Lourenco Goncalves

Cliffs Natural Resources Inc. (NYSE:CLF) has selected a site in Toledo, Ohio, to develop its first hot briquetted iron (HBI) production plant, the company announced Thursday.

CEO, President and Chairman Lourenco Goncalves has said many times that he had hoped to build its first HBI plant on the Iron Range using ore from the Nashwauk mine as feedstock. Those hopes were dashed earlier this week when that ore body and production site were awarded by a federal judge to Chippewa Capital Partners, which submitted a successful plan to bring the former Essar Steel Minnesota operation out of Chapter 11 bankruptcy.

Midrex Technologies was selected to design, engineer and procure equipment for the new plant, which will have the nominal capacity to produce 1.6 million tons of HBI per year.

“Today’s announcement marks a very important strategic milestone for Cliffs as we begin to implement our plans to be the sole producer of high-quality HBI for the EAF steel market in the Great Lakes region. We look forward to the strong margin and earnings potential this new product will generate for Cliffs shareholders,” Goncalves said.

Throughout the bankruptcy proceedings, Goncalves has reiterated his preference to build in Minnesota but warned he would build elsewhere on the Great Lakes if the resources in Nashwauk did not become available. Cliffs submitted a bid to bring the entity out of bankruptcy, but it had a lower value than the one offered by Chippewa and was withdrawn before the court made its final decision.  His plan also differed from the one that emerged from bankruptcy. Goncalves wanted to use the Nashwauk ore strictly to make HBI, saying it should not be processed into taconite, which has declined in value due to oversupply. Chippewa plans to produce both HBI and taconite.

“We thank Gov. John Kasich, JobsOhio and a number of local partners in the Toledo community for their efforts to help advance this project, including an offer of approximately $30 million in grants and other financial incentives. We will continue to work closely with the State of Ohio through the environmental permitting process, and are excited to bring a significant number of high-paying jobs to Ohio.”

“This is great news for Toledo, and we’re pleased that Cliffs chose Ohio for their new investment,” Ohio Gov. John R. Kasich said in a prepared statement. “In addition to our strategic location and strong business climate, our low-cost natural gas resources give job creators in this industry a competitive advantage, something Cliffs recognized when considering sites for this new technology.”

The estimated investment will be approximately $700 million, and Cliffs is currently in discussions with several passive financial partners, the company said in its announcement. Cliffs anticipates breaking ground for the construction of the HBI production plant in early 2018, with the production of commercial tonnage of HBI beginning in mid-2020. Cliffs considers the brownfield site at the Port of Toledo a premier location for development due to its relative proximity to several future customers, as well as its logistics advantages, including affordable gas availability and access by multiple rail carriers.

Goncalves believes HBI is critical to the future of mining and steelmaking in the United States. Unlike taconite, can be used as feedstock for electric arc furnaces, which also use scrap steel as a key ingredient in producing new steel. Electric arc furnaces are gradually replacing much-more-expensive blast furnaces, which consume taconite. A new blast furnace has not been constructed in several decades.

"It’s time for us. The market’s ready (for a HBI plant). If I can’t do it here, I’ll do it somewhere else,” he said April 19 in an address to the Society for Mining, Metallurgy & Exploration conference in Duluth.

Goncalves, however, has said Cliffs will build more than one HBI facility over time, and one of them could still be constructed in Minnesota.

JobsOhio President and Chief Investment Officer John Minor said he was thrilled Cliffs chose Ohio for this investment. “The Toledo Ironville Terminal site is a great location for this first direct reduced iron project in the Great Lakes Region,” Minor said. “JobsOhio, along with our regional partner RGP, the Toledo-Lucas County Port Authority and the City of Toledo are looking forward to supporting Cliffs as they construct this landmark facility that will create 130 permanent jobs and more than 1,200 construction jobs over the next two years."

Goncalves has declined to say where Cliffs will obtain the high-grade ore to use as feedstock for its HBI briquettes if the plant is not constructed in Minnesota. The company already produces a direct-reduced-iron-grade pellet at North Shore Mining in Silver Bay. It has two DR customers – Nucor and Arcelor-Mittal Canada.