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Updated: Cliffs Natural Resources and Essar Steel Minnesota Squabble

Written by Sandy Williams

Cliffs Natural Resources is back pedaling after CEO Lourenco Goncalves said he would shut down a plant in the Iron Range if Essar Steel Minnesota goes into production.

“If they go online, I will shut down a plant up there the same day,” Lourenco Goncalves said in an exclusive interview with the Mesabi Daily News last Thursday. “We have fully planned for the worst case scenario.”

Cliffs Natural Resources issued a statement on Monday clarifying that it “does not have any current plans to permanently idle or close any of its Minnesota mines.”

Essar Steel Minnesota said it expects its $1.9 billion* taconite facility to begin production mid-2016 in Nashwauk, Minn. Cliffs says it does not believe Essar’s timetable is accurate. In July 2014, Goncalves and three Cliffs executives toured the Essar construction site and, based on that visit, concluded that Essar “substantially overstated” the project’s state of completion.

Essar claims the facility is 86 percent completed and on schedule to start producing 7 million tons annually beginning in the second half of next year.

In 2007, Essar Steel Minnesota received $72 million in state grants and loans from Minnesota in return for promises to build an integrated taconite and steel mill by October 1, 2015. Financing problems caused delays and eventually shelved plans for the steel mill.

Cliffs said in its statement that the Minnesota loans to Essar “was not to subsidize iron ore pellet overcapacity in the U.S., but to support the construction of a new steel mill in the Great Lakes region.” The company added, “It is Cliffs’ position that Essar Minnesota should be required to immediately repay its construction subsidy due to Essar unilaterally changing the scope of its project.”

Minnesota is holding Essar to the original contract that would have given the state its first steel mill. State officials and Essar Steel Minnesota have been in talks about repayment of $67 million incentives and $6 million loan.

“It’s great that they are finishing their project and going to make taconite sometime next year. But the state absolutely can’t be in the business of subsidizing foreign-based competition to our other Iron Range (mining) companies,” said state Rep. Jason Metsa, DFL-Virginia in a comment to the Duluth News Tribune.

Essar is also in a dispute over violation of its natural gas contract for the taconite project. It is appealing a $32.9 million judgment against the company by a federal judge in September.

Market pressure has added to the tension among Iron Range firms. Iron ore prices have been at historically low levels, exacerbated by lower steel production due to imports and a struggling oil industry. A flurry of layoffs occurred this year in Minnesota with US Steel, Magnetation, Steel Dynamics and Cliffs Natural Resources all adjusting production.

*Updated on 10/21/2015 – Error in reporting the cost of the taconite facility as $1.9 milliion has been corrected to $1.9 billion

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