US Magnesium: Only Domestic Producer Faces Contested Chapter 11

The chapter 11 filing of US Magnesium, LLC epitomizes the collision between environmental legacy liabilities and critical minerals supply chain security. As the only primary magnesium producer in the United States, the company's September 2025 bankruptcy carries implications far beyond its Utah facility—no NATO member country has an alternative domestic primary magnesium source. The case presents a rare scenario where an unsecured creditors' committee, state regulators, and federal environmental agencies have aligned to oppose the debtor's proposed sale process, instead advocating for conversion to chapter 7 liquidation. With an EPA Superfund site requiring an estimated $100 million or more in cleanup costs, a $68 million breach-of-contract judgment from Kaiser Aluminum, and an insider-affiliated stalking horse bidder, this case tests whether strategic minerals considerations can outweigh decades of accumulated environmental obligations.

US Magnesium has not produced magnesium since a September 2021 equipment breakdown mothballed operations. The facility sits on the western shore of the Great Salt Lake, where toxic waste lagoons have polluted state-owned lakebed for decades. A barrier wall meant to contain highly acidic waste remains half-finished after contractors walked off the job over unpaid invoices. Critics view the current bankruptcy as a repeat of the 2001 MagCorp bankruptcy—a strategy to shed environmental liabilities while an affiliate acquires operational assets through a credit bid.

Case Snapshot

Strategic Importance and Corporate History

The Only Domestic Primary Producer

US Magnesium operated as the sole primary magnesium producer in the United States, extracting the lightweight metal from brine resources beneath the Great Salt Lake. Magnesium serves as a critical input across aerospace, automotive, and defense industries—applications ranging from aircraft components to vehicle lightweighting to military ordinance casings depend on reliable domestic supply. The company's shutdown creates a significant supply chain vulnerability, as no NATO member country maintains primary magnesium production capability.

The geopolitical implications extend beyond commercial supply chains. China dominates global magnesium production, controlling approximately 85% of world supply. US reliance on foreign sources for a critical mineral creates strategic vulnerabilities that defense planners have flagged for years. US Magnesium's bankruptcy forces a confrontation between two policy priorities: environmental enforcement and critical minerals independence.

Company History and Renco Ownership

Operations began at the Rowley, Utah site in 1972, with the facility evolving through multiple ownership transitions before landing under the Renco Group umbrella. Renco, the investment conglomerate controlled by billionaire Ira Rennert, acquired the business and invested over $400 million during the past decade according to company filings. The parent entity provided a $2.5 million bridge loan in August 2025—just weeks before the bankruptcy filing.

The predecessor entity, MagCorp, filed its own bankruptcy in 2001. That case resulted in a $33 million settlement with the Department of Justice to resolve environmental claims. Critics view the current filing as a repeat of that playbook: accumulate environmental liabilities under a subsidiary, then use bankruptcy to shed obligations while a parent affiliate acquires operational assets. The Committee of Unsecured Creditors has explicitly characterized the sale process as a "DIP-to-own scheme" benefiting Renco insiders.

Recognizing the commoditization of magnesium markets, US Magnesium pursued diversification into lithium carbonate production, leveraging its brine processing expertise and Great Salt Lake resources to produce battery-grade lithium for the electric vehicle market. At mid-2022 lithium price peaks, the pivot appeared promising. The thesis collapsed alongside lithium prices, which dropped more than 80% from their highs. Profitability from lithium operations never materialized, and the company sold its remaining lithium carbonate inventory to Glencore Ltd. in December 2025—another failed strategic initiative that consumed capital without generating sustainable returns.

Causes of Operational Distress

Multiple factors converged to render US Magnesium unviable. Primary magnesium production became uneconomic as low-cost offshore producers—predominantly Chinese—flooded global markets, and the company's higher cost structure could not compete with imported material. The 2016 shutdown of Allegheny Technologies Inc.'s adjacent titanium sponge facility eliminated a crucial customer relationship, as ATI had been a major purchaser of US Magnesium's output; the geographic proximity that had once provided logistical advantages became irrelevant when the neighboring plant closed permanently.

The decisive blow came in September 2021 when a series of critical equipment failures halted magnesium production entirely. Pandemic-related supply chain disruptions delayed acquisition of replacement parts, and management made the decision to mothball operations rather than pursue repairs. The company declared force majeure on customer contracts, triggering the breach-of-contract litigation that would ultimately produce the $68 million Kaiser Aluminum judgment. US Magnesium never resumed magnesium production—the facility has remained in mothballed status since September 2021, more than four years at the time of the bankruptcy filing. The company's characterization as an "operating" business rings hollow when primary operations have been dormant for nearly half a decade.

Environmental Liabilities

EPA Superfund Designation

The EPA added the US Magnesium site to the National Priorities List in 2009, designating it a Superfund site requiring federal environmental oversight. Decades of magnesium production generated hazardous waste including chlorinated dioxins, PCBs, and hexachlorobenzene. An unlined canal known as the "Red River" carries highly acidic, corrosive contents across the facility. Unpermitted toxic waste lagoons have polluted state-owned lakebed beneath the Great Salt Lake.

EPA enforcement actions against the facility span more than 20 years. A $37 million cleanup commitment and $250,000 civil penalty were established under a 2021 consent decree resolving RCRA violations. That consent decree imposed specific remediation obligations including construction of a barrier wall to prevent acidic waste from reaching the Great Salt Lake.

The Half-Finished Barrier Wall

Construction of the barrier wall—a critical component of the consent decree remediation—began in 2023. The wall was designed to prevent highly acidic waste from migrating into the Great Salt Lake ecosystem. By December 2024, work had stopped with the wall only half-complete. Forgen, LLC, the contractor performing the work, was owed $5.8 million or more in unpaid invoices.

The EPA issued a Notice of Noncompliance in December 2024 citing the company's failure to meet consent decree milestones. The barrier wall remains unfinished as the bankruptcy proceeds, leaving the Great Salt Lake ecosystem exposed to ongoing contamination from the facility's waste impoundments.

EPA estimates place total cleanup liability at $100 million or more. Barrier wall completion represents only one component—waste pond remediation, Red River canal restoration, and contaminated soil removal would require substantial additional investment. If the company cannot satisfy these obligations, taxpayers face the cleanup burden. State and federal agencies approach the bankruptcy with acute awareness that an insider credit bid could leave environmental liabilities stranded in an insolvent estate.

Utah State Actions

Utah's Division of Forestry, Fire and State Lands (FFSL) has pursued aggressive action against US Magnesium independent of the bankruptcy filing, seeking to terminate the company's mineral lease, cancel its Lithium Memorandum of Understanding, and curtail water rights essential to brine processing operations, citing alleged royalty non-payments as grounds for lease termination. The state's position hardened as cleanup work stalled in late 2024, with Utah moving to appoint a receiver and evict the company from state-owned lakebed. The bankruptcy filing triggered the automatic stay, delaying Utah's plans to cut off Great Salt Lake water access and temporarily halting the state's lease termination efforts, though FFSL has maintained its opposition throughout the chapter 11 proceedings.

Utah supports conversion to chapter 7 liquidation, objecting to the DIP financing terms, the sale procedures, and the assumption or assignment of the mineral lease to LiMag Holdings. FFSL's concern centers on the possibility that an insider purchaser would acquire operational assets while leaving environmental cleanup obligations with an insolvent estate—or worse, with the state itself. The state has coordinated its litigation strategy with the EPA, presenting a unified governmental front opposing the debtor's proposed sale process. Utah's participation adds significant complexity to an already contentious case, as the state controls the mineral lease and water rights essential to any future operations.

The Kaiser Aluminum Judgment

When US Magnesium declared force majeure following the September 2021 equipment breakdown, Kaiser Aluminum Warrick, LLC refused to accept the excuse. Kaiser had contracted for magnesium supply and filed suit in the Southern District of New York in 2022, alleging breach of contract and seeking damages for the company's failure to perform. US Magnesium defended on force majeure grounds, arguing that the equipment failure constituted an unforeseeable event beyond its control that excused contractual performance. The case proceeded to trial in August 2025, where the jury rejected the defense. McDermott Will & Emery, representing Kaiser Aluminum, secured a verdict of $55 million in damages plus $12.9 million in prejudgment interest—a total judgment of approximately $68 million. The final judgment was entered on August 8, 2025.

The Kaiser judgment is the single largest unsecured claim against the estate and stands as the immediate trigger for the bankruptcy filing. The company filed for chapter 11 protection exactly one month after the judgment became final, with no apparent ability to satisfy the liability outside of bankruptcy.

Pre-Petition Capital Structure

The company's debt stack reflects years of parent support alongside commercial borrowing:

Wells Fargo holds senior secured claims against substantially all company assets. Renco Global Capital's subordinated position ranks behind Wells Fargo but ahead of unsecured creditors. The $400 million-plus that Renco invested over the past decade—characterized as equity contributions—will receive nothing in the capital structure waterfall.

Beyond funded debt, other significant liabilities include the Kaiser Aluminum judgment ($68 million), trade payables ($37 million), environmental liabilities under the consent decree ($100M+), outstanding Tooele County property taxes, and $5.8 million or more owed to Forgen, LLC for barrier wall construction. The top 20 unsecured creditors are owed $95.4 million or more according to bankruptcy schedules. Between the Kaiser judgment, trade payables, outstanding property taxes, and unpaid contractor invoices, general unsecured creditors face minimal recovery prospects under any sale scenario.

DIP Financing

Wells Fargo Bank provided DIP financing with a total commitment of up to $10.8 million in new money:

The interim DIP order was entered on September 12, 2025—just two days after the petition date. The original DIP package included a $10 million roll-up provision that would have converted prepetition debt into postpetition DIP claims. Following sustained objections, the Third Interim DIP Order entered November 26, 2025 stricken the roll-up entirely.

DIP Objections and Modifications

The DIP financing attracted objections from multiple parties: the Official Committee of Unsecured Creditors, Utah FFSL, the EPA, Forgen, Tooele County, and ATI Titanium. Objectors challenged:

• Overbroad priming liens that subordinated all existing security interests
• Roll-up provisions that would elevate prepetition claims
• Section 506(c) and 552(b) waivers that limit estate recoveries
• Insufficient carve-outs for committee professional fees
• Insider benefit to Renco through the credit bid structure

The court modified the DIP terms through successive interim orders. The professional fee carve-out increased from $450,000 to $750,000, and the committee budget was similarly increased. Adequate protection for Tooele County includes $50,000 monthly payments toward outstanding property taxes.

The Contested 363 Sale

The stalking horse bidder is LiMag Holdings, LLC—a Renco Group affiliate created on the same day as the bankruptcy filing. LiMag proposes to acquire substantially all company assets through a credit bid, using Renco's subordinated debt and Wells Fargo claims (to the extent assigned) as currency rather than cash. The Committee characterizes this structure as a "DIP-to-own scheme" designed to transfer operational assets to insiders while leaving environmental liabilities and unsecured claims with an insolvent estate. Because LiMag can credit bid without providing cash to the estate, the sale process may yield no recovery for general unsecured creditors regardless of the auction outcome.

The compressed timeline—less than five months from petition to targeted closing—reflects DIP maturity constraints. Whether an auction actually occurs depends on whether any third party submits a qualified bid by the December 19 deadline. Objectors to the sale procedures include FFSL, EPA, the U.S. Trustee, Forgen, and the Committee, with concerns centering on lack of pre-petition marketing limiting competitive interest, credit bidding rights for an insider affiliate, assumption and assignment of the mineral lease and EPA Consent Decree, and "free and clear" sale provisions that may leave environmental liabilities unaddressed. The bid procedures order addressed some objections but did not resolve fundamental concerns about the insider-controlled sale process.

Separate from the main asset sale, the company sold its remaining lithium carbonate inventory to Glencore Ltd. in a private transaction approved December 22, 2025. Utah objected to the sale, arguing that the lithium was produced under a Memorandum of Understanding that the state had terminated. The court approved the sale over Utah's objection, providing some liquidity to the estate.

Chapter 7 Conversion Motion

The Official Committee of Unsecured Creditors filed a motion to convert the case to chapter 7 on October 5, 2025—less than a month after the petition date—arguing that chapter 11 is "value-destructive" for unsecured creditors, the sale process constitutes a "DIP-to-own scheme" benefiting Renco, no competitive bidding will occur with an insider stalking horse, LiMag will acquire assets while environmental liabilities remain with the estate, and a chapter 7 trustee could pursue claims against Renco for environmental obligations. The Committee's position is unusually aggressive; committees rarely seek conversion so early in a case, and the alignment with state and federal regulators creates a powerful opposition coalition.

Utah FFSL and the EPA both support conversion to chapter 7, sharing the Committee's concern that an insider credit bid will enable Renco to escape environmental obligations accumulated over decades. A chapter 7 trustee, they argue, would have different incentives—potentially pursuing environmental claims against Renco directly rather than facilitating a sale that benefits insiders. The governmental support for conversion transforms a creditor dispute into a regulatory enforcement action conducted through the bankruptcy process.

The debtor, Renco, and LiMag Holdings vigorously oppose conversion, emphasizing going-concern value preservation through a sale process, national security considerations given US Magnesium's strategic importance, $400 million in parent investment demonstrating Renco's commitment, immediate shutdown consequences if a chapter 7 trustee takes control, and greater environmental harm from abrupt cessation of caretaker activities. The court held an evidentiary hearing on the conversion motion, DIP financing, and sale procedures on December 15, 2025. Testimony addressed the viability of the sale process, environmental compliance capabilities, and the relative merits of chapter 11 versus chapter 7 administration. The outcome remained pending as of late December 2025, with the ruling expected before the scheduled January auction.

Case Timeline

The 2001 MagCorp Precedent

The predecessor entity MagCorp filed bankruptcy in 2001 under similar circumstances—environmental liabilities had accumulated, operational challenges mounted, and the company sought protection from creditors. That case produced a $33 million settlement with the Department of Justice resolving environmental enforcement claims. MagCorp emerged under Renco control with a cleaner balance sheet, and operations continued.

Critics identify a troubling pattern: parent entity invests heavily in subsidiary, subsidiary accumulates environmental liabilities over years, operational crisis triggers bankruptcy, insider credit bid acquires operational assets "free and clear," environmental obligations remain with insolvent estate, and taxpayers face cleanup burden while parent escapes liability. The Committee's "DIP-to-own" characterization reflects this historical pattern. Whether LiMag Holdings represents a legitimate going-concern buyer or a liability-shedding vehicle will likely determine the outcome of the conversion motion.

Critical Minerals Policy Context

US Magnesium's bankruptcy highlights fundamental tensions in American critical minerals policy. The company represented the only domestic primary magnesium source—its shutdown leaves the United States entirely dependent on foreign supply for a material essential to defense and aerospace applications. China's dominance of global magnesium production—approximately 85% of world supply—creates strategic vulnerabilities that US defense planners have long sought to address by reducing dependence on Chinese-controlled supply chains for critical materials. US Magnesium's failure represents a setback for those objectives.

The case forces a confrontation between competing priorities. Environmental enforcement advocates argue that companies cannot accumulate decades of contamination and then escape cleanup obligations through bankruptcy. Critical minerals advocates counter that overzealous enforcement drove the country's only primary magnesium producer out of business. Neither position is entirely correct. US Magnesium's distress stems primarily from commodity price pressure, loss of major customers, and equipment failures—not environmental compliance costs. Yet the scale of environmental liabilities certainly affects any acquirer's calculus, potentially deterring legitimate buyers who might otherwise restart operations.

Professional Roster

The debtor engaged Gellert Seitz Busenkell & Brown, LLC as lead counsel, Carl Marks Advisory Group LLC as chief restructuring officer, SSG Advisors, LLC as investment banker, Stretto, Inc. as claims and noticing agent, Blank Rome LLP as special insurance counsel, InterNet Properties, Inc. as real estate broker, Crowe LLP for tax appeal services, and ERM for environmental consulting. The Official Committee of Unsecured Creditors retained Eversheds Sutherland (US) LLP and Cole Schotz P.C. as lead co-counsel, with Province, LLC serving as financial advisor. The court appointed John H. Curtis of Rocky Mountain Advisory LLC as monitor on November 17, 2025—a reflection of concerns about environmental compliance and the need for independent oversight during the contested sale process.

FAQs

Why did US Magnesium file for bankruptcy?

Multiple factors converged to force the filing: a September 2021 equipment breakdown halted magnesium production permanently, a $68 million Kaiser Aluminum judgment was finalized in August 2025, depressed magnesium prices made primary production uneconomic, the 2016 loss of major customer ATI eliminated crucial revenue, an attempted lithium diversification failed when prices collapsed 80%, and EPA compliance issues accumulated environmental liabilities exceeding $100 million.

Is US Magnesium still operating?

No. Primary magnesium production has been mothballed since September 2021. The facility remains in caretaker status, but no production has occurred during the bankruptcy. The company's remaining lithium carbonate inventory was sold to Glencore in December 2025. The only ongoing activity involves maintaining minimal environmental compliance and preparing for a potential sale.

Why is the Committee seeking Chapter 7 conversion?

The Committee characterizes the proposed sale as a "DIP-to-own scheme" benefiting Renco insiders. LiMag Holdings, the stalking horse bidder, is a Renco affiliate created the same day as the bankruptcy filing. The Committee argues that chapter 11 administration is value-destructive because the insider credit bid will acquire assets while leaving environmental liabilities and unsecured claims with an insolvent estate. Utah and the EPA support conversion for similar reasons.

What are the environmental liabilities?

The site has been an EPA Superfund site since 2009. Estimated cleanup costs exceed $100 million according to EPA estimates. A barrier wall intended to contain toxic waste remains half-finished after contractors stopped work in December 2024 due to unpaid invoices. Contamination includes chlorinated dioxins, PCBs, and hexachlorobenzene. The 2021 consent decree imposed a $37 million cleanup commitment that remains unfulfilled.

Who is the stalking horse bidder?

LiMag Holdings, LLC is a Renco Group affiliate created on September 10, 2025—the same day as the bankruptcy filing. LiMag proposes to acquire substantially all assets through a credit bid using Renco's subordinated debt position. Critics argue this structure allows Renco to reacquire assets while shedding environmental liabilities.

What happened with Kaiser Aluminum?

US Magnesium declared force majeure following the September 2021 equipment breakdown, excusing performance under customer contracts. Kaiser Aluminum sued for breach of contract in 2022. At trial in August 2025, the jury rejected the force majeure defense and awarded $55 million in damages plus $12.9 million in prejudgment interest—a total judgment of approximately $68 million. The company filed bankruptcy one month later.

What is the national security angle?

US Magnesium was the only domestic primary magnesium producer in the United States. No NATO member country has an alternative primary magnesium source. China dominates global magnesium supply, controlling approximately 85% of world production. Magnesium is critical for aerospace, automotive, and defense applications. The company's shutdown creates strategic supply chain vulnerabilities.

What is Utah's position?

Utah supports chapter 7 conversion. The state has sought to terminate the company's mineral lease, cancel the Lithium MOU, and curtail water rights, alleging royalty non-payments. Utah objects to the DIP financing terms, sale procedures, and any assumption or assignment of the mineral lease to LiMag Holdings. The state is coordinating its litigation strategy with the EPA.

What happened in the 2001 MagCorp bankruptcy?

Predecessor MagCorp filed bankruptcy in 2001 and emerged under Renco control after a $33 million DOJ settlement resolved environmental claims. Critics view the current filing as a repeat of that strategy—accumulating environmental liabilities, triggering bankruptcy, and using an insider credit bid to reacquire assets while leaving cleanup obligations with an insolvent estate.

What is the sale timeline?

The bid deadline was December 19, 2025. The auction is scheduled for January 21, 2026, with a sale hearing on January 26, 2026 and a closing deadline of February 2, 2026. However, the conversion motion outcome—following the December 15, 2025 evidentiary hearing—may alter this timeline if the court converts the case to chapter 7.

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For additional analysis of environmental liability restructuring, critical minerals supply chain disruptions, and contested chapter 11 cases, visit the ElevenFlo bankruptcy blog.