Cambior, govt to sign memo on Linmine takeover shortly
Stabroek News
May 26, 2002
A memorandum of understanding is expected to be signed early this week between the Government of Guyana and Cambior, parent company of Omai Gold Mines Ltd on the way forward for the take over bid of the ailing bauxite operation.
Sources close to the talks have said that the two sides are very close to agreement on a number of the issues which face the negotiations, including how the transition in the staff changes will take place; how the issue of the Linden Power Company would be dealt with and what sort of royalty and taxation rates would apply to the reformatted operation.
Stabroek News understands that the staff of Linmine is not opposed to accepting severance, to be paid by the government, but Cambior reportedly has concerns on whether it would be able to retain the core staff it requires to keep the operations going once severance is offered.
Cambior proposed slashing the staff complement from 1,250 to 400 but it is not certain whether the 400 selected for retention would want to remain with the company or would be happy to accept their severance and try their hand at something else with the money received. As a result, an incentive package may have to be worked out to allow the selected category of staff to remain with the new company.
One suggestion is to spread the severance payment over a year, in effect realizing two years severance for workers so they would want to stay on the job and institutionalizing training credits for workers.
In the case of the Linden Power Company, the issue is more complicated as that firm is reportedly looking to take the government to arbitration. Sources say that the contract the government signed with the LPC is heavily in the company's favour but the additional problem is that a Republic Bank of Trinidad loan to the company is in arrears.
The concern of Cambior is reliability of supply as between October and December last year, Linmine was without power and could not use its dragline because of problems at LPC. Additionally, Cambior expects to benefit from a five-year tax holiday for the project and the details on the concessions to be afforded to the company are to be worked out and documented in the memorandum.
Sealing the memorandum, which is the preliminary agreement on privatizing a part of Linmine's operation, will clear the way for Cambior to have a bankable feasibility study done, which, with the government, it could take to the international financial institutions to seek US$20 million in financing for the project. This is not expected to be a hard sell as Cambior have a 70% stake in the firm while the government retains the rest and will inject mineral properties as its equity. Cambior will inject US$10 million in equity with half of it as equipment and half cash.
The signing of the actual agreement to take over Linmine would be subject to raising the US$20 million. The MOU is expected to be thorough and extensive. Cambior is not interested in the dragline and bucket-wheel operations of Linmine and will not be given all the properties. Cambior instead proposes to construct a new washing plant, to refurbish the kiln and to do environmental work in terms of dust collection and to make the operations environmentally friendly.
Linmine continues to lose its market share each day and is only currently producing 10,000 tonnes of bauxite per year. Cambior already has connections in the mineral markets with its involvement in niobium, nickel and gold markets and may find it easier to market the bauxite out of Linmine.
However, the investment by Cambior is seen as high risk in nature as it is taking place at a time when there is a glut on the world market for bauxite and the company would not be inheriting a market share from Linmine, but would have to carve out a market for itself. It would have to strive to produce a high quality grade bauxite at a better price. To do so, it will need to get certain concessions from the government to make the operations low cost.
The government's negotiating team is led by Head of the Privatisation Unit, Winston Brassington, and supported by Budget Adviser, Winston Jordan, and New York-based finance consultant, Patrick DeFreitas. Cambior's team comprises Vice-President Rejean Gourde and Omai's Human Resources Director, Norman McLean.
PNC leader Desmond Hoyte nominated DeFreitas.
Cambior's proposal projects Linmine's production being increased from 190,000 tonnes to 415,000 tonnes; switching from draglines to the use of excavators for the recovery of bauxite; and trucks and tractor trailers replacing the present railway system. The plan concentrates initially on refractory grade, chemical grade and cement grade bauxite with the objective of rebuilding sales with products with a ready acceptance in the market place and regaining customer confidence.
Linmine currently receives US$6 million annually in subsidies from the government. The decline of the industry has led to the economic degradation of the Linden community.