Analysis: Cliffs offer to buy U.S. Steel holds huge implications for Iron Range

Hibbing Taconite mine pit north of Hibbing. Hibbing Taconite is majority-owned and operated by Cleveland-Cliffs with minority ownership by U.S. Steel. It was once U.S. Steel’s flagship mine in the early days of the Mesabi Iron Range. Photo by Aaron Brown for Minnesota Reformer.

After two years of super-heated iron ore and steel prices, two big American steelmakers ooze like molten metal toward a historic potential merger. The move would have huge implications for Minnesota’s Iron Range and Rust Belt cities across the United States.

On Aug. 13, U.S. Steel announced that it had received several buyout offers for the whole company or partial assets. CEO David Burritt said the company leaders would take time to consider strategic options.

The same day, Cleveland-Cliffs announced its intent to buy U.S. Steel, disclosing that it had offered $7.25 billion in a deal that U.S. Steel’s board of directors rejected. Cliffs claims that the United Steelworkers endorsed the offer and that the influential union would reject a transaction that doesn’t involve Cliffs.

The twin announcements suggest that Cliffs and U.S. Steel will enter high stakes negotiations over a potential purchase while other companies might also make a play.

Cliffs CEO Lourenco Goncalves said he’s proposing the offer to create a company capable of embracing industry innovations and competing globally. Currently, the top ten steelmakers in the world include no American companies, a fact that would change if Cliffs bought U.S. Steel.

Support of the steelworkers would be a rare instance of a union backing a merger between big companies. The steelworkers and Cliffs have struck historic levels of harmony on the Mesabi Range, settling contracts more amicably than U.S. Steel or ArcelorMittal.

Goncalves led a group of Cliffs investors in a hostile takeover of the struggling company in 2014. In less than 10 years, he’s on the brink of becoming the most consequential steel magnate since Elbert Gary. Nevertheless, going public with the offer at this stage suggests he is concerned about other suitors and wants to appeal directly to U.S. Steel stockholders.

The sale of U.S. Steel would reverberate through the North American economy, nowhere more than on Minnesota’s Iron Range.

Here, U.S. Steel owns and operates two major iron ore mines while Cliffs owns and operates the other four. If Cliffs buys U.S. Steel, a single company would control all active iron ore mining in Minnesota for the first time.

Currently, U.S. Steel and Cliffs are pushing to modernize their facilities and increase access to ore supplies on the western Mesabi Range. The companies elbow past each other on a checkerboard of leased land along the Itasca and St. Louis County border. U.S. Steel’s Keewatin Taconite is mining toward Cliffs’ Hibbing Taconite, which itself is running out of ore.

This year, Cliffs acquired state mineral leases near Nashwauk that had been held by Mesabi Metallics. This successor company to Indian company Essar Steel started but never finished building a new taconite producing facility there in 2015. U.S. Steel land lies between this site and a Cliffs production facility at Hibbing.

Farther east, Cliffs mines at Virginia and Eveleth lie within blasting range of U.S. Steel’s Minntac mine in Mountain Iron. Minntac remains the largest iron ore mine in North America.

A merger could jeopardize jobs as companies embrace smaller mini-mills and expanded industrial automation. On the other hand, combining U.S. Steel and Cliffs would relieve pressure on the companies to negotiate access to the expanding pits and tailing basins of the region, potentially extending the life of iron ore mining on the Mesabi.

Likewise, U.S. Steel selling to another company could complicate the game of corporate chess that Cliffs and U.S. Steel have been playing in Minnesota.

Founded in 1901, U.S. Steel combined the steel empire of Andrew Carnegie with the shipping and iron mining assets of John D. Rockefeller. Financiers like J.P. Morgan and Charles Schwab provided the capital while Elbert Gary organized an innovative corporate structure.

U.S. Steel immediately became the world’s first billion-dollar corporation, a behemoth so large that early 20th century newspapers simply referred to it as “The Corporation.” The notion of a super-corporation capable of shaping the economy, political system and culture began with U.S. Steel.

Immediately, U.S. Steel became the dominant economic and political power in Duluth and the Iron Range. Though it was not the only mining company in Minnesota, it was by far the most powerful, injecting itself into local, state and national policy debates.

Over two generations it ruled as the world’s largest steelmaker, until U.S. Steel began to lose market share after World War II. Now it sits as the third largest American steelmaker behind Nucor and Cliffs, a mere blip in a global market dominated by Chinese, Japanese and Korean steel and Chinese, Brazilian and Australian iron ore.

If U.S. Steel ends up under new ownership, history would be made. American steel would rise in global relevance, but so would uncertainty in communities dominated by mining and steelmaking.

by Aaron Brown, Minnesota Reformer August 14, 2023

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Aaron J. Brown is an author, community college instructor and radio producer from Northern Minnesota’s Iron Range.