By Beth Bily
Years ago, there was elation in the air. An area long gripped by high unemployment and dotted with abandoned mines was about to make a big comeback.
In September 2008, hundreds gathered on the Iron Range including state politicians, local officials, economic developers and company executives. It was a celebration of the future – mining was in the midst of a renaissance and the crown jewel, Essar Steel Minnesota, was breaking ground. That day, press releases promised 500 good-paying jobs and Essar executives capped the celebration with the breaking of coconuts – a tradition in the company’s home country of India.
Fast forward six years and the promise of an up-and-running taconite plant in 27 months seems little more than a distant memory. And, the production of slab steel – once considered part and parcel of the redevelopment of the old Butler mining site near Nashwauk is seldom even mentioned.
The project has been plagued by work stoppages, changed plans and, ultimately, a construction site where work has slowed to a trickle, if not halted completely.
Late in January, the company issued a short written statement after media reports surfaced that construction crews were being pulled off the site due to nonpayment of bills. Later in February, it was learned Hammerlund Construction had filed a lien against Essar due to nonpayment of approximately $9 million.
The company maintains there is every intention of moving forward, adding that financing and cold weather are to blame for the most recent slowdown.
“While we work to obtain the additional resources required to sustain higher levels of construction activity, the number of construction workers on-site is being adjusted to fulfill only the critical project execution needs that exist and can be worked on at this time,” Essar said in a January written statement.
As the project has progressed far more slowly than predicted, the mood has shifted and nerves are frayed as locals contemplate both the economic and emotional investment at stake.
“The Essar Steel development in Nashwauk has been a roller coaster for the region,” said Aaron Brown, Hibbing Community College instructor, blogger and author of Overburden: Modern Life on the Iron Range. “Just four years ago, the school ran a referendum on the argument that avoiding consolidation would keep Nashwauk in business in time for Essar to open and save the town. Now, too much time has gone by and some of those same businesses have closed.”
In his office at Nashwauk City Hall, Mayor Bill Hendricks contemplates a five-year city strategic plan. It’s a plan that’s difficult to finalize in a climate of uncertainty.
“They’re shooting for production in 2015. It’s not a predictable date. There are no guarantees and there’s past history,” said Hendricks. “Those who are looking for work and for the prosperity that will come with the plant – they’re not happy.”
Essar executives told BusinessNorth that current plans call for production in Q2 of 2015.
Financing is likely the biggest obstacle to bringing the project to fruition. The current climate doesn’t bode well.
On a global scale, Essar’s financials are troubling. Reports in the Economic Times of India suggest a deeply indebted company. That comes at a time when steel demand is weak and unlikely to offset rising costs.
In its 2012-2013 annual report, Essar Steel acknowledged the difficulty of making timely payments on its debt.
That comes following a $448 million loss during fiscal year 2012-2013, the annual report said. And Essar Steel was not optimistic about a quick turnaround.
“The view for fiscal year 2014 is even more difficult than FY 2013,” the company reported.
Despite weak demand and high debt, the company contends the project is moving forward.
“Substantial progress has been made, and several milestones achieved,” said Kevin Kangas, Essar’s director of HSE, government and public affairs. “We have reached the final stages and expect additional funding to be available relatively soon.”
There’s little that can be done locally to kick start construction.
“We’re monitoring the situation closely – we have a number of contractors who have a vested interest,” said IRRRB Commissioner Tony Sertich. “We know how difficult it is for Essar to get financing. The financing is completely out of our hands.”
The financial investment to date is large. The company received a loan from IRRRB. As of December, the agency was owed $6.96 million. The state also allocated $66 million through bonding proceeds and grants to build infrastructure for the project. ($62.6 million had been spent as of Dec. 31, 2013.)
Essar executives are aware there’s public disappointment that the project isn’t yet completed and that financing has yet to be secured. Kangas said the magnitude of the project has led to the long construction timeline.
“Essar understands the great interest in the ESML project status and schedule, and we have kept all project stakeholders as well informed as is possible,” he said. “Essar deeply appreciates the contributions of and patience of all contractors, vendors and suppliers associated with this project.”
Itasca County Commissioner Mark Mandich, whose district includes the Essar site, said he believes the project will move forward – in time.
“I’m still hopeful that the Indian banks come through” with financing, he said. “I’m pretty sure it’s going to happen.”
But for now, all that local officials can do is wait – wait for financing to come, wait for construction to move forward, wait for the next announcement and hope for the best.
“Iron Range citizens and leaders remain attached to the concept of a high-end taconite and steel plant on the western Mesabi. So much money has gone into the project that failure here would supplant Excelsior Energy as the most expensive economic development mistake in Range history,” said Brown. “Nobody wants to give up on the goal of opening this mine, but the economic realities of this situation are considerably less ideal than everyone had hoped. We now must wait for Essar to hold up its end of the bargain, or sell the project to a company that can.”