Just two days after Chippewa Capital Partners was awarded state mineral leases to mine at the former Essar Steel site in Nashwauk, its sister company, ERP Iron Ore (ERP or ERPI), may be headed into bankruptcy for not paying its debts, including rental payments for state-owned mineral sites near Plant 4 in Grand Rapids.
Both Magnetation and Essar Steel were acquired in bankruptcy auctions. ERP Iron Ore obtained Magnetation and its debts while Chippewa was awarded Essar and its debts. Tom Clarke is a principal in both ERP and Chippewa.
On May 29, three creditors filed an involuntary petition to force ERPI into bankruptcy unless it satisfied its Magnetation debts. The plaintiffs were Minnesota Power Co., Glacier Park Iron Ore Properties of San Antonio, Chester Co. Ltd. and HT Surface and Mineral LLC, both of Hibbing. Collectively, they were owed $4.8 million.
“The following week, ERPI paid some creditors in full,” said Dennis Ryan of Faegre Baker Daniels in Minneapolis, the law firm that represented Glacier Park, Chester Co. and HT Surface and Mineral. After being paid, the plaintiffs filed a motion to withdraw the involuntary bankruptcy petition. Some other creditors, however, objected. They include BNSF Railway Co., which said it is owed $11.9 million by ERPI.
The mineral lease payments to Minnesota are the latest debt to emerge. The amount due is relatively small --about $34,000 -- said Department of Natural Resources Assistant Commissioner Barb Naramore. Unless paid within 15 days, those leases will terminate, she said Saturday. The lease rental is strictly the right to mine at the site. No royalty payments are due because no minerals have been extracted, Naramore explained. ERP has rights to other scram mineral sites not owned by the state, she added.
In the May dispute involving BNSF, the railway alleged ERPI did not meet terms of a settlement agreement that required payments on the debt to be made in equal quarterly installments beginning on July 1, 2017.
“To date, ERP has failed to make any installment payments required by the settlement agreement,” the railroad said earlier this month in a Minnesota Bankruptcy Court filing. “ERP also failed to meet its 2017 minimum annual volume requirement under the Transportation Contract.” BNSF continued. The shipping shortfall totals 2.2 million metric tons, according to the filing.
In reaction to the original plaintiffs asking to withdraw from the case, BNSF said “ERP failed to disclose the existence of BNSF’s claim or any information regarding the total amount of general unsecured claims.”
In another motion, Itasca County objected to a dismissal, saying it has not been paid for five leases and a rail storage agreement.
“The uncured default amounts now exceed $396,000. Of this sum, $328,933 is due through July1, 2018, for train car storage and railroad access fees due to the Itasca County Regional Railroad Authority and $67,154 is due July 1 for lease payments through the third quarter of 2018, on the Plant 4 site, water pump site and Holman basin site,” said the county’s motion.
“ERPI and its related entity, Mesabi Metallics Company LLC, were reportedly set to close on certain financing by June 30, 2018, to facilitate integrating” ERPI assets into Mesabi Metallics Company with related payment transactions. That date has passed without a closing and there is substantial doubt now about the future of course of ERPI,” the county added. Chippewa Capital Partners is a holding company for Mesabi Metallics.
In that court filing, Itasca County, an unsecured creditor, also said “ERPI assets in Minnesota and Indiana are collateral for secured debts, perhaps leaving little or nothing for unsecured creditors. Resolving the remaining unpaid debt claims, the county argued, would best be handled in bankruptcy court.
Itasca County has scheduled a closed session during next week’s county board work session to discuss Mesabi Metallics/ERPI.
A third entity, Liquidity Solutions (LSI), also filed an objection, saying “ERPI may not ‘cherrypick’ certain creditors without regard to payment priority, among other things, in order to remove itself from this court’s jurisdiction.”
LSI is among companies known as mechanics lien claimants (MLCs) – firms that have filed mechanic’s liens against ERP. Those claims take precedence over the unsecured claims filed by the original plaintiffs, LSI contends.
LSI also objected to any potential merger of ERP with Mesabi Metallics, saying ERP’s assets already have been pledged as collateral to firms that have filed mechanic’s liens.
Ryan said rules in the bankruptcy code prevent ERPI from escaping from the involuntary petition.
“The only way they can contest it is by proving they have been paying their obligations on time,” he said, but the evidence indicates otherwise.
An ERPI attorney told him the company likely will stop fighting the petition and now is willing to declare Chapter 11 bankruptcy, Ryan said.
Itasca County Attorney Jack Muhar was well-aware of the court filings and other developments that have taken place in recent days and weeks regarding ERP. What is less certain for now is what those developments mean for the long-term viability of Plant 4 and other ERP assets, including the Reynold, Ind., pellet plant. County officials had been previously told by ERP executives that there were significant issues found at both Plant 4 and the Reynolds facility.
“I think in the next week or so, we’ll get some clarity on what their (ERPI) intentions are,” said Muhar.
Clarke did not return a BusinessNorth telephone call requesting comment.