Wed | Dec 7, 2016

Lydford to enter manufacturing of drugs, food products - To extract GCC from limestone as raw material for new business

Published:Friday | August 22, 2014 | 12:00 AM
Leo Cousins, managing director of Lydford Mining Company Limited. - File
Lydford Mines in St Ann. - File
1
2

Avia Collinder, Business Reporter

Lydford Mining Company Limited will enter its third joint-venture deal in 2015, this time for a new manufacturing operation to extract ground calcium carbonate (GCC) from limestone for use in the production of food additives and pharmaceutical products, says Managing Director Leo Cousins.

The total investment of about US$4 million will be shared by a company involved in pharma-ceuticals, said Cousins. He declined to name Lydford's partner, but said it operated plants worldwide, including the United States.

The new business, which Cousins also did not name, will be owned about 60 per cent by Lydford.

International certification will be sought for the operation, Cousins told the Financial Gleaner.

"One plant has to be cleared for medicine and pharmaceuticals, and the other one is for food-grade levels of purity. It will be one operation side by side and connected together," the mining executive said.

The company will manufacture aspirin and other pharma products, animal feeds and additives such as calcium.

The new operation will be sited on lands owned by Lydford Mining in St Ann, the parish in which the mining operation is also located. Its milling capacity will be about 10 tonnes of limestone per hour, Cousins said.

Lydford will manage the manufacturing plant, but will partner on distribution and sales. Its output will be marketed within the hemisphere, Cousins said.

Cousins, who is a mechanical and mining engineer, and Vincent Hill, a geologist and chemist, who co-founded Lydford Mining in 1991, have found equity partnerships to be a better mode of expansion than debt.

Its current alliances are with Jamaica Producers Group in Four Rivers Mining Company Limited, which produces aggregates for construction and paving; and New York-based TBS Shipping to ship high-purity limestone to Mississippi Lime Company of St Louis.

But Cousins said it took Lydford longer than expected to execute its model of partnerships.

"We are about 10 years behind schedule, because nobody understood what we were doing, what we were trying to say, except the foreign people. In fact, if not for the Americans and later the South Americans we would have failed," he said. "They became our bankers."

Local banks have largely avoided loans to the aggregate sector, he added.

"They took 15 years before they took us seriously. But, by then, we were able to find the money abroad and not use them at all. They have factored themselves out of the operation."

The move into value-added manufacturing, Cousins said, will enable Lydford Mines, which produces approximately 400,000 tonnes of limestone annually, to double current revenues. He declined comment on the company's top line income.

Currently, Lydford's markets are distributed 70 per cent in North America, 15 per cent in South America and 15 per cent in the Caribbean region, including Jamaica.

Cousins began doing business with a Chilean company in 2011. That supply contract rose to 100,000 tonnes of limestone per annum this year, and Lydford is pursuing additional markets in Central and South America, the engineer said.

Language competence in
"Spanish and Portuguese will become necessary in the future; South
America could become a good market," he
said.

Financing for the manufacturing venture will be
"raised on the international markets by offering shares in a new company
dealing internationally with food and pharmaceutical grades of
limestone," he said.

Cousins did not specify the mode
of the pending offer, nor the type of investors targeted. He said the
partners already have much of the cash needed for the project, which has
been long in conception.

"By the end of this year,
between our partner and ourselves, if we even go to a bank it will be by
choice, not by necessity. It's a brand-new partnership," he
said.

The partners are negotiating the acquisition of
equipment for the plant, which will employ a workforce of about 15, and
could, Cousins said, begin operations even earlier than
2015.

The limestone from which the GCC will be
extracted will be supplied by Lydford Mines.

"All of
the dirty work will be done by the existing company - the mining and the
crushing, screening drying, and so forth," said the mining
engineer.

Real cash cow

He said that
while increased exports of limestone has improved cash flow, "the real
cash cow is in the value-added products". The GCC project will be
Lydford's first test of downstream operations.

"We
were compelled by the lack of capital, by the lack of banking
assistance, to go the long route of expanding out of cash flow and by
the end of this year we will reach the stage where we can expand out of
savings," said the quarry operator.

He adds that
associate company Four Rivers is also in expansion mode. The aggregates
producer which has plants in St Mary and Clarendon, is moving into
supplying sand, a product for which there is high demand, he
said.

"The future of aggregates is in the manufacture
of sand and all of these local plants to date are manufacturing coarse
aggregates. The plant in May Pen has been equipped to manufacture sand
and we are about to do the same thing in St
Mary."

High-quality sand is currently selling at
$1,000 per tonne, due to its shortage, said Cousins. The product is used
for all concrete works "and can be manufactured out of aggregates," he
said.

The St Mary plant produces 300 tonnes of
aggregate per hour, while capacity at Clarendon is 150 tonnes per hour.
Expansion of Four Rivers is being funded from cash flow as
well.

With regards to exports, Cousins said his
Chilean client is now "satisfied that the company is able to support
shipments in bulk of 50,000 tonnes and that the company is able to
maintain the quality that they require. Now we are going over the terms
of contract," he said. Shipments under the current 100,000-tonne Chilean
contract will go out this month, August, and in
December.

To support the higher volumes, Lydford has
introduced both new and rebuilt equipment.

However:
"We are now oversupplied with equipment for the amount of work we have
now. We now require more customers and we see the customers coming up,"
Cousins said.

Another challenge is the high cost of
energy, but Cousins said the revenue flow from value-added products will
help.

"Right now we mine, maybe, 400,000 tonnes per
annum. It involves bulldozers, loaders, crushing plants, milling plants
trucking and all that. When you look at the energy bill, including
electricity and fuel we are spending $4 million a week. We are losing $1
million a week by buying electricity at current rates," said the mine
operator.

"When we go into a foreign market they are
appalled at what our selling prices are. They decide quickly that
Jamaica is not a place to do business. How do we overcome this? By going
into value added, using less people, less energy and get a higher
retail value."

While growth for Lydford Mines to date
has been 30 per cent year-on-year, Cousins said "debilitating" energy
costs, haulage, and the lack of local bank support remain serious
problems for his
business.

avia.collinder@gleanerjm.com