Essar Steel Minnesota needs help from the Minnesota Legislature in 2015 to forestall repayment of a $67 million state subsidy used to build its new taconite plant in Nashwauk.
Essar officials met with the Iron Range delegation of state lawmakers recently and said they can't meet an October 2015 deadline to make not just taconite iron ore pellets but also steel at the facility that remains under construction nearly eight years after the project began.
Moreover, the company says it has no plans or money to build the steel mill.
"Our current business focus is on completing the taconite mine and processing plant,'' said Mitch Brunfelt, Essar Steel Minnesota's assistant general counsel and director of government and public relations. "Any downstream business decision (on building a steel mill) will be assessed going forward."
The 2007 legislation that gave Essar $67 million to build infrastructure was tied to the company not just mining and concentrating taconite iron ore into pellets, but also using those pellets to make directly reduced iron and also finished steel at the same location, the much sought after added-value product and added jobs Iron Rangers have sought for a century.
The state money, funneled through Itasca County, paid for roads, railroads and gas, water, sewer and electrical lines to the plant.
The taconite plant was to employ 300 people. The steel-producing facility would have added another 100 jobs.
"They are asking for a seven-year extension to 2022, to prevent having to pay back the state money. But they also need language changed on the steel part,'' said state Rep. Tom Anzelc, DFL-Balsam Township. "We'd need to pass legislation in the 2015 session to make this happen. I'm not sure if there's support. The jury is still out."
Essar broke ground for the new, nearly $1 billion mine and processing plant in 2008 and has all of the necessary government permits in hand to finish work and start production. It was to be the first such facility in the nation with mining, processing and steelmaking in one location. The steel plant would have added another nearly $1 billion to the project.
But progress has been painfully slow, stopping for months at a time as the company appeared to run out of cash to pay for construction. Only in recent months did the company secure the $800 million it needed to restart work on the taconite plant.
"Obviously we had some significant delays. It took us 26 months to secure financing for the taconite operations,'' Brunfelt said. "That's why we need to get that extension. The terms (length) of the extension are still a work in progress as we talk to the delegation and Legislature."
But Essar officials also told the Iron Range lawmakers that the steel mill isn't in the cards at the Nashwauk location, which Anzelc said was the primary reason the state offered so much money to the project.
In 2007 "it was an extraordinary ask by an extraordinary company that promised to do extraordinary things,'' Anzelc said. "Now, it's another taconite plant. And we're subsidizing them to compete with existing companies."
In addition to the $67 million from the state Department of Employment and Economic Development, the Iron Range Resources and Rehabilitation Board kicked in another $6 million loan. The IRRRB already has moved on several occasions to delay repayment of that loan.
The IRRRB loans also are backed by a letter of credit from the parent company. But the state money has little collateral except for the utilities and other infrastructure already in place.
It's not clear what would happen if the Legislature does not act and the state seeks to recall the $67 million in October.
"We're in a very difficult situation,'' Anzelc said. "Needless to say, we have a lot of discussion ahead of us."
Essar officials in recent weeks have extolled progress at the construction site and say they now have financing in hand to complete the nearly $1 billion taconite plant -- the first new, large-scale taconite operation on the Iron Range in more than 30 years. Officials say past-due bills to construction companies have been paid and that liens have been released.
The company says more than 200 construction workers are on the job now and they hope to be producing pellets by the end of 2015. They expect 800 construction workers on the job by summer.
"That's what they said. It's going to have to be a very aggressive construction schedule to get there," said Senate Majority Leader Tom Bakk, DFL-Cook.
Brunfelt said the company expects taconite operations to be at full capacity sometime in 2016.
Anzelc said Essar still is considering, if market conditions allow and additional financing can be secured, to produce a so-called directly reduced iron pellet at the Nashwauk facility. That pellet would add production jobs but also offer a new market for Minnesota taconite -- electric arc mini mills. Currently, traditional Minnesota taconite can only be used in larger blast furnaces.
Taconite from the Nashwauk plant will run out of the plant by rail and on to Essar's Algoma steel mill in Canada, to other U.S. mills or even as far as Essar steel mills in India, company officials have said. Between Essar's own steel mills and contracts already secured to sell taconite, the Nashwauk plant's production already is spoken for, Brunfelt noted, which should help cushion against the current global oversupply of iron ore.
Essar Steel Minnesota is a subsidiary of Mumbai, India-based steel giant Essar Group, a $20 billion firm with about 70,000 employees worldwide.
Source: http://www.twincities.com