Unemployed Silver Bay mine workers caught in a corporate tug-of-war as benefits run out

SILVER BAY, Minn. — Just off Hwy. 61, Cleveland-Cliffs' Northshore Mining processing plant is a reddish industrial hulk on the north shore of Lake Superior and where just a fraction of workers are still employed.

This plant and the mine in Babbitt, Minn., more than an hour away, have been idle since May 1 because of a long-running dispute between Cleveland-Cliffs and Mesabi Trust, an obscure company that receives royalties on the ore that is mined — an amount Cliffs' CEO Lourenco Goncalves has described as "absurdly high."

It's a clash of two publicly traded companies — one governed by four trustees who are hard to pin down and another with a blunt-spoken CEO.

The closure originally was going to last a few months, but Cliffs said it now is likely to continue for a year. When asked in November when the plant would be reopened, Goncalves said it would be "when I decide to do so."

Caught in between are more than 400 workers whose unemployment benefits dried up weeks ago — and now the holidays are here and the temperature has dropped.

"I'm seeing a not-very-merry Christmas," said Andrea Zupancich, the outgoing mayor of Babbitt, a taconite mining town of about 1,400 on the east side of the Mesabi Iron Range. "Costs are going up. Heat is going up. It's winter. It's somber.

"It's a big unknown. People don't know when it's going to reopen."

Workers here have grown to expect gaps in the mining work and plan for them. As have the grocery stores, hairdressers and auto shops. The impact can be felt in any town, county and school district in much of northeastern Minnesota that depends on taconite production revenue.

"It affects the schools, our water and sewer department, as the mine is our biggest customer by far," said Silver Bay Mayor Wade LeBlanc. "It affects every single business — the contractors who support the mine, they're cut back, too."

At a hockey practice this month at Frank Rukavina Arena in Silver Bay, several of the parents minding young padded players had been laid off from Northshore Mining. They were tight-lipped about how they are faring. Some had just recently been let go; others said they had been told by the company to not talk to media. There is no union backing them.

It's not easy to find a job that pays as well as mining, they said, but they also can't wait around indefinitely without work. There isn't an easy answer for whether they should stay or go.

Dispute at core of idling

Cleveland-Cliffs, which is based in Cleveland and reported more than $20 billion in revenue last year, is the Iron Range's largest mine operator. It's also one of the nation's largest steelmakers. In May, the company idled Northshore after threatening to do so in fall 2021, as its dispute with Mesabi continued.

New York-based Mesabi Trust gets nearly all of its revenue from ore extracted by Cliffs at the Peter Mitchell Mine near Babbitt. It took in $68.8 million in revenue in its most recent fiscal year ending Jan. 31. That compares with $33.1 million on average during the preceding four years.

But with Northshore idled, Mesabi Trust's royalties have fallen to zero..

The current royalty agreement dates to 1989, when Cyprus Minerals bought and resurrected the shuttered Babbitt and Silver Bay assets of Reserve Mining. Cliffs purchased Cyprus Northshore in 1994 and assumed the royalty agreement.

In a July 31 filing with the U.S. Securities and Exchange Commission (SEC), Mesabi Trust said Cleveland-Cliffs had not recently requested any changes to the royalty agreement.

"Cliffs has historically failed to engage in meaningful negotiations to address the interpretations of the royalty structure," the filing said.

After a speech Nov. 17 in Minneapolis, Goncalves told reporters that it's "very difficult to negotiate" with the trust.

"Mesabi Trust has no CEO; it has no executive committee and has a bunch of trustees that have been there for generations," he said. "So, there's nobody home to negotiate. I'm good to negotiate, but I've got to have someone to negotiate with."

Mesabi is administered by Deutsche Bank Trust Company Americas. Chris Niesz, a Deutsche Bank Trust vice president who signed a recent SEC filing, did not return phone calls. One of the four trustees declined to comment; the other three could not be reached.

Big projects on hold

At a strip mall in Silver Bay, Angie Meeks has a curious connection to the waxing and waning of the mining industry. Her parents opened Julie's True Value Hardware in the late 1980s as the city was reeling from the closure of Reserve Mining. She and her husband, Feron Meeks, took over the hardware store during another shutdown in 2009 and remodeled it in 2017 after another.

"We just do things differently," she said of the business adjustment of carrying less stock and employing fewer employees.

While there is a tentativeness now about how to proceed on local projects, according to Silver Bay's economic development director, David Drown, this stall isn't the city-killer experienced decades ago. At that time, the population dropped by nearly half and the housing market crashed.

"The community is pretty nervous about this — there is a hesitation to do big projects," Drown said. "In a lot of respects, people are treading water to see how this plays out."

A new kind of pellet

Three years ago and with much fanfare, Cliffs invested $100 million in Northshore to produce "direct-reduced" taconite pellets — seen as critical for the Iron Range's future.

The new pellet has more iron and less silica than traditional pellets, making it ideal for use in direct-reduced iron (DRI) furnaces. Cliffs owns a DRI plant in Ohio, which churns out 95 % metallic iron that's used in steelmaking.

Through acquisitions in the past two years, Cliffs has gone from being an iron merchant to a fully integrated steelmaker. One of those deals gave it ownership of the Minorca taconite mine near Virginia, Minn., which also has the ability to make direct-reduced pellets.

Cliffs said it has been relying on that plant instead of Northshore for the new pellets.

Cliffs also bought a scrap metal company in 2021, and scrap steel can be used in place of direct-reduced iron in steelmaking. With the increased use of scrap, direct reduced pellets from Northshore "aren't needed at this time," Goncalves said in a July conference call with stock analysts.

Still, he said in November that Cliffs needs Northshore in the future.

'My No. 1 priority'

Among the first tasks newly elected District 3 state Sen. Grant Hauschild plans to do in his new role is prepare a bill for extended unemployment benefits for Northshore miners at the start of the coming legislative session.

Hauschild said it's important to provide relief so workers stay in the area.

"When you talk about families that don't have a paycheck coming in, going into the holidays and paying your mortgage and paying for groceries, you're talking about the hierarchy of needs," Hauschild said. "That is of utmost priority to me, and this is my No. 1 priority."

Back in Silver Bay, LeBlanc has been through this both as a businessman and now the city's mayor. The industry is cyclical but this time around is worse than 2015, he said, because of inflation and the high cost of heating.

Still, LeBlanc is optimistic about his city.

"I don't know if you ever 100 percent recover," he said. "You try to weather the storm and move on once it gets back open."