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Without Jamaican tax relief, Noranda to reduce overseas operations

Published:Thursday | January 14, 2016 | 1:59 PM

Noranda Alumina LLC, the North American producer of value-added aluminium products, said it expects to curtail operations at its Gramercy, Louisiana refinery on or before March 12 unless the company is able to negotiate meaningful and substantial tax and production levy relief with the Government of Jamaica.

It also expects to curtail operations unless it can achieve meaningful and substantial cost reductions at the alumina refinery and the bauxite mining operation in St Ann, including but not limited to cost savings resulting from workforce reductions, as well as secure suitable replacement volume for alumina currently provided to the New Madrid, Missouri smelter.

On January 7, 2016, an electrical failure at the New Madrid smelter resulted in two of the three pot lines being idled.

In a statement posted on its website on Wednesday, the company said Noranda Bauxite Limited, a wholly owned subsidiary, notified the Jamaican Government that the New Madrid incident is an event of force majeure which will require Noranda Bauxite to materially reduce mining plans previously provided to the Government of Jamaica and related entities.

Noranda Bauxite also advised the Government that the filing of a case under Chapter 11 of the Bankruptcy Code by a significant bauxite customer, Sherwin Alumina Company LLC, may result in additional material reductions to Noranda Bauxite's mining plans.

Noranda Aluminum Holding Corporation said it announced those actions principally designed to reduce costs in the company's integrated upstream aluminium business, which comprises its bauxite mining operation in Jamaica, its alumina refinery in Gramercy, and its primary aluminium smelter in New Madrid.

Those actions are in response to continued low aluminium prices, the idling of the pot lines in New Madrid, and other business issues affecting the company's upstream operations.

"These actions reflect our intense focus on managing cash and available liquidity in an especially challenging business environment for our integrated upstream business," said Layle 'Kip' Smith, Noranda's president and chief executive officer.

"While managing through an extended aluminium price trough, our upstream business has recently faced additional operational and commercial challenges. These challenges include the idling of two pot lines at New Madrid, an unfavourable arbitration panel ruling regarding a bauxite production levy in Jamaica, and the bankruptcy filing by our principal third-party bauxite customer," he said.

"While the actions we've announced today are difficult, they are a necessary response to our current challenges as we proactively pursue other measures to reduce our costs in the upstream business," Smith added.

Noranda had challenged the Government's decision not to extend a concession granted in 2009 under the Bauxite Levy Act whereby the company did not have to pay the full bauxite levy.

However, the agreement expired in December 2014. In December 2015, a London-based arbitration panel ruled that the Government did not surrender its rights to apply the full bauxite levy to Noranda after the concession expired.

Following the ruling in December, Minister of Science, Technology, Energy and Mining Phillip Paulwell told the Financial Gleaner that he is willing to negotiate with Noranda officials.

"It doesn't mean that there won't be any concession going forward," he said, adding that "it just means that we have to go back to the table, now that some of the legal issues are behind us, and to sit down and negotiate properly."

Paulwell also said "the Government has waived over US$350 million of taxes to Noranda since it began operations in Jamaica 11 years ago" and "even at this point, we are prepared to work with the company to ensure that its operations in Jamaica can be fully maintained."

The minister also said he believed "the parties are going to be able to resolve this matter in the interest of the country."

On Wednesday, Noranda also initiated a workforce reduction involving nearly 190 employees, approximately 90 per cent of which involve employees in the company's integrated upstream business.

About 75 per cent of the total reduction relates to staffing adjustments at the New Madrid smelter, which were planned prior to the January 7 circuit failure.

Noranda Aluminum Inc, the company's wholly-owned subsidiary, also notified employees of the New Madrid smelter that, in addition to the workforce reductions initiated on Wednesday, approximately 350 employees will be terminated or laid off by February 4, an additional action which became necessary following the New Madrid incident.

Smelter employees were also notified that the site's remaining operations will be curtailed on or before March 12, 2016, unless the company is able to secure a substantially more sustainable power rate for the smelter and materially improve the company's overall liquidity.

As Noranda's flat-rolled products business sources metal from a portfolio of suppliers, the company said it believes it has access to sufficient sources of aluminium to meet customer commitments for flat-rolled products.

Accordingly, the company believes the curtailment of aluminium smelting operations will not adversely impact the operations of the flat-rolled products business.

mcpherse.thompson@gleanerjm.com