Minnesota officials approve new lease for stalled Mesabi Metallics project

Following a debate and last-minute appeal from a rival, Mesabi Metallics on Wednesday won an extension of the lease for its defaulted iron mining project on Minnesota's Iron Range, provided a host of new provisions are in place by May 31.

The unanimous vote by Gov. Tim Walz and the other four members of the state's executive council means Mesabi Metallics and its partners Global Essar and HBI Newco, can restart the mining project in Nashwauk despite failure to previously pay millions in royalties and rents owed to the state.

The approval of the Minnesota Department of Natural Resources lease amendments came after much debate and despite an effort by Ohio-based Cleveland Cliffs to persuade the council to oust Mesabi Metallics from the project in favor of Cliffs, arguing it has a superior track record for completing ore-related projects in the state.

To restart negotiations and to obtain the controversial lease extension, Mesabi Metallics and Essar on Tuesday paid the state $24.5 million plus another $11.5 million to cover previously owed rents and royalties.

The funds were placed in escrow accounts to eventually be parceled out to the Minnesota Department of Natural Resources, Itasca County and the Department of Employment and Economic Development.

The amended lease agreement requires Mesabi Metallics to complete construction of a key ore crusher by December 2021 and to finish the rest of the iron ore taconite plant in Nashwauk by June 30, 2024.

Mesabi Metallics also agreed to have a binding taconite pellet sales-contract in place (for 4 million metric tons of pellets) with a customer by May 2021 and to begin the process of adding a high-value hot briquetted iron (HBI) plant in Nashwauk. The newly approved lease amendments require Mesabi to invest $30 million into an HBI plant that will produce at least 2 million metric tons of value-added iron or steel each year.

Lastly, the new agreement requires Mesabi, Essar and HBI Newco to procure $850 million in debt financing agreements by May 31, 2021, to cover the costs of restarting and completing construction. Some $200 million of the money must be immediately available to ramp up the project.

Failure or delays in meeting any of the new lease's components could — at worst — result in the termination of Mesabi's lease. The state also made clear that any late payment of future rents or royalties would instantly double the amounts owed to the state.

Before voting on the decision to extend an amended Mesabi's lease, executive council members Walz, Lt. Gov. Peggy Flanagan, Secretary of State Steve Simon, Auditor Julie Blaha and Attorney General Keith Ellison heard testimony from Mesabi executives, Iron Range officials and Cliffs CEO Lourenco Goncalves. Some speakers emphasized that the project could deliver $1 billion into state coffers and regional commerce over a decade if allowed to go through.

However, Goncalves blasted the state for considering doing business yet again with Mesabi Metallics and its predecessors who have failed to finish constructing a taconite plant in Nashwauk that remains half-built, despite $1.9 billion spent by various owners over 14 years.

Goncalves said that he would close the Hibbing Taconite facility that Cliffs owns on the Iron Range if the state approved Mesabi's lease extension. Hibbing Taconite is scheduled to run out of minable ore within five years.

Cliffs has been searching for additional remedies in the Midwest but wanted to use the ore from Nashwauk to feed the Hibbing Taconite plant.

Assistant DNR Commissioner Jess Richards insisted that Cliffs chose not to propose a credible written plan. Richards also emphasized that Mesabi must show evidence that it is complying with all financial and construction demands by May 2021 or the state can begin lease-termination proceedings.

He added that the state had little choice but to consider one last attempt at getting Mesabi to comply with a lease, since terminating the mining lease now would likely force the state to start over on the project with a new partner.

Restarting air, water and environmental permit applications with a new entity could take 10 years, Richards said. "Under the negotiated lease terms, Mesabi Metallics and its investment partners have provided the state with a viable path forward for the project."

After two hours of discussion, council members noted they were skeptical but hopeful and unanimously approved extending Mesabi's lease.

Dee DePass • 612-673-7725