Construction revived on long-delayed, controversial $2B Nashwauk taconite project

NASHWAUK, MINN. – An industrial resurrection seems afoot at a long-promising but snakebitten $2 billion-plus taconite project.

On a crisp fall morning, a construction site in this Iron Range city teemed with workers aiming to complete a venture given up for dead by just about everybody but its owner, Mesabi Metallics.

After years of missed deadlines and financial failures, Mesabi last year permanently lost crucial state mineral leases. But Mesabi still controls private land leases in Nashwauk. And it has renewed construction of a project that was only half built when work shut down during a 2016 bankruptcy.

The project is now 70% complete, said Larry Sutherland, Mesabi Metallics' chief operating officer.

"I get all of the history and angst over this project," he said. Still, "no matter what people believe, it is going to be completed. There is no question."

Mesabi's corporate parent, India's Essar Group, is committed to spending the roughly $600 million needed to finish the venture, Sutherland said.

Yes, that's the same Essar that ran the project into bankruptcy. It's complicated. But Sutherland said Essar has strengthened its balance sheet; it no longer needs outside money.

"This project is fully financed by Essar, and it is because Essar is debt-free," he said.

Mesabi could regain mineral leases

Mesabi Metallics also has a path to effectively replace the 2,600 acres of lost state mineral leases — at the expense of rival Cleveland-Cliffs, the Iron Range's leading mining company.

The Minnesota Department of Natural Resources yanked Mesabi's state mineral leases and last year re-awarded them to Cliffs. But Mesabi — in a new twist — appears to have wrested control of 3,200 acres of prime private mineral leases from Cleveland-Cliffs.

An arbitration panel earlier this year ruled in favor of Mesabi on those leases. A state district judge must still approve the arbitrators' decision, and Cliffs is fighting fiercely against it.

Without the 3,200 acres of leases, Mesabi's mine would last only 10 to 12 years by Mesabi's estimate, or six to seven years by an estimate from the Minnesota Department of Natural Resources (DNR).

The 3,200 acres is a "game changer," said Joe Henderson, director of the DNR's lands and minerals division. "Our engineers believe that with the 3,200 acres, depending on the economics of it, they can have at least a 20-year life."

Project controversial but significant

If completed, the Nashwauk project would be the state's first new taconite mine and mill since the 1970s — and a big economic boost for the Iron Range.

Essar, a metals and industrial giant, was heralded back in 2007 when it bought out a moribund effort to build a new taconite facility where Butler Taconite, which closed in 1985, once stood.

Essar started construction in earnest in 2011, with a planned 2013 completion date. But Essar ended up scrambling for cash, shorting some contractors and failing to reimburse about $65 million in state-funded infrastructure improvements for the project. (A state official confirmed that Mesabi is current on a repayment plan for the public money.)

In July 2016, after Essar missed myriad deadlines, then-Gov. Mark Dayton moved to terminate Essar's mineral leases. But Essar thwarted Dayton by filing for Chapter 11 bankruptcy protection, owing its creditors well over $1 billion.

Essar lost ownership in the venture, which was rechristened Mesabi Metallics when it exited bankruptcy in 2017. Within two years, Essar had regained control of the project through Mesabi Metallics.

Still, little work was done in Nashwauk until fairly recently. Sutherland said Mesabi has spent $120 million on construction in the past 18 months.

About $1.8 billion has been invested since day one in the project, which is estimated to cost about $2.4 billion — $1 billion more on an inflation-adjusted basis than U.S. Bank Stadium.

At least 300 building trades people were working during an October visit by the Star Tribune.

Cranes guided hulking pieces of steel equipment into place. Workers put down floors in a building. Sutherland, on a tour of the grounds, proudly pointed out the plant's primary ore crusher, a behemoth machine that reaches 90 feet underground. It had just been installed.

"There has been a significant increase in construction," said the DNR's Henderson, who visited the Mesabi Metallics site in August. "They have substantially ramped up their activity."

Mesabi Metallics had to apply to the DNR for an amendment to its "permit to mine" because with the loss of the state leases, the mine's footprint changed. Mesabi also has to renew its air and water permits with the Minnesota Pollution Control Agency (MPCA).

"Renewing permits is a complex process; this renewal is in the early stages and has multiple steps before any decisions are made to re-issue either or both permits," the MPCA said in a statement.

The length of the permitting process could affect Mesabi's aggressive timetable for completing the plant. The company aims to start commercial production in 2026′s first quarter.

"The only thing that keeps me awake at night is a potential delay in permits," said Joe Broking, Mesabi Metallics' CEO. "Selling pellets to customers does not keep me awake at night. We are in deep conversations with customers globally."

Plan modernized as industry changes

Mesabi Metallics still plans to produce up to 7 million tons of taconite pellets annually. But it's now focusing on producing higher-grade, "direct reduced" iron ore pellets.

It's a small but growing market globally as steelmakers increasingly move from traditional blast furnaces to electric furnaces. The higher-grade pellets can be used in both types of steelmaking, but electric furnaces are less enviromentally troublesome because they don't use coal.

"The market is shifting significantly," Broking said.

Essar has changed significantly, too, he said, noting "we have completely rebuilt relationships" with the state. Those relationships were frosty just 18 months ago.

In May 2023, Gov. Tim Walz publicly upbraided Essar and its billionaire co-founder Ravi Ruia at a meeting called to re-award state mineral leases to Cliffs. The DNR had revoked leases to Mesabi in 2021 after the company missed key financial deadlines.

"That ship has sailed and there is no longer any battle over it," Sutherland said. "But we have a vast amount of ore available to us — 50 years of ore."

Key to that is the disputed 3,200 acres of mineral leases to Cliffs, Mesabi Metallics' neighbor and competitor.

In 2017, Cliffs executed a 50-year mineral lease on the now disputed land with Glacier Park Iron Ore Properties. But in 2021, Mesabi Metallics purchased the leased land from Glacier Park, becoming Cliffs' landlord.

Cliffs' lease remained legally binding. But the landlord/tenant relationship "was contentious from the start," Cliffs said in a state court filing.

Mesabi informed Cliffs in August 2023 that Cliffs had defaulted on the lease, court documents say. The reason: Cliffs had not provided any "mine plans" as required by the lease, and Cliffs had restricted Mesabi's access to the property, including by putting up barricades. Two months later, Mesabi terminated the lease.

Cliffs claims Mesabi "manufactured" the defaults. Cliffs successfully petitioned a state district judge in Itasca County to send the lease dispute to arbitration.

The judge, Sarah McBroom, concluded that the arbitrators could decide if the dispute was indeed arbitrable. The majority of a three-person arbitration panel in June found that it was not arbitrable and therefore Mesabi Metallics had properly terminated the lease.

Mesabi Metallics' current permit applications to state regulators don't include the disputed 3,200 acres. However, Mesabi can continue pursuing its current permit for a smaller mine, and at some later point seek a permit amendment covering the additional 3,200 acres, said the DNR's Henderson.

Mesabi declined to comment on its plans.

McBroom is expected to rule on the arbitration decision by early January. Cleveland-Cliffs claims the arbitration panel exceeded its legal authority, and the company would seem likely to appeal any confirmation by McBroom. Cliffs didn't respond to requests for comment.

Mesabi Metallics would be an upstart on the Iron Range, which is dominated by Cliffs and U.S. Steel. And iron ore is not an easy market to crack. Mesabi's Sutherland insists that the completion of the Nashwauk project is a matter of when, not if.

But given the project's checkered history, completion is not a sure thing.