Steel Mills
Essar Steel Minnesota Struggling to Complete Taconite Facility
Written by Sandy Williams
September 25, 2014
Essar Steel’s Canadian entities have been struggling with financing this year and now that Essar Steel Algoma problems appear resolved, Essar Steel Minnesota LLC (ESML) finds itself in dire need of capital.
The $1.8 billion taconite plant under construction in Nashwauk, Minn., failed to raise the $361 million in equity needed in time to secure a $450 million high-yield bond deal and was forced to pay back all the bond holder investors. The deal is now off and local officials are wondering how the company will be able to finish construction of the plant and deliver on the 350 promised jobs.
In June ESML President and CEO Madhu Vuppuluri denied reports that the facility was to be sold and confirmed closure of the $450 million bond financing.
As of June, Essar had invested $367 million as of June and committed another $350 million more toward its completion. Bonds and grants were provided by the state of Minnesota including a $6 million loan that will be due in 2015.
The construction of the taconite began in 2008 but was delayed until 2011. Problems paying contractors in 2012 and 2013 caused vendors and crews to walk off the job until only 70 workers were left by spring 2014. The facility is nearly 50 percent completed and was scheduled to begin production in mid-2015.
So far Essar Steel’s parent company in India has not commented, but Essar Steel Assistant General Counsel Mitch Brunfelt has said, “We may have new information to report in the near future. During the summer, significant expenditures took place on the project for construction and procurement, which are expected to continue.”
Last week Essar Steel Algoma the Ontario Superior Court of Justice for a Plan of Arrangement that provides a capital infusion of up to $100 million from Essar Global Fund Ltd to complete scheduled capital improvements and build up seasonal raw material inventory.
“This Plan provides for a comprehensive capital infusion, a substantial deleveraging of our balance sheet and the refinancing of all of Algoma’s senior secured debt,” said Kaylan Ghosh, CEO of Essar Steel Algoma. “In recent months, we have been able to capitalize on the favourable market environment, building on sustainable operational improvements that positioned the Company well for the future. In July and August alone we generated EBITDA of CDN$22 million and CDN$30 million, respectively. Our order book is full and we are currently taking orders for November.”
Sandy Williams
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