Essar

Contractors work on a pipeline system which will be used to move tailings from the Essar processing plant to an area four miles away in Nashwauk.

Mesabi Metallics and its plan to emerge from bankruptcy with the former Essar Steel Minnesota iron ore plant near Nashwauk is a moon shot, according to the state.

Attorney for the Minnesota Department of Natural Resources filed on Wednesday the state’s objection to the company’s attempt to assume mineral leases at the site of the half-built project, saying despite new branding efforts the company has not secured needed financing complete construction and operations.

The DNR is seeking a hearing “as soon as possible” for U.S. Bankruptcy Judge Brendan Shannon to resolve the fate of the leases, which were extended in November as Mesabi Metallics cobbled together its reorganizational plan to emerge from bankruptcy.

According to filing, Mesabi Metallics is facing an $800 million gap in financing, entering bankruptcy proceedings in July with about $1 million cash in hand. The reorganization plan filed Feb. 2 that included the company’s disclosures and request to assume state mineral leases, the DNR adds, showed no exit financing partners were secured by the company.

“Essar therefore attempts to shoot the moon — proposing to assume its leases without curing its lease defaults, and without making a commitment to construct a plant, or mine ore, or every pay royalties to the DNR,” the filing states.

Mesabi Metallics, formerly known as Essar, said if the courts did not approve of its reorganizational plan that it would be forced to liquidate the company. A big part of the plan was the company’s hope the DNR would drop its pursuit of reclaiming the leases, which the state claims can be held through 2034.

In July, Gov. Mark Dayton tried to withdraw the minerals leases from Essar and transfer them to Cliffs Natural Resources for a direct-reduced iron facility. Several area lawmakers joined Dayton at a press conference with Cliffs to stand behind the transfer.

That agreement came under fire, and Shannon, at the request of Essar, previously approved a discovery to force all communication between the state and Cliffs to be open for review in the bankruptcy proceedings.

While the state is hoping for a fast resolution to its most recent move, a hearing on Mesabi Metallics’ reorganization plan is scheduled for March 16. It’s unclear if Shannon will agree to an earlier hearing.

That hasn’t stopped DNR attorneys from taking aim at the plan, calling it “substantively and procedurally defective.”

“Simply put, the bankruptcy code requires Essar to cure its defects and demonstrate adequate assurance of performance ‘at the time of assumption of such contract or lease’ — which is now,” the filing reads. “Essar cannot accomplish either task.”

For its own part, Mesabi Metallics had made numerous efforts to shed the Essar label by rebranding and filing a lawsuit of its own against former parent company Essar Global. The suit alleges Essar Global misused funds and revenue for the Nashwauk project on other global ventures, and is seeking about $1 billion in damages.

The Nashwauk facility was supposed to create 350 jobs by 2014 and produce 7 million tons of taconite annually. Original plans called for an iron and steel plant, but were scrapped years ago.

Ground was broken in 2008 on what was supposed to be the first new taconite operation in years on the Iron Range, but it experienced numerous stops and starts. In 2016, as many as 700 construction workers were on the project, but were sent home later that year.

With the Essar out of cash, it eventually entered bankruptcy with more than $1.1 billion owed to creditors, vendors and contractors. In its reorganizational plan, Mesabi Metallics said it plans to continue construction and complete the site.

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