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Bauxite levy wipes out Noranda's port expansion savings

Published:Thursday | July 23, 2015 | 3:38 PMCamilo Thame

Noranda Aluminum Holding saw its projected US$5-million annual savings from its expanded port in Discovery Bay, St Ann, wiped out in a single quarter as a result of the imposition of an interim bauxite levy in its second quarter ending June 30.

It realised lower demurrage and reduced fuel costs by US$2.5 million, but the company saw a US$5.9-million increase in production levy - US$3 million of which was retroactive to the first three months of 2015.

Put another way, the additional tax charge translated into five US cents being added to the net cash cost per pound of aluminium produced at its smelter located in Missouri, United States.

Noranda said it would have otherwise achieved a reduction from 84 US cents a year earlier to 82 US cents in the review quarter, particularly as it relates to reliability improvements achieved at its alumina plant in Louisiana.

The bauxite operations in St Ann incurred a US$3.1-million loss in the three months to June 30, compared with a US$2.1-million profit in the first quarter of 2015 and a US$1.3-million loss in the second quarter of 2014.

On June 12, Noranda entered into an agreement with the Jamaican Government to pay US$5, in the form of cash or irrevocable letters of credit, for each tonne of bauxite ore it exports from Jamaica.

Still, it isn't clear how much cash the Government will rake in this fiscal year. For example, Noranda exported 2.4 million tonnes of bauxite - of which just shy of one million tonnes was shipped to third parties - during the six months to June 30. Yet, just US$5.9 million in additional production levy was incurred, implying that 1.2 million tonnes of exported bauxite incurred the tax.

The matter is before arbitration, which is expected to be settled by the end of 2015, as it is hoped that negotiations will close the issue before a decision has to be made in court proceedings.

In the meantime, bauxite export volume fell by six per cent from year-earlier levels during the second quarter of 2015. This was largely due to a 19 per cent decline in supply to Noranda's third-party buyer.

The company did not offer an explanation for the fall-off in volumes.