New managers of former Essar Steel Minnesota ask bankruptcy court for mineral rights

The former Essar Steel Minnesota has asked the U.S. Bankruptcy Court for permission to take over the suspended mineral leases associated with a half-finished $2 billion taconite and mining operation on the Iron Range.

In a petition filed late Thursday, the newly renamed Mesabi Metallic Co. said the mineral lease rights are a necessary first step in the company's reorganization plan that seeks to restart construction of the stalled iron-ore project in Nashwauk, Minn.

The new management team said in the petition that Mesabi Metallic hopes to complete the problem-plagued project within two years.

This is the same management that last month sued former parent company Essar Global, claiming that the India-based parent firm had committed fraud, financial mismanagement and siphoned hundreds of millions of dollars that should have gone to pay Minnesota contractors, buy construction supplies and honor various vending and government contracts.

Officials with Essar Global in India denied the accusations and said they will vigorously defend themselves in court.

Essar Steel Minnesota filed for Chapter 11 bankruptcy projection in July. That same month, new investors ousted the former chief executive and a key director with the intention of severing ties with Mumbai-based Essar Global. The entity's Essar Steel Minnesota subsidiary owes more than $1 billion.

The Nashwauk project dates back to 2007 when Essar Global bought Minnesota Steel Industries, renamed it Essar Steel Minnesota and promised to build Minnesota's only fully integrated iron-ore mine, pelletizing plant and steel mill.

The project, however, hit financial problems and other delays that caused the company to miss deadlines, leave contractors unpaid and lay off workers.

Through much of last year, Gov. Mark Dayton tried to secure repayment for Essar Steel's infrastructure expenses paid by the state. But after many missed deadlines and broken promises, Dayton and the Department of Natural Resources terminated Essar Steel's mineral leasing rights in July.

In November, the bankruptcy court temporarily disallowed the state's attempt to rescind the mineral rights. That order gave Essar (now Mesabi Metallic) until this month to put together a financial plan to finish the project and also pay off creditors.

Another mining company, Cliffs Natural Resources, had hoped to take over the Nashwauk project from Essar and acquire the mineral rights beneath the ground.

Now the court will decide whether to accept Mesabi Metallic's request for mineral rights and its reorganization plan. A court hearing is expected to be scheduled soon.

Dee DePass • 612-673-7725