TORONTO (miningweekly.com) – US iron-ore producer Cliffs Natural Resources on Monday urged the state of Minnesota to force India-based project developer Essar Steel Minnesota to pay back $72-million in state grants and loans, based on its apparent failure to meet construction and project deadlines and for changing the scope of the project.

“It is Cliffs' position that Essar [Steel] Minnesota should be required to immediately repay its construction subsidy due to Essar unilaterally changing the scope of its project,” Cliffs stated on Monday. The company was referring to about $67-million received from the state and about $6-million from the Iron Range Resources and Rehabilitation Board to construct a $1.9-billion taconite plant and steel mill, which were expected to be completed early this month.

Cliffs opined that a recent site visit had shown progress on project construction to be “substantially overstated” and, therefore, affirmed that Essar’s projected timeline for pellet production in 2016 was inaccurate.

In 2007, Essar Steel, a wholly own subsidiary of Essar Resources, acquired a fully permitted steel smelting project from Minnesota Steel Industries to establish Essar Steel Minnesota, which had been morphed into an openpit mining, concentrating and pelletising plant. According to a 2007 Essar press release, the steel plant was to be built in phases, with the first phase expected to go on stream in 2009 and produce up to 1.5-million tonnes of thick steel slab a year.

Essar’s current project entailed developing a seven-million-ton-a-year fully integrated pellet production facility in the western Mesabi Range, in northern Minnesota. When completed, the project would comprise an openpit iron-ore mine, crushing, concentrating and pelletising facilities and a rail line and train-loading system. Essar had about 1.8-billion tons of measured and indicated magnetite iron resources, of which about 1.7-billion tons were classified as proven or probable reserves, with 200 000 t in the inferred category.

Cliffs argued that the state’s grants and loans were intended to support a steel mill, which was subsequently dropped from the project’s scope as a result of financing delays and changes to the industry landscape.

The company warned that should the Essar Minnesota project come on line, it would create iron-ore pellet overcapacity in the US. In Minnesota, Cliffs operated the Hibbing Taconite, United Taconite and Northshore Mining operations, as well as two Michigan-based iron-ore operations.

Contrary to local media reports over the weekend, Cliffs reiterated that it did not have any current plans to permanently idle or close any of its Minnesota mines as soon as the new pellet plant entered commercial production.

The friction between the two companies was evident after Cliffs earlier this month announced the summary cancellation of a pellet supply agreement with primary steel producer Essar Steel Algoma for a plant in north-eastern Ontario.

Cliffs cited “multiple and material breaches” by Essar Algoma under the sale and purchase agreement. Essar Algoma last week reported that it had secured an alternative iron-ore supply agreement.