SILVER BAY, Minn. — Just outside of Hva. 61, Cleveland-Cliffs’ Northshore Mining processing plant is a redwood industrial complex on the north shore of Lake Superior and still employs a small number of workers.
That plant and a mine in Babbitt, more than an hour away, have been idle since May 1 because of a long-running dispute between Cleveland-Cliffs and the Mesabi Trust, an obscure company that receives royalties from mined oil. on ore. — a sum Cliffs chief executive Lourenco Goncalves described as “absurdly high”.
This is a collision between two publicly traded companies. one run by four hard-to-pin-down trustees and the other with a gruff CEO.
The closure was originally slated to last several months, but Cliffs said it now likely will last a year. Asked in November when the plant would reopen, Goncalves said it would be “whenever I decide to do it.”
Between them are more than 400 workers whose unemployment benefits dried up weeks ago, and now the holidays are here and the temperatures have dropped.
“I see a not-so-merry Christmas,” said Andrea Zupancic, mayor of Babbitt, a mining town of about 1,400 people on the eastern side of the Mesabi Iron Range. “The costs are rising, the heat is rising, it’s winter, it’s gloomy.
“It’s a big unknown, people don’t know when it’s going to reopen.”
Here, workers anticipate gaps in the mining industry and plan for them. As well as grocery stores, hair salons and car dealerships. The impact could be felt in any city, county and school district in much of northeastern Minnesota that depends on revenue from taconite production.
“It affects the schools, our water and sewer department because the mine is our biggest customer,” Silver Bay Mayor Wade LeBlanc said. “It affects every business. the contractors who support the mine, they are also getting laid off.”
At a hockey practice this month at the Frank Rukavina Arena in Silver Bay, some of the parents concerned about the young players were dismissed from Northshore Mining. They were lip-smacking about how things were going. Some were recently released. Others said they were told by the company not to talk to the media. There is no union supporting them.
They said it is not easy to find work that pays as well as mining, but they also cannot wait indefinitely without work. There is no easy answer: should they stay or should they go?
Argument at the base of idleness
Cleveland-Cliffs, which is based in Cleveland and reported more than $20 billion in revenue last year, is the Iron Range’s largest miner. It is also one of the largest steelmakers in the country. In May, the company put Northshore out of business after threatening to do so in the fall of 2021 as its dispute with Mesabi continued.
New York-based Mesabi Trust derives almost all of its revenue from ore mined by Cliffs at the Peter Mitchell mine near Babbitt. In its most recent fiscal year, which ended Jan. 31, it had revenue of $68.8 million. That compares with an average of $33.1 million over the previous four years.
But with Northshore idle, the Mesabi Trust’s royalties have dropped to zero.
The current royalty agreement dates back to 1989 when Cyprus Minerals purchased and revived Reserve Mining’s closed Babbitt and Silver Bay assets. Cliffs bought Cyprus Northshore in 1994 and took over the royalty contract.
In a July 31 filing with the U.S. Securities and Exchange Commission (SEC), Mesabi Trust said Cleveland-Cliffs had not recently requested any changes to the royalty agreement.
“Cliffs has historically failed to engage in meaningful negotiations to address interpretations of the royalty structure,” the filing said.
After a Nov. 17 speech in Minneapolis, Goncalves told reporters that trust is “very difficult to negotiate.”
“The Mesabi Trust has no executive director, it has no executive committee and it has a group of trustees that have been there for generations,” he said. “So there is no one at home to negotiate with. I’m good at negotiating, but I have to negotiate with someone.”
Mesabi is managed by Deutsche Bank Trust Company Americas. Chris Nees, the vice chairman of Deutsche Bank Trust who signed the latest SEC filing, did not return phone calls. One of the four trustees declined to comment. the other three could not be contacted.
Big projects are on hold
At the Silver Bay strip mall, Angie Meeks has an interesting connection to the boom and bust of the mining industry. Her parents opened Julie’s True Value Hardware in the late 1980s, when the town was reeling from the closing of Reserve Mining. She and her husband, Ferron Meeks, took over the hardware store in 2009 during another closing and in 2017 rebuilt it one after another.
“We’re just doing things differently,” he said of adjusting the business to carry less stock and hire fewer workers.
While it’s now a test of how local projects can continue, according to Silver Bay Economic Development Director David Drowne, this booth isn’t the city killer that was tried decades ago. During that time, the population nearly halved and the housing market collapsed.
“The community is quite nervous about this. there’s a reluctance to do big projects,” Drown said. “In many ways, people go underwater to see how it happens.”
A new type of ball
Three years ago, and with much fanfare, Cliffs invested $100 million in Northshore to produce “directly reduced” taconite pellets critical to the Iron Range’s future.
The new pellet has more iron and less silicon than traditional pellets, making it ideal for use in Direct Reduced Iron (DRI) furnaces. Cliffs has a DRI plant in Ohio that produces 95% of the metallic iron used in steelmaking.
Through acquisitions over the past two years, Cliffs has transformed from an iron merchant to a fully integrated steelmaker. One of those deals gave it ownership of the Minorca taconite mine near Virginia, which also has the ability to produce direct-cut pellets.
Cliffs said he relied on that plant, not Northshore, for the new pellets.
Cliffs also bought a scrap metal company in 2021, and scrap steel can be used instead of directly reduced iron in steelmaking. With the increased use of scrap, direct-cut pellets from the Northshore “are not necessary at this point,” Goncalves said on a July conference call with stock analysts.
Still, he said in November that the Cliffs needed Northshore in the future.
“My #1 Priority”
State Sen. Grant Hauschild, District 3, one of the first tasks he plans to do in his new role is to prepare a bill to extend unemployment benefits for North Shore miners at the start of the upcoming legislative session.
Hauschild said it’s important to provide assistance to keep workers in the area.
“When you’re talking about families that don’t have a paycheck, come on vacations, pay your mortgage and pay for groceries, you’re talking about a hierarchy of needs,” Hauschild said. “It’s a priority for me, and this is my No. 1 priority.”
Back in Silver Bay, LeBlanc has been through it both as a businessman and now as the town’s mayor. The industry is cyclical, but this time it’s worse than 2015, he said, because of inflation and the high cost of heating.
Still, LeBlanc is optimistic about his city.
“I don’t know if you’ll ever be 100 percent,” he said. “You try to weather the storm and move on when it opens again.”