Editorial | Montague made rare earth issue murkier

Robert Montague, the mining minister, either misapprehended, or was deliberately obfuscatory in his response to this newspaper’s question about what value Jamaica should, in the future, place on its bauxite, given the apparent emergence of new technologies making it commercially feasible to extract rare earth elements (REE) from bauxite waste.

In either event, Montague should have another shot at explaining Jamaica’s position on the issue. At the same time, he should clarify the status of a joint-venture agreement between the Jamaica Bauxite Institute (JBI) and Japan’s Nippon Light Metals to develop proprietary technology, as well as provide additional details about prospecting for stand-along reserves of the metals in Jamaica.

Nomenclature notwithstanding, REEs, a group of 17 metals, are not particularly rare. It is just that they are not often found in commercially significant deposits. Up to now, China has most of the world’s known deposits, responsible for over 60 per cent of the global production. That gives Beijing significant strategic muscle in its technological context with the United States and the West. For rare earth metals are essential to a wide variety of technological devices, including smartphones, the increasingly efficient batteries that power electric vehicles and store power from renewable energy plants, and modern weapons systems.

Indeed, a decade ago, when China controlled over 90 per cent of the world’s supply of rare metals, Beijing temporarily blocked shipments of REE to Japan as it sparred with Tokyo over a territorial dispute. In the incident, the Japanese coast guard had detained a Chinese fishing captain whose boat was in a collision with a Japanese vessel in seas controlled by Tokyo but claimed by Beijing. At the time, the United States had also chafed at Japanese export quotas on rare earth metals and had threatened to take the issue to the World Trade Organization although a few countries, including Australia and the USA, had then begun their own mining of REEs.

When in 2013 the JBI and Nippon Light Metals entered a research agreement to advance technologies to extract rare earth metals from red mud (the effluent left behind when bauxite is refined to alumina), the deal was seen as an important development of potentially great strategic and commercial significance. Nippon reportedly spent more than US$3 million to establish a laboratory at the JBI.

COMMERCIAL VIABILITY

Despite statements about the registration of patents, there have been few formal, or specific, updates about the project. The assumption is that with a fall in prices for REEs, any innovations by Nippon Light Metals/JBI were not sufficient for commercial viability.

The project, though, has new relevance, given the May announcement by DADA Holdings – the Government’s ultimate 49 per cent and operating partner in Noranda Bauxite – of a joint venture with a Canadian green technology firm, Enervoxa, to extract rare earth metals from effluent from DADA’s alumina refinery at Gramercy, Louisiana. DADA boasted that it had “35 million dry ton reserves of mineral-rich residual bauxite” and that the intention is to produce more than a million tons of rare earth metals annually, using Enervoxa’s proprietary technology. All of that residue is from bauxite mined in Jamaica. A final decision on the proposed US$800-million project will be taken next year, although front-end engineering works are under way.

In the wake of that announcement, this newspaper suggested a review of the basis of Jamaica’s agreement with DADA Holdings – and the industry generally – for mining bauxite for export. Normally, bauxite/alumina companies operating in Jamaica pay a production levy of 7.5 per cent of the average realised produce for alumina on the London Metals Exchange. However, the levy assumes base payment of US$5 per ton, or the lowest the companies would pay. But the deal with DADA four years ago lowered the levy for Noranda to US$1.50, and agreed that the company would pay either that rate or 17.3 of its EBITDA earnings from the Gramercy operations – whichever is higher.

The question now is not the bauxite already shipped to Gramercy – or elsewhere. Neither it is about attempting to assume ownership of residual minerals after the ore has been processed abroad – which appears to be the legal matter Minister Montague sought opinion on.

REAL ISSUE

The real issue is what ought to happen going forward in light of the new circumstance. In other words, our invitation was for Jamaica to think again about how it values its bauxite (especially when exported), from which there is now likely to be the extraction of minerals other than alumina. With respect to effluent that remains in Jamaica, the legislation can be tweaked to make it clear that its further processing of effluent and the extraction of minerals, such as for REEs, is akin to a primary mining activity, attracting separate realities.

Minister Montague’s reminder that Jamaica owns “17 per cent of the profit of the overseas entity (the Gramercy refinery)” is not, in this context, helpful. At least, it is impatient of the need for further and better particulars. While the Gramercy extraction arrangement has been posited as a joint venture between Enervoxa and the DADA subsidiary, New Day Aluminum, it is not certain that, ultimately, it will be the vehicle used to hold DADA’s stake in the proposed new entity, Elementus. Neither is there any suggestion of a contemplation of a Jamaican partnership in Elementus.

This further marginalisation of Jamaica from the value of a finite asset is exacerbated by Minister Montague’s disclosure of a US$2.8 million debt to Jamaica Bauxite Mining Limited, the vehicle that controls the Government’s stake in the Noranda operations, by the DADA entities. The basis of this debt needs clarity. Neither is it clear whether another US$14 million which Mr Montague said is separately owed to the finance ministry by “our partners” was also a DADA Holdings debt, or represented debt by other operators. The opacity is troubling.

Mr Montague ought not only to clarify these questions, but engage in a broader debate on how Jamaica should price its minerals, including bauxite.