Linden bauxite deal blessed
-Bosai to build alumina refinery end of 2009
Stabroek News
February 14, 2007
Bosai Minerals of Chongqing in China is buying Omai Bauxite Mining Inc. (OBMI) with the sole purpose of continuing its operation and increasing sales and a joint statement with the current owners says the building of an alumina refinery is set for the end of 2009.
The Guyana Government, IAMGOLD of Toronto, Canada and Bosai executed a Letter of Agreement on Monday signalling that the parties had reached "an amicable and honourable solution" regarding the sale of IAMGOLD's interest in OBMI and Omai Services Inc. (OSI) to Bosai, said a press release jointly issued by the parties through GINA yesterday.
The transactions included Bosai succeeding IAMGOLD as 70% shareholder of OBMI, 100% shareholder of OSI, and the successor owner of shareholder debt owed by OBMI and OSI to IAMGOLD. There had been uncertainty over the deal after concerns were raised about Bosai's plan for the Linden bauxite operations.
Following completion of the final transaction, it is expected that OBMI will be renamed Bosai Minerals Guyana Inc. (BMGI) and OSI as Bosai Minerals Guyana Services Inc. (BMGSI). The final transaction is expected to be completed by the end of March, in accordance with the Share Purchase Agreement entered into between IAMGOLD and Bosai on December 18th, 2006 and the Letter of Agreement dated February 12th among IAMGOLD, Bosai, NICIL, and the government.
The National Industrial and Commercial Investments Limited (NICIL) negotiated on behalf of the Guyana government and holds a 30 percent share of OBMI.
OBMI which is the mine and operations located in Linden produces high quality refractory bauxite known as "RASC" and OSI is the plant providing power to the mine and operations, as well as to Linden via the Linden Electric Company (LEC).
Under the principal terms of the agreement reached, the sale of IAMGOLD's equity and debt interest in OBMI and OSI to Bosai allows for the commitment to the continued operation and existence of OBMI under Bosai ownership. According to the agreement, should market conditions adversely affect the continued operations of OBMI and in the event that Bosai was to ever propose that OBMI be wound-up or suffer or allow a fall in its employment of 40% or more of what existed at December 31 last year, then NICIL would have the right, but not the obligation, of requiring Bosai to sell its interest in OBMI through an international tender of a maximum 12 months duration.
In such a case, NICIL would have the 'right of first refusal' under the same purchase terms and conditions as the other purchasers and this has to be declared within the 12 months. During this period of international tender, Bosai would continue the OBMI operation.
Another principal term of the agreement is that OBMI debt is to be reduced by over US$20 Million. "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. This enables OBMI the opportunity to be a viable entity unencumbered by significant debt. Bosai will succeed IAMGOLD as the owner of the reduced debt," the release stated.
Further, the OSI debt is to be reduced by over US$1.20 million. The OSI shareholder's debt due IAMGOLD of US$1.7 million will be reduced to US$0.50 million and this will accordingly reduce the electricity costs to OBMI and LEC marginally, the release stated. There had been concerns that IAMGOLD would make a windfall from the sale to Bosai. OBMI's original parent company Cambior had bought the 70% shareholding from Guyana for US$5M in cash and US$5M in equipment and had promised substantial investment. Cambior was later taken over by IAMGOLD which struck a deal with Bosai for the sale of the 70% shareholding for US$46M.
IAMGOLD in a recent statement said it will incur a loss of over US$30M on conclusion of the Bosai transaction as there had been substantial investment in OBMI.
Alumina refinery
And according to the agreement, Block 37 reserves will be utilized only for an alumina refinery which shall commence construction by the end of December 2009.
Regarding a mining licence for Block 37 reserves, OBMI will continue to enjoy the prospecting licence (PL) during the current and extended terms subject to compliance with applicable law as well as their active prospecting of Block 37 and the commencement of construction of an alumina refinery by the end of 2009, and the maintenance of exploitation of the Montgo-mery mine at the same levels as those at December 31, 2006.
Failing any of the above, the release stated, a mining licence for Block 37 will not be granted by government and all rights of OBMI to Block 37 bauxite reserves will end as of December 8, 2009.
The agreement said also that the abandoned alumina refinery in Linden may be used by Bosai for its alumina refinery. Government agreed that Bosai has the priority to purchase the abandoned alumina refinery in Linden, prior to year-end 2009, on terms and conditions to be mutually agreed before December 2008, providing that the intention for its land and use is for an alumina plant and that government agrees to grant a mining licence for the Block 37 bauxite reserve.
Referring to disclosure of market information, the agreement stipulated that in order to ensure the protection of production and sale of bauxite produced at OBMI, Bosai agreed to share and communicate to OBMI and NICIL all relevant information with regard to all of Bosai's and OBMI's sales and marketing of bauxite, including market trends and any other relevant 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, the release said, Bosai agreed that where it or its affiliates and OBMI are, or might be 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 informed of information that might be relevant to OBMI's production, sales, marketing and competitive position.
OBMI's continued existence
On the matter of Bosai's representations/warranties in favour of OBMI and NICIL, a 30% shareholder of OBMI, Bosai as the majority shareholder of OBMI will conduct the business of OBMI and manage and operate it in a manner that's in the best interests of OBMI and is not detrimental to NICIL or any other shareholders of OBMI. According to the release, Bosai has given warranty that the acquisition of IAMGOLD's shares in OBMI will be for the purpose of OBMI's continued operation, and not with a view to curtailing those operations or removing OBMI as a competitor to its or any other entities' operations or market position, and further that Bosai is committed to the continued operation and existence of OBMI.
To complement the Bosai warranties, the government through its government departments and offices agreed to use its best efforts to ensure that OBMI is always able to operate in accordance with its laws, articles and bylaws and related agreements.
Meanwhile, the government welcomed Bosai as the successor to CAMBIOR/IAMGOLD. The extended negotiations, the release noted, involved a series of issues which were critical to the future of both the bauxite operations in Linden and the country and all parties are pleased to have reached a solution. This is seen as being 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, the release added.
It noted too that prior to its issuance, the principal stakeholders, including the major opposition party in Guyana, the PNCR, were apprised of the principles of the transaction.
Previously, there were signs that the government was unhappy with the proposed Bosai deal and was trying to attract Russian investors to take over but IAMGOLD had said it wanted an "amicable" resolution to the sale of the Linden bauxite operations and argued that it would incur a loss of over US$30M on conclusion of the transaction.
Apart from OBMI, IAMGOLD also acquired Omai Gold Mines Ltd, where underground exploratory work is ongoing. Omai Gold Mines officially closed its operations in 2005, but still has some 100 employees on site for exploration.
OBMI acquired a financially troubled operation at Linden. Subsequently, OBMI invested approximately US$70 million in plant and working capital in this operation, which continued to incur operational losses.
IAMGOLD had advised the government that its primary expertise and focus is on the development of its gold assets in Guyana. IAMGOLD had stated in an earlier release that it is prepared to commit further resources to the development of those assets. IAMGOLD, however, has no interest in funding the continued operations of the bauxite assets held through OBMI, the release had stated.
Bosai Minerals had told Stabroek News recently that it was committed to conducting feasibility studies toward an alumina refinery or aluminium smelter in two phases.
RUSAL in the Berbice bauxite operations is also mulling an alumina refinery, a smelter and a hydropower project.