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Iron ore maker with huge Indiana plant seeks bankruptcy

May 6, 2015

Magnetation LLC, which operates a massive iron ore pellet plant in Indiana, has filed for bankruptcy and plans to carry out a debt-restructuring agreement with creditors after becoming the latest casualty of slowing global demand for iron ore.

The Grand Rapids, Minnesota-based company, which produces iron by processing mine waste, listed assets of as much as $500 million against debt of up to $1 billion in court papers filed Tuesday in Duluth, Minnesota.

A worldwide oversupply of iron ore led to the bankruptcy filing. Iron ore prices sank to a 10-year low at the start of April as economic growth in China, the biggest consumer, threatened to fall below 7 percent for the first time in more than 20 years, while the biggest producers of the steelmaking raw material expanded production.

Magnetation gambled by starting a major expansion of its operations, including a new pellet plant in Indiana, when the price of iron ore was at a peak. Between 2004 and 2010, iron ore rose from $40 a ton to more than $170. The current price outlook is in a range of $55 to $65 over the medium term.

The company’s Indiana pellet facility in Reynolds—about 20 miles north of Lafayette—can produce as much as 3 million metric tons of pellets a year.

Magnetation announced plans for the plant in late 2012, saying it would spend as much as $350 million on the facility and create up to 100 jobs there by the end of this year.

The Indiana Economic Development Corp. offered MagPellet LLC, a Magnetation subsidiary, up to $1.5 million in conditional tax credits and up to $200,000 in training grants based on the company's job-creation plans.

The IEDC said Wednesday that the company has received $241,763 in tax credits and $14,891 in training grants to date. IEDC records show the company has created 75 of the 100 jobs it pledged to create.

The Indiana Department of Transportation also agreed to assist the project by improving rail service to the site. White County offered additional financial support using revenue from a tax increment financing bond.

And utility NIPSCO said it would provide the company $23 million in energy and infrastructure incentives.

The Magnetation plant was built on a site that was graded and prepared for a high-profile ethanol refinery project late last decade, but was never completed after VeraSun Energy Corp. went bankrupt.

White County Economic Development Organization Inc. President Randy Mitchell told the Lafayette Journal & Courier that about 120 employees work at the Reynolds plant, which began production in September.

According to court filings, the company has 361 employees overall, about a third of whom are unionized, it said.

 “Magnetation’s business outlook has been impacted by the challenging iron ore industry, which has experienced global supply increases and a reduction in the global demand,” the company said in a written statement. “Over the last 18 months, there has been an unprecedented and unforeseen global collapse in many commodity prices, particularly iron ore.”

The company said holders of more than 70 percent of its 11 percent senior secured notes due 2018 agreed to the restructuring, with some of them committing $135 million to help finance it during the bankruptcy. The plan still needs approval from a judge, the company said.

“The reorganization process will create a more competitive and successful company,” CEO Larry Lehtinen said in the statement.

Magnetation, a joint venture with AK Steel Corp. that began in 2011, owns at least three plants in Minnesota.

Magnetation’s customer contracts have price adjustments linked to world spot prices of iron ore, which experienced an “unprecedented decline” last year, it said.
The company had revenue in 2014 of about $96 million, with a net loss of $16 million, according to court filings.

Magnetation is the latest casualty of slowing global demand for iron ore. Cliffs Natural Resources Inc., the biggest U.S. producer, is working to cut its exposure to foreign markets, attempting to sell its Australian mines and reorganizing a Canadian division that was being developed to supply export markets.
 

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