Steel Products Prices North America
Essar Steel Minnesota Loses Mineral Leases, Files Bankruptcy
Written by Sandy Williams
July 10, 2016
Essar Steel Minnesota entered Chapter 11 bankruptcy protection on Friday after the state of Minnesota revoked the company’s mining leases.
Essar Steel Minnesota was given an extension to July 1 after missing a May 1 deadline to pay off its creditors and prove it could finance a plan to complete its promised taconite operation. Essar failed to make the July payments and Minnesota Gov. Mark Dayton refused to extend the deadline again.
“This morning I instructed the Minnesota Department of Natural Resources to terminate Essar Steel Minnesota’s lease agreements with the state,” Dayton said in a statement. “The company has been told for the past nine months that the state would not extend those leases beyond July 1, 2016, unless it paid the full amounts it owed to Minnesota contractors and showed that it had the ability to carry its current construction project through to completion. The company has not done so, and has provided no reliable assurances that it will be able to do so in the foreseeable future.”
Among other debts, Essar Steel Minnesota owes $66 million in infrastructure costs to the state as well as $49 million to Minnesota vendors and $25 million to other vendors and contractors.
The $1.9 billion project, begun in 2008 in Nashwauk, was to provide the Iron Range its first taconite operation and steel production plant by October 2015 but the company ran out of money. The steel plant plan was scrapped and Essar attempted to move forward on the taconite operation. Most of the employees were laid off in January of this year and construction on the half-built plant was terminated.
Essar suffered another blow in May when Cliffs Natural Resources scooped up customer ArcelorMittal after Essar could not supply promised ore. ArcelorMittal signed a 10-year agreement with Cliffs.
Cliffs CEO Lourenco Goncalves has been a strong critic of the Essar project and has made it known he would like to acquire the lands and operation for an HBI facility. During the first quarter earnings call, he dismissed the possibility of any competition from Essar Steel Minnesota. “It’s gone, game over,” he said at that time.
Commenting on the governor’s decision Friday not to renew the iron ore mine leases, Goncalves said:
“I am pleased that Minnesota Governor Mark Dayton has moved to terminate the State’s existing agreement for the iron ore mineral leases at the Nashwauk mine site. This is the first step in a long-term development process that we believe holds tremendous potential for job creation on the Iron Range.”
“Cliffs looks forward to the opportunity to work in partnership with Governor Dayton’s administration to develop the Nashwauk site as part of our future growth plans toward the production of value-added iron products in Minnesota.”
Dayton said that he and Goncalves have discussed Cliffs interest in taking over the Esssar Steel Minnesota project and they plan to visit the Iron Range together on Tuesday to discuss Goncalves’ plan in greater detail.
The Chapter 11 petition was filed with the U.S. Bankruptcy court in Wilmington, Delaware.
SMU Note: Steel Market Update will welcome Lourenco Goncalves, Cliffs Chairman, President and CEO, as one of our Steel Summit 2016 keynote speakers. Mr. Goncalves will discuss the iron ore markets as well as factors in the world affecting those doing business in North America with those attending our 6th Steel Summit Conference on August 29-31 in Atlanta, Georgia. Details can be found on our website: www.SteelMarketUpdate.com
Sandy Williams
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