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Noranda eyes boost in bauxite exports, but tax matter unresolved

Published:Sunday | May 10, 2015 | 5:00 AMCamilo Thame

Now that it has completed the expansion of its port in Discovery Bay, St Ann, Noranda Aluminum Holding is looking at boosting bauxite exports from Jamaica.

Its current lease gives it room to sell at least an additional 400,000 tonnes of bauxite each year, but the company suggested that it might go after even greater tonnage.

"Although the economics of this investment (the US$11-million port expansion project) are supported by the savings in shipping costs, the project also provides the opportunity to increase our third-party bauxite volume based on demand at a sufficient price and approval by the government of Jamaica," said Noranda in its filing to the US Securities and Exchange Commission (SEC).

The mining company shipped 1.24 million tonnes of bauxite during the three months to March 31, or just shy of five million tonnes annualised. It is allowed to export up to 5.4 million tonnes of the crude ore annually through to 2017, after which time the entitlement drops to 4.5 million tonnes a year, unless the Government extends the concession.

At the prices - US$22.80 a tonne on average - secured for supply contracts to Sherwin Alumina Company in the first quarter of 2015, the additional tonnage currently achievable without further government approval would translate to over US$9 million in annual sales.

US$5 million-a-year savings

What's more, the more than US$5 million-a-year savings Noranda expects to get from deepening its docking berth and shipping channel by five feet - they are now certified at 45 feet, which enables the mining company to load 10-15 per cent more bauxite on to existing vessels - gives it room to lower prices and go after even greater volumes than is currently allowed.

However, negotiations on increased export allowances with the Government may have to wait until a tax matter is settled.

Noranda's established agreement with the Government required it to prepay income taxes totalling US$14 million for the fiscal years 2011 through to 2014, according to the company's filing with the SEC. It paid the government the full amount by April 2011, and still has a balance of US$12.7 million in prepaid income tax as of March 31.

"We are attempting to negotiate a new fiscal structure with the Government of Jamaica," said Noranda. "The terms of any new fiscal structure, as well as our ability to utilise all or part of the prepaid taxes, are subject to the outcome of the negotiations of any new fiscal structure or to the determination of our rights and obligations in connection with the existing arrangements."

Seeking arbitration

In March, Noranda filed a notice seeking arbitration to settle the outstanding issues with the Government.

Three months ago, Finance Minister Dr Peter Phillips told Parliament that the Government and Noranda were at loggerheads over the extension of a concession on the bauxite levy. He said the mining company was allowed to not pay the full rate between 2009 and 2014 under the agreement which came to an end on January 1.

"The Government has honoured the agreement with Noranda, which involved substantial revenue forgone and, in the circumstances facing the country, we are not able to grant an extension," Phillips told lawmakers in March.

Noranda is not dissuaded.

"We firmly believe in our asserted rights under the agreements governing our fiscal regime and we continue to seek ways to work constructively with the Government to conclude the negotiations," said Noranda in documents filed with the SEC on May 6.

camilo.thame@gleanerjm.com