Cliffs CEO paints upbeat picture of potential for disputed Essar Steel site

The CEO of Cliffs Natural Resources Inc. says that if his mining company gets control of the newly bankrupt Essar Steel site in Nashwauk, Minn., it would build the first of what could be several "direct-reduced iron" plants — an advancement for Minnesota's iron ore industry.

Lourenco Goncalves, CEO of Cleveland-based Cliffs, made the remarks Tuesday at a public meeting at the Nashwauk Township Community Center along with Gov. Mark Dayton. Cliffs has talked before about building a direct-reduced iron plant in Minnesota, but Tuesday marked the company's most detailed ­comments.

Last week, Dayton terminated Essar Steel Minnesota's mineral leases after the steelmaker failed to pay $66 million due the state for the company's long-stalled $1.9 billion taconite mine in Nashwauk. That prompted Essar, an arm of India-based conglomerate Essar Global, to file Chapter 11 bankruptcy in Delaware.

Essar says it's got a new financing partner to inject $250 million into the project. But the state — tired of Essar's delays — is throwing in its lot with Cliffs, which wants to take over Essar's mineral leases.

Cliffs plans to finish the taconite plant that Essar has been building in Nashwauk — but use it only to supply a direct-reduced iron plant. "It will be a pellet plant to feed DRI," Goncalves said. "It will be the first of a series of DRI [plants]."

Essar's taconite plant essentially would serve the same steel mills as mines operated by Cliffs and others, potentially adding capacity to an industry already suffering from overcapacity.

Minnesota's mines produce taconite pellets that are about 66 percent iron, and are shipped to blast furnaces to be mixed with limestone and coke to make steel. Direct-reduced iron plants make a pellet that is more than 90 percent iron, and is used in electric arc steel furnaces. Over the past few decades, electric arc furnaces have overtaken blast furnaces as the primary source of American steel.

Big plans for direct-reduced iron plants in Minnesota have been talked about for decades.

"I started working for Governor [Rudy] Perpich in 1977, and I have been hearing about [direct-reduced iron] ever since," Dayton said in Nashwauk on Tuesday, noting "a trail of broken promises." But Dayton said that "what gives me confidence [in Cliffs] is that Mr. Goncalves has kept his word. In my dealings with him, he has been straightforward."

Dayton had harsher words for Essar, and related a teleconference last fall with Essar's chief executive in Mumbai over money due the state. "I received his assurance over the phone that he would be good for that and that the company would be good for that. It didn't happen."

Goncalves also lobbed darts at his rival for the Nashwauk site, Essar. "They come to places and get the goodwill of the people and the goodwill of the government, and they get funds from public entities. They take that money to Mumbai, and they go away and leave the mess behind."

Essar officials in Minnesota could not be reached for comment Tuesday. But the company has made clear it intends to fight in bankruptcy court to continue its Nashwauk project. Essar claims Dayton's termination of its mineral leases is invalid.

Rep. Rick Nolan, D-Minn., who represents the Iron Range and attended Tuesday's meeting, called the agreement between the state and Cliffs "informal." It could be formalized in "60 days or six months depending on how hard Essar fights in court," Nolan said.

As soon as Cliffs gains official control of the state's mineral rights, Cliffs will begin construction, Nolan said. It could take as long as three years to make anything operational, he said, so the new deal with Cliffs is not an immediate fix to the mining job losses on the Iron Range over the past 18 months.

Staff writer Jim Spencer contributed to this story.

Mike Hughlett • 612-673-7003