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Appeals court upholds Mesabi Metallics lease termination

The company behind the long-stalled and half-built iron ore mine and processing facility near Nashwauk failed to make a $200 million payment in a last-chance requirement set by the DNR.

A crane sits next to a partly constructed building in winter.
A crane sits next to a partly constructed Mesabi Metallics pelletizing building.
2018 file / Duluth News Tribune
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DULUTH — An appeals court upheld the state's decision to terminate the leases of a long-stalled and half-built iron ore mine and processing facility near Nashwauk, Minnesota.

The Minnesota Court of Appeals on Monday, Oct. 3, said the Minnesota Department of Natural Resource did not err in its May 2021 decision to terminate Mesabi Metallics' leases after the company failed to meet a last-chance requirement set by the state agency after years of missed lease requirements and deadlines.

The DNR pulled the company's leases after it only made half of the required $200 million available by May 1, 2021, blaming the COVID-19 crisis in India, where its funder, Essar, is based, for the shortcoming. Additionally, the DNR deemed one of Mesabi Metallics' lenders as not credible.

The three-judge panel backed a judge's January decision in State District Court in St. Paul that also upheld the DNR's decision but was appealed by the company.

Mesabi Metallics.jpg
Gary Meader / Duluth News Tribune

Like the lower court before it, the appeals court said the DNR was was within its right to terminate the leases.

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"Because Mesabi failed to satisfy the condition precedent in the 2020 amendment requiring Mesabi to have $200 million advanced to it and deposited in its corporate bank account in the United States by May 1, 2021, the 2020 amendment did not become effective and DNR was authorized to terminate the leases ... the district court did not err by determining that DNR’s termination of the leases was effective, and it properly granted judgment on the pleadings for DNR on all claims," Judge Jeanne Cochran wrote in the opinion.

In a statement, the DNR said it wants to find a "credible miner" to develop the site, which it said has "some of the most valuable iron ore resources in Minnesota."

"Today’s decision by the Minnesota Court of Appeals moves the DNR one step closer to finding a credible miner to develop the state ore that was formerly held by Mesabi Metallics," said Jess Richards, assistant commissioner of the DNR. "Once the Court of Appeals has entered an official judgment, the DNR will carefully evaluate options for future development of the state ore to bring reliable royalty revenues to the local communities and other beneficiaries."

Both Cleveland-Cliffs and U.S. Steel have previously expressed interest in the site.

In a news release Monday, Mesabi Metallics said that while it "respects the decision of the Court of Appeals," it reiterated its argument that the DNR's lease termination was "premature" and that the lower court "did not allow for all relevant facts and circumstances to be property investigated."

The company also said it is still moving the project forward, noting the DNR-controlled leases represent 39% of the site.

“Notwithstanding today’s developments, Mesabi Metallics remains absolutely committed to the Nashwauk mine and pellet facility,” Larry Sutherland, president and chief operating officer of Mesabi Metallics, said in the release.

Since 2007, iterations of Mesabi Metallics — the former Essar Steel Minnesota project that has had multiple owners, managers and names — has floundered through construction stoppages, bankruptcies, missed deadlines, late payments and other legal battles. In the works for more than a decade, the project sits about half-finished.

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While Essar walked away from the bankrupt project in 2015, leaving behind $1 billion in debt, the company reentered the picture after settling some $260 million of debt.

Mesabi Metallics' news release on Monday identified Essar Global as its "parent company."

Jimmy Lovrien covers energy, mining and the 8th Congressional District for the Duluth News Tribune. He can be reached at jlovrien@duluthnews.com or 218-723-5332.
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