For Clarke, a steep hill to climb

boatload of bad news emerged in recent weeks for ERP Iron Ore LLC (ERPI) and Chippewa Capital Partners (sometimes referred to as Mesabi Metallics). 

Roughly two years after purchasing Magnetation and Essar Steel Minnesota in bankruptcy auctions, Tom Clarke, front man for both, faces challenges that include ERPI’s Chapter 11 bankruptcy declaration and a decision by his own investors at Nubai Global Investment Ltd. to remove him as chief executive of their northern Minnesota companies. 

In a July 27 interview, however, Clarke was optimistic. He downplayed his dismissal, describing it as an internal squabble that unfortunately was made public.

“I spent three hours on the phone with (Nubai executives) this morning (July 27). It’s going to be resolved and it needs to be resolved for the best interest of Minnesota and the project,” he said. “I am the CEO today, at least in my mind.”

He acknowledged plans for ERPI have changed but he blamed the former owners of Magnetation, who took the company into bankruptcy when pellet prices plummeted.

“We won’t use plants 1, 2 and 4, (constructed by Magnetation in Keewatin, Bovey and Grand Rapids) but we will use the Butler Mine (in Nashwauk) … and produce concentrate there that will go to feed the plant in Reynolds, Ind.,” Clarke said. “We have offtake agreements for all of the pellets that come out of Indiana.”

A look at recent events, however, suggest he has a very high hill to climb.

• Four area companies filed an involuntary Chapter 7 bankruptcy petition against ERPI on May 25. Minnesota Power Co., Glacier Park Iron Ore Properties, Chester Co. and HT Surface and Mineral said they were collectively owed about $4.5 million. 

• An objection to the dismissal was filed on June 27 by firms that held mechanic’s liens against ERPI. They argued a dismissal would leave them unpaid.

• Itasca County filed an objection on July 6, saying a dismissal would deprive it of $396,000 owed by ERPI.

• On July 7, BNSF Railway Co. also objected to dismissal of the claim, contending it is owed nearly $12 million by ERPI.

• On July 11, Chippewa received good news. The Minnesota Department of Natural Resources (DNR) agreed to reinstate its mineral leases, which would allow mining at the former Essar Steel Minnesota site in Nashwauk. 

• That news had barely circulated when the DNR came forward with a threat to ERPI. On July 13, the agency said ERPI had not paid rent on its mineral leases for the former Magnetation land. It gave ERPI 15 days to pay up or lose those leases. As of July 25, it still had not been paid.

• On July 17, ERPI converted the creditors’ case from an involuntary Chapter 7 bankruptcy to a Chapter 11 restructuring bankruptcy. It’s secured debt exceeds $50 million and ERPI’s assets are listed as the security.

• Chippewa was hit by another negative court ruling on July 23 when competitor Cleveland-Cliffs was awarded mineral rights on part of the former Essar site. Cliffs had already negotiated a private deal for those rights but a bankruptcy court ruling affirmed its ownership of some parcels and lease rights to others. The decision left Chippewa with a hodgepodge of state parcels that are not contiguous.

• Also on July 23, Cliffs filed a lawsuit accusing Clarke of defamation. Cliffs contended Clarke issued a news release falsely claiming it had spoken with their executives about a pellet supply agreement. That never happened, and the claim has negative repercussions, Cliffs said. Cliffs CEO Lourenco Goncalves said he has never even met Clarke, a claim Clarke says is not true.

• On July 25, officials of Nubai Global Investment Ltd. sent an e-mail to Itasca County Attorney Jack Muhar saying Clarke had been removed as CEO and director of Chippewa Capital Partners. The firm also said it is sole owner of Chippewa.  “Mr. Clarke holds no office or position at Chippewa or Mesabi, and he has been advised to no longer represent that he has any role with either company,” wrote  Nubai attorney Jaipat Jain.

• Later that day, Clarke told a closed meeting of county board commissioners that he remains in charge and has removed two representatives of Nubai Global from his board. The conflicting claims left many scratching their heads.

What now?

After waiting a decade for Essar Steel to develop a Nashwauk mine and taconite processing plant, the latest delays and trickle-down financial problems at ERPI are frustrating for residents, municipal officials and, especially, for vendors that haven’t been fully paid. The top 20 are owed more than $18 million, according to ERPI bankruptcy documents.

“We will pay what needs to be paid to make sure all the mechanics lienholders are satisfied,” Clarke said. “These are people who have businesses and families.”

Payments to creditors will be funded by proceeds from a sale or liquidation of plants 1, 2 and 4. 

“What will be discharged in bankruptcy are these ‘take or pay’ contracts that have a high cost,” he said. Clarke was referring to agreements with BNSF Railway Co., which is owed $12.4 million, and Minnesota Power Co., owed $1.5 million.

During a July 20 conference call with investment analysts, Goncalves said he’s not surprised about the problems Clarke is facing. 

“There’s no plan, no engineering, no nothing,” said Goncalves, who has frequently been critical of Clarke. He also suggested Clarke’s financiers aren’t meeting their commitments. “There’s no way he (Clarke) can get money from real sources,” he said. “There’s no finance at the end of the day.”

While Goncalves said he remains interested in the prospect of more Iron Range investment, he said it won’t be until Gov. Mark Dayton is replaced after the fall election. 

“I’m not going to do anything with this lame duck governor who can’t make a decision,” he said.

Also in flux is the situation at ERPI’s pellet plat in Reynolds, Ind. The facility hasn’t produced pellets in two years and could not be reached when BusinessNorth called late in July. A telephone message said the voicemail box was full.

Although its operating permit was renewed on May 11, an Indiana Department of Environmental Management (IDEM) spokesman said an induration furnace is unable to meet previously established emission limits. It earlier was found to expel excessive airborne lead.

“While the permit does not expressly prohibit the operation of the induration furnace, ERPI Iron cannot operate the furnace and be in compliance. This, in effect, makes operating the induration furnace infeasible until resolution of the compliance issues and modification of the permit,” IDEM spokesman Barry Sneed wrote to BusinessNorth in an e-mail. 

ERPI also is a partner with Republic Steel to recommission Republic’s blast furnace in Lorain, Ohio. In a March announcement, Republic said it would be fed by 3.5 million tons of pellets annually from ERPI plus 7 million from the former Essar mine to produce pig iron. BusinessNorth left three messages with Republic questioning what impact the ERPI bankruptcy might have on that plan. None were returned.

Debtor in possession financing of $2 million is being provided by Merida Natural Resources, also a Clarke company, which will be repaid with 10 percent annual interest. The loan is secured by a lien on ERPI’s assets. 

Cliffs is moving forward

Cleveland-Cliffs has assembled a preliminary mining plan for the private mineral rights it obtained from Glacier Park Iron Ore Properties. 

Securing its property is the first step, said spokeswoman Patricia Persico. Cliffs also is preparing to begin exploratory drilling to determine exactly where the deposits are located and what they contain.

On the regulatory front, Cliffs is seeking riparian rights so that water is available when it begins mining. A great deal of water will be needed from multiple sources, she said.

Cliffs also is asking the DNR to remove about one billions tons of ore, which it estimates are available through its new mineral accords, from Mesabi’s permit to mine.

The company did not reveal its end strategy but said the preliminary plan is needed to position Cliffs for a variety of options that might arise in the future.