DNR says lender not credible for proposed iron ore mine in northeast Minnesota
State agency says additional requirements not met, continues lease termination.
DULUTH -- Minnesota regulators reiterated their plans to strip leases from Mesabi Metallics, the proposed iron ore mine and half-built processing plant in Nashwauk, calling the company's lender not credible and discrediting its excuse for not putting up enough cash on time.
In a letter to the company Wednesday, May 19, DNR Assistant Commissioner Jess Richards said the company's claim that its funder — Mumbai, India-based Essar — could only provide $100 million — half the required amount — in immediately available funds by a May 1 deadline because of the COVID-19 crisis in India was "a deliberate choice" and "not bad fortune."
"It also fits Essar Global’s long-established pattern of showing up late, with less than what is required, and with illusory promises of financing that is unlikely to ever materialize," Richards wrote. "This is also exactly the type of intentionally deficient performance that caused the project to fail in 2015."
After years of missed deadlines and setbacks, t he DNR last year amended Mesabi's leases one last time , giving it until May 1 to put $200 million into accounts, secure $850 million in equity and debt commitments for pellet plant financing, establish offtake agreements for 4 million metric tons of taconite pellets per year and place $24.5 million into an escrow account for missed rents and royalties and a Department of Employment and Economic Development settlement.
Mesabi maintained it had met all of the other requirements, minus only having half the required $200 million. But after further review, the DNR in its letter Wednesday said Mesabi had failed at meeting other requirements in the new lease as well.
Richards said Mesabi refused to provide redacted copies of operative documents, preventing the state agency from carrying out a review.
Additionally, Mesabi said it secured loans from "Mark AB," but Richards said Mark AB was a "not a credible lender for the project" and cast doubt on whether it could actually provide $450 million in financing since that would make up more than 40% of its $1.1 billion in total assets to the project. Mark AB had also not updated the "news" page on its website since 2012, Richards said.
There were also a number of contingencies from Mark AB that made its loan commitment "not a binding and enforceable debt commitment," Richards said. Most notably, it would not be required to advance funds if the project completion cost is less than $450 million.
"This renders the commitment conditional, and exposes the state to the exact risk that the Master Lease Amendment was written to eliminate — 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)," Richards wrote.
In a statement Thursday, Mesabi's Patrick Hynes said the company disputed the DNR's legal claims and said the DNR was requiring it "to comply with different terms than those actually provided in the 2020 Master Lease Amendment."
"Mesabi Metallics also strongly disputes the mischaracterizations made about Mesabi Metallics' intentions related to the project. Mesabi Metallics has worked in good faith with the DNR and other parties to move this project forward so that construction can be completed on schedule and will continue to do so," Hynes said.
The DNR's letter came on Wednesday, the same day Mesabi held an event at its project site to thank supporters and introduce Larry Sutherland as its new president and chief operating officer.
Sutherland is a retired general manager of U.S. Steel's Minnesota Ore Operations at Minntac and Keetac and most recently CEO of the scram mining company Prairie River Minerals near Coleraine .
Wednesday's letter from the DNR to Mesabi was first reported by the Mesabi Daily News.
U.S. Steel, Cleveland-Cliffs want Nashwauk leases
The two companies with operating Iron Range mines — U.S. Steel and Cleveland-Cliffs — are now vying for Mesabi's leases.
Cliffs, which owns a patchwork of land at the Nashwauk site, has long urged the DNR to award it the leases and permits instead so it could build a hot-briquetted iron plant at the Nashwauk site; and has even threatened to close Hibbing Taconite when it runs out of ore in 2025 if it cannot get the Nashwauk leases and supply the Hibtac plant with Nashwauk ore.
But U.S. Steel has also recently expressed interest in the mine.
In a statement to the News Tribune on Thursday, U.S. Steel spokesperson Amanda Malkowski said the company was "gathering additional information on the site and exploring options."
"The close proximity to our Keetac mine would significantly enhance U.S. Steel’s ability to quickly develop and produce from the Nashwauk site, increasing the flexibility we could have to serve our electric arc furnace footprint in the United States given the permitting in place for a Direct Reduced Iron (DRI) facility on the site," Malkowski said.
Cliffs on Thursday declined to comment further on the Nashwauk site or U.S. Steel's interest in it. The two companies share ownership in Hibtac. Cliffs, which manages Hibtac, has a 85.3% stake in it while U.S. Steel owns the remaining 14.7%.
The DNR had avoided terminating Mesabi's leases because it would restart a lengthy process to award them to another company. Richards, in an email to the News Tribune, said the leases can't just be transferred to another company after they are terminated from Mesabi while environmental permits for the project don't follow the same fate.
"The DNR has not made any decisions on how it will manage the state minerals at the site in the future. Once the leases are terminated, the DNR could not simply transfer them to another party," Richards said in an email Thursday. "The environmental permits for the project are not the subject of DNR’s lease termination notice."