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Business North - The Daily Briefing - Business Newspaper Online
Facing financial woes, weak debt rating, Essar construction slows
A lack of financing for the Essar project continues to be an issue for the as-of-yet unfinished mining and pellet plant project near Nashwauk.
At last week’s meeting of the Itasca Regional Railroad Authority (members are the Itasca County Board of Commissioners) commissioners heard an update on the project from County Administrator Trish Klein.
Although no Essar executives were present at the meeting, Klein provided commissioners with an update on the project based on recent correspondence with Kevin Kangas, Essar’s Director of HSE, Gov’t and Public Affairs.
Klein told the board that the company is still working on securing financing for the taconite plant project, which they hope to complete by the end of the first quarter, but will more likely conclude in April.
But it may be difficult for the firm to increase its debt. Last October, the steel arm of parent firm Essar Group, headquartered in India, was downgraded to “default” level, according to a report published in The Economic Times. The India-based Care credit rating agency calculated the company’s debt at $5.1 billion, and blamed its debt servicing problems on continued losses. In fiscal year 2013, the global corporation lost $452 million.
In Minnesota, there have been an average of 150 construction workers on site daily, according to a written statement provided to the Scenic Range News Forum newspaper by Essar executives.
“Despite the cold winter and large early snowfalls, we and our contractors have made considerable progress in the areas of concrete foundations and floors, building erection, tank erection, mill shell assembly and tailings basin dam construction,” read the statement.
However, local union officials have reported to the media that construction crews have been called off the site due to nonpayment issues.
Essar acknowledged a reduction in on-site crews.
“While the construction work has continued, efforts to secure the additional funding required to complete the pellet plant portion of the project have progressed on a parallel path (and are) at a very advanced stage. While we work to obtain the additional resources required to sustain higher levels of construction activity, the number of construction workers on-site is being adjusted to fulfill only the critical project execution needs that exist and can be worked on at this time. There are 74 construction workers on-site today (Monday, Jan. 20) and we would expect the number to vary between 50 and 100 over the next few months until better weather and additional financing arrives to springboard a major increase in on-site activity,” the company said in its prepared remarks.
At last week’s RRA meeting, Klein reported that the company recently completed an audit of its finances, which was provided to the Iron Range Resources and Rehabilitation Agency and the Minnesota Department of Employment and Economic Development. Essar also is working with banks in New York and London and is currently completing the due diligence necessary to move financing forward.
Although Klein reported that Kangas said he’s confident the project will come to fruition; “Everything right now hinges on the financing,” she told commissioners.
Financing has been an ongoing issue for India-based Essar. In 2013, the company announced it would delay the opening of its $1.7 billion taconite plant to the second half of this year. Financing issues surrounding an expansion in capacity from 4 to 7 million tons was cited as the reason for that delay.
Current timelines call for pellet production in early 2015. Once operational, the plant would potentially employ approximately 350 persons, according the Essar’s past estimates.
In other business, the RRA:
• Elected Leo Trunt as the board chair and Davin Tinquist as vice chair for 2014.
• Approved the minutes of the Dec. 10 RRA meeting.
• Extended lease agreements for the Mesabi Bike Trail through Dec. 31, 2015.
• Amended a private crossing agreement with Essar Steel Minnesota, extending the agreement to Oct. 1, 2015.Previous Daily Briefing Articles:
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