Tue | Sep 28, 2021

Editorial | Opening to rethink bauxite pricing

Published:Wednesday | July 28, 2021 | 12:07 AM

The Holness administration should disclose whether, as a minority partner, it approved the latest bout of asset switching in Noranda Bauxite, and if it attempted to leverage that authority to ensure the payment of debts owed to Jamaica by Noranda’s former parent, New Day Aluminum Holdings.

At the same time, the new developments in the island’s bauxite industry, including last week’s complaint by Finance Minister Nigel Clarke of companies failing to meet their financial obligations to the island, should provide a platform for a broader discussion about the future of the industry and the pricing of the commodity.

In theory, Jamaica earns money from bauxite by companies paying a tax or levy when they mine the ore for export or refine domestically into alumina. That levy was originally 7.5 per cent of the averaged realised price for aluminium on the London Metal Exchange, but with a base rate, or the lowest the companies would pay, of US$5 per ton. But as Minister Clarke observed in Parliament last week, economic dislocations over the past decade or more have resulted “in long periods of either waivers of the levy or agreements to reduce the levy”.

Additionally, the administration introduced a special scheme – a hybrid between the levy and a profit tax – for Noranda’s former ultimate owner, DADA Holdings, LLC. Under that arrangement, the levy was reduced to US$1.50, or the company could pay Jamaica 17.3 per cent of the earnings of its New Day subsidiary, essentially the alumina refinery at Gramercy, Louisiana. The scheme, it seems, hasn’t worked well for Jamaica.

In May, Robert Montague, the mining minister, indicated that the Government was owed US$2.8 million by New Day and hinted at what Dr Clarke said expressly last week: the Government might have to go to court to collect its money. Apparently, it is not only DADA/New Day with which the Government has quarrels over debt.

Mr Montague, in that May speech, spoke of another US$14 million being owed “by our partners”. He didn’t identify the company or companies that owed. He, however, reported that the Government had “triggered an audit of the operations of JAMALCO’’, an integrated bauxite mining and refining company, in which Jamaica is a 45 per cent shareholder. The global metals and commodity company, the Noble Group, is the Government’s partner.

“... Our partners cannot be making money as a 55 per cent shareholder while … (Jamaica), a 45 per cent shareholder, is making none,” Mr Montague said. “... We want to know how the expenses are broken down.”

In his parliamentary remarks last week, Dr Clarke said that some of the “patterns” that have developed in the bauxite sector would be hard to break, but insisted that change would happen. “It won’t be easy, and we may have to resort to legal action, if necessary,” he said.

The Government would have this newspaper’s support if it came to that. However, at least in the case of Noranda/DADA/New Day, the Government, at this point, oughtn’t to be without other forms of leverage.

Although Noranda is managed by foreign partners, Jamaica is a 51 per cent shareholder in the company. The Government, on the face of it, would have some say in its partners’ transfer of assets. Furthermore, the industry regulatory, ultimately the Jamaican Government, is the final determinant of who holds mining licences granted to Noranda. These issues are either now, or should have recently been, on the table, given the latest developments with DADA/New Day.

Earlier this month, Concord Resources, a global commodity trader, which previously owned a minority stake in New Day Aluminum, announced that it “substantially increased” its holding in the business. It now controls the business, pushing DADA Holdings to a minority position. The specific shareholdings weren’t disclosed.

ADDITIONAL VALUE TO BAUXITE

The clearing of Noranda’s debt to Jamaica should have been among the conditions imposed by Jamaica’s Government for approving the deal. Additionally, this was, and still is, an opportunity to renegotiate that unique taxation regime that was designed for DADA/New Day. A new arrangement should take into account possible additional value to bauxite, beyond its current use.

Earlier this year, ahead of this deal, DADA entered an agreement with the Canadian green energy company, Enervoxa, to mine the effluent left after bauxite is refined to alumina, for rare earth elements (REEs). These are in high demand for high-tech manufacturing, from mobile phones to space defence systems. China produces around 60 per cent of the world’s supply, a matter of concern in Western countries given the growing geopolitical tensions between Washington and Beijing.

Unsurprisingly, Concord says the REE project will continue, using Enervoxa’s proprietary technology to extract the minerals from the bauxite waste.

The effluent that will be mined from is bauxite whipped from Jamaica. They have 35 million tons of the stuff at Gramercy, with more being added all the time. Any future pricing of Jamaica’s bauxite, this newspaper believes, should give consideration to the additional economic value of this finite resource.