Mon | Sep 25, 2017

Government worried about Noranda's declining earnings

Published:Tuesday | June 2, 2015 | 6:00 AM

Financial Secretary Devon Rowe's affidavit for injunction against Noranda Bauxite, over levy payments, raised the matter of the company's suspect financial situation and the possibility of the Government being left out of pocket if the payments were piled up and it eventually won at arbitration, where the dispute has gone.

While as a private company, Noranda Bauxite's financial statements are not readily available, Rowe extrapolated from Noranda Holding's public filings in the US that its bauxite mining subsidiary's current assets over its current liabilities nosedived last year by 88 per cent, to a mere US$2.7 million. Its net equity declined by a quarter to US$61 million.

But perhaps more worrying for the Government was the company's earnings before interest, taxes, depreciation and amortisation (EBITA), which was a negative US$8 million. In other words, the company has not generated enough cash to cover those primary payments and has been on this downward trajectory for the past five years,

The Government is apparently arguing that Noranda could hardly look to its parent, if required, for a bailout given that "both have reflected deteriorating performance and weakened financial positions since 2010".

According to Rowe's affidavit, while last year was an improvement, Noranda Holdings reported a net loss of US$26.6 million, while its equity declined 51 per cent to US$75.2 million and its long-term debt rocketed from 4.4 times to 9.1 times equity.

In the circumstance, Rowe insisted, there was a real likelihood if Noranda exports the bauxite without paying the levy, in part or in full, recovery may not be possible and it may well be impossible to calculate loss suffered by Jamaica and the advantage gained by Noranda.