The news on the Iron Range is mostly good—but what’s up with Essar Steel?

This year the Iron Range is celebrating 130 years of iron mining in Minnesota. In 1884, the Soudan mine, on the shores of Lake Vermilion, was officially opened. That mine was closed in 1962, but iron mining continues—and is expected to endure for more decades.

The proposed PolyMet copper-nickel mine has been getting all the attention lately. But the ongoing mining story on the Iron Range remains, of course, iron. And for more than a century, the Iron Range has proven to be remarkably abundant in that particular element.

When natural iron ore, or hematite, began to disappear after World War II, less pure but more plentiful taconite took its place. The decline of the U.S. steel industry in the 1970s presaged the disappearance of the Iron Range as a supplier of ore, and indeed many mines shut down in the last quarter of the 20th century. And yet the Range has continued to produce. After a deep decline in the Great Recession, production has been climbing again.

“Minnesota supplies 80 percent of the first-pour [new] steel in the United States,” says Craig Pagel, president of the Iron Mining Association of Minnesota in Duluth. Recycled steel, he adds, is too brittle for many applications, including automobiles. What’s more, the industry has been expanding. “Seven years ago, there were six iron ore mines—now there are 10,” Pagel notes.

At least one mine, Minntac in Mountain Iron, has plans to grow. The Minntac mine, which is owned and operated by U.S. Steel, in January received state permits that will allow an expansion; one federal permit was remaining as of early March. Assuming that permit comes through, U.S. Steel plans to increase the taconite mine by 483 acres. That would mean producing pellets for another 16 years.

But perhaps the bigger deal is 35 miles to the west, in Nashwauk. Essar Steel has been building a new plant out of the figurative ashes of the Butler Taconite facility, which closed in 1985. Essar Steel Minnesota, part of a giant conglomerate based in India that also is involved in energy production and shipping, broke ground on the Nashwauk plant in 2008. Originally, Essar planned to produce direct reduced iron, a more valuable product than taconite pellets. Then it was to turn that iron into steel, all in one location. Completion of the project was expected in four years.

In 2012, Essar announced plans to open in 2013. But it’s still not up and running, and it’s unclear when it will be operational.

In January, the company announced another delay as it sought more money for the project. The company also had halved its construction crew. And in late February, Duluth-Superior television station WDIO reported that the company owes millions to construction contractors on the project.

In response to TCB questions, Essar officials wrote that the plant that has been under construction will produce taconite pellets. It still holds environmental permits for direct reduced iron and steel production, but those products aren’t currently in the plans.

Regarding its financing, Essar wrote: “The change in project scope and securing additional debt require, among other things, approvals from our current project lenders, which [are] at an advanced stage. Essar Steel Minnesota expects the financial closure to occur relatively soon.”

In any case, $73 million in state money is tied up in the project. Unless Essar does obtain that money soon, this project is going to result in one big mess on the Range.

It also could mean that hundreds of jobs are in jeopardy. But even if this project fizzles, there still might be a large number of mining jobs opening up. Jan Saxhaug, the Northeast Minnesota labor market analyst for the state’s Department of Employment and Economic Development, reports that 26 percent of all workers in the state’s mining industry were within 10 years of the retirement age of 65 at the end of 2012.

The mining sector includes many well-paid jobs. In the third quarter of 2013, Saxhaug says the average weekly wage in the sector was $1,685. At that time, there were 4,494 jobs in the mining industry in northeast Minnesota.

As Pagel notes, however, “As the steel industry goes, so does the iron ore industry.” Minnesota’s ore goes almost entirely to the domestic steel industry, primarily in the Midwest. And that industry continues to face pressure from overseas dumping, Pagel says.

The iron- and steel-related businesses that have a presence in Minnesota have been facing some struggles. U.S. Steel reported a $2.1 billion loss for 2013. Cleveland, Ohio-based Cliffs Natural Resources owns and operates Northshore Mining in Silver Bay and Babbitt, and United Taconite in Eveleth and Forbes (it also co-owns Hibbing Taconite), and it reported a 3 percent decrease in revenue from 2012.

And there’s another potential challenge on the horizon.

The U.S. auto industry, which absorbs 20 percent of domestic steel production, is exploring the use of more aluminum in cars and even trucks to reduce weight and increase fuel efficiency. The steel industry might have to adjust to this new competition from aluminum by developing new types of lighter-weight metals. Otherwise, demand for Minnesota iron—nearly all of which goes to domestic steel manufacturers—could decline significantly.

If this happens, the Iron Range might need all the resilience it can muster. One could say that it always needs it. Yet even with shrinking employment numbers, it has always found it, and has done so for 130 years.



Iron Mining by the Numbers

• The iron mining industry contributes about $1.8 billion a year to Minnesota’s economy through purchases, wages and benefits, taxes and royalties.

• Mining companies paid $73.1 million in production taxes payable in 2012. (They are paid in lieu of property taxes.)

• Royalty payments from mining companies amounted to $34.3 million payable in 2012.

• From the $107.4 million that government collected from taxes and royalties, $49 million flowed to education programs.

• K-12 schools received $36.6 million of the $49 million.

• University of Minnesota trust funds received $12.4 million of the $49 million.

Sources: Minnesota Department of Revenue, Minnesota DNR and Iron Mining Association of Minnesota


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