What's next for bauxite?
Anthony R.D. Porter, Guest Columnist
Since the publication of my piece titled 'Shifting truth on bauxite' (Gleaner, November 27, 2011), coupled with two subsequent paid announcements by Windalco - regarding the movement of heavy-duty mining equipment from Kirkvine to Port Esquivel - I have been asked on numerous occasions: what's next for Jamaica's bauxite-alumina industry?
Honestly speaking, my crystal ball is neither better, nor more accurate, than, say, my neighbours'. But, just like in the field of medicine, certain symptoms present when a patient is not well. In this instance, my colleagues ask a pertinent question: Why move your mining equipment to a port if you plan to restart your refinery? Two valid reasons that come to my mind are: future outsourcing of the mining sector; and, second, transferring one's moveable assets to another operating location.
Additionally, a large numbers of persons with ties to the industry are of the view that no one in authority seems interested in explaining the facts to the nation. Instead, what we are greeted with in sundry speeches and pronouncements from both sides of the fence is confusion capped by contradictions. Where are the professional technocrats and economists in our midst? Why are they not speaking out?
What follows is a summary of where we are coming from and an attempt to put into perspective where we might be heading.
In May 2001, the Swiss-based trading giant Glencore acquired Alcan Aluminium's 93 per cent stake in the Jamaican operations, a bauxite-mining and refining joint venture, in which the Government of Jamaica owned the remaining seven per cent. The new company, which included two alumina refineries (Kirkvine and Ewarton) with a capacity of 1.26 million tonnes per year, two bauxite-mining operations and a port (Port Esquivel), was renamed Windalco (a contraction for West Indies Alumina Company).
In April 2007, there was a merger between RUSAL, SUAL and the alumina assets of Glencore. This merger led to the formation of United Company RUSAL (UC RUSAL) and created the world's largest aluminium producer. This move had serious implications for Jamaica. Why? Because UC RUSAL now owned all Glencore's stake in Alpart (65 per cent) and Windalco (93 per cent) and, at that time, controlled approximately a 52 per cent share in Jamaica's alumina production.
The new Russian company reportedly comprised some 16 aluminium smelters, 12 alumina refineries (three of which are located in the Jamaica - Alpart, Ewarton and Kirkvine), eight bauxite mines, three powder metallurgy plants, three silicon smelters, three secondary aluminium plants, three aluminium foil mills, two cryolite plants and one cathode plant. Its operations spanned 19 countries across five continents, with more than 75,000 employees.
Jamaican workers (staff, hourly paid and contractors) in the bauxite and alumina industry, government officials, unions, suppliers and other categories - long accustomed to the ground rules, management style, expectations and bonding relationships formed with North American companies - now found themselves trying to understand, work and come to terms with a completely foreign culture.
In March 2009, UC RUSAL commenced shutting down operations at its Ewarton alumina refinery because of the global recession. Unfortunately, the economic downturn, which sent aluminium-metal prices tumbling, triggered two more refinery closures, that of Kirkvine in April and Alpart in May. In June 2010, Ewarton was reopened but, sadly, both Kirkvine and Alpart remain closed to this day, some two and a half years later.
Not long after the Ewarton plant was restarted, news surfaced that, in exchange for jobs and economic activities associated with the reopening, the Jamaican Government had agreed to "hefty fiscal concessions" which included a full waiver of the bauxite production levy in the first year of the deal and, thereafter, Ewarton would pay half of the tax at US$2.50 per tonne of alumina shipped - if the average price of aluminium on the London Metal Exchange (LME) stayed at or below US$2,100 per tonne. But, if the price of aluminium rose above the benchmark US$2,100, the levy payment would rise 20 per cent, to US$3 a tonne.
At the beginning of 2004, the largest bauxite-mining and alumina-processing company in the island, known as Alpart (Alumina Partners of Jamaica), with a 1.65 million-tonne alumina capacity located at Nain, St Elizabeth, was jointly owned by Houston-based (USA) Kaiser Aluminum and Chemical Corporation (65 per cent) and the Oslo-based (Norway) Norsk Hydro ASA (35 per cent). Kaiser, however, was faced with serious financial problems. As part of a corporate strategy, to emerge from Chapter 11 bankruptcy charges, it had little choice but to sell its 65 per cent stake in Alpart and its 49 per cent stake in Kaiser Jamaica Bauxite Company (KJBC) in St Ann.
Under the existing Alpart partnership arrangement, Hydro had first-refusal rights to acquire the Kaiser share, and, after Kaiser's receipt of court approval, elected to purchase Kaiser's interest, and in a simultaneous deal, reportedly under identical terms and conditions, sold it to Glencore. Interestingly, RUSAL, then the world's second-largest aluminium producer, had also attempted to buy Kaiser's stake in Alpart but was unsuccessful.
In 2007, following the merger of RUSAL's assets with the alumina assets of Glencore, UC RUSAL became the majority shareholder in Alpart (as explained above). This ownership arrangement continued until 2011, when Hydro decided to offload its 35 per cent stake in Alpart. In September of that year, it was reported that UC RUSAL had signed a deal to acquire Norsk Hydro's share, thus giving it complete ownership of the operation.
At that time, Jamaica's total alumina production capacity was 4.335 million tonnes per year (mtpy) derived from Alpart's 1.65 mytp; Jamalco, with a rated capacity of 1.425 mtyp; and Windalco's 1.26 mtpy. Only Jamalco's refinery, situated at Halse Hall in Clarendon, and owned by Alcoa Minerals of Jamaica (55 per cent), a subsidiary of AWAC enterprise, and the Jamaica Government's Clarendon Alumina Production Limited (CAP with 45 per cent) remained outside of UC RUSAL's control. Thus, as a consequence of its acquisition of Hydro's stake in Alpart, the company's ownership of the island's alumina production (100 per cent Alpart and 93 per cent Windalco) had risen to a whopping 65 per cent.
In February 2010, Jamaica entered into a US$1.3-billion loan agreement with the International Monetary Fund (IMF) due, in part, to a large reduction in revenues from the bauxite and alumina export sector and, second, to prop up its economy. One of the conditions, however, subsequently announced by the Government to improve the country's ability to meet fiscal targets, was the offloading of its 45 per cent stake in CAP.
In April, the then prime minister, Bruce Golding, announced that an agreement had been entered into with a Chinese firm, Zhuhai Hongfan, for the sale of CAP, but any such sale was subject to the "inherent rights of Alcoa, our joint venture partner in Jamaica, which has a 90-day right of first refusal". (Chinamining.org; 2010-02-22).
In January 2011, the then prime minister, in his New Year message, informed the nation that the Government had ceased negotiations with the Chinese firm and had commenced discussions with Glencore International AG for the acquisition of the 45 per cent equity Jamaica holds in Jamalco through CAP (Gleaner, January 21, 2011).
It was also disclosed that such a deal with Glencore could put the Swiss company in the position of being "both Alcoa's partner and its indirect rival through its 8.8 per cent interest in UC RUSAL, which controls the majority of Jamaica's bauxite assets". It is further understood that there is an agreement between the two that would allow RUSAL to take over Glencore's portion. And UC RUSAL has reportedly insisted that the acquisition of CAP's shares is a quid pro quo for reopening the Kirkvine alumina refinery.
If this came to pass, UC RUSAL would have a frightening - almost, but not quite monopolistic - 82 per cent control over Jamaica's alumina production. This is a scary proposition, to say the least. Beware the proverb: Never put all your eggs in one basket.
In April 2004, Kaiser Aluminum and Chemical Corporations' 49 per cent stake in the former Kaiser Jamaica Bauxite Company, based in Discovery Bay, St Ann, was jointly acquired by Century Aluminum Company and Noranda Holding Corporation. with a 50-50 split. The remaining 51 per cent was owned by the Government of Jamaica. The newly formed company was called St Ann Bauxite Limited.
On August 31, 2009, Noranda became the sole owner of the alumina and bauxite production joint ventures that it had operated since 2004 with Century Aluminum Company. As a consequence, the St Ann operation was renamed Noranda Jamaica Bauxite Partnership (NJBP), with Noranda holding 49 per cent and the Government of Jamaica the remaining 51 per cent of NJBP.
The bauxite capacity of this operation is 4.8 million dry tonnes per year, which is shipped to Noranda's 1.2 million tpy alumina refinery in Gramercy, Louisiana, and also to Sherwin's alumina refinery in Corpus Christie, Texas. Barring no closure of these plants, and no setbacks in Jamaica, this arrangement is expected to continue into the foreseeable future.
See Part 2 in Monday's Gleaner.
Anthony Porter is a veteran exploration geologist, formerly with Alcan, and the author of many published works on various aspects of bauxite and Jamaican geology. Email feedback to firstname.lastname@example.org and email@example.com.