ABC/Bermine needs cash
Stabroek News
May 21, 2004
The merged ABC/Bermine mining operations in Berbice is in trouble; facing its toughest challenge to secure cash flows with investments having eaten away its US$2M cash reserves in the last 29 months.
The operation is making a desperate bid to secure funds to enhance its cash flow position as well as investigate options for investments to prolong its fortunes, while simultaneously seeking to cut costs without causing any unnecessary tension within its workforce.
And if that is not enough, the merged entity faces a serious policy defect with its board divided on how to reorganise the company to take it forward while the government is yet to give clear direction on the issue.
The merged operation, which should have stayed "revenue neutral" until an investor is found by this year-end, is in the red and depends on a single contract from Alcoa, a former shareholder, to stay alive. The government cannot make a cash injection in the operation because of its commitment to the IMF programme and approaches have been made to commercial banks to shore up the cash flow of the company.
However, ABC/Bermine has orders from RUSAL of Russia for 500,000 tons of bauxite next year and CVRD of Brazil for 300,000 tons. These contracts are for the medium-term and could allow for the fortunes of the sector to be revived. However, the life of the equipment being used is in question and requires new investments to allow it to supply these contracts which could span six years or more.
One board member, Winston Brassington says a feasibility assessment is being done on what options should be pursued by ABC/Bermine to allow it to supply these markets. As it stands, ABC/Bermine lost BPU, a former customer and regained a three-year contract with Alcoa to span from 2004-6 for 1.5 million tons of bauxite. The demand from Rusal and CVRD are expected to span from 2005-2009.
Brassington argues that it would make economic sense for the investment to be made in improving the capacity of ABC/Bermine to meet this demand as the period of the contract allows for the investments to be recovered. Additionally, he notes that the investment could be structured in various ways, including lease purchase agreements and the outsourcing of other services.
Sylvester Carmichael, former marketing director of Linmine, has criticised the price negotiated for ABC/Bermine bauxite and doubted the credibility of suggestions of possible investments of RUSAL or CVRD in Guyana's bauxite when they had long-term interests elsewhere and could source their short-term demands cheaply from Guyana.
Brassington, however, explained that given the dynamics of the bauxite market, the price negotiated was the best attainable and is adjusted to movements in the London Metal Exchange. The company faces no exposure in shipping costs, a plus for the contract price, but faces exposure in fuel (now under pressure).
He said that just to meet the contract with Alcoa would require a significant improvement in capacity, and to meet the demand by CVRD and RUSAL, capacity would have to be doubled, if not tripled.
"The overall prospect hinges on securing increased investment to increase the capacity of the operations," Brassington noted.
He added that if the opportunities are not used they would be lost but if the investments are made, even after the contracts are not around the capacity would be there to keep the operations going.
Currently, however, labour cost and logistical challenges have to be faced in restructuring the operations. Staff are still being laid off but in a phased manner given the crippling effect the December strike has had on the operations, which caused the company to miss a shipment and delay other shipments, in effect costing the company precious cash flows.
However, while ABC had operated with 433 staff to produce 1.5 million tons of metallurgical grade bauxite, the merger with Bermine brought on an additional 700 plus workers to produce a similar amount of bauxite.
The government plans to send 150 workers home by September. About forty of them have already been relieved of their jobs.
But the issue of staff rationalisation is a sore one on which the board is divided.
While members agree on the need to cut costs, the number, the manner and when it is done is contested. The strike in December which cost the company some of its more skilled staff and left workers demoralised is still a sore point. The government has committed to relieving ABC of responsibility of all of its historical, social and community responsibilities to reduce its costs.
Another board member argues that costs cannot be cut in a vacuum but have to be done with the realities of the bauxite operation in Berbice in mind.
He insists that board members should not act in a manner which can affect bauxite production. Asked abut the effect of a divided board on the direction of the operation, this official notes that the battle of the board is an area in which the government will have to step in and decide on.