Cambior Inc will next week sign an agreement with the government for a 70% stake in Omai Bauxite Mining Inc paving the way for major investments that could bring the Linden-based operations off its knees.
The signing will mark almost five years since Cambior, a predominately gold mining company, em-barked into a field in which it had no previous experience but which it is now beginning to understand and solve. The move into bauxite was indeed unusual. But Senior Vice President, Guiana Shield at Cambior, Rejean Gourde says the company knows Guyana well and has come to have an improved relationship with the present government while building up a reserve of well trained workers it could rely on. Gourde says the plan is to close the deal next week with all major agreements already in place. "I think there will be a deal similar to Omai Gold Mines Ltd," Gourde hedged in an interview with Stabroek Business. He does add that this would involve a 1.5% royalty on all exports but there has been no special treatment and the company will be subject to the same standard tax regime.
He revealed that it was getting financing in place that really delayed any agreement. Cambior is to invest US$10M to acquire the 70% interest; of this amount, according to a prior press release, US$5M will be cash and the balance will represent US$5M in mine equipment transfers from OGML. The new company has also received a commitment for a US$10M credit facility from Clico financing at an interest rate of 10.5% per year.
Gourde recalled that the International Finance Cor-poration (IFC), the private finance arm of the World Bank had originally been interested in the project but declared in June 2003 that the risks were too high, citing social aspects of the mass layoffs and a feeling that Guyana's share of the RASC bauxite was lost forever.
Cambior has proved them wrong thanks in part to its own management and marketing practices and also a healthy dose of luck. That included Brazil, which up to 2003 had a 12% share of the market going out of production, and then China's industry coming under pressure to remove subsidies. As a consequence China's lower quality calcined bauxite has moved up in price from US$80 per ton to $125 making Guyana's higher-grade product more attractive.
The historical background is that back in the seventies Guyana had the market for RASC in the palm of its hand.
RASC or Refractory A Super Calcined bauxite is used for building bricks for high temperature foundry kilns and other uses. It has had a limited but pretty stable demand of 1M tonnes per year. Guyana was then churning out 700,000 tonnes but by 2002 it had reached a low of 62.000 MT. By then many manufacturers, fed up with the lack of reliability of Guyana's supplies, had adjusted their processes to cater for the inferior Brazilian and Chinese supplies. Linmine was hemorrhaging. It was only when Cambior fully took over management in July 2003 that it was able to move towards a cash neutral position that has meant no cost to the Treasury.
Back in 2000 Cambior had undertaken contract mining for Linmine, and after a feasibility study concluded that privatisation made sense but would require restructuring and a move away from bucket and draglines to trucks and shovels basically the same operation at Omai Gold Mines Ltd.
The cost savings primarily came from the mass layoffs which saw a workforce decline from 1250 to its current level of 320 workers. That was something the previous management could not do. Meanwhile Gourde says what was apparent was that the good management practices of past years had been allowed to slip. He recalls that there would be times when Cambior managers would suggest a new system and those workers who stayed on would say they remembered that being in place twenty years ago. Maintenance of equipment had also lapsed. He says expatriate workers who had been at Omai and had little experience in bauxite but had good management sense have been key to turning the company around.
He also says that as soon as the signing is complete, workers could expect improved wages. Cambior has already put in the same quarterly incentive scheme as at Omai which is based equally on production, costs and health and safety and can see workers making from 5% to 10% above their base salaries.
Increased oil prices have not had a significant impact on the operation as the kilns are run on Bunker C which has not seen the same kinds of increases as diesel.
Marketing
What Cambior has brought to the marketing side has been stability and reliability. Gourde says the company has yet to pay any demurrage fees in the past 18 months when this was a recurring charge in previous years with ships waiting on loads for weeks. This has been achieved by stockpiling supplies that are then ready for ships coming up the Demerara.
This same stockpiling has also helped penetrate European and US markets. It now has supplies stored in two locations in the US and at Rotterdam, Netherlands for smaller purchases of 500 tonnes which it is not feasible to send a ship for. They also have agents in both continents seeking buyers.
He says the first year was slow but customers eventually came to believe that Cambior was serious and could be relied on. Gourde says he is aiming to grab 20% of the world market next year and possibly 30% in the next few years. This would mean refurbishing another kiln and the company is now looking at a plan for this before accessing financing. He is confident that Cambior's track record would make financing easier to come by.
And if and when production reaches 300,000 MT, Gourde anticipates Omai would need around 500 employees. Certainly less than the 1250 of pre-2003 but he says there are other areas the company is exploring including the production of mullite, a clay/bauxite mix which has far wider applications.
Gold mine closing
The bauxite venture will also dovetail with the closure of the gold mine which Gourde says will definitely occur in August 2005. The mining has stopped and the mill is now processing low grade ore. As for the issue of how after investing US$253M and producing US$912M worth of gold up to 2002 it had not paid any corporation tax, Gourde suggests that had it known then what it knows now it probably would not have gone ahead with the project. He also mentioned that the royalties paid to the government had been substantial. He said the project had been predicated at US$400 per ounce of gold when in fact the price had been significantly lower over the peak production periods of the mid to late 1990s. A disastrous hedging scheme by Cambior had almost sunk the company. This has now been scrapped which has proven a good move given prices are now around $450. Cambior will still be looking at reserves in Guyana and expects to spend around US$1M a year in research.
He says the opening of the Rosebel mine in Suriname has been a big success thanks largely to the experience learnt at Omai which has a similar ore body. He adds that some 40 Guyanese workers have actually been in Suriname training workers there.
The bauxite operation will keep Gourde a few more years in Guyana. Born in a small mining village 400 miles north of Montreal his whole life has been mining, having graduated as a mining engineer and then in 1987 joining Cambior. Given that he is a hands-on manager preferring to be up at Omai directing operations, he professes to finding all the paper work to do with the current agreement a little dull. By next week he should have his wish.