New bid joins former Essar, Magnetation operations

·         John Myers | Forum News Service

·         15 hrs ago

 http://www.virginiamn.com/news/local/new-bid-joins-former-essar-magnetation-operations/article_922cca4c-2a1c-11e7-95bd-235d9c9e71e2.htmlprev n

The former Essar Steel Minnesota project would merge with the former Magnetation iron ore recovery operation under a new bankruptcy court bid that turns the Essar saga on its ear and includes plans for a first-ever direct-reduced iron plant on the Iron Range.

Tom Clarke, the Roanoke, Va. entrepreneur who brought Magnetation out of bankruptcy earlier this year, has now submitted the frontrunner bid for the former Essar project in Nashwauk.

Bankruptcy court documents filed this week reveal that bankruptcy trustees overseeing the former Essar project, now called Mesbai Metallics, have put their faith behind Clarke's Chippewa Capital Partners LLC bid as the "highest and best offer" for the Essar site that has sat half-built but idle for more than one year.

Clarke has landed the backing of London-based GFG Alliance, a consortium between steelmaker Liberty House and the Simec Group. GFG Alliance has developed into a multi-billion dollar metals, mining and energy conglomerate that recently purchased a North Carolina steel mill.

"The consortium brings financial wherewithal, operational expertise and complementary assets which fit naturally with the proposed acquisition," according to the 37-page bid.

The new, combined bid has shaken the bankruptcy case enough so at least one major party, the state of Minnesota, asked that a confirmation hearing on the winning bid, set for Thursday, instead be delayed until at least May 22 so state Department of Natural Resources officials and Gov. Mark Dayton have more time to review the proposal.

That May 22 hearing also is expected to decide the fate of state mineral leases that cover about one-third of the ore at the Nashwauk site, leases the state has tried to withhold from Mesabi Metallics, at least until now.

As part of his bid, Clarke is offering secured creditors $250 million to partially pay-off Essar's debt. His bid also includes a provision to pay back Iron Range vendors and contractors who are still owed money.

And Clarke says he's landed $650 million of senior debt financing to finish the Nashwauk project. Clarke also has promised to pay back $65 million in incentives given Essar from the state.

"Chippewa seeks to make the State of Minnesota whole and reinforce its commitment to the future of the Mesabi Iron Ore Range," the court filing noted.

Iron plant back in project

In perhaps the biggest development, Clarke is promising to build a direct-reduced iron plant, or similar hot briquette iron plant, at the Nashwauk site, a project once considered by Essar but dropped years ago. The iron plant would turn DRI-ready taconite pellets into three million tons of iron briquettes annually that could be used in electric arc mini-mills — an entirely new and long-sought market for Minnesota taconite iron ore.

The Nashwauk iron would displace pig iron for U.S. mini-mills that now comes from overseas. The rich, virgin iron is mixed with scrap metal to improve the recipe for newly made steel in electric arc mills.

"It just seems to me that the United States needs to have a reliable, consistent source of iron, whether it's DRI, HBI or pig iron," Clarke told American Metals Market, an industry newsletter. "And it just seems like Nashwauk is the perfect place to build one."

Clarke also hopes to join Magentation ore with Mesabi Metallics ore to feed his existing pellet plant in Reynolds, Ind., which could begin operations within weeks.

Sales of those pellets would be a revenue source to help fund construction of the Nashwauk project.

Clarke hopes to close on the Essar deal by mid-summer, saying it would take at least three years to complete the iron-producing facility.

The iron plant also would add dozens of jobs to the 350 workers needed at the new Nashwauk mine and processing center — what would be the state's first all-new taconite operations in 40 years.

India-based Essar pumped $1.8 billion into the Nashwauk project over several years but then walked away in late 2015, out of cash and more than $1 billion in debt, declaring bankruptcy last summer.

Mesabi Metallics, the company that has been ushering the project through bankruptcy, had been backed by California-based SPL and appeared progressing toward a deal that would have seen SPL as the lead investor to bring the operation out of Chapter 11.

But late Monday, Clarke's company filed papers that unveiled the new consortium. SPL's bid has essentially been taken off the table, although the company, as the debtor in possession, will get all of its money invested in the project back with interest.

Auction

Federal bankruptcy Judge Brendan Shannon will hold an auction Wednesday in his Wilmington, Del., courtroom. In addition to Clarke's Chippewa offer it's expected that Cliffs Natural Resources may participate in the auction.

The winning bidder is expected to be announced later in the day, and key parties have until the May 22 hearing to evaluate the winning offer.

Clarke made his first millions in the health care industry and then made headlines as an environmental activist. He raised eyebrows in recent years as he began to buy troubled and bankrupt coal mines, saying he would make them environmentally responsible despite the vast amounts of climate-changing carbon dioxide released when coal is burned.

He has called his coal empire ERP Coal and his new iron ore efforts ERP Iron Ore LLC.

ERP, Clarke notes, stands for Earth Restoration Project.

Clarke and his ERP Iron Ore LLC acquired Magnetation's Plant 4 mining and processing operations near Grand Rapids as well as the Reynolds, Ind., pellet plant in December.

The Grand Rapids plant employed about 130 people before closing in October.

Clarke closed the financing for the Magnetation deal on Jan. 30 and he hopes to have the plant fully operational in coming weeks.