The harbour was constructed by Sir Charles Palmer in 1856-57 at a cost of £45,000. Initially the harbour exported ironstone to Jarrow on Tyneside to supply Palmers Shipbuilding and Iron Company Limited. Later ironstone was sent to blast furnaces on the River Tees When the mine at Rosedale Wyke began to run out Sir Charles Palmer established Grinkle ironstone mine 3 miles (4.8 km) to the east near the hamlet of Dalehouse and in 1875 a narrow-gauge railway line was built to the mine. The ironstone wagons from Grinkle Mine were taken over bridges then through a tunnel under Ridge Lane down a mile long inclined tunnel on a ropeway powered by a steam engine situated by the east pier then emerging in the cliff side 30 ft above sea level. The railway wagons were then led onto a gantry with bunkers on the east harbour wall ready for loading the ironstone directly into ships in the harbour.

In 1911 the pier gantry and boiler house were damaged by a serious fire however, the damage was repaired. In 1916 Grinkle Mine was connected to the Whitby, Redcar and Middlesbrough Union Railway thus avoiding the wartime hazards of shipping and the tramway tunnel abandoned. Port Mulgrave was a busy port for 40 years but the harbour was redundant by 1920 due to the railway link and cheaper foreign sources of ironstone becoming available. After falling into disuse the harbour was left to decay. In 1934 Grinkle Mine was abandoned,and the harbour machinery sold off as scrap and the gantry accidentally destroyed by a fire.The west harbour breakwater wall was deliberately destroyed by the Royal Engineers to prevent its use as part of any German invasion during World War II.
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