After spending nine months under bankruptcy court protection, Mesabi Metallics could see its fortune decided next week.
Previously known as Essar Steel Minnesota LLC (ESML), Mesabi Metallics put a reorganization plan forward in January. The company proposes to emerge from bankruptcy under the ownership of California-based SPL Advisors, which has funded operations during bankruptcy.
The process also includes a “market check” – a review of outside bids to ascertain if another entity will offer a better settlement than SPL to creditors. In recent weeks, there has been a flurry of interest by other parties, said Thomas Lauria of White & Case LLP, an attorney for the debt-ridden mining company. Suitors include Chippewa Capital Partners and Cliffs Natural Resources. Alternative plans were scheduled to be opened this week and evaluated next week before the court rules on an acceptable plan as early as next Wednesday.
The bankruptcy is very complicated, even for attorneys, Lauria told BusinessNorth. There are a variety of reasons:
• There was a change of chief executives that occurred just days after ESML sought Chapter 11 protection last July 8. Madhu Vuppuluri, CEO since 2009, was replaced by Matthew Stock. Through his former employer, Stemcor India, Stock had considerable past experience working with Essar Global and the Ruia family, its owners.
• Six months later, ESML filed a $1.1 billion lawsuit against Essar Global, its parent firm, contending ESML funds were redirected to other divisions of the company. Plaintiffs also argue Essar Global paid its subsidiaries to perform work that had nothing to do with the Minnesota project.
• A second billion-dollar lawsuit followed. It was filed by ArcelorMittal, which ESML was contractually obligated to supply with taconite pellets beginning in 2014. With the Nashwauk processing plant not completed, ArcelorMittal signed a 10-year contract to continue buying taconite from Cliffs Natural Resources. ArcelorMittal is claiming losses based on differences between the contract with ESML and one ultimately signed with Cliffs.
• ESML rebranded itself Mesabi Metallics. Prashant Ruia, managing director of Essar Global, and Vuppuluri resigned from the board of governors. Both Essar and Vuppuluri are named as defendants in the ESML lawsuit.
“As a technical matter, the stock is still owned by Essar Global,” Lauria explained, but a new chief executive and new board members are in place. “We are governed by a three-member board. None of them are affiliated with Essar Global by family, financial interests or otherwise,” he said.
That hasn’t always been the case. Two key figures having connections with Mesabi Metallics have previously engaged in business deals or served on boards with Essar executives. Their contacts include members of the Ruia family, which owns Essar Global.
In addition, some don’t believe the degree of separation between ESML and Mesabi Metallics is sufficient.
“The principals of ESML are the same people as Mesabi Metallics except for Matthew Stock,” said State Sen. Tom Bakk, D-Cook. Like other area state legislators, he has kept a close eye on the bankruptcy. Several of his constituents own firms that that were not compensated for work they completed for ESML. While some amounts are minimal, others range in millions of dollars.
“I’m ready to support whoever submits a successful plan,” he said. But Bakk stressed that the reorganization plan must offer assurances that creditors will be paid and state mineral leases will be put to use soon, not sit idle for an indefinite period.
Stock’s connections with Essar
Stock is best known for his 18-year association with Stemcor, a London-based steel trading company, where he became managing director of the firm’s India unit. Among the company’s many trading partners was Essar Steel.
In the late 1990s, Essar launched a major expansion in India, but an Asian economic crisis reduced demand, leaving the steel company deep in debt, according to a July 16, 2010 Forbes India story.
“We have decided that we are not going to invest any more in the project. Whatever more money is required … will be brought in by Stemcor,” Prashant Ruia told Business India in 1999.
Under the direction of Stock, Stemcor India stepped in and purchased a 51 percent stake, renaming the firm Hy-Grade Pellets. Then in 2005, when Essar Steel had recovered, Stemcor sold its equity back to Essar.
With that capital and reportedly a handsome profit, Stemcor reinvested the Essar payment during 2008 in iron ore mines located in Orissa, India. It followed with a pellet plant that obtained ore from the Orissa mine and others majority-owned by Stemcor.
“The pellet plant is the first step. We want to further expand our presence in India and take the learning to other countries including Australia and Indonesia,” Stock told Forbes India at the time. He was named a director on Stemcor’s board in 2009.
After helping Essar through the earlier economic downturn, Stemcor India faced a crisis of its own. Decreased steel demand left its project $1.2 billion in debt by 2013. Its mining divisions were put up for sale. Matthew Stock was among the bidders, according to a Sept. 17, 2013 Bloomberg story. His buyout offer was rejected. Stock was removed as head of Stemcor’s India operations, along with some other company executives.
The British businessman resurfaced as ESML’s chief executive last year with Prashant Ruia’s endorsement.
“The experience that Matthew brings to the table is a critical ingredient in our strategy to finally realizing the vision we originally had when we first began investing in this important Minnesota project,” Ruia said in a news release. “To get the plant completed under the current circumstances, we recognized that a change in leadership was needed. Matthew will provide the new leadership, and SPL will provide the new capital.”
Although Vuppuluri was removed as ESML chief executive, he was given a new leadership position with Essar Capital, also a unit of Essar Global.
SPL’s plan, connections
Although SPL Advisors LLC is sponsor of the plan to bring Mesabi Metallics from bankruptcy, little has been said about the California company, even though it has pledged to infuse $250 million into the project.
“While we would have preferred to complete the company’s restructuring without utilising Chapter 11, we believe that SPL is the right party to carry this project through to completion and remain committed to doing everything possible to complete the process with SPL coming on as the new controlling shareholder of ESML with as little additional expense and delay as possible,” Prashant Ruia told Financier Worldwide last September.
John-Michael Lind is a principal in the Santa Barbara company. His resume is impressive. An attorney, he was a senior associate at White & Case for two years in London and New York. That law firm is among those that represent Mesabi Metallics in the current bankruptcy. Before that, he served as vice president of Salomon Brothers in New York. Lind began establishing ties with Indian firms in 1994. He has more than 20 years of asset management and investment banking experience in India, South Asia and Hong Kong, including as CEO and managing director of the Ashmore India group of financial advisors, according to published biographies.
Lind told Financier Worldwide last year that SPL views the Minnesota investment “as a tremendous opportunity for all parties. We are committed to providing the capital and strategic leadership needed to complete this historic project for northeastern Minnesota.”
Over the years, Lind has bumped elbows with key international businessmen, including top Essar executives. When serving on the board of Aegis Communications Group, Inc., fellow board members included then-ESML Chief Executive Madhu Vuppuluri, Anshuman Ruia (president of Essar Power Ltd. and brother of Essar Global Managing Director Prashant Ruia) and Ravi Ruia (uncle of Prashant Ruia and vice chairman of the Essar Group).
That may be interpreted as good news for people who appreciate the financial leverage brought to the table by Stock and Lind. Others consider it bad news for those who believe Mesabi Metallics has too many past connections with Essar Global.
Chippewa Capital Partners
The latest plan to bring Mesabi Metallics out of bankruptcy emerged from a group that calls itself “Chippewa Capital Partners.” The suitor is affiliated with ERP Compliant Fuels, which purchased the assets of Grand Rapids-based Magnetation to resolve a bankruptcy in 2016. The company says it will invest more than $250 million through a combination of cash payments, assumption of obligations and issuances of new debt.
ERP also has purchased metallurgical coal assets through bankruptcies, Mesabi Metallics said in a prepared statement. It’s a logical pairing. Both coal and iron ore are needed to manufacture steel.
Two of ERP’s coal mines were purchased on the open market from Cliffs Natural Resources. On Wednesday, Cliffs’ CEO Lourenco Goncalves said ERP’s principal, Tom Clarke, has not made his payment.
“I will sue him until he pays me,” Goncalves said.
It’s worth noting that Cliffs is competing with SPL and ERP in the bidding war for Mesabi Metallics. The Cleveland-based iron ore mining and processing company has offered $75 million to bring the firm out of bankruptcy and Goncalves considers iron pellets the future of Minnesota mining. The best Minnesota source, he has said, is in the Nashwauk ore body.
Key opponents emerge
Although Nashwauk-area municipalities originally supported the SPL reorganization plan, two have broken from the pack. Itasca County and the city of Nashwauk, where the mine and partially-completed processing plant are located, both withdrew their endorsements on April 11.
In a prepared statement, Mesabi Metallics downplayed those decisions.
"The votes by the Itasca County Board and Nashwauk City Council are not necessarily votes against Mesabi Metallics reorganization efforts in general, but, rather, are against certain specific aspects of how the Plan of Reorganization treats claims related to the county and city. In voting this way, the County Board and City Council also would have been relying upon the technical advice of their own bankruptcy counsel, again, related to certain, technical aspects of the plan that they do not agree with," the company said.
Mesabi Metallics attorney Mitch Brunfelt did not answer a request for more information.
The Minnesota Department of Natural Resources took a much stronger position. In a bankruptcy court filing, the DNR called the reorganization plan “speculative at best and visionary at worst.”
"Simply put, Essar’s plan fails any test of feasibility that could be applied, and confirmation should be denied,” the agency wrote.
Bakk said it’s imperative for the bankruptcy court to make the right decision. That’s not only because of the high ore quality near Nashwauk, but because a permit already has been issued to make direct reduced iron there. DRI is widely considered to be the mineral most likely to succeed taconite as a required feedstock for steel.
“We worked for years to find a firm willing to make DRI, then years were spent to obtain a permit,” he said. If more time is lost because the property is awarded to an underfinanced company, he said the DRI project will be delayed, the permit will expire and an iron plant won’t be constructed for many more years.
Attempts to contact Matthew Stock and John-Michael Lind were unsuccessful.