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Steel on the Range, again
by Bob Kelleher, Minnesota Public Radio
December 17, 2004

Taconite mining has been a huge presence on Minnesota's Iron Range for decades. But the region is now looking at the possibility of opening its first steel-making plant. (MPR file photo)

There's new life in an old idea on the Iron Range -- to produce steel and create some 700 new jobs. The Iron Range Resources Board has approved a $5 million loan to help a Michigan-based company develop a steel mill near Nashwauk. First proposed six years ago, the idea went dormant as the world's iron and steel markets slumped. But those markets have turned around, and the idea of Minnesota-made steel is getting a fresh airing.

Duluth, Minn. — The newest plans come from Minnesota Steel Industries LLC, a company formed from the remains of Minnesota Iron and Steel. MIS was the company that first floated a steel mill proposal six years ago. Despite promises of significant public investment, that first plan sank for lack of private investors.

Six years later, everything looks different. Demand and steel prices are soaring.

"We have every reason to believe that now is the time to take a bet on our future, and help this project move forward," says Sandy Layman, Iron Range Resources Commissioner.

Layman says help comes in the form of a $5 million, interest-free loan from the Iron Range Resources. Layman says the loan is intended to be paid back, as is another $1 million loan still outstanding to the first company.

In return, northern Minnesota stands to gain a $1.7 billion operation, to mine ore from the ground, purify it to direct-reduced-iron quality, and then convert that to high quality steel. It would be the first steel mill on Minnesota's Iron Range.

I'm skeptical that investors will find it profitable. - Economist Tony Barrett

"We have produced taconite pellets, and that certainly adds value to the ore," Layman says. "We're looking at producing iron nuggets with Mesaba Nugget. But the {MSI} project takes us to the final step, which is steel production - and that's the highest value you can add to iron ore reserves here on the Iron Range."

If everything falls into place, construction could begin in 2006, with production as soon as 2008. It would create 700 direct jobs, and hundreds of others in support businesses. The plant would produce some 2.5 million tons of steel a year.

But first, Minnesota Steel Industries has to find a partner. The original project had links to several partners, including Ford Motor Company. And, like the original plan, the mill would be located at a former taconite site near Nashwauk.

But it's still a long way from planning to production.

"I'm skeptical," says Tony Barrett, and economist at the College of St. Scholastica in Duluth. "Personally I'm skeptical that investors will find it profitable."

Working in the project's favor, Barrett says, is the timing -- which couldn't be better for a new steel facility. The worldwide market for steel and iron products is stronger than it has been in decades.

"The whole China phenomenon, and economic growth in the United States -- all these things have increased demand for steel," says Barrett. "So the price of steel looks good and that, therefore, makes a steel plant seem more profitable."

And Barrett says there's good reason to put the plant on the Iron Range. It would eliminate significant costs to move ore between Minnesota mines and steel mills several states away.

But steel markets are notoriously fickle. Barrett says high prices today may well be followed by another world-wide slump.

"This is steel we're talking about here," says Barrett. "I'm willing to predict that up through 2008 steel prices will remain strong. But after that, all bets are off. This is a very cyclical industry."

Barrett says a steel mill requires a very heavy investment up front. He questions whether Minnesota Steel Industries will be able to find the money.

"I will trust the wisdom of investors," says Barrett. "If I find investors putting up the billion, billion-and-a-half that's needed, then I'll go, 'Well, they ... know more than I do.' And I'll believe them. But I haven't seen that happen yet."

The $5 million approved this week is really just a drop in a very big bucket. It will go toward environmental permitting, engineering, and a management team. But it will take a lot more money, and many hurdles crossed, before the first roll of steel is produced on the Iron Range.

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