Published: June 1, 2016 |

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Cliffs Natural Resources and Minnesota Power announced a multi-year power supply deal and other agreements Tuesday that will see the Duluth-based utility add Northshore Mining to its portfolio of giant electricity-gobbling clients.

Under the deal, Minnesota Power will supply electricity for the Silver Bay plant through 2031 and has paid Cliffs $31 million for those rights.

Minnesota Power will control the old coal-burning electric units in the Silver Bay plant that had been supplying the facility. But it’s expected that the coal burners — officially a Cliffs subsidiary called Silver Bay Power and which faces increased pollution control requirements — will be phased out and Minnesota Power will provide electricity from its fleet of other generating sources.

Cliffs said the new supply agreement won’t spur any immediate staff reductions at its Silver Bay facility.

Adding Northshore as a customer, when it’s operating at full capacity, is like adding a city the size of Superior to the utility’s base load, said Pat Mullen, Minnesota Power vice president of marketing and corporate communications. Those extra electricity sales should help drive down the cost for all Minnesota Power customers, Mullen added.

Both sides described the deal as a “win-win” situation, with Goncalves saying that low-cost electricity is key for Cliffs’ facilities to remain competitive in an increasingly global iron and steel market.

“They get the increased base load they want, we get a guaranteed competitive rate I want ... and we get $31 million,’’ Lourenco Goncalves, Cliffs CEO, told the News Tribune Tuesday. He said the check has already cleared and the “money is in the bank.”

Goncalves said he will use the cash to continue to buy-down his company’s debt but also to help advance the process of producing directly reduced iron — turning Minnesota taconite iron ore into a product that can be used in electric arc mini-mills that now make much of the steel used in the U.S.

Goncalves said Northshore is ramping up to full production and employment, good news after the plant had been closed from October through April. The plant employs about 540 people and produces about 6 million tons of taconite pellets annually when at full production.

In other side arrangements announced Tuesday, Minnesota Power will get access to the railroad that connects Northshore’s mine in Babbitt to the processing plant in Silver Bay, possibly for new mining-related or other new Minnesota Power customers. Minnesota Power also will get access to land holdings at both Northshore and Cliffs’ United Taconite operations in Eveleth and Forbes, Goncalves said.

“We’re letting them inside the gate,’’ Goncalves said.

Part of the deal also included extending Minnesota Power’s contract to supply United Taconite through 2026.

Goncalves also said he “guaranteed’’ United Taconite, shuttered since last summer due to lower demand for U.S.-made steel and the ore that makes it, will reopen later in 2016. More than 400 United Taconite workers have been on layoff for nearly one year.

By adding Northshore, Minnesota Power now is the sole supplier of all six major Minnesota taconite operations as the utility continues to focus strongly on the region’s natural resource-based industries.

Some parts of the deal will require Minnesota Public Utilities Commission approval.

“These agreements demonstrate the value of a strong partnership between Minnesota Power and Northeastern Minnesota’s natural resources industries,’’ said Al Hodnik, CEO of Allete, Minnesota Power’s parent company. “These steps can help Cliffs achieve its goals of remaining competitive, maintaining regional jobs and further enhancing their products through technology advances.”

Source: (May 25, 2016) Duluth Tribune Review

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