Bauxite tremors
Editorial
Stabroek News
February 5, 2007
Perhaps it was a sign of the difficulty the industry faces, particularly in Linden, that the 2007 budget didn't really say much about bauxite or expectations for the future. In his maiden presentation, Finance Minister Ashni Singh dealt with the bauxite industry in a couple of fleeting sentences.
The first noted that exports of bauxite rose by US$4.5M to US$67.3M on account of higher prices for metallurgical grade bauxite - there was no breakdown for the two operations based in Kwakwani and Linden. The next reference pointed to an injection by the private sector of US$150M to retool the bauxite industry. Again, there wasn't a breakdown of this figure though these details are likely to assume greater significance shortly in relation to the Linden operations. The Minister then went on to say that the investment had helped to push production and exports and revive the bauxite dependant communities in Linden, Ituni, Kwakwani, Everton and their environs. He also said that over the next five years the government intends to work with the private sector to advance an integrated bauxite-alumina complex. "In this regard, a major investor is already engaged in feasibility studies for an alumina plant with capacity of at least 1 million tons per year", the minister said. This prospect has been dangled every since the arrival of the Russian company, RUSAL and its subsidiary in 2004 and it remains unclear if it is still seriously on the agenda, whether the momentous smelter developments in Trinidad will impact negatively on this and whether President Jagdeo's hurried visit to Moscow last week will yield any fruit.
The final reference in the budget to bauxite came in the Targets for 2007 section and simply said that the mining and quarrying sector is expected to grow by 3.6%, reversing two successive years of negative growth. And of that 3.6%, bauxite is only budgeted to increase output by 0.2% to 1,542,000 tonnes "as the industry continues to undergo a period of restructuring". There was no mention of a projection for exports this year.
So it is into this field of play that the withdrawal of Cambior - now subsumed by IAMGOLD - from the Linden bauxite operations must be viewed. There are two matters of major concern for Guyanese. The first is, despite the patent unattractiveness of the Linden operations to investors, did the government make a poor deal in 2004 for the sale of its 70% stake to Cambior? It must be remembered that there were few takers for the Linden operations at the time and there had already been several spectacular failures over the last decade or so. Having virtually exhausted its gold mining operations at Omai, Cambior was seen as extending a lifeline following encouragement from the authorities here. The eventual sale terms entailed a cash payment of US$5M, US$5M in equipment and the promise of significant investment. The terms of the sale, considering that they encompassed valuable assets, evoked criticism from the outset particularly in relation to the promise of investment.
Despite boundless optimism that it could turn around the fortunes of the Linden operations, careful market planning and strategizing and initial good results, Cambior failed in its quest to catapult the Linden operations to new heights. The first signs of trouble came last year in the form of an enforced two-month shutdown after marketing problems brought on in part by suspected dumping on the market by Chinese producers and others. Cambior then set about finding an investor and in the midst of this was taken over by fellow Canadian miner, IAMGOLD which had even less interest in the local bauxite mining operations.
Soon after, following a competitive tendering process which included the Russian investor in the Berbice bauxite operations, IAMGOLD announced that it had struck a deal with the Chinese company Bosai for US$28M in cash and the assumption of US$18M in debt - a grand total of US$46M and at first blush a mighty windfall for IAMGOLD. Neither the government - a 30% stakeholder at Linden - not Cambior/Omai Gold Mines Limited - initially had anything to say about this. However, in a press release issued last week, IAMGOLD said that if the deal goes it will sustain a loss of around US$30M as Cambior had put in US$70M in investments and working capital into Omai Bauxite. It was the first that Guyanese had heard about the US$70M and it bears further scrutiny so that an expert determination can be made on whether Guyana first made a bad deal.
The other major concern for the government is that Bosai, whose product and marketing strategies contributed in some way to Omai Bauxite's problems, may very well seek via the investment to enhance and extend its own production outside of Guyana while leaving the local production assets moribund. This could result in job cuts and deeper depression in Linden and surrounding communities. Perhaps because of this pressure, Bosai was moved to tell Stabroek News that it, too, had plans for an alumina plant and a probable investment of US$1B. It sounded very similar to the plans of the RUSAL subsidiary and the rub is that thus far those plans have not materialized and don't even seem to be on the horizon.
The government is between a rock and a hard place. Was President Jagdeo able to coax they type of investment promise from the Russians that would see them take over the entire industry and seriously invest in an alumina plant - despite recent negative assessments of this prospect by Norwegian miners and others - and further downstream? Only time will tell and there is much riding on this for all of the bauxite communities and the thousands of people they support.