State pulling leases for long-stalled Mesabi Metallics taconite mine

DULUTH – The Minnesota Department of Natural Resources signaled Wednesday it will cancel leases for the half-built Mesabi Metallics taconite mine on the Iron Range after the company failed to meet state deadlines.

Mesabi Metallics had a May 1 deadline to submit documents and secure funding, and the DNR wrote to the company Wednesday that "it did not meet all of the conditions required" to keep their leases.

"After initial review DNR determined that Mesabi failed to demonstrate that it had $200 million immediately available in its accounts" as required by a deal the state and company made in December, the agency said in a statement. "The DNR has also informed Mesabi that it owes $18 million in minimum base payments for 2020 and that the DNR has initiated termination of the leases."

In a statement, Mesabi Metallics said it is committed to the project and blamed the worsening COVID-19 crisis in India for the funding delay.

The $2.6 billion mine near Nashwauk was given a controversial lifeline late last year after Mesabi failed to meet several milestones required to keep state leases for the long-stalled project that Essar Steel Minnesota began building in 2009.

The project was kept alive by the hopes it would deliver hundreds of jobs to the region and add direct-reduced iron production — favored by newer steel mills — that would make Minnesota ore more valuable in a changing steel market.

But state Rep. Dave Lislegard, DFL-Aurora, said in a statement Wednesday the agreement "was just more in a long line of continued failed promises."

"While we have lost precious time and economic opportunity over the last 13 years, now is the time for us to move forward," he said. "I'm extremely pleased that today the DNR has listened to the will of the people of the Iron Range who have been impacted by this bad actor's inability to meet its commitments."

Mesabi Metallics has 20 days to "to cure the lease defaults or the termination action will go into effect," the DNR said. Letters from the DNR to the company say Mesabi had "no more than $100 million" available for financing construction, well short of the $200 million required by last year's agreement.

The company said in a statement that it is close to securing the final $100 million it needs. "We are confident that the additional funds will be in the operating account within the next few weeks," it said.

"Mesabi Metallics understands that there are those who believe that the entire project should not go forward because of this delay," the company said. "We strongly believe that it is in the best interest of Minnesota for the Nashwauk project to be allowed to commence, and have demonstrated our strong commitment to the project by making $100 million immediately available. … The only piece of the puzzle outstanding is the deposit of the remaining funds in the operating account."

Mesabi had already failed to meet a 2019 construction deadline and a requirement to mine at least 1.6 million tons of ore by the end of 2020 in addition to financial requirements and missed payments.

The company owes the state $18 million in royalty payments plus a $5.9 million bond "to cover at least one calendar quarter of expected payments under the leases," the DNR wrote. "DNR will follow up by separate letter with the amount of rent owed by Mesabi on the mineral leases up to the termination date."

About $1.9 billion has been spent on the project to date by various owners, and two years of construction remain, according to a draft permit issued last year. The mine was slated to produce 7 million tons of taconite pellets per year and employ about 350 people.

Brooks Johnson • 218-491-6496