US banks balk at Essar Steel's project

Project on schedule, but talks on with banks elsewhere.

Essar Steel’s $1.6-billion steel mill project at Minnesota in the US is facing a hurdle, with cash-strapped US banks refusing to fund the project.

After it failed to raise around $900 million from US lenders, Essar had approached banks in Canada and Europe, said informed sources.

“As it plans to commission the project in 2011, the financial closure is expected in the next few months,” said a source. The project was on schedule so far, said the company.

Essar Steel Minnesota (ESML), a wholly-owned subsidiary of the Ruias-controlled Essar Steel, is building a 4 million tonne per annum (MTPA) iron pellet plant in the first phase. The plant would require $1.1 billion. The company has so far spent internal resources to keep the project on schedule.

Following its acquisition of Minnesota Steel in 2007, Essar has completed pre-project activities, including environmental approvals and purchase of over 8,000 acres for the project under the acquired company, renamed as Essar Steel Minnesota (ESML).

Since the ground-break in 2008, said Madhu Vuppuluri, president and chief executive of ESML, Essar had covered several milestones, such as site survey, soil investigation, commencement of dewatering of mine pits and site grading-related activity.

He said Essar had awarded several multi-million dollar contracts for the plant over the past year. The company has placed orders on long-lead items and has made considerable progress on basic engineering. The activities thus far enabled the project to be on schedule to produce iron ore pellets in 2011, he added.

The products from Essar Steel Minnesota are intended to be used in Essar Steel Algoma, the fully integrated steel producer based in Ontario, Canada, which Essar acquired in 2007. Hence, the company did not fear “market risk” for its product, which made the ESML project financially viable for banks, claimed the company official.

After the iron pellet plant in the first phase, the company plans to build a slab facility in the second phase. The company has a long-term lease of over 1.4 billion tonnes of iron ore resources that will support both pellet and steel operations.

At full production, Essar Steel Minnesota will employ nearly 500 people, and up to 2,000 construction workers, over the course of the project.