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Dayton supports Essar site plan: Governor says Chippewa Capital Partners has made ‘significant’ progress

A road at the then-Essar Steel Minnesota site leads to the pellet plant as it was under construction in October 2015. (Forum News Service file photo)1 / 2
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ST. PAUL — Minnesota Gov. Mark Dayton on Saturday, Sept. 30, pledged the state's continued support of Chippewa Capital Partners' effort to revive the former Essar Steel Minnesota project and finish construction on the taconite mine and processing plant in Nashwauk.

Chippewa, the company formed by billionaire Tom Clarke to complete the half-built project, had faced a Saturday deadline to have financing in place and meet the terms of an agreement reached in federal bankruptcy court.

"After very careful review of Chippewa's progress to date, I believe that they have substantially satisfied its obligations to the bankruptcy court and the state of Minnesota," Dayton wrote Saturday in an "open letter to people on the Iron Range."

"Their progress has been very significant; their securing the necessary financial commitments has been most impressive; their negotiations for an offtake agreement with a Chinese company could open an entire new market for Range production; and their firm commitment to repay contractors $39.5 million next week, altogether are sufficient for me to direct (the state Department of Natural Resources) to file with the bankruptcy court today the state's support for the project's continuation."

Chippewa initially faced an Aug. 31 deadline to have financing in place, as it tries to raise more than $1 billion to finish the project. That was extended to Sept. 30, in an agreement with the state of Minnesota and Itasca County. State mineral leases cover about 30 percent of the taconite iron ore under the project.

Had Dayton not agreed to the extension, or had he withdrawn state support on Saturday, the entire bankruptcy agreement could have unraveled. At stake are hundreds of construction jobs and several hundred more permanent jobs at the mine and plant once they're operating.

In addition to Dayton's letter, the governor's office on Saturday provided a letter from Chippewa's Clarke that estimates the total completed project cost at in excess of $3.5 billion — $1.9 billion already spent by Essar Steel Minnesota / Mesabi Metallics, and at least $1.6 billion more to complete the facility, including the mine, pellet plant and a direct reduced iron/hot briquetted iron plant that would make use of the taconite pellets. That would make it the most expensive private construction project in state history.

Clarke's letter estimates a need for 1,000 construction workers to complete all projects on the site, with an average permanent workforce of 450 employees combined once the mine, pellet plant and DRI/HBI plant are at full capacity.

The Nashwauk project has been in the works for more than a decade, but India-based Essar walked away from the project after running out of cash without finishing it.

The site has sat half-built but idle since late 2015. Essar filed Chapter 11 bankruptcy in 2016, starting the process that now has Chippewa making plans to complete the work.

"We understand the long and difficult process the people of Minnesota have endured before our participation, and we look forward to working together to bring this important project to a successful conclusion," Clarke wrote to Dayton.

Under terms of the bankruptcy agreement, Chippewa must start shipping taconite pellets by December 2020 and complete construction of the DRI/HBI facility by December 2021. The state can rescind its leases if any of those marks aren't met.

Steps taken

Dayton's letter details several steps it says Chippewa has taken to meet its obligations under the terms of the bankruptcy proceedings, including:

• Securing a binding commitment for $250 million in equity investment in the project, and a letter of intent for an additional $250 million.

• Securing the "strong intentions of two major U.S. lenders to provide the remaining financing needed to complete the building of the former Essar site and begin production. I have heard from both lenders, and I am satisfied that their intended involvement is secure," Dayton wrote.

• Obtaining a letter of intent with an unnamed Chinese company for a 10-year agreement to purchase a minimum of 4.2 million tons of pellets annually. "With this offtake agreement, Chippewa's products would not compete with other Range taconite operations for the existing U.S. markets," Dayton wrote.

• Transferring $39.5 million to an account to be paid to primarily Iron Range contractors this week, if the project is approved to continue. "They have committed to paying vendors the balance due them, when the company exits the bankruptcy proceedings, a significant acceleration over what is required under the court-approved bankruptcy plan," Dayton wrote.

The letter also noted that Chippewa is working with well-regarded Kiewit Energy Group to reach a contracting agreement to complete the project, and that Texas-based Kiewit "is committed to utilizing local Minnesota tradespeople in completing the project on a projected 31-month timeline after mobilization," Dayton wrote.

Chippewa also is working with the Italian company Tenova to design the DRI/HBI facility at the Nashwauk site. The plant would turn taconite pellets into iron briquettes for the fast-growing electric arc mini-mill market, considered the future of U.S. steelmaking.

Nod to Cliffs

Dayton's letter also acknowledged the interest expressed by Cleveland-Cliffs in acquiring the Essar site. Cliffs owns and operates Northshore Mining in Silver Bay/Babbitt, United Taconite in Eveleth/Forbes and is part-owner and manager of Hibbing Taconite.

"Cliffs has proven itself to be a very strong, and greatly valued, leader of the revitalized Range mining operations. I do not want anything to damage that extremely important working relationship," Dayton wrote. "However, the state of Minnesota is not free to do whatever it wants with this project. ... If the Chippewa project did not continue, everything would revert back to the bankruptcy court. ...

"Re-establishing the project anew under someone else's ownership would be a lengthy process, during which time contractors would not be paid, the site would not be rebuilt, and there would be few new jobs on the Range."

Chippewa filed suit in federal court last month, accusing Cliffs of sabotaging its plans for the Nashwauk site. Cliffs officials said at the time that the company would not comment on pending legal matters.