Could Cliffs See an Upside to Essar Steel Minnesota’s Bankruptcy?



Essar Steel Minnesota files for bankruptcy

Essar Steel Minnesota, which has been considered a threat to Cliffs Natural Resources (CLF) for some time, filed for Chapter 11 bankruptcy protection on July 8, 2016. That day, Minnesota Governor Mark Dayton refused to extend a deadline to terminate Essar’s state mineral leases. Dayton said it was clear that Essar Minnesota wouldn’t be able to pay its workers, contractors, or pending dues.

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Is the threat over?

The potential threat from Essar Minnesota was almost over when Cliffs signed a new ten-year agreement with ArcelorMittal (MT). But the filing of bankruptcy by Essar removed the threat altogether. The agreement also solidifies Cliffs’ position as a sole pellet supplier to the mills in the Great Lakes area. Most of the rest of the iron ore pellet capacity is owned by backward-integrated steel players United States Steel (X), AK Steel (AKS), and ArcelorMittal. CLF is moving toward becoming a pure-play US (DIA) producer as its Asia-Pacific iron ore mines’ productivity comes to an end.

Potential opportunity for Cliffs?

Cliffs also got a potential opportunity to take over Essar Minnesota’s assets at the site and work toward creating a direct reduced iron facility.The negotiations are ongoing, and Governor Dayton supported Cliffs’ taking on this project.

Cliffs’ CEO (chief executive officer) Lourenco Goncalves has already shown his interest in the Nashwauk site if it gets state mineral leases. According to Dayton, “The state of Minnesota will continue those negotiations with Cliffs and obtain a firm commitment to execute those plans, before the leases are re-assigned.”


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