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DNR moves to terminate Mesabi Metallics’ mineral leases

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NASHWAUK, MN -- Minnesota's Department of Natural Resources has determined Mesabi Metallics has not met specifics requirements put forth by the state and will now move forward with terminating the company's mineral leases for the former Essar site in Nashwauk.

In December 2020, the Minnesota DNR signed a "Master Lease Amendment" with Mesabi Metallics for its project.

As part of that amendment, Mesabi was required to meet a number of conditions by May 1, 2021 in order for the amendment to become effective.

According to the DNR, Mesabi Metallics turned in a number of documents on the same day as the deadline.

After reviewing the documents, the DNR said Wednesday Mesabi Metallics did not meet those conditions.

The DNR said the documents Mesabi Metallics submitted did not show the company had $200 million immediately available in its accounts, which was a stipuluation laid out in the amendment.

In a second letter Wednesday, the DNR also informed Mesabi that it owes $18 million in minimum base payments for 2020 and that the DNR has initiated termination of the leases.

"The termination notice is for failure to mine at least 1.6 million tons of ore from state properties in at least two quarters prior to January 1, 2021, failure to complete construction of the pellet plant by the end of 2019, and failure to ship at least 3 million tons of pellets by the end of 2020," according to the DNR.

Mesabi Metallics has 20 days to prove otherwise or the termination will become official.

The DNR is continuing to review the documents.

In the past, deadlines have been missed by Mesabi Metallics and previous owners of the project, including Essar Steel. That has prompted some elected officials to ask the DNR not to extend the leases again if requirements weren't met.

Mesabi Metallics issued a statement Wednesday:

"On May 1 Mesabi Metallics provided the DNR with documentation that met six of seven preconditions laid out by the Master Lease Agreement. Also on May 1 Mesabi Metallics deposited $100 million into an operating account that was immediately accessible to pay for contractors and materials.

As the DNR noted in its recent statement, the MLA required deposit of
$200 million by May 1st. Because of the unprecedented COVID crisis in India the deposit of the remaining $100 million has been delayed.

Mesabi Metallics is currently spending money from this account in support of the construction project and there will be over 40 new workers on site this week. We are confident that the additional funds will be in the operating account within the next few weeks.

The $100 million currently in the account is sufficient to keep the project on schedule.

Mesabi Metallics understands that there are those who believe that the entire project should not go forward because of this delay. We strongly believe that it is in the best interest of Minnesota for the Nashwauk project to be allowed to commence, and have demonstrated our strong commitment to the project by making $100 million immediately available.

Mesabi Metallics has binding commitments of $650 million for the project, as well as a binding and enforceable off-take agreement for 4 million tons of pellets per year.

The only piece of the puzzle outstanding is the deposit of the remaining funds in the operating account."

Meanwhile, State Rep. Julie Sandstede also shared a statement Wednesday, saying it's time to move forward.

“It’s unfortunate, but it does not come as a surprise to me that Mesabi Metallics did not meet the terms of the agreement given their 13-year pattern of behavior. It’s a new day for the Iron Range, and the state must focus on pulling back and protecting the mineral leases before they get tied up in bankruptcy. Then, they must get an operator onsite to build and develop the project properly while advancing opportunities for the Range and our state.

“It’s time to move on from this debacle and pave the way for a legitimate mineral-producing company – with a commitment to our region – to create good-paying jobs. One company is prepared to build an HBI plant, and we must strike while the iron is hot. Let’s have it in Nashwauk, not Toledo. Minnesota missed its opportunity once, and Iron Rangers can’t afford for us to miss another critical opportunity to strengthen economic opportunity in our region.”

Cleveland-Cliffs has land and mineral rights in the same area. Wednesday night Cliffs President and CEO, Lourenco Goncalves, shared a statement with CBS 3.

“Cleveland-Cliffs applauds the move made today by the DNR to address the long-term injury inflicted on the Minnesota Iron Range by people with no agenda other than the goal of extracting benefit for themselves. We also appreciate the relevant support from the Iron Range legislators, the local associations, the Mayors, The United Steelworkers, and the population in general. As soon as the legal process of terminating the leases is completed by the State, and assuming that at this time the saga will come to an end, Cleveland-Cliffs is ready to step in and do what we have been doing for decades, by developing Nashwauk and generating a big number of good-paying middle-class union jobs for the people of the Iron Range.”

Briggs LeSavage

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