As spring begins, so does construction in Nashwauk at one of the region’s largest projects – Essar Steel Minnesota.

The project has literally been decades in the making, with developers seeking to mine the underlying ore body first as Minnesota Iron and Steel, then as Minnesota Steel Industries before finally selling the undeveloped project to India-based Essar in 2007.

The project:

Essar plans to construct an iron mining-to-steel making operation at the former Butler mining operation near Nashwauk. Taconite mining ended here about 25 years ago as demand fell off and the ore became comparatively expensive to mine. The Essar project carries an estimated price tag of $1.65 billion. Beyond development costs, also at stake are 1,000 to 1,500 construction jobs and 500 permanent jobs, once the project has been fully developed.

The project is advancing in stages, the first of which being a mining operation. Steve Rutherford, project manager and local company spokesperson, said current timelines call for taconite mining by the fourth quarter of 2012 with steel making in place by the end of 2015.

Also in 2007, Essar acquired another North American property in Canada. The company has long characterized the two, nearly simultaneous acquisitions as synergy. Algoma Steel is an integrated producer of steel located in Sault Ste. Marie, Ontario. Early taconite production from Essar Steel Minnesota would provide feeder stock for Algoma, according to previous company statements. But Essar’s ownership of a not-so-far-off steel making plant also has raised some local speculation that Minnesota operations will never move past mining.

“I have concerns about (the company’s intentions regarding) the steel making,” said Rep. Tom Anzelc, DFL – Balsam, whose legislative district includes the Nashwauk site.

Those same concerns have been echoed on minnesotabrown.com, an Iron Range blog authored by Hibbing Community College instructor and former newspaper editor Aaron Brown.

In a March 2011 post, Brown wrote: “In general, Iron Range leaders continue to be nervous over Essar’s willingness to deliver an actual steel plant. The company recently purchased steel plants in the United States and Canada. The company also said it will first ship pellets before building the steel production facility, adding a layer of economic uncertainty to that final phase.”

Timelines provided by Rutherford for project development, however, suggest the company still has steel making in Minnesota on its radar screen.

State funded infrastructure:

The project developer has received millions in public subsidies for its Minnesota project, and given that reality, Anzelc and other public officials believe there is public interest to protect.

“I have a responsibility to the people I represent,” Anzelc said.

Essar has received substantial amounts of state aid, including $67 million in bonding to develop project infrastructure and a $6 million loan from the Iron Range Resources and Rehabilitation Board (IRRRB).

State money was provided due to the “innovative” nature of the project. While mining has been prevalent in Minnesota for many years, the Essar development promises the first steel making facility as well.

More than two-thirds of the bonding money, which provided Itasca County with funding for infrastructure needed to support the project, already has been spent. That’s somewhat troubling to Anzelc given a recent disclosure that Essar intends to import steel for construction this spring.

He authored HF 158 along with Rep. Tom Rukavina, DFL – Virginia, Rep. Bob Gunther, R – Fairmont and Rep. Larry Howes, R – Walker. That bill seeks to restrict further expenditures of infrastructure money. Introduced in January, the measure would prohibit more state money from being spent until the company has entered into an agreement with Itasca County that would require 100 percent American manufactured steel be used in “constructing, altering, maintaining or repairing the steel plant.” The bill has not yet been scheduled for a hearing.

Around 24,000 metric tons of steel will arrive on Minnesota’s Iron Range from India this spring, Rutherford confirmed. The decision was made after financing for the project came from Indian, rather than U.S. banks.

Rutherford said the company attempted to obtain financing from U.S. banks but was shut out as U.S. lending tightened in the wake of the Great Recession.

“In three plus years, there was no (U.S.) appetite for financing a project on the Iron Range,” he said.

Indian lenders made buying building materials within the home country a term of financing, Rutherford added, although he declined to specifically name Essar’s financers.

The use of India-made steel, which Essar will supply itself, also means substantial cost savings – approximately $10 million. “We’re really buying from ourselves,” he said.

Nashwauk Mayor Bill Hendricks noted that taxpayer dollars are not being used to fund the foreign steel and 100 percent American manufactured products are being used in infrastructure construction. He and other members of the city council made a decision some weeks back not to support the American steel bill.

“We don’t support that bill and we think it would cause major delays in the project,” said Hendricks. “We’ve waited a long time for these jobs. We don’t want to be delayed another six months.”

Moving forward:

There are about 160 construction workers on the job right now, with hundreds more expected on the job this season. Hendricks said the presence of construction workers already is having a positive impact on businesses in town.

And, despite concerns over Indian steel, Anzelc, chairman of the House Iron Range delegation, wants Essar Steel Minnesota to continue to move forward. “I do support the project,” he said.

In addition to general support, timing for iron and steel also appears, at long last, to be right. After Minnesota Iron and Steel, then Minnesota Steel Industries, failed to launch, followed by recession delays from Essar, demand is rebounding.

In mid-March, Cliffs Natural Resources Executive Vice President Donald Gallagher said that high ore prices, coupled with renewed demand in the so-called BRICs nations (Brazil, Russia, India and China), were now making it cost effective to ship iron ore overseas.

Locally, Hendricks reports that after years of delays, there is anticipation of better economic times ahead.

“The people in the city are ready for this,” he said. “Everybody’s expecting a good construction season.”

Essar has a project labor agreement in place with the Iron Range building trades.

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