New owners bring Essar project out of bankruptcy

The former Essar Steel Minnesota project has emerged from bankruptcy court under the new ownership of Chippewa Capital Partners, company officials announced Friday.

Essar, which had been renamed Mesabi Metallics, officially exited its Chapter 11 bankruptcy reorganization plan Dec. 22 after nearly a year and a half, according to records filed in Delaware, where the bankruptcy case was heard.

Virginia billionaire Tom Clarke, who is a Chippewa principal and Mesabi's new CEO, praised the bankruptcy process and the efforts of Gov. Mark Dayton, the Minnesota Department of Natural Resources and the Itasca County Board of Commissioners.

State and local officials worked closely with Mesabi and Chippewa to make sure the $1.9 billion project could be brought back to life under new ownership, Clarke said in a statement. Chippewa and its partners committed to investing another $500 million in the project through loans and equity payments and also promised to partly pay many contractors who were left unpaid when the former Essar ran into financial trouble.

Under Chippewa, the half-built plant in Nashwauk is expected to see construction completed in the next two years or so. It is expected to produce 7 million tons of iron ore pellets a year. Separately, a new advanced ore processing plant will be added on the same site. It will produce 2 million tons of hot briquette iron a year.

Chippewa Capital officials thanked Minnesota contractors for their patience and commitment to finish the multibillion-dollar ore project. Many contractors were left in the lurch for millions of dollars after the massive construction project mostly shuttered in 2015 after years of financing woes by the prior owner, based in Mumbai, India.

As a result of the bankruptcy restructuring plan, Chippewa Capital provided the funding for Mesabi to make deferred mechanic lien-holder payments last Friday. Those payments are now three years ahead of schedule, officials said in the statement.

Dayton said in an e-mail that he thanks Chippewa Capital and specifically Clarke for expediting the critical lien-holder payments, which were another step that helped the long Essar drama move forward.

"The Nashwauk project's emergence from bankruptcy is a very important step toward Chippewa Capital Partners' stated goal of finishing construction on the former Essar plant, obtaining the necessary financing and operating agreements and beginning production, which will mean more jobs for the Range," Dayton said.

Mesabi is working with an international team of experts including Kiewit Energy Group, Tenova and Danieli to complete the Nashwauk pellet plant and to build the briquette plant next door.

Clarke said the project has equity investors from three continents and believes prospective global pellet sales will revive the old Essar site and inject jobs and economic value into the once-dead project. The project is intended to provide "substantial employment and tax benefits to northern Minnesota" throughout the construction period and afterward, he said.

The former Magnetation ore assets in Grand Rapids that are owned by another Clarke affiliate, ERP Iron Ore (ERPI), will be integrated into the Mesabi operations in Nashwauk. They will provide an additional 3 million tons of ore that will eventually be pelletized at ERPI's Metso plant in Indiana or sent to a production facility in Lorain, Ohio.

David Pauker, Mesabi's chief restructuring officer throughout the Chapter 11 bankruptcy, said the bankruptcy raised "the very real prospect of liquidation" of the Nashwauk properties.

"Instead, on emergence from bankruptcy, contractors and others who worked on the project received 75 cents on the dollar and lenders received a notional recovery of 30 cents, including new bonds," he said.

Barb Naramore, assistant commissioner of the Minnesota Department of Natural Resources (DNR), said Chippewa Capital still has a few steps to complete before the state will give the company the mineral lease rights associated with the Nashwauk mining property.

Chippewa has until May 2018 to present the state with a copy of the contract proving it has a buyer for the iron ore that will be mined from Nashwauk. Chippewa has until June 30, 2018, to present the state with evidence that it has indeed secured all of the financing needed to finish construction of the half-built ore pelletizing plant in Nashwauk.

"They are making progress but have more work to do," said Naramore during a phone interview.

The fact that Mesabi Metallics has formally exited bankruptcy means that the control of the mineral lease rights for Nashwauk now transfers from the court back to the state's DNR division, Naramore explained.

The DNR will maintain control of the leases until Chippewa fully complies with all its financing and contract obligations to the state.

Once Chippewa meets the conditions of its agreement, the state will reinstate the mineral leases so they are under Chippewa's control, Dayton and Naramore said.

Dee DePass • 612-673-7725