Sun | Apr 30, 2017

Bauxite company banking on port for profit. Eyes raw ore export to China

Published:Friday | October 31, 2014 | 10:00 AM
Managing director of Jamaica Bauxite Mining Limited, Coy Roache. File

Avia Collinder, Business Reporter

Jamaica Bauxite Mining Limited (JBM) earns about a billion dollars of revenue annually through its bauxite/ alumina investments from which it is currently reaping negative returns, leaving its non-core port operation as its best hope for profit.

JBM Managing Director Coy Roache said its Lydford segment, comprising the Ocho Rios-based Reynolds Pier and the Lydford Estate, has made a profit of $28 million year-to-date, and projects that will rise to $70 million by yearend.

Still, Roache says the projection may be affected by new plans for upgrades to the 50-year-old Reynolds Pier, a $120-million spend to be funded from internal cash resources; as well as potential sale of raw ore or crude bauxite to China.

Half of JBM's bauxite revenue comes from its 51 per cent ownership in Noranda Jamaica Bauxite Partners. The other 49 per cent of Noranda Jamaica is owned by Noranda Aluminum Holding Corporation.

Noranda's bauxite mine in St Ann produces about 4.5 million tonnes of ore annually, much of which is shipped to Noranda Aluminum's Gramercy alumina refinery in Louisiana for refining, according to the company's website.

"Under the agreement with Noranda, if they are not operating at full capacity we can take the balance," Roache said.

Discussions are "very preliminary", but JBM is considering selling raw ore to China, from which revenue of US$1.3 million (J$146m) is anticipated.

For other revenue, JBM is banking on additional business from increased shipments of limestone and sugar through Reynolds Pier.

The port was built originally for bauxite but now ships other commodities and also operates as a port for cruise ship calls.

Roache said he was in talks with Port Authority of Jamaica for Reynolds to accommodate more tourism business, but that JBM was more in favour of retaining its commodities-exporting clientele.

"You can't put all your eggs in one basket," he said.

JBM was created in 1975 to manage state-owned bauxite investments. It holds equity stakes in Noranda Jamaica, and in Windalco, for which sale is being finalised, while its non-core operations include the Reynolds and Lydford Estate.

"If sugar output goes up we stand to earn quite a bit from that," Roache said, noting that port fees from this source averages US$1 million annually. Limestone handling brings in another US$400,000.

Comparatively, revenue from Noranda is about US$1.7 million, which is a flat 10 per cent of the $17.6 billion asset value for Noranda.

JBM has been in talks with Lyford Mining Company Limited for many years regarding a possible joint venture to redevelop the port.

cathodic protection

The plan contemplates the introduction of cathodic protection - an electronic means of preventing rust - new pilings, closed-circuit television, improve-ments to conveyor belts, the possible installation of an overhead conveyor system, and redesigning the sugar distribution system, called a scrowl, to reduce bearing wear.

A draft agreement was outlined but it appears the type of partnership first contemplated is now dead, though the project itself has not been shelved.

Separately, Lydford Mining has long held a land lease from JBM to mine limestone on the Lydford Estate, which has another 30 years to run, and an agreement to ship the commodity through the Reynolds port for a fee.

Roache signalled that the delay in developing Reynolds is due to clashing interests and the availability of capital, with ongoing dialogue between JBM, Lydford Mining and Port Authority over the future use of the port.

"The Port Authority is now doing a study to come up with a solution to accommodate cruise ships within an improved environment, while allowing the shipment of sugar and limestone," the JBM boss said.

Managing director of Lydford Mining, Leo Cousins, said on Monday that the port upgrade is supposed to proceed in 2015, but as a project of JBM.

"The expansion and modification of the port is a new project to be carried out by JBM," said Cousins. "Lydford Mining Company intends to contribute. We want to contribute because we are users of the port."

Cousins is proposing that any financial backing provided for the project by Lydford not be treated as an equity stake, but offset later against future port fees.

The mining company is in expansion mode and has doubled limestone shipments to Chile. A more efficient port capable of loading shipments faster is in Cousin's business interest, as well as an extension of the pier to accommodate more ships.

plan to grow quickly

The port now loads at about 1,000 tonnes per hour, he said. It would need to double that to get to world standards.

"Our ambition is to grow as quickly as possible to a million tonnes or two million tonnes, depending on the market. We have started already to use 50,000-tonne carriers and every day that you can cut off the loading time is money in your pocket," the mining executive told the Financial Gleaner.

"The world standard for loading is 2,000 to 2,500 tonnes an hour. The first purpose of the improved port will be to increase loading capacity so that 50,000-tonne ships can come in on a fortnightly basis. We load as high as 1,000 tonnes an hour now, when conditions are dry," he said.

Financial data published by the Ministry of Finance indicates that JBM's Lydford segment made operating profit of $69m in FY2013 and an estimated $11 million the following year.

But the bauxite company closed the respective periods with overall losses of $961m and $342m due to loss-making forward contracts with Glencore and Windalco debt.

Roache says JBM's profitablility should recover once the announced sale of its seven per cent stake in Windalco to majority owner UC Rusal finally closes. The US$11-million deal is pending transfer of some 500 titles.

"We have been trying to sell Windalco; we have been losing off it for years," he said. "Production costs were more than the value of alumina. I have been here for eight years and it has never made a profit."

Since April 2014, JBM has paid a penalty to Glencore for not supplying contracted alumina on behalf of another state-owned company, Clarendon Alumina Partners, that was due from its seven per cent share of production at Windalco.

"By not supplying Glencore, we have in fact earned over US$21 million over what we would have earned from them," Roache said.

The penalty payments to Glencore will continue to mid-2016.

JBM is the majority owner in Noranda Jamaica, but the minority American owner is the operating partner. JBM has 50 per cent membership on the executive committee.

"They take all the cost of production and get what is produced but pays JBM for its monetary investments. The rate of return is significant compared to most manufacturing businesses," Roache said.

Finance ministry data places JBM's total annual revenue at around $1.4 billion.

Revenue from Noranda was US$2.52 million per year for the first 15 years, but has since declined to US$1.72 million each year, Roache.

"Unlike Windalco, where JBM pays seven per cent of production cost and gets seven per cent of the alumina produced, the Noranda joint venture is different whereby JBM gets what is called an asset usage fee for its investments," said Roache.

"For the first 15 years of the investment, JBM received 14.68 per cent interest per year on its investment and then 10 per cent per year for as long as the company is in operation. Unlike the other investments in the industry, this is more conservative but has never made a loss," he said.

avia.collinder@gleanerjm.com