million only if the state guaranteed the terms of the amendment, and that “DNR notes it was not bad fortune that caused the failure — it was a deliberate choice by Mesabi and Essar Global.”
He continued: “It also fits Essar Global’s long-established pattern of showing up late, with less than is required, and with illusory promises of financing that is unlikely to ever materialize. This is also exactly the type of intentionally deficient performance that caused the project to fail in 2015.”
Essar broke ground on the former Butler Taconite project in 2003 and ultimately led the once-promising project into bankruptcy in 2016 to the tune of $1.1 billion — putting a number of local contractors on the brink of their own financial ruin — despite numerous promises to deliver funding to finish construction.
In Nashwauk on Wednesday, Essar Global co-owner Ravi Ruia said “I sincerely regret that the project was disrupted a few years ago,” according to WDIO.
The cause of that bankruptcy was alleged to be financial mismanagement by Essar Steel Minnesota, who a trustee-based lawsuit claimed was funneling money for Naswahuk into other assets of the Essar Global enterprise.
Richards’ letter now claims that most recent the loan commitment provided by a lender — identified only as the pseudonym “Mark AB” — was not binding or enforceable, “contains numerous contingencies” and questioned the credibility of the lender.
Among the contingencies identified by the DNR included one that said the funding would not be required if the cost to complete the project “at the time of the draw request is less than $450 million” as determined by the lender’s technical advisor.
“This renders the commitment conditional and exposes the State to the exact risk that the Master Lease Amendment was written to eliminate,” Richards wrote, “that financing for the project will evaporate if the cost to complete the facility exceeds $850 million for any reason (a likely outcome given the history of this project).”
On the unidentified lender, Richards wrote that they have about $1.1 billion in assets under management and it was not credible to suggest they would commit more than 40% of those assets to one project. Further, he wrote, there was little evidence of activity and financial information presented to the DNR dated back to only 2019.
Richards noted the DNR will continue due diligence on the lender, but “the available information already establishes that it is not a credible lender for the $450 million term loan commitment, a commitment that itself is also rendered meaningless by virtue of its contingent nature.”
This is a developing story. Check back for updates.