Battle on the Iron Range: Between a Cliff and a Hard Place

US miner Cleveland-Cliffs said Monday the courts handed it the breakthrough it wanted at a site rich with iron ore resources in Minnesota.

The United States Bankruptcy Court for the District of Delaware has reaffirmed the 2017 Cliffs acquisition of land located in Nashwauk, Minnesota, and the ruling resolved the land dispute in favor of Cliffs and Glacier Park Iron Ore Properties, the miner said in a statement Monday.

Cliffs CEO Lourenco Goncalves said on Friday he was determined to fight "until hell freezes over" for the land to be awarded to Cliffs, allowing the company to hold onto the resources as Mesabi Metallics progressed a project on-site. The CEO told Minnesota Governor Mark Dayton two years ago he planned for development on site, including a metallics plant.

"With that, Cliffs expects to be able to utilize the acquired real estate interests to implement a financially sustainable plan for the site," the latest statement Monday on the ruling said.

The court determined Mesabi Metallics' lease rights terminated on October 31, 2017, when it failed to exit bankruptcy by such date, and properties acquired by Cliffs include parcels that were previously leased by Glacier Park to Mesabi Metallics, Cliffs said.

Cliffs, established in 1847 and mining iron ore with pellet plants in Minnesota and Michigan's Upper Peninsula, is battling for further control and improvement in raw materials supplies to North American steel mills.

The steel industry is shifting to pig iron-replacement direct-reduced iron/hot-briquetted iron and Cliffs wants to secure volumes to meet surging global demand for pellets and ensure supplies to US and Canadian markets.

High US finished steel prices and support for scrap pricing and a surge in iron ore pellet prices is leading to greater value on offer in converting US resources into higher value metallics, helping reduce iron imports from Brazil, Venezuela, Russia and Ukraine.

Ownership rights at the iron ore mining site have been hotly contested, involving three main parties, due to the grade of pellets and metallic iron units planned for production at Nashwauk.

Minnesota's iron ore industry, which powers much of the US steel industry, relies on taconite ore, which is beneficiated and concentrated into feed and pelletized.

Tom Clarke's ERP Iron Ore and Mesabi Metallics aimed to develop supplies of iron ore pellets and HBI, taking over bankrupt companies and assets at pennies on the dollar and getting investments to follow the same bigger picture -- capture the value add and transition to higher grade iron ore and raw materials.

An expansion into HBI by Cliffs at a new plant being built in Toledo, Ohio, is a strategy already implemented by Goncalves, after Mesabi took the first round in the battle for Nashwauk.

May there be room for another HBI plant, on-site in Minnesota, or elsewhere?

Would there be investor support, even if Cliffs could fund another plant through cashflow?

Goncalves created and pursued a North American and US iron ore and metallics-focused blueprint for Cliffs, which was formerly an international iron ore and coal producer and mine developer.

Cliffs sees a need for high-grade resources to meet demand for steel made possible at electric arc furnace mills using carefully configured iron units with ferrous scrap to ensure the right chemistry and to generate good margins. Voestalpine is selling HBI from Texas to buyers in the US and Mexico. As mini-mills reliant on scrap took share from integrated mills, there may be sufficient demand at EAFs nationwide for several more HBI projects to supply iron and help quality.

THE BLOW-BY-BLOW –AND WHO’S WHO

A unit of India's steel and energy giant Essar Group first started developing an iron ore and pellet project at Nashwauk, close to its acquired Algoma steel mill in Canada, but running out of funding, the assets and resources in Minnesota went into bankruptcy.

Cliffs bid against ERP Iron Ore, a private company which is an affiliate of a group running coking coal mines, bought at low prices and restructured ahead of a shoot up in prices in the past two years. With ERP’s success in timing an entry into coking coal when Cliffs and others wanted to sell coal mines, Clark then pursued iron ore and steel assets to vertically integrate.

Clarke won out for Nashwauk in 2017, and iron ore and DRI project developer Mesabi Metallics Company was formed out of the former Essar Steel Minnesota to complete and expand on Essar's plans for an integrated iron ore mining pellets and metallics site, such as those found in Russia. Cliffs has contested the decision since.

Cliffs last week annulled any notion that Mesabi Metallics and Cliffs had reportedly entered into a 'commitment' between Cliffs' managed mine, Hibbing Taconite, and Mesabi Metallics to supply the Hibbing operation with crude ore.

The miner said neither Cliffs nor the Hibbing Taconite joint venture mine had any iron ore supply agreement with Mesabi Metallics or any other entity owned or operated by Tom Clarke.

ERP Iron Ore first assumed assets from bankrupt Magnetation, a small iron ore pellets producer. It is focused on iron ore mining and collection of iron ore tailings and operates a concentration plant in Grand Rapids, Minnesota, and has a pelletizing facility in Indiana.

ERP Iron Ore associated Chippewa Capital Partners, which is the owner of Mesabi, was reported to have demonstrated securing $850 million in financing to complete the project.

Mesabi is planning to develop iron ore mining and 7 million mt/year pellet operations, backed by prepayments led by Riverdale Commodities SA, a Geneva-based trader and financing group.

Mesabi has additional plans to develop a 1.8 million mt/year DRI plant at the site, which may require around 2.7 million mt of pellets with typical iron grade.

"News reports suggest Chippewa entered into a binding contract with a construction firm, secured sales contracts for around 4.2 million tons of iron ore pellets annually, and was 'speeding up' payments to contractors for previous work," US investment bank Seaport Global said in a July 18 report.

Riverdale is understood to have drawn up pellets and concentrate offtake and sales agreement in a deal with two other trading companies.

Riverdale was set up by Essar originally and is involved in trade and trade financing and structuring. It was bought out and is now owned by a Singapore private equity company, according to its website.

Chippewa, when it clinched the Nashwauk project a year ago had Liberty Group's GFG Alliance as a partner. By September 2017, GFG said it had pulled out of the venture, with sources citing complexities precluding the involvement of Sanjay Gupta's GFG group. Gupta’s companies include a steel raw materials and steel trading arm as well as a mining, metals and steel plant developments.

By 2020, Cliffs said it expects to be the sole producer of HBI in the Great Lakes region with the development of its first production plant in Toledo.

It may be the only such integrated metallics producer in the US, with DRI/HBI plants in the US Gulf fed by imported pellets.