Editorial | Levy reboot good first move

Having followed this newspaper’s recommendation of using Concord Resources’ acquisition of DADA Holding’s 49 per cent of Noranda Bauxite as a platform for reinstating the bauxite production levy to that company’s mining and sale of the mineral, the Jamaica Government is likely to be better placed to benefit from the sharp rise in the price of aluminum on global markets.

However, the Government should disclose the specifics of the deal, including the base rate, and any other applicable bands, at which the levy is being set. This is important for people to make better sense of the agreement.

The levy’s reinstatement, however, should not be the end of the compensation negotiations with Concord, especially if its acquisition of DADA’s subsidiary, New Day Aluminum (through which the Noranda assets were held) means that it also inherits the DADA/New Day agreement with the Canadian green energy outfit, Enervoxa, to extract rare earth elements (REEs) from the effluent from the production of alumina.

In fact, as we have suggested before, Jamaica should, given the seeming emergence of new REE extraction technologies, undertake a full review of its pricing/royalty regime for bauxite. But Kingston should not go at it alone. It ought to invite other bauxite producers to be part of the exercise, aimed at leveraging the group’s combined strength, in the way Michael Manley intended when Jamaica, in the 1970s, spearheaded the establishment of the now defunct International Bauxite Association (IBA).

MOST OF EARNINGS RECEIVED

While Jamaica owns 51 per cent of the Noranda operation – the company mines around four million tonnes of bauxite annually – the business was, until recently, run by DADA/New Day, one of a succession of partners in the venture. From the 1970s (when the regime was introduced to get around the opaque transfer-pricing systems of the multinational companies that mined bauxite and refined alumina here), Jamaica received most of its bauxite earnings via the tax on production.

That levy was set at 7.5 per cent of the averaged realised price for aluminum on the London Metal Exchange, but with a base rate, or the lowest the companies would pay, being US$5 per tonne. However, especially during periods of market downturns, waivers were often granted for firms in exchange for their maintaining production.

But with the arrival of DADA/New Day in 2018, the Holness administration agreed to scrap the levy in favour of a profit-sharing scheme, under which Jamaica was supposed to earn 17.3 per cent of the EBITDA income (earnings before interest, taxes, depreciation and amortisation) from the combined operations of Noranda mining operation and DADA’s alumina refinery in Gramercy, Louisiana. There, however, has been no public accounting of Jamaica’s receipts, if any, from that enterprise. And as a private limited liability company (LLC), there was no public access to the refinery’s finances to determine what Jamaica might have earned.

Recently, though, Jamaica complained of being owed money by DADA/New Day. But neither the finance minister, Nigel Clarke, nor mining minister, Robert Montague, both of whom spoke on the matter in Parliament, clarified the nature of the debt. Mr Montague, in his formal announcement of the Government’s green light of the DADA/New Day-Concord deal, said the debt was being cleared. That is good.

The reinstatement of the levy is also propitious on another front. Aluminum averaged just over US$1,700 a tonne in 2020. By the middle of last week its price was over $2,800 a tonne, having fallen back from a 10-year high of $2,976.75 a tonne a week earlier.

And the likelihood is that the price of the commodity (as well as that for alumina) will remain relatively robust in the face of strong demand in China, and the fact that Beijing’s efforts to cut back on its greenhouse emissions is having an impact on energy supplies, which may affect aluminum production. This would further tighten markets. In the circumstances, it is sensible that Jamaica should extract as much as it can from its bauxite, a finite resource that is the base ingredient for alumina, which, in turn, is smelted into aluminum.

With respect to how Jamaica, and other bauxite producers, value the mineral, this newspaper feels that we should also take into account the worth of the REEs that are contained in the ore, the potential for whose extraction is enhanced with the advancing of technologies to retrieve the elements from the waste left when bauxite is converted to alumina.

REEs are essential in the manufacturing of a range of technologies, including smartphones, satellites and the batteries used in green energy systems. But China supplies over 60 per cent of the REEs used in global production, a matter of concern for Beijing’s economic and geopolitical competitors, particularly the United States and Japan.

RISING DEMAND

So, rising demand for REEs and the geopolitical variables surrounding the issue, make the prospect of extracting elements from the effluent of alumina refineries attractive. Until recently, the technologies for doing this – including, apparently, a process advanced by Japan’s Nippon Light Metals and the Jamaica Bauxite Institute – was too expensive.

However, earlier this year, DADA/New Day announced a deal with Enervoxa to use Enervoxa’s proprietary technology to mine REEs from the waste next door to the plant. At the time, DADA Holdings boasted that it had 35 million tonnes of the waste around the Gramercy refinery. Almost all of that would have come from bauxite shipped from Jamaica. Notably, Concord said it planned to pursue the deal with Enervoxa.

It is perhaps too late for Jamaica to earn anything for the REEs from bauxite already shipped abroad. But a new pricing regime – a bauxite production levy plus – should take the technological developments into account. And not just with respect to an agreement with Concord, but anyone who exports bauxite.

Jamaica might even go further. A revamped mineral regime would extend the State’s domain over minerals to the effluent in the red mud lakes in the vicinity of the island’s alumina refineries. But it must be done with global partners – a new IBA, perhaps.