What's next for bauxite? (Pt 2)

While it is a fact of life that there can be no development - whether social, industrial or otherwise - without some disturbance to the environment, steps have been taken, and must continue to be enforced, to mitigate any negative spin-offs from mining, transportation, processing and shipping.

Over the years, companies operating in the island have, by and large, worked closely with residents within their respective communities, as well as with various statutory and other government departments. Some detractors may argue that more could have been done, but let us not overlook the fact that on the positive side, a large percentage of the revenues earned by this sector is retained by the Government.

These fiscal inflows are derived from the payment of the levy, bauxite royalties, various other taxes - both personal and corporate - employee and contractor wages and salaries, expenditures and investments related to capital projects, equipment, supplies, and so on.

Had it not been for the global recession that caused demand and prices of the commodity to nosedive, Jamaica might not have had to go to the IMF. In addition, unemployment would not have fallen to its current level.

Issues at stake

Today, both Alpart and Kirkvine remain closed after more than two and a half years. Some sources claim that they are uncompetitive because of a variety of factors, including: 1) age of the plants; 2) high energy costs leading to high production costs; 3) bauxite grade and availability; 4) high security costs; 5) environmental concerns and costs related to red mud disposal, emissions, dusting, and rehabilitation.

Possible solutions to some of these points are converting to coal or LNG; reserves redistribution; improved methods of management and operating efficiency; better cooperation with surrounding communities, domestic suppliers, and so on.

Concerns have also been expressed about the loss of highly skilled workers and qualified professionals, to migration, retirement or other livelihoods.

Additionally, it had been reported that UC RUSAL had asked for a two-year suspension of the levy and other financial terms. That would be significantly better than what it was granted when Ewarton was reopened.

While it is conceded that a reopening of Kirkvine (as was announced in mid-2011) would bring back a few hundred jobs, reignite hope and help to kick-start many small businesses that have lain dormant for more than two years in several communities, it would be very wise for the Government to inform the nation of the nature of any and all associated deals, concessions or trade-offs, be they financial or otherwise, associated with a reopening.

For example, according to a Glencore prospectus, when it sold its alumina assets to RUSAL, it acquired a 10.8 per cent stake in the company, but this was subsequently reduced to 8.75 per cent in January 2011. One of several worrying questions, therefore, is: Does UC RUSAL really have an agreement with Glencore that would allow it to control the 45 per cent stake in Clarendon Alumina Production, should a sale be concluded?

Charting the future

Clearly, what happens in the aluminium industry over the next five to 10 years will depend, largely, on many conditions globally, such as: the price of metal; the law of supply and demand; the cost and availability of cheap(er) energy; climate change; the stability of oil-producing nations; the state of world peace.

At the local level, much will depend on the fortunes of UC RUSAL. Its spectacular rise to prominence was achieved through acquisitions and mergers. But now that it has attained the rank of world's number one aluminium producer, does it have access to the large financial resources that will have to be pumped into its global mining, refining and smelting operations, when demand and prices for the commodity begin to rise again?

The very recent advertisement by Windalco (Financial Gleaner February 10, 2012) inviting contractors to bid on all aspects of mining and rehabilitation as it relates to the Ewarton plant suggests that UC RUSAL is committed to running at least one of its three refineries in Jamaica for a period of two years.

But, what of the future of Alpart and Kirkvine? Is the cost of producing alumina at these two plants uncompetitive? If so, they are likely to remain closed indefinitely. Or can a conversion to a new energy source, such as coal, bring them back to life?

There are also fears in some quarters that UC RUSAL might seek to withdraw from Jamaica. A very worrying thought, given its large stake in the industry. No doubt, these are some of the concerns for which advice will be sought from Dr Carlton Davis in his new role in the Office of the Prime Minister.

Anthony Porter is a veteran exploration geologist, formerly with Alcan, and the author on bauxite. Email feedback to columns@gleanerjm.com and anthony.porter02@yahoo.com.