Construction projects may be far from pre-recession levels, but work on one long anticipated project began in earnest last year. That project has often been referred to as the biggest mining development on the Iron Range.

Essar Steel Minnesota began some construction on its $1.6 billion project last year. The work has made significant forward strides.

Essar aims to construct a taconite mining and processing operation at the former Butler mining site near Nashwauk. The company also has a roadmap for producing slab steel by 2015; however, Essar Project Manager Steve Rutherford said those plans are dependent on world markets.

Mining at the Butler Taconite site ended about 25 years ago as demand fell off and the ore body became comparatively too expensive to mine. Reviving mining at the Butler site has been on the table for decades and explored by several companies, including Minnesota Iron and Steel and later Minnesota Steel, which sold the project to Essar in 2007.

After years of talk, construction moved ahead a good pace in 2011, helped by warm, dry fall weather. Rutherford said there are about 200 workers on site for Essar and another 100 construction personnel are working on infrastructure for the project. He estimated construction work is 25 percent complete.

The company already is permitted to build a taconite operation with 4.1 million-ton annual production capacity. Permitting to increase annual tonnage production to 7 million tons should be completed in 2012. Rutherford said the cost of the first 4.1 million tons of capacity is about $1.1 billion, with the balance of the cost attributable to the expansion.

The added iron ore capacity would require an additional secondary crusher, another concentrating line, extension of the pellet furnace by 70 meters, larger fine and course storage areas, and larger 240-ton mining trucks instead of 200-ton trucks. The company also would accelerate mining, reducing the expected mine life from 20 to 15 years.

Iron Range Resources and Rehabilitation Commissioner Tony Sertich said he’s pleased with construction advances last season.

“I’ve been very impressed with the progress,” he said.

Rep. Tom Anzelc, DFL – Balsam, visited the construction site shortly before Thanksgiving and also was pleased to see the project moving forward. Still, the West Range state legislator expressed disappointment with delays, some of which included difficulties financing, that have stalled the project.

“We’ve been at this for about 40 months. It has moved along much more slowly than I’d hoped,” he said. “My fear is that demand in the BRICs (Brazil, Russia, India and China) will be at its midpoint by the time this development” produces taconite, he said.

Despite forward momentum, the project has endured its share of controversies. Since India-based Essar Steel purchased Minnesota Steel – proposed as an integrated mining to steel making operation – skeptics have speculated that the project would never be more than a feeder mill for Essar’s Algoma mill in Sault Ste. Marie, which the company also purchased in 2007.

Iron Range political analyst and Hibbing Community College instructor Aaron Brown voices a sentiment often heard among Iron Rangers: “I think if steel prices merit the steel mill they will build it. If not, they will ship their ore to Algoma. I think people in the area are encouraged with the active construction but will remain skeptical until operations begin,” he said.

Rutherford’s comments to BusinessNorth confirmed skepticism about the steel-making portion of the project.

“It’s (steel making) still doable if the market’s there,” he said. “Where the market is now, the answer is ‘no.’ It all comes down to convincing bankers that the market is there.”

Rutherford said including slab steel making operations would add an additional $800 million to $1 billion to the taconite mining and production construction costs of $1.6 billion.

The project has received nearly $70 million in public funding for infrastructure. Approximately $5 million of that total came from Sertich’s economic development agency, while the balance came from bonding funds and the Minnesota Department of Employment and Economic Development.

Some of those funds were allocated on the basis that the project was innovative – Minnesota’s first mining-to-steel-making operation.

“If they don’t make DRI or steel, the state has claim to reimbursement,” said Anzelc. “I’m going to insist the state dollars be repaid.”

Meanwhile, Rutherford said construction will proceed throughout the winter. Peak construction is expected sometime near the fourth quarter of this year, when about 1,200 workers will be on site.

Initial commissioning of the plant is expected in the fourth quarter of next year with taconite being shipped by 2013. Once fully operational, Essar will employ about 500. It currently employs a staff of 45 at its Hibbing headquarters and plans to expand that number to 75 by this year.

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