Chinese company commits to continued operation of OBMI
• agrees to establish alumina refinery by end of 2009
Kaieteur News
February 14, 2007
Bosai Minerals has given the Government of Guyana its commitment to the continued operation of Omai Bauxite Mining Incorporated (OBMI) by expanding the range of products and increasing sales.
This is part of a menu of measures contained in a Letter of Agreement signalling the arrival of an amicable and honorable solution to allow for Bosai, a Chinese company, to acquire 70 percent shares in OBMI through a US$46 million share purchase agreement with IAMGOLD, a Canadian firm.
Prime Minister Samuel Hinds had told Kaieteur News on Monday that an agreement had been reached and that government was retaining its 30 percent stake in the company.
The National Industrial and Commercial Investments Limited (NICIL), which owns the other 30 percent share of OBMI, negotiated on behalf of the government.
Two weeks ago, IAMGOLD urged an amicable resolution regarding the deal, since the Government had expressed some concern about the Block 37 property, with its large bauxite reserve, and which was integral to the deal with the Chinese firm.
President Bharrat Jagdeo, prior to his visit to Russia, had stated the administration's intention to ensure that any company granted the assets contained in Block 37 would not sit on the bauxite deposits or mine the reserves in a manner inimical to the interests of Guyana.
“All parties are pleased to have reached a friendly and honorable solution - which is not only in the best interests of OBMI, Linden and Guyana , but more importantly, a commitment to work together and safeguard the valuable bauxite resource located in Linden ,” a joint statement indicated.
Under the agreement, the Block 37 reserves are to be utilised only for an alumina refinery, which shall commence construction by the end of 2009.
With regards to a Mining License for Block 37 reserves, OBMI will continue to enjoy the Prospecting License (PL) during the current and extended terms subject to compliance of applicable law, as well as their active exploitation of the area and the commencement of construction of an alumina refinery by the end of 2009.
Bosai has signed on to maintain exploitation of the Montgomery mine at the same levels as those at December 31, 2006.
Failure to do so could result in a Mining License for Block 37 being withheld by the government and all rights of OBMI to Block 37 bauxite reserves will end as of December 8, 2009.
However, the agreement states that the presently abandoned alumina refinery in Linden may be used by Bosai for an alumina refinery.
The government agrees that Bosai has the priority to purchase the abandoned alumina refinery, prior to the end of 2009, on terms and conditions to be mutually agreed before December 2008.
However, that hinges on the fact that the abandoned refinery will be used for an alumina plant.
Once this happens, the government agrees to grant a mining license for the Block 37 bauxite reserve.
OBMI produces high quality refractory bauxite known as “RASC” but, steep competition from the Chinese forced the closure of its operations for two months last year.
Opposition Leader Robert Corbin had expressed some concern that the Chinese could choose to shut down the Linden operation and dominate the world market.
Under the approved agreement, once market conditions adversely affect the continued operations of OBMI, and in the event that Bosai was to propose that the Linden operations cease or employment levels drop below 40 percent of what existed at December 31, 2006, then NICIL has the right, but not the obligation, of requiring Bosai to sell its interest in OBMI through an international tender of maximum 12 months duration.
In such a case, NICIL shall have the ‘right of first refusal' under the same Purchase Terms and Conditions as the other purchasers and this to be declared within the 12 months.
During this period of International Tender, Bosai agrees to continue operation.
Under the principal terms of the agreement reached, the sale of IAMGOLD equity and debt interest in OBMI and OSI to BOSAI, will see a reduction in debt incurred by the bauxite company.
The shareholder's debt of OBMI will be written down to US$27 million, which represents a reduction of the debt owed to IAMGOLD in excess of US$20 million.
According to the joint statement, this will allow OBMI the opportunity to be a viable entity unencumbered by significant debt.
Additionally, OSI Debt will also be reduced by over US$1.2 million.
The OSI shareholder's debt due IAMGOLD of US$1.7 million will be reduced to US$500,000 and this will accordingly reduce the electricity costs to OBMI and the Linden Electricity Company (LEC).
OSI is the plant providing power to the mine and operations, as well as to Linden via LEC.
To ensure the protection of production and sale of bauxite produced at OBMI, BOSAI agrees to share and communicate all relevant information with regard to all of BOSAI's and OBMI's sales and marketing of bauxite.
Bosai has agreed to make available market trends and any other information relevant to the bauxite markets in which OBMI and BOSAI or its affiliates are selling, or might be in competition with one another.
In particular, Bosai agrees that where it, or its affiliates, and OBMI are participants in the same markets or in the same sales and marketing geographical areas or with the same customers, it will keep OBMI and NICIL apprised of information that might be relevant to OBMI's production, sales, marketing and competitive position.
On December 22, IAMGOLD notified the Government that it had entered into a conditional share and purchase agreement with Bosai, through which the Chinese-based company will acquire 70 percent interest and shares of OBMI.
The deal with Bosai was subject to the conditions of the shareholders' agreement between Cambior, the NICIL and OBMI. The extended negotiations involved a series of issues which were critical to the future of both the bauxite operations in Linden and Guyana .
NICIL was required under the Shareholders Agreement, to either exercise its right of first refusal or elect to purchase the offered shares within 30 days of the receipt of notice of the conditional share purchase agreement, or to waive this right.
The Canadian firm had stated that it was looking forward to the Government, through NICIL, either waiving its right of first refusal and consenting to the purchase of OBMI by Bosai, or exercising that right by matching the offer received from Bosai.
However, Government's only bone of contention was the use of Block 37.
Government was considering the deal, both as a regulator and as a shareholder, and should have responded by January 22.
Instead, it sought more time to consider the proposal, and secured February 12 as the new deadline for a response.