Questions likely over big bauxite gain for IAMGOLD
By Nicosia Smith
Stabroek News
December 21, 2006
Questions are likely to persist over the seeming huge profit made by IAMGOLD in its sale of 70% of the Omai bauxite operations to the Chinese firm Bosai.
Chinese company Bosai Minerals Group Co Ltd., which was reported by Stabroek News weeks ago as being the preferred bidder for Omai Bauxite Mining Inc (OBMI) at Linden, inked a US$46M deal on Tuesday with Canada-based IAMGOLD for its 70% stake in the company. The Government of Guyana owns the remaining 30% shares.
Since June, Cambior, the Canadian company which previously owned the 70% of the shares in OBMI had signalled its intention to sell. In July, production at OBMI was suspended with management citing the company's inability to compete with cheap Chinese bauxite on the world market. The move to sell the controlling interest in the company continued even after IAMGOLD acquired Cambior last month. Cambior had acquired the 70% share in the bauxite industry for US$5M in cash, US$5M in equipment and had pledged sustained investment to a figure of US$40M when the operation was launched in December 2004. It is unclear how much money was subsequently invested by Cambior in the operations. However, the willingness of Bosai to pay US$28M in cash plus assume US$18M in IAMGOLD debt will raise the question as to whether the Guyana Government got a poor deal with Cambior which has now resulted in a windfall for IAMGOLD.
Prime Minister Samuel Hinds last evening told Stabroek News that if the 70% stake price tag is truly US$46M as stated in the IAMGOLD press release on Tuesday, it would seem to suggest and create the impression that the company made a windfall. Prime Minister Hinds emphasized that he was not officially informed of the final choice by IAMGOLD even though the government knew five companies were competing for the OBMI stake. He said once the government was officially informed a statement would be forthcoming.
The People's National Congress Reform had previously raised concerns about the quality of the deal for the 70% sale to Cambior.
In December 2004, Cambior formed the subsidiary OBMI to manage the 70% stake it acquired from the state-owned Linden Mining Enterprise (Linmine) for US$10M. The arrangement saw Cambior and its subsidiary Omai Gold Mines (the company was closed last year) putting up US$5M in cash and another US$5M in mine equipment transfers, while the government contributed a processing plant and service facilities; bauxite mines and other mining leases and prospecting licenses. This left the government with a 30% interest. And it was based on that 30% interest that the government paid $25,000 to workers in July and August for computer classes following the above-mentioned suspension of operations.
IAMGOLD is now a million-ounce gold producer and the tenth largest of its kind. According to the IAMGOLD press release on Tuesday the transaction will be effective come December 31, subsequent to a confirmatory review of the assets by Bosai.
IAMGOLD will receive US$28M in cash from Bosai, subject to working capital and other adjustments. The agreement is also contingent on a number of conditions, including receipt for customary approvals from regulatory authorities. Bosai will also assume US$18M in third-party debt held by IAMGOLD.
China's hunt for raw materials has taken it through various continents seeking precious natural resources and in South America it has found Guyana.
Employment opportunities
One of those residents is Dunstan Barrow of Barrow's Restaurant and Lounge and of Gabs Hardware Store at Mackenzie.
"Whoever takes the place over… it is our concern first of all that the employment opportunities will be afforded to the local employees," he said, adding that favourable wages and good working conditions should be among their priorities. Currently, over 200 persons are employed at OBMI.
Hardware businesses in Linden received many benefits from sub-contracts given by OMBI for building and other materials, ensuring that monies remained in the community.
"It is our hope that whoever comes in would look at that type of model," Barrow said.
He made an appeal for as much funds as possible to remain in Linden.
Sustaining a 10% annual growth base on exports of billions of US dollars calls for much resources and China is seeking high and low for the grease that keeps its engine of growth going.
In Africa, China's strong growth and its demand for raw materials has seen the giving out of large incentives including loans, grants, credits, projects and cooperation agreements in exchange for trade in raw materials.
Guyana has also benefited. In February China handed over the US$8M Guyana International Conference Centre (GICC) at Liliendaal, which was funded through a series of Chinese grants. The Chinese contractors CNTIC Trading Co Ltd also has the contract to build the US$110M Skeldon Sugar Modernisation Project (SSMP) expected to be completed by February 2008.
However, the controversy in Africa, the business report on allAfrica.com said, is that China essentially buys the continent's oil and minerals and sells in return, manufactured goods. Already, exports of Chinese clothing to Africa have led to the closure of many textile businesses.
While in Guyana, manufacturers of furniture and dress wood are also complaining that log exports to Asia are robbing them of logs for value added purposes.
Currently, there is an uproar over the export of prime log species like purple heart and the scarcity of locust logs, although the government says the latter species has not been exported to Asia. Exports are not permitted for the locust species.
Bulkan Timber Works which exports dressed wood, floorings and decking made from locust was forced to import several 40-foot containers filled with Brazilian locust to keep its doors open. This shortage, Ronald Bulkan of Bulkan Timbers had noted, has intensified over the years so much so that they are only operating at 40% capacity.
The International Herald Tribune, on December 13 quoted from a World Bank report titled, 'Global Economic Prospects 2007: Managing the Next Wave of Globalization', which said China's growth is expected to slow over the next two years but will remain at over 9%.
China's economy is projected to expand 9.6 percent next year and 8.7 percent in 2008, down from an estimated 10.4 percent this year, the Washington-based global lender said.
The report also noted that China's growth would be helped along by modest benefits from the stabilization of world oil prices and continued easing of monetary policy by central banks in 2007.
Bosai Minerals output and export volumes of Calcined Bauxite are number one in Asia and number two, according to its website. Established in 1994, Bosai owns a total of 16 plants and companies in Chongquing, Guizhou, Tianjin, Guangxi, Hong Kong China and in Germany.