The state of Minnesota could issue a new lease for the defaulted Mesabi Metallics taconite project in Nashwauk under an amendment proposal the governor’s executive council will review Wednesday.
The lease amendments proposed by the Minnesota Department of Natural Resources would require Mesabi Metallics to first put $24.5 million into escrow accounts and to pay an additional $11.5 million in past due rents and royalties that are owed to the state. Those moneys are due Tuesday.
The funds will be overseen and used by the DNR, the state Department of Employment and Economic Development and Itasca County.
If approved by the state’s executive council, the newly amended lease will require Mesabi Metallics and its two partners — Essar Global and HBI Newco — to complete construction of several structures in Nashwauk by specific dates, a task that has proved difficult to date.
The revised lease idea has ruffled some feathers because it means the state could allow Essar Global, now based in the Grand Cayman Islands, to continue to be part of a long drawn out Iron Range construction project that has yet to materialize despite 14 years of promises.
Essar Global’s subsidiary, the Mumbai-owned Essar Steel Minnesota, is the entity that filed for bankruptcy on the failed $1.9 billion project in Nashwauk in 2016. The bankruptcy came after 10 years of missed payments, missed construction deadlines and broken promises to contractors, the state and municipalities. It owed creditors more than $1 billion in debt at the time of the filing.
The DNR had tried to bar Essar Global from doing business in the state. It has since agreed to allow it to be a financial stakeholder but not to have any operational role in the Mesabi Metallics project.
Officials at Mesabi and Essar could not be reached for comment.
Now, if approved, an amended state lease in Nashwauk, would mean Mesabi must complete construction of the crusher portion of the taconite pelletizing plant by December 2021 and to finish the rest of the plant by June 30, 2024.
It must also have a taconite purchase contract known as a “binding and enforceable” off-take agreement signed by a pending customer by May of next year. That contract must be for the sale at least 4 million tons of taconite pellets, according to the amendment documents.
The state has also demanded that Mesabi Metallics honor the original spirit of the project that started in 2007 with a promise to provide not only a taconite pelletizing factory, but also a “higher-value” iron ore processing plant that can make a type of hot briquetted iron that can be readily turned into steel. The state wants hot briquetted iron that contains about 90% pure iron. That’s a much higher iron content than taconite pellets posses.
The state’s new amendment proposal demands any new HBI plant produce at least 2 million metric tons each year of “Value Added Iron or Steel Products.” The state will require HBI Newco and its HBI construction firm to go through a series of survey, engineering, and environmental analyses and permitting steps.
In addition to construction dates and demands, the new lease comes with hefty financial guarantees.
Mesabi must obtain binding debt commitments “totaling at least $850 million, including at least $450 million of debt financing from lenders unaffiliated with the equity holders of Mesabi, MHL and HBI Newco,” the amendment said. At least $200 million of the debt or equity financing must be advanced to Mesabi, be held in a corporate bank account in the United States and be held in the name of Mesabi.
The new financing requirements means that the project could cost about $3 billion.