The Minnesota Court of Appeals has upheld the state's decision to terminate mineral leases for Mesabi Metallics' long-delayed iron ore project near Nashwauk.
Appeals court OKs Minnesota's decision to terminate leases for Nashwauk iron ore venture
The state appellate court said the DNR had the right to terminate leases after Mesabi Metallics failed to make a $200 million payment on time.
October 3, 2022 at 5:56PM
The appeals court Monday affirmed a January ruling by Ramsey County District Judge Robert Awsumb in favor of the Department of Natural Resources (DNR).
The DNR in May 2021 canceled the state leases for Mesabi Metallics after the company missed the deadline for a $200 million down payment to complete the half-finished taconite plant. Without the leases, Mesabi's project is not viable.
"Today's decision by the Minnesota Court of Appeals moves the DNR one step closer to finding a credible miner to develop the state ore that was formerly held by Mesabi Metallics," said Jess Richards, assistant DNR commissioner, in a statement.
The Nashwauk project, announced in 2003, has languished for years as its backers have repeatedly run into financial problems.
The DNR cut Mesabi Metallics a last-chance lease extension in December 2020. Mesabi was supposed to have lined up $850 million in financing for the project by May 1, 2021 — with $200 million of that deposited into a U.S. bank account.
But Mesabi Metallics only had $100 million, blaming the coronavirus pandemic in India for financing delays. Essar Global, a multinational metals company owned by the wealthy Ruia family of India, effectively controls Mesabi Metallics.
Like Awsumb, the appeals court did not buy Mesabi's coronavirus argument, noting that the company struck its lease deal with the state in December 2020, as COVID-19 was raging.
"When Mesabi entered into the 2020 amendment, it knew the pandemic was severely affecting business operations, including financing," the appellate court said in its ruling.
It also torpedoed Mesabi Metallics' argument that the DNR didn't "act in a commercially reasonable manner" when it refused to grant the company a short extension of the May 2021 deadline.
"Nothing [in law] requires DNR to provide Mesabi with an extension," the appellate court said.
In a statement, Mesabi Metallics President Larry Sutherland said the company is reviewing Monday's decision, including a possible appeal to the Minnesota Supreme Court.
"Notwithstanding today's developments, Mesabi Metallics remains absolutely committed to the Nashwauk mine and pellet facility," he added.
Sutherland said the company is targeting late 2022 "to let the key construction contracts." Also, Mesabi said it has engaged with Jefferies and BMO Capital Markets to raise more money to complete the project.
Mesabi Metallics' state mineral leases are much coveted by other companies.
Cleveland-Cliffs, the largest player on Minnesota's Iron Range, has long sought them. U.S. Steel, the Range's other dominant iron ore player, also has shown interest.
"The state minerals near Nashwauk remain some of the most valuable iron ore resources in Minnesota," said the DNR's Richards.
The DNR plans to put the leases back on the market. However, that process would likely be delayed if the state's high court decided to hear an appeal from Mesabi — or if the company files for Chapter 11 bankruptcy protection.
Essar Steel Minnesota started building the Nashwauk plant in earnest in 2011 with a planned 2013 completion date. But the project was never finished, contractors ended up with unpaid bills and the company failed to reimburse the state for about $65 million in infrastructure improvements for the project.
In July 2016, after myriad missed deadlines, then-Gov. Mark Dayton moved to terminate Essar's lease. Essar Minnesota responded by filing for Chapter 11 bankruptcy protection.
By the end of 2017, the former Essar Minnesota — rechristened Mesabi Metallics — had financially reorganized with new owners, a new plan and a new lease agreement with the state of Minnesota. But Mesabi Metallics quickly became a shambles.
Essar re-entered the picture in January 2019 by buying up $260 million of Mesabi's outstanding debt and eventually what was left of its equity.
When Mesabi missed more deadlines by Jan. 1, 2020, the state could have pulled the leases then. But it chose to craft another deal with Mesabi.
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