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Essar ramps up construction
While recent news about price, demand and employment hasn’t been favorable for Iron Range mining operations, the largest mining construction project here during this century is nonetheless moving ahead, executives say.
Essar Steel Minnesota, a $1.9 billion project located north of Nashwauk on the former Butler mining site, is ramping up for a summer of large-scale activity with the goal of completing construction on the taconite mine by the end of this year. It’s permitted to produce 7 million tons of taconite pellets annually and is expected to operate for approximately 80 years.
Reestablishing mining operations here has been decades in the making. Butler ceased production at the site in the mid-1980s. Later, various would-be developers announced plans to reopen the site to mining. But for years, the plans never made it off the drawing board. That changed in 2007, when India-based Essar purchased what was formerly known as Minnesota Steel Industries.
At a ground breaking for Essar Steel Minnesota in 2008, executives then promised a mining operation that would be up and running within 27 months. Timelines, however, were slowed significantly by the worldwide financial crisis and difficulty obtaining the necessary financing.
The project, executives said, is now back on track. Mitch Brunfelt, Essar’s assistant general counsel and director of government and public relations, said current timelines call for a taconite plant that’s completed the construction phase by the end of this year and will ramp up production in 2016.
“It’s been a fairly long journey,” said Essar Steel Minnesota President and CEO Madhu Vuppuluri. “It was hard for a project of this size to progress. We have done everything we could to get this project to this point. We have a very clear game plan to start production in early 2016.”
In late April, when BusinessNorth toured the site, the company reported there are nearly 400 construction workers on the job. That number is expected to peak at 800 later this year.
Despite the coming idling of nearby Keetac beginning in May and the layoff of about 400 workers, a shutdown of Magnetation’s Keewatin plant impacting about 40 workers and a layoff of about 700 workers at Minntac in Mt. Iron beginning in June, there is some hope in the air about Essar.
“I think there’s a lot of optimism,” said Nashwauk Mayor Ben DeNucci, adding that local contractors are scheduling shifts up to six days per week. “Construction has definitely ramped up.”
When Essar begins production, it will be starting operations with a decided advantage over other Iron Range mines. When Butler ceased operations, the company dismantled everything. Building from the ground up meant a high development cost for the project, but it also means state-of-the art equipment will be used throughout.
To find efficiency, one needs to look no further than Essar’s expected employment numbers. Once the operation is producing at full capacity, it is expected to employ 350 FTEs. By contrast, Hibbing Taconite produced 8 million tons in 2012 with 740 FTEs and 7.7 million tons in 2013 with 770 FTEs (figures reported to BusinessNorth for its annual directory of Business and Industry).
“We will be the lowest-cost pellet producer in North America,” said Brunfelt.
The project may at long last be moving forward but the difficult climate for iron ore has fueled skepticism.
“Essar’s recent publicity blitz showing progress at their Nashwauk plant has reassured many in this part of Itasca County that the project is, finally, making progress,” said Iron Range commentator, author and Hibbing Community College Instructor Aaron Brown. “But few truly believe the company’s optimistic timeline for completion and production of iron ore.
“With the global iron ore price drop, it’s hard to imagine a company launching such a big endeavor in such an unfavorable environment,” Brown said. “That being said, Essar will be feeding its own mill in Sault Ste. Marie and might make an exception for this reason. In this case, the loser is Cliffs, which is the company currently supplying Essar’s Algoma mill.”
Essar executives contend that pricing won’t stand in the way of launching taconite production. Vuppuluri said that the North American market is more stable than many global markets, such as China. He added that a supply agreement with ArcelorMittal as well as providing pellets to Essar’s steel making operation at Algoma in Sault Ste. Marie assures the taconite plant customers.
But, as Brown noted, Essar’s start-up may negatively impact others. In February of last year, ArcelorMittal and Cliffs Natural Resources announced an extended supply agreement. One year before that, Essar had signed a 10-year pellet accord with ArcelorMittal that was slated to begin at the end of 2014 but didn’t because Essar wasn’t yet operational. The Cliffs supply agreement extends into 2016 and allowed the mining company to keep its Empire Mine, located in Michigan’s Upper Peninsula, open. Prior to the agreement extension, Cliffs had announced the impending closure of Empire due to a lack of customers after 2014.
While plans for taconite production may be in place, the company has put the development of value-added products, such as DRI-grade pellets and steel making, on hold. Essar is permitted to produce 1.8 million tons of DRI grade iron and 1.5 million tons of steel-making annually. Executives, however, concede that market conditions will determine if and when value-added products come online.
Essar also has asked for legislative relief on original timelines for value-added production. In 2007, the Minnesota Legislature allocated nearly $67 million in state bonding funds for the infrastructure necessary to move the project forward. That agreement stipulated that steel production would begin by October of 2015 or the company would be required to repay the funds. Essar has asked lawmakers for a seven-year extension on steel production timelines.
Range lawmakers, however, don’t seem eager to make allowances. In regional media reports on the topic, members of the Range delegation have conceded that discussions on the extension request will be difficult.
Rep. Tom Anzelc, DFL – Balsam, told BusinessNorth that a meeting on the matter among lawmakers, Gov. Mark Dayton and administration officials and company executives was taking place on April 23. As of press time, Anzelc wasn’t sure of the final outcome of the talks. He reiterated, however, that state officials weren’t likely to fully grant Essar’s extension request.
“I sense a pretty strong and united front that a seven-year extension isn’t warranted but we are open to other options,” Anzelc said. “I think it’s likely that the company has now fully comprehended the reluctance to simply honor their request, and it’s probable that other options will be discussed.”
Meanwhile, construction of a taconite mine and production facilities are providing some, yet limited, peace of mind for a region bracing for a summer of layoffs.
DeNucci characterized the project as a “10” on a scale of one to 10 in terms of its importance to his community. He acknowledged concern about the impact layoffs at Minntac, Keetac and Magnetation will have locally, adding that the community was nonetheless upbeat about Essar’s future.Previous BusinessNorth Exclusives Articles:
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