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Essar places Essar Steel Minnesota unit under Chapter 11 bankruptcy protection

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Essar places Essar Steel Minnesota unit under Chapter 11 bankruptcy protection

EssarGroup's embattled unit Essar Steel Minnesota LLC placed its iron ore project intoChapter 11 bankruptcy protection after a state regulator moved to cancel itsleases to mine taconite iron, The Wall StreetJournal reported July 8.

The Minnesota Department of Natural Resources terminated themining leases after the company missed a July 1 deadline to complete theconstruction of a US$1.9 billion iron ore pellet plant.

According to the Chapter 11 petition filed with the U.S.Bankruptcy Court in Wilmington, Del., Essar Steel Minnesota reported bothassets and debts between US$1 billion to US$10 billion.

The debt comprises a US$348.8 million term loan and US$530million in project finance debt, including a US$64.2 million grant fromMinnesota's Department of Employment and Economic Development.

The bankruptcy filing will protect the company fromcreditors, seeking to collect their claims or exercise other rights.

The lease termination would be effective in 20 days, and thestate plans to seek rent that Essar Steel Minnesota owes on the mining leases,the newswire cited the state department's letter.

Minnesota State Governor Mark Dayton said the Essar unit hasfailed to pay back to its contractors in full and reassure that it would beable to complete the construction of the plant, even after months of calling.

Dayton added that discussions are ongoing with CEO Lourenco Goncalves, who has stated a "strong desire" to acquirethe existing Essar Steel Minnesota project if the company is assigned themining leases.

Goncalves also confirmed Cliffs Natural's interest toacquire the Minnesota mine site.

In March, Essar Steel Minnesota hired investment bankGuggenheim Partners LLC and law firm White & Case LLP as advisers to helpthe company refinance its debt, which totals about US$1 billion.

Insolvencyproceeding of Essar Steel Minnesota's Canadian affiliate, EssarSteel Algoma is also overseen by the Wilmington bankruptcy court. In June,ESSAR Steel Algomastruck a deal with agroup of New York-based KPS Capital Partners LP and the steelmaker's term-loancreditors to offload its assets.