JAMAICA ALUMINA: Jamaica seeking bauxite value-add, says minister

Indonesia’s potential ban on exports of unprocessed minerals has gifted Jamaica’s bauxite industry with a revival of interest from foreign investors, but the Caribbean country is working to ensure it does not put itself in the same position as its Southeast Asian peer.

Indonesia’s potential ban on exports of unprocessed minerals has gifted Jamaica’s bauxite industry with a revival of interest from foreign investors, but the Caribbean country is working to ensure it does not put itself in the same position as its Southeast Asian peer.

“We have taken a decision that the government will no longer be seeking to enter into deals with anybody solely for the export of Jamaican bauxite,” Phillip Paulwell, Jamaica’s minister of science, technology, energy and mining, told Metal Bulletin.

“We will honour existing arrangements, but we will not extend them unless – and this is a big unless, in capital letters – there is a submission on expanding or implementing a new refinery that would be closely associated with any export of bauxite that takes place. In that regard we’re in synch with what is happening in Indonesia, and some other countries,” he said.

Paulwell was referring to Indonesia’s move to add value to the mineral-rich nation’s mining sector, its most profitable industry with a contribution of roughly 12% to gross domestic product.

China has become a major importer of bauxite from Indonesia over the past few years, at one point importing over 36 million tonnes or 80% of its needs from the country. But the details of the potential ban – which is slated to take effect in January and will affect 65 unprocessed minerals including bauxite, nickel ore, iron ore and gold ore – are far from certain.

That confusion includes whether companies will need to commit to building refineries before they are allowed to export, and whether it applies to existing exporters or new investors in the future.

The situation has seen companies that need bauxite, a raw ingredient in the production of alumina and therefore aluminium, turn to Jamaica as a possible alternative source, Paulwell said.

Jamaica’s bauxite reserves are estimated at 1.6 billion tonnes.

“I’m gratified that Jamaica appears to be on the map again – I think it has to do with what appears to be happening in Indonesia. We are seeing interest [from investors], but we have indicated to all of them that we’re not prepared to do business if it involves just the export of our ore,” Paulwell said.

“We are getting positive responses to that [new policy]. I expect that sometime during the remainder of this year, we’ll see some positive developments taking place, especially in relation to new refinery capacity in Jamaica,” he added.

Existing operators
Jamaica’s bauxite and alumina industry has for around a decade been facing challenges due to its high energy costs. Government statistics estimate the country’s mining sector imports 10 million barrels of oil equivalent per year, based on current levels of production.

When the global downturn slashed demand on key aluminium consuming industries like transportation and construction, output from the country’s alumina refineries was curtailed or shut.

In 2009, Jamaica-based bauxite mines produced around 14 million tonnes of bauxite, of which around two thirds was used to make alumina domestically and the remainder was exported. This year, the government estimates that bauxite output will reach around 9.5 million tonnes, of which just over half will be converted into alumina locally.

“The government really believes that as we now try to grow our economy out of its slump, and to create jobs, that we have to try to resuscitate the bauxite and alumina industry as quickly as possible,” Paulwell said.

The main foreign investors in Jamaica’s mining sector include US producer Alcoa, which operates Jamaica Alumina Co (Jamalco) in partnership with state firm Clarendon Alumina Production Limited.

They also include Russia’s United Co Rusal, which operates the West Indies Alumina Co (Windalco) in partnership with the government’s Jamaica Bauxite Mining (JBM), as well as Alumina Partners of Jamaica (Alpart). Both Alpart and one of Windalco’s two refineries, Kirkwine, are closed, while Windalco’s other refinery, Ewarton, is operating.

Noranda, meanwhile, produces bauxite for export in a joint venture with JBM, with the government already in “tentative discussions” with the firm over adding value to the sector, Paulwell said. It is still early days – the company’s existing mining contract expires in 2030 – but refinery projects take time.

“We’ll say more about that as soon as we are able to,” he added.

Changes in the future might include a new system of taxation and royalties, but Paulwell said existing arrangements will not be disrupted.
“When there are new arrangements, we will use that opportunity of new agreements to deal with royalties,” he told Metal Bulletin.

Energy crisis

Reliance on oil for energy supply has weighed heavily on the economics, not just of Jamaica’s bauxite and alumina industry, but also on tourism and other sectors the government is keen to expand.

“Energy is the main problem of our entire mining sector,” Paulwell said.

The government has opted to allow the companies to pursue their own energy solutions, with Rusal looking at a mixture of natural gas and coal options for its refineries, and Alcoa looking at coal, Paulwell said.

For its part, Paulwell said the government is being “very aggressive” in working on a series of agreements with Rusal that will “enable the full restoration of the sector – that is, to reopen those refineries that are closed, but very importantly, to build for the future.”

The agreements with Rusal, set to be signed soon, will include “very specific” deadlines that the government “intends to hold them to,” Paulwell noted.

“I’m confident that the discussions that we’ve had so far are all pointing to positive solutions and specific timeframes for those solutions to be enforced. There will be clear penalties when there is a failure to meet these timelines, but I think Rusal has demonstrated a level of seriousness with the negotiations,” Paulwell said.

“We believe that 2015-16 will see the resurgence of the aluminium market, and certainly alumina. So now is the time to put these plans in place, to effect these changes, so we can be right there on the upswing,” he added.

Reduced state role

Jamaica’s government is planning to move away from its own involvement in mining in the future, focusing more on developing its services sector – the well-established tourism industry and the fledgling but already growing business of call centres, in particular.

“The government is going to be more and more removing itself from direct involvement in production. We will accommodate any model [for mining] that will work; foreign direct investment is what we will encourage,” Paulwell said.

“These industries do require a huge amount of capital, and of course we will also encourage local businesses, ones that have the capital to invest, to do so as well. That’s our general approach,” he added.

Talks to sell the state’s 45% stake in Jamalco are at a “sensitive stage,” Paulwell said, adding that an announcement is expected soon but declining to comment further.

“We are going to be saying something definitive about our ownership and shares in CAP. We’re very confident that we will see Jamalco moving quickly now to incorporate this energy solution, and the viability of that plant is now assured,” he added.

Glencore Xstrata has been linked by local media to a potential deal, including funding for the state portion of the joint venture though a credit line in exchange for an option to buy the stake in the future. Previous discussions to sell the government’s shares to Glencore and other parties have not been successful, local industry participants said.

Jamaica Bauxite Mining, meanwhile, is in talks with UC Rusal to sell its 7% stake in the West Indies Alumina company (Windalco).

Andrea Hotter
Twitter: @andreahotter