New owners to incorporate Jamalco in hunt for capital
The partners in Jamalco refinery in Clarendon want to refocus on incorporating the alumina company prior to approaching the capital markets for financing.
The plan is to do so before starting new investment projects.
Managing Director of Jamalco Austin Mooney said incorporation would allow the joint venture to borrow from overseas sources.
Previously, the consideration was to list the alumina refinery on the Jamaica Stock Exchange.
Mooney didn’t say definitively that the new push behind the incorporation was definitively to raise new loans or debt, only that it would increase access to capital beyond Jamaica.
The joint venture's legal formation "is progressing very fast as it is a priority for both partners”, said Mooney in an interview on Wednesday following a reception in Clarendon to introduce the new owners of the plant, Century Aluminum Company, which acquired the plant on May 2.
"We are a non-incorporated joint venture, so we are not a legal entity. The legal entity is Clarendon Alumina Partners and Century. In Jamaica, we are well known, and people understand our values. We have a reputation and can secure credit. If we want to secure credit outside Jamaica and you are not a legal entity, then it will never happen,” he said.
Mooney didn’t have a timeline on the process, saying that the talks were currently under way at the political level.
Jamalco is currently debt-free without obligations beyond accounts payable, Mooney said further on Thursday.
“Because it is a non-incorporated joint venture, we have never been able to get credit,” he said, adding that the partners currently fund the enterprise. Century owns 55 per cent of Jamalco, and CAP holds the other 45 per cent on behalf of the Jamaican Government.
He added that incorporation would remove the joint venture obligations of the Jamaican Government to fund the refinery. The plans by Jamaica to privatise its 45 per cent stake in Jamalco and list on the Jamaica Stock Exchange were announced in 2020 but with no major development towards that goal since then.
“We are working with Century and with CAP. We had a big session this afternoon where we went through the whole portfolio of projects looking to see the justification for each project and where it fits,” said Mooney, in the wake of that meeting.
A total capex figure would emerge following sign-off by the board and management on the projects, which include investments in digesters and boilers.
A digester is a large vessel used to extract alumina from bauxite. It uses some 400,000 pounds of steam per hour generated from the boilers.
In January, the company installed a second digester under Century’s watch and financing prior to acquisition. It formed part of a US$20 million restoration project announced by Century. Other notable projects under consideration include the setting up of new boilers and the replacement of the two steam turbines that were destroyed by fire with a large efficient one.
Jamalco operations are back up to 80 per cent capacity, with expectations of full capacity by year end, or January, said Mooney. The plant at 100 per cent capacity can produce 1.4 million tonnes of alumina per year. This would match Century’s global demand for alumina, said Gunnar Gudlaugsson, Century Aluminum's vice president of global operations at Wednesday's cocktail reception.
Century expects Jamalco to break even by June of this year.
"When we talk about break even later this year, we still have to invest in the plant and put new capital in it,” cautioned Gudlaugsson.
He said the US$20 million in working capital that Century earlier disclosed was its short-term commitment. In time, the long-term investment commitment will emerge, he said.
Century acquired its majority stake from Noble Group Holding Limited for US$1 after Glencore, an affiliated company of Century, prepaid for a US$10 million alumina order, set for delivery later this year. That prepayment contained clauses to begin acquisition talks, according to Noble in its filings.
Following a major fire in August 2021, the Jamalco plant restarted in July 2022, but management switched its fuel source from the preferred natural gas to diesel. That was due to gas commodity price spikes arising from the war in Ukraine.
“Europe relied heavily on Russian gas, and once that gas was shut off, all the available gas in the Americas was shipped off to Europe. So there was a shortage of LNG, and the prices went up. What’s happening now is that the storage in Europe is now full, and now we are starting to see that price come back to normal,” said Mooney.
“[In the future], we will have dual fuel, and now we are talking to New Fortress Energy about supplying gas again,” he said.
New Fortress owns and operates a power plant at the Jamalco facility, which runs on natural gas.
Jamalco, which previously paid US$7 per unit for gas, started paying US$60 a unit in 2022, Mooney said. The rise was more than the natural gas commodity index, known as Henry Hub, which went from US$3 per million British thermal units to roughly $9 per million Btu.
“So we rented all these assets to run with gas, and we couldn’t sustain that operation. So we have been slowly converting those rented boilers over from burning gas to burning diesel,” Mooney said.
The price of gas has since fallen back to around US$2.15 per million Btu.
Jamalco expects to convert two more boilers by month end and also convert its big Boiler-5 by December to run on heavy fuel oil. The boilers are important in getting steam to the digesters to ramp up to full production by year end.