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War on the Range: Mining giants clash over new taconite plant

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A battle of the titans is brewing on Minnesota's Iron Range, between two of the biggest players in the mining industry.

One one side is Essar Steel, which is in the process of building a new $1.9 billion taconite production plant near Nashwauk that's expected to be up and running late next year.

On the other side is Cliffs Natural Resources, which owns or operates three existing plants on the Range: Hibbing Taconite, United Taconite, and Northshore Mining.

The CEO of Cliffs Natural Resources has drawn the battle lines.

Lourenco Goncalves said the other day that he will close one of his company's three Iron Range plants if and when Essar's taconite plant goes into production.

“If they go online, I will shut down a plant up there the same day,” Goncalves said in an interview with the Mesabi Daily News Thursday. “We have fully planned for the worst case scenario.”

Goncalves is a long-time critic of the Essar project, and said earlier this year its coming online will result in an oversupply of taconite that will depress prices even more, according to the Duluth News Tribune.

New technology, new efficiency

Essar's new plant is the first one to be built on the Iron Range in some 40 years, and it's designed to be much more efficient than the old ones, notes northern Minnesota blogger Aaron Brown.

Essar’s new mine is expected to produce about 7 million tons of taconite per year. But it will only need half as many workers as Hibbing Taconite, which has about the same output, Brown writes. The Hibbing plant is owned by Cliffs.

Essar's plant will also be able to eventually produce "value-added" iron ore pellets that international steel companies are increasingly using, the company says. Cliffs' plants don't yet have that capability.

In response to Goncalves' threat, Essar Minnesota CEO Madhu Vuppuluri said such talk shouldn't be taken lightly.

“Business leaders can’t speak in such a casual manner of what could have such an impact on their employees,” Vuppuluri said, according to the Mesabi Daily News.

The newspaper notes there's tension between the two companies over other matters as well.

Future of the Iron Range

The mining industry is facing challenges as demand for U.S.-produced iron ore dwindles in the face of competition from foreign suppliers.

For example, Cliffs idled one of its Minnesota operations, United Taconite, in late July and laid off most of the plant's 420 workers. The company said at the time it wasn't sure how long the plant would be shut down.

And two other production plants shut down in May for two full years, putting 200 people out of work.

So what does this feud mean for the economic health of the Iron Range?

"If Cliffs is prepared to close an Iron Range mine over the start-up of Essar, we should assume that mine will close regardless," writes Aaron Brown. "The issue here is that there is an ongoing contraction in the global iron ore market. These companies are jostling for position in order to survive."

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